Operator: Good day, everyone, and welcome to the PQ Group Holdings Fourth Quarter and Year-End 2018 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. And I would now like to turn the conference over to Nahla Azmy, Vice President of Investor Relations. Please go ahead.

Nahla Azmy: Thank you, Will.

Welcome to everybody joining us for our fourth quarter 2018 earnings results call. We will start today with formal remarks from Belgacem Chariag, President and Chief Executive Officer; and Mike Crews, Executive Vice President and Chief Financial Officer. Then we will follow with a Q&A session. Please note that some of the forward-looking statements that we make today about the company's results and plans are subject to risks and uncertainties that could cause the actual results and the implementation of the company's plans to vary materially. These risks are discussed in the company's filings with the SEC.

Reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures can be found in our earnings release and presentation materials posted on the Investors section of the website at www.pqcorp.com. With that, I'm turn, I'm pleased to turn the call over to Belgacem.

Belgacem Chariag: Thank you, Nahla, and good morning, everyone. Let me first start by highlighting a few important facts now that 2018 is behind us. We completed our first year as a public company and transitioned as planned.

We reinforced our engagements with our customers and our employees that largely executed on our growth plans. And we did that while intensifying our focus on health, safety and environment, delivering more than 40% improvements on all our agency performance metrics and confidently progressing towards our goal of being the top quartile agency performer. And finally, in the latter part of the year, we launched a strategic portfolio assessment, with a goal to develop a path to a stronger and higher value businesses. As summarized on Slide 3, for 2018, we captured sales growth of 9%, driven by improved pricing and volumes and the solid secular underlying growth drivers in most of our end markets. At a business unit level, our Refining Services business posted robust and record results from both our regeneration and virgin acid product lines.

The Catalyst business delivered stronger volumes for hydrocracking finished catalysts and support, emission control catalysts and polyolefin products. The Performance Chemicals business had improved volumes and pricing from demand for sodium silicates and other specialty silica products. And the Performance Materials sales increased from both rising demand for gas microspheres for highway safety and industrial application as well as accelerated ThermoDrop deployment. We have modest growth in adjusted EBITDA. The solid operating performance primarily from Refining Services was offset by deferred methyl methacrylate, or MMA, orders in silica catalyst as well as anticipated higher corporate costs and increased logistics and manufacturing costs in our Performance Materials business.

With adjusted free cash flow of $150 million in the second half of the year, we generated a total of $135 million in 2018, all of which we used to pay down debt during the year. Looking ahead to 2019, we are expecting growth from all of our business units despite some slower global macroeconomic trends. The diversity of our business segments market drivers, combined with our demonstrated capability to deliver growth with strong and stable margins, gives us confidence in this outlook. Further, we are committed to driving adjusted free cash flow in the range of $125 million to $145 million. This will be again allocated to additional debt reduction in the second half of the year, to continue our progress toward our deleveraging objective.

And at this stage, I will turn the call to Mike, who will cover the fourth quarter results and share some details on 2019 outlook.

Mike Crews: Well, thank you, Belgacem, and good morning. As Belgacem has already covered the highlights for the year, I will focus my comments on the fourth quarter results and our 2019 outlook. We saw continued healthy top line growth in the quarter and adjusted EBITDA margins were in line with our expectations as we discussed on the third quarter earnings call. Most notably, we generated substantial free cash flow again this quarter that was used to repay debt.

Beginning on Slide 4 with the consolidated results, sales increased 8% on a constant currency basis to $380 million. Higher volumes drove 4% of the sales growth on strong demand for regeneration services and virgin sulfuric acid in Refining Services, coupled with an extended highway striping season in Performance Materials. Favorable pricing and mix in Performance Chemicals and Performance Materials contributed 5% to the increase, along with the pass-through of higher sulfur costs in Refining Services. Adjusted EBITDA of $109 million was in line with the prior year quarter. Continued outperformance and a gain from insurance proceeds related to Hurricane Harvey in Refining Services was largely offset by anticipated higher cost in corporate and the Performance Materials & Chemicals segment.

