W. R. Grace & Co.
Q4 2020 Earnings Call Transcript

Published: 10 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the W. R. Grace & Company Fourth Quarter 2020 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session Please be advised, that today's conference is being recorded. I would now like to turn the call over to Jason Hershiser, our Investor Relations. Please go ahead.

[Jason Hershiser:]

Thank you, Denise. Good morning, everyone, and thank you for joining us today for Grace's fourth quarter and full year 2020 earnings call. With me this morning is Hudson La Force, our President and Chief Executive Officer and Bill Dockman, our Senior Vice President and Chief Financial Officer. Our earnings release and presentation are posted on our website under the Investors section at grace.com. Please note that some of our comments today will contain forward-looking statements based on our current view of our business and actual future results may differ materially. Please see our recent SEC filings which identify the principal risks and uncertainties that could affect future performance. We will discuss certain non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. This morning, Hudson will discuss key fourth quarter highlights, end market trends, provide a strategy and sustainability update and summarize our outlook for 2021 and beyond. Bill will then review our financial results and provide additional color on our outlook and key planning assumption. We will then open the call for questions. So with that, please turn to Slide 4 in our earnings presentation and I will turn the call over to Hudson.

[Hudson La Force:]

Thank you, Jason. Good morning, everyone. I hope you and your families are all safe and healthy. We have four key messages today. First, we delivered a very strong finish to the year. Second, we are successfully building a higher growth portfolio, leveraging our number one market positions, strong cash flow and customer focus sustainability strategy. Third, we have strong momentum as we begin 2021 and look beyond the pandemic, Our growth and profitability opportunities are strong and our long-term mid-single digit sales growth and 40% to 42% gross margin targets are fully intact. For 2021 and 2022, our sales growth will be above mid-single digits as our markets fully recover from the pandemic and our recent growth investments pay off. And fourth, we remain confident that our high-value businesses, industry leading technologies, profitable growth strategy and capital allocation discipline will create substantial value for our shareholders. With this important goal in mind, we are also undertaking a thorough review of potential strategic alternatives to identify opportunities to maximize shareholder value as we have previously communicated. While I can't discuss specifics, I want to emphasize that the process is active with a number of potential opportunities we are pursuing. As is always the case with this type of process, there is no guarantee the review will result in any transaction or specific outcome. The Board hasn't set a specific timetable for completion of the review process, and we don't intend to disclose developments until disclosure is appropriate.

[Bill Dockman:]

Thank you, Hudson and good morning everyone. Please turn to Slide 16. As Hudson noted, fourth quarter results were in line with our guidance, reflecting strong improvement in demand, margins and earnings sequentially from Q3 to Q4. Our businesses executed effectively on their plans as we ended 2020 and we are encouraged by the momentum and signs of economic recovery as 2021 gets underway. Fourth quarter sales were up 12% from Q3 with increases in all businesses led by a 24% increase in our key Catalysts sales. Sales were down 7% year-over-year due to the continuing effects of the pandemic and order timing. Adjusted gross margin of 39.5% was up 130 basis points from Q3 on improved demand and higher operating leverage. Sequentially, adjusted EBIT of $96.2 million was up 38% and adjusted EPS of $0.88 per share was up 57% from Q3. Q4 2020 included $8 million of Gulf Coast hurricane related costs, in addition to the $11 million in the third quarter of 2020. Q4 2019 included $8 million of insurance recoveries that did not repeat in Q4 2020. Our full year 2020 adjusted free cash flow was $237 million, down only 4% from the prior year despite a 40% decrease in adjusted EPS in 2020 versus 2019. This performance reflects our team's strong execution and focus on lowering working capital, capital spending, and operating expenses. We received another $10 million dividend from our ART joint venture in Q4 for a total of $20 million in 2020. ART will continue to pay dividends in 2021. Now, let's turn to Slide 17 to look at the segment results. Catalysts Technologies sales were up 14% sequentially versus Q3. Refining catalyst sales were up 24%, driven by higher refinery operating rates while sales of Specialty Catalysts increased by 5% from Q3 due to higher sales of PE and chemical catalyst. We signed three UNIPOL polypropylene process technology licenses in Q4, which brings the total to seven for 2020, the highest since we bought this business. For the full year 2020, FCC price was up 20 basis points, reflecting the strong value of our products. Fourth quarter Catalysts Technologies' segment gross margin of 40% improved by 80 basis points sequentially, reflecting improved customer demand and operating leverage in our plants.

