Q3 2023 Ecovyst Inc Earnings Call
Good morning, My name is Travis and I will be your conference operator today welcome.
Welcome to the activist third quarter 2023 earnings call and webcast.
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I'd like to turn the call over to gene Shiels director of Investor Relations. Please go ahead Sir.
Thank you good morning, and welcome to the <unk> third quarter 2023 earnings call.
With me on the call. This morning are Kurt bidding <unk>, Chief Executive Officer, and Mike Van <unk>, Chief Financial Officer.
Following our prepared remarks this morning 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, our anticipated induced demand trends and our 2023 financial outlook.
This information is subject to risks and uncertainties that could cause the actual results and the implementation at the company's 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 in today's call with their corresponding GAAP measures can be found in the earnings release and the presentation materials posted in the investors section of our website at <unk> Dot com.
I'll now turn the call over to Curt bidding.
Thank you gene and good morning.
I am pleased with this performance in the third quarter against the backdrop of an evolving and uncertain macro environment ego vis delivered solid results for the third quarter of 2023.
<unk> also made good progress on several key strategic initiatives, including launching our operational and reliability enhancement program announcing a major expansion for our Kansas City silica catalyst plant and rebranding our zeolite products to highlight our differentiated technology and emerging areas such as renewables and Plas.
<unk> circularity.
During the third quarter demand across the majority of our end use exposures remained stable in our eco services business high utilization rates for our refining customers continue to drive demand for our regeneration services.
In our Virgin sulfuric acid business, our broad exposure to a variety of industrial applications provided a level of stability in the quarter.
However, as anticipated on our second quarter earnings call in early August our third quarter sales of Virgin sulfuric acid reflected weaker demand for OEM and high purity grades of sulphuric acid utilizing the production of caprolactam and other nylon intermediates.
For catalyst technologies as anticipated sales of polyethylene catalysts were lower in the third quarter due to weaker global polyethylene demand and the ongoing impact of Destocking.
However, in the <unk> joint venture sales were up over 30% on higher sales of hydrocracking catalyst and catalyst used in the production of renewable fuels.
Of note and in contrast to many industrial sectors facing weak demand and volume declines pricing in both eco services in catalyst technologies remain positive in the third quarter.
Third quarter, adjusted EBITDA was $68 million down 10% compared to the third quarter of 2022 with the decrease largely driven by lower sales volume in the nylon and polyethylene end uses and higher maintenance repair and networking costs rising from the previously discussed outage at our Domingos site.
To correct a production restriction.
Looking to the fourth quarter and the balance of the year. We expect our diverse end use exposures will continue to provide for a level of stability.
Although we do not anticipate any material change in polyethylene market conditions for the balance of the year for Virgin sulfuric acid sales into the nylon end use we now expect incremental weakness associated with the UAW strike and its impact on auto production and therefore demand for nylon used in light weighting of automotive parts.
Yeah.
In light of our expectations for software Virgin sulfuric acid demand in the fourth quarter, we have elected to accelerate into 2023, a turnaround at one of our eco services sites that was previously planned for 2024, while the revised timing for the turnaround we will have a modest impact on our production capacity for Virgin sulfuric.
Asset in the fourth quarter, we believe this step will better align fourth quarter production capacity with expected demand, but more importantly will eliminate downtime in 2024 that could impact our ability to address demand recovery.
As a result of this decision, which we feel will result in net production reliability for 'twenty 'twenty four we expect to incur incremental costs associated with the turnaround this year.
Given our expectations for lower Virgin sulfuric acid sales incremental cost with the turnaround and recognizing the potential for continued destocking and further demand weakness. We now anticipate that full year 2023, adjusted EBITDA will fall at the low end of our guidance range of 260 to 200.
<unk> $5 million.
However, our longer term outlook remains very positive we believe our unique portfolio diversification of stable and use exposures and leverage the key mega trends driving future demand in emerging sustainable technologies, such as renewable fuels in plastics recycling provide for attractive growth opportunities we look.
Forward to discussing our strategies to leverage these growth opportunities in our November 28 Investor day.
As we turn to slide six I'll provide more perspective on our near term demand outlook.
Throughout 2023 strong demand for refined products and historically low gasoline inventories continued to drive high rates of utilization for our refining customers. These high rates of refinery utilization in conjunction with attractive refining margins have continued to support demand strength for our regeneration services given.
