Ecovyst Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Sales $ 167,428 $ 130,675 $ 441,004 $ 371,870 Cost of goods sold 113,784 89,844 318,768 258,462 Gross profit 53,644 40,831 122,236 113,408 Selling, general and administrative expenses 24,836 18,650 68,822 61,515 Other operating expense, net 6,314 3,427 16,786 11,319 Operating income 22,494 18,754 36,628 40,574 Equity in net (income) from affiliated companies ( 8,758 ) ( 134 ) ( 20,723 ) ( 19,897 ) Interest expense, net 9,005 10,430 28,202 40,864 Debt extinguishment costs 15,185 14,004 26,902 16,517 Other (income) expense, net ( 218 ) ( 4,197 ) 3,081 ( 236 ) Income (loss) from continuing operations before income taxes and noncontrolling interest 7,280 ( 1,349 ) ( 834 ) 3,326 Provision (benefit) for income taxes 2,591 21,310 5,095 ( 4,985 ) Net income (loss) from continuing operations 4,689 ( 22,659 ) ( 5,929 ) 8,311 Net (loss) income from discontinued operations, net of tax ( 75,872 ) 30,469 ( 159,122 ) 16,255 Net (loss) income ( 71,183 ) 7,810 ( 165,051 ) 24,566 Less: Net income attributable to the noncontrolling interest - discontinued operations 76 298 333 904 Net (loss) income attributable to Ecovyst Inc. $ ( 71,259 ) $ 7,512 $ ( 165,384 ) $ 23,662 Income (loss) from continuing operations attributable to Ecovyst Inc. $ 4,689 $ ( 22,659 ) $ ( 5,929 ) $ 8,311 (Loss) income from discontinued operations attributable to Ecovyst Inc. ( 75,948 ) 30,171 ( 159,455 ) 15,351 Net (loss) income attributable to Ecovyst Inc. $ ( 71,259 ) $ 7,512 $ ( 165,384 ) $ 23,662 Net income (loss) per share: Basic (loss) income per share - continuing operations $ 0.03 $ ( 0.17 ) $ ( 0.04 ) $ 0.06 Diluted (loss) income per share - continuing operations $ 0.03 $ ( 0.17 ) $ ( 0.04 ) $ 0.06 Basic income (loss) per share - discontinued operations $ ( 0.56 ) $ 0.22 $ ( 1.17 ) $ 0.11 Diluted income (loss) per share - discontinued operations $ ( 0.55 ) $ 0.22 $ ( 1.17 ) $ 0.11 Basic (loss) income per share $ ( 0.52 ) $ 0.06 $ ( 1.22 ) $ 0.17 Diluted (loss) income per share $ ( 0.52 ) $ 0.06 $ ( 1.22 ) $ 0.17 Weighted average shares outstanding: Basic 136,129,591 135,106,969 136,111,555 135,292,163 Diluted 137,354,427 135,106,969 136,111,555 136,188,033 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Net (loss) income $ ( 71,183 ) $ 7,810 $ ( 165,051 ) $ 24,566 Other comprehensive income (loss), net of tax: Pension and postretirement benefits 1,090 ( 20 ) 1,005 ( 48 ) Net gain from hedging activities 460 945 1,638 911 Foreign currency translation 2,952 13,572 11,254 ( 20,844 ) Total other comprehensive income (loss) 4,502 14,497 13,897 ( 19,981 ) Comprehensive (loss) income ( 66,681 ) 22,307 ( 151,154 ) 4,585 Less: Comprehensive (loss) income attributable to noncontrolling interests ( 203 ) 607 113 ( 1,899 ) Comprehensive (loss) income attributable to Ecovyst Inc. $ ( 66,478 ) $ 21,700 $ ( 151,267 ) $ 6,484 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) September 30, 2021 December 31, 2020 ASSETS Cash and cash equivalents $ 104,752 $ 113,377 Accounts receivable, net 81,131 45,943 Inventories, net 48,068 52,789 Prepaid and other current assets 17,514 11,468 Current assets held for sale — 205,090 Total current assets 251,465 428,667 Investments in affiliated companies 455,265 458,128 Property, plant and equipment, net 595,088 591,710 Goodwill 406,128 391,565 Other intangible assets, net 149,148 137,446 Right-of-use lease assets 30,972 28,943 Other long-term assets 14,765 12,446 Long-term assets held for sale — 1,149,443 Total assets $ 1,902,831 $ 3,198,348 LIABILITIES Current maturities of long-term debt $ 9,000 $ — Accounts payable 49,235 38,131 Operating lease liabilities—current 8,082 6,715 Accrued liabilities 71,681 48,482 Current liabilities held for sale — 108,537 Total current liabilities 137,998 201,865 Long-term debt, excluding current portion 874,591 1,400,369 Deferred income taxes 130,558 126,210 Operating lease liabilities—noncurrent 22,777 21,972 Other long-term liabilities 29,591 15,399 Long-term liabilities held for sale — 155,354 Total liabilities 1,195,515 1,921,169 Commitments and contingencies (Note 17) EQUITY Common stock ($ 0.01 par); authorized shares 450,000,000 ; issued shares 137,835,243 and 137,102,143 on September 30, 2021 and December 31, 2020, respectively; outstanding shares 136,953,030 and 136,318,557 on September 30, 2021 and December 31, 2020, respectively 1,378 1,371 Preferred stock ($ 0.01 par); authorized shares 50,000,000 ; no shares issued or outstanding on September 30, 2021 and December 31, 2020 — — Additional paid-in capital 1,068,815 1,477,859 Accumulated deficit ( 341,142 ) ( 175,758 ) Treasury stock, at cost; shares 882,213 and 783,586 on September 30, 2021 and December 31, 2020, respectively ( 12,551 ) ( 11,081 ) Accumulated other comprehensive loss ( 9,184 ) ( 15,265 ) Total Ecovyst Inc. equity 707,316 1,277,126 Noncontrolling interest — 53 Total equity 707,316 1,277,179 Total liabilities and equity $ 1,902,831 $ 3,198,348 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common stock Additional paid-in capital (Accumulated deficit) Treasury stock, at cost Accumulated other comprehensive income (loss) Non- controlling interest Total Balance, December 31, 2020 $ 1,371 $ 1,477,859 $ ( 175,758 ) $ ( 11,081 ) $ ( 15,265 ) $ 53 $ 1,277,179 Net (loss) income — — ( 92,635 ) — — 117 ( 92,518 ) Other comprehensive loss — — — — ( 2,745 ) ( 394 ) ( 3,139 ) Tax withholdings on equity award vesting — — — ( 1,470 ) — — ( 1,470 ) Distributions to noncontrolling interests — — — — — ( 516 ) ( 516 ) Stock compensation expense — 6,877 — — — — 6,877 Shares issued under equity incentive plan, net of forfeitures 7 63 — — — — 70 Balance, March 31, 2021 $ 1,378 $ 1,484,799 $ ( 268,393 ) $ ( 12,551 ) $ ( 18,010 ) $ ( 740 ) $ 1,186,483 Net income — — ( 1,490 ) — — 140 ( 1,350 ) Other comprehensive income — — — — 12,081 453 12,534 Distributions to noncontrolling interests — — — — — ( 593 ) ( 593 ) Stock compensation expense — 7,499 — — — — 7,499 Shares issued under equity incentive plan, net of forfeitures — 36 — — — — 36 Balance, June 30, 2021 $ 1,378 $ 1,492,334 $ ( 269,883 ) $ ( 12,551 ) $ ( 5,929 ) $ ( 740 ) $ 1,204,609 Net income — — ( 71,259 ) — — 76 ( 71,183 ) Other comprehensive income (loss) — — — — 4,781 ( 279 ) 4,502 Dividends paid on common stock ($ 3.20 per share) — ( 435,593 ) — — — — ( 435,593 ) Disposal of business — — — — ( 8,036 ) 943 ( 7,093 ) Stock compensation expense — 11,961 — — — — 11,961 Shares issued under equity incentive plan, net of forfeitures — 113 — — — — 113 Balance, September 30, 2021 $ 1,378 $ 1,068,815 $ ( 341,142 ) $ ( 12,551 ) $ ( 9,184 ) $ — $ 707,316 6 Table of Contents Common stock Additional paid-in capital Retained earnings Treasury stock, at cost Accumulated other comprehensive income (loss) Non- controlling interest Total Balance, December 31, 2019 $ 1,369 $ 1,696,899 $ 103,013 $ ( 6,483 ) $ ( 15,348 ) $ 5,868 $ 1,785,318 Net income — — 224 — — 285 509 Other comprehensive loss — — — — ( 43,411 ) ( 3,488 ) ( 46,899 ) Repurchases of common shares — — — ( 2,059 ) — — ( 2,059 ) Tax withholdings on equity award vesting — — — ( 1,830 ) — — ( 1,830 ) Stock compensation expense — 5,920 — — — — 5,920 Shares issued under equity incentive plan, net of forfeitures 4 177 — — — — 181 Balance, March 31, 2020 $ 1,373 $ 1,702,996 $ 103,237 $ ( 10,372 ) $ ( 58,759 ) $ 2,665 $ 1,741,140 Net income — — 15,926 — — 321 16,247 Other comprehensive income — — — — 12,045 376 12,421 Stock compensation expense — 6,366 — — — — 6,366 Shares issued under equity incentive plan, net of forfeitures ( 5 ) 5 — — — — — Balance, June 30, 2020 $ 1,368 $ 1,709,367 $ 119,163 $ ( 10,372 ) $ ( 46,714 ) $ 3,362 $ 1,776,174 Net income — — 7,512 — — 298 7,810 Other comprehensive income — — — — 14,188 309 14,497 Tax withholdings on equity award vesting — — — ( 162 ) — — ( 162 ) Distributions to noncontrolling interests — — — — — ( 270 ) ( 270 ) Stock compensation expense — 6,137 — — — — 6,137 Balance, September 30, 2020 $ 1,368 $ 1,715,504 $ 126,675 $ ( 10,534 ) $ ( 32,526 ) $ 3,699 $ 1,804,186 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine months ended September 30, 2021 2020 Cash flows from operating activities: Net (loss) income $ ( 165,051 ) $ 24,566 Net loss (income) from discontinued operations 159,122 ( 16,255 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 49,902 47,857 Amortization 10,182 8,686 Amortization of deferred financing costs and original issue discount 1,409 1,861 Debt extinguishment costs 12,818 14,146 Foreign currency exchange loss (gain) 4,803 ( 577 ) Pension and postretirement healthcare (benefit) expense ( 1,786 ) 341 Pension and postretirement healthcare funding — ( 3,282 ) Deferred income tax provision 4,256 2,731 Net loss on asset disposals 4,535 1,245 Stock compensation 22,837 13,324 Equity in net income from affiliated companies ( 20,723 ) ( 19,897 ) Dividends received from affiliated companies 20,000 15,000 Other, net 8,490 350 Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions: Receivables ( 33,830 ) 1,691 Inventories 6,120 ( 4,916 ) Prepaids and other current assets ( 8,405 ) ( 1,679 ) Accounts payable 10,096 412 Accrued liabilities 7,511 ( 29,191 ) Net cash provided by operating activities, continuing operations 92,286 56,413 Net cash (used in) provided by operating activities, discontinued operations ( 7,420 ) 94,193 Net cash provided by operating activities 84,866 150,606 Cash flows from investing activities: Purchases of property, plant and equipment ( 44,648 ) ( 34,568 ) Proceeds from business divestiture, net of cash 980,350 — Business combinations, net of cash acquired ( 42,782 ) — Proceeds from sale of assets — 2,375 Other, net ( 8 ) ( 4 ) Net cash provided by (used in) investing activities, continuing operations 892,912 ( 32,197 ) Net cash used in investing