Q4 2021 Ecovyst Inc Earnings Call

Welcome everyone and thank you for joining us for our fourth quarter 2021 earnings call.

We will start today with formal remarks from biogas and Cherry Act, Chairman, President and Chief Executive Officer, and Mike <unk>, Vice President and Chief Financial Officer.

And we will follow with a Q&A session. Please.

Please note that some of the information shared today is forward looking including information about the company's financial and operating performance strategies are anticipated end use demand trends, our 2022 financial outlook and our 2025 goals.

This information is subject to risks and uncertainties that could cause the actual results and the implementation of the companys plans to vary materially.

Any forward looking information shared today speaks only as of this date.

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 Dot <unk> dot com and with that I'm pleased to turn the call over to Bill Gazzam.

Thank you, Chris and thank you to everyone joining us today.

I am very proud of what we accomplished in 2021.

It was highly successful and transformational year as the <unk> of his team achieved remarkable financial performance and delivered on our strategic vision to create simpler and stronger portfolio.

Most importantly, we successfully completed our transformational journey with the launch of <unk>, a pure play catalysts and services company.

We are now aligned around two strong complementary and growing businesses.

Each with high margin high growth rates and robust cash generation.

We are uniquely positioned to support the green energy transition today, our products help our customers to achieve their sustainability goals.

Our innovation pipeline is increasingly focused on sustainable solutions in areas, such as biomass renewable fuels and plastics circularity.

We are very confident in our strategy and the industry trends and we remain on pace to achieve the 2025 financial goals, we laid out at our Investor Day last April .

Meanwhile, we are committed to and acting on our own key ESG goals, our sustainability ambitions are central to our mission and complementary to our financial growth.

In 2021, we implemented a comprehensive set of sustainability goals for 2025 and 2030.

Which define our path towards de carbonization and waste reduction.

2021 was challenging operational year from the pandemic and supply chain complications.

Throughout it all we maintained a high level of customer support and operational performance.

Our successful execution was critical to delivering a solid year and fourth quarter performance.

We will go through these financials in more details later, but I'll.

I'll comment on a few points worth noting.

2021 earnings exceeded our upgraded financial guidance.

As we delivered a solid fourth quarter.

Volumes rebounded across the entire portfolio driving sales and boosting profitability.

We are succeeding in offsetting inflationary factors.

This has been achieved in part from contractual pass throughs of sulfur.

Energy and labor in our ecosystem business, but also from cost management and targeted pricing efforts.

You can see the net benefit of our actions in our fourth quarter and full year adjusted EBITDA margins, which are up considerably after adjusting out the impact of pass throughs.

And we have delivered strong free cash flow.

In total 2021 was a great year for economist, but our work is not done.

We see growth momentum continuing into 2022, and we expect another solid year of growth and cash generation.

Moving to slide four.

I would like to highlight several key metrics that make me proud of this team and excited about our long term potential.

I view these as undeniable proof points of the quality of our business and the success of our strategic execution.

We are number one or number two industry leader by supply share for those products categories that make up more than 90% of our sales.

Speaks to the value, we deliver for our customers and our differentiation from competitors.

We expect to maintain our product leadership position through our innovation advantage regional exposure and deep customer connectivity.

Create tailored solutions for our customers, which provide unmatched value and makes for enduring relationships.

These factors enable us to grow at above industry rates.

This is demonstrated in our 2021 results with 19% sales growth and 18% adjusted EBITDA growth.

Now exceeding pre pandemic sales and profitability in the majority of our business lines. Despite Airbus trained recovery in select areas like emission control and hydrocracking catalysts.

Areas, we expect to see tailwind in 2022, and 2023 as ordering patterns and supply chain has normalized.

<unk> is a highly profitable business, we reported 31% adjusted EBITDA margins in 2021. This was an improvement of more than 200 basis points year over year, when excluding the sulfur cost pass through impact.

This was a notable achievement given the degree of cost inflation in the economy and is indicative of the stability and strength of our earnings profile.

But none of these matter without an unwavering commitment to safety.

Our safety metrics are some of the most important kpis that the management team monitored very closely.

We have made great strides over the past several years and reached the top tier performance level.

Let's move to slide five.

Our financial and operational performance in 2021, clearly demonstrates the quality of our simpler and stronger portfolio.

Having successfully completed our strategic transformation, we are now pivoting to growing and greening.

