Ecovyst Inc. (NYSE: ECVT) reported its monetary outcomes for the second quarter of 2024, indicating a combined efficiency with adjusted EBITDA of $57 million and gross sales totaling $212 million, a lower from the earlier yr. Regardless of sturdy demand in sure segments, the corporate confronted decrease gross sales in catalyst supplies for sustainable fuels and emission management, resulting in a downward revision in gross sales expectations for these merchandise. Strategic initiatives, together with share repurchases and an fairness funding in Pajarito Powders, have been highlighted alongside an amended time period mortgage anticipated to cut back curiosity prices. Ecovyst stays optimistic about its long-term development, significantly in sustainable aviation gas and superior recycling applied sciences, regardless of near-term headwinds and a revised annual outlook as a consequence of softer demand and the affect of Hurricane Beryl.
Key Takeaways
- Ecovyst’s adjusted EBITDA for Q2 2024 stood at $57 million with gross sales of $212 million.
- Demand for regeneration companies and virgin sulfuric acid was sturdy.
- Gross sales of catalyst supplies for sustainable fuels and emission management purposes declined.
- The corporate accomplished strategic initiatives and expanded manufacturing capability.
- Ecovyst revised its gross sales expectations as a consequence of altering market circumstances and decreased incentives.
- The corporate ended the quarter with $83 million in money and $156 million in out there liquidity.
Firm Outlook
- Ecovyst anticipates continued sturdy demand for regeneration and remedy companies.
- The corporate expects gross sales to develop within the subsequent two years, pushed by catalyst gross sales and superior recycling applied sciences.
- Internet debt leverage ratio is projected to be round 3x by the tip of the yr.
- Free money circulate technology for 2024 is anticipated to be greater year-over-year.
Bearish Highlights
- Gross sales for Q2 have been down $17 million in comparison with the identical interval final yr.
- The corporate lowered its gross sales and adjusted EBITDA steering for the yr as a consequence of softer demand and Hurricane Beryl.
- Headwinds in catalyst gross sales for sustainable gas and emission management are anticipated to persist for 12 to 18 months.
Bullish Highlights
- Ecovyst sees development potential in sustainable aviation gas.
- The corporate has taken steps to take away prices and has deferred some spending.
- Lengthy-term development alternatives stay a spotlight for Ecovyst.
Misses
- The sustainable gas enterprise is anticipated to characterize lower than 10% of whole gross sales for the rest of the yr.
- Decrease gross sales of catalyst supplies have impacted the general monetary efficiency.
Q&A Highlights
- Ecovyst addressed the affect of declining RIN costs on its Zeolyst enterprise, noting long-term choices to defer investments as a consequence of sustained low costs.
- The corporate has not misplaced prospects within the sustainable gas and emission management area.
Ecovyst, with its present monetary place and strategic initiatives, is navigating by means of a difficult market surroundings. The corporate’s efforts to optimize its stability sheet and put money into development areas mirror its dedication to long-term success, even because it faces near-term obstacles. The monetary neighborhood will likely be watching intently as Ecovyst continues to adapt to market dynamics and strives to attain its revised targets for the yr.
InvestingPro Insights
Ecovyst Inc.’s (NYSE: ECVT) second-quarter efficiency and strategic strikes are drawing consideration within the monetary neighborhood, and up to date knowledge from InvestingPro gives a deeper look into the corporate’s standing. With a market capitalization of roughly $779.16 million, Ecovyst is working to navigate by means of market challenges, as mirrored in its monetary metrics and inventory efficiency.
InvestingPro Information exhibits that Ecovyst has a Value/Earnings (P/E) Ratio of 13.93, suggesting a valuation that is likely to be interesting to buyers in search of probably undervalued shares. The corporate’s income for the final twelve months as of Q2 2024 was reported at $689.49 million, though it skilled a slight decline in income development throughout the identical interval by -9.31%. Regardless of these challenges, Ecovyst’s gross revenue margin stays sturdy at 28.05%, indicating efficient value administration relative to its gross sales.
Two InvestingPro Ideas spotlight essential features of Ecovyst’s present scenario. Firstly, administration has been aggressively shopping for again shares, which might point out their confidence within the firm’s future efficiency and a possible improve in shareholder worth. Secondly, the inventory is presently buying and selling close to its 52-week low, and with analysts predicting the corporate will likely be worthwhile this yr, this might current a shopping for alternative for buyers.
The InvestingPro platform gives extra insights into Ecovyst, with a complete of 11 InvestingPro Ideas out there to customers searching for extra in-depth evaluation. The following tips present a complete view of Ecovyst’s monetary well being, inventory efficiency, and market expectations, which will be invaluable for making knowledgeable funding choices. For extra detailed ideas and knowledge, buyers can go to https://www.investing.com/professional/ECVT.