activities, discontinued operations ( 40,943 ) ( 9,854 ) Net cash provided by (used in) investing activities 851,969 ( 42,051 ) 8 Table of Contents Nine months ended September 30, 2021 2020 Cash flows from financing activities: Draw down of revolving credit facilities — 127,500 Repayments of revolving credit facilities — ( 127,500 ) Issuance of long-term debt, net of discount 897,750 640,340 Debt issuance costs ( 1,293 ) ( 8,987 ) Repayments of long-term debt ( 1,428,613 ) ( 626,625 ) Debt prepayment fees ( 8,481 ) ( 10,550 ) Proceeds from failed sale-leaseback 14,104 — Dividends paid to stockholders ( 435,593 ) — Repurchases of common shares ( 1,470 ) ( 4,051 ) Proceeds from stock options exercised 223 181 Other, net ( 104 ) — Net cash used in financing activities, continuing operations ( 963,477 ) ( 9,692 ) Net cash used in provided by financing activities, discontinued operations ( 1,144 ) ( 534 ) Net cash used in financing activities ( 964,621 ) ( 10,226 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 4,681 ) ( 5,955 ) Net change in cash, cash equivalents and restricted cash ( 32,467 ) 92,374 Cash, cash equivalents and restricted cash at beginning of period 137,219 73,917 Cash, cash equivalents and restricted cash at end of period $ 104,752 $ 166,291 Less: cash, cash equivalents, and restricted cash of discontinued operations — ( 41,804 ) Cash, cash equivalents and restricted cash at end of period of continuing operations $ 104,752 $ 124,487 For supplemental cash flow disclosures, see Note 21. See accompanying notes to condensed consolidated financial statements. 9 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 1. Background and Basis of Presentation: Description of Business Ecovyst Inc. and subsidiaries (the “Company” or “Ecovyst”), formerly known as PQ Group Holdings Inc. and subsidiaries (“PQ Group Holdings”), is a leading integrated and innovative global provider of specialty catalysts and services. The Company supports customers globally through its strategically located network of manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment. On December 14, 2020, PQ Group Holdings completed the sale of its Performance Materials business for $ 650,000 , and the results of operations of this business have been presented as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 3 for more information on the transaction. Effective on August 1, 2021, PQ Group Holdings completed the sale of its Performance Chemicals business for $ 1,100,000 , subject to certain purchase price adjustments as set forth in the agreement. Upon entering into the definitive agreement, the transaction met the held for sale criteria and consequently the financial results of the Performance Chemicals business are reported in discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 3 for more information on the transaction. In connection with the closing of the sale of the Performance Chemicals business, PQ Group Holdings Inc. changed its name from “PQ Group Holdings Inc.” to “ Ecovyst Inc.”, changed the ticker symbol of its common stock listed on the New York Stock Exchange from “PQG” to “ECVT” and rebranded its segments from “Refining Services” to “Ecoservices” and “Catalysts” to “Catalyst Technologies”. The Company has two uniquely positioned specialty businesses: Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides on-purpose virgin sulfuric acid for water treatment, mining and industrial applications; and Catalyst Technologies provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through its Zeolyst joint venture, supplies zeolites used for catalysts that remove nitric oxide from diesel engine emissions as well as sulfur from fuels during the refining process. The Company’s regeneration services product group, which is a part of the Company’s Ecoservices 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 quarters. The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis. Basis of Presentation The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 2. New Accounting Standards: Recently Adopted Accounting Standards In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to reduce the complexity in accounting for income taxes by removing certain exceptions to the general principles and simplifying areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The new guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted the new guidance effective January 1, 2021, with no material impact to the Company’s condensed consolidated financial position, results of operations or cash flows. 10 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Accounting Standards Not Yet Adopted In March 2020, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. The Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. 3. Divestitures: Performance Materials Divestiture On December 14, 2020, the Company completed the sale of its Performance Materials business for $ 650,000 . In the fourth quarter of 2020, the Performance Materials business met the criteria set forth in Accounting Standards Codification 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), as the sale represented a strategic shift that had a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2020 reflect the Performance Materials business as a discontinued operation. The divested business historically represented a reportable segment of the Company, including certain Australian operations that were historically reported in the Performance Chemicals reportable segment. The following table summarizes the results of discontinued operations related to the Performance Materials divestiture: Three months ended September 30, 2020 Nine months ended September 30, 2020 Sales $ 106,777 $ 280,663 Cost of goods sold 80,449 208,854 Selling, general and administrative expenses 8,710 26,337 Other operating expense, net 3,879 16,585 Operating income 13,739 28,887 Interest expense, net (1) 3,894 12,810 Other income, net ( 1,126 ) ( 961 ) Income from discontinued operations before income tax 10,971 17,038 (Benefit) provision for income taxes ( 420 ) 3,085 Income from discontinued operations, net of tax $ 11,391 $ 13,953 (1) The closing of the transaction triggered the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s mandatory repayment of $ 275,787 of the Sen ior Secured Term Loan Facility due February 2027 and its mandatory repayment of $ 188,722 of the new Senior Secured Term Loan Facility due February 2027. During the three months ended September 30, 2021, the Company incurred transaction costs of $ 264 and stock-based compensation expense of $ 1,194 , and an associated tax benefit of $ 339 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax. During the nine months ended September 30, 2021, the Company incurred transaction costs of $ 1,794 and stock-based compensation expense of $ 2,477 , and an associated tax benefit of $ 1,045 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax. Net income attributable to the noncontrolling interest related to the Perf ormance Materials business, net of tax was $ 97 and $ 219 for the three and nine months ended September 30, 2020, respectively. Net income attributable to Ecovyst Inc., related to the Performance Materials business, net of tax was $ 11,294 and $ 13,734 for the three and nine months ended September 30, 2020, respectively. 11 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Upon the close of the transaction, the Company entered into a Transition Services Agreement with the buyer pursuant to which the buyer is receiving certain services to provide for the orderly transition of various functions and processes after the closing of the transaction. The services under the Transition Services Agreement include information technology, accounting, tax, financial services, human resources, facilities, and ot her administrative support services. These services were provided for a period of nine months, with three 30-day extensions available. The Company billed $ 253 and $ 3,314 under the Transition Services Agreement to the buyer during the three and nine months ended September 30, 2021, respectively. Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three and nine months ended September 30, 2021. Performance Chemicals Divestiture On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business to Sparta Aggregator L.P. (the “Buyer”), a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P., for $ 1,100,000 , subject to certain adjustments including indebtedness, cash, working capital and transaction expenses. The Company completed the sale of the Performance Chemicals business on August 1, 2021. In the first quarter of 2021, the Performance Chemicals business met the discontinued operations criteria set forth in ASC 205-20, as the sale represents a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, the Company’s condensed consolidated financial statements for all periods presented reflect the Performance Chemicals business as a discontinued operation. The Performance Chemicals business historically represented a reportable segment of the Company. Prior to the closing of the transaction, the disposal group was tested for recoverability as of each of the balance sheet dates since meeting the discontinued operations criteria, and the Company recognized an estimated disposal loss of $ 13,990 and $ 109,584 during the three and six months ended June 30, 2021, respectively, which was included in net loss from discontinued operations, net of tax on the condensed consolidated statements of income for the respective periods. The final loss on the sale of the Performance Chemicals business was $ 157,539 , which is included in net (loss) income from discontinued operations, net of tax in the Company’s condensed consolidated statements of income for the nine months ended September 30, 2021. The following is a reconciliation of the loss recorded on the sale: Net proceeds received from the sale of the Performance Chemicals business $ 980,350 Transaction costs ( 35,402 ) Net assets derecognized ( 1,102,487 ) Loss on sale of the Performance Chemicals business $ ( 157,539 ) In connection with the sale of the Performance Chemicals business and the related loss, as noted above, the Company has recognized a tax benefit of $ 33,052 within net loss from discontinued operations, net of tax on the condensed consolidated statement of income. 