Ecovyst Inc. (ECVT) Earnings Call Transcript & Summary

Hello. I'm Nahla Azmy, Vice President of Investor Relations and Financial Communications. Welcome to everyone joining us this morning for our virtual investor conference. We are very excited to have an opportunity to provide you with a thorough view into Target PQ, a high-growth, pure-play catalyst and services company. Our program will include formal remarks from our executive leadership team, who will address Target PQ's future vision and strategy and offer a deep dive into our 2 core businesses. After a 10-minute break, we will continue with a review of our innovation and sustainability platform. Our final presentation will cover our financial outlook, including our growth targets. Following some brief closing commentary, we will have a question-and-answer session with our entire leadership team. You may submit a question anytime during the meeting using the chat box function on your left. During the Q&A session, I will read the questions allowed for the benefit of all participating. When you submit your questions, please indicate if you would prefer to remain anonymous. And with that, it is with great pleasure that I introduce Belgacem Chariag, Chairman, President and Chief Executive Officer.

Thanks, Nahla, and good morning, everyone. We're truly excited to have you join us today and hope that you and your families are safe and well. Through the latter part of 2020 and the first quarter of 2021, we accelerated our PQ transformation strategy with the execution of some key essential steps. The initial result of this transformation is what we have envisioned for the Target PQ that we briefly introduced in our recent communications. Today, we're here to introduce what the new entity will look like upon close of the Performance Chemicals transaction. You will hear our strategic vision and growth plans as we embark on this new journey as a pure-play catalyst and services company. Before we start our program today, I would like to share a short opening video. [Presentation]

This morning, we are introducing ecovyst, our new brand for the projected portfolio. I'll provide an overview of the ecovyst and our strategy and then introduce the other members of the team who will cover business and financial outlook in greater detail. First, I'd like to offer a brief rundown of how we arrived here. Just about 2 years ago, we embarked on a strategic review of our 4 specialty chemical businesses and our platform of innovation and customer collaboration. We identified pathways and time lines to transform PQ into a simpler and stronger portfolio. The first step was to focus on improving operational and financial performance and reducing capital intensity. We also divested noncore assets within each business. This improved execution on multiple fronts, enabled us to accelerate or fast-track our targeted repositioning of the entire company. We completed the sale of Performance Materials at an attractive valuation, signed an agreement to sell Performance Chemicals also at an attractive valuation and acquired a niche catalyst activation business with unique and promising growth potential to complement our portfolio offerings. This transition is now nearly complete, with the sale of Performance Chemicals on track to close later this year, subject to customary approvals and conditions. Going forward, ecovyst will consist of 2 businesses that position us as an innovative, pure-play catalyst and services company. We have made tremendous progress delivering on the steps leading to our goal of becoming simpler and stronger. We are now leaner and structured for operating with the highest level of efficiency. We're also nimbler as we position ourselves to be responsive and fast adapting to the rapidly changing business environment. Innovation and customer-centric collaboration have been our historic strength and will now evolve into an even higher level of focus and purpose. Further, we are prioritizing and accelerating our growing and greening initiatives and are putting sustainability for safer, cleaner, healthier world at the forefront of our forward strategy. We have initially focused on driving cultural change and improving execution on multiple fronts. We now have a strong foundation from which to accelerate our future objectives. Our long history of innovation expertise and close customer collaboration supports the development of proprietary catalysts and services. It is these critical and tailored products and solutions that enable us to be specified into customer production processes. We have demonstrated our ability to generate strong cash flow and highly visible recurring revenues at favorable margins. And this is largely due to long-term contracts with appropriate commercial terms, including minimum volume guarantees and cost pass-through. Further, we have been and continue operating in a growth environment. Demand for our products and services is driven largely by favorable secular global growth trends, resulting from a rapid transition to a cleaner economy. As a result, we anticipate high single-digit top line growth organically with strong and sustainable margins plus inorganic growth opportunities. We are now ready to move to a new chapter. Upon close of the Performance Chemicals transaction later this year, we will officially become ecovyst, a pure-play catalyst and services company. ecovyst is a catalyst for positive change with technologies that will play a critical role in supporting ecological health and propelling expansion and growth for our customers. ecovyst has 2 industry-leading businesses, Eco Services and Catalyst Technologies, formerly known respectively as Refining Services and Catalysts. The products and services of these 2 businesses have proven track record and command #1 or #2 positions with our customers. Let's take a close look at each of these businesses and beginning with Eco Services. With significant sulfuric acid processing know-how and extensive network, we are the largest player in North America with a market share of more than 50%. We provide end-to-end regeneration services or recycling of spent acid for alkylation producers. It is important to note that alkylate is benefiting from a demand shift to higher octane gasoline as it is a critical fuel component in meeting higher standards for fuel efficiency and lower emissions. Additionally, we provide specialty-grade high-purity virgin sulfuric acid for a number of diverse and growing end uses. Among them are mining, particularly copper for electronic applications, production of lead acid batteries for all types of vehicles, water treatment and agricultural products. Given our demonstrated reliability and the value of our products and services, we have historically earned adjusted EBITDA margins in the range of high 30s to low 40s percent. As for Catalyst Technologies, with a significantly long lead time required for customers collaboration, this business is a leader in engineering, proprietary and customized technologies for cleaner fuels, emissions control and waste reduction. Our silica-based catalysts are specified by the largest global polyethylene licensors and producers, supporting their requirements for higher performance in terms of durability and lightweighting. We also have a 50% interest in the 33-year joint venture with Shell, where we have leading expertise in zeolite-based catalyst technology for tightening environmental standards for global fuel emissions. Historical adjusted EBITDA margins have been in the mid- to high 30% range. These 2 businesses are highly complementary. And while each of these businesses have strong attributes on a stand-alone basis, they benefit from complementarity of the combination in the portfolio. We expect the shared value to increase as we advance our plans to expand our products and services offerings to accelerate customers' transition to a sustainability-driven future. Our competitive advantage across the 2 businesses is our industry-leading commercial and technical expertise in silicas, zeolites, sulfur and catalyst technology. This expertise developed from a long history and track record of customization and commercialization of many new products, processes and applications for emission controls, shifting fuel mix and environmentally friendly polymers as well as a wide array of other industrial applications. We are enthusiastic about the future prospects in terms of the underlying global fundamental trends favoring our businesses. With growing evidence and concerns regarding the pace of climate change and air quality levels, we are positioning for 3 key trends over the next few decades where we can be part of the solution. The first is increasing standards and obligations for manufacturers to make meaningful efforts to reduce the environmental footprint of their activities. The second is a shift to cleaner energy sources, particularly for the transportation industry. And the third is the growing urgency for recycling solutions for plastics. These dynamics create a momentum for extended and new emerging end uses, which require strategic considerations and clear prioritization. To expand on this point, I would like to highlight a sample set of ecovyst's competitive advantages in serving various key demand end uses. We play from a position of strength, collaborating with key global customers and deliberately focusing on niche products and services offerings. We have a differentiated business proposition as a result of either proprietary technology positions or processing know-how and strategically located infrastructure. This differentiated business proposition has and will continue to enable us not only to grow in excess of end-use demand trends but also to gain additional market share as we move into application adjacencies with our customers and deliver sustainable margins. Some of the key points to note related to our approach: first, the entire market potential is large, with some submarkets being more commoditized and with slower growth, which we are not targeting; second, we intend to focus on high-growth, high-return markets where we are already strategically positioned in the supply chain; and third, these market segments exceed $9 billion long-term opportunities or potential for ecovyst. Our expansion into these target areas would be largely driven by existing organic investment and selected tuck-in acquisitions. Our portfolio continues to aggressively minimize the environmental impact of our footprint and operational network while we also innovate with our products and services to support customers' performance requirements and serve their long-term sustainable trends. Eco Services helps customers avoid landfilling or deep well disposal of approximately 1.5 million tons of spent acid. On an annual basis, this is more than any other similar entity in the world. We are also one of the largest consumers of sulfur byproducts, enabling them to be converted to other applications. All of our sites operate to ensure optimum energy efficiency, including burning waste material and recovering processed heat to produce steam, which we use to co-generate electricity to power our operations. This drastically reduces our need to purchasing natural gas to power our facilities by nearly 50%. Further, Eco Services has world-class low sulfur dioxide emissions. Through the use of high conversion and tail gas best available scrubber technologies, thereby reducing SO2 emissions from our sites, achieving 99.9% or better control efficiencies. Catalyst Technologies help our customers meet evolving regulatory requirements for the reduction of sulfur from diesel fuel and reduction of NOx emissions from diesel engines through our custom zeolites. Similarly, our specialty zeolites and silica-supported catalysts enable our customers to improve fuel economy and utilize renewable resources through development of lightweight polymers and renewable transportation fuel. As for our future operations footprint and impact commitments, let me frame some of our key objectives over the next few years. We are particularly proud of our health and safety performance and unwavering in our commitment to the health and safety of our employees, contractors, the communities in which we operate and our customers. As we support our customers in achieving their own sustainability goals, we anticipate improving our environmental performance and have implemented a comprehensive set of sustainability goals for 2025 and 2030. Let's highlight a few of these goals. In terms of decarbonization, we have been focused on optimal energy efficiency in lowering the emission profiles for over a decade. We already procure more than 30% of our electricity consumption for Catalyst Technologies from renewable sources and will be increasing our reliance on renewables over time. On greenhouse gas emission intensity, we are already a considerably lower emitter than our peers. But we will not standstill. Over the next decade, we are targeting a further reduction of 15% by 2025 and at least 25% by 2030. Our businesses will continue to investigate new ways to recover heat from our processes and incorporate a lower carbon emission strategy. Regarding waste generation, while we are currently lower than our peers, we will reduce our hazardous waste by 40% by 2025 while also reducing our nonrecyclable waste by 15%. And key to all of this is our innovation platform. With decade of proven expertise and success, we rely on market and customer-based approach to managing the development of our pipeline. This has been critical to driving our growth through the timely introduction of products and solutions, particularly with changing trends in the key areas of sustainability. About 80% of our phase 1 to phase 3 projects currently in our pipeline are focused on providing sustainability solutions to our customers. Our strong partnerships enable us to provide the necessary support to our customers at every step of the journey, from clinical technology support during the laboratory phase to pilot scale development to serving as a trusted supplier during commercial-scale use. So far, I have discussed our organic strength and attributes. Now I'll briefly cover our plan to supplement our growth through inorganic acquisitions. We will focus on tuck-in acquisitions within our 2 businesses that will diversify our technical and services capabilities while also participating in the growth with our customers and driving higher value for our shareholders. We have identified a pipeline of attractive opportunities that would be strategic, accretive or both, such as the recent Chem32 acquisition by Eco Services. And while we cannot predict timing, we believe that over the next few years, we will be complementing our growth with some small-sized inorganic bolt-on acquisitions. So bringing this all together, we're now a simpler and stronger company with market-leading positions in our 2 businesses. We have demonstrated our execution capability, delivering strong organic growth and sustainable margins. We have good organic growth prospects, aided by favorably growing environmental trends and sustainability needs for our customers. Through 2025, we expect to sustain a high single-digit average annual organic growth with mid- to high 30s percent average adjusted EBITDA margins. And including potential inorganic additions and reflecting our strong operating leverage, we are anticipating a low double-digit adjusted EBITDA growth. So by 2025, we are forecasting total sales to exceed $1 billion, adjusted EBITDA margins to be in the high 30s and cash conversion to be at or exceed the 80% range. Finally, with leading business positions, growth and margins that are consistently higher than relevant peers, we believe that our share price should re-rate higher to close a significant relative valuation discount. Let me conclude my remarks by briefly introducing the rest of the team that is here with me today. Next, you will hear from Kurt Bitting of Eco Services and Tom Schneberger of Catalyst Technologies as they provide you with a deep dive into each of these businesses. They will be followed by Ray Kolberg, who will discuss our innovation and sustainability platform. Mike Crews and Mike Feehan will follow Ray and provide more details on our financial outlook. At the end, I will offer some closing commentary before we turn to your questions. And with that, I'll turn this over to Kurt.