Full transcript – PQ Group Holdings (ECVT) Q2 2024:
Operator: Good morning. My title is Madison [ph] and I will likely be your convention operator right this moment. Welcome to the Ecovyst Second Quarter 2024 Earnings Name and Webcast. Please notice, right this moment’s name is being recorded and may run roughly one hour. Presently, all members have been positioned in a listen-only mode to forestall any background noise. After the audio system’ remarks, there will likely be a question-and-answer interval. [Operator Instructions] I might now like at hand the convention over to Gene Shiels, Director of Investor Relations. Please go forward.
Gene Shiels: Thanks, operator. Good morning and welcome to Ecovyst second quarter 2024 earnings name. With me on the decision this morning are Kurt Bitting, Ecovyst’s Chief Govt Officer; and Mike Feehan, Ecovyst’s Chief Monetary Officer. Following our ready remarks this morning, we’ll take your questions. Please notice that a few of the data shared right this moment is forward-looking data, together with details about the corporate’s monetary and working efficiency, methods, our anticipated end-use demand developments and our 2024 monetary outlook. This data is topic to dangers and uncertainties that might trigger the precise outcomes and the implementation of the corporate’s plans to fluctuate materially. Any forward-looking data shared right this moment speaks solely as of this date. These dangers are mentioned within the firm’s filings with the SEC. Reconciliations of non-GAAP monetary measures talked about in right this moment’s name with their corresponding GAAP measures will be present in our earnings launch and within the presentation, supplies posted on the Buyers part of our web site @ecovyst.com. I will now flip the decision over to Kurt Bitting.
Kurt Bitting: Thanks, Gene and good morning. General, we’re happy with our outcomes for the second quarter of 2024. We delivered monetary outcomes above our forecast and we made strong progress on plenty of strategic initiatives. Throughout the quarter, we continued to see sturdy demand for regeneration companies supported by excessive refinery utilization and favorable economics for alkylate with regeneration quantity up in comparison with the second quarter of 2023. The Gross sales quantity was additionally search for virgin sulfuric acid and remedy companies in comparison with the yr in the past quarter. And in our Superior Supplies and Catalysts phase, gross sales of superior silicone elevated in comparison with the second quarter of 2023 on greater gross sales of chemical catalysts. Nonetheless, through the quarter, we noticed decrease gross sales of catalyst supplies used within the manufacturing of sustainable fuels & emission management purposes. All in, for the second quarter, we delivered adjusted EBITDA of $57 million. When it comes to the continued strategic positioning of Ecovyst, it was a really profitable quarter. By the tip of Could, we had accomplished the 4 turnarounds deliberate for eco companies within the first half of the yr. The work additionally progressed for our polyethylene catalyst manufacturing capability growth at our Kansas Metropolis web site. Reflecting our balanced method to capital allocation, through the quarter, we additionally repurchased 552,000 shares of Ecovyst frequent inventory for a complete value of $5 million. As well as, as we introduced final week, our work through the quarter culminated in an fairness funding in Pajarito Powders, an organization with experience and helps and catalysts for inexperienced hydrogen and gas cells. This transaction is per our acknowledged technique of leveraging our materials science capabilities as we proceed to place Ecovyst for development in rising markets. By way of this funding, we acquire entry to and help for scaling applied sciences that we consider will place us to help and take part in future development of hydrogen economic system as we consider hydrogen produced by means of electrolysis will be broadly used as a low carbon gas for heavy-duty transportation and industrial purposes. Lastly, through the quarter, we strengthened our stability sheet by means of an modification and extension of our time period mortgage facility which decreased the rate of interest unfold and prolonged the maturity of the ability till June of 2031. As we flip to Slide 6, I will talk about our near-term demand outlook. In Ecoservices, we anticipate a positive demand forecast for regeneration, remedy companies and catalyst activation all through the rest of the yr. We anticipate that regeneration will proceed to expertise sturdy demand, pushed by persistent excessive refinery utilization charges and wholesome afloat margins. Our Remedy Providers phase is anticipated to proceed to expertise excessive volumes because it serves as a sustainable waste administration resolution for quite a few chemical producers alongside the Gulf Coast. And regardless of anticipating a dip in utilization charges amongst renewable diesel producers, we’re observing a rising want for ex-situ catalyst activation which is anticipated to contribute to a buoyant outlook for 1032 within the latter half of the yr. For virgin sulfuric acid, we anticipate continued constructive demand for mining with demand sustained by continued growth of copper mining initiatives in North America and borates demonstrating a normalization of inventories and steady demand. And though the nylon business’s rebound stays subdued, we anticipate a year-over-year improve in virgin sulfuric acid gross sales for the nylon finish use in 2024. For the rest of our virgin sulfuric acid gross sales which helps a variety of commercial finish makes use of, together