12 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following table summarizes the results of discontinued operations related to the Performance Chemicals business for the periods presented: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Sales $ 54,973 $ 145,244 $ 389,870 $ 456,462 Cost of goods sold 39,582 115,902 284,220 363,740 Selling, general and administrative expenses 6,552 9,709 29,758 31,440 Other operating (income) expense, net (1) ( 18,993 ) 5,075 10,337 19,154 Goodwill impairment charge — — 75,080 — Loss on sale of the Performance Chemicals business 123,035 — 157,539 — Operating income (loss) ( 95,203 ) 14,558 ( 167,064 ) 42,128 Equity in net (income) from affiliated companies ( 25 ) ( 49 ) ( 111 ) ( 128 ) Interest expense, net (2) 1,916 4,318 10,730 11,698 Other expense (income), net 153 334 ( 6,210 ) ( 3,100 ) (Loss) income from discontinued operations before income tax ( 97,247 ) 9,955 ( 171,473 ) 33,658 (Benefit) provision for income taxes ( 22,494 ) ( 9,125 ) ( 15,576 ) 31,354 (Loss) income from discontinued operations, net of tax $ ( 74,753 ) $ 19,080 $ ( 155,897 ) $ 2,304 (1) The Company reclassified transaction costs that were previously recorded to this line item and included those charges in the line item Loss on sale of the Performance Chemicals business during the three months ended September 30, 2021 . (2) Upon the close of the transaction, the Company used a portion of the net proceeds to repay a portion of its outstanding debt amounting to $ 526,363 . Refer to Note 13 for additional details on the repayment of outstanding debt. Prior to the Company’s debt refinancing in June 2021, the Company’s outstanding term loan facilities had mandatory repayment provisions. As a result, interest expense has been allocated to discontinued operations on the basis of the Company’s total repayment of $ 526,363 . Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 76 and $ 200 for the three months ended September 30, 2021 and 2020, respectively. Net income (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $( 74,829 ) and $ 18,880 for the three months ended September 30, 2021 and 2020, respectively. Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $ 333 and $ 685 for the nine months ended September 30, 2021 and 2020, respectively. Net (loss) income attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $( 156,230 ) and $ 1,619 for the nine months ended September 30, 2021 and 2020, respectively. 13 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following table summarizes the assets and liabilities of discontinued operations related to the divestiture of the Performance Chemicals business as of December 31, 2020. December 31, 2020 ASSETS Cash and cash equivalents $ 22,153 Accounts receivables, net 87,202 Inventories, net 74,647 Prepaid and other current assets 21,088 Current assets held for sale $ 205,090 Investments in affiliated companies $ 324 Property, plant and equipment, net 391,524 Goodwill 326,173 Other intangible assets, net 388,857 Right-of-use lease assets 19,296 Other long-term assets 23,269 Long-term assets held for sale $ 1,149,443 LIABILITIES Accounts payable $ 74,728 Operating lease liabilities—current 8,479 Accrued liabilities 25,330 Current liabilities held for sale $ 108,537 Deferred income taxes $ 49,690 Operating lease liabilities—noncurrent 10,047 Other long-term liabilities 95,617 Long-term liabilities held for sale $ 155,354 In connection with the divestiture of the Performance Chemicals business, the Company entered into a contract manufacturing agreement effective on August 2, 2021 with PQ Silicas UK Ltd., a subsidiary of the Buyer, related to a facility in Warrington, United Kingdom. Pursuant to this agreement, the Buyer will manufacture and sell silica catalyst finished good products to the Company, which are finished good products sold within the Company’s Catalyst Technologies segment. Additionally, certain machinery, equipment, and other tangible personal property assets identified in the Agreement (“Catalyst Production Assets”) owned by the Buyer will be used exclusively in the manufacture of silica catalyst products for the Company. The Company does not meet the requirements for a sale-leaseback transaction as described in Accounting Standards Codification 842-40, Leases - Sale-Leaseback Transactions. Under the failed-sale-leaseback accounting model, the Company is deemed under GAAP to still own the Catalyst Production Assets, which the Company must continue to reflect in its consolidated balance sheet and depreciate over the assets’ remaining useful lives. Based on the estimated fair market values of the Catalyst Production Assets, the failed-sale-leaseback accounting treatment resulted in a loss of $ 14,104 due to the requirement to treat a certain amount of the pre-tax cash proceeds from the divestiture as though it were the result of a financing obligation. The agreement has an initial term of five years, with an option to renew, as well as an “Option Bill of Sale” which provides for the transfer from the Buyer to the Company of the Catalyst Production Assets upon the Company’s exercise of a one-dollar purchase option. Payments made to the Buyer under the contact manufacturing agreement were $ 1,351 for the three and nine months ended September 30, 2021. 14 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) In addition to the contract manufacturing agreement noted above, the Company also entered into certain supply agreements with the Buyer, as well as a Transition Services Agreement, pursuant to which the Buyer is receiving and performing certain services to provide for the orderly transition of various functions and processes after the closing of the transaction. The services under the Transition Services Agreement include information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services are provided for a period of six months. Billings under the Transition Services Agreement to the Buyer during the three and nine months ended September 30, 2021 were immaterial. Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three and nine months ended September 30, 2021. 4. Revenue from Contracts with Customers: Disaggregated Revenue The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 18 to these condensed consolidated financial statements. The Company’s portfolio of products is integrated into a variety of end uses, which are described in the table below. Key End Uses Key Products Industrial & process chemicals • Sulfur derivatives for industrial production • Treatment services Fuels & emission control • Refining catalysts • Emission control catalysts • Catalyst recycling services Packaging & engineered plastics • Catalysts for high-density polyethylene and chemicals syntheses • Antiblock for film packaging • Sulfur derivatives for nylon production Natural resources • Sulfur derivatives for mining The following tables disaggregate the Company’s sales, by segment and end use, for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30, 2021 Ecoservices Catalyst Technologies Total Industrial & process chemicals $ 23,297 $ 5 $ 23,302 Fuels & emission control (1) 67,644 — 67,644 Packaging & engineered plastics 23,315 29,873 53,188 Natural resources 23,294 — 23,294 Total segment sales $ 137,550 $ 29,878 $ 167,428 Three months ended September 30, 2020 Ecoservices Catalyst Technologies Total Industrial & process chemicals $ 17,447 $ 51 $ 17,498 Fuels & emission control (1) 60,022 — 60,022 Packaging & engineered plastics 10,941 23,020 33,961 Natural resources 19,194 — 19,194 Total segment sales $ 107,604 $ 23,071 $ 130,675 15 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Nine months ended September 30, 2021 Ecoservices Catalyst Technologies Total Industrial & process chemicals $ 58,581 $ 5 $ 58,586 Fuels & emission control (1) 191,630 — 191,630 Packaging & engineered plastics 48,916 82,490 131,406 Natural resources 59,382 — 59,382 Total segment sales $ 358,509 $ 82,495 $ 441,004 Nine months ended September 30, 2020 Ecoservices Catalyst Technologies Total Industrial & process chemicals $ 53,518 $ 100 $ 53,618 Fuels & emission control (1) 166,416 — 166,416 Packaging & engineered plastics 29,147 73,043 102,190 Natural resources 49,646 — 49,646 Total segment sales $ 298,727 $ 73,143 $ 371,870 (1) As described in Note 1, the Company experiences seasonal s ales fluctuations to customers in the fuels & emission control end use. Contract Assets and Liabilities A contract asset is a right to consideration in exchange for goods that the Company has transferred to a customer when that right is conditional on something other than the passage of time. A contract liability exists when the Company receives consideration in advance of performance obligations being satisfied. The Company has no contract assets or liabilities on its condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. For the three and nine months ended September 30, 2021 and 2020, revenue recognized from performance obligations related to prior periods was not material. 5. Fair Value Measurements: Fair values are based on quoted market prices when available. When market prices are not available, fair values are generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, the Company estimates fair values using methods, models and assumptions that management believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment that becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model or input used. The Company’s financial assets and liabilities carried at fair value have been classified based upon a fair value hierarchy. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The classification of an asset or a liability is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: • Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets. • Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. 16 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) • Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. September 30, 2021 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Derivative contracts (Note 14) $ 189 $ — $ 189 $ — Liabilities: Derivative contracts (Note 14) $ 1,937 $ — $ 1,937 $ — December 31, 2020 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Liabilities: Derivative contracts (Note 14) $ 3,704 $ — $ 3,704 $ — Derivative contracts Derivative assets and liabilities can be exchange-traded or traded over-the-counter (“OTC”). The Company generally values exchange-traded derivatives using models that calibrate to market transactions and eliminate timing differences between the closing price of the exchange-traded derivatives and their underlying instruments. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, forward curves, measures of volatility, and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as forward contracts, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment. As of September 30, 2021, th e Company had interest rate c aps th at were fair valued using Level 2 inputs. In March 2021, the Company settled its cross-currency swaps, which were used as a hedging instrument of its net investment in foreign assets in its Performance Chemicals segment. Refer to Note 14 of these condensed consolidated financial statements for additional information. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to Ecovyst. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets. 17 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 6. Stockholders' Equity: Accumulated Other Comprehensive Income (Loss) The following tables present the tax effects of each component of other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30, 2021 2020 Pre-tax amount Tax benefit/ (expense) After-tax amount Pre-tax amount Tax benefit/ (expense) After-tax amount Defined benefit and other postretirement plans: Amortization of net gains $ 1 $ — $ 1 $ 28 $ ( 9 ) $ 19 Amortization of prior service cost ( 58 ) 14 ( 44 ) ( 52 ) 13 ( 39 ) Settlement gain 1,507 ( 374 ) 1,133 — — — Benefit plans, net 1,450 ( 360 ) 1,090 ( 24 ) 4 ( 20 ) Net gain from hedging activities 613 ( 153 ) 460 1,260 ( 315 ) 945 Foreign currency translation (1) ( 1,555 ) 4,507 2,952 17,596 ( 4,024 ) 13,572 Other comprehensive income $ 508 $ 3,994 $ 4,502 $ 18,832 $ ( 4,335 ) $ 14,497 Nine months ended September 30, 2021 2020 Pre-tax amount Tax benefit/ (expense) After-tax amount Pre-tax amount Tax benefit/ (expense) After-tax amount Defined benefit and other postretirement plans: Amortization of net gains $ 4 $ ( 1 ) $ 3 $ 93 $ ( 25 ) $ 68 Amortization of prior service cost ( 174 ) 43 ( 131 ) ( 155 ) 39 ( 116 ) Settlement gain 1,507 ( 374 ) 1,133 — — — Benefit plans, net 1,337 ( 332 ) 1,005 ( 62 ) 14 ( 48 ) Net gain from hedging activities 2,184 ( 546 ) 1,638 1,215 ( 304 ) 911 Foreign currency translation (1) 4,300 6,954 11,254 ( 19,308 ) ( 1,536 ) ( 20,844 ) Other comprehensive income (loss) $ 7,821 $ 6,076 $ 13,897 $ ( 18,155 ) $ ( 1,826 ) $ ( 19,981 ) (1) The income tax benefit or expense included in other comprehensive income is attributed to the portion of foreign currency translation associated with the Company’s cross-currency interest rate swaps, for which the tax effect is based on the applicable U.S. deferred income tax rate. See Note 14 to these condensed consolidated financial statements for information regarding the Company’s cross-currency interest rate swaps. 18 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following table presents the changes in accumulated other comprehensive income (loss), net of tax, by component for the nine months ended September 30, 2021 and 2020: Defined benefit and other postretirement plans Net gain (loss) from hedging activities Foreign currency translation Total December 31, 2020 $ 5,278 $ ( 660 ) $ ( 19,883 ) $ ( 15,265 ) Other comprehensive income before reclassifications 877 1,425 11,474 13,776 Amounts reclassified from accumulated other comprehensive income (1) 128 213 — 341 Disposal of business 3,743 — ( 11,779 ) ( 8,036 ) September 30, 2021 $ 10,026 $ 978 $ ( 20,188 ) $ ( 9,184 ) December 31, 2019 $ 3,568 $ ( 1,838 ) $ ( 17,078 ) $ ( 15,348 ) Other comprehensive loss before reclassifications — ( 28 ) ( 18,041 ) ( 18,069 ) Amounts reclassified from accumulated other comprehensive income (1) ( 48 ) 939 — 891 September 30, 2020 $ 3,520 $ ( 927 ) $ ( 35,119 ) $ ( 32,526 ) (1) See the following table for details about these reclassifications. Amounts in parentheses indicate debits. The following table presents the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2021 and 2020: Details about Accumulated Other Comprehensive Income Components Amounts Reclassified from Accumulated Other Comprehensive Income (1) Affected Line Item where Income is Presented Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Amortization of defined benefit and other postretirement items: Prior service (cost) credit $ ( 58 ) $ 52 $ ( 174 ) $ 155 Other income (expense) (2) Actuarial gains (losses) 2 ( 28 ) 4 ( 93 ) Other income (expense) (2) ( 56 ) 24 ( 170 ) 62 Total before tax 15 ( 4 ) 42 ( 14 ) Tax benefit (expense) $ ( 41 ) $ 20 $ ( 128 ) $ 48 Net of tax Gains and losses on cash flow hedges: Interest rate caps $ ( 104 ) $ 611 $ ( 283 ) $ ( 18 ) Interest expense Natural gas swaps — ( 467 ) — ( 1,229 ) Cost of goods sold ( 104 ) 144 ( 283 ) ( 1,247 ) Total before tax 26 ( 39 ) 70 308 Tax benefit $ ( 78 ) $ 105 $ ( 213 ) $ ( 939 ) Net of tax Total reclassifications for the period $ ( 119 ) $ 125 $ ( 341 ) $ ( 891 ) Net of tax (1) Amounts in parentheses indicate debits to profit/loss. (2) These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 16 to these condensed consolidated financial statements for additional details). 19 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Treasury Stock Repurchases Stock Repurchase Program The Company records repurchases of its common stock for treasury at cost. Upon the reissuance of the Company’s common stock from treasury, differences between the proceeds from reissuance and the average cost of the treasury stock are credited or charged to capital in excess of par value to the extent of prior credits related to the reissuance of treasury stock. If no such credits exist, the differences are charged to retained earnings. On March 12, 2020, the Company’s Board of Directors (the “Board”) approved a plan to purchase up to $ 50,000 of Ecovyst Inc. common stock under a stock repurchase program approved by the Board. The Company may repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws. The Company will determine the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors. The stock repurchase program is valid until March 2022. During the three months ended March 31, 2020, the Company repurchased 211,700 shares on the open market at an average price of $ 9.73 , for a total of $ 2,059 . The Company has no t made any additional repurchases under the program through September 30, 2021. As of September 30, 2021, $ 47,941 was available for additional share repurchases under the program. Tax Withholdings on Equity Award Vesting In connection with the vesting of restricted stock awards, restricted stock units and performance stock units, shares of common stock may be delivered to the Company by employees to satisfy withholding tax obligations at the instruction of the employee award holders. These transactions when they occur are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in lieu of shares for the vesting unit. The fair value of the shares withheld to cover tax payments were $ 1,470 and $ 1,992 for the nine months ended September 30, 2021 and 2020, respectively. Dividends Paid On August 4, 2021, the Board declared a special cash dividend of $ 3.20 per share, using after tax cash proceeds from the sale of the Performance Chemicals business. The dividend was paid on August 23, 2021 to the Company’s stockholders of record at the close of business on August 12, 2021. Refer to Note 3 of these condensed consolidated financial statements for additional details. 7. Acquisition: On March 1, 2021 (the “Closing Date”), the Company completed the acquisition of Chem32, LLC (“Chem32”) as part of a stock transaction (the “Acquisition”) for $ 44,000 in cash. The net cash paid on the Closing Date by the Company was $ 41,994 , after certain customary adjustments for indebtedness, working capital, cash and a holdback amount pursuant to the agreement. Based in Orange, Texas, Chem32 is a leader in ex situ pre-sulfiding and pre-activation for hydro-processing catalysts. The Acquisition was accounted for using the acquisition method of accounting. Under the acquisition method, the purchase price was allocated to the identifiable net assets acquired based on the fair values of the identifiable assets acquired and liabilities assumed as of the Closing Date. The excess of the purchase price over fair values of the identifiable net assets acquired was recorded to goodwill. 