Growing and greening means that we see our business as prime to grow with multiple secular greenham trends, including the shift to clean and efficient fuels electrification and sustainable industrial solutions.

Turning to slide six.

Let me clarify here the growth is not new for these businesses, but we expect it to be even stronger more predictable and more readily apparent in our slim down portfolio.

Take silica catalyst for example.

Our industry, leading catalyst and support business.

Sales have grown at a 10% CAGR between 2017, and 2021 far outpacing global polyethylene demand.

We are winning share with our differentiated products and tailored approach we work everyday to make sure. This strength continues through active customer collaboration and our pipeline of investments into attractive secular growth areas.

Moving to slide seven.

There is no better example of growing and greening for US then the opportunity available in renewable fuels.

We view this as one of our most exciting and substantial growth opportunities, where we can best contribute sustainable solutions for our customers and the planet.

The transition to renewable fuels is happening today and it is fast becoming a meaningful part of our portfolio.

So let me provide a little background and then frame the opportunity for us.

Renewable fuels, our bio derived typically from waste products, such as used cooking oils.

Renewable fuels have a much lower carbon intensity than fossil fuels and can be used as a drop in replacement most specifically today and heavy duty diesel.

The standards and regulations are driving this transition such as California, low carbon fuel standards, which gives refiners incentives such as tax credits to produce low carbon fuels.

Other states like Oregon.

<unk> and New York are also proposing similar standards and Canada announced the introduction of a clean fuel standard within the next year.

These incentives and the increase societal focus on decarbonization are making renewable fuels and exciting and profitable area of growth for refiners.

As you can see on the left side of this slide.

Capacity is a rapidly scaling up in the U S and refiners are quickly revamping or expanding their facilities to incorporate renewable fuel production.

This is where <unk> products play an important role.

Our technology is the key enabler of.

Our customized realized based catalysts can be used to increase yield and to improve specific <unk> properties such as cold flow.

So it is suitable for use in cold climates.

It can also be incorporated into a wide range of catalyst for operating flexibility at renewable fuel refineries.

Our U S based manufacturing is uniquely positioned to reasonably support demand.

Since commercializing our renewable diesel product line in 2019, we have seen unprecedented growth.

Sales nearly tripled from 2020 to 2021 and given the rapid acceleration of renewable diesel production, we expect growth to remain robust in 2022 and beyond.

We forecast a mid 20% sales CAGR through at least the middle part of this decade.

We are excited about this opportunity as well as the progression of sustainable aviation fuels.

Which is just beginning to take shape in the industry and is likely to create additional opportunities as the decade progresses.

Turning to slide eight.

Growing ungreening continues our emphasis on serving high growth high margin segments.

Like the renewable fuel example, we just discussed.

Even under.

Very different macroeconomic environments.

<unk> has maintained very attractive low 30% adjusted EBITDA margins are.

Our unique value proposition resulted in strong earnings high visibility and predictability driven by long term contracts customer collaborations and a portfolio of specified in products.

We are targeting adjusted EBITDA margins of 35% to 40% by 2025 with cash conversion around 80%.

Through customer centric innovation and disciplined cost and capital management.

Onto slide nine where I want to speak to our bigger mission sustainable solutions.

Global sustainability trends towards clean Air plan.

<unk> circularity and renewable fuels accelerate the need for our proprietary solutions.

These solutions remove sulfur in diesel <unk>.

<unk> chemical recycling and reuse of plastics.

And help transform biomass into fuels to cite just a few examples.

As we support our customers in achieving their own sustainability goals, we anticipate improving our environmental performance and have implemented a comprehensive set of sustainability goals for 2025 and 2030.

There is more to come on these topics as the year progresses.

Moving to slide 10.

We're actually off to a good start as ecommerce.

Strategy is playing out and we're delivering on our goals.

We are confident that we are on pace to deliver on our 2025 targets as evidenced in the strong finish of 2021.

And strong 2022 financial outlook, Mike will walk us through shortly.

Let's now turn to slide 11 for a brief overview of current trends impacting our businesses starting with eco services.

We are continuing to see strong recovery for gasoline demand with utilization rates, reaching close to 90%.

And potentially surpassing it by year end as we come out of the pandemic.

More people are resuming their morning commute families are traveling more than ever and fleet logistics demand has been at an all time high thanks to robust consumer demand for goods.

Recently.

AIA has announced that oil production will set new records in 2022, and 2023 as demand remains robust and inventory remains low.

