Ecovyst Inc. ($ECVT)

Good morning. My name is Stephanie, and I'll be your conference operator today. Welcome to the Ecovyst First Quarter 2026 Earnings Call and Webcast. Please note, today's call is being recorded and should run approximately 1 hour. [Operator Instructions] I'd like to now hand the call over to Jan Shields, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Ecovyst's first quarter 2026 earnings call. With me on the call this morning are Kurt Bitting, Ecovyst's Chief Executive Officer; and Mike Feehan, Ecovyst's Chief Financial Officer. Following our prepared remarks, we'll take your questions. Please note that some of the information shared today is forward-looking information, including information about the company's financial and operating performance, strategies, our anticipated end-use demand trends and our 2026 financial outlook. This information is subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. Any forward-looking information shared today speaks only as of this date. These risks are discussed in the company's filings with the SEC. Reconciliations of non-GAAP financial measures mentioned in today's call with their corresponding GAAP measures can be found in our earnings release and in the presentation materials posted in the Investors section of our website. I'll now hand the call over to Kurt.

Thank you, Gene, and good morning. Consistent with the positive outlook for 2026 that we shared in our fourth quarter earnings call in late February, our first quarter results provide an excellent start to the year with strong growth in both our regeneration services business and for virgin sulfuric acid. Sales for regeneration services were up on a double-digit percentage basis compared to the first quarter of 2025, reflecting high refinery utilization, favorable alkyate economics and lower planned customer downtime compared to the year ago quarter. First quarter sales for virgin sulfuric acid were also up significantly, benefiting from increased mining demand and the contribution from the Waggaman sulfuric acid assets that we acquired last May. As a result of the strong volume growth and positive pricing in the quarter, we reported adjusted EBITDA of $40 million, which is up 87% compared to the first quarter of 2025. During the quarter, we also maintained our focus on the implementation of our long-term strategic plan to accelerate growth and enhance value for our stockholders. During the first quarter, we repurchased approximately $36 million worth of our outstanding shares. And with regard to the pursuit of inorganic growth opportunities, our efforts over the course of the first quarter led us to last Friday's announcement that we had reached an agreement to acquire the Calabrian sulfur dioxide and sulfur derivatives business from INEOS Enterprises in a transaction that will broaden our portfolio and further position Ecovyst for attractive growth in end uses we currently serve, such as mining and water treatment and new end uses, including pharma and food processing. As we move to the next 2 slides, I want to provide a brief overview of the Calabrian business and highlight the details and strategic merits of this transaction. What makes the Calabrian acquisition so compelling is how closely the business aligns with Ecovyst strategically, operationally and commercially. The combination directly leverages our core competencies in sulfur chemistry and extends our platform into highly complementary adjacent chemistries. Just as Ecovyst is a leading provider of virgin sulfuric acid and sulfuric acid regeneration services, Calabrian is a leading provider of sulfur dioxide and sulfur-based derivatives. It is the sole on-purpose producer of sulfur dioxide in North America with a significant supply share, a leading producer of sodium bisulfide alongside Ecovyst, a leading producer of sodium thiosulfate and the sole North American producer of sodium metabisulfite. These products are critical inputs into a range of attractive end uses that overlap meaningfully with the markets we serve today, reinforcing the natural fit between the 2 businesses. Looking at a rough breakdown of metabisulfite  Calabrian's 2025 sales, nearly 1/3 of sales were to the mining sector, where we have well-established and long-standing relationships. Roughly 1/4 of Calabrian's 2025 sales were in water treatment, a market that we currently participate in with our virgin sulfuric acid, sodium bisulfide and aluminum sulfate sales. Approximately 15% of sales were into specialty chemical applications and the balance of 2025 sales included sales into food preservatives and other applications. Similar to Ecovyst, Calabrian has long-standing customer relationships with blue-chip customers, significant long-term contracts and sales visibility. In terms of the strategic fit with Ecovyst, I'll first say that Calabrian has a seasoned and engaged management team, and we look forward to leveraging their expertise and enthusiasm as we move forward on a combined basis. Equally as important, Calabrian provides us with a very attractive opportunity to expand our reach and product offering in sulfur-related chemistries while leveraging our existing supply chain and manufacturing infrastructure. In doing so, it provides an opportunity to diversify our sales mix and increase our penetration into high-growth industries such as mining, water treatment, pharma and food processing. Calabrian has 2 manufacturing locations: Port Natchez in Texas, situated in the middle of our existing Gulf Coast infrastructure and the Timmins site in Ontario, Canada, which we expect to broaden our exposure to Canada's growing mining sector. Given our existing footprint in the Gulf Coast region, the acquisition provides opportunities to leverage our existing supply chain and manufacturing infrastructure. Finally, the financial profile is equally compelling. Calabrian brings attractive growth prospects, strong margins and a track record of high cash conversion. On a trailing 12-month adjusted EBITDA of approximately $24 million, the $190 million purchase price represents a multiple of approximately 8x, stepping down to roughly 7x as we capture synergies over the next 3 years. The transaction is expected to close by the end of the second quarter. We plan to fund the acquisition through cash on hand and a new debt offering with specific allocation to be determined as we move towards closing. At this time, we expect that our pro forma net debt leverage ratio at close of the transaction will be approximately 2x. Before I hand the call over to Mike to review the details of our first quarter, I want to comment on our expectations for near-term demand trends and our confidence in the longer-term outlook for Ecovyst. While the geopolitical and global macroeconomic environment remains dynamic, our outlook remains very positive. As a leading provider of products and services that are essential to our North American-based customers, we expect demand trends to remain favorable, underpinning our growth expectations for 2026. We see U.S. refinery utilization remaining high in 2026 with far less planned and unplanned customer downtime than we experienced in 2025. As such, we continue to expect higher volume for our regeneration services in 2026 with favorable contract pricing. We also expect volumetric growth for virgin sulfuric acid in 2026 with increased sales into mining and a full year of contribution from the wagon and sulfuric acid assets we acquired last year. Sales into the nylon end use are expected to be generally in line with 2025, and we anticipate relative stability across the broader range of industrial applications. Looking beyond 2026, we believe the long-term outlook remains extremely favorable. We expect that high refinery utilization will continue to support demand for our regeneration services business. And for virgin sulfuric acid, we believe we are positioned for growth with sales into mining applications benefiting from multiyear expansion projects, growth in industrial applications associated with onshoring and the prospect for continued sales recovery in the nylon end use. I'll now turn the call over to Mike, who will review our financial results.

