Ecovyst Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unless the context requires otherwise, references in this report to “Ecovyst,” “the company,” “we,” “us” or “our” refer to Ecovyst Inc. and its consolidated subsidiaries. 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, 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. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. 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 the following risks related to our business: • as a global business, we are exposed to local business risks in different countries; • we are affected by general economic conditions and economic downturns; • exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows; • our international operations require us to comply with anti-corruption laws, trade and export controls and regulations of the U.S. government and various international jurisdictions in which we do business; • alternative technology or other changes in our customers’ products may reduce or eliminate the need for certain of our products; • our new product development and research and development efforts may not succeed and our competitors may develop more effective or successful products; • our substantial level of indebtedness could adversely affect our financial condition; • if we are unable to manage the current and future inflationary environment and to pass on increases in raw material prices, including natural gas, or labor costs to our customers or to retain or replace our key suppliers, our results of operations and cash flows may be negatively affected; • we face substantial competition in the industries in which we operate; • we are subject to the risk of loss resulting from non-payment or non-performance by our customers; • we rely on a limited number of customers for a meaningful portion of our business; • multi-year customer contracts in our Ecoservices segment are subject to potential early termination and such contracts may not be renewed at the end of their respective terms; • our quarterly results of operations are subject to fluctuations because demand for some of our products is seasonal; • our growth projects may result in significant expenditures before generating revenues, if any, which may materially and adversely affect our ability to implement our business strategy; • we may be liable to damages based on product liability claims brought against us or our customers for costs associated with recalls of our or our customers’ products; 33 Table of Contents • we are subject to extensive environmental, health and safety regulations and face various risks associated with potential non-compliance or releases of hazardous materials; • existing and proposed regulations to address climate change by limiting greenhouse gas emissions may cause us to incur significant additional operating and capital expenses and may impact our business and results of operations; • production and distribution of our products could be disrupted for a variety of reasons, including as a result of supply chain constraints, and such disruptions could expose us to significant losses or liabilities; • the insurance that we maintain may not fully cover all potential exposures; • we could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications; • our failure to protect our intellectual property and infringement on the intellectual property rights of third parties; • disruption, failure or cyber security breaches affecting or targeting computers and infrastructure used by us or our business partners may adversely impact our business and operations • the impact of the 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; and • other factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as supplemented by “Item 1A, Risk Factors” in our quarterly reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022. The forward-looking statements included herein are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations. Overview We are a leading, integrated and innovative global provider of specialty catalysts and services. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment. We conduct operations through two reporting segments: (1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture). Ecoservices: 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. We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining, and industrial applications. Catalyst Technologies: 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 help produce renewable fuels, 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 has created global economic and political uncertainties and affected certain 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 were immaterial for the nine months ended September 30, 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. 34 Table of Contents Stock Repurchase Program In April 2022, our Board of Directors approved and announced a new stock repurchase program authorizing the repurchase of up to $450 million of the Company’s outstanding common stock over the next four years. This 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 the Company’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. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA imposes a 15% corporate alternative minimum tax for certain large corporations with average annual adjusted financial statement income in excess of $1 billion for tax years beginning after December 31, 2022, levies a 1% excise tax on net stock repurchases after December 31, 2022, and provides tax incentives to promote clean energy. Historically, during the year we have made discretionary share repurchases. Beginning in 2023, these purchases would be subject to the excise tax. Based on the historical net repurchase activity the excise tax and the other provisions of the IRA are not expected to have a material impact on our results of operations or financial position. However, we are still in the process of analyzing the provisions of the IRA. From the announcement date of the program through September 30, 2022, the Company repurchased 1,970,763 shares of its common stock on the open market at an average price of $9.82 per share, for a total of $19.4 million. Additionally, in connection with a secondary offering of the Company’s common stock in August 2022, the Company repurchased 6,500,000 shares of its common stock sold in the offering from the underwriters at a price of $8.36 per share simultaneous with the closing of the offering, for a total of $54.3 million. As of September 30, 2022, $376.3 million was available for additional share repurchases under the program. There were no repurchases during September 2022. Key Performance Indicators Adjusted EBITDA and Adjusted Net Income Adjusted EBITDA and adjusted net income are financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that we use to evaluate our operating performance, for business planning purposes and to measure our performance relative to that of our competitors. Adjusted EBITDA and adjusted net income are presented as key performance indicators as we believe these financial measures will enhance a prospective investor’s understanding of our results of operations and financial condition. EBITDA consists of net income (loss) attributable to continuing operations before interest, taxes, depreciation and amortization. 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 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. You should not consider adjusted EBITDA or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with GAAP. The presentation of adjusted EBITDA and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. In evaluating adjusted EBITDA and adjusted net income, you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of adjusted EBITDA and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Reconciliations of adjusted EBITDA and adjusted net income to GAAP net income (loss) are included in the results of operations discussion that follows for each of the respective periods. 35 Table of Contents Key Factors and Trends Affecting Operating Results and Financial Condition Sales Overall, our Ecoservices and Catalyst Technologies segments' sales have grown as high demand for our products continue from the lows experienced due to the impact of the COVID-19 global pandemic and extreme weather experienced in the Gulf region in 2021. Polyethylene 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 may experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements. Cost of Goods Sold Cost of goods sold consists of variable product costs, fixed manufacturing expenses, depreciation expense and freight expenses. Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process. 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. The primary raw materials used in the manufacture of products in our Catalyst Technologies segments include sodium silicate and cesium hydroxide. Most of our Ecoservices contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S. chemical plant construction cost index) and natural gas. 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 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. While natural gas is not a direct feedstock for any product, natural gas powered machinery and equipment are used to heat raw materials and create the chemical reactions necessary to produce end-products. 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 Venture We account for our investments in our equity joint ventures under the equity method. 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 venture with the other parties to such joint venture. Seasonality 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. These demand fluctuations result in higher sales and working capital requirements in the second and third quarter. Foreign Currency 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. dollars. We operate in various geographies with approximately 6% of our sales for the nine months ended September 30, 2022 and for the year ended December 31, 2021 in currencies other than the U.S. dollar. Because our consolidated financial results are reported in U.S. dollars, sales or earnings generated in currencies other than the U.S. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to U.S. dollars. The foreign currency to which we have the most significant exchange rate exposure is the British pound. 36 Table of Contents Results of Operations Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021 Highlights The following is a summary of our financial performance for the three months ended September 30, 2022 compared with the three months ended September 30, 2021. Sales • Sales increased $65.1 million to $232.5 million. The increase in sales was primarily due to higher sales volumes and higher average selling prices, including the favorable pass-through of sulfur pricing. Gross Profit • Gro ss profit increased $14.1 million to $67.7 million. The increase in gross profit was primarily due t o higher sales volumes and favorable pricing, partially offset by increased manufacturing costs. Operating Income • Operating income increased by $16.0 million to $38.5 million. The increase in operating income was due to an increase in gross profit and lower selling, general and administrative expenses, partially 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, 2022 was $3.2 million, compared to $8.8 million for the three months ended September 30, 2021. The decrease of $5.6 million was due to lower earnings generated by the Zeolyst Joint Venture for the three months ended September 30, 2022, driven by lower sales volumes within the joint venture. 