with chlor-alkali and chemical compounds, water remedy, paper and packaging and spot gross sales into varied finish makes use of, we have now adopted a extra conservative view of demand and pricing for the second half of 2024. Turning to Superior Supplies and Catalysts. In superior silicones, international polyethylene demand is anticipated to be up 2% to three% in 2024. Nonetheless, the demand outlook continues to fluctuate by geography. In North America, demand is constructive with working charges anticipated to method 90% supported by exports. Producers in North America and within the Center East, the place we have now gross sales focus proceed to have a price benefit with decrease power and feedstock prices and we anticipate these geographies to profit disproportionately as international polyethylene demand recovers. Nonetheless, projections for Europe mirror flat demand with decrease working charges of roughly 80%. And in Asia, working charges additionally proceed within the low 80% vary with subdued demand and new capability persevering with to return on-line. General, we proceed to anticipate our gross sales of polyethylene catalysts and helps to be up in 2024 relative to 2023 however the magnitude of the rise stays dependent upon international demand circumstances in addition to buyer sourcing and stock choices. For the Zeolyst Joint Enterprise, we now see weaker demand for catalyst supplies utilized in sustainable gas manufacturing and emission management utility and this has led us to revise our gross sales expectations for these finish makes use of within the second half of this yr. As a reminder, we offer catalyst supplies which can be used within the dewaxing section of renewable diesel manufacturing and these catalyst supplies gross sales are primarily made to the licensors of sustainable fuels manufacturing know-how. Market circumstances and buyer sentiment developed quickly over the course of the second quarter and that is resulting in our revised outlook for gross sales into renewable diesel manufacturing. Particularly, the pricing and worth for renewable identification numbers or RINs that are a key incentive for renewable diesel producers declined considerably. RIN credit traded above $1.50 for a number of years, contributing positively to the general economics for renewable diesel manufacturing, significantly for smaller producers. Nonetheless, with the event of an imbalance between renewable diesel manufacturing and demand, worth of RINs credit has decreased considerably lately falling under $0.50. With the decrease pricing for RINs credit and with elevated feedstock prices and better total prices as a consequence of inflation, many producers are re-evaluating manufacturing economics. Consequently, there was a slowdown in new capability additions and with decrease near-term working charges; we anticipate catalyst mild to be prolonged, pushing out gross sales related to periodic catalyst change-outs. Long term, we proceed to consider the main applied sciences supplied by our Zeolyst Joint Enterprise place us properly to take part sooner or later development alternatives for sustainable gas manufacturing. Whereas near-term economics for renewable diesel have been challenged, we consider that demand for our catalyst supplies will enhance as producers retrofit the renewable diesel processes and add new items to supply sustainable aviation fuels, the place demand is anticipated to triple by 2030 as a consequence of each governmental mandates and carbon discount targets set by the airways. We have now additionally revised our expectations for gross sales of our catalyst utilized in emission management purposes for the stability of the yr. Financial circumstances within the EU, the U.Okay. and within the U.S., together with the results of inflation and better rates of interest has adversely impacted buying exercise for heavy-duty diesel automobiles. For the month of Could, gross sales of Class 8 vans within the U.S. have been down 18% in comparison with Could of 2023, with Could 2024 representing the tenth consecutive month of gross sales declines for Class 8 automobiles. 12 months-to-date, gross sales of those heavy-duty automobiles within the U.S. are down 15%. As well as, though Euro 7 laws was beforehand anticipated to enter impact in 2025, the EU has softened NOx discount necessities and has delayed the implementation of Euro 7 for heavy-duty automobiles for 4 years, considerably impacting automobile gross sales in 2024. Given the delay in each the implementation of Euro 7 and the necessity for compliance with extra gas emission necessities, there may be little incentive to improve truck fleet now and that is having an adversarial affect on our catalyst materials gross sales for emission management purposes for the stability of 2024. For gross sales of hydrocracking catalysts, we proceed to see good demand which led to a powerful first half and anticipate a equally sturdy second half for 2024. Nonetheless, as we mentioned in our first quarter earnings name, with 2023 representing a peak yr within the substitute cycle for hydrocracking catalysts, we anticipate total gross sales of hydrocracking catalysts in 2024 to be under peak ranges in 2023. And as we glance into the longer term, we nonetheless have a constructive outlook for catalyst gross sales and superior recycling applied sciences. We anticipate gross sales to develop over the following 2 years. We’re aligned with key gamers within the business and anticipate a dozen superior recycling crops to be constructed and commissioned within the subsequent few years. I will now flip the decision over to Mike for a extra detailed dialogue of our monetary outcomes for the second quarter.
