Filing and reporting period
This is the unaudited Form 10-Q for the quarter ended March 31, 2021. The filing identifies the registrant as PQ Group Holdings Inc. (NYSE: PQG), not Ecovyst; confirm the company and filing match the intended investment. Unless noted, operating results below are for continuing operations, which exclude businesses reported as discontinued operations.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales | $126.6 million | $125.6 million |
| Gross profit / margin | $30.1 million / 23.8% | $37.7 million / 30.0% |
| Operating income / margin | $2.5 million / 2.0% | $12.0 million / 9.5% |
| Loss from continuing operations | $2.7 million | $3.3 million |
| Net loss attributable to PQ Group Holdings | $92.6 million | Net income of $0.2 million |
| Adjusted EBITDA (non-GAAP) | $42.3 million | $48.6 million |
| Cash from continuing operating activities | $16.5 million | $11.1 million |
Sales increased 0.8%, but gross profit fell 20.2% and operating income fell 79.0%. Segment Adjusted EBITDA was $51.5 million versus $59.9 million; the consolidated Adjusted EBITDA figure was $42.3 million after unallocated corporate expenses. These are non-GAAP measures and should not be treated as substitutes for GAAP results or cash flow.
At March 31, cash and cash equivalents were $55.2 million; total debt was $1.426 billion and reported net debt was $1.371 billion. There were no ABL borrowings; availability was $105.6 million after letters of credit, giving reported total available liquidity of $160.8 million. The company reported compliance with debt covenants. Continuing-operations capital spending was $12.6 million. Cash and cash equivalents declined from $114.0 million at year-end 2020; the balance sheet also classifies cash and other assets and liabilities of the business held for sale separately.
Material changes and unusual items
- Performance Chemicals was classified as discontinued operations after the February 28, 2021 agreement to sell it for $1.1 billion, subject to adjustments and closing conditions. A $95.6 million expected disposal loss drove most of the quarter’s consolidated net loss. The estimated sale value may change before closing.
- The company completed the $44.0 million Chem32 acquisition on March 1, paying $42.0 million net of acquired cash; its preliminary allocation included $37.6 million of goodwill. The acquired business’s reported Q1 results were immaterial.
- Performance Materials had been sold in December 2020. The filing presents both that business and Performance Chemicals in discontinued operations for the periods shown, affecting comparisons with prior-year consolidated net income.
- Continuing sales were nearly flat. Refining Services sales were down 0.5% and Catalysts sales rose 6.0%. Lower volumes and higher manufacturing costs reduced gross profit; the February Gulf Coast freeze caused facility and customer-refinery damage, lost volumes, repairs and higher inventory-absorption costs. Management estimated related manufacturing costs at about $9 million.
- Equity income from affiliates declined to $5.2 million from $8.3 million, principally reflecting lower Zeolyst joint-venture earnings. Interest expense declined to $10.5 million from $15.3 million, mainly due to lower variable-debt rates.
- Continuing operating cash flow improved, but continuing investing cash use rose to $54.6 million, largely due to Chem32. Consolidated adjusted free cash flow, a non-GAAP measure, was $2.7 million versus negative $19.3 million.
Outlook, risks and contingencies
No specific financial guidance was provided. Management expected the Performance Chemicals sale to close by year-end 2021, subject to regulatory approvals and customary conditions; it estimated the transaction and related debt restructuring could reduce debt by $450–$550 million. Management stated that cash, operating cash flow and ABL availability should cover anticipated needs for at least 12 months. Refining Services is seasonal, with higher demand and working-capital needs generally in the second and third quarters. Management reported a demand rebound from 2020 lows, while emission-control and refining-catalyst demand was still lagging but expected to show signs of recovery in the second half of 2021.
Key risks include execution, price and closing adjustments for the pending divestiture; the uncertain valuation of assets held for sale; substantial indebtedness and interest-rate exposure; COVID-19 and economic conditions; foreign-exchange movements; raw-material and energy costs; seasonal demand; customer and supplier concentration; operational disruption; and environmental, health and safety requirements. The company reported no pending litigation it believed likely to have a material adverse effect, while noting ordinary-course claims and environmental exposure. Management stated disclosure controls were effective and that no material changes in internal control occurred during the quarter.
Important facts for investors to verify
- Confirm the filing’s registrant identity: PQ Group Holdings Inc. is named in the 10-Q, whereas the request identifies Ecovyst.
- Check the final proceeds, closing date and purchase-price adjustments for the Performance Chemicals sale, as well as actual debt repayment and restructuring.
- Monitor revisions to the $95.6 million disposal-loss estimate and the value of assets and liabilities held for sale.
- Assess whether Gulf Coast repair costs, lost volumes and customer-refinery disruptions continue to affect margins and cash generation.
- Review debt-service needs, ABL availability, covenant compliance and the effect of variable interest rates after the anticipated divestiture.
- Compare continuing-operations results separately from discontinued operations and evaluate non-GAAP measures against their reconciliations to GAAP.