20 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following table sets forth the calculation of the purchase price to the identifiable net assets acquired with respect to the Acquisition, which was substantially complete as of September 30, 2021 : Provisional Purchase Price Allocation Adjustments Purchase Price Allocation Cash paid, net of cash acquired $ 41,994 $ 788 $ 42,782 Holdback 2,000 ( 1,000 ) 1,000 Total consideration, net of cash acquired $ 43,994 $ ( 212 ) $ 43,782 Recognized amounts of identifiable assets acquired and liabilities assumed: Receivables $ 1,368 $ — $ 1,368 Inventories 204 — 204 Prepaid and other current assets 351 — 351 Property, plant and equipment 5,046 — 5,046 Other intangible assets — 22,100 22,100 Other long-term assets 38 153 191 Fair value of assets acquired 7,007 22,253 29,260 Accounts payable 207 — 207 Accrued liabilities 452 ( 264 ) 188 Fair value of net identifiable assets acquired 6,348 22,517 28,865 Goodwill 37,646 ( 22,729 ) 14,917 $ 43,994 $ ( 212 ) $ 43,782 In accordance with the requirements of the purchase method of accounting for acquisitions, accounts receivable and inventories were recorded at fair market value. As of the Closing Date, the fair value of accounts receivable approximated historical cost. The gross contractual amount of accounts receivable at the Closing Date was $ 1,368 , of which there was no amount deemed uncollectible. Fair value of inventory is defined as estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity, which the Company determined acquired cost equalled fair value of the inventory acquired. The Company’s cost of goods sold for the three and nine months ended September 30, 2021 includes a pre-tax charge of $ 148 of additional amortization expense related to identified intangible assets, which would have been recorded during the reporting period if the adjustments to the provisional amounts had been recognized as of the Closing Date. The Company’s other operating expense, net for the three and nine months ended September 30, 2021 includes a pre-tax charge of $ 1,108 of additional amortization expense related to identified intangible assets, which would have been recorded during the reporting period if the adjustments to the provisional amounts had been recognized as of the Closing Date. 21 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The valuation of intangibles assets acquired and the related weighted-average amortization periods are as follows: Amount Weighted-Average Expected Useful Life (in years) Intangible assets subject to amortization: Customer relationships $ 16,000 10 Technical know-how 3,800 10 Contracts 700 5 Trade names 1,600 10 Total intangible assets subject to amortization $ 22,100 The Company’s condensed consolidated financial statements include Chem32’s results of operations from the Closing Date through September 30, 2021. Net sales and net income attributable to Chem32 during this period are included in the Company’s condensed consolidated statement of income and are immaterial for the periods presented. Pro forma financial information has not been presented as it is immaterial for the three and nine months ended September 30, 2021 and 2020 . The Company believes that the Acquisition will enable it to offer a more robust portfolio of services within the refining industry leveraging the Company’s existing relationships, which contributed to a total purchase price that resulted in the recognition of goodwill. The Company assigned all of the goodwill to the Ecoservices segment. The goodwill associated with the Acquisition is deductible for tax purposes. 8. Goodwill: The change in the carrying amount of goodwill for the nine months ended September 30, 2021 is summarized as follows: Ecoservices Catalyst Technologies Total Balance as of December 31, 2020 $ 311,892 $ 79,673 $ 391,565 Goodwill recognized (Note 7) 14,917 — 14,917 Foreign exchange impact — ( 354 ) ( 354 ) Balance as of September 30, 2021 $ 326,809 $ 79,319 $ 406,128 9. Other Operating Expense, Net: A summary of other operating expense, net is as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Amortization expense $ 3,294 $ 2,173 $ 7,669 $ 6,511 Transaction and other related costs 538 67 1,620 1,264 Restructuring, integration and business optimization costs (1) 78 250 2,408 1,441 Net loss on asset disposals 2,156 642 4,535 1,245 Other, net 248 295 554 858 $ 6,314 $ 3,427 $ 16,786 $ 11,319 (1) During the nine months ended September 30, 2021, the Company’s results were impacted by costs associated with severance charges for certain executives and employees. 22 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 10. Inventories, Net: Inventories, net are classified and valued as follows: September 30, 2021 December 31, 2020 Finished products and work in process $ 43,795 $ 48,500 Raw materials 4,273 4,289 $ 48,068 $ 52,789 Valued at lower of cost or market: LIFO basis $ 29,817 $ 31,072 Valued at lower of cost and net realizable value: FIFO or average cost basis 18,251 21,717 $ 48,068 $ 52,789 11. Investments in Affiliated Companies: The Company accounts for investments in affiliated companies under the equity method. Affiliated companies accounted for on the equity basis as of September 30, 2021 are as follows: Company Country Percent Ownership Zeolyst International USA 50 % Zeolyst C.V. Netherlands 50 % Following is summarized information of the combined investments (1) : Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Sales $ 76,195 $ 57,379 $ 218,459 $ 215,039 Gross profit 28,981 11,506 77,048 76,602 Operating income 20,414 3,183 51,576 48,603 Net income 20,717 3,584 51,204 49,745 (1) Summarized information of the combined investments is presented at 100%; the Company’s share of the net assets and net income of affiliates is calculated based on the percent ownership specified in the table above. The Company’s investments in affiliated companies balance as of September 30, 2021 and December 31, 2020 includes net purchase accounting fair value adjustments of $ 239,020 and $ 243,899 , respectively, related to the series of transactions consummated on May 4, 2016 to reorganize and combine the businesses of PQ Holdings Inc. and Eco Services Operations LLC, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names. Consolidated equity in net income from affiliates is net of $ 1,601 and $ 4,879 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2021, respectively. Consolidated equity in net income from affiliates is net of $ 1,659 and $ 4,975 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2020, respectively. 23 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 12. Property, Plant and Equipment: A summary of property, plant and equipment, at cost, and related accumulated depreciation is as follows: September 30, 2021 December 31, 2020 Land $ 97,027 $ 93,650 Buildings 77,366 76,010 Machinery and equipment 697,989 656,502 Construction in progress 46,142 42,446 918,524 868,608 Less: accumulated depreciation ( 323,436 ) ( 276,898 ) $ 595,088 $ 591,710 Depreciation expense was $ 16,369 and $ 16,222 for the three months ended September 30, 2021 and 2020, respectively. Depreciation expense was $ 49,902 and $ 47,857 for the nine months ended September 30, 2021 and 2020, respectively. 13. Long-term Debt: The summary of long-term debt is as follows: September 30, 2021 December 31, 2020 Senior Secured Term Loan Facility due February 2027 (the "2016 Term Loan Facility") $ — $ 671,710 Senior Secured Term Loan Facility due February 2027 (the "2020 Term Loan Facility") — 459,653 Senior Secured Term Loan Facility due June 2028 (the "2021 Term Loan Facility") 897,750 — 5.750% Senior Notes due 2025 — 295,000 ABL Facility — — Total debt 897,750 1,426,363 Original issue discount ( 9,069 ) ( 15,641 ) Deferred financing costs ( 5,090 ) ( 10,353 ) Total debt, net of original issue discount and deferred financing costs 883,591 1,400,369 Less: current portion ( 9,000 ) — Total long-term debt, excluding current portion $ 874,591 $ 1,400,369 The fair value of a financial instrument is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of September 30, 2021 and December 31, 2020, the fair value of the term loan facilities and unsecured notes was $ 898,872 and $ 1,427,123 , respectively. The fair value is classified as Level 2 based upon the fair value hierarchy (see Note 5 to these condensed consolidated financial statements for further information on fair value measurements). 2021 Term Loan Facility In June 2021, PQ Corporation (“PQ Corp”), an indirect, wholly owned subsidiary of Ecovyst prior to the closing of the sale of the Performance Chemicals business, and Ecovyst Catalyst Technologies LLC (“Ecovyst LLC” and, following the closing of the sale of the Performance Chemicals business, the “Borrower”), an indirect, wholly owned subsidiary of the Company, entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of $ 900,000 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. 24 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) As a result of amending the term loan facilities during the nine months ended September 30, 2021, the Company recorded $ 5,736 of new creditor and third-party financing costs as debt extinguishment costs. In addition, previous unamortized deferred financing costs of $ 1,725 and original issue discount of $ 3,664 associated with the previously outstanding debt were written off as debt extinguishment costs during the nine months ended September 30, 2021. ABL Facility In June 2021, PQ Corp also entered into a third amendment agreement (the “ABL Amendment”), which amended its ABL Credit Agreement, dated as of May 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 sale of the Performance Chemicals business, decrease the aggregate amount of revolving loan commitments available to the borrowers thereunder by an aggregate amount of $ 150,000 to $ 100,000 , consisting of $ 90,000 in U.S. commitments and $ 10,000 on in European commitments and extended the maturity date with respect to borrowings under the Amended ABL Credit Agreement to August 2, 2026. As a result of the ABL Amendment, unamortized deferred financing costs of $ 485 and original issue discount of $ 107 associated with the ABL Credit Agreement were written off as debt extinguishment costs during the three and nine months ended September 30, 2021. 