Thank you, Kurt, and good morning. We are very pleased with our results for the first quarter and believe that we are off to a great start to the year as stable demand and favorable pricing helped deliver solid results in the first quarter. Our sales were up 50% compared to the first quarter of last year. Higher sales volume for both virgin sulfuric acid and regeneration services as well as positive pricing translated into adjusted EBITDA of $40 million, up $19 million compared to the prior year first quarter and ahead of our previously provided guidance range. Our favorable earnings compared to our guidance range were driven by higher-than-expected volume and pricing. We realized stronger-than-expected volume in regeneration services and to a lesser extent, treatment services compared to our original expectations. With a significant spike in cost of sulfur, we also realized a temporary benefit associated with the timing between when we incur the cost of our sulfur purchases and when we pass through those costs to our customers. Adjusted free cash flow for the first quarter was $4 million. Our net debt leverage ratio at quarter end was 1.2x, unchanged from year-end, and our available liquidity remains strong at $237 million as of March 31. As we look at the first quarter financial results on the next slide, sales were $215 million, up $72 million. Excluding the $33 million impact of higher sulfur costs pass-through and price, sales were up nearly 27%. Regeneration services volume was driven by less customer downtime compared to the first quarter of 2025. Sales volume for virgin sulfuric acid was also higher year-over-year, reflecting the contribution of the Waggaman sulfuric acid assets acquired in May of 2025 and higher overall demand, including into nylon and mining applications. Average selling prices were higher, driven by virgin sulfuric acid pricing and favorable contract pricing for regenerated sulfuric acid. Adjusted EBITDA of $40 million was up $19 million or 87%, driven by higher sales volume and favorable pricing, partially offset by higher manufacturing costs driven by higher turnaround costs, the impact of general inflation and increased transportation costs. Favorable price-to-cost ratio at the contribution margin level remains evident in our first quarter as illustrated in the adjusted EBITDA bridge shown on the following slide. As previously mentioned, the pass-through effect of higher sulfur costs on sales was approximately $33 million, with the pass-through having no material impact on adjusted EBITDA. Excluding the sulfur pass-through, the price to cost uplift in the first quarter was approximately $11 million, largely driven by the net price impact, including favorable variable costs. Higher sales volume, including the contribution from the Waggaman assets accounted for nearly $15 million of the period-over-period increase in adjusted EBITDA, and this was partially offset by higher manufacturing costs, including the incremental cost of the acquired Waggaman assets as well as higher SG&A and other costs. Turning to cash and debt on the next slide. Adjusted free cash flow for the first quarter was $4 million, up compared to a use of cash of $13 million in the first quarter of 2025. The lower-than-average free cash flow for the first quarter reflects the normal cadence of cash generation with the first quarter typically low primarily due to timing of working capital. During the quarter, we repurchased $36 million of our common stock at an average price of approximately $11 per share, and we have $146 million remaining under our existing authorization. We ended the first quarter with a strong liquidity position of $237 million, comprised of cash of $163 million and availability under our ABL facility of $74 million. With net debt of $234 million at quarter end, our net debt leverage ratio was 1.2x, unchanged from December 31. Turning to our 2026 outlook. Note that the guidance included in our materials and discussed on this call do not include any contributions from the recently announced Calabrian acquisition. Our previous guidance provided in late February anticipated higher sulfur costs in 2026. However, disruption associated with the Iran conflict has resulted in further increases in sulfur costs. We now expect the impact of higher sulfur cost pass-through in price to be $30 million higher than previously guided, resulting in full year 2026 sales to be in the range of $890 million to $970 million, up from our previously guided range of $860 million to $940 million. With a strong start to the year and having 1 quarter under our belt, we are revising our adjusted EBITDA guidance by tightening the range, now expecting full year 2026 adjusted EBITDA to fall in the range of $180 million to $195 million. Similarly, we are tightening the range for adjusted free cash flow to be $40 million to $55 million. While we are not changing our guidance due to the announced Calabrian acquisition, we do intend to finance a portion of the acquisition through a debt offering, along with cash on hand. As a result, we would expect cash interest to increase an additional $4 million to $5 million on a full year annual basis. As we move to the next slide, I'll provide directional guidance by quarter for the balance of the year. For the second quarter, we continue to expect higher year-over-year sales of regeneration services with favorable contractual pricing. We also continue to expect higher volume of virgin sulfuric acid, driven by mining demand and the contribution of the acquired Waggaman assets, along with stable pricing for virgin sulfuric acid. Turnaround costs are expected to be lower than in the year ago quarter. As a result, we project second quarter 2026 adjusted EBITDA to be in the range of $50 million to $55 million. For the third quarter, we continue to expect higher sales of regeneration services compared to the third quarter of 2025, and we currently project that virgin sulfuric acid volume will be slightly lower than the year ago quarter, driven by the timing of our sales into nylon applications. With higher projected turnaround costs than in the third quarter of 2025, we expect third quarter 2026 adjusted EBITDA to be in the range of $50 million to $5 Finally, for the fourth quarter, we continue to expect higher sales of regeneration services compared to the fourth quarter of 2025 with favorable contractual pricing. We are currently expecting lower virgin sulfuric acid volume than in the fourth quarter of 2025. We also are anticipating that sulfur costs will ease from the current historic highs. As a result, we expect that sulfuric acid pricing, excluding the pass-through effect, will be lower due to the overall customer mix and timing between when we incur the cost of our sulfur purchases and when we pass through these costs to our customers. Lastly, we expect higher turnaround costs compared to the fourth quarter of 2025. As such, we currently anticipate that the fourth quarter adjusted EBITDA will fall in the range of $40 million to $45 million. I will now turn the call back to Kurt for some closing remarks.