As you May know.

So first asset plays a critical role in green mining, such as copper low rates and lithium for batteries in automotive and electronics.

We continue to see positive trends around industry supply chain, which puts us in strong position to continue supplying our high great asset as we continue to contribute towards the greener economy.

With the enactment of the U S infrastructure Bill.

We expect even further positive momentum for our catalysts for the welfare of the economy.

Renewable fuels demand continues to grow more than 20% year on year.

Supported by government legislation and consumer preferences.

We estimate that renewable diesel will account for about 5% of global diesel consumption by the end of 2022.

On the polyethylene front global demand remains robust in the mid to high single digits as consumer preferences for packaged goods accelerated behind fast growing e-commerce trends.

On the industrial front manufacturers continue to build products lighter and stronger as polymers continue to replace metals in key applications.

Policy changes and corporate pledges are pushing the market towards chemically recycled plastics, which is driving demand for pyrolysis catalysts. In addition to the polymerization catalysts.

We continue to see strong demand on the emission controls front as new regulations are being introduced to counter high Nox and Sox level.

More and more industry players are seeking custom novel solutions to address key challenges in our silicon realized based technologies remain critical to their solutions, both in the conventional and renewable fuel space.

And now I will turn the call over to Mike to discuss our fourth quarter and full year financial results and outlook.

Okay.

Thank you bill gasoline and good morning, everyone.

I'm glad that you joined US today as I'm excited to share our fourth quarter and full year results as well as our 2022 financial outlook with you.

As mentioned during our third quarter earnings call in early November we expected to see continued strong sales and adjusted EBITDA growth in the fourth quarter.

This morning, I'm excited to report that we delivered ahead of our performance expectations.

During the quarter total sales, including our 50% share of Zelus, JV and adjusted EBITDA grew 35% and 38% respectively year over year.

Demand for polyethylene catalyst and hydrocracking catalyst led the way.

Along with a broad based rebound in demand across most other product categories.

Higher variable costs, partially driven by inflation, such as sulfur natural gas and logistical costs were more than offset by contractual price adjustments, allowing strong earnings growth.

Adjusted EBITDA margins increased to 36% despite.

Despite a 280 basis point negative impact from the dollar per dollar pass through of higher sulfur costs.

Our fourth quarter was the final leg and the delivery of a remarkable financial performance for the year.

While 2021, particularly the second half was partially a story of recovery from the impact of the global pandemic.

We also saw strong demand in certain areas like renewable fuels and polyethylene catalysts driving our full year results.

Higher demand increased pricing and favorable mix resulted in a year over year, 19% growth in sales and an 18% growth in adjusted EBITDA.

And the 37% adjusted EBITDA margin included a 220 basis point negative impact from the pass through of higher sulfur costs.

In addition, we generated $93 million of adjusted free cash flow during the year.

And as promised we reduced our leverage ratio by more than a half a turn to end the year at three three times.

Moving to the next slide we will take a deeper look into our fourth quarter profitability.

Adjusted EBITDA increased $17 million on higher volumes from stronger demand, but also on the positive price to cost dynamic.

As previously discussed sulfur cost pass through in price on a dollar for dollar basis.

In addition, we have other contractual provisions that index, our pricing to labor natural gas and other input costs further protecting against inflation.

As such <unk>.

Increasing pricing exceeded higher variable costs driving profitability while.

While margins expanded 60 basis points, if you exclude the sulfur pass through impact margins would have expanded 340 basis points during the quarter.

With input cost increases neutralized, where.

We're able to leverage the full benefit of the strong demand for our products and favorable mix further demonstrating the strength of our businesses.

Let me dive a little deeper into the businesses as we turn to our Eco services segment on the next slide.

Sales increased $39 million or 38% driven by higher volume.

Favorable Virgin sulfuric acid pricing, including the pass through of $17 million of higher sulfur costs.

As well as the pass through of higher Labor and energy index costs and regeneration services.

Adjusted EBITDA increased $12 million or 29%.

On the favorable pricing and volume inclusive of the impact from the <unk> 32 acquisition.

While adjusted EBITDA grew margins in this segment were pressured by nearly 570 basis points related to the pass through of higher sulfur costs.

Turning to the results of our catalyst technology segment. This segment includes the results of our silica catalyst business and <unk> joint venture.

Silica catalyst sales improved 35% of sales in New Zealand JV were up 26%.