37 Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended September 30, 2022 and 2021: Three months ended September 30, Change 2022 2021 $ % (in millions, except percentages) Sales $ 232.5 $ 167.4 $ 65.1 38.9 % Cost of goods sold 164.8 113.8 51.0 44.8 % Gross profit 67.7 53.6 14.1 26.3 % Gross profit margin 29.1 % 32.0 % Selling, general and administrative expenses 21.5 24.8 (3.3) (13.3) % Other operating expense, net 7.7 6.3 1.4 22.2 % Operating income 38.5 22.5 16.0 71.1 % Operating income margin 16.6 % 13.4 % Equity in net (income) from affiliated companies (3.2) (8.8) 5.6 (63.6) % Interest expense, net 9.5 9.0 0.5 5.6 % Debt extinguishment costs — 15.2 (15.2) (100.0) % Other expense (income), net 1.9 (0.2) 2.1 NM Income before income taxes and noncontrolling interest 30.3 7.3 23.0 315.1 % Provision for income taxes 9.0 2.6 6.4 246.2 % Effective tax rate 29.6 % 35.6 % Net income from continuing operations 21.3 4.7 16.6 353.2 % Net loss from discontinued operations, net of tax — (75.9) 75.9 (100.0) % Net income (loss) 21.3 (71.2) 92.5 (129.9) % Less: Net income attributable to the noncontrolling interest—discontinued operations — 0.1 (0.1) (100.0) % Net income (loss) attributable to Ecovyst Inc. $ 21.3 $ (71.3) $ 92.6 (129.9) % Sales Three months ended September 30, Change 2022 2021 $ % (in millions, except percentages) Sales: Ecoservices $ 195.7 $ 137.5 $ 58.2 42.3 % Catalyst Technologies 36.8 29.9 6.9 23.1 % Total sales $ 232.5 $ 167.4 $ 65.1 38.9 % Ecoservices: Sales in Ecoservices for the three months ended September 30, 2022 were $195.7 million, an increase of $58.2 million, or 42.3%, compared to sales of $137.5 million for the three months ended September 30, 2021. The increase in sales was due to higher average selling prices of $53.3 million and a $4.9 million contribution from higher sales volumes. Higher average selling prices were primarily a result of the pass-through of higher sulfur costs of $28.3 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 strong demand for regeneration services during the quarter. Catalyst Technologies: Sales in Catalyst Technologies for the three months ended September 30, 2022 were $36.8 million, an increase of $6.9 million, or 23.1%, compared to sales of $29.9 million for the three months ended September 30, 2021. Of the increase in sales, $9.9 million was associated with higher sales volumes, driven by demand for our polyethylene catalysts, partially offset by price of $0.3 million and unfavorable foreign exchange of $2.7 million. 38 Table of Contents Gross Profit Gross profit for the three months ended September 30, 2022 was $67.7 million, an increase of $14.1 million, or 26.3%, compared with $53.6 million for the thre e months ended September 30, 2021. The increase in gross profit was due to higher sales volumes, which accounted for $13.6 million of the increase, and higher average selling prices of $53.0 million, which were partially offset by unfavorable manufacturing costs of $47.8 million and a $4.7 million impact associated with a less-favorable sales mix. The favorable change in volumes was a result of increased demand for our polyethylene catalysts, niche custom catalysts, and regeneration services. Favorable customer pricing was primarily driven by increased prices to cover rising variable costs, including the pass-through of sulfur, labor index and energy costs within our Ecoservices business. The increase in manufacturing costs was a result of higher variable costs, maintenance and transportation costs. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2022 were $21.5 million, a decrease of $3.3 million compared with $24.8 million for the three months ended September 30, 2021. The decrease in selling, general and administrative expenses was primarily due to a decrease in stock-based compensation expense of $5.5 million, which consisted of $4.0 million of incremental cost recognized during the three months ended September 30, 2021 in connection with the modifications of our equity incentive awards and stock options associated with the special dividend and sale of the Performance Chemicals business in August 2021, with the remaining decrease driven by forfeitures of equity incentive awards in 2022 by former Company executives and employees of the Performance Chemicals business. This was partially offset by higher other compensation-related expenses of $1.2 million and net increases in other costs of $1.0 million. Other Operating Expense, Net Other operating expense, net for the three months ended September 30, 2022 was $7.7 million, an increase of $1.4 million, compared with $6.3 million for the three months ended September 30, 2021. The increase in other operating expense, net was mainly driven by severance charges incurred from contracts associated with former executives incurred in the current period $1.2 million. Equity in Net Income of Affiliated Companies Equity in net income of affiliated comp anies for the three months ended September 30, 2022 was $3.2 million, compared to $8.8 million for the three months ended September 30, 2021. The decrease was primarily due to $5.7 million of lower earnings from the Zeolyst Joint Venture during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. The decrease in earnings from the Zeolyst Joint Venture was due to lower sales volumes for our hydrocracking and specialty catalysts. Interest Expense, Net Interest expense, net for the three month s ended September 30, 2022 was $9.5 million, an increase of $0.5 million, as compared with $9.0 million for the three months ended September 30, 2021. The increase in interest expense, net was primarily due to the year over year increase in variable rate debt, which was partially offset by lower outstanding debt during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Debt Extinguishment Costs Debt extinguishment costs for the three months ended September 30, 2021 were $15.2 million. 