PART I FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company reported a net loss in Q2 2021, with total assets decreasing, reflecting divestitures and significant debt refinancing [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Sales increased, but a net loss was incurred due to debt extinguishment costs Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Sales** | $146,952 | $115,641 | $273,576 | $241,195 | | **Gross Profit** | $38,473 | $34,873 | $68,592 | $72,577 | | **Operating Income** | $11,652 | $9,846 | $14,134 | $21,820 | | **Debt Extinguishment Costs** | $11,717 | $0 | $11,717 | $2,513 | | **Net (Loss) Income from Continuing Operations** | $(7,870) | $34,317 | $(10,618) | $30,970 | | **Net (Loss) Income Attributable to Ecovyst Inc.** | $(1,490) | $15,926 | $(94,125) | $16,150 | | **Diluted (Loss) Income Per Share - Continuing Operations** | $(0.06) | $0.25 | $(0.08) | $0.23 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased, reflecting divestitures, with stable debt and reduced equity Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $55,757 | $114,011 | | Total current assets | $387,328 | $428,667 | | Total assets | $3,087,598 | $3,198,347 | | Long-term debt, excluding current portion | $1,395,887 | $1,400,369 | | Total liabilities | $1,882,989 | $1,921,168 | | Total Ecovyst Inc. equity | $1,205,349 | $1,277,126 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased, while investing and financing activities primarily involved acquisitions and debt refinancing Cash Flow Summary - Continuing Operations (Six Months Ended June 30, in thousands) | Category | 2021 | 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $37,221 | $24,303 | | **Net cash used in investing activities** | $(70,033) | $(19,862) | | **Net cash used in financing activities** | $(5,007) | $(6,731) | - The acquisition of Chem32, net of cash acquired, resulted in a cash outflow of **$41,994 thousand**[21](index=21&type=chunk) - Debt refinancing activities included the issuance of **$897.8 million** in new long-term debt and repayments of **$900.0 million**[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail corporate transformation, including name change, divestitures, Chem32 acquisition, and debt refinancing - The company changed its name from PQ Group Holdings Inc. to **Ecovyst Inc.** and rebranded its segments to **Ecoservices** and **Catalyst Technologies** following the sale of its Performance Chemicals business[26](index=26&type=chunk) - The Performance Materials business was sold in December 2020, and the Performance Chemicals business was sold effective August 1, 2021, with both presented as **discontinued operations** in the financial statements[26](index=26&type=chunk)[31](index=31&type=chunk)[35](index=35&type=chunk) - On March 1, 2021, the company acquired Chem32, LLC for **$44 million** in cash, which was allocated to the Ecoservices segment and resulted in **$37.6 million** of goodwill[68](index=68&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) - In June 2021, the company entered into a new **$900 million** senior secured term loan facility to refinance existing debt, resulting in **$11.7 million** of debt extinguishment costs[84](index=84&type=chunk)[159](index=159&type=chunk) - Subsequent to the quarter end, on August 1, 2021, the company completed the sale of its Performance Chemicals business, used proceeds to repay debt, and declared a special cash dividend of **$3.20 per share**[128](index=128&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transformation, improved Q2 2021 sales and Adjusted EBITDA, and strong liquidity [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Q2 2021 sales and gross profit increased, driven by Ecoservices, while six-month gross profit declined due to higher costs Sales by Segment - Three Months Ended June 30 (in millions) | Segment | 2021 | 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Ecoservices | $120.8 | $90.4 | $30.4 | 33.6% | | Silica Catalysts | $26.2 | $25.2 | $1.0 | 4.0% | | **Total Sales** | **$147.0** | **$115.6** | **$31.4** | **27.2%** | Segment Adjusted EBITDA - Three Months Ended June 30 (in millions) | Segment | 2021 | 2020 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Ecoservices | $40.5 | $35.0 | $5.5 | 15.7% | | Catalyst Technologies | $20.7 | $25.3 | $(4.6) | (18.2)% | | **Total Segment Adjusted EBITDA** | **$61.2** | **$60.3** | **$0.9** | **1.5%** | - The six-month gross profit was negatively impacted by one-time repair costs related to winter storms in the Gulf region and the timing of plant 'turnaround' maintenance[186](index=186&type=chunk) - For the six months ended June 30, 2021, Catalyst Technologies' Adjusted EBITDA decreased by **18.3%** to **$39.2 million**, primarily due to lower sales volumes from the Zeolyst Joint Venture and unfavorable fixed cost absorption[199](index=199&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=52&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $162.9 million available, supported by cash and ABL facility, and refinanced its debt - Total available liquidity as of June 30, 2021, was **$162.9 million**, comprising **$55.8 million** in cash and **$107.1 million** in ABL facility availability[210](index=210&type=chunk) - In June 2021, the company refinanced its debt, entering a new **$900 million** senior secured term loan facility due 2028, and the ABL facility was amended, decreasing commitments to **$100 million** and extending maturity to 2026[217](index=217&type=chunk) Capital Expenditures - Six Months Ended June 30 (in millions) | Category | 2021 | 2020 | | :--- | :--- | :--- | | Maintenance | $19.7 | $12.1 | | Growth | $4.1 | $4.0 | | **Total** | **$23.8** | **$16.1** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risks remain consistent with prior reports, with cross-currency swaps settled due to divestitures - In March 2021, the company settled its cross-currency swaps with a total notional value of **$311.4 million** as a result of the divestitures of the Performance Materials and Performance Chemicals businesses[228](index=228&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2021, the company's disclosure controls and procedures were **effective** at a reasonable assurance level[229](index=229&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, internal controls[230](index=230&type=chunk) PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of filed exhibits [Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company believes no pending legal proceedings will have a material adverse effect on its business - The company states that it does not believe any currently pending litigation will have **no material adverse effect** on its business[231](index=231&type=chunk) [Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the company's risk factors since its last Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since its Annual Report on Form 10-K[232](index=232&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Holders of restricted stock units and stock options will receive dividend equivalent payments or strike price reductions related to a special cash dividend - In connection with a special cash dividend, holders of outstanding restricted stock units and stock options will receive either a dividend equivalent payment upon vesting or a reduction in strike price[234](index=234&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists various exhibits filed with the Quarterly Report, including key agreements and officer certifications - The report includes various exhibits, such as amendments to the Stock Purchase Agreement, the new Term Loan Credit Agreement, and certifications by the CEO and CFO[236](index=236&type=chunk)

Ecovyst Inc. (NYSE:ECVT) Q2 2021 Results Conference Call August 5, 2021 11:00 AM ET Company Participants Nahla Azmy - Vice President of Investor Relations and Financial Communications Belgacem Chariag - Chairman, President and Chief Executive Officer Mike Feehan - Vice President and Chief Financial Officer Conference Call Participants David Begleiter - Deutsche Bank Angel Castillo - Morgan Stanley Aleksey Yefremov - KeyBanc Capital Markets Operator Good morning. My name is Britney, and I will be your conf ...

PART I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited Q1 2021 financial statements show a net loss of **$92.6 million** due to discontinued operations, with total assets at **$3.06 billion** and operating cash flow of **$17.4 million** [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q1 2021 sales slightly increased to **$126.6 million**, but operating income sharply declined to **$2.5 million**, resulting in a **$92.6 million** net loss due to significant discontinued operations losses Q1 2021 vs Q1 2020 Income Statement Highlights (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Sales | $126,624 | $125,554 | | Gross Profit | $30,119 | $37,704 | | Operating Income | $2,482 | $11,974 | | Net loss from continuing operations | ($2,748) | ($3,347) | | Net (loss) income from discontinued operations | ($89,770) | $3,856 | | Net (loss) income attributable to PQ Group Holdings Inc. | ($92,635) | $224 | | Basic loss per share | ($0.68) | $0.00 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets decreased to **$3.06 billion** from **$3.20 billion** at year-end 2020, primarily due to assets held for sale, while total equity declined to **$1.19 billion** Balance Sheet Summary (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $369,239 | $428,667 | | Long-term assets held for sale | $1,035,418 | $1,149,443 | | Total assets | $3,063,977 | $3,198,347 | | Total current liabilities | $192,622 | $201,865 | | Long-term debt, excluding current portion | $1,401,573 | $1,400,369 | | Total liabilities | $1,877,494 | $1,921,168 | | Total equity | $1,186,483 | $1,277,179 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly improved to **$17.4 million** in Q1 2021, while investing activities used **$76.6 million**, largely due to a business combination Q1 2021 vs Q1 2020 Cash Flow Summary (in thousands) | Cash Flow Category | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,423 | $4,531 | | Net cash used in investing activities | ($76,569) | ($22,198) | | Net cash (used in) provided by financing activities | ($1,978) | $58,301 | | Net change in cash, cash equivalents and restricted cash | ($63,832) | $36,371 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the pending sale of the Performance Chemicals business for **$1.1 billion** and the acquisition of Chem32, LLC for **$44.0 million**, with long-term debt remaining substantial at approximately **$1.4 billion** - On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business for **$1.1 billion**; this business is now reported as a discontinued operation, with an expected disposal loss of approximately **$95.6 million** recognized in Q1 2021[26](index=26&type=chunk)[36](index=36&type=chunk)[39](index=39&type=chunk) - On March 1, 2021, the Company completed the acquisition of Chem32, LLC for **$44.0 million** in cash, resulting in **$37.6 million** in goodwill assigned to the Refining Services segment[63](index=63&type=chunk)[66](index=66&type=chunk)[69](index=69&type=chunk) Sales by Segment and End Use (Q1 2021 vs Q1 2020, in thousands) | Segment / End Use | Q1 2021 Sales | Q1 2020 Sales | | :--- | :--- | :--- | | **Refining Services** | **$100,222** | **$100,690** | | Fuels & emission control | $55,192 | $55,710 | | **Catalysts** | **$26,402** | **$24,864** | | Packaging & engineered plastics | $26,402 | $24,817 | | **Total Sales** | **$126,624** | **$125,554** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic shift from divestitures, reporting flat Q1 2021 sales at **$126.6 million**, a **20.2%** decrease in gross profit, and a **13.0%** decline in Adjusted EBITDA to **$42.3 million**, while maintaining **$160.8 million** in liquidity [Recent Developments](index=34&type=section&id=Recent%20Developments) The company completed the sale of its Performance Materials business for **$650.0 million** and entered an agreement to sell its Performance Chemicals business for **$1.1 billion**, reclassifying both as discontinued operations - Completed the sale of the Performance Materials business on December 14, 2020[119](index=119&type=chunk) - Entered into a definitive agreement on February 28, 2021, to sell the Performance Chemicals business for **$1.1 billion**[119](index=119&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q1 2021 sales increased by **0.8%** to **$126.6 million**, but gross profit fell **20.2%** to **$30.1 million**, and operating income dropped **79.0%** to **$2.5 million**, primarily due to lower volumes and higher manufacturing costs Q1 2021 vs Q1 2020 Financial Performance (in millions) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $126.6 | $125.6 | 0.8% | | Gross Profit | $30.1 | $37.7 | (20.2)% | | Operating Income | $2.5 | $11.9 | (79.0)% | | Interest Expense, net | $10.5 | $15.3 | (31.4)% | | Net loss from continuing operations | ($2.7) | ($3.4) | (20.6)% | - Refining Services sales decreased **0.5%** due to lower volumes, with an estimated **$6.0 million** impact from freezing weather in the Gulf of Mexico, partially offset by higher pricing[135](index=135&type=chunk) - Catalysts sales increased **6.0%** primarily due to a favorable product mix of polyethylene catalysts[135](index=135&type=chunk) [Adjusted EBITDA](index=39&type=section&id=Adjusted%20EBITDA) Total Adjusted EBITDA for Q1 2021 decreased **13.0%** to **$42.3 million**, with Refining Services' Adjusted EBITDA falling **11.3%** to **$33.0 million** and Catalysts' Adjusted EBITDA decreasing **18.5%** to **$18.5 million** Segment Adjusted EBITDA (in millions) | Segment | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Refining