Q2 2022 Ecovyst Inc Earnings Call

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Good morning, My name is Katie and I will be your conference operator today welcome to the <unk> second quarter 2022 earnings call and webcast.

Please note today's call is being recorded and should run approximately one hour. Currently all participants have been placed in a listen only mode to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at any time. Please press star one on your telephone keypad if you.

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Lastly, if you should need any operator assistance. Please press star Zero I would now like to turn the call over to gene Shiels director of Investor Relations. Please go ahead.

Thank you operator, good morning, and welcome to the <unk> second quarter 2022 earnings call.

With me on the call. This morning are Kurt bidding <unk>, Chief Executive Officer, and Mike <unk>, Chief Financial Officer.

Following our prepared remarks. This morning, we will take your questions.

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

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

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

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 in presentation materials posted in the investors section of our website at <unk> Dot com.

Now I'd like to turn the call over to Kirk.

Thank you Jim and good morning.

We are extremely pleased with our standout results for the second quarter of 2022 as they reflect strong financial performance as well as solid operational execution and continued progress in implementing our long term strategies to deliver growth and enhanced profitability.

<unk> is a leading supplier of materials and services that are critical components in the delivery of the sustainable technologies, our regeneration services enabled the refining industries production of cleaner more efficient fuels.

And we are a leading supplier of Virgin sulfuric acid, which is used in a wide range of industrial applications, including mining advanced materials and lead acid batteries.

We provide catalysts technologies used in the <unk> of traditional fuels, the expanding production of renewable fuels the production of specialty polymers and the clean air technologies, reducing air emissions from heavy duty diesel vehicles the.

The relevance of these end markets today and is translating into favorable demand trends and looking to the future. We believe these demand trends will remain positive as.

Is the expanding need for low carbon and clean air technologies provides significant opportunities for ecosystem.

During the second quarter, we continued to benefit from these favorable demand trends.

Building upon the positive momentum we established in the first quarter, we delivered outstanding financial results second.

Second quarter sales, including our 50% share in our <unk> joint venture were up 45% year over year, while adjusted EBITDA of $73 million was up 38% compared to the year ago quarter inflation impacts from geopolitical uncertainty and currency fluctuations have.

Posed a challenge to many businesses.

Through our strong customer contracts and alignment to critical segments, <unk> is well positioned to mitigate and even benefit from these challenges.

Of significance, while the adverse impact of inflation remains a primary concern for management teams and investors alike, <unk> ability to mitigate the impact of inflationary pressures on our business has been a contributing factor to our strong financial results in the first half of 2022.

The contractual price adjustment mechanisms in our ecosystem business continues to provide for pass through of higher variable costs, including sulfur natural gas and transportation as well as adjustments to account for inflation in labor and plant cost indices.

In fact in the current environment, we have continued to expand unit margins in our ecosystem business. Despite significant increases in variable costs.

While we do not have the same contractual pass through provisions in our catalyst technologies business prudent and forward looking pricing actions continued to contribute to unit margin stability.

Given our favorable financial results the second quarter was another quarter of strong cash generation.

Our ability to generate cash provides us with substantial financial flexibility as we continue to maintain a balanced approach to capital allocation.

During the quarter, we made further progress in reducing outstanding debt and leverage and we ended the second quarter with a leverage ratio of two eight times.

In addition, our balanced and flexible capital allocation strategy and conviction in our result enabled eco vis to support shareholder value by repurchasing nearly $9 million worth of <unk> common stock.

Looking more closely at key trends driving our business on slide five.

We continue to have confidence in the near term outlook for our business and we believe the longer term trends also remained positive.

For Eco services, we see continued strength in demand for regeneration services, which is critical in our refining customers production of outlet.

High refinery utilization and alkylate production is supported by recovered domestic gasoline demand and robust demand for gasoline exports in the U S premium gasoline continues to grow as a percentage of the overall gasoline pool and this is a function of higher octane requirements for the expanding number of.