The sales increase in silica catalysts was driven by the continued strong demand for polyethylene with volume up more than 16% driven by demand and share gains.

Within the Zelus JV.

Sales of both hydrocracking catalyst and pressure product catalysts grew on increasing refinery utilization and emission control.

Adjusted EBIT of $23 million increased 58% with margins, increasing 660 basis points benefiting from higher volumes and a mix of higher margin products.

Moving to the financial outlook for 2022.

We remain extremely positive on both sales and adjusted EBITDA as we build on the success of our 2021 results and the continued momentum of growth of our demand drivers.

We believe the demand for regeneration services for the production of alkylate to.

The increased use of Virgin sulfuric acid and mining nylon and other industrial uses and.

And the continued expansion of our catalyst activation business will drive growth in eco services in 2022.

In catalyst technologies, our historic outpacing industry growth in polyethylene catalyst is expected to continue.

Along with our expectations for growth in renewable fuels and niche custom catalyst.

For 2022, we expect total sales, including our 50% share of the <unk> JV sales to be between $880 million and $910 million or up 20% at the midpoint.

With the recent spike in sulfur cost.

We expect sales to be higher by approximately $60 million due to the contractual pass through of higher sulfur costs, which would have a negative impact on adjusted EBITDA margins of over 200 basis points, but would not negatively impact adjusted EBITDA.

We anticipate that adjusted EBITDA will be between 260 and $270 million or up 16% at the midpoint.

Cash generation is expected to further improve next year as we are forecasting adjusted free cash flow of between 115 and $125 million.

At the midpoint. This is a 30% improvement over the prior year, which as a reminder included cash generated from the performance chemicals business through August 1st.

Capital.

<unk> is projected to remain consistent with 2021 with a range of between 55 and $65 million.

And with respect to the first quarter of 2022.

We anticipate robust sales and adjusted EBIT growth compared to the first quarter of 2021.

To provide context, let me comment on the first quarter of 2022 in comparison to the fourth quarter of 2021 for each business.

First in catalyst technologies, we expect the first quarter of 2022 to be slightly down in sales and adjusted EBITDA to the fourth quarter of 2021.

And eco services, we expect sales in the first quarter of 2022.

To be slightly higher than the fourth quarter of 2021, driven by higher estimated sulfur costs and other input costs.

However, adjusted EBITDA is expected to be between 10, and 15% lower than the fourth quarter due to lower expected Virgin sulfuric acid spot sales and the timing of certain planned manufacturing cost.

In summary.

Our businesses delivered remarkable financial performance in 2021.

Our portfolio has great fundamentals with ties to growing industry demand drivers we have.

Have the structure in place to help protect against inflation and manage through supply chain disruptions.

We finished the year strong and expect to carry the positive momentum into 2022.

We look forward to further growth.

With that I'll turn the call back to Doug Awesome.

Thanks, Mike.

Heard our story for the strong fourth quarter and full year of 2021 performance our positive outlook for 2022, as well as our confidence strategic progress.

Now I'd like to summarize a few key takeaways.

Yes.

We have the right strategy at the right time.

Our businesses are aligned around strong secular trends.

<unk> are driving the clean energy transition and accelerating our growth.

Second we enter 2022 with momentum in our core markets reflected in our strong 2022 financial outlook.

Third our teams are doing a great job of mitigating supply chain issues, and we are well prepared to drive growth, while offsetting inflationary items.

And finally, I am very proud and grateful for the dedication and resiliency of the entire eco <unk> for delivering a great year and setting us up for a remarkable 2022.

This concludes our formal remarks, we're now ready to take your questions.

Okay.

At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.

Again that is star one if you'd like to ask a question and we will take our first question from inter Costello with Morgan Stanley .

Hi, good morning, and congrats on the strong quarter, just wanted to circle back a little bit more on the pass through I was just wondering if you could give us a little bit more details here a very strong performance in terms of the price cost.

So as we think about maybe how much of that is.

Correctly through contracts versus is there any incremental that you may be going out to get to make sure to cover.

Something that may not be contractually.

<unk> set up in and as we think about the following quarter and into the 2022.

Should we think about both at $50 million another incremental price that you might be able to get to cover costs.

Yes, Thanks Angela.

Great question, so from a pass through perspective.

90% of our costs and eco services are pass through.

On that basis, right and we're still able to capture the other 10%, even though theyre not contractually obligated we still have the ability just given our relationships to pass those through so.