Services | $33.0 | $37.2 | (11.3)% | | Catalysts | $18.5 | $22.7 | (18.5)% | | Total Segment Adjusted EBITDA | $51.5 | $59.9 | (14.0)% | | Unallocated corporate expenses | ($9.2) | ($11.3) | 18.6% | | **Total Adjusted EBITDA** | **$42.3** | **$48.6** | **(13.0)%** | [Financial Condition, Liquidity and Capital Resources](index=42&type=section&id=Financial%20Condition,%20Liquidity%20and%20Capital%20Resources) As of March 31, 2021, the company reported **$160.8 million** in total available liquidity, including **$55.2 million** in cash, with total debt at **$1.43 billion** and cash flow from continuing operations at **$16.5 million** - Total available liquidity as of March 31, 2021, was **$160.8 million**, with no borrowings under the revolving credit facility[162](index=162&type=chunk) Cash Flow Summary - Continuing Operations (in millions) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16.5 | $11.1 | | Net cash used in investing activities | ($54.5) | ($7.6) | | Net cash (used in) provided by financing activities | ($1.5) | $52.6 | - Total debt as of March 31, 2021, was **$1,426.4 million**, with net debt of **$1,371.2 million**[174](index=174&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reported no material changes in market risk exposures from its 2020 Annual Report, except for the settlement of cross-currency swaps in March 2021 due to ongoing divestitures - In March 2021, the company settled its cross-currency swaps with a total notional value of **$311.4 million**, paying **$13.2 million** in cash, as a result of the Performance Materials and Performance Chemicals divestitures[184](index=184&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[185](index=185&type=chunk) - No changes occurred during the quarter ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[186](index=186&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal claims in the ordinary course of business but does not anticipate any pending litigation will have a material adverse effect - The company is subject to various legal claims in the ordinary course of business but currently believes no pending litigation will likely have a material adverse effect[188](index=188&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - There have been no material changes from the risk factors described in the company's Annual Report on Form 10-K[189](index=189&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2021, the company received 98,627 shares of common stock from employees at an average price of **$14.90** per share to satisfy tax withholding obligations related to restricted stock unit vesting Shares Purchased for Tax Withholdings (Q1 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 1-31, 2021 | 98,627 | $14.90 | | February 1-28, 2021 | — | — | | March 1-31, 2021 | — | — | [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists key exhibits filed with the Form 10-Q, including the Stock Purchase Agreement for the Performance Chemicals business divestiture and required CEO and CFO certifications - Key exhibits filed include: - Stock Purchase Agreement for the Performance Chemicals business divestiture - Certifications of the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act - Financial statements formatted in Inline XBRL[193](index=193&type=chunk)[194](index=194&type=chunk)

PQ Group Holdings Inc. (PQG) Q1 2021 Earnings Conference Call May 6, 2021 11:00 AM ET Company Participants Nahla Azmy - Vice President of Investor Relations and Financial Communications Belgacem Chariag - President & Chief Executive Officer Michael Crews - Chief Financial Officer Conference Call Participants David Begleiter - Deutsche Bank Angel Castillo - Morgan Stanley Alex Yefremov - KeyBanc Capital Markets David Silver - C.L. King Operator Good morning. My name is Catherine and I'll be your conference o ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) PQ Group Holdings Inc. is a global provider of specialty catalysts, chemicals, and services, strategically divesting businesses and holding leading market positions - In December 2020, the company completed the sale of its Performance Materials business for **$650 million**. The results of this business are presented as discontinued operations[15](index=15&type=chunk) - In March 2021, the company entered into a definitive agreement to sell its Performance Chemicals business for **$1.1 billion**, with the transaction expected to close in 2021[15](index=15&type=chunk) - The company estimates it holds a **number one or two supply share position** for products that generated **more than 90% of its 2020 sales**[17](index=17&type=chunk)[27](index=27&type=chunk) 2020 Sales by End Use (including 50% of Zeolyst JV sales) | Key End Use | % of 2020 Sales | | :--- | :--- | | Industrial & Process Chemicals | 28% | | Fuels & Emission Controls | 26% | | Consumer Products | 19% | | Packaging & Engineered Plastics | 17% | | Natural Resources | 10% | [Our Business Segments](index=10&type=section&id=Our%20Business%20Segments) The company operates three segments: Refining Services, Catalysts, and Performance Chemicals, with Performance Chemicals leading in sales and Refining Services in Adjusted EBITDA for FY2020 2020 Financial Overview by Segment (in millions) | Segment | Sales (in millions) | % of Total Sales (incl. JV) | Adjusted EBITDA (in millions) | % of Total Adjusted EBITDA | | :--- | :--- | :--- | :--- | :--- | | Refining Services | $401.9 | 32.5% | $157.2 | 42.0% | | Catalysts (incl. 50% of JV) | $94.0 + $128.6 (JV) | 18.0% | $74.5 | 19.9% | | Performance Chemicals | $614.7 | 49.7% | $142.4 | 38.1% | | **Total** | **$1,107.4** | **100.0%** | **$338.0** | **100.0%** | - The Catalysts segment's results include a **50% interest** in the Zeolyst Joint Venture with Shell Catalysts & Technologies, which is accounted for as an equity method investment[37](index=37&type=chunk)[48](index=48&type=chunk) [Competitive Strengths and Strategy](index=7&type=section&id=Competitive%20Strengths%20and%20Strategy) The company's strategy leverages leading supply positions, innovation, and long-term customer relationships, mitigating raw material price volatility through contractual pass-through clauses and long-term 'take or pay' contracts - The company's **top ten customers** in 2020, with whom relationships average **over 50 years**, accounted for approximately **30% of sales**, with **no single customer representing more than 5%**[31](index=31&type=chunk) - In 2020, approximately **80% of Refining Services sales** and **30% of Performance Chemicals sales** were under contracts with raw material cost pass-through clauses, mitigating price volatility[32](index=32&type=chunk) - In the Refining Services segment, approximately **50% of production capacity** serves customers with staggered **five to ten-year 'take or pay' contracts**, enhancing sales and margin stability[34](index=34&type=chunk) [Human Capital, Governance, and Regulations](index=19&type=section&id=Human%20Capital%2C%20Governance%2C%20and%20Regulations) As of December 31, 2020, the company employed 2,274 people globally, with nearly half unionized, and operates under extensive environmental, health, and safety regulations worldwide - As of December 31, 2020, the company had **2,274 employees worldwide**, with 1,019 in the U.S. and more than half located internationally[81](index=81&type=chunk) - Approximately **49% of the global workforce** was represented by a union, works council, or other employee representative body as of year-end 2020[81](index=81&type=chunk)[159](index=159&type=chunk) - The company is subject to **extensive environmental laws** such as RCRA, the Clean Air Act, and CERCLA, and has ongoing remediation obligations at several current and former sites[83](index=83&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks including global economic conditions, COVID-19 impacts, foreign currency fluctuations, raw material volatility, substantial indebtedness of **$1.43 billion**, and significant shareholder influence - Business operations are exposed to global economic conditions, foreign exchange rate fluctuations (**40% of 2020 sales** were in non-USD currencies), and the ongoing impact of the COVID-19 pandemic[90](index=90&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - The company's substantial indebtedness, totaling approximately **$1.426 billion** as of December 31, 2020, could adversely affect its financial condition and flexibility[140](index=140&type=chunk) - As of December 31, 2020, major shareholders CCMP and INEOS beneficially owned approximately **45%** and **24%** of outstanding common stock, respectively, giving them significant influence over key corporate decisions[145](index=145&type=chunk) - The company faces risks from its reliance on a limited number of customers, with the **top 10 customers** representing approximately **30% of 2020 sales**[105](index=105&type=chunk) [Item 1B. Unresolved Staff Comments](index=45&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[165](index=165&type=chunk) [Item 2. Properties](index=46&type=section&id=Item%202.%20Properties) As of December 31, 2020, the company operated 40 manufacturing facilities across 13 countries on five continents, with its operating headquarters in Malvern, Pennsylvania - As of December 31, 2020, the company operated **40 manufacturing facilities** in **13 countries**, **9 administrative facilities**, and **4 research and development facilities**[167](index=167&type=chunk) [Item 3. Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to various legal claims incidental to normal business operations, but management believes no pending litigation will have a material adverse effect - The company states that it does not believe any pending litigation is likely to have a material adverse effect on its business[171](index=171&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[172](index=172&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, paid a **$1.80 per share** special dividend in December 2020, and plans another special dividend of **$2.50 to $3.25 per share** after a business sale, while not intending regular dividends - A special cash dividend of **$1.80 per share** was paid in December 2020[175](index=175&type=chunk) - The company intends to pay a special cash dividend of **$2.50 to $3.25 per share**, subject to board approval, following the close of the Performance Chemicals business sale in 2021[175](index=175&type=chunk) - During Q4 2020, the company acquired **52,733 shares** from employees to satisfy tax withholding obligations related to vested stock awards[180](index=180&type=chunk)[181](index=181&type=chunk) [Item 6. [Removed and Reserved]](index=48&type=section&id=Item%206.%20%5BRemoved%20and%20Reserved%5D) This section has been removed and reserved - Item 6, Selected Financial Data, has been removed and reserved[182](index=182&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, sales decreased **7.7%** to **$1.11 billion**, resulting in a net loss of **$278.8 million** due to a **$260.0 million** goodwill impairment, with Adjusted EBITDA decreasing **14.2%** to **$338.0 million**, while liquidity remained strong at **$238.0 million** Consolidated Financial Highlights (2020 vs. 2019) | Metric | 2020 | 2019 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales | $1,107.4M | $1,199.9M | ($92.5M) | (7.7)% | | Gross Profit | $273.4M | $298.4M | ($25.0M) | (8.4)% | | Operating (Loss) Income | ($162.9M) | $147.5M | ($310.4M) | (210.4)% | | Net (Loss) Income Attributable to PQ | ($278.8M) | $79.5M | ($358.3M) | (450.7)% | | Adjusted EBITDA | $338.0M | $393.9M | ($55.9M) | (14.2)% | - A non-cash goodwill impairment charge of **$260.0 million** was recorded for the Performance Chemicals reporting unit during the annual test on October 1, 2020[212](index=212&type=chunk) - The COVID-19 pandemic led to lower sales volume demand, particularly impacting the Refining Services segment due to reduced gasoline demand. However, demand began to recover in the second half of 2020[187](index=187&type=chunk) - As of December 31, 2020, total available liquidity was **$238.0 million**, consisting of **$135.5 million** in cash and **$102.5 million** available under the ABL revolving credit facility[270](index=270&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) For 2020, sales decreased **7.7%** to **$1.11 billion**, gross profit fell, and a significant operating loss of **$162.9 million** was recorded due to a **$260.0 million** goodwill impairment, with Adjusted EBITDA declining **14.2%** to **$338.0 million** across all segments Sales by Segment (2020 vs. 2019, in millions) | Segment | 2020 Sales (in millions) | 2019 Sales (in millions) | Change (in millions) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Refining Services | $401.9 | $447.1 | ($45.2) | (10.1)% | | Catalysts | $94.0 | $85.7 | $8.3 | 9.7% | | Performance Chemicals | $614.7 | $670.5 | ($55.8) | (8.3)% | | **Total Sales** | **$1,107.4** | **$1,199.9** | **($92.5)** | **(7.7)%** | Adjusted EBITDA by Segment (2020 vs. 2019, in millions) | Segment | 2020 Adj. EBITDA (in millions) | 2019 Adj. EBITDA (in millions) | Change (in millions) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Refining Services | $157.2 | $175.6 | ($18.4) | (10.5)% | | Catalysts | $74.5 | $107.8 | ($33.3) | (30.9)% | | Performance Chemicals | $142.4 | $151.5 | ($9.1) | (6.0)% | | **Total Segment Adj. EBITDA** | **$374.1** | **$434.9** | **($60.8)** | **(14.0)%** | - Equity in net income from affiliated companies, primarily the Zeolyst Joint Venture, decreased from **$46.0 million** in 2019 to **$21.2 million** in 2020 due to timing of hydrocracking catalyst change-outs and lower demand driven by