Good morning. My name is Nikki and I will be your conference operator today. Welcome to the PQ Group Holdings Fourth Quarter and Full Year 2020 Earnings Call and Webcast. Please note today's call is being recorded and should run approximately one hour. All participant's lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. [Operator Instructions] I would now like to turn the conference over to Nahla Azmy Vice President of Investor Relations. Please go ahead.

Thank you, Nikki. Welcome to everyone joining us for our fourth quarter and full year 2020 earnings call. We will start today with formal remarks from Belgacem Chariag, Chairman, President and Chief Executive Officer; and Mike Crews, Executive Vice President and Chief Financial Officer. Then we will follow with the Q&A session. Please note that some of the information shared today is forward-looking information about the company’s results and plans including with respect to the sale of our Performance Chemicals business, and our anticipated end-use demand trends in light of the challenges presented by COVID-19 and our 2021 financial outlook. This information is subject to risks and uncertainties that could cause the actual results and the implementation of the company’s plans to vary materially. These risks are discussed in the company’s filings with the SEC. Reconciliations of non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures can be found in our earnings release and presentation materials posted on the Investors section of our website at www.pqcorp.com. With that, I’m pleased to turn the call to Belgacem.

Thanks, Nahla, and good morning, everyone. 2020 can be characterized that the year of accomplishment and transformation for PQ. I'm proud of and thankful to our entire PQ team for the Herculean efforts and achievements while managing through unprecedented pandemic disruption and significant headwinds at the macro level. Beginning on slide 3 with safety as always. Even with the backdrop of COVID challenges and business transformation activity, we had significant improvements year-on-year with a more than 45% reduction in our total incident rate and nearly 50% increase in the number of HSC perfect days. This is a direct indication of the engagement and commitment of everyone and the shaping of a sustainable safe and compliant culture. For our operations, we swiftly and actively managed costs on production levels while working closely with our customers to meet demand changes. This enabled us to maintain our high EBITDA margin of more than 27%. Within commercial activities, we had many notable achievements adding new customers and volume demand, commercializing new products and most of all protecting pricing. Perhaps no area demonstrates our accomplishments as much as the strategic moves executed in the recent months through our simpler and stronger portfolio transformation. I could not be more excited about the pace and quality of our team's execution. In a five-month timeframe, we completed the sale of Performance Materials announced the sale of Performance Chemicals and closed on a niche catalyst business for refining services creating real value at every step. Through these actions, we have repositioned PQ as a pure play catalyst and services growth company with two leading businesses driving our target company to higher top line growth, expanding margins and strong free cash flow potential. Finally, on the strength of our fourth quarter results, we delivered on all our financial objectives with…

Thank you, Belgacem, and good morning. I’m pleased to report we achieved solid fourth quarter and full year financial results despite the impact from the pandemic, delivering healthy adjusted free cash flow and then adjusted EBITDA margin of 27%. Further we completed multiple debt refinancing’s during the year to optimize financial flexibility, actively reshaped the portfolio by divesting two businesses and closed on a strategic acquisition. I would like to note our discussion of the fourth quarter and full-year 2020 reflects continuing operations with performance materials now reported as a discontinued operation. Beginning with slide 5, we were pleased with fourth quarter results that were in line with our expectations. This was due to rebounding demand in many of our end users and the benefits delivered from the Performance Chemicals Transformation Plan. Next I will review each business segment and then the outlook beginning with Refining Services on slide 6. For the quarter sales of $103 million and adjusted of $41 million were down modestly. Regeneration services saw rebounding volumes as refinery utilization rates move higher while virgin sulfuric acid volumes benefited from higher industrial demand. Most notable is the continued segment adjusted EBITDA margin of nearly 40% achieved primarily through effective cost containment actions. Turning to Slide 7 for catalysts, for the quarter Silica Catalysts sales of $21 million declined by $3 million mainly due to lower metal sales versus the prior year. Zeolyst joint venture sales of $29 million were down 39% as customers deferred hydrocracking catalyst change outs. Lower emission control catalyst demand for heavy duty diesel trucks also impacted results although the trend is improving. Adjusted EBITDA up $15 million and margins of 30% declined from the prior year largely driven by the lower sales volumes and unfavorable product mix. Moving to Slide 8 for Performance…

Thank you, Mike. Turning to Slide 11. On our last earnings call, we committed to fast track the reshaping of our portfolio toward better margins and improved growth potential and the expanded multiple valuation that it should result. With this latest round of significant milestones, we have done just that. As a reminder to drive value for shareholders, we embarked on our simpler and stronger journey in 2019 by first improving the performance at all of our specialty businesses, realizing that the some of the parts are greater than the whole and the next steps we took were to simplify the portfolio. We sold two businesses at attractive values and now our position to accelerate returns for our investors as a high growth pure play catalyst and services company. And what makes the target businesses more compelling is their selective participation and the end use of supporting growth market drivers and their enabling capabilities for clean energy transition and circular plastics economy. Closing on slide 12, I would like to give you a preview of future target PQ’s growth potential projecting from 2020 into 2025 timeframe. Focusing here on the organic side only, we expect top line growth to be in the high single digit range. With high operating leverage, we would anticipate adjusted EBITDA growth to be also in the high single digit range with margins in the range of mid to high 30s and cash conversion higher than 75%. Additionally we anticipate to be actively seeking tuck-in opportunities to complement our businesses and reinforce our growth trajectory. We are extremely excited about the future of target PQ for all our constituency and particularly our investors. We look forward to you joining us again in a few weeks for our virtual investor conference where we will be able to share more on the strategy, the businesses and growth outlook plans. This concludes our formal remarks. And with that, we will be happy to take questions.