We really feel comfortable that we're protected against costs like that in addition, and that's really on the eco services side, but on the catalyst side, there arent contractual pass throughs, but we've been very successful at working with our customers and being able to pass through any higher raw material costs, we were able to do that in the fourth quarter.

And a lot of that is starting to come to fruition in the first quarter. This year as well. So we do have the ability outside of contracts from an incremental standpoint to your to your question to take any.

Additional cost and pass those through.

That really gives us a lot of comfort.

Period of high inflation that we can really benefit from that in <unk>, and we're very well protected.

For 2022, I think we commented a little bit on that some of those sulfur pass through costs.

Is coming through we do expect it to be higher in 2022 versus 2021.

And again, it's dollar for dollar does impact our margins, but it has no impact on our overall earnings.

Let me add one comment.

On the catalyst component as well Joe.

Yes.

Forward and the eco services, but on the catalyst side. The team has managed to pull a very aggressive campaign.

On value pricing and price increases that will be extremely beneficial for us in 'twenty, two and even beyond they've done.

They've done.

Focus on not only raw material adjustments and indexing, but also pricing on technology and we're very happy with the momentum. They picked up this year all of that contributed to the numbers and I think it's going to be here for longer.

Understood.

Interesting to catalyst front.

Augusta.

Campaign to recover costs, but also.

You noted.

Market share gains on I think.

The ethylene side.

Just a little bit more color as to what Youre seeing what is kind of driving some of this.

And how should we kind of expect that to proceed going forward.

Yes, we've been working on share gain on.

Catalyst silica catalyst for a while with customers you know the process takes years sometimes to get.

Process accepted modified we're seeing the beginning of the.

Ration of some of our new technology.

So that market share gain is something we expect to continue and obviously entering with new technology is well priced and we believe the quality of earnings from the New technology catalyst is also going to continue.

And that explains a lot. The reason why we are outgrowing the market from a growth perspective, not necessarily volume only but new technologies coming in and better pricing.

Very helpful. Thank you.

Youre welcome Andrew.

We will take our next question from David Begleiter with Deutsche Bank. Your line is open.

Thank you good morning.

Can you discuss your capital allocation priorities for this year in terms of debt reduction and other aspects.

Yes sure David.

Capital allocation process.

Is still pretty similar from what we've shown before I mean, we've demonstrated that we can generate.

Some significant cash flow both in what we've shown in 2021 as well as what our guidance is for next year, we were able to reduce our leverage ratio down to three three times. So as we continue to generate that strong cash flow. We are going to continue to look to either pay down debt reduce our leverage continue to reduce our <unk>.

Average or look at opportunistic.

Bolt on acquisitions similar to the <unk> 32 acquisition that we did last year.

Can be can come up.

And we just need to be prepared as we look for something that's going to be accretive to the business or strategically link.

On a linked in with our businesses. So we continue to go down that process.

Very good and Bill just discussed.

Improvement, you're looking for in Q2 and beyond versus Q1.

<unk> <unk> of earnings against our full year guidance. Thank you.

Yeah, I'll give I'll give a high level comment and then Mike can probably give you a little bit more color.

Last year 2021, we saw a unique performance in terms of.

Low first half and a strong second half we went into the H, two and delivered 40% improvement over H. One in terms of adjusted EBITDA and we delivered exactly to our guidance and there is a tailwind.

Moving forward moving towards the recovery of hydrocracking recovery continuous growth of polyethylene market recovery of some of the emission control everything we set forward is what's happening from a recovery perspective.

This quarter Q1 was strong.

Q4, <unk> was strong.

Which indicates that we're going forward into <unk>.

Our strong Q1, and Mark Mike gave you a little bit of a guidance on how we feel that Q1 2022 versus last year.

Granted last year, we had some events freeze in all of that but it's going to be stronger quarter comparable to Q4, we see the cadence to be smoother. This year, we're going to see.

Slow improvement all the way to the end of the year.

Typical cadence is.

The low Q1.

Our strong Q2, and Q3 and a slightly lower Q4 based on all the.

The maintenance work and some of the seasonal stuff. So we're going back this year to the typical cadence of quarters. So we do expect a great Q2, and Q3 for the year.

Very good thank you Mike.

Okay.

Yes, I mean, the only thing I would add just as we look at that is if you look back at 2020, obviously that was a year with COVID-19 and that you've kind of throw that out somewhat and then last year of course with the early part of the year not being as strong as the second half, but to <unk> point. If you do look at the eco services.

