Ecovyst (ECVT) - 2021 Q4 - Annual Report

Part I Business Overview Ecovyst Inc. is a global provider of specialty catalysts and services, strategically divesting non-core businesses to focus on environmental sustainability products and maintain market leadership. - On August 1, 2021, the company changed its name from "PQ Group Holdings Inc." to "Ecovyst Inc." and its NYSE ticker symbol from "PQG" to "ECVT"[15] - Completed the sale of the Performance Chemicals business for $1.1 billion on August 1, 2021, and the Performance Materials business for $650 million on December 14, 2020, with proceeds used for debt repayment and a special cash dividend[15] 2021 Sales Breakdown (Including 50% of Zeolyst JV Sales) | Category | Breakdown | | :--- | :--- | | By End Use | | | Fuels & Emissions Controls | 46% | | Packaging & Engineered Plastics | 31% | | Industrial & Process Chemicals | 12% | | Natural Resources | 11% | | By Geography | | | North America | 84% | | Europe | 8% | | Asia | 5% | | Rest of World | 3% | | By Customer | | | Top 20 Customers | 58% | | Other Customers | 42% | 2021 Segment Financial Summary (in millions) | Segment | Sales (Millions) | % of Total Sales | Adjusted EBITDA (Millions) | % of Total Adjusted EBITDA | | :--- | :--- | :--- | :--- | :--- | | Ecoservices | $500.5 | 67.4% | $177.7 | 66.9% | | Catalyst Technologies | $110.7 | 14.9% | $88.0 | 33.1% | | Zeolite Catalyst (JV) | $131.3 | 17.7% | N/A | N/A | | Total | $742.5 | 100.0% | $265.7 | 100.0% | - The company holds a 1 or 2 supply share position for products that generated over 90% of its 2021 sales[17][33] - As of December 31, 2021, the company had 883 employees worldwide, with 766 in the United States, and approximately 35% of employees were represented by a union or similar body[78][163] Risk Factors The company faces significant operational, financial, and strategic risks, including substantial indebtedness, customer concentration, and shareholder influence. - Business Operations Risks: The company is exposed to global economic conditions, currency fluctuations (primarily Euro and British pound), and anti-corruption laws like the FCPA due to its international operations[91][94][95] - Customer Concentration Risk: For the year ended December 31, 2021, the top ten customers represented approximately 41% of sales, with a single customer accounting for 11% ($78.5 million) across both the Ecoservices and Catalyst Technologies segments[105] - Environmental and Regulatory Risks: The business is subject to extensive environmental, health, and safety regulations (e.g., Clean Air Act, CERCLA) and potential costs related to climate change regulations and GHG emissions[113][117] - Indebtedness Risk: As of December 31, 2021, the company had substantial indebtedness totaling approximately $895.5 million, which could affect financial condition and flexibility[142] - Common Stock and Ownership Risk: As of December 31, 2021, affiliates of CCMP and INEOS beneficially owned approximately 34% and 18% of outstanding common stock, respectively, giving them significant influence over key corporate decisions[147] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC. - None[168] Properties Ecovyst's corporate headquarters are in Malvern, Pennsylvania, operating 10 manufacturing facilities across 2 countries, primarily serving the Ecoservices segment. Principal Manufacturing Facilities (as of Dec 31, 2021) | Location | Segment | | :--- | :--- | | Baton Rouge, LA, USA | Ecoservices | | Baytown, TX, USA | Ecoservices | | Dominguez, CA, USA | Ecoservices | | Delfzijl, The Netherlands | Catalyst Technologies | | Hammond, IN, USA | Ecoservices | | Houston, TX, USA | Ecoservices | | Kansas City, KS, USA | Catalyst Technologies | | Martinez, CA, USA | Ecoservices | | Orange, TX, USA | Ecoservices | | Portland, OR, USA | Ecoservices | Legal Proceedings The company is subject to various legal claims incidental to its business but currently believes no pending litigation will have a material adverse effect. - The company states that it does not believe any currently pending litigation is likely to have a material adverse effect on its business[173] Mine Safety Disclosures This item is not applicable to the company. - Not applicable[174] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ecovyst's common stock trades on the NYSE under "ECVT", and a special cash dividend of $3.20 per share was paid in 2021, with no current plans for regular dividends. - The company's common stock trades on the NYSE under the symbol "ECVT"[176] - A special cash dividend of $3.20 per share was paid on August 23, 2021, to stockholders of record as of August 12, 2021[176] - The company does not currently plan to pay regular dividends in the foreseeable future[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Ecovyst's 2021 sales and Adjusted EBITDA increased significantly due to demand recovery and strategic divestitures, impacting its financial position and debt levels. Results of Operations Sales and Adjusted EBITDA increased significantly in 2021 across both segments, driven by demand recovery, despite a net loss from discontinued