ECOVYST INC. Unless the context requires otherwise, references in this report to "Ecovyst ," "the company," "we," "us" or "our" refer toEcovyst Inc. and its consolidated subsidiaries. Forward-looking Statements This periodic report on Form 10-Q ("Form 10-Q") includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements". The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "should" and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs. Examples of forward-looking statements include, but are not limited to, statements we make regarding the use of proceeds from the sale of the Performance Chemicals business segment, including the special cash dividend, our financial results and our liquidity, including our belief that our existing cash, cash equivalents and cash flow from operations, combined with availability under our asset based lending revolving credit facility will be sufficient to meet our presently anticipated future cash needs for at least the next 12 months. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include risks related to: •the impact of the ongoing COVID-19 pandemic on the global economy and financial markets, as well as on our business and our suppliers, and the response of governments and of our company to the outbreak; •as a global business, we are exposed to local business risks in different countries; •we are affected by general economic conditions and economic downturns; •exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows; •our international operations require us to comply with anti-corruption laws, trade and export controls and regulations of theU.S. government and various international jurisdictions in which we do business; •alternative technology or other changes in our customers' products may reduce or eliminate the need for certain of our products; •our new product development and research and development efforts may not succeed and our competitors may develop more effective or successful products; •our elevated level of indebtedness could adversely affect our financial condition; •if we are unable to pass on increases in raw material prices, including natural gas, to our customers or to retain or replace our key suppliers, our results of operations and cash flows may be negatively affected; •we face substantial competition in the industries in which we operate; •we are subject to the risk of loss resulting from non-payment or non-performance by our customers; •we rely on a limited number of customers for a meaningful portion of our business; •multi-year customer contracts in ourEcoservices segment are subject to potential early termination and such contracts may not be renewed at the end of their respective terms; •our quarterly results of operations are subject to fluctuations because demand for some of our products is seasonal; •our growth projects may result in significant expenditures before generating revenues, if any, which may materially and adversely affect our ability to implement our business strategy; •we may be liable to damages based on product liability claims brought against us or our customers for costs associated with recalls of our or our customers' products; •we are subject to extensive environmental, health and safety regulations and face various risks associated with potential non-compliance or releases of hazardous materials; 36 -------------------------------------------------------------------------------- Table of Contents •existing and proposed regulations to address climate change by limiting greenhouse gas emissions may cause us to incur significant additional operating and capital expenses and may impact our business and results of operations; •production and distribution of our products could be disrupted for a variety of reasons, and such disruptions could expose us to significant losses or liabilities; •the insurance that we maintain may not fully cover all potential exposures; •we could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications; •our failure to protect our intellectual property and infringement on the intellectual property rights of third parties; •losses and damages in connection with information technology risks could adversely affect our operations; and •other factors set forth in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . The forward-looking statements included herein are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations. Overview We are a leading integrated and innovative global provider of specialty catalysts and services. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment. In connection with the closing of the sale of the Performance Chemicals business, we changed our name from "PQ Group Holdings Inc. " to "Ecovyst Inc. ", changed the ticker symbol of our common stock listed on theNew York Stock Exchange from "PQG" to "ECVT" and rebranded our former segments from "Refining Services" to "Ecoservices" and "Catalysts" to "Catalyst Technologies." We conduct operations through two reporting segments:Ecoservices : We are the leading provider of sulfuric acid recycling services to North American refineries for the production of alkylate, an essential gasoline component for lowering vapor pressure and increase octane to meet stringent gasoline specifications and fuel efficiency standards. We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining, and industrial applications. Catalyst Technologies: We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications. This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of zeolites used for catalysts that remove nitric oxide from diesel engine emissions as well as sulfur from fuels during the refining process. Recent Developments OnDecember 14, 2020 , we completed the sale of our Performance Materials business for$650.0 million , which was subject to certain adjustments for indebtedness, working capital and cash at the closing of the transaction. The results of operations, financial condition, and cash flows for the Performance Materials business are presented herein as discontinued operations. Except where noted, any tables, percentages or metrics included within this filing exclude the results of our former Performance Materials business. Refer to Note 3 to our condensed consolidated financial statements for additional information. Effective onAugust 1, 2021 , we completed the sale of our Performance Chemicals business for$1.1 billion , subject to certain adjustments set forth in the agreement. We used a portion of the net cash proceeds to repay the entire Senior Secured Term Loan Facility dueFebruary 2027 of$231.4 million and the 5.750% Senior Notes due 2025 (the "Senior Notes") of$295.0 million . The Senior Notes were redeemed at a redemption price equal to the sum of 102.875% of the principal amount of the Senior Notes plus accrued and unpaid interest to, but excluding,August 2, 2021 . Additionally, our Board of Directors (the "Board") declared a special cash dividend of$3.20 per share, payable onAugust 23, 2021 to shareholders of record as of the close of business onAugust 12, 2021 . The results of operations, financial condition, and cash flows for the Performance Chemicals business are presented herein as discontinued operations. Except where noted, any tables, percentages or metrics included within this filing exclude the results of our Performance Chemicals business. Refer to Note 3 to our condensed consolidated financial statements for additional information. 