2016 Term Loan Facility - Repaid in 2021 Concurrent with, and using a portion of the net cash proceeds from, the divestiture of the Performance Chemicals business in August 2021, the Company repaid the remaining principal balance of $ 231,363 on the 2016 Term Loan Facility. The Company wrote off $ 849 of unamortized deferred financing costs and $ 2,395 of original issue discount as debt extinguishment costs during the three and nine months ended September 30, 2021. 5.750% Senior Notes due 2025 - Redeemed in 2021 Concurrent with, and using a portion of the net proceeds from, the divestiture of the Performance Chemicals business in August 2021, the Company redeemed the remaining principal balance of $ 295,000 of its 5.750% Senior Notes due 2025. In connection with the redemption of the 5.750% Senior Notes due 2025, the Company paid a redemption premium of $ 8,481 which was recorded as debt extinguishment costs during the three and nine months ended September 30, 2021. In addition, previous unamortized deferred financing costs of $ 2,262 and original issue discount of $ 1,198 associated with the previously outstanding debt were written off as debt extinguishment costs during the three and nine months ended September 30, 2021. 14. Financial Instruments: The Company uses interest rate related derivative instruments to manage its exposure to changes in interest rates on its variable-rate debt instruments. The Company does not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with the Company’s derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Use of Derivative Financial Instruments to Manage Interest Rate Risk. The Company is exposed to fluctuations in interest rates on its senior secured credit facilities. Changes in interest rates will not affect the market value of such debt but will affect the Company’s interest payments over the term of the loans. Likewise, an increase in interest rates could have a material impact on the Company’s cash flow. The Company hedges the interest rate fluctuations on debt obligations through interest rate cap agreements. The Company records these agreements at fair value as assets or liabilities in its consolidated balance sheet. As the derivatives are designated and qualify as cash flow hedges, the gains or losses on the interest rate cap agreements are recorded in stockholders’ equity as a component of OCI, net of tax. Reclassifications of the gains and losses on the interest rate cap agreements into earnings are recorded as part of interest expense in the condensed consolidated statements of income as the Company makes its interest payments 25 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) on the hedged portion of its senior secured credit facilities. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices. In November 2018, the Company entered into interest rate cap agreements to mitigate interest volatility from July 2020 through July 2022, with a cap rate of 3.50 % on $ 500,000 of notional variable-rate debt and a $ 3,380 premium annuitized during the effective period. In February 2020, the Company restructured its $ 500,000 of notional variable-rate debt interest rate cap agreements from July 2020 through July 2022, to lower the interest cap rate to 2.50 % with an incremental $ 130 premium annuitized during the effective period. In March 2020, the Company again amended such interest rate cap agreements to lower the cap rate to 0.84 % from 2.50 % on $ 500,000 of notional variable-rate debt and paid an additional incremental $ 900 premium annuitized during the effective period. The term remains unchanged from July 2020 through July 2022. The total cumulative annuitized premium on the $ 500,000 of notional variable-rate debt is $ 4,410 . The cap rate in effect at September 30, 2021 was 0.84 % associated with the $ 500,000 of notional variable-rate debt. In July 2020, the Company entered into additional interest rate cap agreements to mitigate interest rate volatility from August 2020 to August 2023, with a cap rate of 1.00 % on $ 400,000 of notional variable-rate debt. The cap rate in effect at September 30, 2021 was 1.00 % associated with the $ 400,000 of notional variable-rate debt. In August 2021, PQ Corporation novated $ 900,000 of its interest rate caps to Ecovyst Catalyst Technologies LLC. Other than the novation, there were no other changes to the interest rate cap. Use of Derivative Financial Instruments to Manage Foreign Currency Risk. The Company is exposed to risks related to its net investments in foreign operations due to fluctuations in foreign currency exchange rates, particularly between the United States dollar and the Euro. In February 2018, the Company entered into multiple cross-currency interest rate swap arrangements with an aggregate notional amount of € 280,000 to hedge this exposure on the net investments of certain of its Euro-denominated subsidiaries in its Performance Materials and Performance Chemicals businesses. The Company recorded these swap agreements at fair value as assets or liabilities in its consolidated balance sheet. As the derivatives are designated and qualify as net investment hedges, changes in the fair value of the swaps attributable to changes in the spot exchange rates are recognized in cumulative translation adjustment (“CTA”) within OCI and are held there until the hedged net investments are sold or substantially liquidated. Upon such sale or liquidation, the amount recognized in CTA is reclassified to earnings and reported in the same line item as the gain or loss on the liquidation of the net investments. Changes in the fair value of the swaps attributable to the cross-currency basis spread are excluded from the assessment of hedge effectiveness and are recorded in current period earnings. In March 2021, as a result of the divestitures of the Performance Materials and Performance Chemicals businesses, the Company settled its cross-currency swaps. At the date of settlement, the total notional value of the cross-currency swaps was $ 311,380 . The Company paid $ 13,170 in cash to settle the swaps, which is included in n et cash used in investing activities, discontinued operations in the Company’s condensed consolidated statement of cash flows for the nine months ended September 30, 2021, as the underlying subsidiary subject to the net investment hedging relationship is part of the Performance Chemicals business. The fair values of derivative instruments held as of September 30, 2021 and December 31, 2020 are shown below: Balance sheet location September 30, 2021 December 31, 2020 Derivative assets: Derivatives designated as cash flow hedges: Interest rate caps Other long-term assets $ 189 $ — Total derivative assets $ 189 $ — Derivative liabilities: Derivatives designated as cash flow hedges: Interest rate caps Accrued liabilities $ 1,937 $ 1,954 Interest rate caps Other long-term liabilities — 1,750 Total derivative liabilities $ 1,937 $ 3,704 26 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three and nine months ended September 30, 2021 and 2020: Three months ended September 30, 2021 2020 Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Interest rate caps Interest (expense) income $ 510 $ ( 104 ) $ 573 $ 506 Nine months ended September 30, 2021 2020 Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Interest rate caps Interest (expense) income $ 1,901 $ ( 283 ) $ ( 347 ) $ ( 18 ) The following tables show the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020: Location and amount of gain (loss) recognized in income on cash flow hedging relationships Three months ended September 30, 2021 2020 Cost of goods sold Interest (expense) income Cost of goods sold Interest (expense) income Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded $ ( 113,784 ) $ ( 9,005 ) $ ( 89,844 ) $ ( 10,430 ) The effects of cash flow hedging: Gain (loss) on cash flow hedging relationships: Interest contracts: Amount of gain (loss) reclassified from AOCI into income — ( 104 ) — 506 Location and amount of gain (loss) recognized in income on cash flow hedging relationships Nine months ended September 30, 2021 2020 Cost of goods sold Interest (expense) income Cost of goods sold Interest (expense) income Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded $ ( 318,768 ) $ ( 28,202 ) $ ( 258,462 ) $ ( 40,864 ) The effects of cash flow hedging: Gain (loss) on cash flow hedging relationships: Interest contracts: Amount of gain (loss) reclassified from AOCI into income — ( 283 ) — ( 18 ) The amount of unrealized losses in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the condensed consolidated statement of income over the next twelve months is $ 805 as of September 30, 2021. 