COVID-19[204](index=204&type=chunk)[214](index=214&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=70&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by cash from operations, cash on hand, and its ABL facility, with total debt at **$1.43 billion** and available liquidity at **$238.0 million** as of December 31, 2020, while capital expenditures were reduced to **$87.1 million** Cash Flow Summary - Continuing Operations (in millions) | Cash Flow Activity | 2020 (in millions) | 2019 (in millions) | 2018 (in millions) | | :--- | :--- | :--- | :--- | | Operating Activities | $205.3 | $227.7 | $213.2 | | Investing Activities | $562.3 | ($18.8) | ($98.7) | | Financing Activities | ($721.1) | ($214.9) | ($135.3) | - Total debt as of December 31, 2020 was **$1,426.4 million**, a decrease from **$1,867.5 million** at year-end 2019, largely due to repayments following the Performance Materials sale[282](index=282&type=chunk) - Capital expenditures for continuing operations were reduced to **$87.1 million** in 2020 from **$107.9 million** in 2019, with growth capital spending delayed to align with market conditions[287](index=287&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from foreign currency, interest rates, and commodity prices, with **40%** of 2020 sales in non-U.S. dollar currencies and a **100 basis point** interest rate increase impacting annual interest expense by approximately **$11.3 million** - A **100 basis point** increase in interest rates on variable-rate debt would have an approximate annual impact of **$11.3 million** on interest expense[307](index=307&type=chunk) - Approximately **40%** of sales in 2020 were in currencies other than the U.S. dollar, creating foreign exchange risk. The company uses cross-currency swaps to hedge its net investment in certain Euro-denominated subsidiaries[305](index=305&type=chunk) - The company manages commodity price risk, particularly for natural gas, through contractual pass-through provisions and forward purchases[308](index=308&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=83&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the consolidated financial statements, supplementary information, and financial statement schedules of the company, which are set forth beginning on page F-1 - This item directs the reader to the detailed financial statements starting on page F-1[310](index=310&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=84&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[312](index=312&type=chunk) [Item 9A. Controls and Procedures](index=84&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, with an unqualified audit opinion from PricewaterhouseCoopers LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[313](index=313&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2020, and this assessment was audited by PricewaterhouseCoopers LLP[314](index=314&type=chunk) [Item 9B. Other Information](index=85&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None reported[317](index=317&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=86&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[320](index=320&type=chunk) [Item 11. Executive Compensation](index=86&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[321](index=321&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=86&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[322](index=322&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=86&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[323](index=323&type=chunk) [Item 14. Principal Accounting Fees and Services](index=86&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[324](index=324&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=87&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, including key corporate and financial agreements - This item provides an index of all exhibits filed with the report, including major corporate and financial agreements[327](index=327&type=chunk) [Item 16. Form 10-K Summary](index=91&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary for this item - None reported[333](index=333&type=chunk)

Financial Data and Key Metrics Changes - The company achieved adjusted free cash flow of $153 million in 2020, with a high EBITDA margin of over 27% [9][15][21] - The leverage ratio improved to 3.8 times at year-end despite lower year-on-year adjusted EBITDA [21][26] Business Line Data and Key Metrics Changes - Refining Services segment reported sales of $103 million, with adjusted EBITDA of $41 million, showing a modest decline [17][18] - Silica Catalysts sales decreased by $3 million to $21 million, while Zeolyst joint venture sales fell 39% to $29 million due to deferred catalyst change outs [19] - Performance Chemicals saw a 2% increase in sales, reaching $36 million, with adjusted EBITDA up 7% [20] Market Data and Key Metrics Changes - Refining services experienced a rebound in the second half of 2020, recovering to approximately 90% of 2019 gasoline demand levels [10][11] - Virgin sulfuric acid demand from industrial and mining customers rebounded to 2019 levels by year-end [11] - Emissions control catalysts volumes began to recover near year-end, with expectations for continued improvement in 2021 [13] Company Strategy and Development Direction - The company is repositioning itself as a pure play catalyst and services growth company, focusing on higher top-line growth and expanding margins [8][28] - The strategic acquisition of Chem32 is aimed at enhancing service capabilities and diversifying offerings within the refining services sector [51][56] - The company anticipates high single-digit organic growth from 2020 to 2025, with a focus on operational efficiency and market demand [30][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a strong recovery in the second half of 2021, driven by increased demand for transportation fuels and refinery utilization [25][45] - The anticipated sale of Performance Chemicals is expected to provide additional capital for debt reduction and shareholder returns [26][30] - The company expects adjusted EBITDA margins to improve to approximately 31% in 2021, reflecting operational efficiencies [22][23] Other Important Information - The company completed multiple debt refinancings during the year to optimize financial flexibility [15][21] - A special dividend is planned in the range of $2.50 to $3.25 per share following the sale of Performance Chemicals [26] Q&A Session Summary Question: What are the organic growth expectations by segment? - Management indicated that both business segments are expected to grow at about the same high-single-digit level [33] Question: Why is there no operating leverage in the model? - Management explained that operating leverage comes from synergies and efficiencies, particularly in refining services and catalysts [33] Question: What is the outlook for MMA sales growth? - Management noted that MMA sales are expected to accelerate due to increased frequency of change outs and new plant installations [36] Question: How will the tax rate change going forward? - Management indicated that the tax accrual rate is expected to increase toward the 30% range, reflecting complexities from discontinued operations [49] Question: Is the acquisition of Chem32 indicative of future M&A activity? - Management confirmed that Chem32 fits into the strategy of expanding service capabilities and diversifying offerings, with plans for further acquisitions [51][56]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements for Q3 2020, covering income, balance sheet, cash flows, and explanatory notes [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net income for Q3 2020 significantly decreased to $7.5 million from $26.7 million, primarily due to lower sales, gross profit, and debt extinguishment costs Metric | Three Months Ended Sep 30, 2020 (in thousands) | Three Months Ended Sep 30, 2019 (in thousands) | |:------------------------------------------------|:-----------------------------------------------|:-----------------------------------------------| | Sales | $380,319 | $423,801 | | Gross Profit | $96,501 | $112,897 | | Operating Income | $47,049 | $57,574 | | Equity in net (income) from affiliated companies| $(183) | $(17,261) | | Interest expense, net | $18,642 | $27,697 | | Debt extinguishment costs | $14,004 | $1,767 | | Net income attributable to PQ Group Holdings Inc.| $7,512 | $26,713 | | Basic income per share | $0.06 | $0.20 | | Diluted income per share | $0.06 | $0.20 | - For the nine months ended September 30, 2020, net income attributable to PQ Group Holdings Inc. decreased significantly to **$23.7 million** from **$60.4 million** in the prior year, reflecting a challenging operating environment[10](index=10&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q3 2020 increased to $21.7 million from $13.2 million, driven by positive foreign currency translation offsetting lower net income Metric | Three Months Ended Sep 30, 2020 (in thousands) | Three Months Ended Sep 30, 2019 (in thousands) | |:----------------------------------------------------------|:-----------------------------------------------|:-----------------------------------------------| | Net income | $7,810 | $26,819 | | Foreign currency translation | $13,572 | $(13,872) | | Total other comprehensive income (loss) | $14,497 | $(13,896) | | Comprehensive income attributable to PQ Group Holdings Inc.| $21,700 | $13,227 | - For the nine months ended September 30, 2020, comprehensive income attributable to PQ Group Holdings Inc. was **$6,484 thousand**, a substantial decrease from **$56,969 thousand** in the prior year, largely influenced by a negative foreign currency translation of **$(20.8) million**[12](index=12&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets remained stable at $4.32 billion as of September 30, 2020, with increased cash, decreased inventories, and slightly lower liabilities Metric | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | |:----------------------------------------|:----------------------------------|:---------------------------------| | Cash and cash equivalents | $164,348 | $72,284 | | Total current assets | $647,501 | $568,591 | | Total assets | $4,324,442 | $4,320,845 | | Total current liabilities | $234,226 | $269,468 | | Long-term debt, excluding current portion| $1,905,007 | $1,899,196 | | Total liabilities | $2,520,256 | $2,535,527 | | Total PQ Group Holdings Inc. equity | $1,800,487 | $1,779,450 | | Total equity | $1,804,186 | $1,785,318 | - The company's cash and cash equivalents more than doubled from **$72.3 million** at December 31, 2019, to **$164.3 million** at September 30, 2020, indicating improved liquidity[17](index=17&type=chunk) - Total current liabilities decreased by approximately **$35 million**, contributing to a slight reduction in overall liabilities[17](index=17&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total equity increased to $1.80 billion from $1.79 billion, driven by net income and paid-in capital, offset by share repurchases and comprehensive loss Metric | December 31, 2019 (in thousands) | September 30, 2020 (in thousands) | |:-----------------------------------------|:---------------------------------|:----------------------------------| | Common stock | $1,369 | $1,368 |\n| Additional paid-in capital | $1,696,899 | $1,715,504 |\n| Retained earnings | $103,013 | $126,675 |\n| Treasury stock, at cost | $(6,483) | $(10,534) |\n| Accumulated other comprehensive loss | $(15,348) | $(32,526) |\n| Total PQ Group Holdings Inc. equity | $1,779,450 | $1,800,487 |\n| Noncontrolling interest | $5,868 | $3,699 |\n| Total equity | $1,785,318 | $1,804,186 | - Retained earnings increased from **$103.0 million** to **$126.7 million**, reflecting the company's net income generation[19](index=19&type=chunk) - Accumulated other comprehensive loss significantly increased from **$(15.3) million** to **$(32.5) million**, primarily due to foreign currency translation impacts[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased to $150.6 million, but reduced financing cash outflow led to a substantial increase in cash and equivalents Metric | Nine Months Ended Sep 30, 2020 (in thousands) | Nine Months Ended Sep 30, 2019 (in thousands) | |:----------------------------------------------------------|:----------------------------------------------|:----------------------------------------------| | Net cash provided by operating activities | $150,606 | $181,894 | | Net cash used in investing activities | $(42,051) | $(54,743) | | Net cash used in financing activities | $(10,226) | $(103,251) | | Effect of exchange rate changes on cash, cash equivalents and restricted cash| $(5,955) | $(3,371) | | Net change in cash, cash equivalents and restricted cash | $92,374 | $20,529 | | Cash, cash equivalents and restricted cash at end of period| $166,291 | $80,255 | - The significant reduction in net cash used in financing activities, from **$(103.3) million** in 2019 to **$(10.2) million** in 2020, was a major factor in the improved overall cash position[24](index=24&type=chunk) - Cash, cash equivalents and restricted cash at the end of the period more than doubled, reaching **$166.3 million**, indicating a stronger liquidity position[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, significant transactions, and financial instrument management, providing context to the financial statements [1. Background and Basis of Presentation](index=10&type=section&id=1.