What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-09 · 152 added, 405 removed, 270 unchanged (67% of the section changed)

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Forward-looking Statements

This periodic report on Form 10-Q (“Form 10-Q”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements”.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should” and similar expressions are intended to identify forward-looking statements.

This periodic report on Form 10-Q (“Form 10-Q”) includes “forward-looking statements” that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should” and similar expressions are intended to identify these forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs.

Examples of forward-looking statements include, but are not limited to, our financial results and our liquidity, including our belief that our existing cash, cash equivalents and cash flow from operations, combined with availability under our asset based lending revolving credit facility will be sufficient to meet our presently anticipated future cash needs for at least the next 12 months.

Examples of forward-looking statements include, but are not limited to, statements we make regarding demand trends, the impact of the novel coronavirus (“COVID-19”) pandemic and/or, Russia’s invasion of Ukraine and related economic effects on our operations and financial results and our liquidity, and our belief that our current level of operations, cash and cash equivalents, cash flow from operations and borrowings under our credit facilities and other lines of credit will provide us adequate cash to fund the working capital, capital expenditure, debt service and other requirements for our business for at least the next twelve months.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions.

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In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Some of the key factors that could cause actual results to differ from our expectations include risks related to the following:

• the impact of the ongoing COVID-19 pandemic on the global economy and financial markets, as well as on our business and our suppliers, and the response of our company and governments to the outbreak, including associated containment, remediation and vaccination efforts;

Some of the key factors that could cause actual results to differ from our expectations include the following risks related to our business:

• as a global business, we are exposed to local business risks in different countries;

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• our new product development and research and development efforts may not succeed and our competitors may develop more effective or successful products;

• our elevated level of indebtedness could adversely affect our financial condition;

• our substantial level of indebtedness could adversely affect our financial condition;

• if we are unable to pass on increases in raw material prices, including natural gas, to our customers or to retain or replace our key suppliers, our results of operations and cash flows may be negatively affected;

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• our failure to protect our intellectual property and infringement on the intellectual property rights of third parties;

• losses and damages in connection with information technology risks could adversely affect our operations;

• losses and damages in connection with information technology and cyber security risks could adversely affect our operations;

• the impact of the ongoing COVID-19 pandemic on the global economy and financial markets, as well as on our business and our suppliers, and the response of governments and of our company to the outbreak, including variants of the virus and associated containment, remediation and vaccination efforts;

• other factors set forth in Part I, “Item 1A.

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We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

In connection with the closing of the sale of the Performance Chemicals business, we changed our name from “PQ Group Holdings Inc.” to “ Ecovyst Inc.”, changed the ticker symbol of our common stock listed on the New York Stock Exchange from “PQG” to “ECVT” and rebranded our former segments from “Refining Services” to “Ecoservices” and “Catalysts” to “Catalyst Technologies.” We conduct operations through these two reporting segments:

We conduct operations through two repor ting segments:

(1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture).

We are a leading provider of sulfuric acid recycling services to North American refineries for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards.

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We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications.

This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of zeolites used for catalysts that remove nitric oxide from diesel engine emissions as well as sulfur from fuels during the refining process.

Recent Divestitures

On December 14, 2020, we completed the sale of our Performance Materials business for $650.0 million, which was subject to certain adjustments for indebtedness, working capital and cash at the closing of the transaction.

The results of operations, financial condition, and cash flows for the Performance Materials business are presented herein as discontinued operations.

Except where noted, any tables, percentages or metrics included within this filing exclude the results of our former Performance Materials business.

Refer to Note 3 to our condensed consolidated financial statements for additional information.

On August 1, 2021, we completed the sale of our Performance Chemicals business for $1.1 billion, subject to certain adjustments set forth in the agreement.

We used a portion of the net cash proceeds to repay the entire outstanding principal balance of $231.4 million on the Senior Secured Term Loan Facility due February 2027 and the entire outstanding principal balance of $295.0 million on the 5.750% Senior Notes due 2025 (the “Senior Notes”).

The Senior Notes were redeemed at a redemption price equal to the sum of 102.875% of the principal amount of the Senior Notes plus accrued and unpaid interest to, but excluding, August 2, 2021.

Additionally, our Board of Directors (the “Board”) declared a special cash dividend of $3.20 per share, paid on August 23, 2021, to stockholders of record as of the close of business on August 12, 2021.

The results of operations, financial condition, and cash flows for the Performance Chemicals business are presented herein as discontinued operations.

Except where noted, any tables, percentages or metrics included within this filing exclude the results of our Performance Chemicals business.

Refer to Note 3 to our condensed consolidated financial statements for additional information.

This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of zeolites used for catalysts that remove nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process.

Impact of Russia’s invasion of Ukraine on our Business and Results

We are continuing to monitor the developments in Russia and Ukraine, as well as the related economic sanctions and export controls imposed on certain industry sectors.

Although the current conflict may create global economic and political uncertainties and potential supply chain disruptions, we do not believe we have significant exposure in those countries.

We have no operations in Russia or Ukraine.

We had no sales to customers in Ukraine and our sales to a customer in Russia w immaterial for the three months ended March 31, 2022 and 2021, respectively.

We also did not make any purchases from suppliers in Russia or Ukraine.

As Russia’s invasion of Ukraine continues to unfold, we will continue to monitor compliance with sanctions imposed by the U.S.

government and other countries.

Stock Repurchase Program

In April 2022, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $450 million of Ecovyst’s outstanding common stock over the next four years.

This new program is expected to be funded using cash on hand and cash generated from operations.

We primarily expect to conduct the repurchase program through negotiated transactions with Ecovyst’s equity sponsors, as well as through open market repurchases or other means, including through Rule 10b-18 trading plans or through the use of other techniques such as accelerated share repurchases.

The actual timing, number and nature of shares repurchased will depend on a variety of factors, including stock price, trading volume, and general business and market conditions.

The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be amended, suspended or discontinued at any time at our discretion.

Key Performance Indicators

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Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) depreciation, amortization and interest of our 50% share of the Zeolyst Joint Venture.

Adjusted net income consists of net income (loss) attributable to continuing operations adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance.

Adjusted net income consists of net income (loss) attributable to Ecovyst Inc.

adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance.

We believe that these non-GAAP financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.

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Key Factors and Trends Affecting Operating Results and Financial Condition

Overall economic demand has significantly rebounded since the 2020 lows that resulted from the impact of COVID-19.

Refineries have seen demand return with increasing miles driven, recovery from winter storm Uri and a general increase in economic activity.

Polyethlene demand remains strong driven by the growing consumer demand for films and packaging.

Higher refinery utilization rates are increasing catalyst demand for both traditional and renewable fuels on the continued recovery in vehicle miles driven.

In February 2021, the Gulf Coast of the United States experienced significant and unexpectedly severe weather from winter storm Uri.