Hello, everyone. My name is Kurt Bitting, President of Eco Services. It's great to be here with you today to introduce the business and share some of its attributes and strategic priorities. I'll start with a few basics. Our market is large, increasingly essential and growing. Sulfuric acid is the most widely used commodity chemical in the world, and it plays a critical role in the production of key products for the new economy of the future. Eco Services supports these markets with a century-old track record in sulfuric acid, which has allowed us to align with industry leaders in growing markets and supports consistent revenues and high margins. We are excited about the markets we serve, and we plan to participate in the growth by using our core competitive advantages to increase our top line and expand margins. Let's review Eco Services and its 4 key product lines. First, regeneration. We are the North American market leader in sulfuric acid regeneration, supporting primarily refinery alkylation. Next up is virgin acid and sulfur products. Here, we are the leading North American supplier of high-quality virgin sulfuric acid. This includes numerous specialty-grade acids that are required by our customers. In the lower right, we have the treatment services business. Here, we safely incinerate compatible and pumpable hazardous and nonhazardous waste for our customers while recovering a significant energy value from the process. Last but not least is our newest business, Chem32, which is using a novel and proprietary technology to activate hydroprocessing catalysts for refineries and renewable fuels producers. This product tree represents how the processes interact to produce our valuable services and products. Like so many recipes, the ingredients come together in the oven, in this case, a furnace set to 1,800 degrees Fahrenheit. Spent sulfuric acid is injected in the furnace along with sulfur and waste. Our process expertise enables us to balance the appropriate amount of sulfur and waste, both of which contribute thermal energy to minimize the natural gas usage required to incinerate the spent acid. The products from our furnace and production process are regenerated or recycled sulfuric acid, which goes back to the refinery; and high-quality virgin acid, which ships to a diverse set of industries, including nylon production and mining. The few byproducts that our process generates are converted into the sulfur co-products. These are sold into the agricultural, paper and water treatment markets. Chem32 uses a patented sulfur technology to activate fresh catalysts for direct shipment and usage by refineries or renewable fuels plants. Let's look at a few more snapshot views of the business. We are the leading sulfuric acid regenerator in North America, servicing a bit more than half of the market. 95% of our regeneration sales are covered by long-term agreements with capacity reservation fees or take-or-pay commitments. This gives us a terrific baseload for revenue and cash flow visibility. Eco Services is also the market leader for virgin sulfuric acid, where we focus our sales into high-growth segments that require superior quality and reliability. In addition, both the regeneration and virgin acid lines have a very high degree of cost pass-through, which means that our high margins are also quite stable. While regeneration, virgin acid and treatment service businesses are all North American-based, our new business, Chem32, sells more than 50% in the international markets. In North America, 2/3 of refinery alkylation capacity rests in the U.S. Gulf and West Coast, the regions where we have the majority of our capacity. Our customers also export their end products from these same regions. I want to emphasize that the regeneration industry utilization is above 90%. And here, our geographic concentration of plants, unrivaled production redundancy and logistics assets lets us provide our customers with industry-leading reliability. Our locations also give us great access to sulfur from refineries, which we convert to virgin acid to service the nylon industrial applications in the Gulf Coast and the rapidly growing mining segment in the southwest. For the majority of our customers, we are their 100% supplier, and they depend on us to completely manage the supply chain. We remotely monitor their production and inventories with telemetry and we push and pull shipments accordingly. We like to say that we create a pipeline between our plants and our customers, utilizing tailored logistics assets. Sulfuric acid has 3 primary areas of supply. First, copper, nickel and lead smelters generate sulfuric acid as a byproduct. This asset is generally lower quality due to a higher metals content and it only comes in one generic strength. Smelters cannot regenerate. Next up, phosphate fertilizer producers do, in fact, produce most of the world's commodity sulfuric acid, but this is low quality and stays inside their fence lines. Fertilizer plants also cannot regenerate. On the other hand, we produce sulfur-derived sulfuric acid in conjunction with our regeneration process. We are able to make multiple grades based on our customer demand and can produce the highest-quality products. While sulfuric acid is the most widely used commodity chemical in the world, the majority of this is consumed for captive phosphate fertilizer production. That's not where we play. Instead, we focus on customers that require a high degree of service and quality and are willing to pay for it. Our plant locations are well aligned to service refining and industrials in the Gulf and refining and mining on the West Coast. A major avenue for future growth is sulfuric acid alkylation. Alkylate is a high-octane product and the cleanest fuel-blending component. On average, alkylate makes up 13% of U.S. gasoline and is typically one of the top margin products for a refinery. It's no surprise that some in the industry call it liquid gold. Because of this high value, refineries desire long-term regeneration supply contracts to support their alkylation. The demand for alkylation and the resulting sulfuric acid regeneration is being driven by tighter gasoline standards. In 2020, the U.S. fully implemented a sulfur reduction in gasoline, dropping the allowable limit by 2/3. The refinery hydrotreating process used to remove this sulfur also destroys octane. This requires adding back a high-octane low-sulfur component without putting another gasoline spec out of tolerance. Only alkylate has the ability to do this. Higher fuel efficiency standards also encourage carmakers to produce smaller turbocharged engines that deliver equivalent power but consume less fuel. These engines primarily consume premium-grade gasoline, which is 40% to 50% alkylate. The increasing demand for octane and premium fuels has resulted in a widening price spread between premium and regular gasoline. Finally, our Gulf Coast customers are taking advantage of growing gasoline exports, which are prized because they don't require ethanol blending but do require alkylate. Sulfuric acid is used as a catalyst in the refinery alkylation process. The refineries require a high-strength 99% sulfuric acid, use it in their process and return an 87% strength spent acid to Eco Services, where we incinerate the contaminants and return the 99% fresh acid to them in a truly circular process. Over the past 50 years, the overwhelming majority of refineries have permanently outsourced their acid regeneration needs in order to reduce their capital costs and increase regeneration reliability. Since the refinery acid storage capabilities are very low and industry utilization is so high, refineries need to partner with Eco Services in long-term volume guaranteed contracts. Beginning in 2016, we commenced a debottlenecking program to add 35% more regeneration capacity to our Gulf Coast plants. This new capacity has added the equivalent of a new plant to our network. I'm pleased to say we will be fully utilizing all the added production and logistics capacity by the end of 2021 with the commencement of a new long-term customer agreement. Our 3 unique virgin acid products are: oleum, which is used primarily for nylon production; high-strength sulfuric acid, used primarily for copper and boric mining applications. These segments are linked to electrification, construction and personal devices. Electric vehicles contain 3x more copper than a combustion engine vehicle, which is driving increased mining activity in the U.S. Our high-purity or electrolyte sulfuric acid is used in many different industries that require stringent specification. This includes petrochemical and chemical industries concentrated in the energy-advantaged Gulf Coast along with new economy end uses, such as batteries and semiconductors. We are the only North American regeneration producer that possesses RCRA hazardous waste permits. This allows our treatment service business to handle a variety of waste, which provide a fuel source as well as sulfur that we can recycle into sulfuric acid. This leads to a very high contribution margin for treatment services. The demand for waste off-take is growing because waste generators want to avoid deep welling in landfills. Our plants in the Gulf Coast also sit in close proximity to customers, which cuts down on both cost and the risk to the shipper. Our newest business, Chem32, performs refiners catalyst activation ex situ or off-site. This enables refiners to start up more quickly, eliminate safety and environmental hazards and avoid waste generation that comes with traditional on-site catalyst activation. This business is positioned to grow for several reasons. First, refineries increasingly lack in-house expertise for on-site activation, and they want to avoid the HSE and waste concerns. And renewable fuels producers, which are rapidly growing in number, lack the ability to perform on-site activation. At its core, our business is rooted in sustainability. The acid regeneration recovers 99% of the sulfuric acid in the process. Our production of virgin acid lowers our natural gas usage and GHG emissions while producing 17 megawatt-hours of green electricity with captured byproduct steam. Treatment services provides a fuel source while eliminating waste, and Chem32's technology greatly reduces the risk on-site catalyst activation. While we like our growth projection, our superior process expertise will enable us to implement proven initiatives to drive higher margins. These include: capturing additional steam to enhance green power generation; increasing our sulfur processing and virgin acid loading capacity, which will enable us to capitalize on the growing markets while lowering energy costs; and expanding our treatment service capacity to further lower energy consumption. We are excited and confident about our long-term growth potential. We have been preparing for this growth for several years now. We debottleneck plants and logistics, which will allow us to better operate at high capacity utilization, serving a new long-term customer as well as growing demand at our other refinery customers, driven by alkylation fundamentals. In addition, the rapidly growing demand for virgin acid in mining and other specialty sectors aligns very well with our locations and production capabilities. And Chem32 has an exciting future with a large untapped market of refinery still performing in-situ activation and the rapidly growing renewable fuels demand. In summary, we will deliver shareholder value by capitalizing on the growth of our diverse markets; leveraging our process and logistics know-how to target capital-efficient expansion, which allows us to continue our long-term partnerships with industry leaders and maintain strong and stable margins; continue to expand our focus on sustainable solutions; and leverage our existing customer relationships and reputation for outstanding service to grow inorganically. That's our story. We're an essential part of our customers' business. We have high and expanding margins, and we're committed to being a key engine in delivering value to our shareholders. Thanks for your time today. Now I'll turn it over to Tom Schneberger, who will talk to you about Catalyst Technologies.