%20Background%20and%20Basis%20of%20Presentation) PQ Group provides specialty catalysts, materials, chemicals, and services across four segments, with seasonal operations and a planned $650.0 million sale of Performance Materials - PQ Group Holdings Inc. operates four specialty businesses: Refining Services, Catalysts, Performance Materials, and Performance Chemicals[26](index=26&type=chunk) - The Performance Materials and Refining Services segments experience seasonal fluctuations, with lower sales and profit in Q1 and Q4 for Performance Materials due to weather, and similar fluctuations for Refining Services due to higher summer gasoline demand[26](index=26&type=chunk) - On October 15, 2020, the Company entered into a definitive agreement to sell its Performance Materials business for **$650.0 million** in cash, subject to customary adjustments[26](index=26&type=chunk) [Basis of Presentation](index=10&type=section&id=Basis%20of%20Presentation) Unaudited condensed consolidated financial statements are prepared under GAAP for interim reporting, with results not indicative of full-year performance - The condensed consolidated financial statements are unaudited and prepared in accordance with GAAP for interim reporting, with certain information and footnote disclosures condensed or omitted[27](index=27&type=chunk) - Management confirms that all necessary adjustments of a normal and recurring nature have been included, but notes that interim results are not necessarily indicative of full-year results[27](index=27&type=chunk) [COVID-19](index=10&type=section&id=COVID-19) The COVID-19 pandemic impacted economic activity and sales, but manufacturing continued with limited interruptions, and no material estimate updates were required - The COVID-19 pandemic has adversely impacted economic activity and financial markets, leading the company to implement an international travel ban, distribute PPE, and mandate work-from-home for non-manufacturing employees[28](index=28&type=chunk) - The company's manufacturing operations, key vendors, and most key customers have continued to operate with limited interruptions[28](index=28&type=chunk) - The extent and impact of COVID-19 are highly uncertain, but as of the issuance date, no specific event or circumstance required an update to estimates or a revision of asset/liability carrying values[28](index=28&type=chunk) [2. New Accounting Standards](index=11&type=section&id=2.%20New%20Accounting%20Standards) New accounting guidance for credit losses, fair value, and goodwill impairment was adopted in 2020 with no material impact, while other standards are being evaluated [Recently Adopted Accounting Standards](index=11&type=section&id=Recently%20Adopted%20Accounting%20Standards) New FASB guidance on expected credit losses, fair value disclosures, and goodwill impairment was adopted in 2020 with no material financial impact - New guidance on expected credit losses (June 2016) was adopted on January 1, 2020, with no material impact[31](index=31&type=chunk) - New guidance on fair value measurement disclosures (August 2018) was adopted on January 1, 2020, with no impact on disclosures as the company has no Level 3 derivatives or transfers between levels[31](index=31&type=chunk) - New guidance simplifying goodwill impairment tests (January 2017) was adopted on January 1, 2020, and will be applied prospectively, with no material impact[31](index=31&type=chunk) [Accounting Standards Not Yet Adopted](index=11&type=section&id=Accounting%20Standards%20Not%20Yet%20Adopted) New FASB guidance on income taxes is being evaluated, and hedge accounting expedients for LIBOR transition were applied to preserve derivative presentation - New FASB guidance to simplify income tax accounting (December 2019), effective for fiscal years beginning after December 15, 2020, is currently being evaluated for its impact[32](index=32&type=chunk) - The company elected to apply hedge accounting expedients for LIBOR transition (March 2020) during the three months ended September 30, 2020, to maintain consistent derivative presentation[32](index=32&type=chunk) [3. Revenue from Contracts with Customers](index=12&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Revenue is disaggregated by segment and end use, with contract liabilities representing deferred revenue from product line sales recognized over time [Disaggregated Revenue](index=12&type=section&id=Disaggregated%20Revenue) Sales are disaggregated by segment and end uses like industrial chemicals and highway safety, with total sales for Q3 2020 at $380.3 million Sales by Segment (Three Months Ended September 30, 2020): | Segment | Sales (in thousands) | |:--------------------|:---------------------| | Refining Services | $106,840 | | Catalysts | $23,020 | | Performance Materials| $104,517 | | Performance Chemicals| $145,942 | | Total | $380,319 | Sales by End Use (Three Months Ended September 30, 2020): | End Use | Sales (in thousands) | |:------------------------------|:---------------------|\n| Industrial & process chemicals| $76,418 |\n| Fuels & emission control | $60,722 |\n| Packaging & engineered plastics| $61,386 |\n| Highway safety & construction | $94,225 |\n| Consumer products | $56,304 |\n| Natural resources | $34,707 | - For the nine months ended September 30, 2020, total sales were **$1,101,442 thousand**, down from **$1,214,697 thousand** in the prior year, with Performance Chemicals and Refining Services being the largest segments[44](index=44&type=chunk) [Contract Assets and Liabilities](index=15&type=section&id=Contract%20Assets%20and%20Liabilities) No contract assets were reported; contract liabilities of $10.8 million and $3.1 million represent deferred revenue from product line sales - The company has no contract assets on its condensed consolidated balance sheets as of September 30, 2020, and December 31, 2019[45](index=45&type=chunk) - A contract liability of **$11.5 million** was recognized from the July 2020 magnesium silicate product line sale, with **$10.8 million** remaining as deferred revenue as of September 30, 2020[45](index=45&type=chunk) - A contract liability of **$9.0 million** from the June 2019 sulfate salts product line sale had **$3.1 million** remaining as deferred revenue as of September 30, 2020[45](index=45&type=chunk) [4. Fair Value Measurements](index=16&type=section&id=4.%20Fair%20Value%20Measurements) Financial assets and liabilities are measured at fair value using a three-level hierarchy, primarily Level 1 and 2 inputs for derivatives and restoration plan assets Fair Value Measurements (September 30, 2020): | Asset/Liability | Total Fair Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | |:-------------------------|:--------------------------------|:-----------------------|:-----------------------|:-----------------------| | Derivative contracts (assets)| $5,173 | $— | $5,173 | $— | | Restoration plan assets | $3,658 | $3,658 | $— | $— | | Total Assets | $8,831 | $3,658 | $5,173 | $— | | Derivative contracts (liabilities)| $18,762 | $— | $18,762 | $— | - The company's fair value hierarchy prioritizes Level 1 (unadjusted quoted prices in active markets) and Level 2 (observable inputs) for its financial instruments[48](index=48&type=chunk) [Restoration plan assets](index=18&type=section&id=Restoration%20plan%20assets) Restoration plan assets, held in a Rabbi trust for retirement plans, are valued using Level 1 inputs and included in other long-term assets - Restoration plan assets are valued using Level 1 inputs (quoted prices in active markets) and are held in a Rabbi trust to fund defined benefit supplementary retirement plans[52](index=52&type=chunk) - These assets, consisting of various stock and fixed income mutual funds, are reported in other long-term assets, with related gains and losses in other expense, net[52](index=52&type=chunk) [Derivative contracts](index=18&type=section&id=Derivative%20contracts) Derivative contracts, including interest rate caps and natural gas swaps, are fair valued using Level 2 inputs, with credit valuation adjustments applied - Derivative assets and liabilities are valued using market transactions and other market evidence, primarily Level 2 inputs[53](index=53&type=chunk) - The company uses interest rate caps, natural gas swaps, and cross-currency swaps, and applies a credit valuation adjustment based on credit default swaps to reflect credit risk[53](index=53&type=chunk) [5. Stockholders' Equity](index=19&type=section&id=5.%20Stockholders'%20Equity) Accumulated other comprehensive loss was significantly impacted by foreign currency, while the company continued its stock repurchase program [Accumulated Other Comprehensive Income](index=19&type=section&id=Accumulated%20Other%20Comprehensive%20Income) Accumulated other comprehensive loss for the nine months ended September 30, 2020, was $(20.0) million, primarily due to negative foreign currency translation Other Comprehensive Income (Loss) (Nine Months Ended September 30, 2020): | Component | Pre-tax Amount (in thousands) | Tax benefit/(expense) (in thousands) | After-tax Amount (in thousands) | |:--------------------------------|:------------------------------|:-------------------------------------|:--------------------------------| | Benefit plans, net | $(62) | $14 | $(48) | | Net (loss) gain from hedging activities| $1,215 | $(304) | $911 | | Foreign currency translation | $(19,308) | $(1,536) | $(20,844) | | Total | $(18,155) | $(1,826) | $(19,981) | - The accumulated other comprehensive loss increased from **$(15.3) million** at December 31, 2019, to **$(32.5) million** at September 30, 2020, largely due to foreign currency translation[60](index=60&type=chunk) [Stock Repurchase Program](index=21&type=section&id=Stock%20Repurchase%20Program) The Board approved a $50.0 million stock repurchase program in March 2020, with $47.9 million remaining available as of September 30, 2020 - On March 12, 2020, the Board approved a stock repurchase program for up to **$50.0 million** of common stock, valid until March 2022[65](index=65&type=chunk) - As of September 30, 2020, 211,700 shares were repurchased for **$2.1 million**, with no repurchases made during the three months ended September 30, 2020[65](index=65&type=chunk) - **$47.9 million** remained available for additional share repurchases under the program as of September 30, 2020[65](index=65&type=chunk) [6. Asset Swap Transaction](index=22&type=section&id=6.%20Asset%20Swap%20Transaction) A non-cash asset swap in February 2020 resulted in a $6.5 million pre-tax loss on disposal and $7.7 million in goodwill assigned to Performance Materials - On February 19, 2020, the company completed a non-cash asset swap, acquiring a beads business in exchange for its ThermoDrop® product line assets[68](index=68&type=chunk) - The transaction resulted in a pre-tax loss on disposal of **$6.5 million**, included in other operating expense, net[68](index=68&type=chunk) - Goodwill of **$7.7 million** was recognized and assigned to the Performance Materials segment, expected to be tax-deductible[69](index=69&type=chunk) [7. Sale of Product Lines](index=23&type=section&id=7.%20Sale%20of%20Product%20Lines) Two product line sales, magnesium silicate and sulfate salts, generated pre-tax gains of $5.0 million and $11.4 million, respectively, including tolling arrangements [Magnesium Silicate Product Line Sale](index=23&type=section&id=Magnesium%20Silicate%20Product%20Line%20Sale) Sale of magnesium silicate product line for $18.0 million resulted in a $5.0 million pre-tax gain and a $11.5 million deferred revenue contract liability - Sale of magnesium silicate product line on July 1, 2020, for **$18.0 million**, resulting in a pre-tax gain of **$5.0 million**[72](index=72&type=chunk) - A contract liability of **$11.5 million** was recognized for a tolling arrangement, with revenue to be recognized over the agreement term through July 2025[72](index=72&type=chunk) [Sulfate Salts Product Line Sale](index=23&type=section&id=Sulfate%20Salts%20Product%20Line%20Sale) Sale of sulfate salts product line for $28.0 million resulted in a $11.4 million pre-tax gain and a $9.0 million deferred revenue contract liability - Sale of a portion of sulfate salts product line on June 28, 2019, for **$28.0 million**, resulting in a pre-tax gain of **$11.4 million**[73](index=73&type=chunk) - A contract liability of **$9.0 million** was deferred for a tolling arrangement, with the majority running until June 2021[73](index=73&type=chunk) - Property, plant, and equipment were derecognized under a sales-type leasing arrangement due to an embedded lease in the sale and tolling agreements[73](index=73&type=chunk) [8. Goodwill](index=23&type=section&id=8.%20Goodwill) Goodwill increased to $1.26 billion from $1.26 billion, primarily due to a $7.7 million asset swap, partially offset by foreign exchange impact Goodwill Changes (Nine Months Ended September 30, 2020): | Segment | Balance as of Dec 31, 2019 (in thousands) | Goodwill Recognized (in thousands) | Foreign Exchange Impact (in thousands) | Balance as of Sep 30, 2020 (in thousands) | |:--------------------|:------------------------------------------|:-----------------------------------|:---------------------------------------|:------------------------------------------| | Refining Services | $311,892 | $— | $— | $311,892 | | Catalysts | $78,611 | $— | $(522) | $78,089 | | Performance Materials| $275,919 | $7,730 | $(321) | $283,328 | | Performance Chemicals| $593,383 | $— | $(2,839) | $590,544 | | Total | $1,259,805 | $7,730 | $(3,682) | $1,263,853 | - The asset swap transaction contributed **$7.7 million** in goodwill, specifically allocated to the Performance Materials segment[75](index=75&type=chunk) [9. Other Operating Expense, Net](index=24&type=section&id=9.