Extended freezing temperatures led to slowdowns or shutdowns at nearly all refineries and caused extensive damage due to frozen piping.

Some refineries and facilities remained down for nearly a month.

Our Ecoservices facilities located in the Gulf experienced damage, which required additional maintenance and some plant shutdowns.

Our Silica Catalysts product group, which is a part of our Catalyst Technologies segment, experiences demand fluctuations based upon the timing of our customer’s fixed bed catalyst replacements.

Overall our Ecoservices and Catalyst Technologies segments' sales have grown despite delays in shipments from supply chain constraints.

Demand for our products has rebounded since the 2020 lows that resulted from the impact of COVID-19 and the early 2021 lows that resulted from the freezing weather in the Gulf region.

Polyethlene demand has remained strong, driven by the growing consumer demand for stronger and lighter weighted plastics.

Higher refinery utilization rates increased catalyst demand for both traditional and renewable fuels on the continued recovery in vehicle miles driven.

Tightening gasoline standards and growing demand for premium grade gasoline to power fuel efficient engines has supported high alkylation utilization rates.

Virgin sulfuric acid has benefited from strong mining for metals and minerals which provide conductivity in low carbon technologies, as well as strong demand from numerous industrial segments producing construction, auto, and packaging materials.

Sales in our Ecoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts.

Our Catalyst Technologies segment, experiences demand fluctuations based upon the timing of our customer’s fixed bed catalyst replacements.

Cost of Goods Sold

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Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process.

Fixed manufacturing expenses include plant employment costs, manufacturing overhead and maintenance costs.

Fixed manufacturing expenses include all plant employment costs, manufacturing overhead and periodic maintenance costs.

The primary raw materials for our Ecoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or “caustic soda”), and certain metals.

Spent sulfuric acid for our Ecoservices segment is supplied by customers for a nominal charge as part of their contracts.

Spent sulfuric acid for our Ecoservices segment is supplied by customers.

The primary raw materials used in the manufacture of products in our Catalyst Technologies segments include sodium silicate and cesium hydroxide.

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Over 80% of our Ecoservices segment sales for the year ended December 31, 2021 were under contracts featuring quarterly price adjustments.

The price adjustments generally reflect actual costs for producing sulfuric acid and tend to protect us from volatility in labor, fixed costs and raw material pricing.

The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw

material pricing.

The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries.

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We maintain multiple suppliers wherever possible and structure our customer contracts when possible to allow for the pass-through of raw material, labor and natural gas costs.

Joint Ventures

Joint Venture

We account for our investments in our equity joint ventures under the equity method.

Our largest joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the packaging and engineered plastics, emission control, refining and petrochemical industries and other areas of the broader chemicals industry.

Our joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the packaging and engineered plastics, emission control, refining and petrochemical industries and other areas of the broader chemicals industry.

Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements.

We share proportionally in the management of our joint ventures with the other parties to each such joint venture.

We share proportionally in the management of our joint venture with the other parties to such joint venture.

Our regeneration services product group, which is a part of our 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.

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As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated into U.S.

We operate in various geographies with approximately 10% of our sales for the nine months ended September 30, 2021 and the year ended December 31, 2020 in currencies other than the U.S.

We operate in various geographies with approximately 5% of our sales for the three months ended March 31, 2022 and 6% for the year ended December 31, 2021 are in currencies other than the U.S.

Because our consolidated financial results are reported in U.S.

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Results of Operations

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

The following is a summary of our financial performance for the three months ended September 30, 2021 compared with the three months ended September 30, 2020.

Three months ended March 31, 2022 Compared to the Three months ended March 31, 2021

The following is a summary of our financial performance for the three months ended March 31, 2022 compared with the three months ended March 31, 2021.

• Sales increased $53.1 million to $179.7 million.

The increase in sales was primarily due to the impact of the pass-through of higher sulfur costs and an increase in demand for our polyethylene and chemical catalysts.

• Gro ss profit increased $12.8 million to $53.6 million.

The increase in gross profit was primarily due to higher sales volumes and favorable product mix, which was partially offset by higher production and maintenance costs.

The increase in sales was primarily due to higher sales volumes and the favorable pass-through of sulfur pricing.

• Gross profit increased $17.6 million to $47.7 million.

The increase in gross profit was primarily due to higher sales volumes, favorable pricing, partially offset by higher manufacturing costs.

Operating Income

• Operating income increased by $14.0 million to $16.5 million.

The increase in operating income was due to an increase in gross profit, which was partly offset by higher other operating expenses.

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the three months ended September 30, 2021 was $8.8 million, compared to $0.1 million for the three months ended September 30, 2020.

The increase of $8.7 million was due to higher earnings generated by the Zeolyst Joint Venture for the three months ended September 30, 2021.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended September 30, 2021 and 2020:

Three months ended

September 30, Change

2021 2020 $ %

(in millions, except percentages)

Sales $ 167.4 $ 130.7 $ 36.7 28.1 %

Cost of goods sold 113.8 89.9 23.9 26.6 %

Gross profit 53.6 40.8 12.8 31.4 %

Gross profit margin 32.0 % 31.2 %

Selling, general and administrative expenses 24.8 18.7 6.1 32.6 %

Other operating expense, net 6.3 3.3 3.0 90.9 %

Operating income 22.5 18.8 3.7 19.7 %

Operating income margin 13.4 % 14.4 %

Equity in net (income) from affiliated companies (8.8) (0.1) (8.7) NM

Interest expense, net 9.0 10.4 (1.4) (13.5) %

Debt extinguishment costs 15.2 14.0 1.2 8.6 %

Other income, net (0.2) (4.1) 3.9 (95.1) %

Income (loss) before income taxes and noncontrolling interest 7.3 (1.4) 8.7 (621.4) %

Provision for income taxes 2.6 21.3 (18.7) (87.8) %

Effective tax rate 35.6 % (1,579.7) %

Net income (loss) from continuing operations 4.7 (22.7) 27.4 (120.7) %

Net (loss) income from discontinued operations, net of tax (75.9) 30.5 (106.4) (348.9) %

Net (loss) income (71.2) 7.8 (79.0) NM

Net income attributable to the noncontrolling interest - discontinued operations 0.1 0.3 (0.2) (66.7) %

Net (loss) income attributable to Ecovyst Inc.

$ (71.3) $ 7.5 $ (78.8) NM

Three months ended

September 30, Change

2021 2020 $ %

(in millions, except percentages)

Ecoservices $ 137.5 $ 107.6 $ 29.9 27.8 %

Catalyst Technologies 29.9 23.1 6.8 29.4 %

Total sales $ 167.4 $ 130.7 $ 36.7 28.1 %

Sales in Ecoservices for the three months ended September 30, 2021 were $137.5 million, an increase of $29.9 million, or 27.8%, compared to sales of $107.6 million for the three months ended September 30, 2020.