<unk> third party projections for refined products and based upon input from our refining customers. We expect refinery utilization rates will remain at high levels. While we have planned for our refining customers to take their customary seasonal turnarounds in the fourth quarter, our outlook for regeneration services business for the remainder of 2023 and into <unk>.
24 remains positive.
For Virgin sulfuric acid, we expect softer near term conditions for the nylon end use we continue to believe that we are at or near trough. This cycle conditions for the nylon end use and we anticipate demand improvement with the recovery in automotive production and other end uses for nylon production and as Destocking for nylon and at <unk>.
There's runs its course.
For the balance of Eco services, we continue to see extremely high utilization levels and a full order pipeline and our Kent 32 business driven by activation of hydrocracking and hydro processing catalyst used in the production of conventional fuels and by capacity expansion for the production of renewable fuels due to market demand.
With increasing regulatory support we expect that production capacity for renewable fuels, including renewable diesel and sustainable aviation fuel will continue to expand and this in conjunction with more frequent catalyst change outs is expected to provide attractive growth opportunities for our catalyst activation business.
Lastly, we continue to see strong demand for our waste treatment services for our Gulf coast petrochemical and refining customers as a preferred disposal alternative.
Looking to catalyst technologies, we expect near term sales of polyethylene catalysts to reflect the current sluggish demand environment and the significant impact of Destocking, particularly in China and in Europe.
However, our longer term outlook for our polyethylene catalyst business remains positive.
Relative to historical rates of global demand growth for polyethylene are customized approach to catalyst design has provided for differential growth in overall sales.
We believe we are well represented in newer lower cost capacity additions, particularly in North America and in the Middle East were more favorable economics should support demand recovery as Destocking abates.
As evidence of our customers' expectations and growth needs. We recently announced an expansion project at our Kansas City site that is expected to increase the site silica catalyst production capacity by 50%.
This expansion project is supported by long term customer commitments for the increased capacity, providing further confidence in the longer term outlook for polyethylene catalyst demand.
For our zeal. This joint venture as noted we saw strong sales of hydrocracking catalyst in the third quarter and we continue to expect positive sales in the fourth quarter and into the first quarter of 2024.
As noted in my discussion of our Kent 32 business. We expect continued growth in the production of renewable fuels, whereas zeolite catalysts materials are used in the D. Waxing process for the production of renewable diesel and sustainable aviation fuel.
We look forward to sharing more detail on our expectations for longer term demand trends and associated growth drivers for our business in our Investor day in November at this time I'll turn the call over to Mike for a more detailed discussion of our third quarter results.
Thank you Kirk turning to slide eight I'll provide additional detail on our third quarter financial results.
Total sales for the quarter, including our proportionate, 50% share of sales from the Zelus joint venture, where $210 million compared to $260 million for the third quarter of 2022.
Of the $50 million change in sales.
$39 million was driven by the pass through of lower sulfur costs.
But the balance of the sales decrease largely the result, lower sales volume for Virgin sulfuric acid used in the production of nylon intermediates and lower sales of silica based catalyst used for polyethylene production.
This was partially offset by continued strong pricing in both businesses and higher sales of hydrocracking catalysts.
Catalyst used in renewable fuel applications.
Third quarter, adjusted EBITDA was $68 million compared to $75 million in the prior year.
Decrease was a function of lower sales volume as noted and higher operational costs associated with increased manufacturing and networking cost arising from the previously discussed Domingos production outage in July.
The adjusted EBITDA margin for the third quarter was 32%.
330 basis points with the margin uplift, primarily driven by the impact of the pass through of lower sulfur costs, along with favorable pricing, partially offset by higher manufacturing and network costs.
As we move to the next slide I'll highlight the primary components of the change in adjusted EBITDA compared to the prior year third quarter.
As was the case in the second quarter average sulfur prices in the third quarter of 2023 were significantly lower than in the prior year.
Pass through of these lower sulfur costs had an aggregate impact of $39 million and variable cost with a corresponding reduction in average selling prices.
As such the lower sulfur cost pass through on sales during the quarter had no impact on adjusted EBITDA.
The largest contributors to the reduction in adjusted EBITDA were lower sales volume along with the higher variable costs in the quarter.