[Operator Instructions] We'll take our first question from David Begleiter with Deutsche Bank. Please go ahead. Your line is open.

Guys I'm back on slide 12. What are you thinking – what do you think the organic growth would be by segment, are they both in that same range of high-single digits?

Hi David. Yeah, both businesses will be growing at about the same level.

Why is there no operating leverage in this model here?

The operating leverage is the synergies, the efficiency, the – particularly in some areas like the refining services business, the new acquisition that we've brought in has the potential synergies in terms of feedstock with sulfuric asset capability. The synergy with the distribution and logistics that refining services is going to give Chem32. That's the sort of the operating leverages that we’re talking about in catalyst the growth potential in the market have the demand in the market plus some of the technology that will be brought into the market as well. So all those are going to make sure that our margins are going to stay at that level.

Would you expect EBITDA to grow fast and sales just in line with sales growth?

I do anticipate it and wanted to grow fast sales growth.

Thank you very much.

David, it’s Mike. I would add you know if you look at our guidance for 2021 we're looking at a margin of the range of 31%. So we are projecting here its expanding margins over time.

Thank you.

Next Roger Spitz with Bank of America. Please go ahead.

I think H1 2019 earning call I think you gave the split of Silica Catalysts as 80% polyolefin and 20% MMA. Had that changed much in 2020? And given that ratio, how the -- how is this catalyst down so much? Or did M&A catalysts just drop off fairly hard in Q4?

Hi, Roger. The MMA sales is in specific purchase orders since the last couple of years and the quarter where you have a large sale of $5 million to $6 million it makes an impact on the ratio. What happens when the difference between the quarters and the years is usually where that sale [indiscernible]. So also last year we had a large sale of chemical catalysts into INEOS that was one-off sale that maybe inflated the numbers. Speaking of MMA because it's always been unclear where I'm going to take the opportunity to talk about the potential of the M&A business because this trend that we have with being connected to the leading producer with MMA is a future growth opportunity as we see some of the frequency of change out. It's going to go from a five year frequency to a three year frequency in the next couple of years. And as we see addition of plant that is going to be installed in North America in 2024, 2025, we expect to have an accelerated growth in the next couple of years of the MMA sales much more than we've seen in the last couple of years due to the slowness in refineries and operations being kind of held a little bit. So it's a positive component of growth in the next three years to five years as you see it in those consolidated numbers.

Okay. Interesting going from three year to five year change up. And can I ask the unfavorable catalyst mix suggests that polyolefin catalyst margins are below either your MMA and or your ZI catalyst margins.

Not really. The higher margin support products that we sell for hydrocracking and catalyst, they are higher margin but the rest of the margin across catalyst is pretty much around the same level, all very strong by the way. On volume, if you see – the drop you see is actually in volume. It's a volume and absorption with inventory and all that stuff. That's what happens when the market kind of shuts down which is pretty much what happened in the second half of last year.

On realized support catalyst, you actually have higher margins for the support than the actual catalyst. That's interesting. Okay. Thank you very much.

[Operator Instructions] We'll move next with Alex Yefremov with KeyBanc. Please go ahead. Your line is open.

Thank you and good morning, everyone. I wanted to go back to your target of high single digit growth through 2025 So you're forecasting sales growth of 10% to 15% in 2021 and then possibly above trend recovery growth in 2022. So does your projection imply that growth kind of slows down perhaps to mid-single-digit after 2022 or do you think this high-single-digit is really the objective for most of the year in this forecast period?

Hey Alex. Yeah, you're right about the numbers look like we're going to slow down growth. The 2021 is on the back of 2020 so it's natural to see that tremendous recovery that is going to happen particularly in our second half of the year where you're going to see a tremendous rebound. I believe that the next five years you're in your 2021 all the way to 2025 we're going to see at least a single high digit growth across the board. There is no concern about the fluctuation, of course this is cater number, right on average you might see up and downs like in 2023 for instance we expect to have a peak catalysts, refining catalysts here or hydrocracking year so you will see that a little bit higher. And then in 2024 it will drop a little bit, but on average it's going to be a high-single-digit.

Understood. Thank you, Belgacem. And then based on your 2021 guidance on a pro forma basis it looks like you're still below 2019 sort of high watermark which makes sense. How do you – how long do you think it might take you to actually reach or exceed this 2019 level. Could you get there in the back half of this year perhaps or first half of 2022?