%20Other%20Operating%20Expense,%20Net) Other operating expense, net, decreased to $12.4 million for Q3 2020 due to asset disposal gains and lower environmental costs, offset by restructuring Other Operating Expense, Net (in thousands): | Component | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | |:----------------------------------------|:--------------------------------|:--------------------------------| | Amortization expense | $8,653 | $8,607 | | Transaction and other related costs | $3,116 | $2,930 | | Restructuring, integration and business optimization costs| $4,577 | $539 | | Net (gain) loss on asset disposals | $(4,453) | $1,136 | | Environmental related costs | $7 | $1,174 | | Other, net | $482 | $1,409 | | Total | $12,382 | $15,795 | - For the nine months ended September 30, 2020, other operating expense, net, increased to **$47.1 million** from **$28.4 million** in the prior year, driven by transaction and business optimization costs and a loss on asset disposals[78](index=78&type=chunk) - The current period includes a pre-tax gain of **$5.0 million** from a product line sale and a loss of **$6.5 million** from an asset swap[78](index=78&type=chunk) [10. Inventories, Net](index=24&type=section&id=10.%20Inventories,%20Net) Inventories, net, decreased to $249.7 million from $280.9 million, with the majority being finished products and work in process valued at lower of cost or market Inventories, Net (in thousands): | Category | September 30, 2020 | December 31, 2019 | |:----------------------------------|:-------------------|:------------------| | Finished products and work in process| $201,784 | $222,940 | | Raw materials | $47,878 | $58,005 | | Total | $249,662 | $280,945 | | Valued at lower of cost or market:|\n| LIFO basis | $145,314 | $168,935 | | Valued at lower of cost and net realizable value:|\n| FIFO or average cost basis | $104,348 | $112,010 | - Total inventories decreased by **$31.3 million**, reflecting a reduction in both finished products and raw materials[79](index=79&type=chunk) [11. Investments in Affiliated Companies](index=25&type=section&id=11.%20Investments%20in%20Affiliated%20Companies) Equity in net income from affiliated companies significantly decreased for Q3 2020, primarily due to lower earnings from the Zeolyst Joint Venture Equity in Net Income from Affiliated Companies (in thousands): | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | |:-------------------------------------|:--------------------------------|:--------------------------------| | Sales (100% basis) | $57,923 | $121,471 | | Net income (100% basis) | $3,681 | $37,852 | | Equity in net income from affiliates (Company's share) | $(183) | $(17,261) | - The company's equity in net income from affiliated companies decreased by **$17.1 million** for the three months ended September 30, 2020, and by **$11.6 million** for the nine months ended September 30, 2020, primarily due to lower earnings from the Zeolyst Joint Venture[10](index=10&type=chunk)[82](index=82&type=chunk) - In March 2020, the company sold its 49% interest in the Quaker Holdings joint venture, receiving **$1.0 million** for the shares[82](index=82&type=chunk) [12. Property, Plant and Equipment](index=26&type=section&id=12.%20Property,%20Plant%20and%20Equipment) Property, plant and equipment, net, decreased to $1.14 billion from $1.19 billion, primarily due to increased accumulated depreciation Property, Plant and Equipment (in thousands): | Category | September 30, 2020 | December 31, 2019 | |:---------------------------|:-------------------|:------------------| | Land | $177,308 | $183,117 | | Buildings | $227,923 | $221,449 | | Machinery and equipment | $1,262,777 | $1,236,531 | | Construction in progress | $94,704 | $82,687 | | Total at cost | $1,762,712 | $1,723,784 | | Less: accumulated depreciation| $(626,955) | $(537,014) | | Net | $1,135,757 | $1,186,770 | - Depreciation expense for the nine months ended September 30, 2020, was **$100.0 million**, up from **$97.1 million** in the prior year[85](index=85&type=chunk) [13. Long-term Debt](index=26&type=section&id=13.%20Long-term%20Debt) Total long-term debt was $1.91 billion, with a new $650.0 million term loan facility refinancing existing notes, incurring $14.0 million in extinguishment costs Long-term Debt (in thousands): | Debt Instrument | September 30, 2020 | December 31, 2019 | |:----------------------------------------------|:-------------------|:------------------| | Senior Secured Term Loan Facility due February 2027| $947,497 | $947,497 | | New Senior Secured Term Loan Facility due February 2027| $648,375 | $— | | 6.75% Senior Secured Notes due 2022 | $— | $625,000 | | 5.75% Senior Unsecured Notes due 2025 | $295,000 | $295,000 | | Other | $65,147 | $64,629 | | Total debt | $1,956,019 | $1,932,126 | | Total long-term debt, excluding current portion| $1,905,007 | $1,899,196 | - In July 2020, the company issued a new **$650.0 million** senior secured term loan facility to redeem its existing **$625.0 million** 6.75% Senior Secured Notes due 2022[86](index=86&type=chunk) - Debt extinguishment costs of **$14.0 million** were recorded for the three months ended September 30, 2020, related to the redemption of the 6.75% Senior Secured Notes[89](index=89&type=chunk) [Other Debt](index=27&type=section&id=Other%20Debt) Other debt includes NMTC financing and subsidiary credit agreements, associated with the Performance Materials business and to be assumed by the buyer - Other debt includes NMTC financing arrangements, subsidiary credit agreements (Sovitec), and notes payable (Japan subsidiary)[90](index=90&type=chunk) - These 'Other' debt obligations are tied to the Performance Materials business and will be assumed by the buyer upon the segment's sale[90](index=90&type=chunk) [14. Financial Instruments](index=27&type=section&id=14.%20Financial%20Instruments) Derivative instruments manage interest rate, commodity, and foreign currency risks, designated as cash flow or net investment hedges, with fair values recorded as assets or liabilities - The company uses interest rate, commodity (natural gas), and foreign currency derivatives to manage risk, not for speculation[91](index=91&type=chunk) - Natural gas swaps and interest rate caps are designated as cash flow hedges, with gains/losses recorded in OCI and reclassified to earnings (cost of goods sold or interest expense) when the hedged item affects earnings[91](index=91&type=chunk) - Cross-currency interest rate swaps are designated as net investment hedges, with fair value changes due to spot exchange rates recognized in CTA within OCI[95](index=95&type=chunk) Fair Values of Derivative Instruments (in thousands): | Category | September 30, 2020 | December 31, 2019 | |:----------------------------------------|:-------------------|:------------------| | Derivative assets (total) | $5,173 | $3,928 | | Natural gas swaps | $488 | $— | | Cross-currency interest rate swaps | $4,685 | $3,928 | | Derivative liabilities (total) | $18,762 | $12,415 | | Natural gas swaps | $— | $1,039 | | Interest rate caps | $4,200 | $3,242 | | Cross-currency interest rate swaps | $14,562 | $8,134 | [15. Income Taxes](index=32&type=section&id=15.%20Income%20Taxes) The effective income tax rate for Q3 2020 was 60.1%, significantly higher than 2019, due to income mix, GILTI, asset sales, and foreign exchange impacts Effective Income Tax Rate: | Period | 2020 | 2019 | |:--------------------------------------|:------|:------| | Three Months Ended September 30 | 60.1% | 38.4% | | Nine Months Ended September 30 | 54.5% | 39.3% | - The higher effective tax rates in 2020 were mainly influenced by GILTI impacts, discrete tax effects of asset swap and product line sales, permanent differences from foreign currency exchange, foreign tax rate changes, and pre-tax losses without associated tax benefits[115](index=115&type=chunk) - The company continues to estimate GILTI income inclusion for GAAP purposes, which may change based on future legislative guidance or business changes[115](index=115&type=chunk) [16. Benefit Plans](index=33&type=section&id=16.%20Benefit%20Plans) The company sponsors defined benefit pension, postretirement healthcare, and supplementary retirement plans, with varying net periodic expenses or benefits [Defined Benefit Pension Plans](index=33&type=section&id=Defined%20Benefit%20Pension%20Plans) U.S. defined benefit pension plans reported a net periodic benefit of $(2.4) million, while foreign plans incurred a net periodic expense of $2.8 million for nine months ended September 30, 2020 Net Periodic Expense (Benefit) for Defined Benefit Pension Plans (Nine Months Ended September 30, in thousands): | Component | U.S. 2020 | U.S. 2019 | Foreign 2020 | Foreign 2019 | |:---------------------------|:----------|:----------|:-------------|:-------------| | Service cost | $577 | $751 | $2,989 | $2,464 | | Interest cost | $6,455 | $7,958 | $2,121 | $2,458 | | Expected return on plan assets| $(9,404) | $(8,733) | $(2,429) | $(2,375) | | Amortization of net loss | $— | $— | $121 | $1 | | Amortization of prior service cost| $— | $— | $19 | $18 | | Net periodic expense (benefit)| $(2,372) | $(24) | $2,821 | $2,566 | [Supplemental Retirement Plans](index=34&type=section&id=Supplemental%20Retirement%20Plans) Net periodic expense for supplemental retirement plans was $86 thousand for Q3 2020 and $259 thousand for the nine months, primarily driven by interest costs Net Periodic Expense for Supplemental Retirement Plans (in thousands): | Period | 2020 | 2019 | |:--------------------------------------|:-----|:-----| | Three Months Ended September 30 | $86 | $121 | | Nine Months Ended September 30 | $259 | $364 | [Other Postretirement Benefit Plans](index=34&type=section&id=Other%20Postretirement%20Benefit%20Plans) Other postretirement benefit plans reported a net periodic benefit of $(41) thousand for Q3 2020 and $(123) thousand for the nine months, due to amortization Net Periodic Expense (Benefit) for Other Postretirement Benefit Plans (in thousands): | Period | 2020 | 2019 | |:--------------------------------------|:------|:-----| | Three Months Ended September 30 | $(41) | $— | | Nine Months Ended September 30 | $(123)| $— | [17. Commitments and Contingent Liabilities](index=34&type=section&id=17.%20Commitments%20and%20Contingent%20Liabilities) The company faces various legal claims and proceedings, including environmental and product liability, but management believes no material adverse effect is likely - The company faces various legal claims and proceedings, including environmental, personal injury, and product liability, inherent in chemical manufacturing[122](index=122&type=chunk) - Management believes that the ultimate conclusion of these matters will not materially adversely affect the company's consolidated financial position, results of operations, or liquidity, and has made certain accruals[122](index=122&type=chunk) [18. Reportable Segments](index=35&type=section&id=18.%20Reportable%20Segments) Total sales and Segment Adjusted EBITDA decreased for Q3 2020, with Performance Materials seeing a slight Adjusted EBITDA increase for the nine-month period Sales by Reportable Segment (in thousands): | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | |:--------------------|:--------------------------------|:--------------------------------| | Refining Services | $107,604 | $118,335 | | Catalysts | $23,071 | $25,612 | | Performance Materials| $104,574 | $115,134 | | Performance Chemicals| $148,513 | $167,949 | | Total | $380,319 | $423,801 | Segment Adjusted EBITDA (in thousands): | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | |:--------------------|:--------------------------------|:--------------------------------| | Refining Services | $44,272 | $51,166 | | Catalysts | $11,762 | $31,638 | | Performance Materials| $25,334 | $25,769 | | Performance Chemicals| $33,919 | $36,804 | | Total | $115,287 | $145,377 | - For the nine months ended September 30, 2020, Performance Materials' Adjusted EBITDA increased by **0.9%** to **$66,148 thousand**, while other segments saw declines[125](index=125&type=chunk) [19. Stock-Based Compensation](index=37&type=section&id=19.%20Stock-Based%20Compensation) The company granted 1.16 million restricted stock units and 456,311 performance stock units in 2020, with total stock-based compensation expense of $18.4 million Stock-Based Compensation Activity (Nine Months Ended September 30, 2020): | Category | Restricted Stock Units (Number of Units) | Performance Stock Units (Number of Units) | |:--------------------------|:-----------------------------------------|:------------------------------------------| | Nonvested as of Dec 31, 2019| 1,628,436 | 550,676 | | Granted | 1,158,605 | 456,311 | | Vested | (482,907) | — | | Forfeited | (129,036) | (41,251) | | Nonvested as of Sep 30, 2020| 2,175,098 | 965,736 | - Total stock-based compensation expense was **$18.4 million** for the nine months ended September 30, 2020, up from **$13.6 million** in 2019[134](index=134&type=chunk) - Unrecognized compensation cost at September 30, 2020, was **$21.5 million** for restricted stock units (average 1.56 years) and **$10.8 million** for performance stock units (average 1.88 years)[134](index=134&type=chunk) [20. Earnings per Share](index=38&type=section&id=20.%20Earnings%20per%20Share) Basic and diluted EPS for Q3 2020 were $0.06 and $0.17 respectively, significantly lower than prior year, with adjustments for dilutive equity awards Net Income Per Share: | Period | Basic EPS 2020 | Basic EPS 2019 | Diluted EPS 2020 | Diluted EPS 2019 | |:--------------------------------------|:---------------|:---------------|:-----------------|:-----------------| | Three Months Ended September 30 | $0.06 | $0.20 | $0.06 | $0.20 | | Nine Months Ended September 30 | $0.17 | $0.45 | $0.17 | $0.45 | Weighted Average Shares Outstanding (in thousands): | Period | Basic 2020 | Basic 2019 | Diluted 2020 | Diluted 2019 | |:--------------------------------------|:------------|:------------|:-------------|:-------------| | Three Months Ended September 30 | 135,107 | 134,512 | 135,979 | 135,650 | | Nine Months Ended September 30 | 135,292 | 134,214 | 136,188 | 135,305 | - Approximately **1.5 million** anti-dilutive restricted stock awards, restricted stock units, and performance stock units were excluded from diluted EPS calculation for the three months ended September 30, 2020[140](index=140&type=chunk) [21. Supplemental Cash Flow Information](index=41&type=section&id=21.