That has a little more of the seasonality, where the catalyst business is going to be a little smoother.

Thank you.

Sure.

We will take our next question from John Mcnulty with BMO capital markets.

Hi, This is kayla <unk> on for John helped Us alright.

Hey, Kyle.

Okay.

Thanks for taking my question I was just wondering if you could.

Give us an update on <unk> on the last quarter earnings call you comment online eight new commercial projects and I was just wondering if you could kind of walk us through how those are progressing and when do you see those projects coming online.

Yes, we have.

Quite a bit of new technology introduction, this year, which means that commercial.

Everything is going exactly as we want we as you know we have shifted focus from projects to others focusing on a bunch of.

Emission control related projects that will answer the questions to the regulation changes.

And some of the areas around.

The round.

Polyethylene and then.

Catalysts for renewables everything is coming along exactly as we planned we should see more of that coming in towards the second half of the year, rather, but we will have the planned executed and we're excited about what's coming the following year.

Hello.

I apologize.

No I was going to make sure that <unk> got.

The answer.

And we will take our next question from.

P J <unk> with Citi. Your line is now open.

Hi, This is Patrick Cunningham on for P. J good morning, everyone.

Good morning, Patrick I, just had a question I had a question about plastics circularity.

Potential product offering there I guess, what I'm trying to understand.

Where are the areas play, which which markets are you potentially exposed to and sort of how differentiated is this technology.

Potential upside from it going forward.

Yes. Thank you for the question, we did say before.

Our technology.

In the plastics circularity is going to play in the pyrolysis process.

And we believe that we have unique technology that has been proven and approved by some of the first two the first comers are the customers that are really more advanced than others. We do anticipate as we go into the pilot testing beyond the lab testing with the pilot plans for our customers.

That we're going to start seeing some volumes coming in from a pilot testing confirmation and we anticipate into as we said before into 'twenty four 'twenty five to start having the <unk>.

Fully commercial line width with volumes that were excited about so its pure pyrolysis.

Which seems to become more and more of the most favorable more favorable process going forward and we're aligned with at least two customers that are in the lead right now.

It's all I can say.

Yeah. Thanks, that's helpful. The high level overview, and then maybe just a quick one.

Have almost a full year sales from $10 32.

Just wanted to get an update on how is the integration going.

Making the progress that you had hoped on synergy capture just any sort of detail there would be helpful. Thanks.

To be honest have done a lot of integrations and acquisitions smaller ones technology ones in the past, but this is one of the best ones personally I believe the technology delivered beyond our own expectation.

The integration process has gone really well the team has done really well it.

It was well accepted by by everybody, including our customers we've increased our sales.

We've increased our capability to debottleneck the process.

It's going so well that we're now looking at expanding.

Maybe end of 'twenty two early 'twenty three to see if we can increase capacity because we have been on high demand.

The target is that we increase at least 50% capacity in the year and a half or two years before we go overseas beyond that so that's how excited we are about it.

That's great. Thank you.

Youre welcome.

We will take our next question from Scott.

Keith <unk> with Keybanc Your line is open.

Thank you good morning, everyone Borgata.

<unk> gave us some update on payroll.

Do you have any updated view on how large this business could be for ecolab, maybe let's say by 2025 order over a year.

The appeal is relevant.

It's tough Alex how are you doing it's.

To give a <unk>.

But we're in a leading position right now.

We think pyrolysis as a preferred one of the preferred.

Processes, we are working with fast fast runners or first commerce, and we think we're going to be out in the market sooner than later, but you know the recycling of circularity has got several other processes.

Mechanical component.

Recycling is not going to go away immediately so that's going to be a slow build but we're very excited that we are.

We're on the.

Ahead of the curve and I think we are going to see.

Again, not kind of that increase in volumes.

Accelerated beyond 'twenty four 'twenty five in the second half of the decade and.

We're excited about it I can't quantify it but it is going to be a pretty good important business.

<unk> for us.

Thank you Bill got them all.

Merchant Bill for gas I think you saw higher margins. This year I think you see a higher margins per ton.

Our $1 per ton next year as well.

Is this sustainable level or.

With you.

Sustain margins at this elevated level beyond 'twenty, two and is there any new capacity here on the horizon from.

Broker competitors, perhaps over the next two three years.

Okay.

First of all let me just set it up.