The increase in sales was due to higher average selling prices of $25.3 million and an increase in volumes of $4.6 million.

Higher average selling prices were primarily a result of the pass-through of higher sulfur costs of $15.3 million within our virgin sulfuric acid product group and the pass-through of other raw material costs within our regenerations services product group.

The increase in volumes was primarily driven by sales from the Chem32 acquisition as well as increased sales of regeneration services.

Catalyst Technologies:

S ales in Catalyst Technologies for the three months ended September 30, 2021 were $29.9 million, an increase of $6.8 million, or 29.4%, compared to sales of $23.1 million for the three months ended September 30, 2020.

The increase in sales was due to an increase in volumes of $11.6 million partially offset by lower average selling prices of $5.2 million.

Demand for our polyethylene and chemical catalysts drove the increase in sales, with higher volumes more than offsetting lower customer price mix.

Gross profit for the three months ended September 30, 2021 was $53.6 million, an increase of $12.8 million, or 31.4%, compared with $40.8 million for the thre e months ended September 30, 2020.

The increase in gross profit was due to higher sales volumes of $5.0 million, favorable customer pricing of $4.8 million, and favorable product mix of $4.2 million, which was partially offset by unfavorable manufacturing and maintenance costs of $1.0 million.

The favorable change in volumes and product mix was a result of increased demand for our high-margin polyethylene catalysts and the impact of our recent Chem32 acquisition.

Favorable customer pricing was driven by the pass-through of labor index and energy costs within our regeneration services product group.

The increase in manufacturing costs was a result of the timing of plant “turnaround” maintenance projects, which was offset by the pass-through of $15.3 million in higher sulfur costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2021 were $24.8 million, an increase of $6.1 million compared with $18.7 million for the three months ended September 30, 2020.

The increase in selling, general and administrative expenses was due to an increase in compensation-related expenses.

Other Operating Expense, Net

Other operating expense, net was comparable between both periods.

Other operating expense, net for the three months ended September 30, 2021 was $6.3 million, an increase of $3.0 million, compared with $3.3 million for the three months ended September 30, 2020.

The increase in other operating expense, net, was due to an increase in asset disposals related to plant “turnaround” maintenance projects.

The increase in operating income was due to an increase in gross profit, partially offset by higher selling, general, and administrative expenses.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated comp anies for the three months ended September 30, 2021 was $8.8 million, compared to $0.1 million for the three months ended September 30, 2020.

The increase was primarily due to $8.7 million of higher earnings from the Zeolyst Joint Venture during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The increase in earnings from the Zeolyst Joint Venture was due to increased demand for our catalysts used in renewable fuels and the demand recovery for emission control catalysts.

Interest Expense, Net

Interest expense, net for the three month s ended September 30, 2021 was $9.0 million, a decrease of $1.4 million, as compared with $10.4 million for the three months ended September 30, 2020.

The decrease in interest expense, net was primarily due lower average debt balances and a favorable increase in variable versus fixed-rate debt during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Debt Extinguishment Costs

Debt extinguishment costs for the three months ended September 30, 2021 and 2020 were $15.2 million and $14.0 million, respectively.

Concurrent with, and using a portion of the net cash proceeds from, the divestiture of the Performance Chemicals business in August 2021, we repaid the remaining balance on our 2016 Term Loan Facility and redeemed the Senior Notes.

In connection with the redemption of the Senior Notes, we paid a redemption premium of $8.5 million, which was recorded as debt extinguishment costs during the three months ended September 30, 2021.

We wrote off $0.8 million of unamortized deferred financing costs and $2.4 million of original issue discount related to the 2016 Term Loan Facility and $2.3 million of unamortized deferred financing costs and $1.2 million of original issue discount related to the Senior Notes as debt extinguishment costs during the three months ended September 30, 2021.

On July 22, 2020, we entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of $650.0 million, the proceeds of which were used to repay the remaining outstanding balance of $625.0 million on the 6.75% Senior Secured Notes due 2022.

In conjunction with the issuance of such senior secured term loan facility, we paid $10.6 million in prepayment premiums and recorded $0.1 million of new creditor and third-party financing fees as debt extinguishment costs.

In addition, previous unamortized deferred financing costs of $2.1 million and original issue discount of $1.2 million associated with the 6.75% Senior Secured Notes due 2022 were written off as debt extinguishment costs.

Other Income, Net

Other income, net for the three months ended September 30, 2021 was income of $0.2 million, a decrease of $3.9 million, as compared with income of $4.1 million for the three months ended September 30, 2020.

The change in other expense, net primarily consisted of a decrease in foreign currency gains related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

Provision for Income Taxes

The provision for income taxes for the three months ended September 30, 2021 was $2.6 million compared to a $21.3 million provision for the three m onths ended September 30, 2020.

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 Company’s effective income tax rate fluctuates based primarily on changes in income mix, the impacts of the Global Intangible Low Taxed Income (“GILTI”) tax rules, 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 three months ended September 30, 2021 was mainly due to the tax effect of permanent differences related to foreign currency exchange gain or loss, the inclusion of foreign earnings in U.S.

taxable income, the discrete impact of the product line and asset sales, foreign tax rate changes, pre-tax losses with no associated tax benefit and state taxes.

Net (Loss) Income Attributable to Ecovyst

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable to Ecovyst was $71.3 million for the three months ended September 30, 2021 compared with net income of $7.5 million for the three months ended September 30, 2020.

Adjusted EBITDA

Summarized Segment Adjusted EBITDA information is shown below in the following table:

Three months ended

September 30, Change

2021 2020 $ %

(in millions, except percentages)

Segment Adjusted EBITDA:

Ecoservices $ 51.9 $ 44.3 $ 7.6 17.2 %

Catalyst Technologies (2)

25.5 11.8 13.7 116.1 %

Total Segment Adjusted EBITDA (3)

77.4 56.1 21.3 38.0 %

Unallocated corporate expenses

(8.0) (8.0) — — %

Total Adjusted EBITDA $ 69.4 $ 48.1 $ 21.3 44.3 %

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA.

Segment Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $14.5 million for the three months ended September 30, 2021, which includes $8.8 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $4.1 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $5.3 million for the three months ended September 30, 2020, which includes $0.1 million of equity in net income, excluding $1.7 million of amortization of investment in affiliate step-up plus $3.6 million of joint venture depreciation, amortization and interest.

(3) Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Adjusted EBITDA for the three months ended September 30, 2021 was $51.9 million, an increase of $7.6 million, or 17.2%, compared with $44.3 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA was a result of higher regeneration services volumes, favorable virgin sulfuric acid pricing and the impact of our recent Chem32 acquisition.

Catalyst Technologies:

Adjusted EBITDA for th e three months ended September 30, 2021 was $25.5 million, an increase of $13.7 million, or 116.1%, compared with $11.8 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA was primarily a result of higher demand for our polyethylene and pressure product catalysts and improved manufacturing network efficiencies.

A reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA is as follows:

• Equity in net income of affiliated companies for the three months ended March 31, 2022 was $5.7 million, compared with $5.2 million for the three months ended March 31, 2021.

The increase was primarily due to $0.5 million of higher earnings from the Zeolyst Joint Ventur e during the three months ended March 31, 2022.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended March 31, 2022 and 2021:

Three months ended

September 30,

(in millions)

Reconciliation of net income (loss) from continuing operations to Segment Adjusted EBITDA

Net income (loss) from continuing operations $ 4.7 $ (22.7)

Provision for income taxes 2.6 21.3

Interest expense, net 9.0 10.4

Depreciation and amortization 20.6 19.2

EBITDA 36.9 28.2

Joint venture depreciation, amortization and interest (a)

Amortization of investment in affiliate step-up (b)

Debt extinguishment costs 15.2 14.0

Net loss on asset disposals (c)

Foreign currency exchange loss (gain) (d)

LIFO benefit (e)

Transaction and other related costs (f)

Equity-based compensation 10.2 4.4

Restructuring, integration and business optimization expenses (g)

Defined benefit pension benefit (h)

Adjusted EBITDA 69.4 48.1

Unallocated corporate expenses 8.0 8.0

Segment Adjusted EBITDA $ 77.4 $ 56.1

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results.

Because our Catalyst Technologies segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture.

(b) Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the combination of the businesses of PQ Holdings Inc.

and Eco Services Operations LLC in May 2016 (the “Business Combination”).

We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture.

Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how.

(c) When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income, which primarily relates to the non-permanent intercompany debt denominated in local currency translated to U.S.

(e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S.

that are valued using the LIFO method, which we believe provides a means of comparison to other companies that may not use the same basis of accounting for inventories.

(f) Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned, that we believe are not representative of our ongoing business operations.

(g) Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations.

(h) Represents adjustments for defined benefit pension plan (benefit) costs in our statements of income.

All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen.

As such, we do not view such income or expenses as core to our ongoing business operations.

(i) Other costs consist of certain expenses that are not core to our ongoing business operations, including environmental remediation-related costs, capital and franchise taxes.

Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

Adjusted Net Income

Summarized adjusted net income (loss) information is shown below in the following table:

Three months ended September 30,

Pre-tax Tax expense (benefit) After-tax Pre-tax Tax expense (benefit) After-tax

(in millions)

Reconciliation of net income (loss) from continuing operations to Adjusted Net Income (1)(2)

Net income (loss) attributable to Ecovyst Inc.

$ 7.3 $ 2.6 $ 4.7 $ (1.4) $ 21.3 $ (22.7)

Amortization of investment in affiliate step-up (b)

1.6 0.5 1.1 1.7 0.6 1.1

Debt extinguishment costs 15.2 4.4 10.8 14.0 5.1 8.9

Net loss on asset disposals (c)

2.2 0.5 1.7 0.6 0.4 0.2

Foreign currency exchange loss (gain) (d)

0.9 0.2 0.7 (4.3) (1.6) (2.7)

LIFO benefit (e)

(1.3) (0.4) (0.9) (1.3) (0.5) (0.8)

Transaction and other related costs (f)

0.5 0.2 0.3 0.2 0.1 0.1

Equity-based compensation 10.2 2.9 7.3 4.4 1.6 2.8

Restructuring, integration and business optimization expenses (g)

0.1 0.1 — 0.3 0.1 0.2

Defined benefit pension plan benefit (h)

(1.0) (0.3) (0.7) (0.2) (0.1) (0.1)

— — — 0.9 0.1 0.8

Adjusted Net Income, including non-cash GILTI tax $ 35.7 $ 10.7 $ 25.0 $ 14.9 $ 27.1 $ (12.2)

Intraperiod allocation for restating discontinued operations (3)

— (0.5) 0.5 — (21.7) 21.7

Adjusted Net Income $ 35.7 $ 10.2 $ 25.5 $ 14.9 $ 5.4 $ 9.5

(1) We define adjusted net income as net income attributable to Ecovyst adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor’s understanding of our results of operations and financial condition.

Adjusted net income may not be comparable with net income or adjusted net income as defined by other companies.

(2) Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

(3) Due to the sale of the Performance Chemicals business, the tax rates used to value deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) needs to be adjusted.

Given it is a direct result of the sale of discontinued operations and the need to adjust the tax rates arose because of discontinued operations, the impact of revaluing the reporting entity’s DTAs and DTLs are reflected in continuing operations.

The adjustments to net income attributable to Ecovyst Inc.

are shown net of applicable tax rates as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended September 30, 2021 and September 30, 2020, except for the foreign currency exchange loss, impacts of tax rate changes and the effects of the sale of assets for which the taxes are calculated as discrete items using the applicable statutory income tax rates.

Results of Operations

Nine months ended September 30, 2021 Compared to the Nine months ended September 30, 2020

The following is a summary of our financial performance for the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020.

• Sales increased $69.2 million to $441.0 million.

The increase in sales was primarily due to favorable cost pass-through pricing, a rebound in volumes in our Ecoservices segment and higher demand for our polyethylene catalysts.

• Gross profit increased $8.8 million to $122.2 million.

The increase in gross profit was primarily due to higher sales volumes, favorable cost pass-through pricing and favorable product mix, which was partially offset by an increase in manufacturing costs.

Operating Income

• Operating income decreased by $4.0 million to $36.6 million.

The increase in operating income was due to an increase in gross profit, partially offset by increased selling, general and maintenance costs and other operating expenses.

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the nine months ended September 30, 2021 was $20.7 million, compared with $19.9 million for the nine months ended September 30, 2020.

The increase of $0.8 million was due to an increase in sales volume in the Zeolyst Joint Venture for the nine months ended September 30, 2021.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the nine months ended September 30, 2021 and 2020:

Nine months ended

September 30, Change

March 31, Change

2022 2021 $ %

10 unchanged sentences

Interest expense, net 8.5 10.5 (2.0) (19.0) %

Debt extinguishment costs 26.9 16.5 10.4 63.0 %

Other expense (income), net 3.1 (0.2) 3.3 NM

Other expense (income), net 0.1 5.1 (5.0) (98.0) %

Income before income taxes and noncontrolling interest 13.6 (7.9) 21.5 (272.2) %

1 unchanged sentence

Effective tax rate 42.1 % 65.4 %

Net income from continuing operations (6.0) 8.3 (14.3) (172.3) %

Net (loss) income from discontinued operations, net of tax (159.1) 16.3 (175.4) NM

Net (loss) income (165.1) 24.6 (189.7) (771.1) %

Net income (loss) from continuing operations 7.9 (2.7) 10.6 (392.6) %

Net loss from discontinued operations, net of tax — (89.8) 89.8 (100.0) %

Net income (loss) 7.9 (92.5) 100.4 (108.5) %

Net income attributable to the noncontrolling interest—discontinued operations — 0.1 (0.1) (100.0) %

Net (loss) income attributable to Ecovyst Inc.