Higher compression turbocharged engines and newer vehicles.

While approximately 15% of a gallon of regular gasoline is alkylate.

Due to the higher octane specifications alkylate concentration is as high as 45% and a gallon of premium gasoline.

In addition, more stringent emission requirements such as the Epa's 2020 tier three emission standards are also contributing to higher alcoholate demand as many options to reduce sulfur content in gasoline result in an octane reduction that is typically rectified with the addition of outlet.

In the long term, we believe that the north American refining industry, which maintains a strong global competitive position will continue to maximize absolute production, therefore, benefiting our regeneration services segment.

Eco services is also the largest U S supplier of Virgin sulfuric acid and we focused on high growth industrial applications, such as nylon and mining.

We produced a wide range of specialty grade assets, enabling us to sell into applications, such as lead acid batteries water treatment in semiconductors.

With growing electrification needs, particularly in the U S. We see the mining industry continuing to be an important and large consumer of sulphuric acid and leaching operations for copper <unk> and lithium.

Included under the Eco services umbrella is our waste treatment business and the <unk> 32 catalysts activation business that we acquired in 2021, both of which we believe are positioned for attractive growth.

Specific to waste treatment, we are a growing provider of liquid waste disposal services in the Gulf Coast region, where waste incineration in our furnaces provides our customers with a preferred disposal alternative to deep well disposal or landfill, which generally requires transport of waste over long distances by truck the.

The outsourcing of disposal to our sites, which are located in close proximity to our customers also minimises the risks and costs associated with hazardous material disposal for our customers.

Of note, we gain from the beneficial use of the inherent energy content in the waste streams, ultimately, reducing our external energy needs at the plant sites and enabling some customers to gain valuable waste exemptions.

Our Kent 32 business is an exit you provider of catalyst activation services X tissue activation avoids time consuming onsite activation, reducing turnaround time consistent with long term trend of outsourcing by the refining industry that Kent 32 business is scalable and positioned for further growth.

Particularly as the production of renewable fuels expands.

In our catalyst technologies business, our silica catalysts continue to play an important role in production of polyethylene in plastic films and packaging.

Polyethylene demand continues to grow eco this model of creating highly collaborative relationships with our customers to develop unique and customized catalyst solutions continues to be rewarded with a great win rate on new polyethylene capacity additions.

This high adoption rate has allowed <unk> to outpace the general growth in polyethylene demand.

In addition, as the world transitions away from single use plastics, we are partnering with industry leaders to develop and expand energy efficient recycling processes for the production of durable and lightweight plastics.

Our <unk> joint venture provides zeolite technologies that are essential for cleaner air and the production of lower carbon fuels.

In order to meet increasing regulations focused on clean air or pressure products catalysts are used in the emission systems of heavy duty diesel vehicles to reduce nitrous oxide pollution.

Additionally, we have partnered with industry leaders to provide <unk> solutions for the growth in demand for renewable fuels catalysts.

We believe that the proliferation of renewable fuels, including sustainable aviation fuels will provide significant opportunities for <unk> over the next several years.

Not only for our catalyst technologies business, but also for the Eco services can 32 business.

Eco services products and services will be critical for the growing adoption of sustainable technologies, our regeneration services enable our refining customers to produce higher octane fuels required by today's more efficient automobile engines, while our sales to virgin acid support the production of metals and minerals there.

Central and electrification, including the high copper content in electric vehicles and associated charging networks or.

Our catalyst technology support and enable many green technologies, including the production of renewable fuels and catalyst used in emissions reduction systems on heavy duty diesel vehicles are.

Our silica catalyst also facilitate the production of more durable and lightweight plastics, enabling greater energy efficiencies.

As a result, approximately two thirds to three quarters of our sales today are associated with sustainable products and services. Moreover, our research and development programs are intently focused on meeting societies need for greener technologies is over 80% of our R&D spend is allocated to projects that tie directly to more sustainable.