37 -------------------------------------------------------------------------------- Table of Contents Key Performance Indicators Adjusted EBITDA and Adjusted Net Income Adjusted EBITDA and adjusted net income are financial measures that are not prepared in accordance with accounting principles generally accepted inthe United States ("GAAP") and that we use to evaluate our operating performance, for business planning purposes and to measure our performance relative to that of our competitors. Adjusted EBITDA and adjusted net income are presented as key performance indicators as we believe these financial measures will enhance a prospective investor's understanding of our results of operations and financial condition. EBITDA consists of net income (loss) attributable to continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) depreciation, amortization and interest of our 50% share of the Zeolyst Joint Venture. Adjusted net income consists of net income (loss) attributable to continuing operations adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance. We believe that these non-GAAP financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. You should not consider adjusted EBITDA or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with GAAP. The presentation of adjusted EBITDA and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. In evaluating adjusted EBITDA and adjusted net income, you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of adjusted EBITDA and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Reconciliations of adjusted EBITDA and adjusted net income to GAAP net income (loss) are included in the results of operations discussion that follows for each of the respective periods. Key Factors and Trends Affecting Operating Results and Financial Condition Sales Overall economic demand has significantly rebounded since the 2020 lows that resulted from the impact of COVID-19. Refineries have seen demand return with increasing miles driven, recovery from winter storm Uri and a general increase in economic activity. Emission control and refining catalysts continue to lag, as vehicle builds have been slowed for numerous reasons including computer chip shortages, but show signs of rebound in the second half of 2021. InFebruary 2021 , theGulf Coast ofthe United States experienced significant and unexpectedly severe weather from winter storm Uri. Extended freezing temperatures led to slowdowns or shutdowns at nearly all refineries and caused extensive damage due to frozen piping. Some refineries and facilities remained down for nearly a month. OurEcoservices facilities located in the Gulf experienced damage, which required additional maintenance and some plant shutdowns. Our Silica Catalysts product group, which is a part of our Catalyst Technologies segment, experiences demand fluctuations based upon the timing of our customer's fixed bed catalyst replacements. Sales in ourEcoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts. Cost of Goods Sold Cost of goods sold consists of variable product costs, fixed manufacturing expenses, depreciation expense and freight expenses. Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process. Fixed manufacturing expenses include plant employment costs, manufacturing overhead and maintenance costs. The primary raw materials for ourEcoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or "caustic soda"), and certain metals. Spent sulfuric acid for ourEcoservices segment is supplied by customers for a nominal charge as part of their contracts. The primary raw materials used in the manufacture of products in our Catalyst Technologies segments include sodium silicate and cesium hydroxide. Most of ourEcoservices contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S. chemical plant construction cost index) and natural gas. Over 80% of ourEcoservices segment sales for the year endedDecember 31, 2020 were under contracts featuring quarterly price adjustments. The price adjustments generally reflect actual costs for producing sulfuric acid and tend to protect us from volatility in labor, fixed costs and raw material pricing. The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries. 38 -------------------------------------------------------------------------------- Table of Contents While natural gas is not a direct feedstock for any product, natural gas powered furnaces are used to heat raw materials and create the chemical reactions necessary to produce end-products. We maintain multiple suppliers wherever possible, make forward purchases of natural gas inthe United States and structure our customer contracts when possible to allow for the pass-through of raw material and natural gas costs. Joint Ventures We account for our investments in our equity joint ventures under the equity method. Our largest joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the packaging and engineered plastics, emission control, refining and petrochemical industries and other areas of the broader chemicals industry. Demand for the Zeolyst Joint Venture products fluctuate based upon the timing of our customer's fixed bed catalyst replacements. We share proportionally in the management of our joint ventures with the other parties to each such joint venture. Seasonality Our regeneration services product group, which is a part of ourEcoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. These demand fluctuations result in higher sales and working capital requirements in the second and third quarter. Foreign Currency As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated intoU.S. dollars. We operate in various geographies with approximately 10% of our sales for the six months endedJune 30, 2021 and the year endedDecember 31, 2020 are in currencies other than theU.S. dollar. Because our consolidated financial results are reported inU.S. dollars, sales or earnings generated in currencies other than theU.S. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated toU.S. dollars. The foreign currency to which we have the most significant exchange rate exposure is the British pound. Results of Operations Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Highlights The following is a summary of our financial performance for the three months endedJune 30, 2021 compared with the three months endedJune 30, 2020 . Sales •Sales increased$31.4 million to$147.0 million . The increase in sales was primarily due to a rebound inEcoservices volumes and the impact of the pass-through of higher sulfur costs. Gross Profit •Gross profit increased$3.6 million to$38.5 million . The increase in gross profit was primarily due an increase in sales volumes partially offset by higher production and maintenance costs. Operating Income •Operating income increased by$1.7 million to$11.6 million . The increase in operating income was due to an increase in gross profit, which was partly offset by higher selling, general and administrative expenses. Equity in Net Income of Affiliated Companies •Equity in net income of affiliated companies for the three months endedJune 30, 2021 was$6.8 million , compared to$11.5 million for the three months endedJune 30, 2020 . The decrease of$4.7 million was due to lower earnings generated by the Zeolyst Joint Venture for the three months endedJune 30, 2021 . 39 -------------------------------------------------------------------------------- Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months endedJune 30, 2021 and 2020: Three months ended June 30, Change 2021 2020 $ % (in millions, except percentages) Sales$ 147.0 $ 115.6 $ 31.4 27.2 % Cost of goods sold 108.5 80.7 27.8 34.4 % Gross profit 38.5 34.9 3.6 10.3 % Gross profit margin 26.2 % 30.2 % Selling, general and administrative expenses 21.9 20.6 1.3 6.3 % Other operating expense, net 5.0 4.4 0.6 13.6 % Operating income 11.6 9.9 1.7 17.2 % Operating income margin 7.9 % 8.5 % Equity in net (income) from affiliated companies (6.8) (11.5) 4.7 (40.9) % Interest expense, net 8.7 15.1 (6.4) (42.4) % Debt extinguishment costs 11.7 - 11.7 - % Other income, net (1.8) (3.4) 1.6 (47.1) % (Loss) Income before income taxes and noncontrolling interest (0.2) 9.7 (9.9) (102.1) % Provision (benefit) for income taxes 7.7 (24.6) 32.3 (131.3) % Effective tax rate (4,371.6) % (254.3) % Net (loss) income from continuing operations (7.9) 34.3 (42.2) (123.0) % Net income (loss) from discontinued operations, net of tax 6.5 (18.1) 24.6 NM Net (loss) income (1.4) 16.2 (17.6) (108.6) % Less: Net income attributable to the noncontrolling interest - discontinued operations 0.1 0.3 (0.2) (66.7) % Net (loss) income attributable to Ecovyst Inc.$ (1.5) $ 15.9 $ (17.4) (109.4) % Sales Three months ended June 30, Change 2021 2020 $ % (in millions, except percentages) Sales: 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 %Ecoservices : Sales inEcoservices for the three months endedJune 30, 2021 were$120.8 million , an increase of$30.4 million , or 33.6%, compared to sales of$90.4 million for the three months endedJune 30, 2020 . The increase in sales was due to an increase in volumes of$21.0 million and higher average selling prices of$9.4 million . Sales increased as result of a rebound in gasoline production by refiners compared to the prior year period that was depressed by stay-at-home mandates related to the COVID-19 pandemic. Higher average selling prices were primarily a result of the pass-through of higher sulfur costs of$9.8 million in our virgin sulfuric acid product group. Silica Catalysts: Sales in Silica Catalysts for the three months endedJune 30, 2021 were$26.2 million , an increase of$1.0 million , or 4.0%, compared to sales of$25.2 million for the three months endedJune 30, 2020 . The increase in sales was primarily due to a favorable product mix of polyethylene catalysts resulting in an increase in pricing of$1.8 million , which was partially offset by lower demand for our methyl methacrylate catalysts due to the timing of orders. 