Adjusted EBITDA margin was 26%, in line with the third quarter. This was down 110 basis points from the prior year, all of which, 80 basis points was due to higher corporate cost and 60 basis points due to lower Zeolyst Joint Venture volume. Moving to Slide 5 for a discussion of our Environmental Catalyst and Services segment. Sales increased 15% to approximately $141 million, with higher volumes and pricing in regeneration services, driven by high customer operating rates and in the virgin acid product line due to robust industrial demand growth. Within the Silica Catalyst product group, polyolefin catalysts had double-digit volume growth as we continue to benefit from higher demand capacity growth for silica-based polyethylene catalyst.

This was offset by lower methyl methacrylate sales, largely due to customer deferrals. Zeolyst Joint Venture sales were down as expected on lower hydrocracking volumes due to timing as customer refills largely occurred in the first half of the year. Adjusted EBITDA increased 13%, with margins improving by 200 basis points. Higher pricing and continued strong volume in Refining Services, coupled with insurance recovery more than offset the lower hydrocracking catalyst volumes this quarter. Moving to the Performance Materials & Chemicals segment on Slide 6, PM&C sales rose nearly 5% on a constant currency basis to approximately $240 million.

Performance Chemicals was down 2% on lower demand for consumer products, including personal care and consumer cleaning, partially offset by higher pricing. Performance Materials increased 11%, primarily on improved pricing in volumes in North America highway safety for striping beads and ThermoDrop. Adjusted EBITDA of approximately $50 million declined 10%, leading to a margin of 21%. As discussed last quarter, PM&C operating performance continues to be impacted by higher operating cost in Performance Materials to align the supply chain with demand across Europe. Unfavorable currency also modestly impacted results by approximately $1 million or 2%.

Turning to the adjusted free cash flow for the quarter and year on Slide 7. During the fourth quarter, we generated approximately $60 million of adjusted free cash flow, leading to $134 million for the year. This $110 million improvement was largely attributable to lower cash interest payments as a result of significant debt repayment, reduced capital expenditures, lower cash taxes as well as the benefit of cash proceeds from a land sale. As I will discuss in the outlook section, we expect this level of adjusted free cash flow generation to continue in 2019. On Slide 8, you can see that we used that cash to repay $135 million of debt.

As a result, we ended the year with a net debt to adjusted EBITDA leverage ratio of 4.5x as compared with 4.9x last year. This marks our continued solid progress toward our goal of 3 to 3.5x leverage. And with a fixed to floating interest ratio

of 90:10 and interest rate caps to extend to 2022, we have limited exposure to rising interest rates. With that review of 2018 results, let's now turn to Slide 9 for our 2019 guidance. We are forecasting full year sales in the range of $1.64 billion to $1.67 billion.

We expect all of our product groups to show growth for both volume and pricing improvement in 2019. This guidance reflects sulfur pricing at current levels, revenues may fluctuate with changes in sulfur pricing due to the pass-through of these costs in Refining Services. We are targeting adjusted EBITDA in the range of $470 million to $485 million. In addition to the current exchange rate environment, this outlook reflects the higher sales growth I just discussed and improved margins in Performance Materials, offset by higher Refining Services turnaround cost of approximately $5 million and the non-recurrence of the $6 million Hurricane Harvey insurance recovery gain in 2018. Adjusted EBITDA margin for the year is expected to approximate 2018 levels, given the mixed impact from higher hydrocracking catalyst sales in the Zeolyst Joint Venture and higher costs of Refining Services.

Also we are introducing adjusted diluted EPS guidance for 2019 in the range of $0.75 to $0.93 per share. This guidance reflects our adjusted EBITDA range, coupled with higher depreciation expense and a higher income tax rate for 2019 compared with 2018. We expect robust adjusted free cash flow in the range of $125 million to $145 million, even with higher capital expenditures in 2019. We will continue to prioritize debt reduction this year as a primary usage of cash flow. And as a reminder, we will be using cash for working capital in the first half of the year, and generating cash in the second half due to the seasonality of our business.