Thank you, Mike. We have had a great start to the year, and we are energized by the positive momentum we see as we move into the second quarter. While the global macroeconomic landscape continues to evolve, we believe Ecovyst remains well positioned to deliver on our objectives. Moreover, we are extremely pleased with our progress on strategic implementation as we maintain our focus on growth and on value creation for our stockholders. The disposition of our Advanced Materials and Catalysts segment at year-end was a transformational event that resulted in a strengthened balance sheet and a robust liquidity position that provides us with the resources and flexibility to execute on multiple capital allocation alternatives, including the funding of organic growth projects, the pursuit of attractive inorganic growth opportunities and the return of capital to our stockholders. During the first quarter, we returned $36 million in capital to our stockholders through share repurchases. And as previously indicated, to support organic growth this year, we are investing in the expansion of our Gulf Coast storage and logistics capabilities that will further enhance our ability to serve our customers' growing needs. And building upon last year's successes, we also expect further contributions and network optimization benefits from the acquisition of our Waggaman site as we continue to leverage the site's capacity to meet the growing needs of our customers. With regard to our stated objective to pursue attractive inorganic growth opportunities, we are excited about the agreement that we have reached to acquire Colabrian, which will broaden our portfolio of sulfur products that we can offer to growing end uses. We look forward to the completion of the Calabrian acquisition and to providing you with updates on our ongoing progress as we move throughout the year. At this time, I will ask the operator to open the line for questions.