Net income (loss) attributable to Ecovyst Inc.

$ 7.9 $ (92.6) $ 100.5 (108.5) %

Nine months ended

September 30, Change

Three months ended

March 31, Change

2022 2021 $ %

4 unchanged sentences

Ecoservices :

Sales in Ecoservices for the nine months ended September 30, 2021 were $358.5 million, an increase of $59.8 million, or 20.0%, compared to sales of $298.7 million for the nine months ended September 30, 2020.

The increase in sales was due to higher average selling prices of $40.5 million and an increase in sales volumes of $19.3 million.

Higher average selling prices benefited from the pass-through of higher sulfur costs of $27.8 million.

Sales volumes increased as result of a rebound in refinery utilization compared to the prior year period that was depressed by the COVID-19 pandemic as well as the impact of our recent Chem32 acquisition.

Sales in Ecoservices for the three months ended March 31, 2022 were $154.0 million, an increase of $53.8 million, or 53.7%, compared to sales of $100.2 million for the three months ended March 31, 2021.

The increase in sales was due to higher average selling price of $37.3 million and an increase in sales volumes of $16.5 million.

Higher average selling prices benefited from favorable pricing, including the pass-through of higher freight, labor, and energy indexed costs, as well as the pass-through of higher sulfur costs of $21.3 million.

Sales volumes increased in both regeneration services and virgin sulfuric acid on demand recovery and the comparability to the prior year that was depressed by the freezing weather in the Gulf region, as well as the impact of our Chem32 acquisition.

Catalyst Technologies :

Sales in Catalyst Technologies for the nine months ended September 30, 2021 were $82.5 million, an increase of $9.4 million, or 12.9%, compared to sales of $73.1 million for the nine months ended September 30, 2020.

The increase in sales was due to an increase in volumes of $10.5 million partially offset by lower average selling prices of $2.7 million.

Demand for our polyethylene catalysts drove the increase in sales, with higher volumes more than offsetting lower customer price mix.

Gross profit for the nine months ended September 30, 2021 was $122.2 million, an increase of $8.8 million, or 7.8%, compared with $113.4 million for the nine mon ths ended September 30, 2020.

The increase in gross profit was due to favorable volumes in Ecoservices of $12.5 million, higher pricing of $10.0 million and favorable product mix in Silica Catalysts of $9.3 million, which was partially offset by higher manufacturing costs of $18.7 million.

The impact of favorable volumes on our gross profit was a result of a rebound in refinery utilization compared to the prior year period that was burdened by the COVID-19 pandemic as well as the impact of our recent Chem32 acquisition.

Take or pay provisions within our contracts drove a favorable pricing benefit.

The favorable product mix in Silica Catalysts was due to increased demand for our higher-margin polyethylene catalysts.

One-time repair costs related to winter storms in the Gulf region, timing of plant “turnaround” maintenance expenditures and higher inventory absorption costs drove the unfavorable change in manufacturing costs.

Sales in Catalyst Technologies for the three months ended March 31, 2022 were $25.7 million, a decrease of $0.7 million, or (2.7)%, compared to sales of $26.4 million for the three months ended March 31, 2021 .

The decrease in sales was driven by delayed shipments and the timing of the niche custom catalyst sales, offset by higher polyethylene catalyst sales.

Price increases implemented late in 2021 and an energy surcharge program are offsetting inflating costs.

Gross profit for the three months ended March 31, 2022 was $47.7 million, an increase of $17.6 million, or 58.5%, compared with $30.1 million for the three mon ths ended March 31, 2021.

The increase in gross profit was due to favorable volumes of $9.6 million, higher pricing of $36.5 million, partially offset by higher manufacturing costs of $28.1 million.

The higher average selling prices and favorable volumes on our gross profit was a driven by favorable pricing and pass through of higher variable costs along with higher volume demand in our Ecoservices business.

Rising inflation costs on raw materials, energy, and transportation primarily drove the higher manufacturing costs, that were more than offset in price, in March 31, 2022 as compared to March 31, 2021 .

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2021 was $68.8 million, an increase of $7.3 million as compa red to $61.5 million for the nine months ended September 30, 2020.

The increase in selling, general and administrative expenses was due to increased compensation-related expenses, partially offset by income generated from the transition service agreement entered into as part of the sale of the Performance Materials business.

Selling, general and administrative expenses for the three months ended March 31, 2022 was $23.5 million, an increase of $1.4 million as compa red to $22.1 million for the three months ended March 31, 2021.

The increase in selling, general and administrative expenses was due to higher compensation-related expenses.

Other Operating Expense, Net

Other operating expense, net for the nine months e nded September 30, 2021 was $16.8 million, an increase of $5.5 million, compared with $11.3 million for the nine months ended September 30, 2020.

The increase in other operating expense, net was a result of asset disposals related to plant “turnaround” maintenance projects and severance charges incurred in the current year period.

Other operating expense, net for the three months e nded March 31, 2022 was $7.7 million, an increase of $2.2 million, compared with $5.5 million for the three months ended March 31, 2021.

The decrease in other operating expense, net was primarily a result of lower severance charges incurred in the current period.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the nine months ended September 30, 2021 was $20.7 million, compared to $19.9 million for the nine months ended September 30, 2020.

The increase was primarily due to $0.9 million of lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2021.

Equity in net income of affiliated companies for the three months ended March 31, 2022 was $5.7 million, compared to $5.2 million for the three months ended March 31, 2021.

The increase was primarily due to $0.5 million of higher earnings from the Zeolyst Joint Ventur e during the three months ended March 31, 2022 .

Interest Expense, Net

Interest expense, net for the nine months ended September 30, 2021 was $28.2 million, a decrease of $12.7 million, as compared with $40.9 million for the nine months ended September 30, 2020.

Interest expense, net for the three months ended March 31, 2022 was $8.5 million, a decrease of $2.0 million, as compared with $10.5 million for the three months ended March 31, 2021.

The decrease in interest expense was primarily due to lower interest rates on our variable-rate debt and lower average debt balances.

Debt Extinguishment Costs

Debt extinguishment costs were $26.9 million and $16.5 million for the nine months ended September 30, 2021 and 2020 , respectively.

In connection with the redemption of the Senior Notes, we paid a redemption premium of $8.5 million, which was recorded as debt extinguishment costs during the nine months ended September 30, 2021.

In June 2021, we entered into an agreement for a new senior secured term loan facility and used the proceeds to repay a portion of our existing term loan facilities.

As a result of this transaction, we recorded $5.7 million of new creditor and third-party financing costs as debt extinguishment costs during the three months ended September 30, 2021.

