Ecovyst Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Ecovyst supplies specialty catalysts and services through Ecoservices and Catalyst Technologies, including its 50%-owned Zeolyst joint venture.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Sales | $160.9 million | $179.7 million | Down 10.5% |
| Gross profit / margin | $36.5 million / 22.7% | $47.7 million / 26.6% | Profit down 23.5%; margin down 3.9 percentage points |
| Operating income / margin | $8.7 million / 5.4% | $16.4 million / 9.1% | Income down 47.3% |
| Net income (loss) | $(1.5) million; $(0.01) per share | $7.9 million; $0.06 per share | Turned to a loss |
| Adjusted EBITDA | $42.9 million | $59.2 million | Down 27.5% |
| Cash from operations | $4.1 million | $6.4 million | Down $2.3 million |
- Segments: Ecoservices sales were $137.7 million, down 10.5%, and Adjusted EBITDA was $36.8 million, down 25.4%. Catalyst Technologies sales were $23.1 million, down 10.1%, and Adjusted EBITDA was $13.0 million, down 23.5%.
- Cash and liquidity: Cash was $61.6 million at March 31, versus $110.9 million at year-end 2022. The company reported $57.3 million of available ABL capacity, after letters of credit, and total available liquidity of $118.9 million. No ABL borrowings were outstanding.
- Debt: Gross debt was $884.3 million; net debt was $822.7 million. The term loan is due June 2028. Interest expense was $9.8 million, up from $8.5 million; cash interest paid was $15.2 million, up from $8.4 million.
- Investing and capital allocation: Cash capital expenditures were $18.7 million, compared with $10.8 million. Separately, book capital expenditures were $14.1 million, including $12.8 million maintenance and $1.3 million growth spending. The company repurchased 3.0 million shares for $29.9 million in connection with a secondary offering.
Material changes and management commentary
- Sales fell $18.8 million. In Ecoservices, lower volume reduced sales by $26.4 million, partly offset by $10.2 million of higher average pricing. Winter Storm Elliott disruptions and extended maintenance turnaround activity constrained virgin sulfuric acid production and sales; repair and maintenance costs also weighed on results.
- Catalyst Technologies sales declined primarily on lower polyethylene catalyst volumes and unfavorable currency effects, partly offset by price increases. Management attributed some volume weakness to customer order timing and the economic sanctions related to Russia and Ukraine.
- Zeolyst equity income declined to $0.2 million from $5.7 million, mainly because of lower sales volume and timing of customer orders. The joint venture’s reported Q1 2023 net income was $3.6 million, compared with $14.7 million.
- Management cited positive underlying demand trends in refining, regeneration services, polyethylene and renewable fuels, while noting seasonality: regeneration services typically have stronger demand and working-capital needs in the second and third quarters.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided in the filing. Management believes cash, operating cash flow and ABL availability should meet anticipated cash needs for at least the next 12 months.
- In February 2023, the term loan, ABL facility and interest rate caps were amended to transition from LIBOR to SOFR; the company reported no financial statement impact from the transition. The term loan rate was 7.325% at quarter-end. Interest rate caps hedge portions of variable-rate debt, but interest-rate exposure remains; the filing estimates that a 1 percentage-point rate change would affect annual interest expense by approximately $8.8 million before hedging.
- The effective tax rate was negative 180.7%, reflecting a tax provision despite a pretax loss, including stock-compensation tax shortfalls and accrued penalties and interest related to historical uncertain tax positions.
- Other operating expense included $1.0 million of restructuring, integration and optimization costs and $1.2 million of asset-disposal losses, primarily associated with Winter Storm Elliott. Adjusted EBITDA and adjusted net income are non-GAAP measures and should not be treated as substitutes for GAAP results or cash flow.
- Risks include debt and interest costs, inflation and ability to pass through input costs, customer concentration and contract renewal or termination, seasonal demand, supply or production disruptions, environmental and regulatory exposure, and competition. The company reported no pending litigation it believes likely to have a material adverse effect; environmental and other ordinary-course claims remain possible.
- INEOS beneficially owned approximately 21% of shares outstanding and may significantly influence company matters. The company also disclosed risks related to substantial shareholder sales and corporate-opportunity conflicts.
Key facts for investors to verify
- Whether production, sales volumes and costs recover from Winter Storm Elliott impacts and planned turnaround activity.
- Whether the Q1 weakness in Zeolyst and Catalyst Technologies reflects order timing or a more persistent demand change.
- Cash generation, capital expenditure needs and liquidity after the substantial Q1 decline in cash and the share repurchase.
- Debt-service sensitivity to interest rates, including the effectiveness and duration of interest-rate hedges.
- Progress on historical uncertain tax positions, and any updates to legal, environmental or other contingencies.
- Future share repurchases, remaining authorization, and the effect of ownership concentration and potential shareholder sales.