%20Supplemental%20Cash%20Flow%20Information) Cash paid for income taxes was $21.5 million and for interest was $75.3 million, with non-cash investing activities including capital expenditures and right-of-use assets Supplemental Cash Flow Information (Nine Months Ended September 30, in thousands): | Category | 2020 | 2019 | |:------------------------------------------|:--------|:--------| | Cash paid for income taxes, net of refunds| $21,507 | $13,261 | | Cash paid for interest | $75,345 | $82,349 | | Capital expenditures acquired on account | $7,425 | $13,265 | | Right-of-use assets obtained for new lease liabilities (operating leases)| $13,058 | $5,148 | Reconciliation of Cash, Cash Equivalents and Restricted Cash (in thousands): | Category | September 30, 2020 | September 30, 2019 | |:------------------------------------------|:-------------------|:-------------------| | Cash and cash equivalents | $164,348 | $78,510 | | Restricted cash | $1,943 | $1,745 | | Total | $166,291 | $80,255 | [22. Subsequent Events](index=41&type=section&id=22.%20Subsequent%20Events) Post-September 30, 2020, the company agreed to sell its Performance Materials business for $650.0 million and redeemed $21.0 million in debt, resulting in a $5.4 million gain - On October 15, 2020, the company agreed to sell its Performance Materials business for **$650.0 million** in cash, with proceeds to reduce debt and return capital to shareholders[145](index=145&type=chunk) - The Performance Materials business will be reported as discontinued operations starting in Q4 2020[145](index=145&type=chunk) - In October 2020, the company redeemed **$21.0 million** of debt from a 2013 NMTC financing arrangement, resulting in a **$5.4 million** gain on debt forgiveness[147](index=147&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and liquidity, including COVID-19 impacts, strategic developments, and operating results for Q3 2020 [Forward-looking Statements](index=43&type=section&id=Forward-looking%20Statements) Forward-looking statements are subject to risks like COVID-19, economic conditions, and debt levels, and are not updated after the filing date - Forward-looking statements are based on current expectations and projections about future events and financial trends, including the sale of the Performance Materials segment and the impact of COVID-19[150](index=150&type=chunk) - Key risks include the impact of COVID-19, general economic conditions, exchange rate fluctuations, legal and regulatory compliance, competition, raw material prices, customer relationships, and substantial indebtedness[150](index=150&type=chunk)[152](index=152&type=chunk) - The company undertakes no obligation to update publicly any forward-looking statements after the Form 10-Q filing date[152](index=152&type=chunk) [Overview](index=45&type=section&id=Overview) PQ Group Holdings Inc. is a global provider of specialty catalysts, materials, chemicals, and services across four segments, focusing on environmental sustainability - The company is a leading integrated global provider of specialty catalysts, materials, chemicals, and services[153](index=153&type=chunk) - Operations are conducted through four segments: Refining Services, Catalysts (including Zeolyst Joint Venture), Performance Materials, and Performance Chemicals[153](index=153&type=chunk) - Products are primarily inorganic and aim to improve environmental sustainability[153](index=153&type=chunk) [Recent Developments](index=45&type=section&id=Recent%20Developments) The company agreed to sell its Performance Materials business for $650.0 million, with proceeds for debt reduction and capital return, to be reported as discontinued operations - On October 15, 2020, the company entered into a definitive agreement to sell its Performance Materials business for **$650.0 million**[154](index=154&type=chunk) - After-tax cash proceeds from the sale are expected to be used to reduce debt and return capital to shareholders[154](index=154&type=chunk) - The financial results of the Performance Materials business will be presented as discontinued operations starting in the fourth quarter of 2020[154](index=154&type=chunk) [Impact of COVID-19 on our Business and Results](index=46&type=section&id=Impact%20of%20COVID-19%20on%20our%20Business%20and%20Results) COVID-19 impacted sales volumes, but manufacturing continued with limited interruptions, with cost mitigation and CARES Act benefits supporting liquidity, though full impact remains uncertain [Near Term Trends on Business Segment End Uses](index=46&type=section&id=Near%20Term%20Trends%20on%20Business%20Segment%20End%20Uses) COVID-19 led to lower sales volumes in Q3 2020 across segments, with varying demand impacts on Refining Services, Performance Materials, Performance Chemicals, and Catalysts - Refining Services experienced a significant rebound in demand from Q2 lows, with gasoline consumption recovering to approximately **90%** of 2019 levels in Q3[156](index=156&type=chunk) - Performance Materials saw reduced demand for highway safety products in Europe and industrial engineered glass, but North American highway safety sales had higher average selling prices[156](index=156&type=chunk) - Performance Chemicals experienced lower volumes of sodium silicate and reduced demand in consumer cleaning, while Catalysts saw strong polyolefin catalyst results but slumped demand for emission control catalysts[156](index=156&type=chunk) [Operations and Supply](index=48&type=section&id=Operations%20and%20Supply) Manufacturing facilities continued operating with limited interruptions despite COVID-19, providing critical materials, with no material impact on production to date - Manufacturing facilities continued to operate, providing critical materials with limited interruptions, despite some production delays due to employee absenteeism[158](index=158&type=chunk) - Limited disruptions in raw material availability have not had a material impact on production to date[158](index=158&type=chunk) [Liquidity](index=48&type=section&id=Liquidity) Total available liquidity was $345.4 million as of September 30, 2020, with debt maturities extended and interest expense reduced through refinancing actions - As of September 30, 2020, the company had **$164.3 million** in cash and cash equivalents and **$345.4 million** in total available liquidity[159](index=159&type=chunk) - The company amended its Term Loan Facility and ABL Facility to reduce interest rates and extend maturities to February 2027 and March 2025, respectively[159](index=159&type=chunk) - A new **$650.0 million** senior secured term loan facility was entered into in July 2020 to refinance existing 6.75% Senior Secured Notes due 2022, reducing interest expense and extending maturity to February 2027[159](index=159&type=chunk) [Coronavirus Aid, Relief and Economic Security ("CARES") Act](index=48&type=section&id=Coronavirus%20Aid,%20Relief%20and%20Economic%20Security%20(%22CARES%22)%20Act) The company deferred employer social security taxes under the CARES Act, expecting $6.0 million in additional liquidity in 2020, with payments due in 2021 and 2022 - The company deferred employer social security tax payments under the CARES Act, expecting **$6.0 million** in additional liquidity in 2020[159](index=159&type=chunk) - Deferred amounts are due **50%** by December 31, 2021, and **50%** by December 31, 2022[159](index=159&type=chunk) [Key Performance Indicators](index=48&type=section&id=Key%20Performance%20Indicators) Non-GAAP measures, Adjusted EBITDA and Adjusted Net Income, are used to evaluate operating performance by excluding non-core items, providing insights into period-to-period results [Adjusted EBITDA and Adjusted Net Income](index=48&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20Net%20Income) Adjusted EBITDA and Adjusted Net Income are non-GAAP measures excluding non-operating, non-cash, or nonrecurring items, used for performance assessment and business planning - Adjusted EBITDA is defined as net income (loss) attributable to PQ Group Holdings before interest, taxes, depreciation, and amortization, further adjusted for non-operating, non-cash, nonrecurring items, and the company's **50%** share of Zeolyst Joint Venture's depreciation, amortization, and interest[160](index=160&type=chunk) - Adjusted Net Income is defined as net income (loss) attributable to PQ Group Holdings adjusted for non-operating income/expense and certain non-cash, nonrecurring items[160](index=160&type=chunk) - These non-GAAP measures are used for evaluating operating performance and business planning, but should not be considered in isolation or as alternatives to GAAP results[160](index=160&type=chunk) [Key Factors and Trends Affecting Operating Results and Financial Condition](index=49&type=section&id=Key%20Factors%20and%20Trends%20Affecting%20Operating%20Results%20and%20Financial%20Condition) Operating results are influenced by sales trends, cost of goods sold, joint venture performance, seasonality, and foreign currency fluctuations, with COVID-19 impacting sales [Sales](index=49&type=section&id=Sales) Sales were negatively impacted by COVID-19, with Q3 2020 showing improvement after a Q2 trough, and sales based on purchase orders or long-term contracts - Sales have been negatively impacted by COVID-19, with reduced demand for products across the portfolio due to declining GDP, lower gasoline demand, and work restrictions[162](index=162&type=chunk) - The second quarter was considered the trough of demand decline, with improvement observed in most business areas during the third quarter[162](index=162&type=chunk) - Sales in Refining Services, Performance Chemicals, and Catalysts segments are made on both purchase order and long-term contract bases, while Performance Materials sales are principally on a purchase order basis[162](index=162&type=chunk) [Cost of Goods Sold](index=49&type=section&id=Cost%20of%20Goods%20Sold) Cost of goods sold includes variable and fixed manufacturing costs, with mitigation strategies for raw material and energy price volatility through contracts and hedging - Cost of goods sold comprises variable product costs (raw materials, energy, packaging), fixed manufacturing expenses, depreciation, and freight[163](index=163&type=chunk) - Refining Services contracts often include take-or-pay volume protection and quarterly price adjustments for commodity inputs, labor, and natural gas, covering over **90%** of 2019 sales[163](index=163&type=chunk) - The company hedges natural gas price exposure in the U.S. and makes forward purchases in North America and Europe, also structuring customer contracts to pass through raw material and natural gas costs[163](index=163&type=chunk) [Joint Ventures](index=49&type=section&id=Joint%20Ventures) Equity joint ventures, including Zeolyst Joint Venture, are accounted for under the equity method, producing zeolite-based catalysts for various industries - Investments in equity joint ventures, such as the Zeolyst Joint Venture, are accounted for under the equity method[164](index=164&type=chunk) - The Zeolyst Joint Venture produces high-performance, specialty, zeolite-based catalysts for packaging, engineered plastics, emission control, refining, and petrochemical industries[164](index=164&type=chunk) [Seasonality](index=49&type=section&id=Seasonality) Performance Materials and Refining Services segments are affected by seasonal changes and weather, leading to lower sales in specific quarters and higher working capital needs - Performance Materials and Refining Services segments are affected by seasonality and weather conditions[165](index=165&type=chunk) - Performance Materials typically has lower sales and profit in Q1 and Q4 due to highway striping projects occurring in warmer months[165](index=165&type=chunk) - Refining Services experiences seasonal fluctuations due to higher gasoline demand in summer, leading to higher working capital requirements in Q1 and Q2[165](index=165&type=chunk) [Foreign Currency](index=50&type=section&id=Foreign%20Currency) Approximately 40% of sales are in non-U.S. currencies, exposing the company to significant foreign currency translation gains and losses that impact reported results - Approximately **40%** of the company's sales for the nine months ended September 30, 2020, were in currencies other than the U.S. dollar[167](index=167&type=chunk) - Significant exchange rate exposure exists for the Euro, British pound, Canadian dollar, Brazilian real, and Mexican peso[167](index=167&type=chunk) - Currency translation gains and losses can significantly increase or decrease reported sales and earnings when translated to U.S. dollars[167](index=167&type=chunk) [Results of Operations](index=50&type=section&id=Results%20of%20Operations) Detailed comparative analysis of financial performance for Q3 2020 and nine months ended September 30, 2020, covering sales, income, and Adjusted EBITDA [Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019](index=50&type=section&id=Three%20Months%20Ended%20September%2030,%202020%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030,%202019) Q3 2020 saw significant declines in sales, gross profit, and net income due to lower volumes, reduced joint venture earnings, and substantial debt