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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-04 · 146 added, 378 removed, 267 unchanged (66% of the section changed)

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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.

Examples of forward-looking statements include, but are not limited to, statements we make regarding demand trends, 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.

28 unchanged sentences

• 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.

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented in “Item 1A, Risk Factors” in our quarterly report on Form 10-Q for the quarter ended March 31, 2023.

The forward-looking statements included herein are made only as of the date hereof.

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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 had no sales to customers in Ukraine or in Russia for the three months ended March 31, 2023.

Sales to a customer in Russia were immaterial for the three months ended March 31, 2022.

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

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government and other countries.

Impact of Winter Storm Elliott

Late in the fourth quarter of 2022, our Ecoservices business was adversely impacted by Winter Storm Elliott.

The storm disrupted operations at a number of our facilities, impacting production and resulting in unplanned repair and maintenance costs and lower virgin sulfuric acid sales volume.

While the storm had a modest impact on fourth quarter 2022 financial results, the production outages arising from Winter Storm Elliott limited our ability to produce inventory in advance of significant planned turnaround activity and to meet customer demand, resulting in constrained availability and lower sales of virgin sulfuric acid in the first quarter of 2023.

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.

On April 27, 2022, the Board approved a stock repurchase program that permits the Company to purchase up to $450,000 of the Company’s common stock over the four-year period from the date of approval.

For the three months ended March 31, 2023, in connection with a secondary offering of the Company’s common stock in March 2023, the Company repurchased 3,000,000 shares of its common stock sold in the offering from the underwriter at an average price of $9.95 per shar e concurrently with the closing of the offering, for a total of $29.9 million.

As of March 31, 2023, $283.4 million was available for additional share repurchases under the program.

Key Performance Indicators

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Key Factors and Trends Affecting Operating Results and Financial Condition

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.

Overall, our Ecoservices and Catalyst Technologies segments continued to benefit from positive demand trends for our products and services in the industries we serve.

Strong domestic and export demand for refined products continued to support high refinery utilization rates, while more stringent gasoline standards and growing demand for premium gasoline to power higher-compression and turbocharged engines continued to drive demand for alkylate and for our regeneration services.

Global polyethylene demand remained positive, driven by the long-term growth in consumer demand for films and packaging, supporting sales of our silica-based catalysts, while increasing demand for renewable fuels and more stringent regulation is renewable fuels and polyethylene, and in emission control applications.

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

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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.

Our joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts, 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.

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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 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.

We operate in various geographies with approximately 6% of our sales for the three months ended March 31, 2023 and for the year ended December 31, 2022 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, 2022 Compared to the Three Months Ended September 30, 2021

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 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.

• 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.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

The following is a summary of our financial performance for the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

• Sales decreased $18.8 million to $160.9 million.

The decrease in sales was primarily due to lower sales volume, partially offset by favorable average selling price .

• Gross profit decreased $11.2 million to $36.5 million.

The decrease in gross profit was primarily due to lower sales volume and higher 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.

• Operating income decreased by $7.8 million to $8.7 million.

The decrease in operating income was due to a decrease in sales and gross profit.

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.

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:

• Equity in net income of affiliated companies for the three months ended March 31, 2023 was $0.2 million, compared with $5.7 million for the three months ended March 31, 2022.

The decrease of $5.5 million was due to lower sales volume driven by timing of customer orders from the Zeolyst Joint Ventur e during the three months ended March 31, 2023.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended March 31, 2023 and 2022:

Three months ended

September 30, Change

March 31, Change

2023 2022 $ %

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Interest expense, net 9.9 8.5 1.4 16.5 %

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 %

Other (income) expense, net (0.4) 0.1 (0.5) (500.0) %

(Loss) income before income taxes and noncontrolling interest (0.6) 13.6 (14.2) (104.4) %

Provision for income taxes 0.9 5.7 (4.8) (84.2) %

Effective tax rate (180.7) % 42.1 %

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) %

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) %

Three months ended

September 30, Change

2022 2021 $ %

(in millions, except percentages)

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 %

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.

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.

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:

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.

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.