[Operator Instructions] And we'll take our first question from John McNulty with BMO Capital Markets.

Congrats on a really solid start to the year. So I wanted to dig into -- a lot's changed since you gave your last guide, both in the virgin acid markets and kind of scarcity around sulfuric acid, at least on a global basis, maybe a little less so in the U.S. And then also the strength of U.S. refining, which I know you were looking for things to be better. It seems like now that may be even greater in terms of how that industry is reacting to kind of what's going on in the Middle East. So I guess, can you help us to think about how your expectations have changed and how that's woven into the guide? Because I guess I'm a little surprised with a couple of things being reasonably better that you weren't quite ready to necessarily raise at least the upper end of the guide. So can you help us to think about that a little bit?

Yes, John, thanks for the question. I think the first way we would look at that is there were some things that did change positively for us during the quarter. Certainly, compared to the guidance that we had provided, we saw some strength in regen, some positivity on the virgin pricing, but that is a little bit more based on timing as we talked about that we expect to get some of that timing back in the fourth quarter. That regen strength is clearly a tailwind for us, but we also are tempered with some of the other potential macroeconomic items that are going on. So we still want to continue to keep our guide relatively to where we were. We did raise the bottom end of it. So our midpoint is up to $187.5 million, but we believe that there is strength in the numbers of what we've seen, but want to be tempered with what we're expecting for the rest of the year.

Okay. Fair enough. And I understand it's a little bit of a fluid situation. Maybe just talk -- speaking to Calabrian, I guess, can you give us some color as to how that business has grown over the past few years and kind of what the longer-term growth outlook is for that business?

Yes, sure. Thanks for the question, John. I mean it's going back, Calabrian has been in its current form really since the 1980s and has had the site in Port Nat. They built a site in 2017 up in Timmins, Ontario, which is primarily used to service the mining sector up in Canada. So a lot of the growth in the Clavrian segment has been one from the mining and that backstops gold, which obviously gold mining is at current gold prices has been very healthy. So their business has grown from that. There's also been some growth in terms of their -- some of their pharma, food and, I'd say, other industrial applications. So when we look at that business, it's probably a GDP to GDP plus type growth rate with some of the things moving faster than others, like we think in mining and industrials. Again, they're the only on-purpose North American producer of sulfur dioxide. They're the only producer of metabisulfite in North America. So they have a really nice position. They have a great technology that's proprietary that's completely different than how it's produced by the competitors. So we're real happy with the acquisition, and we confident in its future potential.

We'll take the next question from Patrick Cunningham with Citigroup.

This is Rachael Lee on for Patrick. So adjusted EBITDA margins were meaningfully stronger than we expected this quarter, driven by higher volumes and incremental pricing above the SOFR pass-through despite some other headwinds from transportation and manufacturing costs. So as we look to the balance of the year, how should we think about the net price cost dynamics?

Yes. Thank you for the question. Yes, the margins were favorable. Obviously, as we've talked in the past, the pass-through of the sulfur cost is relatively neutral to EBITDA. So it does lower the margins. But we did see some positivity around overall pricing and volume that drops straight through the bottom line. So that did provide us with that higher margin. The price-to-cost ratio, the positive number that we discussed during the quarter, we expect that to continue throughout the year. We do see positive cost price and cost ratio. That's been a consistent view for us over the last several quarters where we are making more money from an EBITDA on a per ton basis comparatively. So while the margin percent will look lower because of the sulfur price through, the earnings is actually positive. So we expect that to continue throughout the rest of the year.