With respect to the first quarter, I would note that results were expected to be similar to the prior year first quarter, with the exception of the Zeolyst Joint Venture. Due to the timing of hydrocracking catalyst sales, we expect adjusted EBITDA for the joint venture to be approximately $10 million lower than the first quarter of 2018. And as in past years, our seasonally strongest quarters are expected to be the second and third quarters. Finally, as Belgacem discussed in his opening remarks, we will expand our segment reporting to the 4

product groups: Refining Services; Catalyst, which includes the Zeolyst Joint Venture; Performance Chemicals; and Performance Materials, beginning with our first quarter 2019 results. So in conclusion, we delivered solid volumes and pricing growth in 2018 that led to strong adjusted free cash flow and meaningful debt reduction.

We expect low to mid-single-digit sale and adjusted EBITDA growth in 2019, driven by further pricing and volume increases across the portfolio and our adjusted free cash flow is expected to remain robust and will be allocated to deleveraging in the second half of the year. With that, I will turn the call back to Belgacem.

Belgacem Chariag: Thank you, Mike. Turning to Slide 10. In our last November earnings call, I explained that we were taking a fresh review of our strategy.

Specifically, we focused on our technology delivery model and our business portfolio with an objective to make it simpler and stronger. Since completing our evaluation, we have advanced implementation on two key fronts. On the technology front, we confirmed that our key competitive advantages and successes to date are derived from our premier bench of expertise in silicates, silica, zeolites, glass and catalyst technologies. Further, we have a long history of established partnerships with our customers in developing new technologies and solutions. We also have the ability to tailor and scale specialty grades to meet changing demands and technical support for large scale commercialization's.

That said, we determined that there was a need to drive a cultural transformation from our autonomously-oriented R&D and technical support development mindset to one that is more directly connected with our business strategic growth priorities and end-users. Additionally, and in spite of our healthy pipeline of products, our current speed of commercialization needs to improve. Therefore, through the course of the year, as we are optimizing our resource allocations, we will be realigning our technology structure and processes to drive universal methodologies. This will enable us to accelerate and increase the commercial value of our investment directly impacting the mid-to long-term. On the business front, we embarked in a delayering exercise to eliminate the 2 current EC&S and PM&C reporting groups.

We feel that there is a need to increase visibility of our individual business units and their specific performances, not only for our teams internally but also for our investors. Additionally, we strongly believe that the autonomy and focus will nurture a stronger culture of ownership and accountability and drive significant efficiencies and improved results. The design of the new structure will actually create a stronger and more focused commercial intensity as well as more visible and active efficiencies and the key components of our overall operating costs. Turning to Slide 11, as you recall, we started to provide you with business deep dives in the last few calls to give you more color on our specific business lines and this practice will continue going forward. However, as for this call, and as a result of the announced structure delayering, I would like to spend a few minutes reviewing the 4 individual business units, and my focus is on why we believe each business is of a specialty nature, differentiated and well positioned in its own key products and end market areas.

First, let me start with the Refining Services. The underlying demand driver is the need for higher octane rated gasoline. Sulfuric acid has become a leading catalyst in the production of alkylates, or for increasing the octane rating in gasoline. In North America, we have a track record of reliability and expertise in acid production and provide critical end-to-end service to refiners in their alkylation production through regeneration of spent sulfuric acid. With the leading U.S.

supply position based on our integrated network of facilities and the scope and scale of our transportation logistics, specifically in the Gulf Coast in California, we are able to structure stable and predictable long-term, 5- to 10-year contracts, with 90% cost pass through and take-or-pay type provisions. Turning to Catalysts, which includes our silica catalysts and our 50% Zeolyst Joint Venture with Shell. The silica catalysts global consumer demand is expected to accelerate for high-strength and lightweight plastics. Given our long track record and broad portfolio of tailored silica-based catalyst formulations, we are specified with the largest PE global producers and licensors for both silica-based finished and support catalysts. Also, within this business, we are the exclusive catalyst supplier for the leading global MMA manufacturer for their alpha technology.

Our Zeolyst Joint Venture, ZI, is positioned to capture growth resulting from increasing standards for tighter global environmental fuel emissions. PQ has a strong expertise in customizing its zeolite catalyst technology. ZI is a leading provider for both finished and support catalysts for nearly all hydrocracking producers, maximizing their yield of gasoline and distillate, while also removing sulfur. Further, our technology expertise also positioned us to supply catalysts to remove nitrogen oxides from diesel, tail [ph] gases, largely heavy-duty diesel vehicles to the top global 3 emission control system providers. Moving to Performance Materials.