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

Net (loss) income attributable to Ecovyst Inc $ (1.5) $ 7.9 $ (9.4) (119.0) %

Three months ended

September 30,

(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)

Amortization of investment in affiliate step-up (b)

Debt extinguishment costs — 15.2

Net loss on asset disposals (c)

Foreign currency exchange loss (d)

LIFO benefit (e)

Transaction and other related costs (f)

Equity-based compensation 4.7 10.2

Restructuring, integration and business optimization expenses (g)

Defined benefit pension expense (benefit) (h)

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.

(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 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 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)

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.

Results of Operations

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

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 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 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.

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) %

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) %

Nine months ended

September 30, Change

March 31, Change

2023 2022 $ %

4 unchanged sentences

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.

Sales in Ecoservices for the three months ended March 31, 2023 were $137.8 million, a decrease of $16.2 million, or 10.5%, compared to sales of $154.0 million for the three months ended March 31, 2022.

The decrease in sales reflects lower sales volume of $26.4 million , partially offset by higher average selling pricing of $10.2 million after the pass-through of sulfur costs of approximately $5.2 million.

Sales volume was lower primarily due to lower virgin sulfuric acid sales associated with the adverse impact of Winter Storm Elliott and extended maintenance turnaround activity at one of our facilities, limit our ability to produce inventory in advance of significant planned turnaround activity to meet customer demand during the three months ended March 31, 2023.

Higher average selling prices were driven by favorable pricing in regeneration services, including the pass-through of higher freight, labor, and energy indexed costs partially offset by lower pass-through of sulfur costs in virgin sulfuric acid of $5.2 million.

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.

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.

Sales in Catalyst Technologies for the three months ended March 31, 2023 were $23.1 million, a decrease of $2.6 million, or 10.1%, compared to sales of $25.7 million for the three months ended March 31, 2022.

The decrease in sales was due to lower sales volume of $3.6 million and the unfavorable effects of foreign currency of $0.9 million, partially offset by higher average selling prices of $1.9 million.

The decrease in sales volume was primarily driven by lower polyethylene catalysts sales during the three months ended March 31, 2023, driven in part by the economic sanctions associated with the developments in Russia and Ukraine.

Higher average selling prices during the three months ended March 31, 2023 was driven by implemented price increases.

Gross profit for the three months ended March 31, 2023 was $36.5 million, a decrease of $11.2 million, or 23.5%, compared with $47.7 million for the three months ended March 31, 2022.

The decrease in gross profit reflects a $11.0 million contribution associated with lower sales volumes and higher manufacturing costs of $12.3 million, partially offset by higher average selling prices of $12.1 million.

The decrease in gross profit was driven by lower sales volume in the Ecoservices business, offset by favorable pricing and pass-through of higher variable costs.

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.

Selling, general and administrative expenses for the three months ended March 31, 2023 was $21.1 million, a decrease of $2.4 million as compared to $23.5 million for the three months ended March 31, 2022.

The decrease in selling, general and administrative expenses was mainly due to a decrease in stock-based compensation expense of $3.2 million due to fewer awards granted, lower dividend equivalents, and lower expense for the three months ended March 31, 2023.

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.

Other operating expense, net for the three months e nded March 31, 2023 was $6.7 million, a decrease of $1.0 million, compared with $7.7 million for the three months ended March 31, 2022.

The decrease in other operating expense, net was mainly driven by a decrease of $2.8 million in transactions costs, primarily associated with the sale of the Performance Chemicals business, offset by an increase in net losses on asset disposals of $1.0 million, primarily related to costs associated with Winter Storm Elliott.

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 .

Equity in net income of affiliated companies for the three months ended March 31, 2023 was $0.2 million, compared to $5.7 million for the three months ended March 31, 2022.

The decrease was primarily due to lower earnings from the Zeolyst Joint Ventur e largely due to the comparative timing of customer orders for hydrocracking and specialty catalysts sales during the three months ended March 31, 2023 .

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.

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 $0.6 million of unamortized deferred financing costs as debt extinguishment costs.

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.