<unk>, we expect that percentage to increase to approximately 90% over the next three years with that I will turn the call over to Mike <unk> for a review of second quarter financial results.

Thank you Kurt.

As Curt noted favorable demand trends in the first quarter carried over into the second quarter setting the stage for our strong second quarter financial results.

Total sales, including our 50% share in New Zealand joint venture were $261 million.

$81 million or 45% compared to the prior year.

Volume growth from product and service demand continued primarily driven by higher Virgin sulfuric acid and regeneration services, and our eco services business and higher polyethylene hydrocracking and niche custom catalyst in our catalyst technologies business.

We continue to benefit from higher pricing, which was more than offset higher variable costs, including sulfur natural gas and freight.

Second quarter, adjusted EBITDA was $73 million up 38% year over year.

With an associated margin of 28%.

Turning to slide nine.

I will highlight the components of the adjusted EBIT expansion compared to the second quarter of 2021.

The increase in adjusted EBITDA was a function of higher sales volume at the demand trends continue in both of our businesses.

In addition, while cost have increased we have largely been able to pass through these increased costs to our customers.

As a reminder, the increase in average selling prices associated with the sulfur cost pass through does not impact adjusted EBITDA, but adversely impacts adjusted EBITDA margins.

While the adjusted EBITDA margin decreased 140 basis points. This reflects a 450 basis point impact related to the pass through of higher sulfur costs.

Thus, excluding the $37 million sales impact associated with pass through of higher sulfur costs. The adjusted EBIT margin would have been 32, 4% or a 310 basis point improvement compared to the second quarter of 2021.

Turning to slide 10.

Against the backdrop of robust demand for Virgin sulfuric acid into a broad range of industrial applications and light of high refinery utilization that is driving demand for alkylate and therefore, our regeneration services. It was an exceptionally strong quarter for eco services.

Sales of $193 million were up $72 million or 60% compared to the prior year.

Adjusted EBITDA for Eco services increased 48% year over year to $60 million driven by the benefit of higher sales volume and favorable pricing more than offset the higher operating costs.

The adjusted EBITDA margin for Eco services was 31, 1% down 240 basis points compared to the second quarter of last year. However.

However, the pass through of higher sulfur costs accounted for 840 basis points of the period over period decrease.

Adjusting for the impact of higher sulfur pass through the.

The adjusted EBIT margin for ecosystems would have been 39, 5% for the quarter.

Moving to the results for catalyst technologies on slide 11.

During the second quarter, we saw positive demand trends with continued growth in silica catalyst sales driven by polyethylene catalyst demand.

And higher sales in our <unk> joint venture.

Associated with the increase hydrocracking and niche custom catalyst sales.

Second quarter adjusted EBITDA for catalyst technologies was $21 million up three 5% compared to the prior year.

The contribution of the higher sales volume, partially offset by unfavorable product mix and higher production costs.

Moving to slide 12 a.

A few comments on leverage and liquidity.

Positive business fundamentals in the first half of 2022, and our strong cash generation have provided for leverage reduction of one full turn over the past three quarters.

We are now at a leverage ratio of two eight times.

We expect to be in the mid two times by the end of the year.

Excluding any potential M&A or significant share repurchase activity.

In addition, with total liquidity of $236 million at quarter end comprised of cash on hand of $151 million and $85 million in availability under our revolving ABL facility.

We have continued to have ample liquidity to support our organic and inorganic growth initiatives.

To fund share repurchase activity.

Our strong liquidity position and our free cash flow generation capability provide a significant amount of financial flexibility and this allows us to maintain a very balanced approach to capital allocation.

With no scheduled debt maturities until 2028.

We have the latitude to maintain investment and operational improvements and organic growth initiatives as well as to consider accretive bolt on acquisitions that have a clear strategic fit with our existing businesses spa.

Specifically opportunities that expand our technology portfolio or broadened access to the end markets. We currently serve.

Similar to the <unk> acquisition made last year.