Thanks, Kurt, and good morning, everyone. I'm Tom Schneberger. I joined the PQ team about 1.5 years ago to lead our strategy and business development effort. A few weeks ago, I transitioned to lead our Catalyst Technologies business. I'm very excited to tell you more about this business and where we'll be focused over the coming years. Our business has an exciting path ahead with increasing demand for existing products and frequent requests from customers to collaborate in the development of new catalysts. As you'll see throughout this presentation, our team's focus is narrow and deep. We selectively allocate our resources to provide differentiated technologies that are adopted faster than the growth rate of the broader markets we serve. In addition to attractive organic growth, we have opportunities to expand into near adjacencies where our expertise and customer relationships are highly relevant. And due to our close collaboration with customers, we continually refine the performance of our products relative to specific needs. This added value enables us to qualify new products and advance the demand and command attractive sales margins. These important attributes provide an excellent vehicle for top line growth with attractive margins. Let's take a step back for a minute and review the Catalyst Technologies' business structure. Our business is made up of a wholly-owned entity that's focused on silica-based catalyst technologies and a joint venture with Shell that's focused on zeolite-based technologies. Our silica catalysts team is primarily focused on the increasing demand for stronger, lighter polyethylene resins and films. In this space, we continue to grow as leading innovators of silica catalysts and catalyst support. In addition to catalyst for polyethylene, we developed custom silica catalysts for other chemical and material processes. The Zeolyst partnership with Shell was established over 30 years ago. Our team is uniquely capable to manufacture new zeolite-based materials tailored for the desired applications. As we transition to an economy with cleaner fuels and reduced emissions, Zeolyst will play an important role. Our business has the advantage of continually innovating with customers to improve the performance of the products that they make. In this role, we enable our customers to meet the increasing and evolving requirements of the markets they serve. In addition to a clear focus on the polyethylene, fuel and emission control segments, we develop, manufacture and supply novel custom catalysts for niche applications where our technologies outperform existing products. We sell our products globally, with a large portion of our current sales in western economies and continued growth in Asia Pacific and Middle East regions. Regardless of the market segment and geographic location, our business provides fit-for-application catalysts and catalyst supports that outperform other products. Once our products are selected, switching costs are frequently high, and we're generally well positioned to collaborate with the same customers to serve their longer-term needs. Our product development and applications testing take place at 4 global R&D centers, with 2 located in the United States and 2 located in Europe. Ray will discuss the purpose and capabilities of each of these locations during the technology portion of today's presentation. Our production network includes both owned assets and tollers. This plant network is both global and flexible, giving us the capability to rapidly respond to customer needs. Over the past decade, this network of technology centers and manufacturing sites has repeatedly proven its expertise to develop new products and scale them up to commercial production. Our customers are served by a global sales force that is deep in specific areas of catalyst technology. Our sales team works closely with our innovation centers to understand the performance of current products and to identify opportunities where we can create additional value. Our integrated sales, manufacturing and product development network creates win-win relationships where customers trust us for reliable supply and for continued innovation. Additionally, the smaller size and focused nature of our business allows our team to be agile, creating many opportunities to expand product offerings. The continued development of Catalyst enables us to play an important role in our customers' sustainability journey. We're focused on 2 important long-term secular trends, the clean energy transition and the circular economy for plastic. Both of these trends continue to accelerate and neither is new to ecovyst. Our catalysts are often designed to make polyethylene with improved performance characteristics like strength-to-weight ratio while reducing life cycle impact of the plastic. Additionally, we have multiple projects in various stages of development for the recycling of polymers. Within fuels and emissions control, our products help to meet increasingly strict emissions control requirements, and they're used in the production of renewable fuels. Finally, the increased focus on ESG is driving many companies to rethink traditional manufacturing processes in an effort to create an improved environmental profile. This trend is creating increased opportunities for niche custom catalysts, including several that are in various stages of development for the production of novel renewable materials. When we take a look at the value chains we serve, it becomes clear that our products play a critical role in our customers' current production as well as their efforts to address sustainability trends. In this simplified diagram of the polyethylene value chain, our traditional catalysts are used to form polyethylene at location number one. The catalysts are consumed during the production process and must be replenished as more polyethylene is made. These catalysts enable the cost-effective manufacturing of polyethylene with specific performance characteristics. Below the diagram are examples of characteristics commonly requested by customers, which provides us opportunities to sell improved design-for-purpose catalysts. As progress is made towards a circular economy, the types of catalysts used at location number one will remain relevant while chemical recycling processes for polymers will create new opportunities for ecovyst and position number two on this diagram. Our current product development pipeline has active projects for each of these types of catalysts. Similarly, if we use the diesel value chain as an example for fuels and emissions control, we're increasingly realizing sales for products that enable renewable fuel production. This is in addition to the recovering demand for more traditional hydrocracking and emission controls catalysts as shown in locations 1 and 3. As global energy requirements continue to increase, we believe the evolution toward a cleaner and more efficient fuel mix, combined with increased emission reduction requirements, will provide more demand for our business over the next decade in aggregate. Using the chart that Belgacem shared earlier but focused on catalyst markets, we can see that there are many types of catalysts, each requiring specific expertise. The green circles on this chart indicate our strategic focus areas. On average, these areas are growing faster than the broader catalyst market. More importantly, these areas are at the high end of our competitive advantage based on current talent and assets. This means we are well positioned to continue growing our product offering within the defined space. Our discipline not to focus in some larger markets where technologies are further from our core enables us to focus resources and continue to achieve faster-than-market growth in our target space, which is over $6 billion in total size. Let's take a closer look at demand growth trends, starting with polyethylene. Polyethylene demand remains strong. This is one of the few segments that continued to grow during 2020 as stay-at-home conditions and health and hygiene trends offset the broader economic slowdown. We expect this market will continue to grow at about 4% per year as a growing middle class increases global per-capita demand. The trends shown on the right of this slide are making polyethylene a preferred material that is being specified with increasing performance requirements. We expect our customized catalyst products will continue to support sales growth at more than 2x market growth rate in this segment. Turning to fuels and emissions control. Our addressable market is more than $1 billion in size. The demand for catalyst continues to grow in this segment as the fuel mix shifts and environmental requirements tighten. The continued demand for traditional fuels and the increasing demand for renewable fuels both provide clear opportunities for our proprietary zeolite products. Our emissions control product line will also benefit from tightening environmental standards worldwide. Coming off a demand disruption driven by the pandemic, we expect demand growth of high single-digit percentages in this segment through 2025. Our technologies are also advantaged for niche, high value-add products within larger markets. While each application can take multiple years to develop with the customer, the results are novel products that we are exclusively positioned to sell. We're seeing demand for novel catalysts continue to increase as customers seek the development of renewable materials and more efficient production. The customers we serve increasingly require innovation partners they can trust. Their own product development, capital investments and go-to-market strategies require the technologies and manufacturing expertise that ecovyst provides. Over the past decade, we've built and refined our abilities to take concepts from unmet customer needs to production on an accelerated basis. Additionally, our ability to manipulate crystal structures, surface areas, poor volumes and other material properties often results in novel materials that we patent. Our innovation projects start with customer performance requirements and the development process is collaborative from start to finish. As a result, we developed a deep understanding of the applications we serve, and we're able to customize catalyst materials to serve the shifting needs of our target market. You'll hear more about our innovation pipeline later in the program. So when you put it all together, what does this mean for ecovyst's investors? We expect organic revenue growth at a 10% CAGR through 2025, with each of our 3 segments contributing. As we exit this downturn and restore our manufacturing network efficiencies, we expect our adjusted EBITDA to increase at a 15% CAGR through 2025, with improving margins over the time period. In addition to these strong organic growth rates, we see upside potential via our innovation pipeline and inorganic growth. To summarize, a few key takeaways to remember. We provide innovative technologies in growing markets. We selectively invest where we can grow faster than the market. And our customers rely on our tailored offerings, incorporating them into their processes, which results in predictable and sustainable growth with strong margins. Thanks for your interest. In 10 minutes, we'll be back with a technology overview. [Break]