40 -------------------------------------------------------------------------------- Table of Contents Gross Profit Gross profit for the three months endedJune 30, 2021 was$38.5 million , an increase of$3.6 million , or 10.3%, compared with$34.9 million for the three months endedJune 30, 2020 . The increase in gross profit was due to higher sales volumes of$13.3 million , favorable product mix of$2.0 million and favorable customer pricing of$11.2 million , which was partially offset by unfavorable manufacturing and maintenance costs of$22.3 million . The increase in volumes was a result of a rebound in gasoline production by refiners compared to the prior year period that was depressed by the COVID-19 pandemic. Favorable product mix was a result of increased sales of higher-margin polyethylene catalysts. The increase in manufacturing costs was a result of the timing of plant "turnaround" maintenance projects and higher inventory absorption costs, which was offset by the pass-through of$9.8 million in higher sulfur costs. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months endedJune 30, 2021 were$21.9 million , an increase of$1.3 million compared with$20.6 million for the three months endedJune 30, 2020 . The increase in selling, general and administrative expenses was due to an increase in compensation-related expenses partially offset by income generated from the transition service agreement entered into as part of the sale of the Performance Materials business. Other Operating Expense, Net Other operating expense, net was comparable between both periods. Other operating expense, net for the three months endedJune 30, 2021 was$5.0 million , an increase of$0.6 million , compared with$4.4 million for the three months endedJune 30, 2020 . Equity in Net Income of Affiliated Companies Equity in net income of affiliated companies for the three months endedJune 30, 2021 was$6.8 million , compared to$11.5 million for the three months endedJune 30, 2020 . The decrease was primarily due to$4.7 million of lower earnings from the Zeolyst Joint Venture during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The decrease in earnings from the Zeolyst Joint Venture was due to lower demand for hydrocracking and specialty catalysts. Interest Expense, Net Interest expense, net for the three months endedJune 30, 2021 was$8.7 million , a decrease of$6.4 million , as compared with$15.1 million for the three months endedJune 30, 2020 . The decrease in interest expense, net was primarily due to lower interest rates on our variable-rate debt, along with lower average debt balances and a favorable increase in variable versus fixed-rate debt during the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Debt Extinguishment Costs Debt extinguishment costs for the three months endedJune 30, 2021 were$11.7 million . InJune 2021 , we entered into an agreement for a new senior secured term loan facility and used the proceeds to repay portions of our existing term loan facilities. As a result of this transaction, we recorded$5.7 million of new creditor and third-party financing costs as debt extinguishment costs during the three months endedJune 30, 2021 . In addition, previous unamortized deferred financing costs of$1.7 million and original issue discount of$3.7 million associated with the previously outstanding debt were written off as debt extinguishment costs. InJune 2021 , we amended our ABL Credit Agreement to decrease the aggregate amount of revolving loan commitments and extend the maturity date. As a result of the amendment, we wrote off$0.6 million of unamortized deferred financing costs as debt extinguishment costs. Other (Income) Expense, Net Other (income) expense, net for the three months endedJune 30, 2021 was income of$1.8 million , a decrease of$1.6 million , as compared with income of$3.4 million for the three months endedJune 30, 2020 . The change in other expense, net primarily consisted of a decrease in foreign currency gains related to the non-permanent intercompany debt denominated in local currency and translated to theU.S. dollar. Provision (Benefit) for Income Taxes The provision for income taxes for the three months endedJune 30, 2021 was$7.7 million compared to a$24.6 million provision for the three months endedJune 30, 2020 . The effective income tax rate for the three months endedJune 30, 2021 was (4,371.6)% compared to (254.3)% for the three months endedJune 30, 2020 . 41 -------------------------------------------------------------------------------- Table of Contents The Company's effective income tax rate fluctuates based primarily on changes in income mix, the impacts of the Global Intangible Low Taxed Income ("GILTI") tax rules, tax rate changes and changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions. The difference between theU.S. federal statutory income tax rate and the Company's effective income tax rate for the three months endedJune 30, 2021 was mainly due to the tax effect of permanent differences related to foreign currency exchange gain or loss, the inclusion of foreign earnings inU.S. taxable income, the discrete impact of the product line and asset sales, foreign tax rate changes, pre-tax losses with no associated tax benefit and state taxes. Net Income Attributable toEcovyst For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net income attributable toEcovyst was$1.5 million for the three months endedJune 30, 2021 compared with net income of$15.9 million for the three months endedJune 30, 2020 . Adjusted EBITDA Summarized Segment Adjusted EBITDA information is shown below in the following table: Three months ended June 30, Change 2021 2020 $ % (in millions, except percentages)
Segment Adjusted EBITDA:(1)
Ecoservices $ 40.5 $
35.0
Catalyst Technologies(2) 20.7 25.3 (4.6) (18.2) %
Total Segment Adjusted EBITDA(3) 61.2 60.3 0.9 1.5 %
Unallocated corporate expenses (8.5) (10.3) 1.8 17.5 %
Total Adjusted EBITDA $ 52.7 $ 50.0 $ 2.7 5.4 %
(1)We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as
noted in the reconciliation below. Our management evaluates the performance of
our segments and allocates resources based primarily on Segment Adjusted EBITDA.
Segment Adjusted EBITDA does not represent cash flow for periods presented and
should not be considered as an alternative to net income as an indicator of our
operating performance or as an alternative to cash flows as a source of
liquidity. Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted
EBITDA as defined by other companies.
(2)The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst
Technologies segment was $12.1 million for the three months ended June 30, 2021 ,
which includes $6.8 million of equity in net income, excluding $1.6 million of
amortization of investment in affiliate step-up plus $3.7 million of joint
venture depreciation, amortization and interest. The Adjusted EBITDA from the
Zeolyst Joint Venture included in the Catalyst Technologies segment was $16.9
million for the three months ended June 30, 2020 , which includes $11.5 million
of equity in net income, excluding $1.7 million of amortization of investment in
affiliate step-up plus $3.7 million of joint venture depreciation, amortization
and interest.
(3)Our total Segment Adjusted EBITDA differs from our total consolidated
Adjusted EBITDA due to unallocated corporate expenses.
Ecoservices : Adjusted EBITDA for the three months ended June 30, 2021 was $40.5
million , an increase of $5.5 million , or 15.7%, compared with $35.0 million for
the three months ended June 30, 2020 . The increase in Adjusted EBITDA was a
result of a rebound in sales volumes as compared to the prior year period
partially offset by higher plant "turnaround" maintenance expenses.