In addition to $450 million share repurchase program announced in late April provides for opportunistic share repurchases, including negotiated transactions with our sponsors. We continue to believe that each of this shares are significantly undervalued and as previously communicated we will continue to look for.

Attunity to return capital to shareholders.

As a result during the second quarter, we repurchased 893000 shares at a cost of $8 $8 million.

We believe this is a prudent use of cash and isn't the best interest of our shareholders.

Even with the repurchase activity, we ended the second quarter with a stronger balance sheet and an increased liquidity position.

Turning to our full year 2020 to outlook on slide 14.

In terms of overall demand drivers as we saw in the second quarter, we expect industrial activity to continue to drive demand for Virgin sulfuric acid over the balance of the year.

In addition, given high refinery utilization and associated alkylate requirements, we expect solid growth in regeneration services for the balance of the year.

In catalyst technologies overall demand trends remain positive.

We expect continued growth in polyethylene demand to drive silica catalyst sales.

And high refinery utilization remains a positive driver for hydrocracking catalyst sales, however, given high utilization and profitability for the U S for the U S. Refiners, we now expect some catalyst change outs to be pushed to 2023.

Despite these timing related impacts our outlook for catalyst technologies remains positive.

Given the higher realized pricing trend, including the pass through of higher sulfur costs. We have raised our full year guidance for sales up $20 million.

To a range of $830 million to $850 million.

In addition, we are lowering our zelus joint venture sales based on timing of certain sales that we expect to be realized in 2023.

Given strong first half results and with a view of demand trends remaining stable into the third quarter. We are raising our previous guidance for the full year 2022, adjusted EBITDA to fall in a range of $265 million to $275 million.

With no change towards just a free cash flow generation of $115 million to $125 million for the year.

For the third quarter.

We expect earnings from both businesses to be relatively in line with what we saw in the second quarter.

Then for the fourth quarter, we anticipate that ecosystem earnings will be lower and more in line with the first quarter of 2022.

Catalyst technologies will be up over the third quarter.

I'll now hand, the call back to Kurt for some closing remarks.

Thank you Mike.

Summing it up eco vis delivered very strong financial results in the second quarter, we expect the favorable demand trends, we have seen in the first half of the year to continue into the second half of the year.

Our long standing relationships with Blue chip customers and sales contracts that include take or pay provisions and inflationary protection as well as a net order backlog provides us with good visibility for near term activity levels.

As a result, despite geopolitical uncertainties and inflationary pressures our full year outlook remains positive and we remain on track to deliver solid year over year growth in sales and profitability.

I believe our results for the first half of 2022, and our full year expectations underscore the conviction that we shared in our Investor day, a little over a year ago specifically.

Specifically that <unk> is uniquely positioned to deliver growth and compelling value to our shareholders. We have leading market positions and we are a critical supplier to end markets, where demand is increasingly driven by the need for sustainable technologies to provide cleaner air renewable fuels expand electrification or.

Facilitate the circular economy with more efficient process for recycling plastics.

We are successfully mitigating inflationary pressures through our contractual cost pass through mechanisms and our pricing leverage and we are generating strong cash flow, providing for incremental debt reduction and an even stronger balance sheet positioning us to capitalize on future growth opportunities.

We look forward to providing you with updates as the balance of the year progresses.

With that we will ask the operator to open the line for questions.

Thank you.

At this time, if you would like to ask a question. Please press star one on your Touchtone phone now you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question as a reminder, we ask that you. Please pickup your handset to allow for optimal sound quality, we will now pause for a moment to allow question.

<unk> to Q.

Thank you. Our first question will come from Olesky, either Moss with Keybanc. Your line is now open.

Hello, everyone. This is this is ryan on for Alexia.

Thanks for taking my questions. This morning, So I guess my first question.

Is just around share repurchases for the balance of the year and then into 2023 I guess, how should we kind of just think about the potential timing.

When we might be able to see those.