Interest expense, net for the three months ended March 31, 2023 was $9.9 million, an increase of $1.4 million, as compared with $8.5 million for the three months ended March 31, 2022.

The increase in interest expense, net was primarily due to rising interest rates, partially offset by lower debt principal outstanding and the benefits associated with our interest rate caps.

Other (Income) Expense, Net

Other income, net for the three months ended March 31, 2023 was $0.4 million, a decrease of $0.5 million, as compared to other expense, net of $0.1 million for the three months ended March 31, 2022.

The change in other (income) expense, net primarily consisted of foreign currency exchange gains of $1.1 million related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

This was offset by net periodic pension benefit of $0.6 million for the defined benefit pension and postretirement plans for the three months ended March 31, 2022.

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 provision for income taxes for the three months ended March 31, 2023 was $0.9 million compared to a $5.7 million for the three months ended March 31, 2022.

The effective income tax rate for the three months ended March 31, 2023 was (180.7)% compared to 42.1% for the three months ended March 31, 2022.

The Company’s effective income tax rate fluctuated primarily due to the discrete impact related to a shortfall of stock compensation tax deduction which outweighed the tax benefit from the pre-tax loss during the quarter.

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.

federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2023 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 recording of accrued penalties and interest associated with historical uncertain tax positions.

Net (Loss) income Attributable to Ecovyst

For the foregoing reasons, n et loss attributable to Ecovyst was $1.5 million for the three months ended March 31, 2023 compared to net income of $7.9 million for the three months ended March 31, 2022.

Adjusted EBITDA

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

Nine months ended

September 30, Change

Three months ended

March 31, Change

2023 2022 $ %

10 unchanged sentences

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.

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.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $5.4 million for the three months ended March 31, 2023, which includes $0.2 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.6 million of joint venture depreciation, amortization and interest.

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.

Adjusted EBITDA for the three months ended March 31, 2023 was $36.8 million, a decrease of $12.5 million, or 25.4%, compared with $49.3 million for the three mo nths ended March 31, 2022.

The decrease in Adjusted EBITDA was primarily a result of lower virgin sulfuric acid sales volume related to Winter Storm Elliott and the extended maintenance turnaround activity, higher unplanned repair and maintenance costs and costs associated with planned turnaround activity, partially offset by higher pricing for regeneration services.

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,

Adjusted EBITDA for the three months ended March 31, 2023 was $13.0 million, a decrease of $4.0 million, or 23.5%, compared with $17.0 million for the three months ended March 31, 2022.

The decrease in Adjusted EBITDA was due to lower volume on timing of customer orders, partially offset by continued strong pricing and favorable product mix.

A reconciliation of net (loss) income to Ecovyst Inc.

to Adjusted EBITDA is as follows:

Three months ended

(in millions)

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

Net income (loss) from continuing operations $ 48.4 $ (6.0)

Reconciliation of net (loss) income attributable to Ecovyst Inc.

to Adjusted EBITDA

Net (loss) income attributable to Ecovyst Inc.

$ (1.5) $ 7.9

Provision for income taxes 0.9 5.7

4 unchanged sentences

Amortization of investment in affiliate step-up (b)

Debt extinguishment costs — 26.9

Net loss on asset disposals (c)

Foreign currency exchange loss (d)

LIFO benefit (e)

Foreign currency exchange (gain) loss (d)

LIFO expense (e)

Transaction and other related costs (f)

1 unchanged sentence

Restructuring, integration and business optimization expenses (g)

Defined benefit pension plan benefit (h)

Adjusted EBITDA $ 42.9 $ 59.2

6 unchanged sentences

(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.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income related 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.

2 unchanged sentences

(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.

(h) Other consists of adjustments for items that are not core to our ongoing business operations.

These adjustments include environmental remediation and other legal costs, expenses for capital and franchise taxes, and defined benefit pension and postretirement plan (benefits) costs, for which our obligations are under plans that are frozen.

Also included in this amount are adjustments to eliminate the benefit realized in cost of goods sold of the allocation of a portion of the contract manufacturing payments under the five-year agreement with the buyer of the Performance Chemicals business to the financing obligation under the failed sale-leaseback.

