Ecovyst Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Ecovyst supplies specialty catalysts and services through its Ecoservices and Catalyst Technologies segments, including a 50% interest in the Zeolyst joint venture. The prior-year comparison reflects continuing operations; Performance Chemicals was sold in August 2021 and reported as discontinued operations in Q1 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Sales | $179.7 million | $126.6 million |
| Gross profit / margin | $47.7 million / 26.6% | $30.1 million / 23.8% |
| Operating income / margin | $16.4 million / 9.1% | $2.5 million / 2.0% |
| Net income (loss) from continuing operations | $7.9 million | $(2.7) million |
| Diluted earnings (loss) per share | $0.06 | $(0.02) from continuing operations |
| Adjusted EBITDA (non-GAAP) | $59.2 million | $42.3 million |
| Cash from operating activities | $6.4 million | $16.5 million |
Sales rose 41.9%; gross profit increased 58.5%. Ecoservices sales grew 53.7% to $154.1 million and segment Adjusted EBITDA rose 49.4% to $49.3 million. Catalyst Technologies sales fell 2.7% to $25.7 million and Adjusted EBITDA declined 8.1% to $17.0 million. Consolidated Adjusted EBITDA excludes specified items and is not a GAAP measure.
Management attributed sales and gross-profit gains mainly to higher volume and pricing, including pass-through of higher sulfur, freight, labor and energy costs. Ecoservices benefited from demand recovery and the Chem32 acquisition; Catalyst Technologies faced delayed shipments and lower volumes. Higher manufacturing costs, including inflation in raw materials, energy and transportation, partly offset pricing and volume benefits. Interest expense declined to $8.5 million from $10.5 million, primarily due to lower rates and average debt balances.
Liquidity, debt and cash flow
- At March 31, 2022, cash was $129.7 million, with $76.8 million available under the ABL facility after letters of credit, for total available liquidity of $206.5 million. No ABL borrowings were outstanding; the company reported compliance with debt covenants.
- Total debt was $893.3 million gross and $880.1 million net of unamortized discount and financing costs; net debt, after cash, was $763.5 million. The senior secured term loan is due June 2028.
- Operating cash flow was $6.4 million, down from $16.5 million. Working capital used $40.7 million, versus $4.3 million in the prior-year quarter, largely reflecting receivables timing, higher inventory costs and lower accrued liabilities.
- Investing activities used $14.4 million, including $10.8 million for property, plant and equipment and a $3.7 million final Performance Chemicals sale-price adjustment. Financing activities used $2.6 million, including $2.3 million of debt repayment.
Outlook, risks and unusual items
- No specific financial guidance for future periods is provided in the filing. Management said cash, operating cash flow and ABL availability were expected to meet anticipated needs for at least the next 12 months.
- Management cited continuing demand recovery, strong polyethylene demand, higher refinery utilization and demand for virgin sulfuric acid. It also noted supply-chain shipment delays, inflation in input and transportation costs, and seasonal higher gasoline-related demand and working-capital needs in the second and third quarters.
- The company reported no operations or purchases in Russia or Ukraine and no sales to Ukraine; sales to a Russian customer were immaterial. It is monitoring sanctions and potential supply-chain and economic effects.
- Interest-rate exposure is partly hedged with caps. Management estimated that, before hedging, a one-percentage-point change in assumed variable rates would affect annual interest expense by about $8.9 million.
- On April 27, 2022, the board authorized a share repurchase program of up to $450 million over four years, expected to be funded with cash on hand and operating cash flow. No purchases had been made under it as of the filing.
- Q1 2021 included an $89.8 million discontinued-operations loss, principally associated with the Performance Chemicals divestiture, so reported total net income comparisons are not directly like-for-like. Q1 2022 other operating expense included $4.3 million of transaction and related costs.
- Environmental exposure, ordinary-course legal claims, customer concentration and contract renewal or termination, competition, product substitution, supply interruptions, commodity and foreign-exchange movements, cyber risks, and substantial indebtedness are among the disclosed risks. The company said no pending litigation was then likely to have a material adverse effect and that accrued claims were not expected to materially affect its position, results or liquidity.
Important facts for investors to verify
- Whether pricing and cost pass-through continue to offset inflation, and whether higher Ecoservices demand and volumes persist.
- Whether Catalyst Technologies shipment timing and volumes recover, and how seasonal demand affects Q2–Q3 working capital.
- Working-capital trends and cash conversion, given the sharp increase in cash used by working capital in Q1.
- Debt service and variable-rate exposure as interest caps expire, alongside the company’s liquidity and covenant position.
- The timing, funding and actual scale of the authorized $450 million repurchase program, and its effect on liquidity and leverage.
- The effects of supply-chain constraints, sanctions and geopolitical developments, environmental obligations, and the risks described in the company’s Form 10-K.