Yeah, Hi, Ryan. This is this is Mike.

What we've explained before is that we entered into this or open announced this share repurchase program that we're going to use.

For a couple of different purposes.

We don't really have timing on exactly when we'll use it but we do want to articulate is that we're going to use it to help drive investor returns, we saw an opportunity certainly with.

Where the share price was trading.

In the second quarter and took an opportunity to buy back around $9 million worth of shares and then again some some additional shares going forward. So we don't have any direct plans, but we'll keep an eye out for when we think it makes the most sense given our capital allocation strategy.

Thanks, Ryan for the question I think we have really strong conviction that our stock is undervalued right. So this is why you saw management purchase shares in the second quarter. So, but we also believe we have a strong balance sheet, which gives us the flexibility to deploy our capital to boost shareholder value, which is exactly what we did.

Great great. Thanks for the answer and then I guess, just sticking with capital allocation.

I know ive spoken about bolt on M&A before I guess just my questions are.

Are you still seeing some attractive targets out there and how are valuations sparing. It this time obviously.

Crazy.

Thank you.

Yes.

<unk> remains a really good pipeline of bolt on opportunity pipeline opportunities that we continue that we continue to watch I mean.

As we've talked before the eco services side has a large.

A large list of opportunities really because expanding more in the industrial and sulfur product side and then obviously the catalyst business is much more technology, driven which gives us the ability to look in a diverse group of.

Catalyst technology, So we continue to we.

Continue to explore in that area and really our capital allocation strategy as we've talked before it gives us that ability to kind of do all the above in terms of in terms of our stock repurchase fund are really rich.

Organic growth opportunities and continue to look at M&A.

Thank you. Our next question will come from John Mcnulty with BMO capital markets. Your line is now open.

Well, maybe not be yellow, but BMO fairway.

Thanks for taking my question.

A question on the catalyst Tech business and the delays you were speaking to I know 2023 was already kind of poised to be a pretty strong enjoy a pretty strong uptick I guess I'm wondering if the push out from 'twenty. Two does that make 2023, even bigger or is it or is it a function of okay. It kind of pushes everything.

Some of the stuff in 'twenty three than actually gets pushed out to 2004 and it just kind of length. In this up cycle I guess, how should we be thinking about that.

Yes, yes, thanks for thanks for the question.

I think the way we look at it as.

There is currently very high refinery utilization, which is being driven by obviously strong demand.

Hi refinery crack spreads.

As refineries look to conduct their change outs.

They've chosen to kind of temporarily delay them. So we've seen some potential slippage to moving from this year to 2023, but I don't see youll see that cycle will change all that much because the data really don't have that kind of flexibility and in theory as they run the refinery is harder the catalyst will deplete itself.

<unk>. So we're just seeing is what we believe is really being driven off.

Honestly, just on high refinery utilization and crack spreads in the refining customers wanted to wanting to Opportunistically run run harder and delayed change outs for short periods of time.

Got it okay. So so it really just kind of compounds 'twenty three.

If I'm understanding you right on that.

Yeah, that's fair I mean, we see that 23 is having more change outs for sure.

Got it okay.

Okay, and then I guess.

There's a lot of questions around the macro and things potentially slowing I guess can you help us to understand how you guys are thinking about your playbook for any potential recessionary environment as it may pop up as we get kind of get into the latter half of this year and early next year I know in general you are pretty resilient, but but are there.

Or are there certain levers that you would pull are there certain things that you would you would enact if things do get a little bit dicey.

Sure.

Mike and I have had the.

The advantage of being with eco business businesses for 15, plus years, and we've actually experienced the prior downturn. So we really believe that as you said the businesses would remain fairly resilient in a recessionary scenario. So if you look at the.

Generation business, we feel that would remain strong due to the high refinery utilization and minimal.

Impact to gasoline demand similarly on the Virgin acid side.