The higher variable costs were primarily a result of the additional networking cost and higher energy costs associated with planned maintenance. These factors were partially offset by higher pricing in the quarter.
Let's now turn to our segment results starting with Eco services.
Third quarter sales for eco services.
It was $148 million.
Compared to a $196 million in the third quarter of 2022.
The change in sales $39 million related to the pass through of lower average sulfur costs.
The balance of the sales decrease was driven by lower demand for Virgin sulfuric acid used in the production of nylon intermediates and to a lesser extent lower spot Virgin sulfuric acid sales.
Adjusted EBITDA for Eco services was $55 million in the third quarter compared to $64 million in the prior year with the decrease primarily driven by the lower sales volume as well as the anticipated higher manufacturing and networking costs.
I think from the Domingos production outage that occurred earlier in the quarter.
For the third quarter, the eco services adjusted EBITDA margin was 37%.
430 basis points.
The margin increase was largely driven by the pass through of lower sulfur costs.
Partially offset by higher costs in the quarter.
Total sales for catalyst technologies in the third quarter, including our proportionate share of <unk> joint venture sales were $63 million compared to $65 million in the third quarter of 2022.
Silica catalyst sales for the third quarter were $26 million down $11 million on lower demand for polyethylene catalyst and the absence of niche custom catalyst sales.
As a reminder, certain sales of niche custom catalysts are event, driven and maybe replaced every two to three years.
Third quarter sales for the Zelus joint venture were $37 million.
<unk> 9 million or 33%.
With higher sales of hydrocracking catalyst and catalyst used in renewable fuel applications.
Adjusted EBIT for catalyst technologies was $16 million in the third quarter down $3 million compared to the prior year.
As pricing remained positive in the quarter. The decrease reflects the lower silica catalyst sales volume.
Offset by the continued strong pricing as well as higher sales of hydrocracking and renewable fuel catalysts.
Adjusted EBITDA margin for catalyst technologies was lower driven by unfavorable mix and higher costs, partially offset by increased pricing.
Turning to the next slide I'll provide a few comments on our cash and leverage position.
We continue to maintain a balanced approach to capital allocation.
And reducing leverage to our target of two to two and a half times remains a key priority.
That said, we will continue to be opportunistic, but prudent as we evaluate our capital deployment options.
During the third quarter, we repurchased 541000 shares of stock through the open market for an aggregate amount of just over $5 million.
At the end of the quarter, we held a strong liquidity position of $109 million.
We ended the third quarter with a net debt leverage ratio of three two times unchanged from the end of the second quarter.
From a balance sheet perspective, we remain in excellent shape, we have one term loan with a maturity date of June of 2028 in.
In addition.
We continue to effectively manage our interest rate exposure we.
We have 75% of our interest exposure capped to the third quarter of 2026 with an all in cost of debt of approximately 5%.
And we continue to evaluate opportunities to extend our interest rate protection.
I will now go over our guidance and expectations for the balance of 2023.
We now expect sales for the full year 2023 to be in the range of $675 million to $705 million with a modest reduction from our most recent guidance range, reflecting an expectation for incremental demand weakness for Virgin sulfuric acid sales into the nylon end use.
The soft environment for the demand of polyethylene catalyst and the potential for a timing shift of some zelus joint venture sales from Q4 into the first quarter of 2024.
Accordingly, we expect sales to the Zelus joint venture to be between 150 and $160 million for the full year.
In light of the sales volume expectations and taking into consideration the incremental cost and sales impact associated with the pull forward of turnaround activity into 2023 that Kirk mentioned, we now expect full year 2023 adjusted EBITDA.
To be at the low end of our previous annual guidance range at approximately $260 million, which is 6% lower than the prior year.
At the segment level for the fourth quarter, we expect eco services adjusted EBITDA to be down mid to high single digits compared to the fourth quarter of 2022.
Catalysts technologies, however is expected to be up significantly compared to the fourth quarter of 2022 at a level similar to their second quarter results.
Overall <unk> is expected to be in line with prior year fourth quarter or at approximately $70 million.
In terms of our cash flow as.
As we've highlighted previously the nature of our business historically has provided for strong cash generation and we certainly expect this to continue going forward. However.