Michael Feehan: Thanks, Kurt. Ecovyst gross sales for the second quarter of 2024, together with our proportionate 50% share gross sales from the Zeolyst Joint Enterprise have been $212 million, down $17 million in comparison with the second quarter of 2023. Eco Providers benefited from sturdy demand for regeneration companies and virgin sulfuric acid. And gross sales in superior silicas elevated on greater chemical catalysts. Nonetheless, decrease web pricing in Ecoservices related to the timing and contractual pass-through impact of decrease variable prices in addition to decrease gross sales for catalyst supplies used within the manufacturing of sustainable fuels & emission management purposes drove the general decrease gross sales year-over-year. Second quarter 2024 adjusted EBITDA was $57 million, down in comparison with $79 million within the second quarter of 2023, reflecting the decrease gross sales inside the Zeolyst Joint Enterprise, unfavorable web pricing, largely attributable to the timing of the contractual value pass-through impact and better deliberate turnaround and upkeep prices in Ecoservices. This was partially offset by the upper gross sales quantity in each Ecoservice and Superior silicas. Transferring to the following slide. The unfavorable web pricing affect is mirrored within the worth and variable value drivers, netting to a $13 million damaging affect on our adjusted EBITDA within the second quarter. The decrease web pricing was pushed primarily by the timing and the mechanical contractual pass-through of sure prices, together with power and different index prices. Our pricing continues to exceed our variable prices. The unfavorable variance is a results of the period-over-period comparability and the quarterly timing lag. General, quantity and blend have been decrease within the quarter because the decrease gross sales within the Zeolyst Joint Enterprise greater than offset the rise in regeneration companies and virgin sulfuric acid. The stability of the lower is basically related to greater prices, together with the prices related to the deliberate turnaround and upkeep exercise, greater networking prices and prices related to our reliability initiatives which we had beforehand mentioned. Turning to the phase outcomes. I will begin with the highlights for Ecoservices. Ecoservices gross sales for the second quarter of 2024 have been $154 million, down 3%. Gross sales quantity was up for regeneration companies, virgin sulfuric acid and remedy companies. Nonetheless, the gross sales contribution from greater quantity in Ecoservices was offset by the unfavorable web pricing within the quarter. Trying to the second half of the yr, we consider headwinds related to the unfavorable timing and contractual pass-through impact of sure prices are largely behind us. Second quarter 2024 adjusted EBITDA for Ecoservices was just below $50 million. The lower in adjusted EBITDA and adjusted EBITDA margin was primarily pushed by the online pricing affect, the upper deliberate turnaround and upkeep prices and networking prices to help the turnarounds. This stuff have been solely partially offset by the advantage of greater quantity within the quarter. Gross sales for superior silicas of $29 million have been up practically $3 million on greater gross sales of chemical catalysts. Nonetheless, gross sales for the Zeolyst Joint Enterprise decreased $16 million on decrease gross sales of catalyst supplies used within the manufacturing of sustainable fuels & emission management purposes. As Kurt famous, we now anticipate softer demand for catalyst supplies used for sustainable gas & emission management within the second half of the yr. Adjusted EBITDA for Superior Supplies and Catalyst was just below $15 million. The lower in comparison with the second quarter of 2023 was primarily pushed by the decrease quantity within the Zeolyst Joint Enterprise. Turning to money and leverage on the following slide. Ecovyst continues to have sturdy money technology functionality which we consider will proceed to help a balanced method to capital allocation. For the primary 6 months of the yr, adjusted free money circulate was simply over $14 million in comparison with $2 million for the primary half of 2023, reflecting greater dividends obtained from the Zeolyst Joint Enterprise within the first quarter, offsetting the decrease earnings, greater curiosity and taxes. Throughout the quarter, we refinanced our time period mortgage, extending the maturity to 2031 and decreasing the rate of interest unfold by 35 foundation factors, saving over $3 million in annual curiosity prices. In mild of this transaction, our stability sheet is in exceptionally sturdy form. We proceed to have rate of interest caps in place that restrict our rate of interest publicity and our common value of debt is anticipated to be roughly 5.5% throughout 2024. Throughout the second quarter, we repurchased 552,000 shares of our inventory at a median worth of $9.05 per share for a complete of $5 million. We ended the second quarter with $83 million of money and have out there liquidity of $156 million. Contemplating using money for refinancing our time period mortgage and share repurchases and with the discount within the trailing 12-month adjusted EBITDA, our web debt leverage ratio at quarter finish was 3.3x. With the anticipated money technology over the stability of the yr and excluding any affect of share repurchases or M&A exercise, we anticipate to finish the yr with a leverage ratio of roughly 3x. As famous on this morning’s earnings launch, we have now revised our outlook for the stability of the yr, contemplating the anticipated softer demand for gross sales of catalyst supplies used for the manufacturing of sustainable gas& emission management purposes and to mirror the average impacts of Hurricane Beryl and a extra cautious view with regard