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

1 unchanged sentence

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

Nine months ended September 30,

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

Three months ended March 31,

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

(in millions)

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

Net income (loss) attributable to Ecovyst Inc.

Reconciliation of net (loss) income attributable to Ecovyst Inc.

to Adjusted Net Income (1)(2)

Net (loss) income attributable to Ecovyst Inc.

$ (0.6) $ 0.9 $ (1.5) $ 13.6 $ 5.7 $ 7.9

1 unchanged sentence

1.6 0.4 1.2 1.6 0.4 1.2

Debt extinguishment costs — — — 26.9 7.5 19.4

Net loss on asset disposals (c)

1.2 0.3 0.9 0.1 — 0.1

Foreign currency exchange loss (d)

Foreign currency exchange (gain) loss (d)

(0.7) (0.1) (0.6) 0.6 0.1 0.5

LIFO benefit (e)

LIFO expense (e)

1.4 0.4 1.0 0.2 0.1 0.1

5 unchanged sentences

1.0 0.1 0.9 0.4 0.1 0.3

Defined benefit pension plan benefit (h)

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

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 $ 9.2 $ 2.4 $ 6.8 $ 27.1 $ 6.8 $ 20.3

4 unchanged sentences

(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.

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.

are shown net of applicable tax rates of 25.6% and 24.7% for the three months ended March 31, 2023 and 2022, respectively, except for the foreign currency exchange (gain) loss and equity-based compensation.

The tax effect on equity-based compensation is derived by removing the tax effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec.

162m, and adding the tax effect of equity-based stock compensation shortfall recorded as a discrete item.

The tax effect of the foreign currency exchange (gain) loss is derived from tax effecting the actual year to date foreign currency exchange (gain) loss by the respective local country statutory rates which is recorded as a discrete item.

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.

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 (“ABL Facility”).

We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds.

4 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, 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.

As of March 31, 2023, we had cash and cash equivalents of $61.6 million and availability of $57.3 million under our asset based lending revolving credit facility, after giving effect to $4.1 million of outstanding letters of credit, for a total available liquidity of $118.9 million.

We did not have any revolving credit facility borrowings as of March 31, 2023.

As of March 31, 2023, we were in comp liance with all covenants under our debt agreements.

Our ABL Facility has one financial covenant with two ratios to maintain.

The first ratio compares the total ABL availability against a threshold:

the greater of 10% of the line cap (which is defined as the lesser of our revolving loan commitments and the value of our assets) or $20.0 million.

The greater of this threshold cannot be greater than the total availability of the ABL Facility.

The second ratio compares the ABL Facility availability of the U.S.

revolving credit facility against a $15.0 million threshold.

As of March 31, 2023 , we were in compliance with the financial covenant under the ABL Facility.

The 2021 Term Loan Facility and the ABL Facility contain various restrictive covenants.

Each limits the ability of the Company and its restricted subsidiaries to incur certain indebtedness or liens, merge, consolidate or liquidate, dispose of certain property, make investments or declare or pay dividends, make optional payments, modify certain debt instruments, enter into certain transactions with affiliates, enter into certain sales and leasebacks, and certain other non-financial restrictive covenants.

During such time, the Company is required to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0.

The Company was in compliance with all debt covenants under the 2021 Term Loan Facility and the ABL Facility as of March 31, 2023 .

Included in our cash and cash equivalents balance as of March 31, 2023 was $19.6 million of cash and cash equivalents in foreign jurisdictions.

Depending on foreign cash balances, we have certain flexibility to repatriate funds should the need arise.

Should the need arise, we would repatriate the funds in the most tax efficient manner from those subsidiaries.

Repatriation of foreign cash is generally not subject to U.S.

2 unchanged sentences

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.

As reported, our cash interest paid for the three months ended March 31, 2023 and 2022 wa s approximately $15.2 million and $8.4 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 $8.8 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.

Nine months ended

September 30,

As of March 31, 2023, 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, a $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2025, a $150.0 million of notional variable-rate debt with a cap rate of 1.00% through July 2026, a $200.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2025, and a $450.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2026.