We don't think that would be significantly impacted because it services such a diverse group of end users, particularly those that are supporting low carbon and sustainable technologies. So we don't see those those slowing down on the catalyst side for polyethylene catalyst demand is projected to continue to grow and we believe.

Art.

Our unique catalyst solutions will continue to enable us to have a higher win rate with the new units that are planned to come on and Theres, a theres really a heavy backlog of heavy duty deep.

Heavy duty diesel vehicles that was created by the the supply chain issues over the past couple of years. So we feel that that's going to maintain real firmness demand for our zeolite pressure products. So.

We feel we're going to be pretty resilient on on the demand side in answer to your question on other things that we can do I mean, we obviously again, we had that experience coming through a couple of these downturns and there are certain levels levers that we can pull where we can temper.

<unk> temporarily reduce costs or <unk>.

Just or adjust our capital strategy.

Great. Thanks, very much for the color.

Thank you. Our next question will come from Angel Castillo with Morgan Stanley . Your line is open.

Hello, guys. This is stefan sitting in for Haynesville. Thanks for taking my question.

First of all what's driving the free cash flow guidance is that just a function of higher working capital due to higher priced inventory or is there any other specific trends.

Yes, I think for our free cash flow guidance, we didn't change it from the previous guidance. So we still feel very strong that our cash flow generation. This year will fall in that range.

We certainly see some strength in the businesses that there is going to drive EBITDA.

Growth.

We're being a little cautious on any any dividends coming out of the <unk> joint venture for some of those delays that we talked about with.

The change outs and lowering the XI guidance. So we're very excited for our cash flow I mean, we've demonstrated such strong free cash flow generation over the last.

Several quarters, we talked earlier about how we've de Levered a full turn.

And leverage from three eight times at the end of September last year to two eight.

That's a lot of function of our strong cash flow generation and EBIT growth. So we're very confident with.

With a range that we have out there.

Perfect very helpful and.

What are you seeing in terms of your order book, thus far in the quarter I guess across both segments.

Yes, I think.

So the question I think the as Mike had alluded to in his comments, we continue to see strength in the regeneration business for eco services being driven by.

Very high refinery utilization rates I mean for instance, the EIA just reported Q2 refinery utilization was 92% versus the prior year.

At 80, 989%, which is really being driven obviously on very high refinery crack spreads.

The Virgin acid business remains.

<unk> resilient and.

With lots of demand coming from areas for the materials for obviously, the sustainable and low carbon low carbon technologies polyethylene catalyst momentum there continues with strong demand and as we see there is for additional units.

Polyethylene units just coming online here in the U S. This year and then finally, we talked a little bit about.

On the <unk> side for Hydrocracking orders has been a little bit of delay on that just because of the strong refinery utilization, which is obviously positively impacting the eco services business, but the other segments.

From our <unk> materials remained strong with pressure products for emission controls as we try to catch the backlog on the heavy duty diesel vehicles in renewables demands remain strong as well.

Thank you.

Thank you. Our next question will come from Laurence Alexander with Jefferies. Your line is now open.

Hey, guys its standards on for Laurence Thanks for taking my question.

I just wanted to know how we should think about and catalyst how pricing works and then kind of a deep leasing environment, if things were to soften.

And some costs were to ease I was wondering if you if there are price concessions and how rapidly they are.

No generally I mean, so the catalyst as opposed to the ecosystem business kind of has mechanical.

Pricing adjustments to our.

Our pricing in the catalyst business as we stated in the comments, we really had a forward look we were very forward looking on that and put in place price increases at the end of 2021 and then further instituted.

Energy surcharges, so we don't really.

In a deflationary environment, we don't really see the.

Quick.

The drop in any kind of pricing or anything like that as well.

<unk> been very judicious in how we've implemented the price increases.

But do you ended your surcharges would roll off and would that happen.

Relatively quickly.

We would have it would depend on the depend.

Depend on the momentum of the energy I mean currently we don't really see the energy surcharges rolling off at this point because it remains obviously natural gas and the other inputs remained at elevated rates and just just to add I mean, those energies surcharges are really to cover the higher costs right. So if those.