[Hudson La Force:]

Thank you, Bill. Please turn to Slide 22. Before we open the call for your questions, I want to emphasize today's key messages. We delivered a very strong finish to 2020. We are successfully building a higher growth portfolio. Our growth and profitability opportunities are strong and we're actively pursuing opportunities to accelerate value creation beyond what our growth plan will create. I am proud of our team, their focus on health and safety and there strong execution in 2020. We had to make some tough and quick decisions to ensure we met our customer commitments and maximized our short-term and long-term financial performance. I look forward to your questions. Operator?

[Operator:]

Your first question comes from Chris Parkinson with Credit Suisse. Your line is open.

[Chris Parkinson:]

Great. Thank you very much. Now that the sustainable recovery is clearly insight and you're also in the process of the strategic review, can you take this opportunity to talk a little bit more about the longer-term strategies HPC and Spec Cat, now that the dust has settled, as well as Mat Tech especially as margins should be performing quite well. So just, could you just give us an overall blend about how you and potentially the Board are just assessing the opportunities there within, where you'll be spending cash organically and potentially inorganically? Thank you very much.

[Hudson La Force:]

Thank you, Chris. We've invested a significant amount of capital and effort positioning our Specialty Catalysts business and our Materials Technologies business for faster growth. That work is paying off. You've seen it in the historical performance in those two businesses as we highlighted this morning. Specialty catalyst has grown 7.5% organically over the last few years and Materials Technologies has grown 4.9% organically over the last two years. These growth rates are in line with our expectations going forward post pandemic and we expect both businesses to grow at this level or better in '21 and '22 -- 2021 and 2022 as we fully recover from the pandemic. From an inorganic perspective, historically we've made significant investments in our Specialty Catalysts business. Those investments helped us build the strong growth portfolio we have today in Specialty Catalysts. As we look forward, we see opportunities in Materials Technologies as well. It's an area where we've spent a significant amount of time, looking at opportunities to grow that portfolio and to do it in a way that makes us better as a company, not just bigger, something that would be accretive to our growth rates, position us to serve our customers even more effectively and be well positioned for growth in the future.

[Chris Parkinson:]

That's very helpful. And I think there is still peers to be a modest disconnect regarding some investor -- how can investors are interpreting the Grace portfolio within ESG lens. Inversely if you have the slide you quite frankly previously released but appears you did enhance for us today. Can you speak to how your portfolio and how your R&D spend fit into the ESG world. I know you obviously gave some numbers in your prepared remarks, which is how we should be thinking about the existing portfolio. And just what incremental opportunity really are developing and once again, it seems like you mentioned a few in the PowerPoint. Thank you.

[Hudson La Force:]

Sure. One of the things that I like best about our portfolio is, how relevant our technology is to sustainability for our customers. Our customers have objectives to reduce their environmental footprint, to reformulate their products, to make sure that they're providing their customers the most sustainable project -- products possible. And when they're facing those challenges, they look to us to help them solve their problems. It may be reducing the weight of plastic in a package or in a manufactured item. It may be reducing the use of water in their process manufacturing. It may be reformulating a product, so that it takes out a chemical that might be harmful to human health or to the environment. These are all end-use applications, focused on sustainability, where our technology is helping our customers achieve objectives today. And when you add it up across our portfolio, that's how you get to that 49% of sales. It includes products that are part of the circular economy. It includes products that are used for recycling materials. And as we look forward, we think we can grow that portfolio. 62% of our R&D projects today are focused on opportunities that have clear sustainability linkages. We have a nice business today in processing renewable fuels. That business has been growing double digits and we expect it to have that type of a growth rate in the years to come. And on a longer time horizon, the opportunity in advanced plastics recycling is significant for us. The market is just starting to address the need to recycle plastics. Most of that is mechanical recycling today, but in the long term, it will be chemical recycling that wins the day and helps our communities achieve their environmental objectives and Grace is very, very well positioned with our Catalyst Technologies, both on the refining side and on the polyolefin side to play a significant role in that effort.

