Ecovyst Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• The second quarter of 2025 was a solid performance for Ecovyst, achieving financial objectives and advancing key initiatives. Ecoservices sales were up 14% compared to the second quarter of 2024. The acquisition of the sulfuric acid production assets of Cornerstone Chemical Company was closed. Integration of the Waggaman, Louisiana site is ongoing. Repurchased 2.9 million shares of common stock totaling approximately $22 million. Demand fundamentals across most end uses served remained stable. For Ecoservices, high refinery utilization and positive alkylate economics underpin demand for regeneration services. Outlook for virgin sulfuric acid demand remains positive. For Advanced Silicas, expected increase in polyethylene catalysts sales this year. Kansas City expansion project expected to complete later this year. Zeolyst joint venture projected strong hydrocracking catalyst sales in 2025. Sustainable fuels catalyst technologies sales expected to be flat to slightly up in 2025 with long-term optimism due to RVO targets

Segment Performance

• Ecoservices: Sales were $176 million, up $22 million compared to the prior year. The higher sales reflect the $20 million pass-through effect of higher sulfur costs, favorable contractual pricing for regeneration services, strong pricing for virgin sulfuric acid, and the incremental sales contribution from the Waggaman sulfuric acid assets. Adjusted EBITDA for Ecoservices was $49.8 million, essentially unchanged compared to the second quarter of 2024, with favorable pricing and lower relative turnaround costs largely offset by lower regeneration services volume and higher anticipated manufacturing costs driven by general inflation.
• Advanced Materials and Catalysts: Second quarter sales for advanced silicas were $24 million compared to $29 million in the year ago quarter, largely driven by lower event-driven custom catalyst sales. Our proportionate 50% share of second quarter sales for the Zeolyst joint venture was $28 million compared to $29 million in the prior year. Second quarter adjusted EBITDA for the Advanced Materials and Catalysts segment was $13.7 million, above the guidance range and down slightly compared to the $14.7 million in the year ago quarter, largely due to lower sales volume of event-driven niche custom catalysts within advanced silicas

Guidance

• Consolidated sales expected to be $795 million to $835 million, up from previous guidance range, reflecting incremental sales from the Waggaman acquisition but partially offset by lower expected sales of polyethylene catalysts within advanced silicas. Guidance for 50% share of sales in the Zeolyst joint venture raised to $125 million to $140 million. Consolidated adjusted EBITDA maintains midpoint of previous guidance range with range narrowed to $242 million to $254 million. Adjusted free cash flow guidance narrowed to $70 million to $80 million with midpoint raised to $75 million. Third quarter Ecoservices adjusted EBITDA expected to fall in the range of $63 million to $69 million. Advanced Materials and Catalysts expected to be in the range of $7 million to $11 million. Consolidated adjusted EBITDA expected to be in the range of $62 million to $72 million. Fourth quarter Ecoservices expected to have adjusted EBITDA up on the order of $8 million to $12 million compared to the year ago quarter, while Advanced Materials and Catalysts expected to be in line with the fourth quarter of 2024

Risks

• Uncertainty regarding the effects of ongoing global macroeconomic challenges on the demand for polyethylene. Potential changes in demand conditions in certain industrial end uses, such as sales of advanced materials used in the production of polyethylene or sales of virgin sulfuric acid into nylon or other industrial end uses. Integration challenges and potential cost overruns associated with the acquisition of the Waggaman sulfuric acid assets

Question and Answer

• Q: Just with the new EPA guidelines for increased renewable fuel volume, have you already seen initial indications from customers coming back with additional activity here? I guess, any early indications or visibility into what this might mean for volumes in 2026?

A: Patrick, thank you for the question. So at this point, it's still early, and those are -- I would say, they're draft -- it's a draft RVO, so it has to be fully adopted. But we are certainly encouraged by the new requirements that were set. I mean, it's -- as I said in my comments, a 67% increase year-over-year from '25 to '26, we feel that really is going to drive utilization. There's -- one of the issues that the industry has had in the last 12 months or so has been underutilization just with the low RIN credits and the uncertainty around the RVO. So pushing that RVO up should drive higher utilizations in 2026, which then should lead to higher utilization of catalysts, more change-outs and eventually, additional capacity being put online. So we're pretty positive in terms of the direction that it's headed.

• Q: Understood. And then, maybe just on potential outlook for polyethylene sales here, it seemed to have a mixed view with strong sales expectation, but there's some incremental caution on the trade uncertainty. How much of your year-on-year growth is tied to start-ups? And have you heard any noise on potential delays in production or pressure on operating rates as a result of the current trade environment?

A: No. I mean, clearly, polyethylene utilization rates have been impacted across the globe with the tariff uncertainty and, I'd say, the lackluster global macroeconomic environment, and some of that is -- and there's some overcapacity in China that still weighs on the polyethylene industry. We still expect our sales to be up year-over-year, albeit probably falling short of what we had thought earlier this year. And obviously, in our AMAC segment, as we mentioned, that's being overcompensated by stronger hydrocracking and specialty catalyst sales. So we're cautious. I wouldn't say our sales this year aren't necessarily for new units, just our run rate with our existing customers. We are continuing with our Kansas City expansion that -- we're expecting those customers that are going to take the offtake of that plant or that plant expansion to come online in 2026.

• Q: Now that you've finalized or settled on the Cornerstone business, I guess, any update in terms of how you're thinking about some of these synergies come through and the earnings opportunities, say, in 2026? I know this year, there's some integration and some costs of upgrading, et cetera. But I guess, how do you think about the contribution as we look out a year?

