Good morning. My name is Britney, and I will be your conference operator today. Welcome to the Ecovyst Second Quarter 2021 Earnings Call and Webcast. Please note, today's call is being recorded and should run approximately 1 hour. Currently all participants have been placed on a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]. I would now like to hand the conference over to Nahla Azmy, Vice President of Investor Relations and Financial Communications. Please go ahead.

Thank you. Welcome, everyone. We are thrilled to have you join us for our first investor call as Ecovyst with a new trading ticker symbol of ECVT. We will start today with formal remarks from Belgacem Chariag, Chairman, President and Chief Executive Officer; and Mike Feehan, Vice President and Chief Financial Officer. Then we will follow with a Q&A session. Please note that some of the information here today is forward-looking information about the company's results and plans, our anticipated end-use demand trends, including the impact of 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, including in the company's annual report on Form 10-K for the year ended December 31, 2020. 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 new website at www.ecovyst.com. With that, I'm pleased to turn the call to Belgacem.

Thanks, Nahla, and good morning, everyone. I'm very excited to be here with you today. This week is very special for me. It marks my 3-year anniversary with the company, a period during which we restructured our businesses, transformed our portfolio and set the stage for executing a clear and well-developed winning strategy. This week has also been a momentous one for the company as we closed the sale of Performance Chemicals and formally launched Ecovyst, a pure-play, high-growth catalyst and services company. We have arrived at this next chapter of our journey thanks to the strong team execution and the solid support of our customers and shareholder base. Before I provide an update on Ecovyst and its strategy and cover the second quarter highlights, I would like to recognize and welcome Mike Feehan, Ecovyst's new CFO. He has been with the company for 15 years and succeeds Mike Crews, who decided to retire upon the completion of the transformation. We would like to thank Mike Crews for his significant contributions over the last 6 years in bringing the company public and executing this transformation. We all wish him well in his future endeavors. With that, I will now turn to the slide presentation, starting with Slide 3, to provide a brief review of the now completed simpler and stronger PQ transformation strategy. We closed on the sale of Performance Chemicals on August 1, 2021. With the net cash proceeds, we reduced debt by approximately $525 million and planned another meaningful cash return to shareholders of $3.20 per share. This will bring our total cash return to shareholders to $5 per share in just 8 months' time. We have taken a balanced approach to capital allocation since the IPO in 2017. Combining the proceeds from the sale of the 2…

Thank you, Belgacem, and good morning, everyone. It is my pleasure to speak with you today as I'm excited to share the results of a successful second quarter with you. Our second quarter results showed significant improvement from the first quarter, with sales increasing 16% as we return to more normal levels post Winter Storm Uri and continue to see the overall economy rebound. Refinery utilization has increased to approximately 90% compared to 80% in the first quarter, almost back to 2019 levels. Volume increases and favorable product mix contributed to the 25% adjusted EBITDA growth despite higher plant turnaround costs incurred in the quarter. Compared to the second quarter of last year, sales had a similar story, increasing 15%, driven by the higher volume and the pass-through of higher sulfur costs in Ecoservices. The major refineries we service are now operating at higher utilization rates, driving regeneration service demand. Demand for our polyethylene and catalysts used in renewable fuels were strong in the quarter, while customers in our Zeolyst joint venture continue to defer orders for hydrocracking catalysts to the second half of the year. Over the same period, adjusted EBITDA increased 5% as the higher volume growth in Ecoservices was offset by the higher plant turnaround costs and the lower volume in Zeolyst joint venture. Turning to Ecovyst on Slide 10. As discussed on the previous slide, Ecoservices volume and the pass-through of higher sulfur costs were the primary drivers for higher sales and adjusted EBITDA in the quarter. Compared to the first quarter, we saw a 20% increase in both regeneration services and virgin sulfuric acid sales. The increase in regeneration services was driven by refinery utilization as vehicle miles driven continues to increase with the economy returning to pre-pandemic levels. Virgin sulfuric acid sales increased primarily…

Thank you, Mike. Now I'd like to summarize with Slide 13. Ecovyst's pivot to a pure-play catalyst and services provider could not come at a better time. We are benefiting from near-term tailwinds of the global economic recovery and the mid to long-term sustainability-driven secular trends that favor our specialty portfolio. We are increasingly confident that our growing and greening strategy of industry-leading growth and prudent capital allocations will drive more shareholder value through the next decade. In closing, I would like to reiterate the following. We are pleased with our year-to-date performance operationally, financially and commercially. With the economic recovery and gains from new markets, we are on track for a strong second half of the year to meet our 2021 financial objectives, positioning us for an even stronger 2022. And with the launch of Ecovyst, we are now positioned to deliver on the strategy of rapidly growing our sustainability-focused portfolio of products and services and achieve the 2025 growth targets. Finally, we are proud of our progress so far and excited about our future as Ecovyst. I would like to take this opportunity to congratulate the whole team for reaching this milestone and writing a new chapter in the history of the company. This concludes our formal remarks. We wish you and your families a safe and healthy summer. With that, we're now ready to take your questions.

And we will take our first question from David Begleiter with Deutsche Bank.

Belgacem, just on the Q3 versus Q2 ramp in EBITDA, can you give us a little more color on the segment by segment ramp you're expecting this quarter?

Dave, we've always talked about a seasonal high season driving summertime for Ecoservices. So we're going to see a good ramp-up in sales and obviously EBITDA in the third quarter from Ecoservices. We're also expecting the return acceleration of some of the hydrocracking sales in Q3 versus Q2, but it will accelerate even more in Q4. Those are really the main drivers. It's a pure high top line, high-quality top line that's going to generate nice margins in the third quarter.