Catalyst Technologies: Adjusted EBITDA for the three months ended June 30, 2021
was $20.7 million , a decrease of $4.6 million , or 18.2%, compared with $25.3
million for the three months ended June 30, 2020 . The decrease in Adjusted
EBITDA was primarily a result of reduced volumes in the Zeolyst Joint Venture
due to timing of customer orders.
42--------------------------------------------------------------------------------
Table of Contents
A reconciliation of net loss from continuing operations to Segment Adjusted
EBITDA is as follows:
Three months ended
June 30,
2021 2020
(in millions)Reconciliation of net (loss) income from continuing operations
to Segment Adjusted EBITDA
Net (loss) income from continuing operations $
(7.9)
Provision (benefit) for income taxes
7.7 (24.6)
Interest expense, net
8.7 15.1
Depreciation and amortization
20.0 18.8
EBITDA
28.5 43.6
Joint venture depreciation, amortization and interest(a) 3.7 3.7 Amortization of investment in affiliate step-up(b) 1.6 1.7 Debt extinguishment costs 11.7 - Net loss on asset disposals(c) 1.6 0.4 Foreign currency exchange gain(d)
(1.2) (3.4)
LIFO benefit(e)
(0.5) (2.0)
Transaction and other related costs(f) 0.6 0.4 Equity-based compensation 6.3 4.6
Restructuring, integration and business optimization
expenses(g) 0.1 0.8 Defined benefit pension benefit(h) (0.6) (0.2) Other(i) 0.9 0.4 Adjusted EBITDA 52.7 50.0 Unallocated corporate expenses 8.5 10.3 Segment Adjusted EBITDA$ 61.2 $ 60.3 (a)We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Catalyst Technologies segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture. (b)Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the combination of the businesses ofPQ Holdings Inc. andEco Services Operations LLC inMay 2016 (the "Business Combination"). We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture. Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how. (c)When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use. (d)Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income, which primarily relates to the non-permanent intercompany debt denominated in local currency translated toU.S. dollars. (e)Represents non-cash adjustments to the Company's LIFO reserves for certain inventories in theU.S. that are valued using the LIFO method, which we believe provides a means of comparison to other companies that may not use the same basis of accounting for inventories. (f)Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned, that we believe are not representative of our ongoing business operations. (g)Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations. (h)Represents adjustments for defined benefit pension plan (benefit) costs in our statements of income. All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen. As such, we do not view such income or expenses as core to our ongoing business operations. 43 -------------------------------------------------------------------------------- Table of Contents (i)Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs associated with the legacy operations of our business prior to a business combination consummated in a prior year period and capital and franchise taxes. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions). Adjusted Net Income Summarized adjusted net income information is shown below in the following table: Three months ended June 30, 2021 2020 Tax expense Tax expense Pre-tax (benefit) After-tax Pre-tax (benefit) After-tax (in millions) Reconciliation of net (loss) income from continuing operations to Adjusted Net Income(1)(2) Net (loss) income attributable to Ecovyst Inc.$ (0.2) $ 7.7$ (7.9) $ 9.7 $ (24.6) $ 34.3 Amortization of investment in affiliate step-up(b) 1.6 0.4 1.2 1.7 0.7 1.0 Debt extinguishment costs 11.7 3.1 8.6 - - - Net loss on asset disposals(c) 1.6 0.4 1.2 0.4 0.2 0.2 Foreign currency exchange gain(d) (1.2) (0.4) (0.8) (3.4) (0.9) (2.5) LIFO benefit(e) (0.5) (0.1) (0.4) (2.0) (0.8) (1.2) Transaction and other related costs(f) 0.6 0.2 0.4 0.4 0.2 0.2 Equity-based compensation 6.3 1.7 4.6 4.6 1.8 2.8 Restructuring, integration and business optimization expenses(g) 0.1 - 0.1 0.8 0.3 0.5 Defined benefit pension plan benefit(h) (0.6) (0.2) (0.4) (0.2) (0.1) (0.1) Other(i) 0.9 0.4 0.5 0.4 0.1 0.3 Adjusted Net Income, including non-cash GILTI tax$ 20.3 $ 13.2 $ 7.1 $ 12.4 $ (23.1) $ 35.5 Intraperiod allocation for restating discontinued operations(3) - (7.8) 7.8 - 27.9 (27.9) Adjusted Net Income$ 20.3 $ 5.4$ 14.9 $ 12.4 $ 4.8 $ 7.6 (1)We define adjusted net income as net income attributable toEcovyst adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor's understanding of our results of operations and financial condition. Adjusted net income may not be comparable with net income or adjusted net income as defined by other companies. (2)Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment. (3)Due to reporting the Performance Chemicals business as held for sale in discontinued operations, the estimated tax rate used to value deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") needs to be adjusted to remove the Performance Chemicals rate. Given it is a direct result of the sale of discontinued operations and the need to adjust the estimated tax rate arose because of discontinued operations, the impact of revaluing the reporting entity's DTAs and DTLs are reflected in continuing operations. Due to this revaluation being solely as a result of the Performance Chemicals divestiture and a non-cash item, it is treated as an addback. The adjustments to net income attributable toEcovyst Inc. are shown net of applicable tax rates as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months endedJune 30, 2021 andJune 30, 2020 , except for the foreign currency exchange loss, impacts of tax rate changes and the effects of the sale of assets for which the taxes are calculated as discrete items using the applicable statutory income tax rates. 44 -------------------------------------------------------------------------------- Table of Contents Results of Operations Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Highlights The following is a summary of our financial performance for the six months endedJune 30, 2021 compared with the six months endedJune 30, 2020 . Sales •Sales increased$32.4 million to$273.6 million . The increase in sales was primarily due to favorable cost pass-through pricing and a rebound in volume in ourEcoservices segment. Gross Profit •Gross profit decreased$4.0 million to$68.6 million . The decrease in gross profit was primarily due an increase in manufacturing costs, which was partially offset by higher sales volumes. Operating Income •Operating income decreased by$7.7 million to$14.1 million . The decrease in operating income was due to a decrease in gross profit during the current year period. Equity in Net Income of Affiliated Companies •Equity in net income of affiliated companies for the six months endedJune 30, 2021 was$12.0 million , compared with$19.8 million for the six months endedJune 30, 2020 . The decrease of$7.8 million was due to a decrease in sales volume in the Zeolyst Joint Venture for the six months endedJune 30, 2021 . 