extinguishment costs [Highlights](index=50&type=section&id=Highlights) Q3 2020 sales decreased by $43.5 million (10.3%) to $380.3 million, gross profit by $16.4 million (14.5%), and operating income by $10.6 million (18.4%) - Sales decreased by **$43.5 million** (**10.3%**) to **$380.3 million**, primarily due to lower sales volumes and unfavorable foreign currency translation[169](index=169&type=chunk) - Gross profit decreased by **$16.4 million** (**14.5%**) to **$96.5 million**, mainly due to declining sales volumes[170](index=170&type=chunk) - Equity in net income of affiliated companies decreased by **$17.1 million** (**98.8%**) to **$0.2 million**, driven by lower earnings from the Zeolyst Joint Venture[172](index=172&type=chunk) [Sales (by segment)](index=51&type=section&id=Sales%20(by%20segment)) All segments experienced sales declines in Q3 2020, with Refining Services, Catalysts, Performance Materials, and Performance Chemicals all seeing reduced volumes Sales by Segment (Three Months Ended September 30, in millions): | Segment | 2020 | 2019 | Change ($) | Change (%) | |:--------------------|:------|:------|:-----------|:-----------| | Refining Services | $107.6| $118.3| $(10.7) | (9.0)% | | Catalysts | $23.1 | $25.6 | $(2.5) | (9.8)% | | Performance Materials| $104.6| $115.1| $(10.5) | (9.1)% | | Performance Chemicals| $148.5| $167.9| $(19.4) | (11.6)% | | Total sales | $380.3| $423.8| $(43.5) | (10.3)% | - Refining Services sales decreased due to lower gasoline production from COVID-19, Hurricane Laura, and lower sulfur pricing[174](index=174&type=chunk) - Performance Chemicals sales declined due to lower sodium silicate volumes across multiple applications and reduced demand in the zeolites market, exacerbated by unfavorable foreign currency translation[176](index=176&type=chunk) [Gross Profit](index=52&type=section&id=Gross%20Profit) Gross profit decreased by $16.4 million (14.5%) to $96.5 million, primarily due to lower sales volumes, unfavorable product mix, and customer pricing - Gross profit decreased by **$16.4 million** (**14.5%**) to **$96.5 million**[177](index=177&type=chunk) - The decrease was driven by lower volumes (**$19.8 million**), unfavorable product mix (**$3.6 million**), and unfavorable customer pricing (**$1.8 million**), partially offset by **$10.4 million** in favorable manufacturing costs[177](index=177&type=chunk) [Selling, General and Administrative Expenses](index=52&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative expenses decreased by $2.4 million (6.1%) to $37.1 million for Q3 2020 due to cost control initiatives - Selling, general and administrative expenses decreased by **$2.4 million** to **$37.1 million**, attributed to cost controlling initiatives[178](index=178&type=chunk) [Other Operating Expense, Net](index=52&type=section&id=Other%20Operating%20Expense,%20Net) Other operating expense, net, decreased by $3.3 million (21.0%) to $12.4 million due to asset sale gains and lower environmental costs, partially offset by optimization charges - Other operating expense, net, decreased by **$3.3 million** to **$12.4 million**[179](index=179&type=chunk) - The decrease was driven by a gain on a product group sale and lower environmental costs, partially offset by higher business optimization charges[179](index=179&type=chunk) [Equity in Net Income of Affiliated Companies](index=52&type=section&id=Equity%20in%20Net%20Income%20of%20Affiliated%20Companies) Equity in net income of affiliated companies decreased significantly by $17.1 million (98.8%) to $0.2 million due to lower Zeolyst Joint Venture earnings - Equity in net income of affiliated companies decreased by **$17.1 million** to **$0.2 million**[180](index=180&type=chunk) - The decline was primarily due to lower earnings from the Zeolyst Joint Venture, affected by reduced specialty catalyst orders and COVID-19 impacts[180](index=180&type=chunk) [Interest Expense, Net](index=52&type=section&id=Interest%20Expense,%20Net) Interest expense, net, decreased by $9.1 million (32.9%) to $18.6 million due to lower interest rates on variable debt and reduced average debt balances - Interest expense, net, decreased by **$9.1 million** to **$18.6 million**[181](index=181&type=chunk) - The decrease was primarily due to lower interest rates on variable debt, reduced average debt balances, and a favorable increase in variable versus fixed rate debt[181](index=181&type=chunk) [Debt Extinguishment Costs](index=53&type=section&id=Debt%20Extinguishment%20Costs) Debt extinguishment costs increased significantly to $14.0 million due to prepayment premiums and write-offs from redeeming 6.75% Senior Secured Notes - Debt extinguishment costs increased to **$14.0 million** in 2020 from **$1.8 million** in 2019[183](index=183&type=chunk) - The increase was mainly due to a **$10.6 million** prepayment premium and the write-off of **$2.1 million** in deferred financing costs and **$1.2 million** in original issue discount from redeeming the 6.75% Senior Secured Notes due 2022[183](index=183&type=chunk) [Other Expense, Net](index=53&type=section&id=Other%20Expense,%20Net) Other expense, net, shifted from a $1.9 million expense to a $5.0 million income, primarily driven by foreign currency gains on intercompany debt - Other expense, net, changed from an expense of **$1.9 million** in Q3 2019 to income of **$5.0 million** in Q3 2020[184](index=184&type=chunk) - The change was primarily due to foreign currency gains from non-permanent intercompany debt denominated in local currency[184](index=184&type=chunk) [Provision for Income Taxes](index=53&type=section&id=Provision%20for%20Income%20Taxes) Provision for income taxes decreased to $11.8 million, but the effective tax rate increased to 60.1% due to income mix, GILTI, asset sales, and foreign exchange - Provision for income taxes decreased to **$11.8 million** from **$16.7 million**, but the effective tax rate increased to **60.1%** from **38.4%**[185](index=185&type=chunk) - The effective tax rate fluctuated due to changes in income mix, GILTI tax rules, discrete impacts of product line and asset sales, and foreign exchange gains/losses[185](index=185&type=chunk) [Net Income Attributable to PQ Group Holdings](index=53&type=section&id=Net%20Income%20Attributable%20to%20PQ%20Group%20Holdings) Net income attributable to PQ Group Holdings Inc. decreased significantly to $7.5 million from $26.7 million, reflecting lower sales, reduced JV earnings, and higher debt costs - Net income attributable to PQ Group Holdings Inc. decreased to **$7.5 million** from **$26.7 million**[186](index=186&type=chunk) [Adjusted EBITDA](index=53&type=section&id=Adjusted%20EBITDA) Total Segment Adjusted EBITDA decreased by $30.1 million (20.7%) to $115.3 million, with all segments experiencing declines, particularly Catalysts Segment Adjusted EBITDA (Three Months Ended September 30, in millions): | Segment | 2020 | 2019 | Change ($) | Change (%) | |:--------------------|:------|:------|:-----------|:-----------| | Refining Services | $44.3 | $51.2 | $(6.9) | (13.5)% | | Catalysts | $11.8 | $31.6 | $(19.8) | (62.7)% | | Performance Materials| $25.3 | $25.8 | $(0.5) | (1.9)% | | Performance Chemicals| $33.9 | $36.8

Financial Data and Key Metrics Changes - The company's top line improved by 6% from the second quarter, with adjusted EBITDA largely in line with the second quarter, resulting in a healthy adjusted EBITDA margin of 27% [9][20] - Sales for the year are projected to be in the range of $1.43 billion to $1.46 billion, with adjusted EBITDA expected to be between $410 million and $425 million, maintaining a margin of approximately 27% [25][26] Business Line Data and Key Metrics Changes - Refining Services: Sales of $108 million were down 9% year-over-year, but regeneration services volume was up nearly 30% from the second quarter [21] - Catalysts: Silica catalysts sales of $23 million declined by $2.5 million from the prior year, while sales in the Zeolyst Joint Venture were about half of prior year levels [22] - Performance Chemicals: Sales of $149 million were down 12% versus last year, reflecting lower volumes from weaker demand in various applications [23] - Performance Materials: Sales of $105 million declined 9%, with steady demand in North America but slowed striping activity due to COVID-related work restrictions [24] Market Data and Key Metrics Changes - Global gasoline demand has been steady at above 90% of 2019 levels since June, with US refinery utilization recovering to about 80% before temporary shutdowns due to hurricanes [11][12] - Demand for high-grade virgin sulfuric acid improved significantly, with volumes up 20% from the second quarter [21] - Automotive sales in the US continued to increase to greater than 90% of 2019 levels [13] Company Strategy and Development Direction - The company announced the sale of Performance Materials at an attractive valuation, representing a significant milestone in its strategy to focus on higher-margin and higher-growth potential businesses [10][30] - The strategic review of Performance Chemicals may lead to a sale in 2021, aimed at unlocking greater shareholder value [30][31] - The company plans to focus on refining services and catalysts, emphasizing businesses with higher margins and growth potential [32][33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism that the trough is behind them, with expectations for demand recovery in the fourth quarter and beyond, except for catalysts which will have a delayed recovery timeline [19] - The company remains confident in its position with existing customers and anticipates utilization rates to return to normal levels [42] Other Important Information - The company is suspending adjusted EPS guidance for the year due to ongoing tax effects from the divestiture [27] - Plans to deploy up to $250 million to a special dividend, subject to board authorization [28] Q&A Session Summary Question: Q4 guidance appears wide; can you discuss business momentum? - Management noted continued volume recovery and maintained expectations for Q4 based on October performance [39] Question: Thoughts on Performance Chemicals in the portfolio? - Management confirmed a firm plan is in place and execution is ongoing [40] Question: Outlook for refining services business in 2021? - Management expressed confidence in the existing customer base and expected utilization rates to be at 90% to 92% [42] Question: CapEx outlook for core businesses? - Approximately 80% of remaining capital is for maintenance, with 20% for growth [44] Question: Insights on chemicals portfolio and long-term growth prospects? - Management highlighted recovery in end-user demand and positive outlook for Q4 and beyond [47] Question: Catalysts market outlook and potential pent-up demand? - Management anticipates recovery in 2021, with stronger acceleration expected towards the end of 2022 [50] Question: Impact of recent hurricanes on operations? - Management reported no substantial impact from recent hurricanes [54] Question: Silica catalysts guidance for Q4? - Management clarified that the yellow color in guidance indicates stabilization, not a drop in demand [57] Question: Changes in highway striping business due to COVID? - Management explained that operational procedures, not lockdowns, caused slowdowns in certain states [59]

[PART I FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2020, including income, balance sheets, and cash flows, highlighting COVID-19 impact and debt refinancing Condensed Consolidated Statements of Income Highlights (in thousands) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Sales** | $359,525 | $431,675 | $721,123 | $790,896 | | **Gross Profit** | $92,839 | $115,495 | $181,438 | $196,405 | | **Operating Income** | $41,178 | $70,301 | $64,537 | $99,764 | | **Net Income Attributable to PQ** | $15,926 | $30,574 | $16,150 | $33,725 | | **Diluted EPS** | $0.12 | $0.23 | $0.12 | $0.25 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $587,704 | $568,591 | | **Total Assets** | $4,247,210 | $4,320,845 | | **Total Current Liabilities** | $221,118 | $269,468 | | **Total Liabilities** | $2,471,036 | $2,535,527 | | **Total Equity** | $1,776,174 | $1,785,318 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended, in thousands) | Metric | June 30, 2020 | June 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $62,109 | $59,992 | | **Net cash used in investing activities** | ($36,222) | ($33,857) | | **Net cash used in financing activities** | ($5,955) | ($401) | | **Net change in cash** | $16,671 | $24,233 | [Note 1. Background and Basis of Presentation](index=10&type=section&id=Note%201.%20Background%20and%20Basis%20of%20Presentation) This note describes the company's specialty businesses and the significant impact of the COVID-19 pandemic on economic activity, while manufacturing continued with limited interruptions - The company operates four specialty businesses: Refining Services, Catalysts, Performance Materials, and Performance Chemicals[24](index=24&type=chunk) - The COVID-19 outbreak was declared a national emergency in March 2020, impacting economic activity; the company's manufacturing operations have continued with limited interruptions[26](index=26&type=chunk) - Seasonality affects the Performance Materials and Refining Services segments, with lower sales typically in Q1 and Q4 for Performance Materials and fluctuations in Refining Services tied to gasoline demand[24](index=24&type=chunk) [Note 6. Asset Swap Transaction](index=22&type=section&id=Note%206.