The Company’s off-balance sheet arrangements include $4.1 million of outstanding letters of credit on our ABL Facility as of March 31, 2023.

Three months ended

(in millions)

Continuing Operations

Net cash provided by (used in):

2 unchanged sentences

Financing activities (33.6) (2.6)

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)

Effect of exchange rate changes on cash and cash equivalents (1.1) (0.6)

Net change in cash and cash equivalents (49.3) (11.2)

Cash and cash equivalents at beginning of period 110.9 140.9

Cash, cash equivalents and restricted cash at end of period of continuing operations $ 121.4 $ 104.8

Nine months ended

September 30,

Cash and cash equivalents at end of period $ 61.6 $ 129.7

Three months ended

(in millions)

Continuing Operations

Net income $ (1.5) $ 7.9

2 unchanged sentences

Other operating activities (4.0) (7.4)

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,

Net cash provided by operating activities $ 4.1 $ 6.4

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

Three months ended

(in millions)

Continuing Operations

Working capital changes that (used) provided cash:

5 unchanged sentences

$ (18.6) $ (40.7)

Nine months ended

September 30,

Three months ended

(in millions)

Continuing Operations

Purchases of property, plant and equipment $ (18.7) $ (10.8)

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

Net cash (used in) provided by investing activities, continuing operations $ (43.6) $ 892.9

Nine months ended

September 30,

Net cash used in investing activities $ (18.7) $ (14.4)

Three months ended

(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)

Cash repayments on debt obligations $ (2.3) $ (2.3)

Repurchases of common shares (29.9) —

Tax withholdings on equity award vesting (0.9) (0.3)

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.

Repayment of financing obligation (0.7) —

Net cash used in financing activities $ (33.6) $ (2.6)

Net cash provided by operating activities was $4.1 million for the three months ended March 31, 2023, compared to $6.4 million provided for the three months ended March 31, 2022.

Cash generated by operating activities, other than changes in working capital, was lower during the three months ended March 31, 2023 by $24.4 million compared to the same period in the prior year.

The change in working capital during the three months ended March 31, 2023 was favorable compared to the three months ended March 31, 2022.

Cash used to fund working capital was $18.6 million and $40.7 million for the three months ended March 31, 2023 and 2022, respectively.

The decrease in cash generated by operating activities, other than changes in working capital, was lower by $24.4 million as compared to the prior year period primarily due to an decrease in operating profit and a decrease in dividends received from affiliated companies.

The increase in cash from working capital of $22.1 million as compared to the prior year was primarily due to favorable changes in accounts receivable and accrued liabilities, which was partially offset by unfavorable changes in prepaids and other current assets and accounts payable.

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.

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.

September 30,

The favorable change in accrued liabilities mainly relates to higher income tax payments in the prior year period as compared to the current year period.

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

The unfavorable change in accounts payable is due to the timing of vendor payments and professional fees.

Net cash used in investing activities was $18.7 million for the three months ended March 31, 2023, compared to net cash used of $14.4 million during the same period in 2022.

Cash used in investing activities consisted of $18.7 million and $10.8 million to fund capital expenditures during the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2022, we made an additional payment of $3.7 million related to our divestiture of our Performance Chemicals business representing the final adjustments to the sale price.

Net cash used in financing activities was $33.6 million for the three months ended March 31, 2023, compared to net cash used of $2.6 million during the same period in 2022.

Net cash used in financing activities was primarily driven by the Company repurchases of common stock of $29.9 million during the three months ended March 31, 2023.

2023 December 31,

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Total long-term debt, excluding current portion $ 864.1 $ 865.9

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.

As of March 31, 2023, our total debt was $884.3 million, excluding the original issue discount of $7.2 million and deferred financing costs of $4.0 million for our senior secured credit facilities.

Our net debt as of March 31, 2023 was $822.7 million, including cash and cash equivalents of $61.6 million.

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

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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 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.

Maintenance capital expenditures were higher in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to higher turnaround expenditures and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities.

Growth capital expenditures were slightly lower in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to the completion of several expansion projects in 2022.

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