Start going down and the pricing goes down it wouldn't impact our earnings profile.

Okay and then.

You mentioned just not the whole room, you mentioned M&A bolt on opportunities I was wondering if you.

Like looking into Adjacencies within the Ginkgo services like something a little different or was just about really increasing density your footprint or just market share.

Okay.

Really it's it's.

Really all of the above I mean, as you saw last year. When we acquired the <unk> 32 business that was obviously more of an adjacent business that fit very well with eco services really.

Based on the sulfur chemistry that they used to apply to the catalysts for the catalyst activation, but it also has a strong overlap with the refinery service component of Eco services. So.

To answer your question it could be either or really I mean, there is lots of adjacencies in that ecosystem segment, where things with sulfur are obviously the service component for refineries.

Thank you very much.

Thank you. Our next question will come from P. J <unk> with Citi. Your line is now open.

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

Good morning, So there seems to be some major tailwind supporting the build out of lithium and EV battery supply chain here in the U S. So I'm curious to think of how are you thinking about this in your sort of medium to long term growth strategy for Virgin sulfuric acid. You know are you looking to participate more in lithium or will this be more of a.

Copper play thank you.

Yes, well, we participate pretty pretty heavily in the mining segment right now.

Which is.

We obviously have the two locations out on the west coast as well as our Gulf coast assets, which kind of form a triangle Ridley as you'd say around the heavy mining sector, which.

<unk> is obviously doing not only copper, but boy and then a little bit of lithium as well. So as time goes on I mean, we agree theres going to be a strong demand for mining not only for lithium, but copper and other and other minerals that are obviously going to be an extremely high demand too.

Fuel those low carbon technology, so as the as those that does that demand rolls out we're looking at doing at always looking at Debottlenecking opportunities not only just on production debottlenecking opportunities but.

Logistics Debottlenecking opportunities, which we've recently executed at the Houston plant, where we doubled our rail capacity, which gives us more of an ability to ship into that into that sector. So as that grows out we're going to continue to look for opportunities to expand our production and services to meet it.

Great. Thank you.

Thank you. Our next question will come from David Silver with CL King Your line is now open.

Okay.

Sorry, Thank you very much I had a question maybe about the guidance that you provided on slide 15.

And in particular.

You increased.

Revenue guidance $20 million on each end.

For GAAP, but you did reduce it somewhat on the zeal is JV. So couple of questions, but on the GAAP side last quarter when you.

Raised your.

GAAP sales guidance you attribute it all to sulfur.

This time I'm, just wondering how that incremental 20 million breaks down is is that just merely more pass through or is that representing an increase in demand and then secondly, maybe just to comment on the reduced revenue guidance for CLS joined.

<unk> venture thank you.

Yeah sure sure David Thanks for the question so.

On the sales side, we have seen some some strong overall pricing not just with the pass through of sulfur, but we benefited from some of the.

Other inflationary aspects.

We also see some volume strength as well so a lot of that's built in we do anticipate perhaps that sulfur might be easing a little bit from a price standpoint, but it will really depend in and as we've talked about before whether sulfur goes up or down it really doesn't impact our results.

Just impacts of margin. So we're very very comfortable that we're continuing to see strong demand, resulting in higher volumes as well as strong pricing factors driving some of that on the <unk> side that lowering really has to do with what we talked about earlier with.

Some deferrals and delays in some of our.

Products that we see just going into 2023, but again nothing that impacts our overall demand and strength in those markets. It's just more of the timing aspects that.

Curt had articulated earlier.

Okay. Thanks for clarifying that and I apologize just I've been jumping between multiple.

Multiple calls here sorry about that.

Right.

Last question would be maybe for Mike and it's kind of a question I guess.

Clarification about wording or definitional.

Aspects a little bit.

So first off I'd say congratulations on the net debt.

