Ecovyst (ECVT) - 2019 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for Q1 2019 show sales of $359.2 million and net income of $3.2 million, up from $0.2 million in Q1 2018 Condensed Consolidated Statements of Income Q1 2019 sales slightly decreased to $359.2 million, while gross profit increased to $80.9 million and net income rose significantly to $3.15 million Financial Performance (Three months ended March 31) | Financial Metric | Three months ended March 31, 2019 (in thousands) | Three months ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Sales | $359,221 | $366,197 | | Gross Profit | $80,910 | $78,121 | | Operating Income | $29,463 | $28,189 | | Net Income Attributable to PQ Group Holdings Inc. | $3,151 | $214 | | Diluted Income Per Share | $0.02 | $— | Condensed Consolidated Balance Sheets Total assets increased to $4.38 billion as of March 31, 2019, with new lease guidance recognizing $57.2 million in right-of-use assets Balance Sheet Summary (as of) | Balance Sheet Item | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $52,341 | $57,854 | | Total current assets | $570,332 | $558,616 | | Total assets | $4,382,276 | $4,327,425 | | Long-term debt, excluding current portion | $2,103,070 | $2,106,720 | | Total liabilities | $2,707,004 | $2,663,280 | | Total equity | $1,675,272 | $1,664,145 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $26.8 million in Q1 2019, while investing and financing activities used $29.3 million and $2.6 million respectively Cash Flow Activities (Three months ended March 31) | Cash Flow Activity | Three months ended March 31, 2019 (in thousands) | Three months ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,838 | $22,035 | | Net cash used in investing activities | ($29,267) | ($33,135) | | Net cash (used in) provided by financing activities | ($2,552) | $5,384 | | Net change in cash, cash equivalents and restricted cash | ($5,641) | ($7,227) | Notes to Condensed Consolidated Financial Statements Notes detail the company's reorganization into four segments and the adoption of new lease accounting standards, recognizing right-of-use assets and liabilities - Effective March 1, 2019, the company reorganized into four independent business segments: Refining Services, Catalysts, Performance Materials, and Performance Chemicals[27] - New lease guidance adopted January 1, 2019, led to recognition of $60.7 million in right-of-use lease assets and $58.9 million in lease liabilities[32] Segment Sales Performance (Q1) | Segment | Sales (Q1 2019, in thousands) | Sales (Q1 2018, in thousands) | | :--- | :--- | :--- | | Refining Services | $105,844 | $100,714 | | Catalysts | $15,866 | $16,473 | | Performance Materials | $61,089 | $62,742 | | Performance Chemicals | $180,462 | $189,963 | | Total | $363,261 | $369,892 | Segment Adjusted EBITDA (Q1) | Segment | Adjusted EBITDA (Q1 2019, in thousands) | Adjusted EBITDA (Q1 2018, in thousands) | | :--- | :--- | :--- | | Refining Services | $39,731 | $35,532 | | Catalysts | $18,127 | $22,889 | | Performance Materials | $10,515 | $12,058 | | Performance Chemicals | $42,673 | $45,094 | | Total Segment Adjusted EBITDA | $111,046 | $115,573 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2019 sales decreased by 1.9% to $359.2 million, while gross profit increased by 3.6% to $80.9 million, and total Adjusted EBITDA decreased by 6.4% to $101.0 million - Sales decreased by $7.0 million (1.9%) to $359.2 million in Q1 2019, driven by lower volumes and unfavorable currency, partially offset by higher pricing[126][131] - Gross profit increased by $2.8 million (3.6%) to $80.9 million, primarily due to favorable pricing and product mix[127][135] - Equity in net income from affiliated companies decreased by $9.8 million, mainly due to lower earnings from the Zeolyst Joint Venture[129][138] Segment Performance (Q1 2019 vs Q1 2018 Change) | Segment Performance | Q1 2019 vs Q1 2018 Change | | :--- | :--- | | Sales | | | Refining Services | ▲ 5.1% due to higher prices and favorable mix | | Catalysts | ▼ 3.6% due to lower volumes and unfavorable currency | | Performance Materials | ▼ 2.6% due to unfavorable currency and lower volumes | | Performance Chemicals | ▼ 5.0% due to unfavorable currency and lower volumes | | Adjusted EBITDA | | | Refining Services | ▲ 11.8% driven by contract renewals | | Catalysts | ▼ 21.0% from lower sales to fuels and emission control industries | | Performance Materials | ▼ 13.2% due to higher manufacturing costs in Europe | | Performance Chemicals | ▼ 5.3% due to lower volumes and stronger U.S. dollar | - Total available liquidity as of March 31, 2019, was $222.5 million, comprising $52.3 million in cash and $170.2 million from its asset-based lending facility[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk exposures, including foreign currency, interest rate, commodity, and credit risks, since the 2018 Annual Report - No material changes in foreign exchange, interest rate, commodity, or credit risks have occurred since the 2018 Annual Report on Form 10-K[172] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2019[174] - No material changes to internal control over financial reporting occurred during the quarter[175] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any litigation expected to have a material adverse effect on its business operations - The company believes no pending litigation is likely to have a material adverse effect on its business[177] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - No material changes have occurred to the risk factors described in the company's Annual Report on Form 10-K[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2019, 88,567 common shares were received from employees for tax withholding related to restricted stock unit vesting - In January 2019, 88,567 common shares were delivered by employees to satisfy tax withholding obligations from restricted stock unit vesting[179][180] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including award agreements, employment letters, and CEO/CFO certifications - Exhibits include CEO and CFO certifications under Sarbanes-Oxley Act Sections 302 and 906, along with various employment and award agreements[181]