However, we are revising our 2023 free cash flow, mainly due to revised expectations for the timing of dividends from Brazil. This joint venture prior to the end of the year and to a lesser extent modestly lower expectations for adjusted EBITDA.
As previously discussed within the Zelus joint venture, we anticipate strong sales of hydrocracking catalyst in the fourth quarter up close to 50% over the prior year fourth quarter.
And for the full year, we expect to be up close to 40% year over year.
As we have gained better visibility into the projected timing of these sales. We now expect that some sales may occur very late in the quarter.
Considering normal receivable timing collection of sales occurring late in the fourth quarter may extend into early 2024.
In addition, with further insight into order timing that suggest stronger hydrocracking sales in the first quarter of 2024, we are now planning for a larger inventory build in the fourth quarter in advance of the anticipated strong first quarter hydrocracking sales.
The revised expectations for receivable timing and working capital needs associated with the fourth quarter inventory build and now expect it to alter the timing of dividends received from the joint venture.
As a result, we now expect free cash flow to be between 70 and $80 million.
As the reduction in cash generation associated with the dividends from the Zelus joint venture is entirely timing related we anticipate a comparative cash flow benefit in 2024.
In light of the revised assumptions impacting cash generation, we expect to end the year with a net debt leverage ratio of approximately three times.
I will now hand, the call back to Kurt for some closing remarks.
Thank you Mike.
Overall, we are pleased with our results for the third quarter, our end use exposures and diversification provided a level of stability in an uncertain macro environment. Moreover, pricing remained positive for both <unk> and catalyst technologies.
While we saw lower demand in the third quarter, specifically for Virgin sulfuric acid into the in Ireland and used and for polyethylene catalysts as expected. We believe much of the near term weakness is associated with the effects of Destocking, which is transitory.
For the balance of the year, we expect predictable performance from our regeneration services business and following strong third quarter hydrocracking sales and consistent with the expectations. We have had throughout this year for a stronger second half of the year. We continue to expect robust sales of hydrocracking catalyst in the fourth quarter and into the <unk>.
First quarter of 2024.
Despite the near term uncertainty in the macro environment, we believe the longer term demand fundamentals for our business remains extremely positive. We see continued growth in our regeneration services business, which is supporting alkylate production that is essential in the production of cleaner burning more efficient fuels, we see ongoing demand growth for <unk>.
<unk> sulfuric acid given the critical role it plays in so many industrial processes and for our catalyst technologies business. We see continued growth driven by expanding production capacity for polyethylene as well as catalysts used for emerging technologies, such as plastics recycling renewable fuels and enzymatic <unk>.
<unk>.
Near term demand softness primarily concentrated in two specific end users has not altered our longer term growth expectations for those end users or for our business as a whole we look forward to discussing our demand outlook and our strategies to deliver value for the benefit of our shareholders in more detail at our Investor day.
In November.
At this time I'll ask the operator to open the line for questions.
At this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question.
We will pause for a moment to allow questions to queue.
Our first question comes from John Mcnulty BMO capital markets.
Yes. Good morning. Thanks, Thanks for taking my questions. So I guess I had a couple of questions one would be as far as the turnaround pull forward. You said there were some incremental cost to it can you.
Can you help us to quantify what that impact was in total to your to your <unk> outlook or your full year outlook. However, you want to put it.
Sure. Thanks for the thanks for the question.
John I think it's about when we look at us versus the kind of the midpoint of our previous guidance.
Walking that back to our guide now I would say about half of that adjustment downwards is due to.
And as the additional slowness, we saw in the nylon segment related to the UAW strike and then about half of it on the.
And then the <unk>.
Corresponding turnaround costs as well so if I'm looking at that walk back about half of it having considered nylon and the pull forward of that turnaround to meet.
To align our production volumes.
With the slower Nighthawk demand.
Got it Okay fair enough and then just a question on on the free cash flow change in the deal that you feel is catalyst business. So.
I guess can you help me to understand.
It wasn't completely clear maybe I missed it but.
Is that shift in the timing, where you it sounds like things are maybe going to come in late in the quarter and so some of the receivables are pushed out but.
But I guess I was a little bit confused as to did you push out some of the earnings to next year around that zeolite catalyst business and maybe some a little bit later later our adoption there or is it is it something is it really just on the cash flow side.
Yeah, John It's Mike Yeah, No no change on the earnings side right. It's it's all within the cash.