Very good. And you mentioned a little bit about Chem32. How is that performing? How is that meeting your expectations? And how is the M&A pipeline going forward for you guys?

Well, the first on Chem32 first, we can't be more happy than we are right now with the outcome of what we bought. We bought a great company, an interesting technology that has a huge potential going forward with renewables. It's delivering exactly as we expected and more. And we actually are very impressed with the business and we think it's going to be a good growth engine for us going forward. On the M&A pipeline, we would love to do a few more of those, Chem32. As I noted before, our capital allocation is going to be opportunistic between paying back debt, of course, and lowering our leverage to the lowest possible level, but also creating an engine for inorganic growth. As I said before, we're going to target smaller opportunities, good quality opportunities like the Chem32 that will not impact as much our leverage but will create an increase in our EBITDA and our growth and will generate an opportunity for us to plant the seed for some of the renewable technical opportunities and technologies for the future.

And we will take our next question from Angel Castillo with Morgan Stanley.

Belgacem, just if I could just expand on that last question. In terms of the, I guess, opportunistic or smaller opportunities, similar to Chem32 that give you a technology boost. Curious what you're seeing from a valuation perspective or a competitiveness of kind of the bidding process or within the pipeline that you're looking at within kind of the smaller deals?

Well, remember, I've been talking about us monitoring opportunities for inorganic growth for a while now. And now that we have a little bit better flexibility and we're in a much better position of focusing our investments in really what matters. We do have a track of several opportunities in the catalyst business and several in the Ecoservices business that will be not only just a business addition but also a seed for the transformation of our overall portfolio that's going to take place over the next decade. So we're targeting technology. We're looking at technology seeds that we could develop and accelerate into the markets. We're targeting and looking at some specific catalyst technology that could give us access to markets that we don't have today. You name it. We're targeting volume increases in some cases where we want to make sure that we diversify our Ecoservices portfolio, particularly. And we're also, remember, we're also targeting some internal investment in growth from capital utilization into assets increase and all that. So all that is in the same equation. We have our eyes on a couple of opportunities. Timing is always difficult, but if they and when they show up, even tomorrow, as early as tomorrow, and they make sense, we will grab them. Otherwise, we will keep lowering our leverage and doing exactly what we set all along the strategy from a capital allocation to be.

That's very helpful. And then just on the Catalyst Technologies business. It sounds like there's, I guess, part of what we're seeing in the second quarter is still just the lag effect of the deferred or I guess the hydrocracking deferrals from prior periods, but it also seems like you're seeing kind of improvements as we move forward here in line with what you previously expected. So curious, could you update us on maybe what you're hearing from your customers, what are you seeing from orders and how that differs versus maybe where you thought you were in kind of Q2 and what you're seeing from a deferral perspective as we move into Q3 and Q4 in terms of discussions from customers?

Great question, Angel. I think, we said before as well that we have a great visibility into the orders for our hydrocracking catalyst business, particularly. Those orders visibility ranges from 5 to 8 months. And we do have visibility, very clear visibility, obviously, on Q3 with certainty. We do have clear visibility until the end of the year and actually into Q1. And what we see is a nice ramp-up. And we expect actually Q4 to be a very interesting peak in terms of growth versus the last couple 3 quarters. But let me clarify one thing earlier that Mike mentioned about the delay of impact of hydrocracking in our volumes. As you noted last year, when the market was slowing down, we still had an amazing Q2 in hydrocracking and in catalyst in general because the way the contracts are set, we see the impact and a little bit of delay. The recovery is happening, we see it sooner. So as soon as we start getting those orders executed, which we're ready now with all the turnarounds and maintenance that we've done, we're going to see a nice ramp-up Q3 into Q4 and hopefully throughout 2022. So we're very confident and excited actually about the return of hydrocracking towards the end of the year. And that is why our second half of the year is going to show an amazing change over first half, primarily from a hydrocracking and catalyst return in the second half and a strong Q3 for Ecoservices.

[Operator Instructions]. And we will take our next question from Alex Yefremov with KeyBanc.

I think your third quarter guidance of 15% to 20% sequential growth suggests that 4Q is flat to slightly up sequentially from the third quarter. Is that correct? And if it is, how are you thinking about seasonality? Why wouldn't you see some negative seasonality in Q4 versus Q3?

Aleksey, listen, typically, we would see a slowdown in Q4. This year is unique because the slowdown that would happen in Ecoservices, which is typically we see in the third, the fourth quarter, is more than offset with what we see as the ramping up of the hydrocracking orders that are trying to catch up by the end of the year. It's probably going to be flattish to slightly up. If we manage to get all the orders in December, particularly within Q4, I think we're going to have probably one of the highest Q4s we've had in a while.

And could you talk about the current size and potential ramp in renewable diesel product demand that you're selling or your opportunity in this area maybe in '22, '23 and beyond?

Yes. We're very excited about our position with renewable diesel, Aleksey. We are commercial with products already and our sales in renewable diesel, remember, the numbers are still small, but more than doubled in the last quarter, in this quarter versus the previous one. And we anticipate additional growth in renewable diesel from the technology that is commercial. We're also working very diligently on some additional new technology or modified custom fit for some specific customers that will kick in a lot sooner than we would think in terms of giving us the opportunity to capture more market. The overall renewable growth demand is as high as 20% to 30% right now as we see it in the next few years. And we're riding a very nice wave of growth due to our early entrance and our commercial products in place.

We have no further questions in the queue at this time. This does conclude the Ecovyst Second Quarter 2021 Earnings Call and Webcast. Thank you for your participation. You may now disconnect at any time.