Hello, everyone. My name is Ray Kolberg, Vice President of Technology and Business Development. I'm excited to be here today to discuss what has historically been and will continue to be the driving factor behind our success and the force multiplier for our future ambitions. I will give an overview of our innovation and technology development portfolio, processes and their relevance to the future industry drivers. First, I would like to stress 3 important takeaways from my presentation today. We collaborate with customers to develop and produce sustainable products that are increasing in demand. We are with our customers at every stage from the laboratory to full production scale. We take a structured approach to our innovation and enjoy an innovation pipeline that is both rich and relevant, addressing the shifting industry drivers in order to deliver value creation. Let me elaborate further. We have an in-depth product development and science competency, allowing us to both tailor and scale specialty catalysts to meet changing demands. We have instituted a disciplined innovation process to reduce time-to-market, which has allowed us to build a rich and relevant product development pipeline to drive new growth. Our technology investments have positioned us well to be leaders in developing novel catalysts that address unmet needs across a broad customer base. We have extensive R&D capabilities to drive growth. We develop our novel catalysts in Conshohocken, Pennsylvania and in Warrington in the U.K. In addition, we collaborate with other world-class scientists at Shell's technology centers through our Zeolyst joint venture to develop novel refining catalysts, and this all is done in close collaboration with our customers' research and development groups. Through our approaches, we develop unique fit-for-purpose catalyst solutions. Our innovation investments have given us extensive pilot plant capabilities and technical support to help us partner with customers through every step of the development process. In addition, we offer strong technical service and support, especially through our Eco Services business. I'd like to take you through our balanced development portfolio approach, which blends the needs of current and new customers as well as current and new product and technology offerings. We use a market-focused approach to expand to the new market with derivatives of existing materials. We also use a technology-focused approach on new products to meet the changing demands of existing customers and a step-out business focus to selectively create new novel catalysts that position us to expand in the market adjacencies. For example, our competency in sulfuric acid allows us to expand existing technology offerings to new markets Like the electronics industry. We have created next-generation zeolite-based dewaxing catalyst, with improved performance for existing customers and have developed novel advanced ion exchange catalyst for a new market adjacency in metals removal and recovery. Against this backdrop, we instill a structured innovation process that drives efficiencies from idea generation to commercialization. This stage-gated process has reduced the timeframe for novel catalyst platform development, which has historically taken 5 to 10 years to just 2 to 4 years. And we've been able to drive derivative products from existing platforms, on average, to less than 1 year. You can imagine what benefits that compression of time brings to our customers with a matching value creation for investors. Now I mentioned that we have a rich and relevant pipeline of new products. As you can see from the sample pipeline, we have a very active ideation process, which aligns to the market drivers, our customers' challenges and other research and academia sources. This drives a healthy number of new products in varying stages of development. These relate to critical themes such as emission control, light weighting and improved performance of polyolefins, custom fit-for-purpose catalyst applications, renewable fuels and renewable materials. Our commitment to innovation is how we differentiate ourselves in the marketplace as we tailor catalysts to meet our customers' specific needs and support them in addressing their challenges. To illustrate some examples of those innovations, we're in the demonstration phase of a custom catalyst that enables the chemical recycling of mixed plastics. Our zeolite catalyst is especially adept at converting the mixed plastic streams into higher-value carbons of shorter length, while allowing lower energy consumption in the process. We are also in the pre-commercialization phase of introducing a novel catalyst for converting biomass in the aviation fuel to support the sustainability goals of the airline industry. Proven processes like Fisher Tropsch's gas to liquids is used, which is enabled by our Silica Catalysts. And lastly, we are launching a new emission control catalyst that meets the regulations for China VI with improved process ability. Our zeolite catalysts are used to convert NOx to nitrogen and are effective over a wide temperature range of the exhaust system to meet ever-tightening regulations. This pipeline carries with it a very strong tie to sustainability. We continue to develop products that improve air quality through lower sulfur and NOx emission and fuels. We are focused on the development of catalysts that help make plastics stronger and lighter, and enable the recycle of mixed plastics to complete the circularity curve. We also enable higher alkylation for improved fuel economy and help transform biomass into biofuels and synthetic rubber for green tires. Sustainable products continue to be a larger part of our R&D investment. Our innovation investment ratio on new sustainable products has gone from 60% in 2015 to 80% in 2020, and we anticipate further advancement to 90% by 2025. In conclusion, we have depth in product development and science competency to develop fit-for-purpose sustainable catalysts through close collaboration with our customers. Our extensive capabilities allow us to accelerate technology support from laboratory to production scale, and we are an operating and supply partner at every step of the journey. And finally, we have a structured innovation approach and process with a key focus on sustainability that has resulted in a rich and relevant pipeline for growth. Thanks for listening to our approach to innovation and technology. At this stage, I would like to introduce Mike Crews.