%20Asset%20Swap%20Transaction) On February 19, 2020, the company executed a non-cash asset swap, exchanging its ThermoDrop® product line for a beads business, resulting in **$7.7 million** goodwill and a **$6.5 million** pre-tax loss - On February 19, 2020, the company entered into a non-cash asset swap, exchanging its ThermoDrop® product line for a beads business to expand its geographic footprint[64](index=64&type=chunk)[65](index=65&type=chunk) Asset Swap Purchase Price Allocation (in thousands) | Item | Amount | | :--- | :--- | | Total consideration | $28,598 | | Fair value of net assets acquired | $20,868 | | **Goodwill** | **$7,730** | | Pre-tax loss on disposal recognized | $6,475 | [Note 13. Long-term Debt](index=27&type=section&id=Note%2013.%20Long-term%20Debt) As of June 30, 2020, total debt was approximately **$1.93 billion**, with a subsequent July 2020 refinancing of **$625 million** notes via a new **$650 million** term loan Long-term Debt Summary (in thousands) | Component | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Term Loan Facility | $947,497 | $947,497 | | 6.75% Senior Secured Notes | $625,000 | $625,000 | | 5.75% Senior Unsecured Notes | $295,000 | $295,000 | | **Total debt** | **$1,932,981** | **$1,932,126** | - In July 2020, the company refinanced its **$625 million** 6.75% Senior Secured Notes with a new **$650 million** senior secured term loan facility at a floating rate of LIBOR + 3.0% (with a 1.0% floor)[85](index=85&type=chunk) [Note 18. Reportable Segments](index=34&type=section&id=Note%2018.%20Reportable%20Segments) This note details sales and Segment Adjusted EBITDA by segment for Q2 2020, showing declines across most segments except for growth in Catalysts sales Sales by Segment (Three Months Ended June 30, in thousands) | Segment | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Refining Services | $90,432 | $117,290 | (22.9)% | | Catalysts | $25,208 | $20,857 | 20.9% | | Performance Materials | $104,203 | $118,872 | (12.3)% | | Performance Chemicals | $142,641 | $177,828 | (19.8)% | | **Total Sales** | **$359,525** | **$431,675** | **(16.7)%** | Segment Adjusted EBITDA (Three Months Ended June 30, in thousands) | Segment | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Refining Services | $34,996 | $42,824 | (18.2)% | | Catalysts | $25,312 | $29,607 | (14.5)% | | Performance Materials | $27,306 | $29,221 | (6.5)% | | Performance Chemicals | $34,011 | $41,165 | (17.5)% | | **Total Segment Adjusted EBITDA** | **$121,625** | **$142,817** | **(14.8)%** | [Note 22. Subsequent Events](index=40&type=section&id=Note%2022.%20Subsequent%20Events) Significant post-balance sheet events in July 2020 include the sale of a non-core product line, a major debt refinancing, and new interest rate cap agreements - In July 2020, the company sold a non-core product line in its Performance Chemicals segment for **$18 million** and entered into a related tolling arrangement with the buyer through July 2025[127](index=127&type=chunk) - In July 2020, the company completed a major debt refinancing, issuing a new senior secured term loan to redeem its 6.75% Senior Secured Notes due 2022[127](index=127&type=chunk) - In July 2020, the company entered into new interest rate cap agreements on a notional amount of **$400 million**[127](index=127&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial performance for Q2 and YTD 2020, detailing the significant negative impact of COVID-19 on sales and outlining liquidity management actions - The COVID-19 pandemic led to unprecedented disruptions and an overall lower sales volume demand during Q2 2020, with the Refining Services segment being impacted the most due to significant reductions in U.S. gasoline demand[136](index=136&type=chunk) - To mitigate the slowdown, the company adjusted production levels, reduced discretionary spending, implemented furloughs, and deferred capital maintenance expenditures[136](index=136&type=chunk) - As of June 30, 2020, the company had total available liquidity of **$285.3 million** and believes its existing cash and credit facilities are sufficient to meet cash needs for at least the next twelve months[210](index=210&type=chunk) [Results of Operations - Three Months Ended June 30, 2020 vs 2019](index=47&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202020%20vs%202019) Q2 2020 sales decreased **16.7%** to **$359.5 million**, with gross profit down **19.7%** and net income attributable to PQ Group Holdings falling **48.0%** Q2 2020 vs Q2 2019 Performance (in millions) | Metric | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Sales** | $359.5 | $431.7 | $(72.2) | (16.7)% | | **Gross Profit** | $92.8 | $115.5 | $(22.7) | (19.7)% | | **Operating Income** | $41.2 | $70.3 | $(29.1) | (41.4)% | | **Net Income (to PQ)** | $15.9 | $30.6 | $(14.7) | (48.0)% | - Refining Services sales fell **22.9%** due to lower gasoline consumption from COVID-19 stay-at-home orders; Catalysts sales grew **20.6%** due to increased demand for chemical and polyolefin catalysts[155](index=155&type=chunk) - Performance Chemicals sales decreased **19.8%** due to lower volumes of sodium silicate sold to industrial customers affected by COVID-19 related slowdowns[157](index=157&type=chunk) [Results of Operations - Six Months Ended June 30, 2020 vs 2019](index=55&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202020%20vs%202019) YTD 2020 sales decreased **8.8%** to **$721.1 million**, with gross profit down **7.6%** and net income attributable to PQ Group Holdings falling **51.9%** YTD 2020 vs YTD 2019 Performance (in millions) | Metric | YTD 2020 | YTD 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Sales** | $721.1 | $790.9 | $(69.8) | (8.8)% | | **Gross Profit** | $181.4 | $196.4 | $(15.0) | (7.6)% | | **Operating Income** | $64.5 | $99.7 | $(35.2) | (35.3)% | | **Net Income (to PQ)** | $16.2 | $33.7 | $(17.5) | (51.9)% | - Catalysts sales grew **36.5%** YTD due to higher customer demand for polyolefin catalysts and timing of chemical catalyst orders[184](index=184&type=chunk) - Other operating expense increased by **$22.1 million**, driven by transaction-related costs and asset write-offs from the asset swap, compared to a prior-year period that included a gain on an asset sale[189](index=189&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=65&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's liquidity sources include cash from operations and its ABL facility, with **$285.3 million** available liquidity as of June 30, 2020, deemed sufficient for the next 12 months Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62.1 | $60.0 | | Net cash used in investing activities | $(36.2) | $(33.9) | | Net cash used in financing activities | $(5.9) | $(0.3) | - Capital expenditures were significantly lower in the first six months of 2020 (**$33.7 million**) compared to 2019 (**$51.4 million**), with reductions in both maintenance and growth spending[220](index=220&type=chunk) - As of June 30, 2020, total debt was **$1.933 billion**, with net debt of **$1.844 billion** after accounting for **$88.6 million** in cash[217](index=217&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including foreign currency, interest rates, and commodity prices, and its use of derivative instruments for hedging - The company's major market risks are foreign currency exchange, interest rate, commodity price, and credit risk[228](index=228&type=chunk) - In 2020, the company entered into several new interest rate cap agreements to manage interest rate risk, including agreements in February, March, and July covering notional amounts of **$500 million** and **$400 million**[229](index=229&type=chunk) [Item 4. Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective as of June 30, 2020, with remote work due to COVID-19 not materially affecting internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[231](index=231&type=chunk) - Despite the majority of office personnel working remotely due to COVID-19, there were no changes that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[232](index=232&type=chunk) [PART II OTHER INFORMATION](index=72&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) The company believes no pending litigation is likely to have a material adverse effect on its business, financial condition, or operations - The company is not aware of any pending litigation that is likely to have a material adverse effect on its business, financial condition, or operations[235](index=235&type=chunk) [Item 1A. Risk Factors](index=72&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, focusing on the significant and ongoing adverse effects of the COVID-19 pandemic on operations, sales demand, and supply chain disruptions - The COVID-19 pandemic has adversely affected the company's operations and is expected to have continued negative effects, the full extent of which is unpredictable[236](index=236&type=chunk) - The pandemic has led to lower sales volume demand, especially in the Refining Services, Performance Chemicals, and Catalysts segments, and has caused disruptions in the availability of raw materials[236](index=236&type=chunk) - Employee absenteeism related to COVID-19 has caused production delays at several manufacturing facilities, and further outbreaks or government orders could lead to additional disruptions[236](index=236&type=chunk) [Item 6. Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including the new Term Loan Credit Agreement and required Sarbanes-Oxley Act certifications from the CEO and CFO - A key exhibit filed is the New Term Loan Credit Agreement from July 2020, reflecting the company's recent debt refinancing activities[238](index=238&type=chunk) - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits[238](index=238&type=chunk)

Financial Performance and Key Metrics - The company reported revenues of $360 million for Q2 2020, leading to adjusted EBITDA of $113 million, which exceeded the recently increased guidance [9][10] - Adjusted EBITDA margins for the quarter were 28%, consistent with the previous year, reflecting effective cost management despite lower demand [9][10] - Adjusted free cash flow for the quarter totaled $44 million, significantly higher than the prior year, driven by capital discipline and reduced interest costs [25] Business Segment Performance - **Refining Services**: Sales decreased by 23% to $90 million, primarily due to lower volumes from reduced driving miles, but volumes improved by approximately 10% in June compared to April [26] - **Catalysts**: Silica Catalysts sales increased by 24% to $25 million, driven by strong demand for packaging and engineering plastics, while Zeolyst Joint Venture sales rose 5% to $41 million [28] - **Performance Materials**: Sales declined by 11% on a constant currency basis, with stable North American highway safety volumes offset by weakness in industrial applications [29] - **Performance Chemicals**: Sales were down 15% to $143 million, with a favorable sales mix offset by an 18% decline in volumes [30] Market Trends and Key Indicators - Approximately 70% of product sales are expected to come from end uses that are stable or improving in the second half of the year [15] - Gasoline consumption in the U.S. rebounded to about 90% of 2019 levels by the end of June, indicating a potential recovery in demand [16] - Demand for sodium silicates is expected to improve as GDP growth drives industrial and construction activities [70] Company Strategy and Industry Competition - The company is focused on safeguarding existing business and securing new contracts, with nearly 15% of future annual volume locked in under long-term contracts [8][21] - The company aims to maintain high margins and cash flows while exploring additional ways to reshape its portfolio for future growth [42][90] - The management emphasized the importance of cost management and capital discipline to navigate the ongoing challenges presented by the COVID-19 pandemic [46] Management Commentary on Operating Environment and Future Outlook - Management expressed cautious optimism about demand recovery in the second half of the year, despite uncertainties regarding the timing [12][36] - The company is raising its adjusted free cash flow outlook for the full year to $145 million to $155 million, reflecting improved operating cash flow and lower interest costs [40] - Management highlighted the importance of maintaining a strong focus on safety and operational integrity during the ongoing pandemic [45] Other Important Information - The company completed a comprehensive refinancing during the quarter, extending maturities and significantly lowering cash interest costs [10][32] - The company has a strong liquidity position with $285 million of availability, including $89 million in cash [34] Q&A Session Summary Question: Trends in Silica Catalysts business - Management noted that demand was pulled forward in the Silica Catalysts business, with some orders accelerated into the quarter [50] Question: Margin improvement sustainability - Management indicated that cost savings will continue to benefit margins, guiding for a full-year margin around 27% [53] Question: Free cash flow and EBITDA conversion - Management explained that lower interest costs and tight working capital management contributed to improved cash conversion rates [56] Question: Asset monetization pipeline - Management confirmed a pipeline of smaller transactions aimed at optimizing the quality of earnings and cash flow [58] Question: Capital allocation strategy - Management emphasized debt reduction as the top priority, with potential for dividends and bolt-on acquisitions in the future [62] Question: Recovery expectations for Performance Chemicals - Management anticipates a steady recovery in sodium silicate orders as GDP growth stabilizes [70] Question: Catalysts business outlook for 2021 - Management expects a positive rebound in the Catalysts segment, particularly in hydrocracking demand [74]