Demand is largely driven by continued higher standard for transportation safety. We are an innovation leader in glass, particularly for highway striping. Additionally, we have been innovating in adjacencies, including microspheres for industrial application in thermoplastics for transportation safety. We are the largest bead supplier for transportation safety, with leading positions in the U.S., Europe and Latin America and given our 100-plus years history, our production network and diverse product customization, we do drive value pricing through our large and broad customer base. Finally, on our fourth business unit, Performance Chemicals.

Demand is driven by consumer preferences from environmentally friendly and sustainable products in consumer personal care, food and beverage, and industrial products such as green tires and surface coating. We are the largest global and most diversified sodium silicate supplier, with the ability to offer tailored products to customers' requests for specified end users. With an established network of global and localized supply, we are able to optimize our production and sales with mid- to long-term contracts, with large part of our contracts allowing passthrough of materials cost. So as you can see, each of these business units is unique and have different demand drivers and well positioned to operate independently with direct ownership and accountability to drive improved performance. At the same time, we believe that there is opportunity in leveraging best-in-class substantial capabilities across this portfolio.

Those capabilities include technology, materials science expertise, furnace engineering and the global production and distribution network. In closing, on Slide 12, and as I just described, the uniqueness of our business and their leading positions in their respective key growth markets is a representation of their strength and growth potential. We will continue to drive a strong organic growth through technology innovation, commercial intensity and operational efficiencies. We will also continue on our path to further optimize our individual businesses as well as the overall portfolio, with a clear strategic value creation mindset. We are confident in our ability to continue executing towards our key value drivers.

We will strive to maintain a stable profitable growth and improved capital efficiency. We will also continue to deliver on our free cash flow in our path towards our leverage targets. This concludes our prepared remarks and we are now ready to take questions.

Operator: [Operator Instructions] And today's first question will be Christopher Parkinson with Credit Suisse. Kieran

De Brun: This is Kieran on for Chris.

Regeneration services has seen a strong pickup both this quarter and in 3Q and you discussed a little bit the key pockets of strength, but if you can give a little bit more color on what's really driving that pickup in demand. Then maybe how should we think about 2019, specifically the cadence of earnings, considering the higher plan turnaround activity and the 2018 benefit from insurance recoveries. I'd appreciate it.

Mike Crews: Sure. Kieran, so this is Mike.

On the regeneration services, the underlying demand has been strong all year. Actually, on a full year basis, the virgin acid sales were quite good. It was very distributed across a variety of industrial applications but we talked about the higher turnaround costs from '17 to '18. A lot of that was incurred in the first half of the year. So some of this in 3Q and 4Q was really a function of the fact that we got those turnarounds out of the way, and we had those manufacturing capacity additions in the second half that we're able to achieve those results.

As we think about Refining Services for next year, whereas Refining Services has been a larger part of the growth over the last couple of years, just given the fact that we do have some additional turnaround costs. In 2019, we had this insurance recovery that is nonrecurring so that puts a limit against some of the growth we're going to have next year. So overall, we expect low single digit growth in Refining Services based on those factors. Kieran

De Brun: Great. And then just a quick follow-up on capital deployment, you made great strides this year in reducing leverage and you got to another year of strong free cash flow generation.

Delevering seems to be the primary focus, Bill, but as you look out to '19 and '20 and when you get closer to kind of achieving that 3x, 3.5x target, like, can you talk about how you think about any other kind of uses of capital going forward?

Belgacem Chariag: Well, the capital allocation has priorities. The first one for us, immediately, as you noted, is the payback debt. The second one is customer expansion. We do have customers expecting us to expand with them on growth and some of our capital that we are investing every year is going towards more and more of a growth capital. Beyond that, we will get to a point where organically, we'll get to the level that we anticipated, should we continue.

And we will continue to execute on our performance on our cash delivery on a year-on-year basis. The optimization of our portfolio will result in some activity that might be positive on that side. It depends on what happens. So we got all those pathways in place and our initial focus today is just to make sure that our baseline delivery is intact and we are going forward with all the optionalities ahead of us.

Operator: And our next question today will be Robert Koort with Goldman Sachs.