27 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following tables show the effect of the Company’s net investment hedges on AOCI and the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020: Amount of gain (loss) recognized in OCI on derivative Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) reclassified from AOCI into income Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Three months ended September 30, Three months ended September 30, Three months ended September 30, 2021 2020 2021 2020 2021 2020 Cross-currency interest rate swaps $ — $ ( 5,206 ) Net (loss) income from discontinued operations, net of tax $ 9,754 $ — Interest (expense) income $ — $ 1,552 Amount of pre-tax gain (loss) recognized in OCI on derivative Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) reclassified from AOCI into income Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Nine months ended September 30, Nine months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 2021 2020 Cross-currency interest rate swaps $ 9,787 $ 9,603 Net (loss) income from discontinued operations, net of tax $ 9,754 $ — Interest (expense) income $ 545 $ 3,244 15. Income Taxes: The effective income tax rate for the three months ended September 30, 2021 was 35.6 % compared to ( 1,579.7 )% for the three months ended September 30, 2020. The effective income tax rate for the nine months ended September 30, 2021 was ( 610.9 )% compared to ( 149.9 )% for the nine months ended September 30, 2020. The Company’s effective income tax rate has fluctuated primarily due to changes in income mix, the impacts of the Global Intangible Low Taxed Income (“GILTI”) tax rules, discrete impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result 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 the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2021 was mainly due to state and local taxes, discrete tax impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the divestiture of the Performance Chemicals business, tax rate changes and the tax effect of permanent differences related to foreign currency exchange gain or loss. The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2020 was mainly due to state and local taxes, GILTI and the impact of intra-period allocation as a result of the Performance Chemicals and Performance Materials businesses being classified as held for sale. 28 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 16. Benefit Plans: The following information is provided for (1) the Company-sponsored defined benefit pension plans covering employees in the U.S. and certain employees at its foreign subsidiaries and (2) the Company-sponsored unfunded plans to provide certain health care benefits to retired employees in the U.S. Components of net periodic expense (benefit) are as follows: Defined Benefit Pension Plans U.S. Foreign Three months ended September 30, Three months ended September 30, 2021 2020 2021 2020 Service cost $ — $ 192 $ — $ 280 Interest cost 551 675 63 78 Expected return on plan assets ( 1,093 ) ( 970 ) ( 63 ) ( 74 ) Amortization of net loss — — — 24 Settlement (gain) recognized ( 26 ) — — — Net periodic expense (benefit) $ ( 568 ) $ ( 103 ) $ — $ 308 U.S. Foreign Nine months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Service cost $ — $ 577 $ — $ 798 Interest cost 1,652 2,026 193 221 Expected return on plan assets ( 3,280 ) ( 2,910 ) ( 193 ) ( 212 ) Amortization of net loss — — — 70 Settlement (gain) recognized ( 26 ) — — — Net periodic (benefit) expense $ ( 1,654 ) $ ( 307 ) $ — $ 877 Other Postretirement Benefit Plans Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Interest cost 4 5 13 14 Amortization of prior service credit ( 58 ) ( 58 ) ( 174 ) ( 174 ) Amortization of net loss 2 — 4 1 Net periodic benefit $ ( 52 ) $ ( 53 ) $ ( 157 ) $ ( 159 ) 17. Commitments and Contingent Liabilities: There is a risk of environmental impact in chemical manufacturing operations. The Company’s environmental policies and practices are designed to comply with existing laws and regulations and to minimize the possibility of significant environmental impact. The Company is also subject to various other lawsuits and claims with respect to matters such as governmental regulations, labor and other actions arising out of the normal course of business. All claims that are probable and reasonably estimable have been accrued for in the Company’s condensed consolidated financial statements. When these matters are ultimately concluded and determined, the Company believes that there will be no material adverse effect on its consolidated financial position, results of operations or liquidity. 29 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 18. Reportable Segments: Summarized financial information for the Company’s reportable segments is shown in the following table: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Sales: Ecoservices $ 137,550 $ 107,604 $ 358,509 $ 298,727 Catalyst Technologies (1) 29,878 23,071 82,495 73,143 Total $ 167,428 $ 130,675 $ 441,004 $ 371,870 Segment Adjusted EBITDA: (2) Ecoservices $ 51,920 $ 44,272 $ 125,372 $ 116,451 Catalyst Technologies (3) 25,441 11,762 64,623 59,741 Total Segment Adjusted EBITDA (4) $ 77,361 $ 56,034 $ 189,995 $ 176,192 (1) Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 11 to these condensed consolidated financial statements for further information). The proportionate share of sales is $ 32,820 and $ 26,552 for the three months ended September 30, 2021 and 2020, respectively. The proportionate share of sales is $ 94,984 and $ 99,695 for the nine months ended September 30, 2021 and 2020, respectively. (2) The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of the Company’s operating performance. Adjusted EBITDA as defined by the Company may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. (3) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 14,493 for the three months ended September 30, 2021, which includes $ 8,780 of equity in net income plus $ 1,601 of amortization of investment in affiliate step-up and $ 4,112 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 5,331 for the three months ended September 30, 2020, which includes $ 76 of equity in net income plus $ 1,658 of amortization of investment in affiliate step-up and $ 3,597 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 37,085 for the nine months ended September 30, 2021, which includes $ 20,794 of equity in net income plus $ 4,879 of amortization of investment in affiliate step-up and $ 11,412 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 35,911 for the nine months ended September 30, 2020, which includes $ 19,882 of equity in net income plus $ 4,975 of amortization of investment in affiliate step-up and $ 11,054 of joint venture depreciation, amortization and interest. (4) Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses. 30 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) A reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA is as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA Net income (loss) from continuing operations $ 4,689 $ ( 22,659 ) $ ( 5,929 ) $ 8,311 Provision (benefit) for income taxes 2,591 21,310 5,095 ( 4,985 ) Interest expense, net 9,005 10,430 28,202 40,864 Depreciation and amortization 20,599 19,122 60,084 56,543 EBITDA 36,884 28,203 87,452 100,733 Joint venture depreciation, amortization and interest 4,112 3,597 11,412 11,054 Amortization of investment in affiliate step-up 1,601 1,659 4,879 4,975 Debt extinguishment costs 15,185 14,004 26,902 16,517 Net loss on asset disposals 2,156 642 4,535 1,245 Foreign exchange losses (gains) 922 ( 4,286 ) 4,803 ( 577 ) LIFO benefit ( 1,295 ) ( 1,261 ) ( 1,998 ) ( 4,902 ) Transaction and other related costs 538 197 1,620 1,389 Equity-based compensation 10,193 4,387 22,837 13,324 Restructuring, integration and business optimization expenses 78 250 2,408 1,445 Defined benefit pension plan benefit ( 1,029 ) ( 155 ) ( 2,219 ) ( 466 ) Other 30 784 1,723 1,959 Adjusted EBITDA 69,375 48,021 164,354 146,696 Unallocated corporate expenses 7,986 8,013 25,641 29,496 Segment Adjusted EBITDA $ 77,361 $ 56,034 $ 189,995 $ 176,192 31 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 19. Stock-Based Compensation: The Company is authorized to issue shares for common stock awards to employees, directors and affiliates of the Company in connection with the Ecovyst Inc. (formerly PQ Group Holdings Inc.) 2017 Omnibus Incentive Plan, as Amended and Restated (the “2017 Plan”). During the nine months ended September 30, 2021, the Company granted 1,697,623 restricted stock units and 211,985 performance stock units (at target) under the 2017 Plan as part of its equity incentive compensation program. Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the nine months ended September 30, 2021, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees. The performance stock units granted during the nine months ended September 30, 2021 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award. The performance period for the TSR goal is measured based on a three-year performance period from January 1, 2021 through December 31, 2023. The TSR goal is based on the Company’s actual TSR percentage increase over the performance period. Depending on the Company’s performance relative to the TSR goal, each performance stock unit award recipient is eligible to earn a percentage of the target number of shares granted to the recipient, ranging from zero to 200 %. The performance stock units, to the extent earned, will vest on the date the Company’s compensation and governance committee certifies the achievement of the performance metric for the three-year period ending December 31, 2023, which will occur subsequent to the end of the performance period but before the Company files its annual consolidated financial statements for the year ending December 31, 2023. The value of the restricted stock units granted during the nine months ended September 30, 2021 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period. The TSR goal of the performance stock units granted during the nine months ended September 30, 2021 is considered a market condition as opposed to a vesting condition. Because a market condition is not considered a vesting condition, it is reflected in the grant date fair value of the award, and the associated compensation cost based on the fair value of the award is recognized over the performance period, regardless of whether the Company actually achieves the market condition or the level of achievement, as long as service is provided by the recipient. The Company used a Monte Carlo simulation to estimate the fair value of the portion of the awards subject to the TSR goal. The