Thank you, Ray, and good morning, everyone. Before I begin the presentation, I want to say what a privilege it has been to serve as CFO of this company over the past 6 years. It's been an honor to play a role in a business that creates value, overcomes headwinds, reshapes the portfolio and positions itself for substantial growth going forward. Today is also a great opportunity to demonstrate our deep bench and introduce you to another Mike, Mike Feehan. Mike is our current Vice President of Finance and Treasurer, and has been with PQ for more than 14 years, seeing the company through a number of changes and improvements. He has a deep knowledge of the business after wearing both the Controller and Treasurer hats over time, and he's worked directly for me for nearly 6 years now. I believe many of you on the research side met Mike during the IPO process, and he also has a strong relationship with fixed income investors. He's looking forward to developing similar relationships with equity investors and the analyst community. We are excited to speak with you today about our track record of performance and more importantly, Ecovyst's strong growth opportunities that lie ahead. Today, we will discuss our ability to grow the topline and the sources of that growth, the repositioning of the portfolio into catalysts and services, which consistently generate very high margins and cash flows, and our plan to invest those cash flows organically and inorganically for faster growth. We will also demonstrate that an expanded peer set is called for, which reflects our higher growth and margin profile and also is deserving of a higher trading multiple. From 2017 to 2019, the Ecovyst businesses grew topline and adjusted EBITDA by 7% each. This was led by higher pricing on contract renewals for regeneration services, strong hydrocracking catalyst demand and steady growth in polyolefin catalyst products. And these are all trends that we expect to continue going forward. Adjusted EBITDA margins for this business are strong and resilient, totaling 35% in 2019 and averaging 34% over the period. This is outpacing our specialty chemical peers by more than 50%. As Mike Feehan will further discuss in a few minutes, we have expanded our peer set to include other chemical companies with similar margin and/or operating profiles, and you can see that we compare favorably to those as well. We've reviewed topline growth, adjusted EBITDA growth and expanding margins. These dynamics translate into high cash conversion rates. Since 2017, our cash conversion rate has expanded by 500 basis points and actually improved in 2020 as we have tightly managed costs and capital spending through the pandemic. Overall, legacy PQ generated an estimated $2.7 billion in cash flow and net proceeds from our asset sales since the IPO. And that strong cash position was allocated in a very disciplined fashion. Half was used for debt reduction, a quarter was reinvested in the business for both capital expenditures and our recent Chem32 acquisition, and the rest has been allocated to special dividends. When the sale of Performance Chemicals business is completed later this year and the related dividend is determined, we will have paid out between $585 million and $685 million in special dividends to shareholders. That's a strong track record of high growth, great margins and significant free cash flow from these businesses, and we believe that the best is yet to come. With that, I will turn the presentation over to Mike Feehan to review our future growth opportunities.

Thank you very much, Mike, and good morning, everyone. While there's no question that Mike Crews leaves big shoes to fill, I'm excited to dive right in. I look forward to meeting those of you who I don't know yet, and I'm thrilled about the direction of the new Ecovyst. As you just heard from the business leaders, our expectation is for Eco Services growth to be driven by the continued strong demand for alkylate used for high-octane gasoline, rising nylon requirements for light weighting vehicles as well as industrial and mining demand in our virgin sulfuric acid business. The Catalyst Technologies trajectory is expected to lead the way with low double-digit sales growth, particularly through our preferred technology and custom catalyst product offerings in polyolefin and other chemical catalysts. Growth in our Zeolyst joint venture will be driven by the shift to renewable fuels as well as the further demand for increasingly cleaner traditional fuels. For the 2020 to 2025 period, these topline drivers are expected to increase our compounded annual sales growth to 8%. And coupled with a smaller corporate footprint and tightly managed fixed costs, we expect to increase our adjusted EBITDA growth to 11% while expanding our margins throughout the same period to be in the high 30s by 2025. Turning to the cash performance. You'll see that rising cash conversion rates from 2017 to 2019 are expected to escalate, growing to an estimated 80% by 2025. The increase is expected to occur primarily on adjusted EBITDA growth across both businesses, led by Catalyst Technologies. In addition, we have moderate capital investments in the coming years. Several growth and debottlenecking projects have recently been completed, and we are beginning to see the benefit in sales and adjusted EBITDA growth. Shifting over to our capital allocation strategy. We expect to continue to generate strong free cash flow, and we believe Ecovyst will have numerous organic and inorganic opportunities for growth. Internally, We expect to have multiple future investment opportunities, including capacity and product line expansions across the businesses. Externally, we will continue to target bolt-on acquisitions such as Chem32, which is highly synergistic from a commercial perspective. Our filters for bolt-on acquisitions include new technologies that are accretive and/or strategic to our existing businesses, while being manageable from a capital requirement perspective. While much of the focus over the next several years will be on growth, we will also tightly manage our leverage. We expect to end 2021 with a leverage ratio in the high 3s as a multiple of adjusted EBITDA. Then, as we go forward beyond 2021, we expect to reduce our leverage by 0.5 turn a year, primarily from the strong adjusted EBITDA growth. Now that the new company has a portfolio focused on catalyst and services with higher growth and stronger margins, it is important that the consideration for identifying peer companies to Ecovyst are well scoped within the relevant and comparable industries. We surveyed a spectrum of companies with similar financial metrics, including growth, margins and cash conversion rates, along with a similar environmentally focused profile. As a result, we identified additional peer sets in the electronic chemicals and recycling and environmental services spaces. We believe that these selected public companies best represent an appropriate peer set for Ecovyst, given their comparable financial metrics, business profile and end uses. In comparing the peer data, this analysis suggests that even after a positive share price performance in recent months, and an even better total shareholder return, given both recent and planned special dividends, a further rerating of Ecovyst valuation as necessary. As we have demonstrated today, Ecovyst is a unique and compelling investment. We have a proven track record of good growth in both sales and adjusted EBITDA, high margins and strong cash conversion. Each of these key financial metrics is expected to improve over the coming years, validating the rationale that these metrics define a far more attractive profile than our peers. At our current share price, Ecovyst is trading at a discount to those peers. That suggests that an investor buying into Ecovyst today can expect to receive higher topline growth, higher adjusted EBITDA growth, leading margins as well as a likely upcoming special dividend, and they can also hope to take part in closing the valuation gap as our multiple improves over time. To tie this all together, We are very excited about the growth we see for Ecovyst over the next few years. By 2025, we expect revenue to be over $1 billion, with only approximately 10% of that coming from M&A. And our already strong cash conversion, margins and growth rates are expected to accelerate, further differentiating us from our peers. With that, I would like to thank you for your attention, and turn the mic back to Belgacem.