to industrial demand, significantly for gross sales versus sulfuric acid. The revisions to our full yr 2024 expectations are mirrored on Slide 13 with the revised outlook as follows. We now anticipate that GAAP gross sales will likely be within the vary of $700 million to $740 million, $15 million decrease on the midpoint in comparison with our prior steering vary. With the revised outlook for catalyst gross sales used within the manufacturing of sustainable gas& emission management purposes, we now anticipate gross sales for the Zeolyst Joint Enterprise to be between $115 million to $135 million, down $30 million on the midpoint. Adjusted EBITDA is anticipated to be within the vary of $230 million to $245 million. When it comes to phase expectations; for the complete yr 2024, we anticipate adjusted EBITDA for Ecoservices will likely be within the vary of $195 million to $205 million. Superior Supplies and Catalyst is anticipated to be within the vary of $65 million to $70 million and we proceed to anticipate our company value to be round $30 million on an annual foundation. We have now revised our steering at no cost money circulate to a spread of $75 million to $85 million, down $15 million on the midpoint. However we’re additionally offering full yr steering for adjusted web revenue to be within the vary of $53 million to $74 million and we anticipate adjusted diluted revenue per share to be within the vary of $0.45 to $0.63. When it comes to particular steering for the third quarter, we anticipate third quarter adjusted EBITDA for Ecoservice to be between $53 million and $57 million. For Superior Supplies and Catalysts, we anticipate third quarter adjusted EBITDA to be between $13 million to $15 million. Assuming unallocated company bills of $7 million to $8 million, we anticipate consolidated adjusted EBITDA for the third quarter to be between $58 million and $65 million. We anticipate adjusted web revenue of $14 million to $21 million with adjusted diluted revenue per share to be within the vary of $0.12 to $0.18. I’ll now hand the decision again to Kurt for some closing remarks.
Kurt Bitting: Thanks, Mike. Reflecting upon our outcomes for the primary half of 2024, I consider the Ecovyst workforce has carried out properly in executing relative to our operational and strategic plan as we proceed to handle by means of an unsure financial surroundings. In doing so, for the primary half of the yr, we exceeded our inside expectations for monetary outcomes. For Ecoservices, we consider the volumes for all Ecoservices merchandise in addition to Ecoservices EBITDA will exhibit year-over-year beneficial properties. For our regeneration enterprise, specifically, regardless of indications that refining margins are beneath strain, I will reiterate that demand for our regeneration companies is extra related to the profitability of the Appalachian items which is anticipated to stay constructive for the stability of 2024. For our gross sales of virgin sulfuric acid, we nonetheless anticipate gross sales volumes to be up in 2024 in comparison with 2023 however we stay cautious in regards to the financial surroundings which results in some uncertainty about total industrial demand for virgin sulfuric acid. And whereas ecoservice outcomes for the second quarter mirrored web pricing strain related to the timing impact of contractual pass-through of variable prices, we consider the headwinds of this timing impact are largely behind us as we go into the third quarter. With our revised outlook for gross sales into sustainable gas & emission management purposes for the second half of the yr, we purpose to mitigate the affect of those softer near-term market circumstances by means of manufacturing value reductions and deferring spending. We proceed to be enthusiastic in regards to the development prospects for Ecovyst in each our foundational companies and in rising applied sciences. We’re equally desperate to help our new accomplice, Pajarito Powders, as they develop and scale their options for gas cells and inexperienced hydrogen technology. In closing, even with our revised monetary outlook, we anticipate free money circulate technology for 2024 to be up year-over-year, offering for continued flexibility for capital allocation as we place Ecovyst for the longer term. Whereas we see near-term softness in 2 particular finish makes use of for the Zeolyst Joint Enterprise, we anticipate modest quantity development in Ecoservices and superior silicone and we’ll proceed to execute on the strategic plan that we have now established to ship long-term development throughout the whole thing of the Ecovyst portfolio. Presently, I’ll ask the operator to open the road for questions.
Operator: [Operator Instructions] And we’ll take our first query from John McNulty with BMO Capital Markets.
Unidentified Analyst: That is Caleb [ph] on for John. I am simply curious, how a lot of the decrease information is tied to the affect from Hurricane Beryl after which decrease industrial demand after which additionally the affect from the renewable fuels outlook.
Kurt Bitting: The Beryl affect is just a few million {dollars}. The steering outlook, we supplied some ranges for the two companies. In the end, about half of it’s coming from the Ecoservice aspect and the opposite half is coming from the AM&C aspect. Associated to the softness on the virgin on the commercial aspect, that is primarily within the Ecoservice enterprise. After which, after all, the change in our outlook associated to each sustainable fuels, primarily after which a bit of bit associated to the emission management is driving the change in AM&C.
Unidentified Analyst: After which simply when it comes to the headwinds on the renewable fuels, how lengthy do you anticipate that to final for? Is that sort of 25 factor? Or is that identical to the following couple of quarters dynamic?