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. 39 Table of Contents Other Expense (Income), Net Other expense (income), net for the three months ended September 30, 2022 was expense of $1.9 million, a change of $2.1 million, as compared with income of $0.2 million for the three months ended September 30, 2021. The change in other expense, net primarily consisted of a lower net periodic benefit for the defined benefit pension and postretirement plans of $0.9 million and increases in other net costs of $1.2 million. Provision for Income Taxes The provision for income taxes for the three months ended September 30, 2022 was $9.0 million compared to a $2.6 million provision for the three months ended September 30, 2021. The effective income tax rate for the three months ended September 30, 2022 was 29.6% compared to 35.6% for the three months ended September 30, 2021. 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, 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 After the effect of the non-controlling interest in earnings of subsidiaries for each period presented, net income attributable to Ecovyst was $21.3 million for the three months ended September 30, 2022 compared with net loss of $71.3 million for the three months ended September 30, 2021. Adjusted EBITDA Summarized Segment Adjusted EBITDA information is shown below in the following table: Three months ended September 30, Change 2022 2021 $ % (in millions, except percentages) Segment Adjusted EBITDA: (1) Ecoservices $ 64.1 $ 51.9 $ 12.2 23.5 % Catalyst Technologies (2) 19.3 25.5 (6.2) (24.3) % Unallocated corporate expenses (8.0) (8.0) — — % Total Adjusted EBITDA $ 75.4 $ 69.4 $ 6.0 8.6 % (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 $8.7 million for the three months ended September 30, 2022, which includes $3.2 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.9 million of joint venture depreciation, amortization and interest. 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. Ecoservices: Adjusted EBITDA for the three months ended September 30, 2022 was $64.1 million, an increase of $12.2 million, or 23.5%, compared with $51.9 million for the three months ended September 30, 2021. The increase in Adjusted EBITDA was a result of favorable regeneration services and virgin sulfuric acid pricing that more than covered higher variable costs, along with increased demand for regeneration services during the quarter. Catalyst Technologies: Adjusted EBITDA for the three months ended September 30, 2022 was $19.3 million, a decrease of $6.2 million, or 24.3%, compared with $25.5 million for the three months ended September 30, 2021. The decrease in Adjusted EBITDA was primarily a result of unfavorable product mix and higher production costs, partially offset by higher sales volumes. 40 Table of Contents A reconciliation of net income from continuing operations to Adjusted EBITDA is as follows: Three months ended September 30, 2022 2021 (in millions) Reconciliation of net income from continuing operations to Adjusted EBITDA Net income from continuing operations $ 21.3 $ 4.7 Provision for income taxes 9.0 2.6 Interest expense, net 9.5 9.0 Depreciation and amortization 19.6 20.6 EBITDA 59.4 36.9 Joint venture depreciation, amortization and interest (a) 3.9 4.1 Amortization of investment in affiliate step-up (b) 1.6 1.6 Debt extinguishment costs — 15.2 Net loss on asset disposals (c) 0.5 2.2 Foreign currency exchange loss (d) 1.0 0.9 LIFO benefit (e) (0.4) (1.3) Transaction and other related costs (f) 1.8 0.5 Equity-based compensation 4.7 10.2 Restructuring, integration and business optimization expenses (g) 1.3 0.1 Defined benefit pension expense (benefit) (h) 0.3 (1.0) Other (i) 1.3 — Adjusted EBITDA $ 75.4 $ 69.4 (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. 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. dollars. (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). 41 Table of Contents Adjusted Net Income Summarized adjusted net income information is shown below in the following table: Three months ended September 30, 2022 2021 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. $ 30.3 $ 9.0 $ 21.3 $ 7.3 $ 2.6 $ 4.7 Amortization of investment in affiliate step-up (b) 1.6 0.5 1.1 1.6 0.5 1.1 Debt extinguishment costs — — — 15.2 4.4 10.8 Net loss on asset disposals (c) 0.5 0.2 0.3 2.2 0.5 1.7 Foreign currency exchange loss (d) 1.0 0.2 0.8 0.9 0.2 0.7 LIFO benefit (e) (0.4) (0.1) (0.3) (1.3) (0.4) (0.9) Transaction and other related costs (f) 1.8 0.5 1.3 0.5 0.2 0.3 Equity-based compensation 4.7 0.1 4.6 10.2 2.9 7.3 Restructuring, integration and business optimization expenses (g) 1.3 0.4 0.9 0.1 0.1 — Defined benefit pension plan expense (benefit) (h) 0.3 0.1 0.2 (1.0) (0.3) (0.7) Other (i) 1.3 0.4 0.9 — — — Adjusted Net Income, including Intraperiod allocation $ 42.4 $ 11.3 $ 31.1 $ 35.7 $ 10.7 $ 25.0 Intraperiod allocation for restating discontinued operations (3) — — — — (0.5) 0.5 Adjusted Net Income $ 42.4 $ 11.3 $ 31.1 $ 35.7 $ 10.2 $ 25.5 (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, 2022 and September 30, 2021, 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. 