We serve.

And the Virgin acid, we serve primarily three three pockets of end.

End users, we serve the industrial component.

Of the market, which is probably it takes up like half of our sales.

Into Chlor alkali batteries chemical steel tires recently.

At a decent good margin, we serve the nylon part of the market in automotive packaging and construction, maybe thats, 20% to 25% of our sales.

Also really good margin and we are serving the fastest growing component of the market, which is the mining bill rates as you know bar rates, we used two tons of asset per ton about rate.

Decent margin as well.

Or if the ratio is four to one and lithium is 21 today, we are growing faster than bill rates and copper lithium as the next next areas, because we really need to be nearby the assets to be able to serve them efficiently and we will work and some plans forward to participate further in lithium.

Now the sulfur pricing, which <unk>.

<unk> is going to increase a little bit more after the Ukraine thing since Russia is a net exporter of sulfur we could see some tightness in the market in Europe , and here, which could raise the sulfur pricing.

But we're protected from that in the first place, but as you.

As you look at how we measure our performance we measure our performance into a price per ton and while we managed to do at least in 2021 is grow that between 3% and 5% actually it was about 5% and going forward for 2022, <unk> project to maintain that performance of 3% to 5% for the foreseeable future.

So we believe.

We believe that is doable and we think we are playing in the right components of the market. So we're very excited about the virgin acid part of the business.

Thanks, Bob.

Thank you.

We will take our next question from Laurence Alexander with Jefferies. Your line is now open.

Hi, Good morning, you mentioned sort of the regulatory shifts.

Clean fuel standards.

You laid out in the past your longer term growth aspirations for the clean fuels business.

As you look at those regulatory shifts.

Whether in Canada or elsewhere is that going to.

Incremental to the growth path you previously sketched out or does it just gives you more confidence that that path is achievable.

Well I can't say, if it's more incremental depending on the rigor implementation and the speed of implementation, but the more of those regulatory regulations get implemented the faster the more we have incremental growth. So when you look at some of those in the U S and even if you go overseas.

With what's going on in China, right now, what's going on in India, and Japan, and Korea. There is a lot of activity towards towards some of those regulatory requirements for clean air that we are very excited about being able to bring to the market technologies that I talked about earlier, especially in the next year or two.

That will be unique into being able to handle those those expectations from a temperature standpoint and performance overall of the of the market. So it's not direct incremental but it's supportive plus incremental if if we get those regulations implemented.

Sooner and with rigor.

China six has been talked to for years and it's only recently that has got implemented so building our plans based on.

On those is not necessarily the right thing to do but we do hope that they got implemented when they do the portion.

<unk> gets implemented will be incremental so we're very excited about those regulations and we are excited that the pipeline of innovation that we have is working towards that as we get Europeans to be more rigorous and implementing as we get China and the other countries I mentioned to initiate those regulations and gets started I think we are going to be a really good track for emissions.

Cool.

Okay, great. Thank you very much.

Thank you Alexander.

We will take our next question from David Silver with CL King Your line is now open.

Okay. Thank you very much.

So I had maybe a couple of questions.

The first one would just be.

The quarterly trend within your Eco services business, you laid out a number of metrics you called out the strength in.

The Virgin.

Asset portion of that business and I think there was a comment about overall volumes had return to pre pandemic levels.

I was just wondering if you could maybe elaborate on how the traditional or the non Virgin side of the eco services business did this quarter in other words was there.

The growth.

Strong, but may be just a little less so than the Virgin side or.

Was there was there a difference in the performance on the recycling the regeneration aspects of that business.

<unk>.

Yes sure David So if you look at the regeneration services side of the business, we still see very strong demand in that in that market I mean thats.

The service business, that's used to help produce alcohol it at the refineries and as we'd like to say, that's one of the more profitable sides of a.

Of the refinery, where they look at that as liquid gold rates. So that so the demand for that is very strong. It continues to be strong that is the one that probably has a little more of the seasonality, where Q1 and Q4, a little lighter than Q2 and Q3 a lot of that is based on partially miles driven but also when refine.

<unk> go down for their turnarounds and then we have our turnarounds around the same time as them in in the first and fourth quarter. So.

The demand for <unk> is still strong and the cadence is really a stronger second and third quarter for Virgin and we did see a very strong fourth quarter. It was up compared to last year fourth quarter was also up compared to the third quarter. So a lot of that is the continued strong demand for.

