Ecovyst (ECVT) - 2021 Q2 - Quarterly Report

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) The company reported a net loss in Q2 2021, with total assets decreasing, reflecting divestitures and significant debt refinancing Condensed Consolidated Statements of Income 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 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 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] - Debt refinancing activities included the issuance of $897.8 million in new long-term debt and repayments of $900.0 million[23] Notes to Condensed Consolidated Financial Statements 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] - 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][31][35] - 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][71][72] - 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][159] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation, improved Q2 2021 sales and Adjusted EBITDA, and strong liquidity Results of Operations 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] - 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] Financial Condition, Liquidity and Capital Resources 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] - 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] 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 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] Item 4. Controls and Procedures 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] - 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] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of filed exhibits Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]