A: Yes, John, thanks for the question. As we mentioned, this year, we believe that we are going to see additional sales, of course, coming out of the acquisition, albeit kind of offset with some additional costs that we're incurring really to get that business up and running into our level of operations. For next year, we're not going to give directional or specific guidance yet, but we do believe that it is a very good acquisition for us, allowing for additional opportunities within the Gulf Coast, among the other plants that we serve, to help serve some of our customers, along with the new customers that we see. The integration of the plant is going very well. We see opportunities both at the plant locations to improve what we see there, along with looking at opportunities at our other plants as well. We also do see additional opportunities from a spot standpoint within the virgin sulfuric acid that will help us in next year as well.

• Q: Just on the strategic review, can you remind us what you -- the process you're going through, what you're looking at, and what are the various options on the table for this business and these assets?

A: Yes. So the -- as we stated, as the Board -- thank you, Dave, for the question. As we stated last year, the review is really looking at a full spectrum of options to deliver really what we think is the most value for our shareholders in relation to the AMAC business, which -- that could be a whole bunch of different types of options. Like we said on the call, that -- we're happy with where the progress is at. We're still moving forward with it, and we should have some further details on it in the near future.

• Q: Assuming the current proposal was approved in its current shape, right, so about 67%, as you said, RVO growth next year, how should we think about sensitivity of your business to that growth? I mean, over time, should your catalysts business also grow in that same range by, I don't know, 60%, 70%, or should it be some smaller or larger number?

A: Yes. Thanks for the question, Aleksey. I think the way I would look at the RVO is really, the proposed RVO changes is really reinjecting momentum back into the renewable fuels, which has stepped back, I would say, over the last 12 months with really overcapacity and lower RIN prices. So we believe that, that increased RVO is going to drive up the utilization, which will eventually lead to more frequent catalyst changeouts and additional capacity coming online. I don't think the 67% is going to be a year-over-year step change for our business. Already, we've seen the business -- we believe that we're going to be flat to slightly up for this year. So we've seen, I would say, a stabilization of that. But we do think long term, with that additional -- that additional RVO will create some momentum and clearly translate into growth in that segment for us, but not -- I wouldn't look at the instantaneous year-over-year and try to apply that to our growth rate for any short period of time.

• Q: On sulfuric acid, I think you're baking in some pickup in nylon later this year. And I know [indiscernible] on maybe getting a little too optimistic there. So [indiscernible] how much visibility do you have? And also, any outlook for sort of mining, nylon, these industrial uses next year and -- for virgin sulfuric acid?

A: Sure. It's just on nylon, and re-ask the question if I don't answer it. You broke up a little bit on the first part of the nylon segment. But our view on nylon this year, Aleksey, I think is, we are going to be up year-over-year in that space, albeit it remains a somewhat tepid year in that industry. I mean, that's obviously widely reported, the global nylon market remains oversupplied. Where we're positioned, where our customers are positioned, particularly in the Gulf Coast, they've got some -- obviously some advantages over the rest of the world on a cost basis. So I think they benefit a little bit from that. So for us, our virgin sulfuric, we believe it's going to be up year- over-year, albeit not -- certainly not a bumper year or anything along those lines. For mining, there's tremendous momentum in mining. There's new copper projects coming online this year, which we're going to participate in. All the mines -- and I'm sure you've read the headlines, there's multiple new mines being approved. And that's really being driven by the -- I wouldn't point to the tariffs, but the need for copper for data transmission, for electrical conductivity, all related to the data centers that are being built and all the needs for electrification and green energy and so forth. So we view long- term mining remains very, very positive, and we expect to have a stronger second half in mining as some of those new projects come online.

• Q: About Waggaman, it sounds like you're still putting some investments in there. Do you have a timeline as to when it would actually contribute to free cash flow?

A: I mean, the free cash flow generation will follow the earnings, right? So we don't expect a significant amount of free cash flow to be generated this year. However, certainly, with the synergies and the acquisition and the size of it, we expect it to generate positively in 2026.

• Q: Are you -- do you have any pricing power at all in the sulfuric acid for mining that you're talking about?

A: Yes. I think our mining agreements, Hamed, are generally -- they're not spot in nature. They're longer term, not super long term, but there are pricing mechanisms in those where demand goes up, actually, the pricing can go up as well. So I would just say the overall momentum in mining and the demand for the sulfuric acid that's coming from that sector rising and rising is just kind of the tide that's lifting all boats. So it's creating positive momentum across the industry for sulfuric acid pricing.

• Q: Could you give a little bit more detail on the order timing and how -- what issues and what that might imply for the rhythm of 2026? And then, secondly, can you talk a little bit about the polyethylene catalyst? As capacity shuts in Europe and as you get newer plants built in Asia, is there any change in your revenue per ton of capacity? Is one better for you than the other?

A: Yes. Thanks for the question. On the first one, from an order timing standpoint, the order timing that we saw earlier in the year is expected to just shift from part of the latter part of the year. So we don't expect that to be materially different for next year. We do see higher expected sales of hydrocracking catalysts this year, and that's just demand driven. So the timing that we've been discussing for the first half of the year is just between second half and first half. So no impact on 2026.

A: Yes. Thank you for the question, [ Laurent ]. Really, polyethylene, as you point out, there's clearly capacity being rationalized in Europe. That's generally a pretty small exposure for us in terms of our customer base. And where we see the growth, and as we refer to you, the Kansas City expansion, those are based on projects for North America and the Middle East. So there's really -- I don't think there's really a huge difference in terms of revenue per ton or anything. It's just more the volumetric demand coming from those new sites is obviously going to pull up our sales and volume of sales into polyethylene catalysts and supports