[Chris Parkinson:]

Thank you very much.

[Operator:]

Your next question comes from John McNulty with BMO Capital Markets. Your line is open.

[John McNulty:]

Yes, thanks for taking my question. So, Hudson, you have a core platform in the refining side. You're also looking at -- and so I assume you look at assets that are out there. You're also strategically looking at your own assets. I guess, first question would be, do you see a significant disconnect between how the public markets value refining assets. First, how the private markets are necessarily looking at those or valuing those types of assets.

[Hudson La Force:]

Well, I think John, one of the questions that any investor has to consider is, what's the long-term outlook for the refining industry. And as we think about it, there are a couple of things that are top of my mind. One is, how will demand for transportation fuels play out over the next many years. As we tried to highlight this morning, we see that as a low single-digit growth business for a number of years to come. But we recognize that there is a peak in that business. We think it's in the 2030s decade. And then once that peak is achieved, we think there is a slow decline that follows that. Part of the reason why there will be continued growth, and then a slow decline is because of the size of the installed base. Today there are over a billion internal combustion engine vehicles in operation around the world. We think that grows to about $1.4 billion over the next decade or so as people in the emerging economies acquire cars as light vehicles, continue to grow. That installed base will turn over very, very slowly over many years. That provides long-term stability to this market. Now, that's a forecast. Experts have done sensitivity analysis on that outlook. There is a sensitivity that we shared this morning, what if government's changed policies, what if technologies developed, what if all of the consumer behavior changed on a pace that's necessary to achieve the Two Degree Celsius goals of the Paris agreement. That would reduce the demand for transportation fuels over this timeframe. But even in that scenario, the experts believe that demand would still be 75% of 2018 levels, even if all of those changes occurred. Now, the other thing I think about, John is, this is not just about transportation fuel. It's also about technology that provides a petrochemical feedstocks, what we call our max petchem applications, its technology that helps clean up the fuel. While the fuel is still consumed over the next many years, we want that fuel to be as clean as environmentally friendly as possible. That's where our hydroprocessing catalysts come in. And over the long term, it's that FCC catalyst technology that is the key to advanced plastics recycling. And so there are still important nice growing, nicely profitable sub segments in this business that play to our strengths as well.

[John McNulty:]

Got it. Thanks for the color. Appreciate the detail on it. And then maybe just a question about the results. So the -- on the catalyst side, you had a modest -- it looks like in the quarter, a modest decline in price. Is that a function of just a mix down shift that we've been seeing from the refining industry or are there specific products where -- for one reason other you're having to give up on price. How should we be thinking about that and how should that -- how should we think about how that trends as we look through 2021?

[Hudson La Force:]

Thank you. Thank you, John. That's a great question. So what we have seen, this started really in the third quarter. Customers coming to us and saying, hey, we'd like to reformulate to a lower cost catalyst, is a way for them to save money, while their margins are pressured. And we obviously have worked with our customers to provide those reformulations and those catalysts are sold at a lower price point than our higher performing catalysts. The vast majority of our customers are still using the catalysts that they were using before the pandemic, but a fraction have decided to switch to a lower performing catalyst. And so you see that affect our average pricing as you noted in your question. As we think about 2021, the customers that have switched, we expect them to stay on this reformulated catalyst, let's say, through the first half of next year and then we would expect as refinery operating rates improve, we would expect many of those customers to start to switch back to the higher performing catalysts. In fact, we've actually started that conversation with one customer, and so we're already seeing at least some interest in switching back to the higher performing catalysts. But I think broadly speaking, the customers that have switched, will stay on that reformulated catalyst for the first half of next year before we see a significant amount of customer switching back to their higher performing catalyst.

