Ecovyst Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company, formerly PQ Group Holdings, reported continuing operations primarily through Ecoservices and Catalyst Technologies. Performance Materials had been sold in December 2020; Performance Chemicals was classified as discontinued operations and sold on August 1, 2021. Unless noted, operating results below exclude discontinued operations.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Sales | $147.0M | $115.6M | $273.6M | $241.2M |
| Gross profit / margin | $38.5M / 26.2% | $34.9M / 30.2% | $68.6M / 25.1% | $72.6M / 30.1% |
| Operating income / margin | $11.7M / 7.9% | $9.8M / 8.5% | $14.1M / 5.2% | $21.8M / 9.0% |
| Net income (loss) from continuing operations | $(7.9)M | $34.3M | $(10.6)M | $31.0M |
| Net income (loss) attributable to Ecovyst | $(1.5)M | $15.9M | $(94.1)M | $16.2M |
| Adjusted EBITDA (non-GAAP) | $52.7M | $50.0M | $95.0M | $98.7M |
Q2 sales grew 27.2%, led by Ecoservices (+33.6%) as refinery activity recovered and sulfur-related cost increases flowed through pricing. Gross margin fell as higher maintenance and manufacturing costs more than offset volume and pricing gains. Catalyst Technologies’ Q2 Adjusted EBITDA declined 18.2%, primarily reflecting lower Zeolyst joint venture volumes. For the first half, sales rose 13.4%, but gross profit declined 5.5% and operating income declined 35.3%; first-half Adjusted EBITDA fell 3.7%.
Net income includes large discontinued-operations effects. First-half discontinued operations recorded an $83.3M net loss, including a $109.6M expected disposal impairment for Performance Chemicals. Continuing-operations results also included $11.7M of debt extinguishment costs in Q2, associated with June refinancing and amendment activity. Income tax rates were unusually volatile, reflecting divestiture-related tax remeasurement and other items.
Cash flow, debt and liquidity
- First-half cash from operating activities was $49.3M consolidated, including $37.2M from continuing operations, versus $62.1M and $24.3M, respectively, in the prior-year period. Continuing-operations working capital used $15.2M of cash.
- Continuing-operations investing cash outflow was $70.0M, including $28.0M of capital expenditures and $42.0M for the Chem32 acquisition. Continuing-operations financing cash outflow was $5.0M.
- At June 30, cash and cash equivalents were $55.8M; continuing-operations cash, cash equivalents and restricted cash totaled $57.4M. ABL availability was $107.1M after $17.8M of letters of credit; there were no ABL borrowings. Reported total liquidity was $162.9M.
- Debt principal totaled $1.426B ($1.405B carrying value after discounts and financing costs), and net debt was $1.371B. The June 2021 refinancing established a $900M floating-rate term loan due 2028; the ABL commitment was reduced to $100M and maturity extended to August 2026. The company reported compliance with debt covenants.
- After quarter-end, proceeds from the Performance Chemicals sale were used to repay the $231.4M 2016 term loan and redeem $295.0M of 5.750% notes due 2025. The board also declared a $3.20-per-share special dividend, payable August 23, 2021.
Outlook, commentary and risks
- Management said existing cash, operating cash flow and ABL availability were expected to meet anticipated cash needs for at least 12 months. The filing provides no specific earnings or revenue guidance.
- Management described a recovery in refinery demand from COVID-19 lows, but said catalyst demand was lagging amid delayed vehicle production and customer catalyst change-outs. Ecoservices demand is seasonal, with higher sales and working-capital needs in the second and third quarters.
- Winter Storm Uri disrupted Gulf Coast facilities, causing damage, repairs, shutdowns and lost sales; elevated maintenance and repair costs pressured margins. Higher raw-material and natural-gas costs, supply disruptions, customer concentration, competition, foreign exchange and interest rates are among the disclosed risks.
- The Performance Chemicals sale price was $1.1B, subject to adjustments. The disposal loss estimate could change before or upon completion. The company also disclosed environmental and other ordinary-course claims; management did not expect pending litigation to have a material adverse effect.
Investor facts to verify
- Final net proceeds and purchase-price adjustments from the August 1 Performance Chemicals sale, and whether the disposal estimate changed.
- Post-sale debt balances, refinancing terms, remaining liquidity and the effects of the $3.20-per-share dividend on cash and capital allocation.
- Whether Ecoservices can sustain recovered volumes and pass through input-cost inflation, and whether maintenance and storm-related costs normalize.
- Zeolyst and other Catalyst Technologies demand recovery, including the timing of customer catalyst replacements and vehicle production.
- Cash conversion and working-capital needs, especially seasonal receivables and inventory, and the durability of reported non-GAAP Adjusted EBITDA.