45 -------------------------------------------------------------------------------- Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the six months endedJune 30, 2021 and 2020: Six months ended June 30, Change 2021 2020 $ % (in millions, except percentages) Sales$ 273.6 $ 241.2 $ 32.4 13.4 % Cost of goods sold 205.0 168.6 36.4 21.6 % Gross profit 68.6 72.6 (4.0) (5.5) % Gross profit margin 25.1 % 30.1 % Selling, general and administrative expenses 44.0 42.9 1.1 2.6 % Other operating expense, net 10.5 7.9 2.6 32.9 % Operating income 14.1 21.8 (7.7) (35.3) % Operating income margin 5.2 % 9.0 % Equity in net (income) from affiliated companies (12.0) (19.8) 7.8 (39.4) % Interest expense, net 19.2 30.4 (11.2) (36.8) % Debt extinguishment costs 11.7 2.5 9.2 368.0 % Other expense, net 3.3 4.0 (0.7) (17.5) % (Loss) income before income taxes and noncontrolling interest (8.1) 4.7 (12.8) (272.3) % Provision (benefit) for income taxes 2.5 (26.3) 28.8 (109.5) % Effective tax rate (30.9) % (562.5) % Net (loss) income from continuing operations (10.6) 31.0 (41.6) (134.2) % Net loss from discontinued operations, net of tax (83.3) (14.2) (69.1) NM Net (loss) income (93.9) 16.8 (110.7) NM Less: Net income attributable to the noncontrolling interest - discontinued operations 0.3 0.6 (0.3) (50.0) % Net (loss) income attributable to Ecovyst Inc.$ (94.2) $ 16.2 $ (110.4) NM Sales Six months ended June 30, Change 2021 2020 $ % (in millions, except percentages) Sales: Ecoservices$ 221.0 $ 191.1 $ 29.9 15.6 % Silica Catalysts 52.6 50.1 2.5 5.0 % Total sales$ 273.6 $ 241.2 $ 32.4 13.4 %Ecoservices : Sales inEcoservices for the six months endedJune 30, 2021 were$221.0 million , an increase of$29.9 million , or 15.6%, compared to sales of$191.1 million for the six months endedJune 30, 2020 . The increase in sales was due to higher average selling prices of$15.2 million and an increase in sales volumes of$14.7 million . Higher average selling prices benefited from the pass-through of higher sulfur costs of$12.8 million . Sales volumes increased as result of a rebound in gasoline production by refiners compared to the prior year period that was depressed by the COVID-19 pandemic. Silica Catalysts: Sales in Silica Catalysts for the six months endedJune 30, 2021 were$52.6 million , an increase of$2.5 million , or 5.0%, compared to sales of$50.1 million for the six months endedJune 30, 2020 . The increase in sales was primarily due to product mix of polyethylene catalysts resulting in an increase in pricing of$2.5 million . 46 -------------------------------------------------------------------------------- Table of Contents Gross Profit Gross profit for the six months endedJune 30, 2021 was$68.6 million , a decrease of$4.0 million , or 5.5%, compared with$72.6 million for the six months endedJune 30, 2020 . The decrease in gross profit was due to higher maintenance costs and unfavorable inventory absorption, which was partially offset by favorable volumes inEcoservices of$10.0 million . The increase in manufacturing costs is due to one-time repair costs related to winter storms in the Gulf region, timing of plant "turnaround" maintenance expenditures and higher inventory absorption costs. Favorable product mix was a result of increased sales of higher-margin polyethylene catalysts. The increase in volumes was a result of a rebound in gasoline production by refiners compared to the prior year period that was burdened by the COVID-19 pandemic. Selling, General and Administrative Expenses Selling, general and administrative expenses for the six months endedJune 30, 2021 was$44.0 million , a increase of$1.1 million as compared to$42.9 million for the six months endedJune 30, 2020 . The increase in selling, general and administrative expenses was due to increased compensation-related expenses, partially offset by income generated from the transition service agreement entered into as part of the sale of the Performance Materials business. Other Operating Expense, Net Other operating expense, net for the six months endedJune 30, 2021 was$10.5 million , an increase of$2.6 million , compared with$7.9 million for the six months endedJune 30, 2020 . The increase in other operating expense, net was a result of severance charges incurred in the current year period. Equity in Net Income of Affiliated Companies Equity in net income of affiliated companies for the six months endedJune 30, 2021 was$12.0 million , compared to$19.8 million for the six months endedJune 30, 2020 . The decrease was primarily due to$7.8 million of lower earnings from the Zeolyst Joint Venture during the six months endedJune 30, 2021 . The decline in earnings was a result of lower volume from deferred customer change-outs related to reduced output from oil refineries and heavy duty vehicle production, which led to a decrease in demand for our emission control and hydrocracking catalysts. Interest Expense, Net Interest expense, net for the six months endedJune 30, 2021 was$19.2 million , a decrease of$11.2 million , as compared with$30.4 million for the six months endedJune 30, 2020 . The decrease in interest expense was primarily due to lower interest rates on our variable-rate debt. Debt Extinguishment Costs Debt extinguishment costs were$11.7 million and$2.5 million for the six months endedJune 30, 2021 and 2020, respectively. InJune 2021 , we entered into an agreement for a new senior secured term loan facility and used the proceeds to repay a portion of our existing term loan facilities. As a result of this transaction, we recorded$5.7 million of new creditor and third-party financing costs as debt extinguishment costs during the three months endedJune 30, 2021 . In addition, previous unamortized deferred financing costs of$1.7 million and original issue discount of$3.7 million associated with the previously outstanding debt were written off as debt extinguishment costs. InJune 2021 , we amended our ABL Credit Agreement to decrease the aggregate amount of revolving loan commitments and extend the maturity date. As a result of the amendment, we wrote off$0.6 million of unamortized deferred financing costs as debt extinguishment costs. OnFebruary 7, 2020 , we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility toFebruary 2027 . We recorded$2.2 million of new creditor and third-party financing fees as debt extinguishment costs for the six months endedJune 30, 2020 . In addition, previously unamortized deferred financing costs of$0.1 million and original issue discount of$0.2 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the six months endedJune 30, 2020 . Other (Income) Expense, Net Other expense, net for the six months endedJune 30, 2021 was expense of$3.3 million , a decrease of$0.7 million , as compared with expense of$4.0 million for the six months endedJune 30, 2020 . The decrease in other expense, net primarily consisted of a decrease in franchise taxes. 