Thank you, Mike. We hope that you found the presentations by the management team to be helpful in deepening your understanding of Ecovyst, and its future growth potential. In closing, I'd like to leave you with these key points. We have focused on driving cultural change and improving execution on multiple fronts, and we now have a solid foundation from which we deliver strong growth. We are operating in industries and end users where growth will accelerate, benefiting from the transition to more favorable environmental demand trends. The solutions required to enable the transitions represent real opportunities for our products and services offerings to expand with a growing and more diverse end-use demand. Our long history of innovation expertise and close customer collaboration supports the development of technologies and services that embed us in our customers' production processes. We have a high degree of visibility to our growth and strong free cash flows due to the nature of our contracts, niche products and services positions and close collaborations with leading industry global players. We expect high single-digit topline growth, organically, with strong and sustainable margins, plus we see opportunities to further enhance our growth with selective, complementary and strategic tuck-in acquisitions. To sum it all up, we believe that our share price should re-rate higher to close the current significant relative valuation discount. And now we will take a 5-minute pause before the Q&A session. [Break]

Welcome back. We're now moving to the Q&A session of our program. [Operator Instructions] In the meantime, I'm going to turn this over to Belgacem for a few remarks. Belgacem?

Thank you, and welcome, everybody. I just would like to make a couple of comments before we dive into the Q&A. The first one is with respect to the health protocols, we've elected to do this virtually, and we also elected that our team is split in 2 separate locations. So I'm sitting here in Houston, Texas with Tom Schneberger and Kurt Bitting and Nahla Azmy. And we have the team in Millbourne, Pennsylvania, that's Mike Crews and Mike Feehan and Ray Koberg. Point number 2 is that today, we elected to display our team, our strategy and we gave you as much as we could give you of information going forward. This is a day for my team to be present and participate and also for you to get to know them. So what I'm going to do today is because of the process, I will take the questions. I'll answer some, but I will definitely send some of the questions to the team, and allow you to have that knowledge -- a little bit more knowledge. And we will definitely get to your questions that we won't be able to answer today for time at a later time. With that, we're ready to take the first question.

Great. First one. Anonymous. My apologies, I missed your opening remarks. Is PQ changing its name to Ecovyst?

Well, first of all, Mr. Anonymous, sorry, you missed my opening comments, but here it is. PQ Corporation or PQ is a brand that lasted with our company for almost 200 years. It carried the company brand and the company value for so many years. And most likely, it carried the chemicals component of our company. As we shift with the strategy to where we're going forward, it just doesn't make sense anymore that, that brand is well representing the future. So that's why we are moving to a new era where we are creating a brand that's going to be more representative of what we want to be from a sustainability perspective and a catalyst technology and services company. Hence, we're proposing -- we're presenting Ecovyst as the future brand for the company once we close the chemicals transaction.

Next one. Anonymous. Why are you guys so excited about growth and refining when everyone else believes that beyond the COVID bounce that the industry slow growth in a few years -- and in a few years will be declining?

Well, let me first say that sustainability trends usually create a shift in the customer products mix. And the sustainability trends change and shift usually takes time. So we're going to see a transition period where this goes from the traditional products to the future renewable products. I think this is an opportunity for Ecovyst. It is not a headwind, it's an opportunity. And let me explain why. The first reason is our capability that took us to where we are today in terms of catalysts, refining products, with the existing challenging and the past challenging has proven its success. We have managed to grow and we have managed to partner with our customer to the right level of success. Second, is the transition that is going on right now. And the transition is asking for cleaner fuels. It is asking for higher octane gasoline. It's asking for lower sulfur content in the fuel. What does that mean? That means higher alkylation, higher volumes. And what does that mean? It means opportunities for our business. Second, on the polyethylene front, The transition is asking for more durable, more resistible, stronger and lighter products. What does that do? It creates opportunities for our specialty catalyst to innovate and actually flourish in this environment. And I'm not going to mention at this stage the electrical vehicle opportunities for us in the electronics with virgin sulfuric acid because we're going to probably have those questions and we're going to dive into that. So when you put it all together, the potentially perceived as a headwind to our business is actually a tailwind. This is one of the most fantastic opportunity or growth opportunities that we have through the transition all the way to the future products and the renewable products, simply because if you want to get to the renewable products in the future, you have to be working and ready, working on biomaterials, working on biochemicals, working on recyclability of plastic, supporting the industry on the circularity. If you're ready and working on that, definitely, that's the ingredient for being optimistic about the future.

Next one, combination actually because they're similar, 1 anonymous and 1 from Dave Begleiter of Deutsche Bank. For catalysts, how should we think of the Catalyst business growth by business segment and also by market segment? And how much of the low double-digit sales growth in Catalyst is market growth? And how much is above market growth? And can you also talk about market share gains?

Okay. So the question is about the catalyst growth components segment-wise and market segment and business segments and share gains, primarily. You know what, David, I'll pass this on to Tom, who is going to explain all those components for you.

Thanks, David. Thanks for the question. So breaking it down into the 3 market segments that we explained earlier, starting with the polyethylene segment. Polyethylene is going to grow high single digits, probably even low double digits growth. And that's driven by the custom catalysts and the trends that you saw in the slides that we presented. As Belgacem mentioned, there's a clear transition toward stronger, more resistant, lighter polyethylene. And if you look back over the past few years, we've been growing 2x the market for the past few years now. So we see good visibility in that trend. In the fuels and emissions control, high single-digit growth, the market is probably growing more mid-single-digit growth. Overall, energy is growing. We've got tailored zeolite materials that are servicing traditional fuels. They're servicing the renewable fuels already, we're seeing sales there. And then the emissions control continues to tighten. So that's the force there. And then the niche custom catalyst, that's a very broad market. And the market growth depends on really where you look at that. For us, we're very nichey in that market, and we're coming off a pretty small base. So it's double-digit growth that we'll see there. And we've got several exciting, very meaningful projects in pre-commercial and commercial stages there. So if you look at the business segments and where does that come in, you got probably high single-digit growth, definitely high single-digit growth in the Zeolyst joint venture coming in through there in terms of topline growth. And then low double-digit growth, coming in -- low to mid-double-digit growth coming in the Silica Catalyst piece. And Kurt, maybe wanted to talk a little bit about the growth in his business as well.

Sure. Thanks, Tom. We're really excited about all the growth prospects for Eco Services. You look at regeneration, it's going to grow slightly above the average for Eco Services. And that's really due to the addition of the new long-term customer plus the trends that Belgacem spoke about for clean fuels and higher octane fuel to improve fuel economy going forward. The virgin acid business will grow slightly less than the Eco Services average, but that's in large part due to it's already our highest volume product. But we're really excited about the growth that we see from copper mining as it's linked to electrification as well as nylon for vehicle light weighting and the other applications that we service in batteries and petchem and so forth. The treatment service business. It really follows in lockstep with regeneration. The more regeneration demand we have, the more ability we have to process treatment service fuels. And finally, our Chem32 business has the highest growth rate of all the businesses, and that's really because it's linked to the renewable fuels industry.

I got some capital allocation. Going forward, where should we expect leverage to go from here? How should investors think about debt reduction, cash uses, ability to add to the platform through M&A?

Great question. First of all, we have had a huge focus on capital allocation for the last -- a couple of years. You -- I think it was explained by Mike how we -- how much we did in what area in terms of use of cash. And we have accelerated our way forward by being very specific on how we're going to allocate the cash. But let me punt this question to Mike, who is going to go through the expected cash results and maybe a little bit more on where we think we should be in terms of leverage.

Well, thanks, Belgacem. Good morning, everybody. On capital allocation, we plan to be very disciplined and very balanced. The good news is we start with a strong base of free cash flow generation. And when you look at our EBITDA growth, our expanding margins, our high cash conversion rates that are rising, that's going to give us a lot of opportunity to, not only reduce debt, but also to invest for growth. On the debt side, you've seen the legacy PQ business. We said we could take leverage down 0.5 turn a year. We've been doing that. We believe under the Ecovyst platform, we can continue to do the same thing. That's going to drive us down into the low 3s by the end of 2021. And beyond that, we can go 0.5 turn a year. On the growth side, we have several incremental projects you heard. On the Eco Services side, we've talked about debottlenecking. That's a very low-cost way to add capacity. We've built the big facilities for the Catalyst technologies. Now we're in the incremental capacity expansions and extensions. That's incremental capital, it's spread over multiple periods, it helps derisk and you're matching production with demand. So we feel very good about that model for investment. And then we have M&A opportunities that aren't really targeting anything transformational, more bolt-on, you saw Chem32. That was a nice bite-size entity that we could pick up, it's going to drive some good growth going forward. Having said that, our primary focus out of all that right now is going to be debt reduction, bringing that leverage down. We'll probably hold off on any of the bolt-on acquisitions for the next year or 2 until we drive our leverage down, and then we can balance it a little bit more with growth.

