Ecovyst (ECVT) - 2021 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (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 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 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 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 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][36][39] - 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][66][69] 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 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 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] - Entered into a definitive agreement on February 28, 2021, to sell the Performance Chemicals business for $1.1 billion[119] Results of Operations 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] - Catalysts sales increased 6.0% primarily due to a favorable product mix of polyethylene catalysts[135] Adjusted EBITDA 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 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] 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 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][194]