47 -------------------------------------------------------------------------------- Table of Contents Provision (Benefit) for Income Taxes The benefit for income taxes for the six months endedJune 30, 2021 was$2.5 million compared to a$26.3 million benefit for the six months endedJune 30, 2020 . The effective income tax rate for the six months endedJune 30, 2021 was (30.9)% compared to (562.5)% for the six months endedJune 30, 2020 . The Company's effective income tax rate fluctuates primarily due to income mix, the impacts of GILTI, discrete impacts of the divestiture of the Performance Chemicals business, tax rate changes and changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions. The difference between theU.S. federal statutory income tax rate and the Company's effective income tax rate for the six months endedJune 30, 2021 was mainly due to the impacts of GILTI, discrete tax impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the Performance Chemicals divestiture, tax rate changes and the tax effect of permanent differences related to foreign currency exchange gain or loss. Net (Loss) Income Attributable toEcovyst For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable toEcovyst was$94.2 million for the six months endedJune 30, 2021 compared with net income of$16.2 million for the six months endedJune 30, 2020 . Adjusted EBITDA Summarized Segment Adjusted EBITDA information is shown below in the following table: Six months ended June 30, Change 2021 2020 $ % (in millions, except percentages)
Segment Adjusted EBITDA:(1)
Ecoservices$ 73.5 $
72.2
Catalyst Technologies(2) 39.2
48.0 (8.8) (18.3) %
Total Segment Adjusted EBITDA(3) 112.6
120.2 (7.6) (6.3) %
Unallocated corporate expenses (17.6)
(21.5) 3.9 18.1 %
Total Adjusted EBITDA$ 95.0 $ 98.7 $ (3.7) (3.7) % (1)We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. (2)The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is$22.6 million for the six months endedJune 30, 2021 , which includes$12.0 million of equity in net income, excluding$3.3 million of amortization of investment in affiliate step-up plus$7.3 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is$30.6 million for the six months endedJune 30, 2020 , which includes$19.8 million of equity in net income, excluding$3.3 million of amortization of investment in affiliate step-up plus$7.5 million of joint venture depreciation, amortization and interest. (3)Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses. Rounding discrepancies may arise when rounding segment results from dollars (in thousands) to dollars (in millions).Ecoservices : Adjusted EBITDA for the six months endedJune 30, 2021 was$73.5 million , an increase of$1.3 million , or 1.8%, compared with$72.2 million for the six months endedJune 30, 2020 . The increase in Adjusted EBITDA was due to a rebound in sales volumes partially offset by higher repair costs to our facilities and lost sales related to winter storm Uri. Catalyst Technologies: Adjusted EBITDA for the six months endedJune 30, 2021 was$39.2 million , a decrease of$8.8 million , or 18.3%, compared with$48.0 million for the six months endedJune 30, 2020 . The decrease in Adjusted EBITDA was a result of lower Zeolyst Joint Venture sales volumes and unfavorable fixed cost absorption. 48
--------------------------------------------------------------------------------
Table of Contents
A reconciliation of net loss from continuing operations to Segment Adjusted
EBITDA is as follows:
Six months ended
June 30,
2021 2020
(in millions)
Reconciliation of net (loss) income from continuing operations to
Segment Adjusted EBITDA
Net (loss) income from continuing operations $ (10.6) $ 31.0
Provision (benefit) for income taxes 2.5 (26.3)
Interest expense, net 19.2 30.4
Depreciation and amortization 39.5 37.4
EBITDA 50.6 72.5
Joint venture depreciation, amortization and interest(a) 7.3 7.5
Amortization of investment in affiliate step-up(b) 3.3 3.3
Debt extinguishment costs 11.7 2.5 Net loss on asset disposals(c) 2.4 0.6 Foreign currency exchange loss(d) 3.9 3.7 LIFO benefit(e)
(0.7) (3.6)
Transaction and other related costs(f) 1.1 1.2 Equity-based compensation 12.6 8.9 Restructuring, integration and business optimization expenses(g) 2.3 1.2 Defined benefit pension plan benefit(h) (1.2) (0.3) Other(i) 1.7 1.2 Adjusted EBITDA 95.0 98.7 Unallocated corporate expenses 17.6 21.5 Segment Adjusted EBITDA$ 112.6 $ 120.2 (a)We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Catalyst Technologies segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture. (b)Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the combination of the businesses ofPQ Holdings Inc. andEco Services Operations LLC inMay 2016 . We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture. Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how. (c)When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use. (d)Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income, primarily related to the non-permanent intercompany debt denominated in local currency translated toU.S. dollars. (e)Represents non-cash adjustments to the Company's LIFO reserves for certain inventories in theU.S. that are valued using the LIFO method, which we believe provides a means of comparison to other companies that may not use the same basis of accounting for inventories. (f)Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned, that we believe are not representative of our ongoing business operations. (g)Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations. (h)Represents adjustments for defined benefit pension plan (benefit) costs in our statements of income. All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen. As such, we do not view such income or expenses as core to our ongoing business operations. 49 -------------------------------------------------------------------------------- Table of Contents (i)Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs associated with the legacy operations of our business prior to a business combination consummated in a prior year period and capital and franchise taxes. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions). Adjusted Net Income Summarized adjusted net income information is shown below in the following table: Six months ended June 30, 2021 2020 Tax expense Tax expense Pre-tax (benefit) After-tax Pre-tax (benefit) After-tax (in millions) Reconciliation of net (loss) income from continuing operations to Adjusted Net Income(1)(2) Net (loss) income attributable to Ecovyst Inc.