[John McNulty:]

Got it. Thanks very much for the color.

[Operator:]

Your next question comes from Kevin McCarthy with Vertical Research. Your line is open.

[Kevin McCarthy:]

Good morning. Hudson, I was wondering if you can talk through your Specialty Catalysts outlook in a bit more detail. It looks like sales declined roughly 10% in the quarter. Everything that we see, going on downstream in the resin markets for polypropylene and polyethylene, trending positively with regard to both demand and price and likewise your outlook sounds quite positive. So perhaps you can kind of talk through where you think inventory levels are? What you're seeing in January order books and some of the improved trial activity that you show on Slide 9 to just kind of give us a better feel for when you think we might turn the corner in Specialty Catalysts and the various factors that could give you confidence?

[Hudson La Force:]

Thank you, Kevin. When I think about our Specialty Catalysts business and the growth momentum that we have, it really comes down to three things. A lot of our momentum is tied to the licensing activity that we're doing. As we noted earlier, we were able to sign seven licenses in 2020. That is a very strong performance, particularly given the level of uncertainty that was in the marketplace during the year, of course. Each license translates into a future catalyst opportunity as well as providing revenue and margin in its own right. And so those seven licenses add to a base of business that we've been building up over the last few years, that will drive catalyst demand in 2021 and in future years. The other thing that we look at, is the level of Trial activity. When we go back to the first part of 2020, the level of Trial activity dropped. It was below our expectations and below historical levels because of the lockdowns, because of the impact of the pandemic on commercial activity. But as we work through 2020, we saw the level of Trial activity increasing, not just back to normal levels, but to new high levels. We finished 2020 Q4 with 26 customer trials, which is a significant amount of activity for us. And that also corresponds to growth -- improved growth rates in 2021. And then, the third thing that comes to mind is just broadly our capabilities in this business. We've built a very strong franchise with very broad technology. We have capabilities that it's difficult for our competitors to match and we're crucial to our customers achieving their own business objectives. And I combine those three things and it keeps me pretty optimistic about our opportunity to continue to grow that business well above its end market.

[Kevin McCarthy:]

I appreciate the color there. And then as a second question, in your prepared remarks, Hudson, when you were discussing exploration of strategic alternatives to maximize shareholder value, I think you commented that you see a number of potential opportunities there. And I was intrigued by the plural. Did you mean to imply you're engaged with multiple parties or I appreciate you may not be able to get too specific, but maybe you can elaborate to the extent you can on what that process looks like and what sort of timeline you might have in mind?

[Hudson La Force:]

Well, Kevin, I appreciate your question and your interest in knowing more. I'm not going to be able to add more specifics to what I said in our prepared remarks, I'll let them stand on their own. We are -- we do have an active process and we are pursuing a number of opportunities.

[Kevin McCarthy:]

Okay, fair enough. Thanks very much.

[Operator:]

Your next question comes from John Roberts with UBS. Your line is open.

[John Roberts:]

Thank you. I guess one of the strategic options could be separate Materials Technologies and I want to ask you the comment on the probability of that, but could you at least talk about how integrated to Grace's Materials Technology is versus out separable that business might be.

[Hudson La Force:]

John, I actually think of Materials Technologies as a highly integrated part of our portfolio that there is a shared underlying chemistry. There is a shared supply chain. There is shared manufacturing assets between our Materials Technologies' silica business and the FCC catalyst business and the Specialty Catalysts business. They give each other flexibility and operating leverage and they do share intellectual property and supply chain and manufacturing assets. So, we do think of it as an important part of the portfolio.

[John Roberts:]

Then secondly, it's been a while since we had a normal seasonal pattern for Grace's results, given the pandemic last year in the Philadelphia refinery probably year before. Is this year going to be normal and what would normal look like from a kind of quarter-to-quarter seasonality?