So if I heard you right, Mike, I think there might have been a misunderstanding on the leverage. 2021 will be high 3s, 2022 will be on the low 3s as opposed to what I thought I heard that you said 2021 on the low 3s, I think it's a misunderstanding.

Okay. I apologize. It's the end of 2022 would be low 3s.

Next one. It's actually a 2-part question coming from Jeff Bronchick of Cove Street Capital. Let me start with the second one first. Is the Zeolyst JV likely to be a permanent feature of the future company? And then the second one. M&A, are there actually opportunities within Eco Services business, other competitors or taking customer assets in-house?

Okay. Jeff, I'll take the first part of the question on the Zeolyst joint venture. I've said many times, and I continue to say that there is a huge advantage of us partnering with Shell on the Zeolyst joint venture. The reason it lasted 33 years is because it brings value. And I see more value to be created, especially as our market approach is targeting sustainability products and is really zooming into what we want to do together. The capabilities that Shell brings into that space is huge. And our ability to customize our catalyst and to work with them together have proven success. So as far as I know, going forward, we will continue to collaborate. Actually, we're going to tighten our strategy even more this year and look for collaborating for a longer period of time. And for the second question on M&A, I'll ask Kurt to comment on that.

Thanks for the question, Jeff. So Eco Services has been working with refineries since 1943 when we pioneered the acid regeneration process as staff or chemical. And since that time, we've seen refineries outsource more and more activities, such as acid regeneration and now, catalyst activation, which has moved off-site. So when we look at inorganic opportunities, you look at -- we like to look at all the activities and there's dozens and dozens of activities and services that the refineries are currently outsourcing as well as new activities that they will outsource in the future as that trend continues. And we see a lot of opportunity in that space for Eco Services to look at inorganic opportunities where we could really add value with our service model. Thanks for the question.

Next one from David Silver of CL King. My question is about realizing the full value of your catalyst portfolio. The market you sold Catalyst into is shifting from one characterized by low crude prices and weak gasoline demand to one with higher crude prices, rebounding fuel demand and improving refinery economics. From that perspective, can you discuss your strategy on pricing your products to maximize your profitability while meeting your growth targets?

Let me -- David, let me just open it up and then I'll kick it off to Tom. Setting pricing based on a moving market or variable parameters all the time is really complicated because you want to really price fairly in the market. You want to win in the market, but also you're collaborating with customers for a very long time, and you want to be sensitive to that. So what you want to do normally is you position yourself in the sweet spot where your profitability is fair and appropriate for the investments and you try to stay there. And I'm sure this is what Tom's strategy is, but I'll let him explain that a little bit more.

Yes. Thanks, David. I agree completely with what Belgacem said here. I think there's 2 parts to your question that really stand out to me as it's a really good question at this point in time. The shift of needs by our customers and being a part of that shift, that's our overall strategic objective. We have a lot of capability to our customers to allow them to get to where they want to be, and so it's a longer-term play for us. You can tell by our margins that are important to them, and it's a small cost in the overall scheme of the shift and their current needs, and we want to be a consistent and fair [Audio Gap] to the portfolio.

So this is part of our M&A focus, and we talked about it a little bit before about the fact that we were not able in the past because of our inflexibility , financial inflexibility to do M&A. But we were really spending time on looking at opportunities. And kudos to the team, they had their eyes on what really matters. So the minute the opportunity came about, they jumped on it. So we talked about it before, but I'll let Kurt give you more on why we did it and where it's going in the future. Kurt?

Thanks, Belgacem. As for Chem32, it's a great business. It's still fairly -- their off-site catalyst activation is still fairly new to the marketplace. So about 80% of North American refineries are actually still performing on-site catalyst activation, but that's transitioning very quickly because they're realizing they want to avoid the HSE risks, the waste that's generated as well as the extra time that it takes to perform on-site catalyst activation. And second of all, Chem32 sells heavily into renewable fuel space. And these renewable fuel providers are growing in number very rapidly, whether they're on-purpose renewable fuel providers or even converted refineries, converting to renewable fuels production. And for the most part, these renewable fuel producers don't have the ability to on-site activate their catalysts. So they look for offsite catalyst activation like Chem32. So we're really excited about this business. It's got a great position in the marketplace. It's got a great location. We can easily and cost effectively scale up its production to meet the growing market demand.

Next one comes from Chitra Sundaram of Cardinal Capital. She we like to know, can you discuss a little bit more about what are renewable fuel catalysts?

Chitra. I'll let Tom do that.

Chitra, thanks for the question. Renewable fuels, and actually, there's several types that people talk about, and they're kind of combining it together in this term. It continues to evolve. So what they are as of today is using a natural input, such as sometimes soy, sometimes saturated fats or things like that, and converting it into a fuel that can be used. The newest generation of these are one-for-one replacements and can be blended with traditional fuels. So we have renewable diesels and renewable jet fuels that can be used in the same engines as renewable fuel.

This comes from Aleksey Yefremov of KeyBanc. Can you discuss whether your refining customers continue to invest in alkylation units capacity? Is this an opportunity for PQ?

Aleksey, it is definitely an opportunity for PQ, but I'll let the expert tell you that. Kurt?

Sure. The demand for alkylation is going to continue to grow. As we mentioned before, you have the need for cleaner fuels going forward as well as the need for higher octane fuels, which support higher fuel economy. So the production for alkylate will grow. Domestically, here in the U.S., we're already short alkylate. Every day, alkylate is imported into the United States. So refineries are going to continue to want to produce as much alkylate as possible. So we've been looking at this trend for many years, and we've been investing ourselves. As we mentioned in the presentation, we've added about 35% regeneration capacity to our Gulf Coast, which is actually where we see most of that alkylation expansion happening in the near future.

Next one comes from Angel Castillo of Morgan Stanley. Could you give us more color on the chemical recycling catalyst opportunity that you noted in the demonstration phase? Does that mean you're already in pilot plants being built or operational today? Also, as we look to the future, how does the pricing and margin of these products differ from your current petchem catalyst products?

Okay. I'm just going to calibrate the question so Tom gets the -- I think the main part of the question, Angel, is to understand where do we play in the value chain from a chemical -- from the recycling? And the next one is to kind of have what is the level of readiness. Those are the most biggest -- bigger part of the question before the pricing and the future. So Tom, could you make some comments on that first?

Absolutely. Yes. So we have several projects that are active as it relates to polymer recycling. There are different stages. Some of them are having early manufacturing trials and some of them are more nascent than that. All of these projects still will take several years before they become commercial sales. So it's probably premature to talk about economics of them, although, we would expect them to be commanding similar margins to what we come in. And where we play in this value chain is our zeolite products are able to improve the yield, improve the energy efficiency and improve the exit stream of what is being recycled when you use pyrolysis when you have a thermal breakdown. So that the inputs for our other catalysts to turn into polymer chains, basically, it's pure inputs and more able to take this recycled feed and turn it into equivalent quality polymer.

If I may add, this is exactly the comment I made earlier about the level of readiness in the middle of this transition to the future renewable products, so -- or recyclable products. So we are and we have been embedding ourselves with key customers who are leaders and innovators who, I think if you talk to them, they probably told you that they're going to be ready in 2024, 2025 with pilots. We're working with a lot -- a few of them to incorporate our technology as part of the process. And that's what ready -- getting ready means, and we're very excited to be part of this value chain that is going to be the future in a few years, hopefully, for trials.

One from Scott Blumenthal of Emerald. Could you prove -- can you prove more details about the new regeneration customer, either sales, how much capacity that customer is expected to use? And where we currently stand in re-gen from both a capacity and utilization perspective?

This goes to Kurt.

Sure. So we're really excited to have a new customer coming online later this year. As I mentioned before, we've expanded the Gulf Coast regeneration capacity by 35%, which will allow us to easily take on this new customer. I think when customers look to us, they really admire our ability to service them from multiple plants. We have a tremendous production redundancy of very integrated logistics network, which gives them a very high degree of reliability. And going forward, we still plan on doing other debottlenecking projects, which will allow us to targeted capacity increases at both our Gulf Coast and West Coast plants.

Belgacem a follow-up from David Silver of CL King. As you think about your company in the 2025 timeframe with $1 billion of revenues. How much of that revenue base will be derived from nonrefining sources, such as catalysts for plastics production and recycling? And where do you anticipate the strongest growth will be outside the refinery plant gate?