operations. Consolidated Statement of Income Summary (in millions) | Metric | 2021 (Millions) | 2020 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $611.2 | $495.9 | 23.3% | | Gross Profit | $176.7 | $150.9 | 17.1% | | Operating Income | $54.6 | $51.6 | 5.8% | | Net Income from Continuing Operations | $1.8 | $54.3 | (96.7)% | | Net Loss from Discontinued Operations | ($141.4) | ($336.0) | (57.9)% | | Net Loss Attributable to Ecovyst Inc. | ($139.9) | ($278.8) | (49.8)% | Sales by Segment (in millions) | Segment | 2021 (Millions) | 2020 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Ecoservices | $500.5 | $401.9 | 24.5% | | Catalyst Technologies | $110.7 | $94.0 | 17.8% | | Total Sales | $611.2 | $495.9 | 23.3% | Adjusted EBITDA by Segment (in millions) | Segment | 2021 (Millions) | 2020 (Millions) | Change (%) | | :--- | :--- | :--- | :--- | | Ecoservices | $177.7 | $157.2 | 13.0% | | Catalyst Technologies | $88.0 | $74.5 | 18.1% | | Unallocated corporate expenses | ($38.1) | ($39.1) | (2.6)% | | Total Adjusted EBITDA | $227.6 | $192.6 | 18.2% | Financial Condition, Liquidity and Capital Resources As of year-end 2021, Ecovyst maintained $202.2 million in liquidity with $895.5 million in total debt, while increasing capital expenditures. - Total available liquidity as of December 31, 2021 was $202.2 million, consisting of $140.9 million in cash and cash equivalents and $61.3 million of availability under the asset-based lending revolving credit facility[259] Debt Summary (in millions) | Component | Dec 31, 2021 (Millions) | Dec 31, 2020 (Millions) | | :--- | :--- | :--- | | Total Debt | $895.5 | $1,426.4 | | Net Debt | $754.6 | $1,313.0 | Cash Flow from Continuing Operations (in millions) | Activity | 2021 (Millions) | 2020 (Millions) | 2019 (Millions) | | :--- | :--- | :--- | :--- | | Operating Activities | $137.3 | $140.1 | $133.2 | | Investing Activities | $875.7 | $571.8 | ($54.6) | | Financing Activities | ($963.1) | ($720.2) | ($214.7) | - Capital expenditures for continuing operations increased to $62.4 million in 2021 from $46.2 million in 2020, as both growth and maintenance projects resumed after being delayed due to the pandemic[276] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks including foreign currency exchange, interest rates, and credit, with specific hedging strategies for variable-rate debt. - The company's main market risk exposures are foreign currency exchange, interest rate, and credit risk[292] - A 100 basis point increase in interest rates on variable-rate debt would have an annual impact of approximately $9.0 million on interest expense[296] - The company uses interest rate cap agreements to hedge interest rate fluctuations, with these agreements having a fair value net asset of $3.7 million as of December 31, 2021[296] Financial Statements and Supplementary Data This section contains the consolidated financial statements of Ecovyst Inc. and its subsidiaries, along with the independent auditor's report and accompanying notes. - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2021[330] - A critical audit matter identified was the goodwill impairment assessment for the Catalyst Technologies reporting unit, due to the significant management judgment involved in determining its fair value[334] 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[298] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes. - Management concluded that as of December 31, 2021, the company's disclosure controls and procedures were effective[300] - Management's assessment, based on the COSO framework, concluded that internal control over financial reporting was effective as of December 31, 2021[301] Part III Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's 2022 Proxy Statement. - The information required by this item is incorporated by reference from the Ecovyst Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders[305] Executive Compensation Information required by this item is incorporated by reference from the company's 2022 Proxy Statement. - The information required by this item is incorporated by reference from the Ecovyst Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders[306] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's 2022 Proxy Statement. - The information required by this item is incorporated by reference from the Ecovyst Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders[307] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's 2022 Proxy Statement. - The information required by this item is incorporated by reference from the Ecovyst Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders[308] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's 2022 Proxy Statement. - The information required by this item is incorporated by reference from the Ecovyst Inc. Proxy Statement for the 2022 Annual Meeting of Stockholders[309] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report. - This item lists all documents filed as part of the report, including financial statements and schedules, and an index of exhibits[312] Form 10-K Summary The company indicates there is no Form 10-K summary. - None[317]