following table provides the assumptions used to determine the grant date fair value of the market condition-dependent / TSR goal-based portion of the Company’s performance stock units granted during the nine months ended September 30, 2021 using a Monte Carlo simulation: Expected dividend yield — % Risk-free interest rate 0.20 % Expected volatility 41.70 % Expected term (in years) 2.95 Grant date fair value $ 13.21 32 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the nine months ended September 30, 2021: Restricted Stock Units Performance Stock Units Number of Units Weighted Average Grant Date Fair Value (per share) Number of Units Weighted Average Grant Date Fair Value (per share) Nonvested as of December 31, 2020 1,841,139 $ 16.14 965,736 $ 17.69 Granted 1,697,623 $ 15.39 211,985 $ 13.21 Vested ( 773,619 ) $ 16.00 — $ — Forfeited ( 69,877 ) $ 15.83 ( 15,211 ) $ 16.75 Nonvested as of September 30, 2021 2,695,266 $ 15.71 1,162,510 $ 16.92 2021 Modifications As more fully described in Note 6 to these condensed consolidated financial statements, the Company’s Board of Directors declared a special cash dividend of $ 3.20 per share to stockholders of record as of the close of business on August 12, 2021. The dividend declaration also included a dividend equivalent for all unvested restricted stock units, performance stock units and restricted stock awards (collectively, the “awards”) as of August 23, 2021 equal to $ 3.20 per award. Additionally, the Company’s Board of Directors approved a reduction in the strike price on all outstanding vested and unvested stock options by the amount of the dividend payment. Further, with respect to stock options and awards held by employees of Performance Chemicals at the time of the sale (see Note 3 to these condensed consolidated financial statements), the Company’s Board of Directors approved modifications to the post-termination stock option exercise, and stock option and award vesting periods. The modifications provide that all stock options held by Performance Chemicals employees that were vested as of the date of the sale are eligible to be exercised for a period of one year from the date of the sale. Additionally, modifications to unvested stock options and awards allow holders to continue to vest in those instruments under the original terms of the instruments for a period of one year from the date of sale. The terms of the modifications to the Performance Chemicals awards are contingent upon the employee providing continued service to the Buyer. The modifications impacted all holders of the Company’s stock options and awards and resulted in incremental stock-based compensation expense of $6,667 recognized during the three and nine months ended September 30, 2021. Of this amount, $2,635 was included in loss from discontinued operations, net of tax on the Company’s consolidated statements of income for the three and nine months ended September 30, 2021. 33 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Total Stock-Based Compensation Expense Stock-based compensation expense for the Company is as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Continuing operations 10,193 4,355 $ 22,837 $ 13,324 Discontinued operations 4,375 1,782 8,066 5,099 Stock-based compensation expense 14,568 6,137 30,903 18,423 Continuing operations ( 2,494 ) ( 1,079 ) ( 5,589 ) ( 3,301 ) Discontinued operations ( 1,071 ) ( 442 ) ( 1,974 ) ( 1,264 ) Income tax benefit ( 3,565 ) ( 1,521 ) ( 7,563 ) ( 4,565 ) Continuing operations 7,699 3,276 17,248 10,023 Discontinued operations 3,304 1,340 6,092 3,835 Stock-based compensation expense, net of income tax benefit $ 11,003 $ 4,616 $ 23,340 $ 13,858 With the new grants of restricted stock units and performance stock units during the nine months ended September 30, 2021, unrecognized compensation cost at September 30, 2021 was $ 31,800 for restricted stock units and $ 8,991 for performance stock units considered probable of vesting. The weighted-average period over which these costs are expected to be recognized at September 30, 2021 is 1.54 years for the restricted stock units and 1.16 years for the performance stock units. Activity related to the Company’s stock options and restricted stock awards was not material for the nine months ended September 30, 2021. 20. Earnings per Share: Basic earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding during the period for the computation of basic earnings per share excludes restricted stock awards that have legally been issued but are nonvested during the period, as the sale of these shares is prohibited pending satisfaction of certain vesting conditions by the award recipients in order to earn the rights to the shares. Diluted earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common and potential common shares outstanding during the period, if dilutive. Potential common shares reflect (1) unvested restricted stock awards and restricted stock units with service vesting conditions, (2) performance stock units with vesting conditions considered probable of achievement and (3) options to purchase common stock, all of which have been included in the diluted earnings per share calculation using the treasury stock method. The reconciliation from basic to diluted weighted average shares outstanding is as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Weighted average shares outstanding – Basic 136,129,591 135,106,969 136,111,555 135,292,163 Dilutive effect of unvested common shares and restricted stock units with service conditions, performance stock units considered probable of vesting and assumed stock option exercises and conversions 1,224,836 — — 895,870 Weighted average shares outstanding – Diluted 137,354,427 135,106,969 136,111,555 136,188,033 34 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Basic and diluted loss per share are calculated as follows: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Numerator: Net income (loss) attributable to Ecovyst Inc. $ ( 71,259 ) $ 7,512 $ ( 165,384 ) $ 23,662 Denominator: Weighted average shares outstanding – Basic 136,129,591 135,106,969 136,111,555 135,292,163 Weighted average shares outstanding – Diluted 137,354,427 135,106,969 136,111,555 136,188,033 Net loss per share: Basic (loss) income per share $ ( 0.52 ) $ 0.06 $ ( 1.22 ) $ 0.17 Diluted (loss) income per share $ ( 0.52 ) $ 0.06 $ ( 1.22 ) $ 0.17 The table below presents the details of the Company’s weighted average equity-based awards outstanding during each respective period that were excluded from the calculation of diluted earnings per share: Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Restricted stock awards with performance only targets not yet achieved 828,967 950,174 852,822 1,323,270 Stock options with performance only targets not yet achieved 375,733 503,526 376,448 509,782 Anti-dilutive restricted stock awards, restricted stock units and performance stock units — 1,539,506 — 1,432,906 Anti-dilutive stock options — 844,475 4,221 846,578 Restricted stock awards and stock options with performance only vesting conditions were not included in the dilution calculation, as the performance targets have not been achieved nor were probable of achievement as of the end of the respective periods. On a weighted average basis, options to purchase 603,159 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the three months ended September 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares. On a weighted average basis, options to purchase 605,262 shares of common stock at the historical exercise price of $ 16.97 per share and 241,316 shares of common stock at the historical exercise price of $ 17.50 per share for the nine months ended September 30, 2020, were excluded from the computation of diluted earnings per share, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares. The stock options with a historical exercise price of $ 16.97 per share expire on October 2, 2027, while the stock options with a historical exercise price of $ 17.50 per share expire on August 9, 2028. Anti-dilutive awards are not included in the dilution calculation, as their inclusion would have the effect of increasing diluted income per share. 35 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 21. Supplemental Cash Flow Information: With the exception of operating leases, the following table presents supplemental cash flow information for the consolidated Company: Nine months ended September 30, 2021 2020 Cash paid during the period for: Income taxes, net of refunds $ 13,520 $ 21,507 Interest (1) 43,115 75,345 Non-cash investing activity: Capital expenditures acquired on account but unpaid as of the period end 3,052 7,425 Right-of-use assets obtained in exchange for new lease liabilities (non-cash): Operating leases 7,946 8,376 (1) Cash paid for interest is shown net of capitalized interest for the periods presented and excludes $ 2,307 and $ 4,622 of net interest proceeds on swaps designated as net investment hedges for the nine months ended September 30, 2021 and 2020, respectively, which are included within cash flows from investing activities, discontinued operations in the Company’s condensed consolidated statements of cash flows. The followin g table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets as of September 30, 2021 and 2020 to the total of the same amounts shown in the condensed consolidated statements of cash flows for the nine months then ended: September 30, 2021 2020 Cash and cash equivalents $ 104,752 $ 122,891 Restricted cash included in prepaid and other current assets — 1,596 Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 104,752 $ 124,487 22. Subsequent Events: T he Company has evaluated subsequent events since the balance sheet date and determined that there are no additional items to disclose. 36 Table of Contents