Well, it's a very, very detailed and difficult question to answer in terms of the ratio of the non-classic revenue. We know that it's going to start growing towards the end of that period. It's still going to be in 2025, rather small from a renewable part. It represents a smaller component that is not to be precise here. But where that component is going to grow is beyond 2025. Between now and 2025, our growth is primarily organic. I think 90% of what we showed in that number is organic, which is very, very strong, purely from market drivers, from transitional products and technology that we offer with the customer more so than anything else. And this other component of the growth will be from what we think would be very nice tuck-ins as they come and -- or maybe some technologies that will continue to grow that potential of renewable beyond 2025 that could be added as well. That's what I can say about this component. Is there a second part to the question?

Nothing. You covered it.

Thank you.

Another question comes from Robert Patterson. The transition to electric vehicles will undoubtedly affect both the sulfuric acid refining market and the automotive catalyst market. Furthermore, the environmental push to reduce plastics production and increased recycling will impact the demand for Silica Catalysts. Do you feel that the new innovation strategies will come to fruition soon enough to offset these?

Well, these are 2 questions in one, right? 2 in 1. The first one is about the EV and the penetration of EV and how it impacts the growth for our "Eco Services. " And the second one is on specialty Silica Catalysts. So the reason I didn't want to spend more time on the electric vehicle in my first question is because I really wanted you to hear it from Kurt. So Kurt, could you go through the impact of EV penetration and some rates of penetration that -- and how concerned are you about it?

Sure. Yes. So we look at alkylation in sulfuric acid regeneration are going to support decarbonization and sustainability efforts going forward. And again, that's because they support clean fuels as well as higher octane fuels or better fuel efficiency. When you look at electric vehicles. They are estimated to grow. However, there'll only be a single-digit percentage of the overall North American vehicle fleet, even by the end of 2030. At the same time, you'll still have the trends of -- for clean fuels and higher octane fuels, which is a real tailwind for alkylation and sulfuric acid regeneration. But I want to take a moment really to highlight that our Virgin Acid business benefits greatly from the electrification efforts, particularly in our sales to copper mining. You know that copper demand is growing very rapidly. And as for things like electric vehicles contain 3 to 4x the amount of copper of an internal combustion engine, you have the copper required for the transmission lines, for the charging stations and for the power storage. So we feel that our Gulf and West Coast plants are really well aligned and are already capitalizing on this market growth. And for an example, I mean, we just put our Houston logistics capacity debottlenecking in, which is going to double our capability to ship to that market.

The second part of the question, Nahla?

Regarding recycling.

Recycling. Tom, you want to take that?

So thanks for the question. Actually, we're excited about the prospects on recycling. The specialty Silica Catalyst piece of it really remains unchanged. Regardless of whether you have a virgin input or recycled input, these catalysts are required to make the polymer chains with the specific end properties. And we actually work with our customers on the development and testing of those end properties. So all that work will continue and that demand will continue to grow. In addition to that, the Zeolyst catalysts are very useful in the recycled loop, especially as you get to chemical recycling or pyrolysis. So that's additive demand. And as Belgacem referenced earlier, we're very well positioned there. We're working confidentially with several very meaningful customers there.

Next question comes from Silke Kueck of JPMorgan. Her question relates to our earnings on a quarterly basis. PQ Group has high margins. Therefore, sometimes alterations and volume patterns can cause some lumpiness in your earnings profile. Investors place value on the predictability of earnings when valuing companies. Will that change over time in the new structure?

That's a great question because the word lumpiness is probably misused a little bit in many cases. A lumpiness or a cyclicality or seasonality, terms that are used intermittently between the businesses. So our businesses -- let me describe the new businesses, right? Let me describe the Eco Services business. Eco Services business is a seasonal business. We have times where there is high consumption and high use of the gasoline and products over the summer. There's always a peak period in the summer. There is a slowdown in the last quarter, and there is a little bit of a slow start. Add on that, all the turnarounds that are done. All this is planned between our operations and our customers. And usually, we should have great predictability, unless there is an unplanned event like a storm or anything like that. Now on the Catalyst long-term projects. Orders are also 6 to 8 months of most of our catalyst products. So our team has that visibility, and we typically, unless there is an unplanned event, we typically have that visibility when we have quarters that are stronger than quarters. So if we get the idea that as long as we know when the quarters are strong and when the quarters are weak and they are part of the system, we should be good. The issue is when we plan something and it completely demonstrates, that is completely wrong. And that's the lumpiness, the unhealthy lumpiness. The healthy lumpiness is when you when you plan that. But's let me ask Tom to tell you further how he thinks, and I think, of course, that going forward, the distance between the peak and trough is going to be managed even better. Tom, could you add to that?

Yes, happy to. So there is some inherent lumpiness in Catalyst business. It's more so on the fixed bed catalysts, which are being put in and changed out during turnarounds than it is in the polyethylene products. Those are pretty consistent, smooth demand. If you look at the 5 years out, growth is -- the demand is growing and revenue is growing year-over-year. And because of this visibility, 6 months, at least, lead time and the flexible manufacturing network that we showed you in the slide, we've got the ability to both spread out the production as well as manage the cost to be able to manage some variability. Then as you look out over a 5-year plan, we've got diversification of customers as we continue to get share of complementary applications and increased share of customers. We've got diversification of processes as some of our novel catalysts are being [Audio Gap]

We plan our quarters based on our visibility, and it's where that you see a major surprise. You see slippages between quarters, but we are the best [Audio Gap] our earnings are predictable as much as possible. challenge it, make sure we're close enough to customers and manage those processes. unless, of course, there is an unplanned event. And I give the example of hurricanes and some weather issues that could create issues every once in a while. So have faith in our projections because we're really close to that.

Great. I guess, one last question, and we are near the top of the hour. With decarbonization trends, wouldn't EV market penetration and growth erode fuel demand in general and regeneration sales in the future?

Well, we talked about EV. And we've talked about EV penetration is reality. It is the reality. And then the EV penetration rate, if I'm not wrong, today is by 2025, it will be less than 3%. And by 2030, the new -- the EV penetration would be less than 10%. So we have a long way to go to protect the current fleet and to operate for a period of time as we see the transition. I think our regeneration business is going to continue to be strong. Parallel to that, our virgin asset applications that feed into the electrical vehicle, as was explained on the electronics by Kurt, is really a new feed. If we and when we manage to take our treatment services, which feeds off the regeneration service, it's going to balance that. Remember that the need for these products is going to continue to grow. We're not -- country developments and people growth is not going to slow down. We're just shifting a little bit on the product. So that is what I have to say. We really like to see electrical vehicles, we're not concerned big time. We just need you to understand that our business is not just re-gen. More than almost 50% of our business is non re-gen. And the businesses are complementary, which makes as a balanced portfolio. And before I close, I'd like to say one more thing on catalyst because we didn't have the opportunity to tell you a little bit more about how we see catalyst. If you see catalysts as a product, you'll miss it because catalyst is a science. And the reason catalyst developed to become where it is today is simply because it's a science. We are here today, miles ahead of what we used to be 10, 15 years ago because it's a science. So if you project that same concept forward, Catalyst is going to evolve with the demand from the customers. Catalyst is going to become part of the renewables. And that business is going to have to continue to grow simply because it's a science and it's not only a product. And I believe we said everything here. I'd like to thank you first for all your questions. There must be a few other questions looking at the participation that we weren't able to answer. I promise you we can get back together and have follow-ups and treat every single question that you have for us. I would like to close by, first, sending a great thanks to the PQ family and the employees of PQ for what we've got through in the last, I would say, 18 months. 12 months of COVID, 2020 crazy advance transformation of the portfolio, leading to where we are today. So I want to send them a great thanks from me and my management team for their resilience, their support. And without them, we couldn't have done it and without them we would not be able to do that. Next is, I want to thank you for this rich interactions and your interest in our business. I think you're interested in the right business. We told you that we're going to be different, and we're doing it. We told you that we're going to give you the value you need and we're doing it. And we're going to continue pushing forward, listening to your concerns and answering your questions and following what we think the right strategy for the company is to be. We will, in the near future, get together, and we will talk to you about our Q1 results. So -- and give you the chance to ask more questions. In the meantime, we, my management team and I, wish you and your families to be safe and well, and thank you.