[Hudson La Force:]

Well, let me share my thought and then I'll ask Bill to share his thoughts. We do -- in a normal year, what we would expect is Q1 to be a bit weaker than the other three quarters. That's just seasonality. But the other three quarters would be a comparable. I think, Q4 is usually our strongest quarter of the year. For 2021 though, I think we'll see a different pattern In significant part because our end markets are still recovering. At the end of 2020, refining demand was still about 10% below pre-pandemic levels. We do expect that to improve as we go through 2021. We think by the end of 2021, refining demand will have improved to within 5% of pre-pandemic levels. And so, there should be a steady progress as we go through the year on that end market improving. I think Specialty Catalysts and Materials Technologies have improved faster than refining, but we'll see that sequential progression through the year. So what would you add to that?

[Bill Dockman:]

Yes, I think that's right and to your point, Hudson, on the refining side, we're expecting to see steady improvement throughout the year. We laid it out on page 11 of the deck where we show our projection on demand over 2020 so that -- 2021 that will continue throughout the year and fourth quarter will be back to more normal type of quarter and I think that sets us up for a more normal pattern as we look ahead to say 2022. But I think this year, it will just be continued steady improvement throughout the year, both at top line gross margins and then earnings as well.

[Hudson La Force:]

One of the things that I've been watching carefully, John, is how the rise in COVID-19 cases during the winter months has translated into economic impacts. And as we all know, the translation to economic impacts has been much smaller than it was back in the spring. We've seen demand for refined products improve steadily even as the COVID-19 cases were reaching their peak in January. And so, that gives us a little better visibility into the next months, knowing that the increase in COVID-19 cases isn't translating as directly into economic effect as it did last spring.

[John Roberts:]

Okay. Thank you.

[Operator:]

Your next question comes from Chris Kapsch with Loop Capital Markets. Your line is open.

[Chris Kapsch:]

Yes, good morning. So sort of a follow-up on the comments and strategic alternatives in response to John Roberts questions and perhaps the McNulty's question. And so the difference in values between private and public markets and I'm asking because I appreciate your comments about the desire for the investment community look at the growth year on parts of your portfolio that made in high single-digit growth prospects for Material Tech and Specialty Catalysts respectively when injectables against what looks like a longer-term outlook for low-single digit, and maybe even factors for those refining catalyst business. So I mean, I guess, what I'm getting at is you read between the lines, you want investment created value or to accord you a better multiple for the growth prospects in those two business. But you're also saying that you do -- look at the portfolio of an integrated entity that there is obviously manufacturing integration between Refining Cat and MT and you think there'll be dis-synergies if you were to separate those. So I guess the question is this, are there any scenarios as you alternate -- as you look at strategic alternatives where you would isolate those growth, your businesses as a means to try to unlock some value perceptions or to reflect maybe the differences in the way a public market or in the private market might value the key franchises. Thanks.

[Hudson La Force:]

Well, Chris, I appreciate your question. I recognize that you want to try to get a little more detail, but I'm not going to comment more specifically on the alternatives that we're considering. When I think about the portfolio, as you know there are parts of the business that are growing faster. One of the important things that Refining Technologies does for us, it gives us scale and it gives a significant amount of cash flow to finance growth and to return capital to shareholders. So these are things that we have to think about as we think about our alternatives. But I'm not going to be able to comment more specifically, today, Chris.

[Chris Kapsch:]

Okay. And then just as a follow-up, you mentioned some of the older refinery configurations shuttering and some of the more complex, more catalysts intensive one goes up -- growth opportunities for your business and those tend to be more, Southeast Asia, but it's also adjusted your manufacturing footprint by sort of canceling the investment you're making in the UAE. I'm just wondering, it's a cap -- to appropriately capitalize on that shift in the global sort of refining industry footprint. Do you feel like to align well or is there other shifts in your manufacturing footprint that you feel like you need to make to address that -- to match with the longer term opportunity there. Thank you.