$ (8.1) $ 2.5$ (10.6) $ 4.7 $ (26.3) $ 31.0 Amortization of investment in affiliate step-up(b) 3.3 0.9 2.4 3.3 1.2 2.1 Debt extinguishment costs 11.7 3.1 8.6 2.5 0.9 1.6 Net loss on asset disposals(c) 2.4 0.7 1.7 0.6 0.2 0.4 Foreign currency exchange loss(d) 3.9 1.1 2.8 3.7 1.4 2.3 LIFO benefit(e) (0.7) (0.2) (0.5) (3.6) (1.3) (2.3) Transaction and other related costs(f) 1.1 0.3 0.8 1.2 0.4 0.8 Equity-based compensation 12.6 3.5 9.1 8.9 3.2 5.7 Restructuring, integration and business optimization expenses(g) 2.3 0.6 1.7 1.2 0.4 0.8 Defined benefit pension plan benefit(h) (1.2) (0.3) (0.9) (0.3) (0.1) (0.2) Other(i) 1.7 0.5 1.2 1.2 0.6 0.6 Adjusted Net Income, including Intraperiod allocation$ 29.0 $ 12.7 $ 16.3 $ 23.4 $ (19.4) $ 42.8 Intraperiod allocation for restating discontinued operations(3) - (4.8) 4.8 - 27.9 (27.9) Adjusted Net Income$ 29.0 $ 7.9$ 21.1 $ 23.4 $ 8.5 $ 14.9 (1)We define adjusted net income as net income attributable toEcovyst adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor's understanding of our results of operations and financial condition. Adjusted net income may not be comparable with net income or adjusted net income as defined by other companies. (2)Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment. (3)Due to reporting the Performance Chemicals business as held for sale in discontinued operations, the estimated tax rate used to value deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") needs to be adjusted to remove the Performance Chemicals rate. Given it is a direct result of the sale of discontinued operations and the need to adjust the estimated tax rate arose because of discontinued operations, the impact of revaluing the reporting entity's DTAs and DTLs are reflected in continuing operations. Due to this revaluation being solely as a result of the Performance Chemicals divestiture and a non-cash item, it is treated as an addback. The adjustments to net income attributable toEcovyst Inc. are shown net of applicable tax rates of 27.7% and 195.3% for the six months endedJune 30, 2021 and 2020, respectively, except for the foreign currency exchange loss and discrete impacts of the divestiture of the Performance Chemicals business. 50
--------------------------------------------------------------------------------
Table of Contents
Financial Condition, Liquidity and Capital Resources Our primary sources of liquidity consist of cash flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit facility. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds. Our primary liquidity requirements include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements and capital expenditures. Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives. We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our asset based lending revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next twelve months. We may also pursue strategic acquisition or divestiture opportunities, which may impact our future cash requirements. We may, from time to time, increase borrowings under our asset based lending revolving credit facility to meet our future cash needs. As ofJune 30, 2021 , we had cash and cash equivalents of$55.8 million and availability of$107.1 million under our asset based lending revolving credit facility, after giving effect to$17.8 million of outstanding letters of credit, for a total available liquidity of$162.9 million . We did not have any revolving credit facility borrowings as ofJune 30, 2021 . As ofJune 30, 2021 , we were in compliance with all covenants under our debt agreements. On a continuing operations basis, we held an immaterial balance of cash and cash equivalents in foreign jurisdictions as ofJune 30, 2021 . We repatriate cash held outside ofthe United States from certain foreign subsidiaries in order to meet domestic liquidity needs. Depending on domestic and foreign cash balances, we have certain flexibility to repatriate funds in order to meet those needs. Specifically, we have an intercompany loan structure in place with foreign subsidiaries that allows us to repatriate foreign cash in a tax efficient manner from those subsidiaries. Repatriation of foreign cash is generally not subject toU.S. federal income taxes at the time of cash distribution. However, foreign earnings may still be taxed for state income tax purposes, as well as subject to certain foreign withholding tax obligations, when cash amounts are distributed back to theU.S. Our liquidity requirements are significant, primarily due to debt service requirements. As reported, our cash interest paid for the six months endedJune 30, 2021 and 2020 was approximately$28.8 million and$53.8 million , respectively. Before any impact of hedges, a one percent change in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately$2.3 million on interest expense. We hedge the interest rate fluctuations on debt obligations through interest rate cap agreements. As ofJune 30, 2021 , we had interest rate caps on$500.0 million of notional variable-rate debt with a cap rate of 0.84% throughJuly 2022 and$400.0 million of notional variable-rate debt with a cap rate of 1.00% throughAugust 2023 . 51 --------------------------------------------------------------------------------
Table of Contents
Cash Flow
Six months ended
June 30,
2021 2020
(in millions)
Continuing Operations
Net cash provided by (used in):
Operating activities $ 37.2 $ 24.3
Investing activities (70.0) (19.8)
Financing activities (5.0) (6.7)
Discontinued Operations
Net cash provided by (used in):
Operating activities 12.1 37.8
Investing activities (32.0) (16.4)
Financing activities (1.1) 0.8Effect of exchange rate changes on cash, cash equivalents and restricted cash
(3.3) (3.3)
Net change in cash, cash equivalents and restricted cash (62.1) 16.7
Cash, cash equivalents and restricted cash at beginning of period
137.2 73.9
Cash, cash equivalents and restricted cash at end of period 75.1 90.6
Less: cash, cash equivalents and restricted cash of discontinued operations
(17.6) (51.4)
Cash, cash equivalents and restricted cash at end of period of
continuing operations $ 57.4 $ 39.1
Six months ended
June 30,
2021 2020
(in millions)
Continuing Operations
Net (loss) income $ (10.6) $ 31.0
Non-cash and non-working capital related activities(1) 67.4 47.5
Changes in working capital (15.2) (53.8)
Other operating activities
(4.4) (0.4)
Net cash provided by operating activities, continuing operations
(1)Includes depreciation, amortization, amortization of deferred financing costs
and original issue discount, foreign currency exchange gains and losses,
deferred income tax provision (benefit), net (gains) losses on asset disposals,
stock compensation expense and equity in net income and dividends received from
affiliated companies.