Unidentified Analyst: This is Rynel Thorum [ph] for Bob. You're guiding to some margin expansion in 2019 to a level that we haven't really seen since 2Q of '17. So can you maybe comment a little on the drivers behind this?

Mike Crews: Yes, this is Mike. The, what I've said in our prepared remarks that we thought margins for 2019 for the company in total would be in line with where they are in 2018. So some of that's a function of the additional hydrocracking catalyst sales that we expect out of the Zeolyst Joint Venture, while that will result in double-digit growth in sales for the Zeolyst Joint Venture just because of the mix and the margin associated with that, that will pull down margins for the JV, which will, for the limiting factor on the margin expansion for 2019, coupled with the 2 items I mentioned in Refining Services, with the higher turnaround costs being one of those.

Unidentified Analyst: Okay, that makes sense. Also, the sales for the Zeolyst Joint Venture were down year-over-year and this quarter, same as in 3Q, so how you see this one performing in 2019?

Mike Crews: Well, in 2019, as I mentioned, we expect $10 million of lower EBITDA in the first quarter relative to the prior quarter just associated with the Zeolyst Joint Venture. So the sales would follow that. For 2018, it was a bigger first half than the second half. This can be lumpy from quarter-to-quarter but as we look at 2019, we expect the second half to be stronger than the first half.

Operator: And the next questioner today will be Aleksey Yefremov with Nomura Instinet.

Aleksey Yefremov: Belgacem, given this new business reporting structure, does this suggest today the pieces within those portfolio are subject to strategic alternatives?

Belgacem Chariag: It does. So business structure is made first for efficiency creation. We do have an immediate need for us to improve our efficiency. We do have an opportunity, in my mind and in the team's mind, that we have something on the table that we could capture when it comes to efficiency and accountability and execution.

That's the primary goal. At the same time, these businesses are independent and clear. And we will, while we're optimizing the internal portfolio of each business, because each business is made up of many components, which will probably improve efficiency of that business, we will be looking at all the options as we said a quarter ago that all the options will be there based on value creation, the right strategic approach and timing.

Aleksey Yefremov: And a question on your free cash flow guidance. Does the 2019 guidance include any benefit of or headwind from asset sales or currency swaps or similar items?

Mike Crews: There are nothing related to currency swaps.

That's likely to be similar to what it was in 2018. We did have the asset sale in the current year, looking forward to next year, the cash flow's going to be driven more operationally, I would say. But we'll continue to look at areas where we can monetize assets that are nonstrategic or just not generating any cash flow or not operating. So that's something we'll continue to look at as we go through 2019.

Aleksey Yefremov: Mike, so just to clarify, the guidance says it's just OpEx minus CapEx at this point?

Mike Crews: Yes, for the, there's nothing really significant in there as it relates to asset sales.

Operator: And the next questioner today will be Vincent Andrews with Morgan Stanley.

Jeremy Rosenberg: This is Jeremy on for Vincent. I just wanted to follow up on the strategic realignment. Have you yet identified kind of what the costs are going to be associated with that in '19? And kind of the, on the other hand, the synergies you expect over the next few years? Just any numbers you could put on that would be helpful.

Belgacem Chariag: Good question.

First of all, the costs associated in '19 with this with restructuring is 0. The synergies, this is not meant to be, initially, a restructuring that's going to generate savings on headcounts or people or layers. It's meant to be a restructuring that's going to enable efficiencies and debt saving in the business. So the synergies, while I don't have a number, will be identified in the second half of the year and most likely, they will be more impactful in 2020 going forward.

Jeremy Rosenberg: Okay, got it.

That's helpful. And then just as a follow up, in terms of the 2019 guidance, can you just talk about how revenue growth kind of will trend in EC&S versus PM&C? Just kind of what are the key drivers to think about and just how to think about that would be helpful.

Mike Crews: Yes, we talked before about Refining Services, which is going to be in the low single-digit growth range. On the silica catalyst side, we're expecting double-digit top line growth and that's driven by the continued trend toward more silica-based Polyolefin Catalysts, which we're actively participating in. So that's continued growth, there, coupled with the fact that we had some MMA sales that were deferred by the customer out of '18 into '19 so we expect some growth there.