Virgin sulfuric acid used in mining and everything else that bell gas and let's talk about nylon and industrial use and we continue to see that being strong going forward.

Yeah, Okay. Thank you for that and I forgot to mention but.

One an update on the new contract the new customer that you had acquired the <unk>.

Just in the last quarter or two but I believe that new services contract the $10 million more revenue opportunity was.

Set to kick off I think January one can I just get a quick update on that.

It's up and running it kicked off in December actually David December . Thank you.

I did want to ask about the liquidity.

I, usually look for that in your in your release, but.

Could I just get can we just get a quick update on where your total liquidity is relative to a few months ago three months ago, and then do you anticipate any need to.

Make moves to give yourself greater liquidity in 2022, I mean, you've talked about a number of growth opportunities <unk> 32, and in some other areas plus the desire to remain opportunistic. So is your current.

Our liquidity or access easy access to <unk>.

Incremental funding sufficient for the next year or so.

Yes.

Yeah sure. So our liquidity has improved we were $165 million at the end of the third quarter will little over $200 million.

In December we don't see any need for additional liquidity down down the road I think with our strong cash generation.

And our access to our ABL revolver that we won't have any issues with it. So we're very comfortable with the position we are at and if those Kent 32 type acquisitions come about we have adequate.

Liquidity to make a move at the right time.

Okay, and then finally I just have maybe a more general question about the.

Operating environment and in particular the <unk>.

The crude oil and how that flows through to the cost of the products that your customers sell but.

Our stipulate upfront on the world's worst.

<unk> predictor for something like crude oil, but I mean, the trend throughout the last year or so has been steadily in one direction.

Whether it's continued economic recovery or <unk>.

Geopolitics.

A lot of people are thinking the price might continue on in an upward direction.

No.

I'm not talking about a steep recession or some other hugely disruptive event, but assuming there is trend line economic growth, but we're in a much higher crude price environment 2022 versus 2021 can you reflect back on how that tends to.

Impact to your business in other words, how customer refining customers view the.

The cadence of catalyst replacement or.

How.

Fuel makers kind of view the value of.

The higher value or value added catalyst to provide.

Assuming were in a structurally higher crude oil environment for an extended period of time, how do you how do you think that would.

Impact your overall business in the.

Your ability to meet meet your 2022 targets.

That's a very deep question, David and I will ranked myself, just behind you and predicting the oil price, but we do look at energy costs overall.

What matters, both matters, the crude oil and the gas both matter and I'll explain a little bit the crude oil price matters for our refining customers.

Speed of acceleration that they do.

The activity level, which probably impact.

Indirectly impact our volumes in terms of sales the frequency of change outs, how we run refineries. So we provided that this is not a very short period of time that is not a three months deal or a six month deal.

This could be pretty positive.

To an extent in certain areas.

Maybe maybe it's going to impact some of our.

Some of our regeneration business a little bit more.

Maybe it will impact the driving driven miles a little bit from a cost perspective, but overall as a positive environment when refineries are making money.

On the gas pricing side.

Energy.

Raw materials, the highest level of raw materials that impacts our business and the sulfur.

And then the second is the energy and including gas for our manufacturing assets.

We have the ability to pass through these energy.

Cost changes of pricing changes to our customers across the board not only in the.

The eco services, but also on the catalyst business.

In European plants, and here as well so we're not concerned about gas price.

Raw material increase.

We're not concerned about the sulfur price increase which could also be or drop.

Could also be the outcome of increased activity in the refineries.

So we're covered out there from a business perspective, we could see an upside, but who knows how long. This is going to be maybe people are going to operate with more prudent perspective, and not getting too excited about an event and then facing themselves a little bit better than we did in the past.

And in any case were good we like it.

When there is energy around and we like when there is expectations to be at the world is more positive which will impact a few other things from a GDP growth perspective, and everything which could help the rest of the business, which is not directly linked to energy I don't know if this helps David but it's.

Pricing going up as long as it doesn't go to $250 a barrel, which some people are speculating, but as long as it is within the most reasonable expectation of 100 120, <unk> hundred 30 decent believable credible if thats the case.

Were always in good shape.

Alright. Thank you for that I know that was kind of a Phd thesis question, but thank you for that I appreciate your thoughts.

Youre very welcome.

We have no further questions on the line at this time.

This conclude today's program. Thank you for your participation you may disconnect at any time.

Wonderful day.

Okay.

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