Six months ended
June 30,
2021 2020
(in millions)
Continuing Operations
Working capital changes that provided (used) cash:
Receivables $ (18.4) $ (1.0)
Inventories 5.5 (1.7)
Prepaids and other current assets (1.8) -
Accounts payable 2.6 (5.1)
Accrued liabilities (3.1) (46.0)
$ (15.2) $ (53.8)
52--------------------------------------------------------------------------------
Table of Contents
Six months ended
June 30,
2021 2020
(in millions)
Continuing Operations
Purchases of property, plant and equipment $
(28.0)
Business combinations, net of cash acquired (42.0) - Proceeds from sale of assets
- 2.4
Net cash used in investing activities, continuing operations$ (70.0) $ (19.8) Six months ended June 30, 2021 2020 (in millions) Continuing Operations Net revolving credit facilities borrowings $ - $ - Net cash borrowings (repayments) on debt obligations (3.5) (3.0) Other financing activities (1.5) (3.7)
Net cash used in financing activities, continuing operations
The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our Performance Materials and Performance Chemicals businesses accounted for as discontinued operations. Net cash provided by operating activities was$37.2 million for the six months endedJune 30, 2021 , compared to$24.3 million provided for the six months endedJune 30, 2020 . Cash generated by operating activities, other than changes in working capital, was lower during the six months endedJune 30, 2021 by$25.8 million compared to the same period in the prior year. The change in working capital during the six months endedJune 30, 2021 was favorable compared to the six months endedJune 30, 2020 . Cash used to fund working capital was$15.2 million and$53.8 million for the six months endedJune 30, 2021 and 2020, respectively. The decrease in cash generated by operating activities, other than changes in working capital, was lower by$25.8 million as compared to the prior year period primarily due to a decrease in dividends received from affiliated companies offset by a decline in operating profit. The increase in cash from working capital of$38.6 million as compared to the prior year was primarily due to favorable changes in accrued liabilities, inventories and accounts payable which were partially offset by unfavorable changes in accounts receivable and prepaid and other current assets. The favorable change in accrued liabilities was driven by a decrease in current income taxes payable and lower interest accruals. The increase in cash provided by inventory changes was due to the timing of sales orders for our polyethylene catalysts in the current year period compared to an inventory build in the prior year period. The favorable change in accounts payable is due to the timing of capital spending and the favorable change in accrued liabilities relates to changes in various expense accruals. The unfavorable change in accounts receivable was driven by the increase in sales within ourEcoservices segment. Net cash used in investing activities was$70.0 million for the six months endedJune 30, 2021 , compared to cash used of$19.8 million during the same period in 2020. Cash used in investing activities consisted of utilizing$28.0 million and$22.2 million to fund capital expenditures during the six months endedJune 30, 2021 and 2020, respectively. During the six months endedJune 30, 2021 , we acquiredChem32, LLC for$42.0 million . We received proceeds of$2.4 million related to the sale of non-core assets during the six months endedJune 30, 2020 . Net cash used in financing activities was$5.0 million for the six months endedJune 30, 2021 , compared to net cash used of$6.7 million during the same period in 2020. Net cash used in financing activities was primarily driven by$3.5 million of debt issuance costs related to the 2021 Term Loan Facility and$1.5 million of stock repurchases during the six months endedJune 30, 2021 . Net cash provided by financing activities was primarily driven by$3.9 million of stock repurchases and$3.0 million of debt issuance costs the six months endedJune 30, 2020 . 53 --------------------------------------------------------------------------------
Table of Contents
Debt
June 30 , December 31,
2021 2020
(in millions)
Senior Secured Term Loan Facility due
$ 231.4
- 459.7
Senior Secured Term Loan Facility due
900.0 -
5.750% Senior Notes due 2025(1) 295.0 295.0
ABL Facility - -
Total debt 1,426.4 1,426.4
Original issue discount (13.1) (15.6)
Deferred financing costs (8.3) (10.4)Total debt, net of original issue discount and deferred financing costs
1,404.9 1,400.4
Less: current portion (9.0) - Total long-term debt, excluding current portion$ 1,395.9 $ 1,400.4 (1) A portion of the net cash proceeds from the closing of the sale of the Performance Chemicals business was used to repay the 2016 Term Loan Facility in full and to redeem all of the 5.750% Senior Notes due 2025. As ofJune 30, 2021 , our total debt was$1,426.4 million , excluding the original issue discount of$13.1 million and deferred financing fees of$8.3 million for our senior secured credit facilities and notes. Our net debt as ofJune 30, 2021 was$1,370.6 million , including cash and cash equivalents of$55.8 million . We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt. InJune 2021 ,PQ Corporation ("PQ Corp "), an indirect, wholly owned subsidiary ofEcovyst prior to the closing of the sale of the Performance Chemicals business, andEcovyst Catalyst Technologies LLC ("Ecovyst LLC " and, following the closing of the sale of the Performance Chemicals business, the "Borrower"), an indirect, wholly owned subsidiary entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of$900.0 million with an original issue discount of 0.25% and interest at a floating rate of LIBOR (with a 0.5% minimum LIBOR floor) plus 2.75% per annum (or, depending on the Borrower's first lien net leverage ratio, 2.5%). The proceeds were used to pay in full the 2020 Term Loan Facility, partially pay the 2016 Term Loan Facility and pay the associated fees and expenses. The new senior secured term loan facility requires scheduled quarterly amortization payments, each equal to 0.25% of the original principal amount of the loans under the new senior secured term loan facility. InJune 2021 ,PQ Corp also entered into a third amendment agreement (the "ABL Amendment"), which amended the ABL Credit Agreement, dated as ofMay 4, 2016 (the "ABL Credit Agreement" and, as amended by the ABL Amendment, the "Amended ABL Credit Agreement"). The ABL Amendment amended the ABL Credit Agreement to, among other things, following the closing of the sale of the Performance Chemicals business, decrease the aggregate amount of revolving loan commitments available to the borrowers thereunder by an aggregate amount of$150.0 million to$100.0 million , consisting of$90.0 million inU.S. commitments and$10.0 million on in European commitments and extended the maturity date with respect to borrowings under the Amended ABL Credit Agreement toAugust 2, 2026 . 54 -------------------------------------------------------------------------------- Table of Contents Capital Expenditures Maintenance capital expenditures include spending on maintenance of business, health, safety and environmental initiatives. Growth capital expenditures include spending to drive organic sales growth and cost savings initiatives. These capital expenditures represent our "book" capital expenditures for which the company has recorded, but not necessarily paid for the capital expenditures. Six months ended June 30, 2021 2020 (in millions) Maintenance capital expenditures$ 19.7 $ 12.1 Growth capital expenditures 4.1 4.0 Total capital expenditures$ 23.8 $ 16.1 Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. Maintenance capital expenditures were higher in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 due to higher spending on health and safety. Growth capital expenditures were in-line in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Pension Funding We did not pay any cash contributions into our defined benefit plans and other postretirement plans during the six months endedJune 30, 2021 . We paid$0.9 million in cash contributions into our defined benefit pension plans and other post-retirement plans during the six months endedJune 30, 2020 . The net periodic pension expense was$1.2 million and$0.2 million for those same periods, respectively. Off-Balance Sheet Arrangements We had$17.8 million of outstanding letters of credit on our ABL Facility as ofJune 30, 2021 . Contractual Obligations Information related to our contractual obligations atDecember 31, 2020 can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 17, 2021 , which we refer to as our Annual Report on Form 10-K. During the six months endedJune 30, 2021 , there have been no significant changes to our contractual obligations as disclosed in our Annual Report on Form 10-K. Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis. There has been no material change in our critical accounting policies and use of estimates from those described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K. Accounting Standards Not Yet Adopted See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards and their effect on us.
© Edgar Online, source