And then Zeolyst, we talked about the fact that there would be double-digit sales growth with an EBITDA growth that's probably a little lower than that just due to the mix associated with the hydrocracking catalyst. If you flip over to the PM&C side, Performance Chemicals is pretty steady in that what we call GDP plus range. But we think we've got good diversified growth worldwide there. And then Performance Materials, we're expecting mid- to high single-digit growth, really, due to the growth in highway and then on the EBITDA side, expect improvement in margins as we've worked toward our European highway business and rationalizing some of those operational issues we've incurred in 2018.

Operator: And our next questioner today will be Dave Begleiter with Deutsche Bank.

Dave Begleiter: Belgacem, building up the last answer, could you rank the organic sales potential of these 4 businesses over maybe a 3- to 5-year basis?

Belgacem Chariag: In terms of great potential, growth potential, I think this is similar to what Mike had just been going through right now. So the biggest growth potential, organically, would be our Catalyst business followed by our Materials business and the Refining Chemicals.

Dave Begleiter: Very good. And Mike, just on 2019 guidance, given the headwinds in EC&S in Q1, can this business actually grow EBITDA for the full year in 2019?

Mike Crews: For EC&S in total, is that what you're referring to?

David Begleiter: Yes.

Mike Crews: Yes.

It will because of the growth we see in silica catalysts and the Zeolyst Joint Venture. So as we said before, we do expect growth across all of the product groups, the Refining is a little bit limited in '19 but overall, we do expect growth in EC&S.

Operator: [Operator Instructions] The next questioner is going to be John McNulty with BMO Capital Markets.

Colton Bina: This is Colton on for John. Can you talk a little bit about what impact you might see from IMO 2020, if any, on your business?

Belgacem Chariag: Well, first of all, let's establish the fact that there's nothing different from what we heard before that there's no deviation on the implementation on IMO 2020, which is good.

The program is to reduce the sulfur from fuel from 3.5% to 0.5% in contact, which means there is an initial requirement to have some dilution programs and some volumes to be created, which are low sulfur available in the market, which we saw that had created some activity in 2019 and some of our hydrocracking customers are preparing to support regulation with some compliant fuels. We are actually seeing a lift in orders in that sense, in hydrocracking for us, where we'll probably going to see a strong double-digit top line growth. It is not necessarily from all from IMO 2020 but IMO is a big component of that.

Colton Bina: Okay, that's helpful. And then second of all on ThermoDrop, it sounds like you had some positive pricing there.

So does that mean some of the competitive pricing pressures that you saw last quarter have kind of abated?

Belgacem Chariag: I guess, we're going to have to find out in Q2 and Q3, when the season really starts. I mean, we're referring to data from our early Q4 because the season was late last year, from a raining perspective and weather perspective. We saw positive attraction to, or traction in pricing. We saw an amazing traction in volume. They're not where we want them to be yet, and, which is going to, we're banking on the fact that, that momentum is going to go.

Now what's driving that, we'll find out in Q2. We don't know what the reaction is going to be but we expect continuous improvement in pricing and we're trending in the right direction on the volumes as well.

Operator: And the next questioner today will be Laurence Alexander with Jefferies.

Laurence Alexander: Can you sort of help bridge between 2019 and what factors will reverse in 2020? Or do you have other outages or other issues that are visible already for 2020 that we should be thinking about for the bridge there?

Mike Crews: This is Mike. I'd say on the Refining Services side, we've had 2 different years, just based upon the furnace efficiency programs that we've put in place when we merged the 2 companies, as we've extended those turnarounds, we saw higher costs in '18 and expect higher cost in '19 that will abate in 2020.

We expect continued solid growth in the polyolefin catalyst part of our business. So that's steady as she goes. I would say as it relates to the Zeolyst Joint Venture, that can be lumpy so that likely, that large double-digit growth we'll see in '19 may temper a bit but the mix likely improves. I'd say those are probably the biggest movers and then it just remains to be seen where we are with the highway business and what our expansion plans are as we look to 2020. I'd say those are the big drivers.

Operator: [Operator Instructions] Okay. And there look to be no further questioners at this time, so this will conclude our question-and-answer session as well as today's conference call. So, I thank you all for attending today's presentation, and you may now disconnect your lines.