Ecovyst (ECVT) - 2020 Q4 - Annual Report

PART I Item 1. Business 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] - 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] - 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][27] 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 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][48] Competitive Strengths and Strategy 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] - 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] - 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] Human Capital, Governance, and Regulations 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] - Approximately 49% of the global workforce was represented by a union, works council, or other employee representative body as of year-end 2020[81][159] - 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][113][115] Item 1A. Risk Factors 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][93][94] - The company's substantial indebtedness, totaling approximately $1.426 billion as of December 31, 2020, could adversely affect its financial condition and flexibility[140] - 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] - 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] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[165] Item 2. Properties 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] Item 3. Legal Proceedings 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] Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable[172] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - 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] - During Q4 2020, the company acquired 52,733 shares from employees to satisfy tax withholding obligations related to vested stock awards[180][181] Item 6. [Removed and Reserved] This section has been removed and reserved - Item 6, Selected Financial Data, has been removed and reserved[182] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - 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] Results of Operations 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][214] Financial Condition, Liquidity and Capital Resources 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] - 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] Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - The company manages commodity price risk, particularly for natural gas, through contractual pass-through provisions and forward purchases[308] Item 8. Financial Statements and Supplementary Data 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] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[312] Item 9A. Controls and Procedures 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] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, and this assessment was audited by PricewaterhouseCoopers LLP[314] Item 9B. Other Information The company reports no other information for this item - None reported[317] PART III Item 10. Directors, Executive Officers and Corporate Governance 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] Item 11. Executive Compensation 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] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Item 13. Certain Relationships and Related Transactions, and Director Independence 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] Item 14. Principal Accounting Fees and Services 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] PART IV Item 15. Exhibits, Financial Statement Schedules 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] Item 16. Form 10-K Summary The company reports no summary for this item - None reported[333]