42 Table of Contents Results of Operations Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021 Highlights The following is a summary of our financial performance for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021. Sales • Sales increased $196.4 million to $637.4 million. The increase in sales was primarily due to higher sales volumes and higher average selling prices, including the favorable pass-through of sulfur pricing. Gross Profit • Gross profit increased $53.1 million to $175.3 million. The increase in gross profit was primarily due to the higher sales volume and favorable pricing, partially offset by increased manufacturing costs. Operating Income • Operating income increased by $45.8 million to $82.4 million. The increase in operating income was due to an increase in gross profit and lower selling, general and administrative expenses, partially offset by higher other operating expenses. Equity in Net Income of Affiliated Companies • Equity in net income of affiliated companies for the nine months ended September 30, 2022 was $17.4 million, compared with $20.7 million for the nine months ended September 30, 2021. The decrease of $3.3 million was due to lower earnings generated by the Zeolyst Joint Ventur e during the nine months ended September 30, 2022, driven by lower sales volumes within the joint venture. 43 Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the nine months ended September 30, 2022 and 2021: Nine months ended September 30, Change 2022 2021 $ % (in millions, except percentages) Sales $ 637.4 $ 441.0 $ 196.4 44.5 % Cost of goods sold 462.2 318.8 143.4 45.0 % Gross profit 175.3 122.2 53.1 43.5 % Gross profit margin 27.5 % 27.7 % Selling, general and administrative expenses 67.8 68.8 (1.0) (1.5) % Other operating expense, net 25.1 16.8 8.3 49.4 % Operating income 82.4 36.6 45.8 125.1 % Operating income margin 12.9 % 8.3 % Equity in net (income) from affiliated companies (17.4) (20.7) 3.3 (15.9) % Interest expense, net 26.9 28.2 (1.3) (4.6) % Debt extinguishment costs — 26.9 (26.9) (100.0) % Other expense, net 2.5 3.1 (0.6) (19.4) % Income (loss) before income taxes and noncontrolling interest 70.4 (0.9) 71.3 NM Provision for income taxes 22.0 5.1 16.9 331.4 % Effective tax rate 31.2 % (610.9) % Net income (loss) from continuing operations 48.4 (6.0) 54.4 (906.7) % Net loss from discontinued operations, net of tax — (159.1) 159.1 (100.0) % Net income (loss) 48.4 (165.1) 213.5 (129.3) % Less: Net income attributable to the noncontrolling interest—discontinued operations — 0.3 (0.3) (100.0) % Net income (loss) attributable to Ecovyst Inc. $ 48.4 $ (165.4) $ 213.8 (129.3) % Sales Nine months ended September 30, Change 2022 2021 $ % Sales: (in millions, except percentages) Ecoservices $ 542.7 $ 358.5 $ 184.2 51.4 % Catalyst Technologies 94.7 82.5 12.2 14.8 % Total sales $ 637.4 $ 441.0 $ 196.4 44.5 % Ecoservices : Sales in Ecoservices for the nine months ended September 30, 2022 were $542.7 million, an increase of $184.2 million, or 51.4%, compared to sales of $358.5 million for the nine months ended September 30, 2021. The increase in sales reflects a $146.5 million increase associated with higher average selling prices and a $37.7 million contribution from higher sales volumes. 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 $87.2 million. Sales volumes increased in both regeneration services and virgin sulfuric acid driven in large part by demand recovery. Catalyst Technologies: Sales in Catalyst Technologies for the nine months ended September 30, 2022 were $94.7 million, an increase of $12.2 million, or 14.8%, compared to sales of $82.5 million for the nine months ended September 30, 2021. The increase in sales was driven by demand for our polyethylene catalysts and higher average selling prices. 44 Table of Contents Gross Profit Gross profit for the nine months ended September 30, 2022 was $175.3 million, an increase of $53.1 million, or 43.5%, compared with $122.2 million for the nine mon ths ended September 30, 2021. The increase in gross profit reflects a $39.6 million contribution associated with higher sales volumes, and higher average selling prices of $151.9 million, which were partially offset by higher manufacturing costs of $127.9 million and a $10.5 million impact associated with less favorable product mix. The increase in gross profit was driven by favorable pricing, including the pass through of higher variable and sulfur costs, along with higher volume demand in both the Ecoservices and Catalyst Technologies businesses. Rising inflation costs on raw materials, energy, and transportation primarily drove the higher manufacturing costs that were more than offset in price. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 2022 was $67.8 million, a decrease of $1.0 million as compared to $68.8 million for the nine months ended September 30, 2021. The decrease in selling, general and administrative expenses was due to a decrease in stock-based compensation expense of $5.4 million, which consisted of $4.0 million of incremental cost recognized during the nine months ended September 30, 2021 in connection with the modifications of our equity incentive awards and stock options associated with the special dividend and sale of the Performance Chemicals business in August 2021, with the remaining decrease driven by forfeitures of equity incentive awards in 2022 by former Company executives and employees of the Performance Chemicals business. This was mostly offset by $3.4 million of income generated during the nine months ended September 30, 2021 from the transition service agreements entered into as part of the sales of the Performance Materials and Performance Chemicals businesses, and net decreases in other costs of $1.0 million. Other Operating Expense, Net Other operating expense, net for the nine months e nded September 30, 2022 was $25.1 million, an increase of $8.3 million, compared with $16.8 million for the nine months ended September 30, 2021. The increase in other operating expense, net was mainly driven by increases of $3.4 million in severance charges associated with former executives and $5.9 million in residual costs from the Performance Chemicals divestiture and other transactions costs. Equity in Net Income of Affiliated Companies Equity in net income of affiliated companies for the nine months ended September 30, 2022 was $17.4 million, compared to $20.7 million for the nine months ended September 30, 2021. The decrease was primarily due to $3.3 million of lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2022 . Interest Expense, Net Interest expense, net for the nine months ended September 30, 2022 was $26.9 million, a decrease of $1.3 million, as compared with $28.2 million for the nine months ended September 30, 2021. The decrease in interest expense, net was primarily due to lower debt balances, partially offset by rising variable interest rates. Debt Extinguishment Cost s Debt extinguishment costs were $26.9 million for the nine months ended September 30, 2021. 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 nine 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 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 $0.6 million of unamortized deferred financing costs as debt extinguishment costs. 45 Table of Contents Other Expense, Net Other expense, net for the nine months ended September 30, 2022 was $2.5 million, a decrease of $0.6 million, as compared to $3.1 million for the nine months ended September 30, 2021. The decrease in other expense, net primarily consisted of foreign currency exchange of $2.6 million related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar, partially offset by a lower net periodic benefit of $1.1 million for the defined benefit pension and postretirement plans. Provision for Income Taxes The provision for income taxes for the nine months ended September 30, 2022 was $22.0 million compared to a $5.1 million for the nine months ended September 30, 2021. The effective income tax rate for the nine months ended September 30, 2022 was 31.2% compared to (610.9)% for the nine months ended September 30, 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, 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 After the effect of the non-controlling interest in earnings of subsidiaries for the period ending September 30, 2021, net income attributable to Ecovyst was $48.4 million for the nine months ended September 30, 2022 compared with net loss of $165.4 million for the nine months ended September 30, 2021. Adjusted EBITDA Summarized Adjusted EBITDA information is shown below in the following table: Nine months ended September 30, Change 2022 2021 $ % (in millions, except percentages) Adjusted EBITDA: (1) Ecoservices $ 173.4 $ 125.4 $ 48.0 38.3 % Catalyst Technologies (2) 57.7 64.6 (6.9) (10.7) % Unallocated corporate expenses (23.5) (25.6) 2.1 (8.2) % Total $ 207.6 $ 164.4 $ 43.2 26.3 % (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 $34.3 million for the nine months ended September 30, 2022, which includes $17.5 million of equity in net income, excluding $4.8 million of amortization of investment in affiliate step-up plus $12.0 million of joint venture depreciation, amortization and interest. 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. Ecoservices: Adjusted EBITDA for the nine months ended September 30, 2022 was $173.4 million, an increase of $48.0 million, or 38.3%, compared with $125.4 million for the nine mo nths ended September 30, 2021. The increase in Adjusted EBITDA was a result of higher volumes, favorable pricing covering rising input costs, including the pass-through of higher sulfur costs, higher raw material and maintenance costs. 46 Table of Contents Catalyst Technologies: Adjusted EBITDA for the nine months ended September 30, 2022 was $57.7 million, a decrease of $6.9 million, or 10.7%, compared with $64.6 million for the nine months ended September 30, 2021. The decrease in Adjusted EBITDA was due to a less-favorable product mix, as well as higher input and energy production costs, partially offset by higher sales volumes and average selling prices. A reconciliation of net income (loss) from continuing operations to Adjusted EBITDA is as follows: Nine months ended September 30, 2022 2021 (in millions) Reconciliation of net income (loss) from continuing operations to Adjusted EBITDA Net income (loss) from continuing operations $ 48.4 $ (6.0) Provision for income taxes 22.0 5.1 Interest expense, net 26.9 28.2 Depreciation and amortization 58.8 60.1 EBITDA 156.1 87.4 Joint venture depreciation, amortization and interest (a) 12.0 11.4 Amortization of investment in affiliate step-up (b) 4.8 4.9 Debt extinguishment costs — 26.9 Net loss on asset disposals (c) 1.2 4.5 Foreign currency exchange loss (d) 2.2 4.8 LIFO benefit (e) — (2.0) Transaction and other related costs (f) 6.9 1.6 Equity-based compensation 17.4 22.8 Restructuring, integration and business optimization expenses (g) 6.4 2.4 Defined benefit pension plan benefit (h) (0.8) (2.2) Other (i) 1.4 1.9 Adjusted EBITDA $ 207.6 $ 164.4 (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. 