Kurt Bitting: Our view is the renewable diesel market which is admittedly the driving force proper now. It’ll face headwinds in all probability over the following 12 to 18 months. And there is been a sustained decline within the RIN credit which has clearly led to deferred funding choices for producers in addition to slowed utilization charges in that area which impacts the consumption of the catalyst. Our view is that, that can possible go for 12 to 18 months. Nonetheless, we do see positivity coming sooner or later as sustainable aviation gas items are constructed the place there may be anticipated to be a tripling of demand between 2025 and 2030. So there will be new items that will likely be constructed that can require dewaxing catalyst supplies like we make in addition to the prevailing renewable diesel items if the core economics proceed. Producers and a few have already made bulletins the place they’re going to convert their present renewable diesel items into sustainable aviation items.
Operator: And we’ll take our subsequent query from Aleksey Yefremov with KeyBanc Capital Markets.
Aleksey Yefremov: Are you able to present some perhaps reference how low is your renewable diesel enterprise now relative to pre-downturn ranges? I do not know, is it down 20%, 100%? And is there extra strain right here? Or has it stabilized a bit of, like go sideways for the following 12, 18 runs?
Michael Feehan: Beforehand, we had stated that the sustainable gas enterprise represented round 10% or a bit of greater than 10% of our whole gross sales for the AM&C phase. Now what we see for the rest of the yr is under that 10%, so name it, mid-to-high single-digit p.c. And as Kurt simply alluded to, what we’re seeing that’s on a short-term foundation. However in the long run, we do see there may be the flexibility for that to develop, significantly round modifications within the dynamics within the provide and demand in addition to the SAF enterprise.
Aleksey Yefremov: After which on the pricing in Ecoservices you’ve gotten the lag impact within the first half. Do you anticipate them to go away within the second half? Or if not, when do you assume that will occur? And what do you assume pricing would appear to be after we now not see the lag results.
Michael Feehan: So first, I simply need to remark that we haven’t any considerations round our base pricing. Our total pricing is exceeding our variable prices and we clearly have a worthwhile enterprise. Lots of what that is, is admittedly the mechanical pass-through nature and the timing of when these prices are incurred. So whenever you’re taking a look at a period-over-period comparability, we had an enormous profit within the second quarter of final yr. And this yr, you simply haven’t got the identical compares the identical profit. So it appears as an enormous damaging. So we don’t anticipate that development to proceed. So you may see a way more muted affect going ahead for the remainder of the yr however the total affect from the primary half does affect your total year-over-year comparability. However for the second half, you are not going to see that very same dynamic.
Operator: And our subsequent query comes from Patrick Cunningham with Citi.
Patrick Cunningham: I believe I simply need to proceed on the thread with the weaker outlook in our renewable fuels in addition to emission management catalysts. First, are you able to perhaps speak in regards to the regulatory uncertainty, whether or not it is the Chevron (NYSE:) determination, election outcomes and what prospects are saying when it comes to their shopping for patterns? After which simply when it comes to the cooling demand for renewable fuels, is any of that value optimization and the way you are positioning your small business happening? Are you taking actions because of this weaker forecasted demand within the subsequent 12 to 18 months?
Kurt Bitting: I believe when it comes to simply the macro surroundings for renewable or sustainable fuels proper now, price pushed within the supply-demand imbalance, creates strain on these RIN credit which results in decrease utilization results in deferral of investments that we have talked about earlier than. When it comes to regulatory, I imply, there nonetheless are some points to be resolved, the RFS, I suppose the renewable quantity obligation will likely be set submit the election. So I believe that might have a future affect on that. And the EPA has already introduced that they are not going to make that decision till submit the election. So I believe we’re in a bit of little bit of a holding sample right here with that. However long run, as we talked about, we do see momentum behind sustainable aviation gas as a result of the airways have made giant commitments to the volumes that they intend to buy for sustainable aviation fuels in addition to precise laws which were put in place within the EU and ones which can be being contemplated elsewhere. When it comes to value controls, we have already taken steps in July to take away prices from these impacted, I might say, underutilized items which can be actually concentrated within the Zeolyst Joint Enterprise when it comes to the emission controls and renewable fuels. And to place it in perspective, it is in all probability the equal of eradicating a shift out of the manufacturing schedule. We have additionally deferred some spending. However none of those prices — they’re all going to be concentrated in the direction of these areas. Now these value controls are going to affect the opposite issues that we have now occurring in our catalyst and superior supplies area the place we’re increasing the Kansas Metropolis web site for polyethylene, all these issues are nonetheless going to maneuver ahead and these value reductions will not affect that in any respect.
Patrick Cunningham: After which, only a query for Mike. You have indicated whenever you get under 3x leverage, finally within the low 2s. What do you anticipate to be the stability of debt pay down? I do know you stated in all probability restricted deal with M&A and repurchases for the stability of the yr? And are there any discrete headwinds or tailwinds that can make money conversion are available in higher or the place a few of your base is?