In addition, previous unamortized deferred financing costs of $1.7 million and original issue discount of $3.7 million associated with the previously outstanding debt were written off as debt extinguishment costs.

In June 2021, we amended our ABL Credit Agreement to decrease the aggregate amount of revolving loan commitments and extend the maturity date.

As a result of the amendment, we wrote off $0.5 million of unamortized deferred financing costs as debt extinguishment costs.

On February 7, 2020, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to February 2027.

We recorded $2.2 million of new creditor and third-party financing fees as debt extinguishment costs for the nine months ended September 30, 2020 .

In addition, previously unamortized deferred financing costs of $0.1 million and original issue discount of $0.2 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the nine months ended September 30, 2020 .

Other Expense (Income), Net

Other (income) expense, net for the nine months ended September 30, 2021 was expense of $3.1 million, a decrease of $3.3 million, as compared with income of $0.2 million for the nine months ended September 30, 2020.

The decrease in other (income) expense, net primarily consisted of foreign currency losses in the current year as compared to gains in the prior year related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

Other Expense, Net

Other expense, net for the three months ended March 31, 2022 was $0.1 million, a decrease of $5.0 million, as compared with income of $5.1 million for the three months ended March 31, 2021.

The decrease in other expense, net primarily consisted of smaller foreign currency gain in the current year as compared to the prior year related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

dollar, offset by net periodic benefit for the defined benefit pension and postretirement plans.

Provision (Benefit) for Income Taxes

The benefit for income taxes for the nine months ended September 30, 2021 was $5.1 million compared to a $5.0 million benefit for the nine 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 fluctuates primarily due to income mix, the impacts of GILTI, discrete impacts 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 provision for income taxes for the three months ended March 31, 2022 was $5.7 million compared to a $5.2 million benefit for the three months ended March 31, 2021.

The effective income tax rate for the three months ended March 31, 2022 was 42.1% compared to 65.4% for the three months ended March 31, 2021.

The Company’s effective income tax rate fluctuates primarily due to GILTI, discrete impacts of the divestiture of the Performance Chemicals business, and tax rate changes.

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 the impacts of GILTI, 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.

Net (Loss) Income Attributable to Ecovyst

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net loss attributable to Ecovyst was $165.4 million for the nine months ended September 30, 2021 compared with net income of $23.7 million for the nine months ended September 30, 2020.

federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2022 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, and a discrete tax expense associated with the Employee Retention Credit.

Net Income (Loss) Attributable to Ecovyst

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for the period ending March 31, 2021, net income attributable to Ecovyst was $7.9 million for the three months ended March 31, 2022 compared with net loss of $92.6 million for the three months ended March 31, 2021.

Adjusted EBITDA

Summarized Segment Adjusted EBITDA information is shown below in the following table:

Nine months ended

September 30, Change

Summarized Adjusted EBITDA information is shown below in the following table:

Three months ended

March 31, Change

2022 2021 $ %

(in millions, except percentages)

Segment Adjusted EBITDA:

Adjusted EBITDA:

Ecoservices $ 49.3 $ 33.0 $ 16.3 49.4 %

1 unchanged sentence

17.0 18.5 (1.5) (8.1) %

Total Segment Adjusted EBITDA (3)

190.0 176.2 13.8 7.8 %

Unallocated corporate expenses (7.1) (9.2) 2.1 (22.8) %

(25.6) (29.5) 3.9 13.2 %

Total Adjusted EBITDA $ 164.4 $ 146.7 $ 17.7 12.1 %

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA.

Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $37.1 million for the nine months ended September 30, 2021, which includes $20.8 million of equity in net income, excluding $4.9 million of amortization of investment in affiliate step-up plus $11.4 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $35.9 million for the nine months ended September 30, 2020, which includes $19.9 million of equity in net income, excluding $5.0 million of amortization of investment in affiliate step-up plus $11.1 million of joint venture depreciation, amortization and interest.

(3) Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses.

Rounding discrepancies may arise when rounding segment results from dollars (in thousands) to dollars (in millions).

Adjusted EBITDA for the nine months ended September 30, 2021 was $125.4 million, an increase of $8.9 million, or 7.6%, compared with $116.5 million for the nine mo nths ended September 30, 2020.

The increase in Adjusted EBITDA was due to a rebound in sales volumes partially offset by higher repair costs to our facilities and lost sales related to winter storm Uri.

Total $ 59.2 $ 42.3 $ 16.9 40.0 %

(1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA.

Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $11.5 million for the three months ended March 31, 2022, which includes $5.8 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $4.1 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $10.5 million for the three months ended March 31, 2021, which includes $5.2 million of equity in net income, excluding $1.7 million of amortization of investment in affiliate step-up plus $3.6 million of joint venture depreciation, amortization and interest.

Adjusted EBITDA for the three months ended March 31, 2022 was $49.3 million, an increase of $16.3 million, or 49.4%, compared with $33.0 million for the three mo nths ended March 31, 2021.

The increase in Adjusted EBITDA was a result of higher volume, favorable pricing covering rising input costs, and the benefit of the Chem32 acquisition that closed in March 2021.

Catalyst Technologies:

Adjusted EBITDA for the nine months ended September 30, 2021 was $64.6 million, an increase of $4.9 million, or 8.2%, compared with $59.7 million for the nine months ended September 30, 2020.

The increase in Adjusted EBITDA was a result of higher demand for polyethylene catalyst and catalyst used for renewable fuels as well as favorable inventory absorption to match anticipated future demand partially offset by lower hydrocracking and specialty catalyst sales volumes.

A reconciliation of net income from continuing operations to Segment Adjusted EBITDA is as follows:

Nine months ended

September 30,

Adjusted EBITDA for the three months ended March 31, 2022 was $17.0 million, a decrease of $1.5 million, or 8.1%, compared with $18.5 million for the three months ended March 31, 2021.

The decrease in Adjusted EBITDA was due to lower volumes as well as higher input and energy production costs.

A reconciliation of net income (loss) from continuing operations to Adjusted EBITDA is as follows:

Three months ended

(in millions)

Reconciliation of net income from continuing operations to Segment Adjusted EBITDA

Net income from continuing operations $ (6.0) $ 8.3

Reconciliation of net income (loss) from continuing operations to Adjusted EBITDA

Net income (loss) from continuing operations $ 7.9 $ (2.7)

Provision (benefit) for income taxes 5.7 (5.2)

4 unchanged sentences

Amortization of investment in affiliate step-up (b)

Debt extinguishment costs 26.9 16.5

Net loss on asset disposals (c)

Foreign currency exchange loss (gain) (d)

LIFO benefit (e)

Foreign currency exchange loss (d)

LIFO expense (benefit) (e)

Transaction and other related costs (f)

3 unchanged sentences

Adjusted EBITDA $ 59.2 $ 42.3

Unallocated corporate expenses 25.6 29.5

Segment Adjusted EBITDA $ 190.0 $ 176.2

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results.