Well, as we said earlier our adjusted EBITDA margin, our adjusted EBITDA in the second half of the year is going to grow north of 40%. So you see that there is a strong recovery and there is all the reasons for that. First of all if you look at the business of Refining Services with what's going on in Q1 with a freeze the drop in inventory that is unprecedented. The demand planning to be increased definitely based on what's going on with the vaccine whether with COVID-19 going into the season of driving which is Q2, late Q2, Q3 in the summer all these are indications that we're going to see a nice return. Also on refining note 2019 exports were at 750,000 barrels a day on average and in 2020 that average fell down to 650,000 barrels especially in the first part of the year where it went to down as low as 500,000. We anticipate that to recover to about maybe closer to 700,000 in 2021 and it's all in the summer and towards the end of the year. On the Catalyst side the way the refineries have been run, the way that they change outs have been delayed, the way cash has been scarce, there's no way with this current oil pricing trends that there is not a great rebound. On top of that we have demand signatures from the customers. We have new customers knocking in for additional requirements. We have some potential inventory built by customers. So we definitely see that H2 is going to be a completely new story. So you combine those two and you have a very strong H2. Going into a potentially even a strong H1 next year based on the economic recovery and everything else. So that's how we feel about the transition.

Thank you very much.

Next question comes from the line of David Silver with CL King. Please go ahead. Your line is open.

Yeah. Hi. Thank you. Good morning. I think I'd like to maybe just start with a question on taxes. So, in the fourth quarter, I mean even if I exclude the foreign tax credit that was there, I still get a negative tax rate for the fourth quarter. So, I'm just wondering how to think about that. And then, more to the point for projecting forward, I noticed there was a pretty sharp drop in deferred taxes and with the recognition of the foreign tax credit, will you or will your tax accrual rate change markedly going forward and will your cash tax rate be meaningfully different than your tax accrual rate? Thank you.

Hi, David. It's Mike. That's a good question. Taxes is really complicated this time with the discontinued operation for performance materials. So, the biggest mover, first you have the foreign tax credits. We recognize that we talked about in the release that's about $56 million or $0.42 a share. Beyond that it's a lot of puts and takes and allocations between continued and discontinued operation. So, it's really not reflective of what we expect our rate to be. You're right the deferred taxes went down. That's the other side of booking those foreign tax credit benefits that we expect to utilize with the sale of Performance Chemicals. Previously, we've guided on taxes to be in the 25% range. We think as a US –virtually a US only tax payer that's going to tick up more toward a 30% range and that's the best estimate right now to use for both cash and book.

And then I just had a maybe a more strategic question and I'm thinking about the decision to purchase Chem32 and kind of how it in theory kind of fits into your refinery services strategy. And I'm just wondering if this is I don't know a signpost or a harbinger of what's to come. In other words in your opinion are there a clutch of kind of related services that PQ with your people already inside the plant gate. Can cross-sell or can provide in addition to your base sulfur services. So is this kind of a harbinger of further kind of niche acquisitions that would leverage your positioning – your current positioning inside the plant gate and performing these value-added services for the refiners? Thank you.

Hi David. It is actually how you described it. Let me just take you through the rationale behind Chem32. We’re -- we've been stamped and then became very experimented and strong and our sulfuric acid capability. The growth of that sulfuric asset-based market on two fronts, one is on the regen business, which it goes up and down with a lot of refinery margins and everything. And the other side is the virgin market which goes into a lot of other industries. So you still take that. And I consider that is limited in terms of growth potential. So you've got to have to add some branch out opportunities which kind of bridge the gap between our Catalysts business and our refining business. What we do best in our refining services business is services. This is the armed services arm of PQ. We do best services. We have one of the services arm of PQ. We do best services. We have one of the best logistics capability, the best distribution capability and we want to capitalize on that. Chem 32 is the actual improvement for the customers. And as we go forward, I picture that this is going to be more and more offsite utilization of the fighting technology. I think Chem 32 has such a unique patented technology that has been showing us steady growth and projects to be growing at double digit going forward with margins higher even than our refining services business. And if we plug that together and if we capitalize on our services capabilities, services trends, our refining and our customer portfolio with refining, we can have a nice synergy. We will diversify our offerings. We will continue to be looking at such capabilities going forward whether it's technology or service. But we believe that our refining services, service capability deserves to take on more. So we're looking at other areas. We're looking at the treatment services which is a small component of our business that could be a nice M&A in the future. We're also looking at activity on the virgin sulfuric acid which we haven't tapped in a lot so far because we used to be so focused on the regeneration. So we're very excited about we did for Chem 32, you realize that this acquisition for refining services is the first in many, many years of the history of eco services. So we're excited by that. And it will do just exactly what you expected and that's the spirit of tuck in technologies that have to be synergetic. They have – the synergy has to be either on a commercial side, customer, increase volume with customer side or also additional tangent activity that would benefit from the platform that is already in place. We're very excited about it and we’re most excited about its quality of earnings which is amazing. So that is the reason why we're doing it.

There appear to be no further questions at this time. Thank you all for your participation. This concludes today's conference and you may disconnect at any time.