[Hudson La Force:]

It's a great question, Chris. I appreciate it. A couple of things come to mind. When I think about serving our customers around the world regardless of where they are, North America, Europe, the Middle East, Africa, Asia, Latin America, the most important capability that we have on the ground is our sales and technical service capability. And those employees are positioned all around the world. We've got a very strong presence in every geography where we're close to our customer, and we can work directly with them on their refinery operations and optimizing their catalyst formulation. Catalysts are high-value products and they can economically be shipped from our core manufacturing assets in North America and Europe. They can be shipped globally without really affecting the competitive -- competitiveness of those products. And what we found is, we are better able to serve our customers in our bigger, more flexible manufacturing assets. We've invested a lot in our North American and European a catalyst assets. There are lot of capabilities, a lot of flexibility in those manufacturing plants. And as our technology continues to evolve, we've concluded that it's more valuable to have that capability and flexibility, then it is to be closer to our customers.

[Chris Kapsch:]

Thanks for the color, Hudson.

[Operator:]

Your next question comes from Mike Sison with Wells Fargo. Your line is open.

[Mike Sison:]

Hey guys. Good finish to 2020. Hudson, you had a slide talking about advanced plastics recycling. Does your Specialty Catalysts business already have an offering there and if not, is that an area where you may want to do some acquisitions?

[Hudson La Force:]

Mike, this is a technology that is pretty well understood. It's pyrolysis technology. We are working with customers and other third parties to develop the right technologies. But it's still pretty early. Right now the most important areas of innovation are in the supply chain of plastic waste and that really is -- it's not something that we're focused on, it's something that other supply chain participants are focused on. That market really needs to develop further before customers are going to make scale investments, commercial scale investments in advanced plastics recycling. But when our customers are ready to do that, we will be ready with our technologies.

[Mike Sison:]

Got it. And then, I was encouraged to see Slide 12, you made a good case, why the FCC catalysts industry can show some growth over next several years. Yes, there's a -- it seem like your competitors are really focused there. So, in terms of technology and R&D, where are the opportunities to maybe to continue to take share there as I think the others aren't really again focused on that -- on that market.

[Hudson La Force:]

Well, the end markets that we're focused on where we think our technology really differentiates us is in the max petchem applications. These are refineries that are really operating to provide petrochemical feedstocks for downstream petrochemical operations, I think propylene production. That's an important area of focus for us and has been for a number of years. We remain very focused on hydro processing, which we do through our ART joint venture. One of the primary benefits of that technology is to take sulfur out of transportation fuel so that it burns more cleanly and we reduce SOx emissions and the other area that has become really an area of significant focus over the last year is using our Catalyst Technologies to process renewable feedstocks into low carbon emission fuels. That's a smaller business for us today, but one that's been growing double digits over the last couple of years.

[Mike Sison:]

Great. Thank you.

[Operator:]

Your next question comes from Laurence Alexander with Jefferies. Your line is open.

[Kevin Estok:]

Hi, this is Kevin Estok on for Laurence Alexander. Thanks for taking my question. I guess my first question has to do with the CapEx that you guided to for 2021. I was just wondering like how in the stream that was relative to maybe what your normalized run rate would be in order to achieve that kind of mid to high single-digit growth rate?

[Bill Dockman:]

Sure. Yes, this is Bill. Capital for 2021 is, I wouldn't say it's constraint. It's really, I caught a pretty normal year in that -- we've 7% to 8% type -- percent of sales range. So this is our normal maintenance and reliability capital, IT capital, EH&S capital, products -- productivity capital, no large growth capital in 2021 as I think you know we've made some big investments there over the last few years. So I could sort a more normal year, not a constrained year.

[Kevin Estok:]

Okay, got it. Thanks. You may have touched on this, but in -- within Materials Technologies, the softness that you guys referenced for chemical process industries, I guess I was just wondering is that -- would you say that, that sort of softness was indicative in the market as a whole over there like an adverse maybe mix shift that impacted your performance relative to the market.