Trailing 12 month EBITDA getting below three times I think thats, probably a first for your company.

So kind.

Kind of a milestone in my in my view.

But looking at that going forward I mean, you talked about balanced capital deployment and I'd like to just hone in on that.

Freeze just a little bit.

Yes.

There is.

The net debt.

EBITDA Formula, which is a ratio and then there is maybe just net debt or gross debt or however, you look at it.

And I was just wondering how you're viewing the <unk>.

I'd of balanced capital deployment in terms of your overall debt in other words are you going to be.

Looking to reduce the net debt along with the.

Your share repurchase activity or is this the case where.

For your purposes, the ratio the net debt to trailing 12 months.

EBITDA as the.

Is the priority kind of ratio that you are tracking thank.

Thank you.

Yes, sure David and thank you, yes, we are.

We are very excited for the fact that we've gotten below three times.

I think thats definitely a milestone for us.

Again as eco best is different than PQ, it's becoming very evident.

And what we've shown over the last year, we're getting to the one year Youre milestone since we sold the chemicals business.

A few days and so.

The profile of Eco Vista is really strong right, we talked about the cash generation and reduced leverage.

To answer your question.

The net leverage calculation includes cash right. So we have about $150 million of cash on hand, and instead of using it to pay down debt, we want to keep it available.

As we start to deploy some of our capital allocation strategies right. So one of the things we talked about is potential M&A from a bolt on acquisition standpoint, as well as participating in the buyback program for which we started the process, but we may end up using it for some some other.

Aspects in the buyback, including private transactions and such with our sponsors as we've talked about in the past. So we want to maintain that cash on hand and use it effectively over.

The coming months quarters. So we do look at net leverage as the right metric.

Posed to paying down debt and then losing that availability to do some of our capital allocation strategies.

Very helpful. Thank you.

Thank you.

Thank you. Our next question will come from Matt <unk> with VW as financial your line is now open.

Hi, So first off I just wanted to ask about your commentary on the catalyst business product mix being unfavorable and what that means.

Is that a.

Just a one time event or how do you manage that.

Yes sure.

We do look at that as more of a one time I mean.

The unfavorable.

Verbal mix.

Customer product driven.

Did see.

Some some margin.

No.

Little lower margin that we expected for the quarter. However, we're very excited about how we expect the rest of the year to turn out we do see a lot of strength in the demand for our products, we see easing of some of the challenges around supply chain, which against some of those costs were built into the end of the quarter, which were.

More onetime costs.

For the remainder of the year, we're very confident that that business will continue to grow and as I guided to earlier.

We talk about the business being a stronger second half than the first half for the catalyst business as it continues to grow into the into the second half and margins, we expect to be a lot stronger. So yes to answer your question, yes, it's a little more of a one time for the quarter.

Yes.

And could you just talk about the.

The sales opportunity as far as being able to add customers.

Still capability that you have right now in the in the marketplace from a competitive standpoint and.

And how.

Do those renewals come up as far as being able to capture new customers.

Sure.

But Mike I spent basically my first 90 days as CEO traveling around to the various ethos igo with sites and I can tell you really meeting with our colleagues in the <unk>.

Customers and our partners, we havent even.

Greater conviction and the company's ability to really innovate and execute our strategy and add add new customers and grow and grow over the long term. So I mentioned, we've got ability and <unk>.

<unk> services to continue to Debottleneck, just not on the production side as well as on the lid on logistics as well the catalyst business continues to grow as we as we mentioned are really unique and.

In customized solutions, particularly in the polyethylene segment allows us to continue to really beat the trend line growth in that area as we have a higher adoption rate.

Really the strength in our market segments as as contracts with existing customers come up for for renewable.

Renewal really gives us the ability to negotiate those on more favorable terms.

Okay. Thank you.

Thank you we have no further questions in the queue. At this time. This does conclude the eco this second quarter 2022 earnings call and webcast. Thank you for your participation you may now disconnect.

Okay.

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