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, primarily related to the non-permanent intercompany debt denominated in local currency translated to U.S. dollars. (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. 47 Table of Contents (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 information is shown below in the following table: Nine months ended September 30, 2022 2021 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. $ 70.4 $ 22.0 $ 48.4 $ (0.9) $ 5.1 $ (6.0) Amortization of investment in affiliate step-up (b) 4.8 1.3 3.5 4.9 1.4 3.5 Debt extinguishment costs — — — 26.9 7.5 19.4 Net loss on asset disposals (c) 1.2 0.3 0.9 4.5 1.2 3.3 Foreign currency exchange loss (d) 2.2 0.4 1.8 4.8 1.3 3.5 LIFO benefit (e) — — — (2.0) (0.6) (1.4) Transaction and other related costs (f) 6.9 1.7 5.2 1.6 0.5 1.1 Equity-based compensation (3) 17.4 0.6 16.8 22.8 6.4 16.4 Restructuring, integration and business optimization expenses (g) 6.4 1.8 4.6 2.4 0.7 1.7 Defined benefit pension plan benefit (h) (0.8) (0.2) (0.6) (2.2) (0.6) (1.6) Other (i) 1.4 0.4 1.0 1.9 0.6 1.3 Adjusted Net Income, including Intraperiod allocation $ 109.9 $ 28.3 $ 81.6 $ 64.7 $ 23.5 $ 41.2 Intraperiod allocation for restating discontinued operations (4) — — — — (5.3) 5.3 Adjusted Net Income $ 109.9 $ 28.3 $ 81.6 $ 64.7 $ 18.2 $ 46.5 (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) Includes tax adjustments for the shortfall in stock compensation. (4) 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 of 27.7% and 28.0% for the nine months ended September 30, 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. 48 Table of Contents Financial Condition, Liquidity and Capital Resources Our primary sources of liquidity consist of cash flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit facility. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds. Our primary liquidity requirements include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements and capital expenditures. Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives. We believe that our existing cash, cash equivalents and cash flows 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 twelve months. We may also pursue strategic acquisition or divestiture opportunities, wh ich may impact our future cash requirements. 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, 2022, we had cash and cash equivalents of $121.4 million and availability of $77.6 million under our asset based lending revolving credit facility, after giving effect to $4.0 million of outstanding letters of credit, for a total available liquidity of $199.0 million. We did not have any revolving credit facility borrowings as of September 30, 2022. As of September 30, 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 September 30, 2022. We continue to repatriate cash held outside of the United States from certain foreign subsidiaries in order to meet domestic liquidity needs. Depending on domestic and foreign cash balances, we have certain flexibility to repatriate funds in order to meet those needs. Specifically, we have an intercompany loan structure in place with foreign subsidiaries that allows us to repatriate foreign cash in a tax efficient manner from those subsidiaries. Repatriation of foreign cash is generally not subject to U.S. federal income taxes at the time of cash distribution. 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 include interest payments related to our debt structure. As reported, our cash interest paid for the nine months ended September 30, 2022 and 2021 wa s approximately $24.4 million and $43.1 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, 2022, we had a $400.0 million of notional variable-rate debt with a cap rate of 1.00% through August 2023, a $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2024 and a $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 $4.0 million of outstanding letters of credit on our ABL Facility as of September 30, 2022. 49 Table of Contents Cash Flow Nine months ended September 30, 2022 2021 (in millions) Continuing Operations Net cash provided by (used in): Operating activities $ 109.3 $ 92.3 Investing activities (43.6) 892.9 Financing activities (82.6) (963.5) Discontinued Operations Net cash used in: Operating activities — (7.4) Investing activities — (40.9) Financing activities — (1.1) Effect of exchange rate changes on cash, cash equivalents and restricted cash (2.6) (4.7) Net change in cash and cash equivalents (19.5) (32.4) Cash and cash equivalents at beginning of period 140.9 137.2 Cash, cash equivalents and restricted cash at end of period of continuing operations $ 121.4 $ 104.8 Nine months ended September 30, 2022 2021 (in millions) Continuing Operations Net income $ 48.4 $ (6.0) Non-cash and non-working capital related activities (1) 106.2 110.0 Changes in working capital (42.5) (18.5) Other operating activities (2.8) 6.8 Net cash provided by operating activities, continuing operations $ 109.3 $ 92.3 (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, 2022 2021 (in millions) Continuing Operations Working capital changes that (used) provided cash: Receivables $ (28.4) $ (33.8) Inventories 3.2 6.1 Prepaids and other current assets (5.2) (8.4) Accounts payable 2.0 10.1 Accrued liabilities (14.1) 7.5 $ (42.5) $ (18.5) 50 Table of Contents Nine months ended September 