[Hudson La Force:]

This was really driven by the end markets that, that sub segment suppliers.

[Kevin Estok:]

Okay. Thank you.

[Operator:]

Your next question comes from Paretosh Misra with Berenberg. Your line is open.

[Paretosh Misra:]

Good morning, Hudson, Bill and Jason. So with regard to your ESG initiative, I was hoping you could elaborate a bit more on the plastic recycling business as to what great product to actually allow the customers to do, is it more to help do things faster or cheaper and can your Catalysts allow your customers to put a different types of plastics in the feedstock?

[Hudson La Force:]

Your instinct is exactly right. This is -- if you know the chemistry, this is catalyzed pyrolysis chemistry. And the Catalyst does a number of things. It allows our customers to process a more mixed feed, which allows them to reduce their feedstock costs. It allows them to convert more of the plastic into useful products, obviously improving their yields and it allows our customers to drive the produced products into certain directions, if they want to maximize Olefins or maximize other materials. Our technology would allow our customers to do any of those objectives.

[Paretosh Misra:]

Got it. Got it. So I guess except maybe for PVC, they can recycle every other all other except the plastics.

[Hudson La Force:]

Yes, thank you. That's a good clarification. PVC is a different animal but certainly polypropylene, polyethylene, these sorts of plastics are very relevant feedstocks into a process like this.

[Paretosh Misra:]

Got it, thanks. And just a quick follow-up on your comments earlier about that supply chain or feedstock availability being an issue as to why this industry hasn't really taken up. Any cost you can share as to how the situation is different in the US versus Europe and other parts of the world?

[Hudson La Force:]

I think the situation is roughly the same globally. It is an immature market, a different levels of recycling in different regions, of course. But right now the recycling supply chains are not geared towards feeding this material into a chemical recycling facility. And so those supply chains need to adjust. But I think more significantly, they need to grow. Commercial scale chemical recycling requires a significant amount of feedstock and that feedstock just isn't available really anywhere today at commercial scale. It's available at smaller scale, of course, but not commercial scale that would generate a significant amount of investment. I think that's a question of time. Lots of people are working on that and I'm sure it will happen. It's just a question of time

[Paretosh Misra:]

Thanks, Hudson. Thanks for all the color and good luck in 2021.

[Hudson La Force:]

Thank you.

[Operator:]

Your last question comes from Chris Shaw with Moness, Crespi. Your line is open.

[Chris Shaw:]

Hey, good morning, everyone. Just a quick one on ART and HPC catalyst. Just -- what's the sort of recovery path look like there. I know there is obviously -- they were running at lower rates. So they were obviously buying HPCs at lower rates, but -- does it come back -- does it come back quickly or is it just sort of we getting back to its old sort of growth rates?

[Hudson La Force:]

Chris, I -- ART's impact really was felt mostly in the second half of 2020, and Q4, most significantly, because of the way those catalysts are refreshed in these fixed-bed applications. The demand weakness caused by the pandemic was delayed a little bit relative to FCC catalysts. As we look to 2021, we do expect ART to recover, but we do think it will be slow during the 2021 year, more weighted to the second half.

[Chris Shaw:]

And that second half though is there -- is it good to have big rush or is it going to be a big lumpy quarter in there somewhere or is it just sort of back again sort of a normal growth rates, when we hit that second half?

[Hudson La Force:]

I -- there is always some lumpiness in this business. But I don't -- I'm not anticipating any unusual lumpiness.

[Chris Shaw:]

Got it. That's great. It's what I was looking for. Thanks.

[Operator:]

There are no further questions queued up at this time. I'll turn the call back over to Jason Hershiser for closing remarks.

[Jason Hershiser:]

Thank you, Denise. Thank you everyone for your time today and your interest in Grace. We look forward to engaging with many of you over the coming months. Thank you, and this concludes our call.

[Operator:]

This concludes today's conference call. You may now disconnect.