We really saw a high concentration of hydrocracking sales.
In the fourth quarter and into the first quarter of next year or so over a six month period, it's quite significant.
It really does two things one we have to have more of an inventory build to build for those higher sales in Q1 of next year and then it also impacts the timing of some of those receivables not that Theres a collection challenge, but more just the timing nature of when those sales go out and win a collection comes through so all of this timing is.
<unk> is expected to have a comparative benefit to us in early next year. So just timing between two years on a cash flow dividends from <unk>.
Got it fair enough and maybe just maybe just one last one on that would you expect because it sounds like you've got some really strong demand in <unk>. It sounds like if anything it's coming in maybe stronger than you thought in <unk> can you help us just to level set should we be thinking about <unk> at least as high as <unk> is it going to be notably higher I guess, how would you.
You characterize it at least based on what you see right now.
Yes, I mean, well.
We're not guiding really to Q1, but I would say.
It's a hot.
The six month period between Q4, and Q1 is a very high concentration period. So.
I would say higher than a normal Q1 for hydrocracking, we don't have the exact number yet, but I would the way we're looking at it I think as Mike explained to you John is that across those two quarters. It's just a very high concentration during that period of time.
Got it fair enough thanks, very much for the color.
Our next question comes from Aleksey <unk> from Us.
Keybanc capital.
Thanks, and good morning, everyone I just had a follow up on your slide six.
Showing an arrow for Virgin sulfuric acid thats, getting a little bit greener and does it mean to imply that.
This business is getting stronger sequentially in the fourth quarter compared to the third quarter.
Yes, good morning, let's see I think what that what's that saying that we.
We see we see stability across that we have a diverse set of.
Our diverse group of segments that we serve across Virgin acid. So.
We see good strength in mining, where we have had struggles as that nylon space right. So.
We're seeing that kind of I would say hitting its trough right and we are aligning our production.
Our production accordingly to that and pulling for that turnaround so.
Our view right now on the Virgin market is very diverse the one the one area that we've struggled is really concentrated into that into that nylon segment.
Other segments.
<unk> remained pretty stable, but we do as you heard in our comments, we are cautious towards the end of the year.
And some of the industrial spaces, if there would be further macroeconomic headwinds that would cause customers to accelerate destocking or anything like that.
Yeah.
Okay. Thanks, and then just a longer term question.
You used to talk about your wins.
In polyethylene catalyst.
And how you know you have some visibility extending over.
A few years right could you talk about that how has your kind of longer term looking our win rate in polyethylene.
It Hasnt been lately and can you tell us anything about the next couple of years for that business.
I think the best.
Best thing, we can really say about that and the evidence of that is the Kansas City expansion that we announced this quarter. So.
That expansion will happen over the next two years, we expect that to come online towards the end of 2025, which is really meant to meet customer commitments that have been given to us right that are out past that time period. So we're really confident in that business and our long term win rate and were installing capacity back.
<unk> by the customer commitments to meet that long term future demand.
Thanks, a lot.
Our next question comes from David Begleiter Deutsche Bank.
Hey, Good morning. This is Anthony <unk> on for on for David.
What inning would you say that we're in in this destock cycle in nylon.
Okay.
That's a good question Anthony and thanks for it.
We do believe we're in that's in the trough of that cycle, we can't really we're not giving guidance for beyond this year, obviously, but we do see that a lot of.
The more regression that we had in that segment for the end of this year is really was kind of aggravated by the UAW strike. So we would expect that.
<unk>, we're at the trough of this cycle and then the Destocking will run its course during this quarter.
Okay.
Then given what youre seeing on demand in any certain end markets. How should we think about virgin sulfuric acid pricing trending through let's say the balance of the year.
Early on into 'twenty four.
Yeah, well I think the first.
First is the software pricing is related to sulfur pricing. So we did see it did see a step up in sulfur pricing, which we pass through to our customers at 100% level. So that pricing will will rise on the basis of that raw material cost pass through but then we have a high amount of contra.
<unk> a high amount of our business is also contracted so we don't have a tremendous amount of material.
That's changing off its long term price contract at any at any given point most of it.
Round, 90% ish is under a longer term 123, or even five year contract.
Yes.
Okay and then just last one for me as we go into <unk> into 'twenty. Four there is a lot of uncertainty in the global macro environment can you just remind us.