17 unchanged sentences

Summarized adjusted net income information is shown below in the following table:

Nine months ended September 30,

Three months ended March 31,

Pre-tax Tax expense (benefit) After-tax Pre-tax Tax expense (benefit) After-tax

(in millions)

Reconciliation of net income from continuing operations to Adjusted Net Income (1)(2)

Net income attributable to Ecovyst Inc.

Reconciliation of net income (loss) from continuing operations to Adjusted Net Income (1)(2)

Net income (loss) attributable to Ecovyst Inc.

$ 13.6 $ 5.7 $ 7.9 $ (7.9) $ (5.2) $ (2.7)

1 unchanged sentence

1.6 0.4 1.2 1.7 0.6 1.1

Debt extinguishment costs 26.9 7.5 19.4 16.5 6.0 10.5

Net loss on asset disposals (c)

0.1 — 0.1 0.8 0.2 0.6

Foreign currency exchange losses (gains) (d)

Foreign currency exchange loss (d)

0.6 0.1 0.5 5.1 1.4 3.7

LIFO benefit (e)

LIFO expense (benefit) (e)

0.2 0.1 0.1 (0.3) (0.1) (0.2)

2 unchanged sentences

Equity-based compensation (4)

7.3 (0.3) 7.6 6.3 1.8 4.5

Restructuring, integration and business optimization expenses (g)

13 unchanged sentences

(4) Includes tax adjustments for the shortfall in stock compensation.

The adjustments to net income attributable to Ecovyst Inc.

are shown net of applicable tax rates of 28.0% and 36.3% for the nine months ended September 30, 2021 and 2020, respectively, except for the foreign currency exchange loss and discrete impacts of the divestiture of the Performance Chemicals business.

are shown net of applicable tax rates of 24.7% and 28.8% for the three months ended March 31, 2022 and 2021, respectively, except for the foreign currency exchange loss, equity-based compensation, transactions and other related costs, and discrete impacts of the divestiture of the Performance Chemicals business.

Financial Condition, Liquidity and Capital Resources

6 unchanged sentences

We may, from time to time, increase borrowings under our asset based lending revolving credit facility to meet our future cash needs.

As of September 30, 2021, we had cash and cash equivalents of $104.8 million and availability of $60.8 million under our asset based lending revolving credit facility, after giving effect to $17.5 million of outstanding letters of credit, for a total available liquidity of $165.6 million.

We did not have any revolving credit facility borrowings as of September 30, 2021.

As of September 30, 2021, we were in compliance with all covenants under our debt agreements.

We held an immaterial balance of cash and cash equivalents in foreign jurisdictions as of September 30, 2021.

As of March 31, 2022, we had cash and cash equivalents of $129.7 million and availability of $76.8 million under our asset based lending revolving credit facility, after giving effect to $13.4 million of outstanding letters of credit, for a total available liquidity of $206.5 million.

We did not have any revolving credit facility borrowings as of March 31, 2022.

As of March 31, 2022, we were in compliance with all covenants under our debt agreements.

We held an immaterial balance of cash and cash equivalents in foreign jurisdictions as of March 31, 2022.

We continue to repatriate cash held outside of the United States from certain foreign subsidiaries in order to meet domestic liquidity needs.

4 unchanged sentences

However, foreign earnings may still be taxed for state income tax purposes, as well as subject to certain foreign withholding tax obligations, when cash amounts are distributed back to the U.S.

Our liquidity requirements are significant, primarily due to debt service requirements.

As reported, our cash interest paid for the nine months ended September 30, 2021 and 2020 wa s approximately $43.1 million and $75.3 million, respectively.

Our liquidity requirements include interest payments related to our debt structure.

As reported, our cash interest paid for the three months ended March 31, 2022 and 2021 wa s approximately $8.4 million and $17.8 million, respectively.

Before any impact of hedges, a one percent change in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately $8.9 million on interest expense.

We hedge the interest rate fluctuations on debt obligations through interest rate cap agreements.

As of September 30, 2021, we had interest rate caps on $500.0 million of notional variable-rate debt with a cap rate of 0.84% through July 2022 and $400.0 million of notional variable-rate debt with a cap rate of 1.00% through August 2023.

Nine months ended

September 30,

As of March 31, 2022, we had interest rate caps on $500.0 million of notional variable-rate debt with a cap rate of 0.84% through July 2022, $400.0 million of notional variable-rate debt with a cap rate of 1.00% through August 2023, $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2024, and $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2025.

The Company’s off-balance sheet arrangements include $13.4 million of outstanding letters of credit on our ABL Facility as of March 31, 2022.

Three months ended

(in millions)

15 unchanged sentences

Cash, cash equivalents and restricted cash at end of period of continuing operations $ 129.7 $ 56.7

Nine months ended

September 30,

Three months ended

(in millions)

6 unchanged sentences

(1) Includes depreciation, amortization, amortization of deferred financing costs and original issue discount, foreign currency exchange gains and losses, deferred income tax provision (benefit), net (gains) losses on asset disposals, stock compensation expense and equity in net income and dividends received from affiliated companies.

Nine months ended

September 30,

Three months ended

(in millions)

7 unchanged sentences

$ (40.7) $ (4.3)

Nine months ended

September 30,

Three months ended

(in millions)

1 unchanged sentence

Purchases of property, plant and equipment $ (10.8) $ (12.6)

Proceeds from business divestiture, net of cash 980.4 —

Business combinations, net of cash acquired — (42.0)

Proceeds from sale of assets — 2.4

Other, net (0.1) —

Net cash provided by (used in) investing activities, continuing operations $ 892.9 $ (32.2)

Nine months ended

September 30,

Net cash used in investing activities, continuing operations $ (14.4) $ (54.6)

Three months ended

(in millions)

Continuing Operations

Net revolving credit facilities borrowings $ — $ —

Net cash borrowings (repayments) on debt obligations (2.3) —

Proceeds from failed sale-leaseback 14.1 —

Dividends paid to stockholders (435.6) —

Other financing activities (9.9) (3.9)

Tax withholdings on equity award vesting (0.3) (1.5)

Net cash used in financing activities, continuing operations $ (2.6) $ (1.5)

The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our Performance Materials and Performance Chemicals businesses accounted for as discontinued operations.

Net cash provided by operating activities was $92.3 million for the nine months ended September 30, 2021, compared to $56.4 million provided for the nine months ended September 30, 2020.

Cash generated by operating activities, other than changes in working capital, was higher during the nine months ended September 30, 2021 by $20.7 million compared to the same period in the prior year.

The change in working capital during the nine months ended September 30, 2021 was favorable compared to the nine months ended September 30, 2020.

Cash used to fund working capital was $18.5 million and $33.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our Performance Chemicals business accounted for as discontinued operations during the three months ended March 31, 2021.