Michael Feehan: So from a leverage standpoint, we anticipate to finish the yr based mostly on our steering of roughly 3x levered. We do anticipate our free money circulate to nonetheless stay sturdy. You will discover that our free money circulate steering is down however not as a lot as what our EBITDA is. We nonetheless consider that we have now sturdy money technology and anticipate it to be greater than it was final yr. So we proceed to generate money. Our core companies are intact. And as Kurt talked about, we have been doing another issues to defer spending and take the suitable actions to assist help that technology going ahead.
Operator: And our subsequent query comes from Laurence Alexander with Jefferies.
Laurence Alexander: So first, can we perhaps take a look at the changes that you have made in separate out just like the transitory versus structural. And as you consider what the baseline is for constructing the bridge for 2025 EBITDA, what you assume we must be utilizing and the places and takes there? After which secondly, given the discussions you have had with the purchasers at this level, are you able to speak a bit of bit about what the sort of income alternative is over 4, 5 years now on each the SAF entrance and the recycling entrance? In case your plans undergo and the business builds out as anticipated, what is the income alternative for you should you get your fair proportion of the availability chain?
Michael Feehan: So I will simply begin and simply notice that we’re not going to offer any up to date steering on 2025 however I might let you know that from a directional standpoint, we’re definitely proud of what we have seen this yr from a quantity standpoint, significantly across the regeneration companies. We do see development in virgin sulfuric acid as we talked about. Nonetheless, a bit of extra cautious than earlier within the yr nevertheless it’s nonetheless an excellent development element over the earlier yr. We do have that sturdy base pricing that we anticipate to proceed going ahead into future years. And with our value construction and Ecoservice is now managed at an applicable stage with the upper value that we talked about associated to the reliability program and better turnaround prices, that can average going ahead. So we anticipate 2025 to proceed to go in the appropriate route at 18 months. So that can affect us going into subsequent yr. Our hydrocracking catalyst truly is doing properly this yr. It is not fairly on the peak that it was in 2023 final yr. Nonetheless, it’s having a powerful yr and we proceed to see that being a constructive into subsequent yr as properly. So with a few of the newer areas, whether or not it is superior recycling or within the functionalized silicas enterprise with enzyme growth, these are all positives which can be going to take us right into a constructive nature round these for 2025 as properly.
Kurt Bitting: I might simply add, Laurence. Mike talked about a bit of bit sustainable aviation gas, we see that development as we have stated superior recycling, there’s 12 items beneath development. We anticipate an uptake in our merchandise in that area to start ’25 and ’26 and going past. And I will simply circle again actually on the Ecoservice aspect. All of the merchandise are going to have quantity uptick year-over-year [Technical Difficulty].
Operator: Thanks. And our subsequent query will come from Hamed Khorsand with BWS Monetary.
Hamed Khorsand: So I simply wished to ask about what is going on on Zeolyst. The string feedback you have been making, RIN has been coming down for greater than a yr. So what’s completely different now? Is it the Zeolyst misplaced a buyer? It simply sounds unexpectedly that the RIN being an excuse simply sounds a bit of off [Technical Difficulty].
Operator: Please standby. Please standby whereas we resolve technical difficulties.
Hamed Khorsand: Hi there? Are we again?
Operator: Hi there. You’re coming in clear. And we do have our subsequent query from Hamed Khorsand with BWS Monetary.
Hamed Khorsand: So what I wished to ask about was on the sustainable gas aspect and Zeolyst. Is that this a buyer loss perspective as a result of RIN costs have been coming down for a yr now. So I am simply stunned it took a yr earlier than you are seeing any sort of affect from that.
Kurt Bitting: I believe we have now not misplaced prospects on this area. I imply, we’re a number one supplier in dewaxing catalyst supplies. However that being stated, our finish buyer, as we have acknowledged, tends to be the catalyst know-how supplier or the know-how supplier for the renewable producers. So we’re, most often, as soon as eliminated when it comes to the precise producers themselves which, in some instances, are on function renewable producers or built-in refining firms that produce renewable fuels. Our view on this was reins credit got here down, the sustained nature of that has led to those long-term choices the place individuals are going to defer investments in addition to the catalyst life because the low utilization charges impacting the catalyst consumption or using the catalyst now’s resulting in the slower gross sales from that long-term low utilization from the RINs credit score. As soon as eliminated there. I believe it is extra the long-term nature of the size that the RINs credit have been under that has began culminating in a few of this exercise.
Hamed Khorsand: After which so far as your value administration is worried, how manageable is that, you are decreasing prices when gross sales come again, do these prices come again as properly? Or can you preserve these everlasting?
Kurt Bitting: We’ll clearly, we’ll take a look at that when these come again. We do have the flexibility to scale up. Basically, what I discussed earlier than was the elimination of the equal of the shift to the manufacturing websites or the manufacturing traces which can be affected. So we’d have the flexibility to scale that again and it might simply be a way of at what tempo that comes again. Can we deal with it with our present capability? Or do we have now to return and add these prices again. So it can actually be a perform of the tempo of the return of the gross sales.