30, 2022 2021 (in millions) Continuing Operations Purchases of property, plant and equipment $ (39.5) $ (44.6) Proceeds from business divestiture, net of cash — 980.4 Payments for business divestiture, net of cash (3.7) — Business combinations, net of cash acquired (0.5) (42.8) Other, net 0.1 (0.1) Net cash (used in) provided by investing activities, continuing operations $ (43.6) $ 892.9 Nine months ended September 30, 2022 2021 (in millions) Continuing Operations Net cash borrowings (repayments) on debt obligations $ (6.8) $ (532.1) Proceeds from failed sale lease-back — 14.6 Dividends paid to stockholders — (435.6) Repurchases of common shares (73.7) — Tax withholdings on equity award vesting (0.3) (1.5) Repayment of financing obligations (1.8) (0.5) Other — (8.4) Net cash used in financing activities, continuing operations $ (82.6) $ (963.5) 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 during the nine months ended September 30, 2021. Net cash provided by operating activities was $109.3 million for the nine months ended September 30, 2022, compared to $92.3 million provided for the nine months ended September 30, 2021. Cash generated by operating activities, other than changes in working capital, was higher during the nine months ended September 30, 2022 by $41.1 million compared to the same period in the prior year. The change in working capital during the nine months ended September 30, 2022 was unfavorable compared to the nine months ended September 30, 2021. Cash used to fund working capital was $42.5 million and $18.5 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in cash generated by operating activities, other than changes in working capital, was higher by $41.1 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. Prior year cash generated by operating activities includes debt extinguishment costs. The decrease in cash from working capital of $24.0 million as compared to the prior year was primarily due to unfavorable changes in inventories, accounts payable, and accrued liabilities which were partially offset by favorable changes in accounts receivables and prepaids and other current assets. The favorable change in accounts receivable was driven by the timing of sales as well as decreased sales volume. The unfavorable change in 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 unfavorable change in accounts payable is due to the timing of vendor payments as well as higher capital spending. The unfavorable change in accrued liabilities relates to changes in various expense accruals. Net cash used in investing activities was $43.6 million for the nine months ended September 30, 2022, compared to cash provided of $892.9 million during the same period in 2021. Cash used in investing activities consisted of utilizing $39.5 million and $44.6 million to fund capital expenditures during the nine months ended September 30, 2022 and 2021, 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. During the nine months ended September 30, 2022, we made an additional payment related to our divestiture of our Performance Chemicals business representing the final adjustments to the sale price of $3.7 million. 51 Table of Contents Net cash used in financing activities was $82.6 million for the nine months ended September 30, 2022, compared to net cash used of $963.5 million during the same period in 2021. Net cash used in financing activities was primarily driven by $6.8 million of debt repayment charges, repurchases of common stock of $73.7 million, and repayments of financing obligation principal of $1.8 million for the nine months ended September 30, 2022. 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. Debt September 30, 2022 December 31, 2021 (in millions) Senior Secured Term Loan Facility due June 2028 $ 888.8 $ 895.5 ABL Facility — — Total debt 888.8 895.5 Original issue discount (7.8) (8.8) Deferred financing costs (4.3) (4.9) Total debt, net of original issue discount and deferred financing costs 876.7 881.8 Less: current portion (9.0) (9.0) Total long-term debt, excluding current portion $ 867.7 $ 872.8 As of September 30, 2022, our total debt was $888.8 million, excluding the original issue discount of $7.8 million and deferred financing fees of $4.3 million for our senior secured credit facilities. Our net debt as of September 30, 2022 was $767.4 million, including cash and cash equivalents of $121.4 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt. Capital Expenditures Maintenance capital expenditures include spending on maintenance of business, health, safety and environmental initiatives. Growth capital expenditures include spending to drive organic sales growth and cost savings initiatives. 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, 2022 2021 (in millions) Maintenance capital expenditures $ 31.5 $ 29.3 Growth capital expenditures 6.0 8.8 Total capital expenditures $ 37.5 $ 38.1 Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. Maintenance capital expenditures were slightly higher in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to higher turnaround expenditures. Growth capital expenditures were slightly lower in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to the completion of several expansion projects in 2021. 52 Table of Contents Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis. There has been no material change in our critical accounting policies and use of estimates from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K. Accounting Standards Not Yet Adopted See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards and their effect on us.