Great. And on the Calabrian acquisition, maybe could you provide more detail on the contract structure and the level of visibility you have into forward sales and earnings?

Yes. So the business is similar, I'd say, to the general construct of the Ecoservices acid business where there are long-term agreements or certainly long-term customers with blue chip users, whether it's in mining, industrials, pharma, food and so forth. The contracts are also have a high pass-through component, similar because it is a sulfur-based chemistry. So passing sulfur is obviously -- passing through sulfur is very important, and they have a similar dynamic to the Ecoservices business. And in terms of visibility, again, the customers tend to be very steady offtake. It's the products that they purchase from Calabrian are very important to their process. There's generally a very good visibility in terms of the forecasting and the ratability of the volume and so forth.

We'll take our next question from Laurence Alexander with Jefferies.

This is Dan Rizzo on for Lawrence. So just looking at prices and kind of the structural change, Oil analysts now expect a 5% or so structural risk premium for oil due to what's going on in the Middle East. Do you expect a similar structural reset in sulfur prices over the long term that would flow through to your business? Or should we view the sulfur spike as a net negative because it hurts industrial volumes?

Yes. For our business, I mean, sulfur is at really all-time highs right now. And it was -- the run-up in sulfur had actually started well before the conflict in Iran. And a lot of that is due to simply the need for the sulfur molecule for sulfuric acid for things to produce copper and other metals and so forth. So there -- we do feel that there's a definite demand for sulfur out there, which will lead to higher prices. I do think right now, we're in an extremely high situation just given the geopolitical conflict that's going on right now. But long term, we continue to have the ability to pass through sulfur to our customers. Our customers as opposed to like the fertilizer industry, which is very heavily dependent on the commoditized market and sulfur impacts demand there a lot. Ours not so much. Our customers tend to -- sulfuric acid tends to be only a very small component of their overall costs and their process. So while it's not great that sulfur prices go up on them. However, it ends up being a very small component. So we're able to pass it through.

That's actually very helpful. And then just thinking about the most recent acquisition. And as we think about synergies, I mean, are we -- I guess, it's mostly logistical -- logistical like supply synergies as opposed to production and revenue. Is that how we should think about it? I don't think you said you're going to quantify it later, too, I think you said it, right?

Yes. So I mean when we look at the synergies, there's certainly some cost base synergies when you look at -- we're obviously -- we're both involved in sulfur chemistry. So there's going to be procurement. There's obviously -- we have a large supply and manufacturing infrastructure that there should be some synergies with, especially with the Port Neches site, which sits kind of right in the middle of our Gulf Coast footprint. But we also see revenue synergy upside as well, just given the ability to leverage our sales forces across, again, those sulfur products, right? One of which we already sell, sodium bisulfide. So we really see a nice mixture of both cost and revenue synergies there, and it's really stemming out of the fact that we're both in sulfur chemistry and the products are very closely related.

We'll take our next question from Hamed Khorsand with BSW.

So first off, on the acquisition, you were talking about potentially selling sulfuric acid into Canadian mining. Would these be relationships that Calabrian brings to the table?

Yes. So they would be selling sulfur dioxide to Canadian mines. And so yes, these would be new mining relationships where Ecovyst's mining relationships are primarily focused in, I would say, the Southwestern part of the U.S.

Okay. And then on the refinery side, is the increase in activity utilization, is that more about the current environment? Or does that have to do with more of a normalization given where Q4 was?

The answer is yes. So there's -- it's both. Coming into this year, and we had guided on our -- on the previous call that we had expected a healthy refinery utilization this year. A lot of that due to the fact that there's way less planned and hopefully unplanned maintenance outages in the U.S. refining complex. So utilization was expected to be high. I would say the current conflict that's going on has certainly added a tailwind to that, right? So obviously, margins are high right now for not only just oil, but for refined products, and there's certainly U.S. refineries can take advantage of that. So I do think there is some tailwind with that there. In terms of how that applies to us, the alkylation units that we service with the regeneration is -- those were always expected to run at very high rates coming into this year and really all years as long as there's not maintenance going on. So they don't really have the ability to flex up a tremendous amount given the margin climate. But I would say the current environment certainly provides a tailwind for everything to run as hard as it can.

[Operator Instructions] At this time, I'd like to thank everybody for joining today's event. You may now disconnect.