How should we think about the underlying earnings power of this business in a lower growth economic environment or a recession a potential recessionary environment.
Yes, so we've all a bunch of us Mike and the management team and myself have been with had been with the business for quite some time and seen the business go through a couple of cycles and we feel that the business as a whole due to its diverse end market uses that it services.
Sets up well and is pretty resilient through economic down down cycles point your T O. The regeneration business, which is largely linked to <unk>.
Refinery utilization and the value of octane all of those things look positive going into next year and generally not all that cyclical with other economic macro economic headwinds mining and other large segment for us obviously with all the demand for mint metals and minerals going forward for electrification.
<unk> and green infrastructure.
Should remain firm our treatment services and activation business are also largely in a very sold sold out position and we would expect that we would expect that to continue and then finally the renewables.
Space continues to grow right.
Renewable fuels become more.
Gain a larger share of the overall distillate pool moving from eventually up to 5% by 2025 that production level is going to continue to grow and that should continue to happen in light of any macroeconomic headwinds.
Thanks very much.
Our next question comes from Patrick Cunningham City.
Hi, Good morning, This is Eric Zhang on for Patrick.
We anticipated stronger sales in hydro cracking catalysts and <unk> 24, what sort of uplift should we see there and how should we think about the margin profile for catalyst technologies as a whole.
So I would say thanks for the question, Eric clearly what I would say about hydrocracking is we're in that six month period of really high concentration of sales between what we expect to realize in Q4 and then what.
And the pipeline for Q1 were really not in a position to guide really for the full year of 2024 for hydrocracking, because we just don't have that full year visibility on the order pipeline yet.
And the order timing for that can change right and in terms of the cadence of orders has changed a little bit since we've come out of the pandemic there used to be much more predictability, but the.
The pandemic kind of stretch some turnarounds product mixes changes at refinery. So we don't we don't quite have that visibility yet.
That being said I would not expect a peak.
High concentration cycle that we've had during this six month period that we think are going to have to repeat itself sometime later in 'twenty four I mean, it's clearly.
A high concentration cycle right now.
Okay got it. Thank you and my last question is what is driving the balance in backlog to build ratio emission control catalysts.
I mean, the backlog in in that in that segment.
It's really a hangover of just tremendous.
<unk> and that sort of thing that went on for heavy duty vehicle right. So there was a period during the pandemic.
Coming out of the pandemic there was a high demand for trucks. So there is still working through that order backlog similar to what's what's going on in the auto industry.
So it's just really a hangover the backlog of the whole ship and supply chain shortage that was experienced in 'twenty one 'twenty two.
Okay.
Okay, great. Thank you.
Our next question comes from Hamzah <unk>.
B B Ws financial.
Hey, good morning.
First off just on the SG&A line.
Sustainable is that as far as what you reported in Q3 going forward or was there any like special savings later that occurred.
Yes, I think the SG&A was a little bit lower really because of some.
Employment.
Compensation adjustments in there so it's probably a little more beneficial than other quarters.
Mhm Bye Mccain.
Provide some like magnitude there was quite a bit of a drop from Q2 levels.
Yes.
A couple of million dollars were flowing through there that would probably not be recurring in future future quarters.
Okay.
My other question was.
Your commentary around hydro cracking in Q1.
How would that impact your nameplate capacity for all of 'twenty four and your contracts that are that you usually enter into for 'twenty four.
Hi, Amit.
It doesn't impact our ability to service the customers going into 2024 I think.
The material impact that it's had.
What Mike was mentioning on the call was.
We have a big a large inventory build right now going on to meet those orders in Q1, which Q1 is a heavier quarter across that span of that six month period or does the high.
High concentration of volume in sales going out so, but our production assets have the capability to meet that required production schedule. So there'll be no issue there.
Okay. Thank you.
Our next question comes from Laurence Alexander.
Jeffrey.
Hi, Thanks for taking my question. This is actually Dan Rizzo on for Laurence.
Just thinking about pricing going forward I think it's been it's been fairly fairly strong, but I was just given.
You can just given the volatility some of the destocking going on.
Youre thinking about it in Q4 and as we head into 2024.
Yes, Hi, Dan.
So the business is that.
Obviously again the service a very diverse set of end uses so if you look at the portfolio appoint regeneration those are very long term agreements that are.
Yes indexed.
They're renegotiated at long long intervals. So we.
We don't expect to given the refiners the state of the refinery utilization and the utilization in that industry. We feel good about the pricing going forward on that just based on the long term nature of the agreement Virgin acid.
Similar story right where.
That can tend to be one of the more areas that can be susceptible to this short term destocking, but again more of a longer term agreement situation because a lot of those customers require or specific sulphuric acid, whether it's due to us.
The high purity nature of it or the strength or are.
Graphic locations and then moving over to the catalyst oriented areas hydrocracking.
Hydrocracking those orders are done.
Based on early performance is really is driving the value there as well as I'd say the polyethylene right. Those both of those segments are very sticky with their customers and the product is being sold on a performance basis, only generally makes up a very small percentage of.
The refineries of the pet Chem plants overall costs. So we generally don't see.
The pricing pressure associated with that so.
I think pricing can change obviously as Rob some of the things are indexed to raw materials and some of those things move around but adjustments are made of course.
Yes.
Okay. Thank you very much.
Our next question comes from David Silver.
L King.
Yes.
Yes, hi, good morning.
I'll apologize in advance I did have to step out.
One or two points here, so if I apologies if I make you repeat yourself.
Regarding the Domingos outage.
Was did you.
Was there a discussion of the economic impact of that on the third quarter results. So in other words, there were some repairs and maintenance I'm guessing there was some loss volume.
No if any of that was insurable, but.
Any any way to kind of think about the economic impact of the.
Domingos outage on your <unk>.
Third quarter results.
Yeah, Thanks, David for the <unk> for the question.
Dominik has added.
Took the plant down again and at the end of July to fix what was our production restriction and made that correction and it's been it's been running.
Since that so if you had to look at that impact in July it was probably in the $4 million range and thats between the cost to repair the plant and the downtime associated networking cost as we had to move product around our production network to service those customers.
Thank you for that and then somewhat similarly, but you are advancing the timing of a turnaround.
And Im sorry, I don't recall this but.
Some companies accrue for turnaround costs throughout quarterly or throughout the year other companies concentrate the costs of the turnaround in the period.
When the work is done.
Can you just remind me how I should think about that in other words is this pulling cost directly out of fiscal year, 'twenty, four and putting them all in the fourth quarter or.
Have some of the costs are already been recognized.
If you could just kind of.
Discuss that that would be helpful. Thank you.
Yeah, Hi, David So the turnaround costs really when we do turnarounds there is really two components to it.
First generally a capital component right and so as we start to turnaround costs.
Certain costs are capitalized as part of.
Extending the useful life of it but at the same time when we bring.
Units down for these turnarounds, we also incur additional expenses. So what we're referring to here are the additional expenses that we would put through.
Into the end of the fourth quarter by pulling that turnaround forward.
To.
Into Q4.
Okay. Thank you yeah, I should have clarified also capitalizing costs versus expensing, but thank you for that.
Last question.
Did repurchase some shares this quarter.
And I mean, if I'm just looking back from a couple of year perspective, I mean, you hadn't really repurchased any shares outside of the.
Secondary offerings by your large shareholders.
One of those large shareholders I think is still holding I think 9 million shares or something.
So.
Was the was the share buyback activity this quarter, maybe due to desire to offset.
Options issuance or is it purely opportunistic I mean, how how should we think about that and in particular kind of moving forward.
Yes. Thanks for the question so I will.
Just start really our long term. He got this is long term goal is to get <unk>.
Average into that two to two five.
Right try it and so are our capital allocation strategy is going to be highly focused on on that goal that being said that the capital allocation strategy is balanced and flexible so opportunistically.
We'll come in and repurchase shares when we feel that the share prices fallen.
Fallen to a low a very low level, where it doesn't quite reflect the value of the company and we did have a repurchase in.
In 2022, where we did kind of a similar thing. So this repurchase here just to put it in perspective, it's obviously was around $5 million of cost, which really is not going to materially move the needle in terms of our ability to reach that two five to two times leverage goal.
All right very good thank you very much.
We have no further questions in the queue. At this time. This does conclude the Actavis third quarter 2023 earnings call and webcast. Thank you for your participation and you may disconnect at any time.
Hum.
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