Operator: [Operator Instructions] And we’ll take our subsequent query from David Silver with CL King.
David Silver: I suppose the primary query I would prefer to ask could be perhaps to get your view on the again half of the yr when it comes to the alternatives to your virgin acid product. I believe the demand on that aspect has been weaker or hasn’t actually been exceptionally sturdy for just a few quarters now? And I am simply serious about the step down or the implied step down in your steering. However is there a dynamic in that market, perhaps, Kurt, the place when industrial exercise weakens that there are some new gamers that enter in different phrases, they cannot use all their captive product internally after which that they have an inclination to search for retailers into your most popular markets. In different phrases, is that this simply the demand that you simply see falling away? Or is there perhaps one thing a bit of extra complicated the place weaker industrial demand turns into some elevated competitors in a few of your conventional markets?
Kurt Bitting: So for the again half of the yr, total for virgin sulfuric acid once more, we do anticipate volumes to be up year-over-year and truly the EBITDA of Ecoservices within the second half of the yr to be up year-over-year. That being stated, after we gave our preliminary steering coming into this yr, we had deliberate to do 4 turnarounds within the first half of the yr. We view the second half of the yr could be a recovering market. Most of our turnaround exercise was carried out. We have now the amount to satisfy what typically is a spot and I would say short-dated contract market the place if industrial exercise is wholesome and different producers are taking turnarounds or such themselves, there’s typically a wholesome spot market to promote extra supplies that are typically greater in worth simply as a consequence of their short-term and opportunistic nature. So what we’re seeing now’s simply typically the cautiousness with the general industrial local weather, not likely impacting our present demand nevertheless it simply makes these marginal infringe spot gross sales that we usually have the flexibility to capitalize as a consequence of our scale. We’re simply cautious round our capability to seize these as a result of they only won’t be there as a result of the prevailing market could possibly meet that demand.
David Silver: The second factor I would prefer to ask you about is perhaps the choice to redo and lengthen your time period mortgage. So once I learn the announcement initially, I famous that, that time period mortgage wasn’t actually as a consequence of expire or mature till, I believe, 2028 or so. And in impact, you have prolonged it out 3 years. My considering or my assumption is the impetus to redo the time period mortgage would have been in your aspect. Banks are at all times anxious to earn just a few extra charges nevertheless it’s numerous effort and time internally to numerous paperwork. However perhaps, Mike, should you would not thoughts simply sharing your ideas about why now or why center of June was the appropriate time to increase that? And past the $3 million or so of annual curiosity financial savings, what different key options did you come away with from there that you simply assume have been a part of your calculation and shifting ahead with that call at the moment?
Michael Feehan: So there is definitely a little bit of a query available in the market round firms and their stability sheet. And we noticed this as a possibility to exit into the market. Our bankers that we have used have carried out a pleasant job serving to us information by means of when the appropriate alternatives would possibly come up. We definitely have been in a position to do that at a comparatively low value for what we have been in a position to do, extending the turnout for 3 years in addition to decreasing the general curiosity expense, as you talked about, round $3 million a yr. The NPV and the worth of doing it was fairly excessive. And we additionally felt very, very snug that it might assist help our story of getting a powerful stability sheet from a capital allocation standpoint, producing money and being able to make use of that money for what we would have liked to do going ahead. So we consider that it was the appropriate time to exit of the market, provides the buyers consolation that our stability sheet is powerful and in addition permits us to proceed with our technique so as to add rate of interest caps as wanted. As we talked about, we’re about 75% hedged over the following a number of years. So our weighted common value of capital is round 5.5% for the yr. So once more, it simply provides that consolation for buyers to know that curiosity isn’t an enormous concern for a corporation like ours.
David Silver: After which final query, if I might. With this newest replace, you may be, I do not know, under-earning perhaps or under development or a bit of little bit of a time frame. Any ideas out of your aspect in your main capital outlays and I am considering of Kansas Metropolis specifically. However does the unique time line nonetheless make sense right here? Or if we do enter a softer patch industrial exercise smart, that is one thing that might in all probability be timed a bit of in a different way?
Kurt Bitting: So with polyethylene, clearly, the expansion within the polyethylene is a bit of decrease than what it has been within the development previous 3% to 4%. As we stated on the decision, that’s presently working round 2% to three%. We do anticipate our polyethylene catalyst gross sales to be up year-over-year. The Kansas Metropolis investments are actually linked to buyer commitments who’re concurrently setting up belongings and such that we’ll want these catalysts which, to our data, they’re rolling alongside. So we haven’t any intention to sluggish these Kansas Metropolis growth right now, simply we have now commitments to satisfy for downstream prospects.
David Silver: Okay. Thanks very a lot.
Operator: Thanks. We have now no additional questions in queue right now. This does conclude the Ecovyst second quarter 2024 earnings name and webcast. Thanks to your participation and you could disconnect at any time.
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