Net cash provided by operating activities was $6.4 million for the three months ended March 31, 2022, compared to $16.5 million provided for the three months ended March 31, 2021.

Cash generated by operating activities, other than changes in working capital, was higher during the three months ended March 31, 2022 by $26.3 million compared to the same period in the prior year.

The change in working capital during the three months ended March 31, 2022 was unfavorable compared to the three months ended March 31, 2021.

Cash used to fund working capital was $40.7 million and $4.3 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in cash generated by operating activities, other than changes in working capital, was higher by $26.3 million as compared to the prior year period primarily due to an increase in operating profit and an increase in dividends received from affiliated companies.

The increase in cash from working capital of $15.2 million as compared to the prior year was primarily due to unfavorable changes in accounts receivable and prepaid and other current assets, which were partially offset by favorable changes in inventories, accounts payable and accrued liabilities.

The unfavorable change in accounts receivable was driven by the increase in sales volumes and higher pass-through pricing within our Ecoservices segment and the timing of sales within our Catalysts segment.

The unfavorable change in prepaid and other current assets relates to the timing of receivables from related parties and the timing of insurance prepayments.

The increase in cash provided by inventory was due to the increase in sales within our Catalysts segment in the current year period.

The favorable change in accounts payable is due to the timing of vendor payments as well as capital spending.

The favorable change in accrued liabilities relates to changes in various accruals.

Net cash provided by investing activities was $892.9 million for the nine months ended September 30, 2021, compared to cash used of $32.2 million during the same period in 2020.

Cash used in investing activities consisted of utilizing $44.6 million and $34.6 million to fund capital expenditures during the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, we divested our Performance Chemicals business and received $980.4 million in net proceeds and acquired Chem32, LLC for $42.8 million.

We received proceeds of $2.4 million related to the sale of non-core assets during the nine months ended September 30, 2020.

Net cash used in financing activities was $963.5 million for the nine months ended September 30, 2021, compared to net cash used of $9.8 million during the same period in 2020.

During the nine months ended September 30, 2021, we used the proceeds from the divestiture of the Performance Chemicals business to repay approximately $526.4 million of outstanding debt, pay a special dividend of $435.6 million and pay a redemption premium on our debt of $8.5 million.

Net cash used in financing activities was primarily driven by $10.6 million of debt prepayment charges and $4.1 million of stock repurchases, which was partially offset by $4.7 million of net debt borrowings for the nine months ended September 30, 2020.

September 30,

The decrease in cash from working capital of $36.4 million as compared to the prior year was primarily due to unfavorable changes in accounts receivable, inventories, prepaid and other current assets, and accrued liabilities which were partially offset by favorable changes in accounts payable.

The unfavorable change in accounts receivable was driven by the timing of sales.

The unfavorable change in prepaid and other current assets primarily relates to the timing of non-trade receivables from related parties and the timing of insurance prepayments.

The increase of cash used by inventory was due to the inflation costs on raw materials and finished goods, where as cash provided in prior period was due to the timing of sales orders and inventory build.

The favorable change in accounts payable is due to the timing of vendor payments as well as lower capital spending.

The unfavorable change in accrued liabilities relates to changes in various accruals.

Net cash used in investing activities was $14.4 million for the three months ended March 31, 2022, compared to cash used of $54.6 million during the same period in 2021.

Cash used in investing activities consisted of utilizing $10.8 million and $12.6 million to fund capital expenditures during the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2021, we acquired Chem32, LLC for $42.0 million.

Net cash used in financing activities was $2.6 million for the three months ended March 31, 2022, compared to net cash used of $1.5 million during the same period in 2021.

Net cash used in financing activities was primarily driven by $2.3 of debt repayment charges for the three months ended March 31, 2022.

2022 December 31,

(in millions)

Senior Secured Term Loan Facility due February 2027 (the “2016 Term Loan Facility”) (1)

Senior Secured Term Loan Facility due February 2027 (the “2020 Term Loan Facility”) — 459.7

Senior Secured Term Loan Facility due June 2028 (the “2021 Term Loan Facility”) 897.8 —

5.750% Senior Notes due 2025 (the “Senior Notes”) (1)

Senior Secured Term Loan Facility due June 2028 $ 893.2 $ 895.5

ABL Facility — —

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Total long-term debt, excluding current portion $ 871.1 $ 872.8

(1) A portion of the net cash proceeds from the closing of the sale of the Performance Chemicals business was used to repay the 2016 Term Loan Facility in full and to redeem all of the Senior Notes.

As of September 30, 2021, our total debt was $897.8 million, excluding the original issue discount of $9.1 million and deferred financing fees of $5.1 million for our senior secured credit facilities and notes.

Our net debt as of September 30, 2021 was $793.0 million, including cash and cash equivalents of $104.8 million.

As of March 31, 2022, our total debt was $893.2 million, excluding the original issue discount of $8.4 million and deferred financing fees of $4.7 million for our senior secured credit facilities.

Our net debt as of March 31, 2022 was $763.5 million, including cash and cash equivalents of $129.7 million.

We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt.

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 entered into an agreement for a new senior secured term loan facility in an aggregate principal amount of $900.0 million 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.

In June 2021, PQ Corp also entered into a third amendment agreement (the “ABL Amendment”), which amended the 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 closing of 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 $150.0 million to $100.0 million, consisting of $90.0 million in U.S.

commitments and $10.0 million on in European commitments and extended the maturity date with respect to borrowings under the Amended ABL Credit Agreement to August 2, 2026.

Capital Expenditures

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These capital expenditures represent our “book” capital expenditures for which the company has recorded, but not necessarily paid for the capital expenditures.

Nine months ended

September 30,

Three months ended

(in millions)

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Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods.

Maintenance capital expenditures were higher in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due to higher plant maintenance costs and spending on health and safety.

Growth capital expenditures were in-line in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Pension Funding

We did not pay any cash contributions into our defined benefit plans and other postretirement plans during the nine months ended September 30, 2021.

We paid $3.3 million in cash contributions into our defined benefit pension plans and other post-retirement plans during the nine months ended September 30, 2020.

The net periodic pension expense was $1.8 million and $0.3 million for the nine months ended September 30, 2020, respectively.

Off–Balance Sheet Arrangements

We had $17.5 million of outstanding letters of credit on our ABL Facility as of September 30, 2021.

Contractual Obligations

Information related to our contractual obligations at December 31, 2020 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 17, 2021, which we refer to as our Annual Report on Form 10-K.

During the nine months ended September 30, 2021, there have been no significant changes to our contractual obligations as disclosed in our Annual Report on Form 10-K.

Maintenance capital expenditures were lower in the three months ended March 31, 2022 compared to the three months ended March 31, 2021 due to lower turnaround expenditures.

Growth capital expenditures were lower in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, due to the completion of several expansion projects in 2021.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis