Ecovyst Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (unaudited) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Sales $ 173,326 $ 232,533 $ 518,310 $ 637,419 Cost of goods sold 120,142 164,864 367,662 462,156 Gross profit 53,184 67,669 150,648 175,263 Selling, general and administrative expenses 16,945 21,460 59,460 67,779 Other operating expense, net 4,310 7,673 17,288 25,101 Operating income 31,929 38,536 73,900 82,383 Equity in net (income) from affiliated companies ( 4,708 ) ( 3,169 ) ( 16,305 ) ( 17,422 ) Interest expense, net 11,811 9,542 30,812 26,880 Other expense, net 361 1,872 543 2,497 Income before income taxes 24,465 30,291 58,850 70,428 Provision for income taxes 7,891 8,966 17,625 21,983 Net income $ 16,574 $ 21,325 $ 41,225 $ 48,445 Net income per share: Basic income per share $ 0.14 $ 0.16 $ 0.35 $ 0.36 Diluted income per share $ 0.14 $ 0.16 $ 0.34 $ 0.35 Weighted average shares outstanding: Basic 116,446,085 132,622,105 119,042,161 136,115,598 Diluted 117,374,347 134,096,839 120,417,132 137,666,215 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net income $ 16,574 $ 21,325 $ 41,225 $ 48,445 Other comprehensive income (loss), net of tax: Pension and postretirement benefits ( 213 ) ( 962 ) 228 ( 1,040 ) Net gain (loss) from hedging activities 1,128 9,141 ( 1,393 ) 27,620 Foreign currency translation ( 3,112 ) ( 7,207 ) ( 99 ) ( 17,506 ) Total other comprehensive income (loss) ( 2,197 ) 972 ( 1,264 ) 9,074 Comprehensive income $ 14,377 $ 22,297 $ 39,961 $ 57,519 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) September 30, 2023 December 31, 2022 ASSETS Cash and cash equivalents $ 38,317 $ 110,920 Accounts receivable, net 83,793 74,758 Inventories, net 48,263 44,362 Derivative assets 16,374 18,510 Prepaid and other current assets 17,570 19,154 Total current assets 204,317 267,704 Investments in affiliated companies 441,769 436,013 Property, plant and equipment, net 580,809 584,889 Goodwill 403,368 403,163 Other intangible assets, net 119,522 129,932 Right-of-use lease assets 26,431 28,265 Other long-term assets 36,609 34,587 Total assets $ 1,812,825 $ 1,884,553 LIABILITIES Current maturities of long-term debt $ 9,000 $ 9,000 Accounts payable 32,308 40,019 Operating lease liabilities—current 8,503 8,155 Accrued liabilities 50,611 72,229 Total current liabilities 100,422 129,403 Long-term debt, excluding current portion 860,668 865,870 Deferred income taxes 134,828 136,184 Operating lease liabilities—noncurrent 17,871 20,021 Other long-term liabilities 21,180 25,846 Total liabilities 1,134,969 1,177,324 Commitments and contingencies (Note 15) EQUITY Common stock ($ 0.01 par); authorized shares 450,000,000 ; issued shares 140,744,045 and 139,571,272 on September 30, 2023 and December 31, 2022, respectively; outstanding shares 116,116,895 and 122,186,238 on September 30, 2023 and December 31, 2022, respectively 1,407 1,396 Preferred stock ($ 0.01 par); authorized shares 50,000,000 ; no shares issued or outstanding on September 30, 2023 and December 31, 2022 — — Additional paid-in capital 1,099,216 1,091,475 Accumulated deficit ( 200,785 ) ( 242,010 ) Treasury stock, at cost; shares 24,627,150 and 17,385,034 on September 30, 2023 and December 31, 2022, respectively ( 226,710 ) ( 149,624 ) Accumulated other comprehensive income 4,728 5,992 Total equity 677,856 707,229 Total liabilities and equity $ 1,812,825 $ 1,884,553 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) (unaudited) Common stock Additional paid-in capital (Accumulated deficit) Treasury stock, at cost Accumulated other comprehensive income Total Balance, December 31, 2022 $ 1,396 $ 1,091,475 $ ( 242,010 ) $ ( 149,624 ) $ 5,992 $ 707,229 Net loss — — ( 1,471 ) — — ( 1,471 ) Other comprehensive loss — — — — ( 5,759 ) ( 5,759 ) Repurchases of common shares — — — ( 29,850 ) — ( 29,850 ) Tax withholdings on equity award vesting — — — ( 866 ) — ( 866 ) Stock compensation expense — 4,756 — — — 4,756 Shares issued under equity incentive plan, net of forfeitures 10 102 — — — 112 Balance, March 31, 2023 $ 1,406 $ 1,096,333 $ ( 243,481 ) $ ( 180,340 ) $ 233 $ 674,151 Net income — — 26,122 — — 26,122 Other comprehensive income — — — — 6,692 6,692 Repurchases of common shares — — — ( 43,524 ) — ( 43,524 ) Excise tax on repurchases of common shares — — — ( 630 ) — ( 630 ) Stock compensation expense — 4,739 — — — 4,739 Shares issued under equity incentive plan, net of forfeitures 1 213 — — — 214 Balance, June 30, 2023 $ 1,407 $ 1,101,285 $ ( 217,359 ) $ ( 224,494 ) $ 6,925 $ 667,764 Net income — — 16,574 — — 16,574 Other comprehensive loss — — — — ( 2,197 ) ( 2,197 ) Repurchases of common shares — — — ( 5,344 ) — ( 5,344 ) Tax withholdings on equity award vesting — — — ( 2,506 ) — ( 2,506 ) Excise tax on repurchases of common shares — — — ( 8 ) — ( 8 ) Stock compensation expense — 3,392 — — — 3,392 Shares issued under equity incentive plan, net of forfeitures — ( 5,461 ) — 5,642 — 181 Balance, September 30, 2023 $ 1,407 $ 1,099,216 $ ( 200,785 ) $ ( 226,710 ) $ 4,728 $ 677,856 6 Table of Contents Common stock Additional paid-in capital (Accumulated deficit) Treasury stock, at cost Accumulated other comprehensive income (loss) Total Balance, December 31, 2021 $ 1,378 $ 1,073,409 $ ( 315,707 ) $ ( 12,551 ) $ ( 5,792 ) $ 740,737 Net income — — 7,875 — — 7,875 Other comprehensive income — — — — 11,378 11,378 Tax withholdings on equity award vesting — — — ( 332 ) — ( 332 ) Stock compensation expense — 5,946 — — — 5,946 Shares issued under equity incentive plan, net of forfeitures 18 9 — — — 27 Balance, March 31, 2022 $ 1,396 $ 1,079,364 $ ( 307,832 ) $ ( 12,883 ) $ 5,586 $ 765,631 Net income — — 19,245 — — 19,245 Other comprehensive loss — — — — ( 3,276 ) ( 3,276 ) Repurchases of common shares — — — ( 8,842 ) — ( 8,842 ) Stock compensation expense — 5,409 — — — 5,409 Shares issued under equity incentive plan, net of forfeitures — 17 — — — 17 Balance, June 30, 2022 $ 1,396 $ 1,084,790 $ ( 288,587 ) $ ( 21,725 ) $ 2,310 $ 778,184 Net income — — 21,325 — — 21,325 Other comprehensive income — — — — 972 972 Repurchase of common shares — — — ( 64,869 ) — ( 64,869 ) Stock compensation expense — 3,872 — — — 3,872 Shares issued under equity incentive plan, net of forfeitures ( 1 ) 42 — — — 41 Balance, September 30, 2022 $ 1,395 $ 1,088,704 $ ( 267,262 ) $ ( 86,594 ) $ 3,282 $ 739,525 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents ECOVYST INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine months ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 41,225 $ 48,445 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 51,920 48,256 Amortization 10,536 10,547 Amortization of deferred financing costs and original issue discount 1,548 1,515 Foreign currency exchange (gain) loss ( 41 ) 2,179 Deferred income tax provision ( 1,011 ) 12,454 Net loss on asset disposals 3,326 1,174 Stock compensation 12,547 17,419 Equity in net income from affiliated companies ( 16,305 ) ( 17,422 ) Dividends received from affiliated companies 10,000 30,000 Other, net ( 5,270 ) ( 2,603 ) Working capital changes that provided (used) cash: Receivables ( 8,939 ) ( 28,443 ) Inventories ( 3,909 ) 3,206 Prepaids and other current assets 856 ( 5,223 ) Accounts payable ( 3,694 ) 1,954 Accrued liabilities ( 19,383 ) ( 14,133 ) Net cash provided by operating activities 73,406 109,325 Cash flows from investing activities: Purchases of property, plant and equipment ( 53,642 ) ( 39,474 ) Payments for business divestiture, net of cash — ( 3,744 ) Business combinations, net of cash acquired — ( 488 ) Other, net — 81 Net cash used in investing activities ( 53,642 ) ( 43,625 ) Cash flows from financing activities: Draw down of revolving credit facilities 14,500 — Repayments of revolving credit facilities ( 14,500 ) — Repayments of long-term debt ( 6,750 ) ( 6,750 ) Repurchases of common shares ( 78,717 ) ( 73,711 ) Tax withholdings on equity award vesting ( 3,372 ) ( 332 ) Repayment of financing obligation ( 2,087 ) ( 1,849 ) Other, net 457 84 Net cash used in financing activities ( 90,469 ) ( 82,558 ) Effect of exchange rate changes on cash and cash equivalents ( 1,898 ) ( 2,585 ) Net change in cash and cash equivalents ( 72,603 ) ( 19,443 ) Cash and cash equivalents at beginning of period 110,920 140,889 Cash and cash equivalents at end of period $ 38,317 $ 121,446 For supplemental cash flow disclosures, see Note 19. See accompanying notes to condensed consolidated financial statements. 8 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 1. Background and Basis of Presentation: Description of Business Ecovyst Inc. and subsidiaries (the “Company” or “Ecovyst”) is a leading integrated and innovative global provider of specialty catalysts and services. The Company supports customers globally through its strategically located network of manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment. The Company has two uniquely positioned specialty businesses: Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides on-purpose virgin sulfuric acid for water treatment, mining and industrial applications; and Catalyst Technologies provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through the Zeolyst Joint Venture, supplies 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. The Company’s regeneration services product group, which is a part of the Company’s Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. These demand fluctuations result in higher sales and working capital requirements in the second and third quarters. Basis of Presentation The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Correction of an Error During the preparation of the condensed consolidated financial statements for the period ended June 30, 2023, the Company identified a presentation error in the components of accumulated other comprehensive income (loss) that originated in the year ended December 31, 2021 and remained uncorrected through the quarter ended March 31, 2023. As a result, the presentation of accumulated other comprehensive income (loss) in Note 5 was corrected by revising the opening balances as follows: Defined benefit and other postretirement plans Net gain (loss) from hedging activities Foreign currency translation As reported, December 31, 2021 $ 14,808 $ 2,254 $ ( 22,854 ) Correction to opening balances ( 12,640 ) ( 1,964 ) 14,604 Revised, December 31, 2021 $ 2,168 $ 290 $ ( 8,250 ) As reported, December 31, 2022 $ 12,132 $ 26,636 $ ( 32,776 ) Correction to opening balances ( 12,640 ) ( 1,964 ) 14,604 Revised, December 31, 2022 $ ( 508 ) $ 24,672 $ ( 18,172 ) This classification error within accumulated other comprehensive income (loss) did not impact total accumulated other comprehensive income (loss) for the periods included in these condensed consolidated financial statements. Additionally, there was no impact on the condensed consolidated statements of income and other comprehensive income (loss), condensed consolidated balance sheets and condensed consolidated statements of cash flows for the periods included in these condensed consolidated financial statements. The Company assessed the materiality of this presentation error and concluded it was not material to the Company’s previously issued financial statements. 9 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Net income for the nine months ended September 30, 2023 increased by $ 1,390 from adjustments for the Company’s interest rate cap agreements related to prior year interest expense amortization. The impact of this adjustment was not material to the consolidated financial statements for any prior quarterly or annual periods, and is not expected to be material to the current annual period. 2. New Accounting Standards: Recently Adopted Accounting Standards In October 2023, the Financial Accounting Standards Board (“FASB”) issued guidance to amend either presentation or disclosure requirements related to fourteen subtopics in the FASB Accounting Standards Codification, that are currently in the SEC Regulation S-X or Regulation S-K. The new guidance was issued in response to the SEC’s ruling on disclosure simplification. For entities subject to existing SEC disclosure requirements, the effective date of each amendment of the topics will be the date that the SEC removes the related disclosure from Regulation S-X or Regulation S-K. The guidance must be applied prospectively, with no early adoption permitted for entities subject to those existing SEC disclosures. The Company is currently evaluating the impact of the new guidance as it pertains to the fourteen subtopics that would impact the business and will apply prospectively once in effect. In August 2023, the FASB issued guidance for entities that meet the definition of a joint venture or a corporate joint venture, to adopt a new basis of accounting upon the formation of the joint venture. The new guidance requires the initial measurement of contributed net assets and liabilities at fair value on the formation date, recognition of goodwill for the difference between the fair value of the joint venture’s equity and net assets, and disclosures about the nature and financial impact of the transaction. The new guidance requires prospective application and is effective for all joint ventures that are formed on or after January 1, 2025, with early adoption permitted. Joint ventures that formed before January 1, 2025 may elect to retrospectively apply the new guidance. The Company will apply the guidance to any new joint ventures formed after the effective date. In March 2020 and January 2021, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. The time period through which the practical expedients provided in the guidance is available was set to expire on December 31, 2022, but was extended through December 31, 2024 by the FASB in December 2022. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. In February 2023, the Company amended the 2021 Term Loan Facility (as defined below), the ABL Facility (as defined below) and all existing interest rate caps agreements to replace LIBOR with a secured overnight financing rate (“SOFR”) as the benchmark interest rate. See Note 11 and Note 12 to these condensed consolidated financial statements for additional information. The Company utilized the practical expedients under the guidance with respect to the transition of its debt facilities and interest rate hedging arrangements to SOFR, with no impact to its condensed consolidated financial statements. In October 2021, the FASB issued guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with revenue recognition guidance. Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The new guidance creates an exception to the general recognition and measurement principles related to business combinations, and is expected to result in the acquirer recognizing contract assets and liabilities at the same amounts recorded by the acquiree. The new guidance is effective for business combinations occurring during fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the new guidance effective January 1, 2023 as required, and will apply the guidance prospectively to business combinations that occur after the adoption date. 10 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 3. Revenue from Contracts with Customers: Disaggregated Revenue The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 16 to these condensed consolidated financial statements. The Company’s portfolio of products is integrated into a variety of end uses, which are described in the table below. Key End Uses Key Products Clean fuels, emission control & other • Refining hydrocracking catalysts • Emission control catalysts • Catalysts used in production of renewable fuels • Catalyst activation • Aluminum sulfate solution • Ammonium bisulfite solution Polymers & engineered plastics • Catalysts for high-density polyethylene and chemicals syntheses • Antiblocks for film packaging • Niche custom catalyst Regeneration and treatment services • Sulfuric acid regeneration services • Treatment services Industrial, mining & automotive • Sulfur derivatives for industrial production • Sulfuric acid for mining • Sulfuric derivatives for nylon production 11 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following tables disaggregate the Company’s sales, by segment and end uses, for the three and nine months ended September 30, 2023 and 2022, respectively: Three months ended September 30, 2023 Ecoservices Catalyst Technologies (2) Total Clean fuels, emission control & other $ 8,393 $ — $ 8,393 Polymers & engineered plastics — 25,697 25,697 Regeneration and treatment services (1) 87,692 — 87,692 Industrial, mining & automotive 51,544 — 51,544 Total segment sales $ 147,629 $ 25,697 $ 173,326 Three months ended September 30, 2022 Ecoservices Catalyst Technologies (2) Total Clean fuels, emission control & other $ 7,991 $ — $ 7,991 Polymers & engineered plastics — 36,859 36,859 Regeneration and treatment services (1) 92,676 — 92,676 Industrial, mining & automotive 95,007 — 95,007 Total segment sales $ 195,674 $ 36,859 $ 232,533 Nine months ended September 30, 2023 Ecoservices Catalyst Technologies (2) Total Clean fuels, emission control & other $ 21,559 $ — $ 21,559 Polymers & engineered plastics — 74,877 74,877 Regeneration and treatment services (1) 274,529 — 274,529 Industrial, mining & automotive 147,345 — 147,345 Total segment sales $ 443,433 $ 74,877 $ 518,310 Nine months ended September 30, 2022 Ecoservices Catalyst Technologies (2) Total Clean fuels, emission control & other $ 22,474 $ — $ 22,474 Polymers & engineered plastics — 94,716 94,716 Regeneration and treatment services (1) 253,793 — 253,793 Industrial, mining & automotive 266,436 — 266,436 Total segment sales $ 542,703 $ 94,716 $ 637,419 (1) As described in Note 1 to these condensed consolidated financial statements, the Company experiences seasonal s ales fluctuations to customers in the regeneration services product group. (2) Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 9 to these condensed consolidated financial statements for further information). 12 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 4. Fair Value Measurements: Fair values are based on quoted market prices when available. When market prices are not available, fair values are generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, the Company estimates fair values using methods, models and assumptions that management believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment that becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model or input used. The Company’s financial assets and liabilities carried at fair value have been classified based upon a fair value hierarchy. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The classification of an asset or a liability is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: • Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets. • Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. • Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. The following tables present information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. September 30, 2023 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative assets: Interest rate caps (Note 12) $ 32,178 $ — $ 32,178 $ — December 31, 2022 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Derivative assets: Interest rate caps (Note 12) $ 34,374 $ — $ 34,374 $ — Derivative liabilities: Interest rate caps (Note 12) $ 2,071 $ — $ 2,071 $ — 13 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Derivative contracts Derivative assets and liabilities can be exchange-traded or traded over-the-counter (“OTC”). The Company generally values exchange-traded derivatives using models that calibrate to market transactions and eliminate timing differences between the closing price of the exchange-traded derivatives and their underlying instruments. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, forward curves, measures of volatility, and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as forward contracts, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment. As of September 30, 2023, th e Company had interest rate c aps th at were fair valued using Level 2 inputs. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to Ecovyst. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets. 5. Stockholders' Equity: Accumulated Other Comprehensive Income (Loss) The following tables present the tax effects of each component of other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022, respectively: Three months ended September 30, 2023 2022 Pre-tax amount Tax benefit/ (expense) After-tax amount Pre-tax amount Tax benefit/ (expense) After-tax amount Defined benefit and other postretirement plans: Net prior service credit (cost) $ ( 31 ) $ 8 $ ( 23 ) $ ( 53 ) $ 13 $ ( 40 ) Net gain (loss) ( 253 ) 63 ( 190 ) ( 1,226 ) 304 ( 922 ) Benefit plans, net ( 284 ) 71 ( 213 ) ( 1,279 ) 317 ( 962 ) Net gain (loss) from hedging activities 1,247 ( 119 ) 1,128 12,188 ( 3,047 ) 9,141 Foreign currency translation ( 3,112 ) — ( 3,112 ) ( 7,207 ) — ( 7,207 ) Other comprehensive income (loss) $ ( 2,149 ) $ ( 48 ) $ ( 2,197 ) $ 3,702 $ ( 2,730 ) $ 972 Nine months ended September 30, 2023 2022 Pre-tax amount Tax benefit/ (expense) After-tax amount Pre-tax amount Tax benefit/ (expense) After-tax amount Defined benefit and other postretirement plans: Net prior service credit (cost) $ ( 94 ) $ 23 $ ( 71 ) $ ( 158 ) $ 39 $ ( 119 ) Net gain (loss) 398 ( 99 ) 299 ( 1,225 ) 304 ( 921 ) Benefit plans, net 304 ( 76 ) 228 ( 1,383 ) 343 ( 1,040 ) Net gain (loss) from hedging activities ( 1,998 ) 605 ( 1,393 ) 36,827 ( 9,207 ) 27,620 Foreign currency translation ( 99 ) — ( 99 ) ( 17,506 ) — ( 17,506 ) Other comprehensive income (loss) $ ( 1,793 ) $ 529 $ ( 1,264 ) $ 17,938 $ ( 8,864 ) $ 9,074 14 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the nine months ended September 30, 2023 and 2022, respectively: Defined benefit and other postretirement plans Net gain (loss) from hedging activities Foreign currency translation Total December 31, 2022 $ ( 508 ) $ 24,672 $ ( 18,172 ) $ 5,992 Other comprehensive income (loss) before reclassifications 207 12,057 ( 99 ) 12,165 Amounts reclassified from accumulated other comprehensive income (1) 21 ( 13,450 ) — ( 13,429 ) Net current period other comprehensive income (loss) 228 ( 1,393 ) ( 99 ) ( 1,264 ) September 30, 2023 $ ( 280 ) $ 23,279 $ ( 18,271 ) $ 4,728 December 31, 2021 $ 2,168 $ 290 $ ( 8,250 ) $ ( 5,792 ) Other comprehensive income (loss) before reclassifications ( 1,157 ) 27,148 ( 17,506 ) 8,485 Amounts reclassified from accumulated other comprehensive income (1) 117 472 — 589 Net current period other comprehensive income (loss) ( 1,040 ) 27,620 ( 17,506 ) 9,074 September 30, 2022 $ 1,128 $ 27,910 $ ( 25,756 ) $ 3,282 (1) See the following table for details about these reclassifications. Amounts in parentheses indicate debits. The following table presents the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2023 and 2022, respectively: Details about Accumulated Other Comprehensive Income Components Amounts reclassified from Accumulated Other Comprehensive Income (1) Affected line item where Income is presented Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Amortization of defined benefit and other postretirement items: Net prior service (credit) cost $ ( 31 ) $ ( 53 ) $ ( 94 ) $ ( 158 ) Other (expense) income (2) Net (gain) loss 21 1 48 3 Other (expense) income (2) ( 10 ) ( 52 ) ( 46 ) ( 155 ) Total before tax 7 12 25 38 Tax benefit $ ( 3 ) $ ( 40 ) $ ( 21 ) $ ( 117 ) Net of tax Gains and losses on cash flow hedges: Interest rate caps $ 6,048 $ ( 29 ) $ 17,933 $ ( 627 ) Interest expense ( 1,511 ) 7 ( 4,483 ) 155 Tax (expense) benefit $ 4,537 $ ( 22 ) $ 13,450 $ ( 472 ) Net of tax Total reclassifications for the period $ 4,534 $ ( 62 ) $ 13,429 $ ( 589 ) Net of tax (1) Amounts in parentheses indicate debits to profit/loss. (2) These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 14 to these condensed consolidated financial statements for additional details). 15 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) Treasury Stock Repurchases 2022 Stock Repurchase Program On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $ 450,000 of the Company’s common stock over the four-year period from the date of approval. Under the plan, the Company is permitted to repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws, with the Company determining the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors. During the nine months ended September 30, 2023, the Company repurchased 541,494 shares on the open market at an average price of $ 9.85 per share, for a total of $ 5,333 , excluding brokerage commissions and accrued excise tax. Additionally, in connection with secondary offerings of the Company’s common stock in March and May 2023 , the Company repurchased 7,000,000 shares of its common stock sold in the offerings from the underwriters at a weighted average price of $ 10.48 per share concurrently with the closing of the offerings, for a total of $ 73,374 , excluding accrued excise tax. As of September 30, 2023, $ 234,592 was available for additional share repurchases under the program. During the nine months ended September 30, 2023, the Company accrued excise tax of $ 638 related to these repurchases, net of shares issued under the Company’s equity incentive program (see Note 17 to these condensed consolidated financial statements). This amount is included in accrued liabilities in the condensed consolidated balance sheet and is treated by the Company as a cost of the treasury stock transactions in equity. During the nine months ended September 30, 2022, the Company repurchased 1,970,763 shares on the open market at an average price of $ 9.82 per share, for a total of $ 19,356 , excluding brokerage commissions. 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 underwriters at a price of $ 8.36 per share concurrently with the closing of the offering, for a total of $ 54,316 . Tax Withholdings on Equity Award Vesting In connection with the vesting of restricted stock awards, restricted stock units and performance stock units, shares of common stock may be delivered to the Company by employees to satisfy withholding tax obligations at the instruction of the employee award holders. These transactions, when they occur, are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in lieu of shares for the vesting unit. There were 315,635 and 32,058 shares delivered to the Company to cover tax payments for the nine months ended September 30, 2023 and 2022, respectively and the fair value of those shares withheld were $ 3,372 and $ 332 for the nine months ended September 30, 2023 and 2022, respectively. 6. Goodwill: The change in the carrying amount of goodwill for the nine months ended September 30, 2023 is summarized as follows: Ecoservices Catalyst Technologies Total Balance as of December 31, 2022 $ 326,589 $ 76,574 $ 403,163 Foreign exchange impact — 205 205 Balance as of September 30, 2023 $ 326,589 $ 76,779 $ 403,368 16 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 7. Other Operating Expense, Net: A summary of other operating expense, net is as follows: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Amortization expense $ 2,645 $ 2,632 $ 7,924 $ 7,931 Transaction and other related costs 187 1,789 2,811 6,860 Restructuring, integration and business optimization costs (1) 310 2,338 2,438 8,011 Net loss on asset disposals 1,020 468 3,326 1,174 Other, net 148 446 789 1,125 $ 4,310 $ 7,673 $ 17,288 $ 25,101 (1) During the three and nine months ended September 30, 2022 , respectively, the Company’s results were impacted by costs associated with severance charges for certain former executives and employees. 8. Inventories, Net: Inventories, net are classified and valued as follows: September 30, 2023 December 31, 2022 Finished products and work in process $ 44,406 $ 39,909 Raw materials 3,857 4,453 $ 48,263 $ 44,362 Valued at lower of cost or market: LIFO basis $ 28,157 $ 25,258 Valued at lower of cost and net realizable value: FIFO or average cost basis 20,106 19,104 $ 48,263 $ 44,362 17 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 9. Investments in Affiliated Companies: The Company accounts for investments in affiliated companies under the equity method. Affiliated companies accounted for on the equity basis as of September 30, 2023 are as follows: Company Country Percent ownership Zeolyst International USA 50 % Zeolyst C.V. Netherlands 50 % Following is summarized information of the combined investments (1) : Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Sales $ 81,115 $ 67,043 $ 236,200 $ 218,389 Gross profit 22,205 17,794 66,776 70,546 Operating income 12,414 10,228 39,916 44,340 Net income 12,617 9,540 42,189 44,448 (1) Summarized information of the combined investments is presented at 100%; the Company’s share of the net assets and net income of affiliates is calculated based on the percent ownership specified in the table above. The Company’s investments in affiliated companies balance as of September 30, 2023 and December 31, 2022 includes net purchase accounting fair value adjustments of $ 226,215 and $ 231,017 , respectively, related to a prior business combination, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names. Consolidated equity in net income from affiliates is net of $ 1,601 and $ 4,802 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2023, respectively. Consolidated equity in net income from affiliates is net of $ 1,601 and $ 4,802 of amortization expense related to purchase accounting fair value adjustments for the three and nine months ended September 30, 2022, respectively. 10. Property, Plant and Equipment: A summary of property, plant and equipment, at cost, and related accumulated depreciation is as follows: September 30, 2023 December 31, 2022 Land $ 96,686 $ 96,659 Buildings and improvements 83,346 82,061 Machinery and equipment 802,823 751,145 Construction in progress 47,974 56,448 1,030,829 986,313 Less: accumulated depreciation ( 450,020 ) ( 401,424 ) $ 580,809 $ 584,889 Depreciation expense was $ 17,773 and $ 51,920 for the three and nine months ended September 30, 2023, respectively. Depreciation expense was $ 16,103 and $ 48,256 for the three and nine months ended September 30, 2022, respectively. 18 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 11. Long-term Debt: The summary of long-term debt is as follows: September 30, 2023 December 31, 2022 Senior Secured Term Loan Facility due June 2028 (the "2021 Term Loan Facility") $ 879,750 $ 886,500 ABL Facility — — Total debt 879,750 886,500 Original issue discount ( 6,496 ) ( 7,472 ) Deferred financing costs ( 3,586 ) ( 4,158 ) Total debt, net of original issue discount and deferred financing costs 869,668 874,870 Less: current portion ( 9,000 ) ( 9,000 ) Total long-term debt, excluding current portion $ 860,668 $ 865,870 In February 2023, the Company amended the 2021 Term Loan Facility to replace LIBOR with SOFR as the benchmark interest rate. Following this amendment, the 2021 Term Loan Facility bears interest at an adjusted term SOFR, which includes a credit spread adjustment of 10 basis points (with a 0.50 % minimum floor) plus 2.75 % per annum (or, depending on the Company’s first lien net leverage ratio, 2.50 %). The interest rate on the 2021 Term Loan Facility was 7.97 % as of September 30, 2023. Also in February 2023, the Company amended its senior secured asset-based revolving credit facility (the “ABL Facility”) to replace LIBOR with SOFR as the benchmark interest rate. Following this amendment, the borrowings under the ABL Facility bear interest at a rate equal to an adjusted term SOFR rate or the base rate, which includes a credit spread adjustment of 10 basis points, plus a margin of between 1.25 % to 1.75 % or 0.25 % to 0.75 %, respectively. The interest rate on the ABL Facility was 8.75 % as of September 30, 2023. Fair Value of Debt The fair value of a financial instrument is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of September 30, 2023 and December 31, 2022, the fair value of the senior secured term loan facility was $ 875,351 and $ 870,986 , respectively. The fair value is classified as Level 2 based upon the fair value hierarchy (see Note 4 to these condensed consolidated financial statements for further information on fair value measurements). 19 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 12. Financial Instruments: The Company uses interest rate related derivative instruments to manage its exposure to changes in interest rates on its variable-rate debt instruments. The Company does not speculate using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features. Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with the Company’s derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Use of Derivative Financial Instruments to Manage Interest Rate Risk. The Company is exposed to fluctuations in interest rates on its senior secured credit facilities. Changes in interest rates will not affect the market value of such debt but will affect the Company’s interest payments over the term of the loans. Likewise, an increase in interest rates could have a material impact on the Company’s condensed consolidated statements of cash flows. The Company hedges the interest rate fluctuations on debt obligations through interest rate cap agreements. The Company records these agreements at fair value as assets or liabilities in its condensed consolidated balance sheets. As the derivatives are designated and qualify as cash flow hedges, the gains or losses on the interest rate cap agreements are recorded in stockholders’ equity as a component of other comprehensive income, net of tax. Reclassifications of the gains and losses on the interest rate cap agreements into earnings are recorded as part of interest expense in the condensed consolidated statements of income as the Company makes its interest payments on the hedged portion of its senior secured credit facilities. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices. The following table provides a summary of the Company’s interest rate cap agreements: Financial instrument Number of instruments In effect as of September 30, 2023 Current notional amount of instruments in effect Annuitized premium of instruments in effect Interest rate cap 4 3 $ 650,000 $ 24,817 The current notional amounts of the three interest rate cap agreements in effect at September 30, 2023 are $ 250,000 , $ 250,000 and $ 150,000 . The Company entered into a $ 250,000 interest rate cap to mitigate interest rate volatility from August 2022 to October 2024, a $ 250,000 interest rate cap agreement to mitigate interest rate volatility from September 2023 to October 2025 and a $ 150,000 interest rate cap agreement to mitigate interest rate volatility from August 2023 to July 2024. The $ 150,000 interest rate cap agreement will increase to $ 175,000 to mitigate interest rate volatility from August 2024 to July 2026. The cap rate in effect at September 30, 2023 for all agreements in effect was 1.00 %. The Company has also entered into a forward starting interest rate cap agreement to mitigate interest volatility from November 2024 to October 2026. In February 2023, the Company amended all existing interest rate cap agreements to replace LIBOR with SOFR as the benchmark interest rate, with all other terms of the agreements remaining the same. This amendment changed the previously annuitized premiums on the existing interest rate cap agreements. 20 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The fair values of derivative instruments held as of September 30, 2023 and December 31, 2022, respectively are shown below: Balance sheet location September 30, 2023 December 31, 2022 Derivative assets Derivatives designated as cash flow hedges: Interest rate caps Prepaid and other current assets $ 16,374 $ 18,510 Interest rate caps Other long-term assets 15,804 15,864 Total derivative assets $ 32,178 $ 34,374 Derivative liabilities Derivatives designated as cash flow hedges: Interest rate caps Other long-term liabilities $ — $ 2,071 Total derivative liabilities $ — $ 2,071 The following table shows the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three and nine months ended September 30, 2023 and 2022, respectively: Three months ended September 30, 2023 2022 Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Interest rate caps Interest (expense) income $ 7,294 $ 6,048 $ 12,159 $ ( 29 ) Nine months ended September 30, 2023 2022 Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Interest rate caps Interest (expense) income $ 15,935 $ 17,933 $ 36,200 $ ( 627 ) The following table shows the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income for the three and nine months ended September 30, 2023 and 2022, respectively: Location and amount of gain (loss) recognized in income on cash flow hedging relationships Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded in interest (expense) income $ ( 11,811 ) $ ( 9,542 ) $ ( 30,812 ) $ ( 26,880 ) The effects of cash flow hedging: Gain (loss) on cash flow hedging relationships: Interest contracts: Amount of loss reclassified from AOCI into income 6,048 ( 29 ) 17,933 ( 627 ) 21 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The amount of unrealized losses in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the condensed consolidated statement of income over the next twelve months is $ 9,963 as of September 30, 2023. 13. Income Taxes: The effective income tax rate for the three months ended September 30, 2023 was 32.3 %, compared to 29.6 % for the three months ended September 30, 2022. The effective income tax rate for the nine months ended September 30, 2023 was 29.9 %, compared to 31.2 % for the nine months ended September 30, 2022. The Company’s effective income tax rate fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law 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, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law 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. 14. Benefit Plans: The following tables present the components of net periodic expense (benefit) for the Company-sponsored defined benefit pension and postretirement plans, which cover certain employees and retirees located in the U.S. Defined Benefit Pension Plans Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Interest cost $ 863 $ 681 $ 2,590 $ 1,888 Expected return on plan assets ( 826 ) ( 380 ) ( 2,479 ) ( 2,599 ) Settlement loss 22 38 50 38 Net periodic expense (benefit) $ 59 $ 339 $ 161 $ ( 673 ) Other Postretirement Benefit Plan Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Interest cost $ 6 $ 5 $ 18 $ 13 Amortization of prior service credit ( 31 ) ( 53 ) ( 94 ) ( 158 ) Amortization of net loss ( 1 ) 1 ( 2 ) 3 Net periodic benefit $ ( 26 ) $ ( 47 ) $ ( 78 ) $ ( 142 ) 15. Commitments and Contingent Liabilities: There is a risk of environmental impact in the Company’s manufacturing operations. The Company’s environmental policies and practices are designed to comply with existing laws and regulations and to minimize the possibility of significant environmental impact. The Company is also subject to various other lawsuits and claims with respect to matters such as governmental regulations, labor and other actions arising out of the normal course of business. All claims that are probable and reasonably estimable have been accrued for in the Company’s condensed consolidated financial statements. When these matters are ultimately concluded and determined, the Company believes that there will be no material adverse effect on its consolidated financial position, results of operations or liquidity. 22 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 16. Reportable Segments: Summarized financial information for the Company’s reportable segments is shown in the following table: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Sales: Ecoservices $ 147,629 $ 195,674 $ 443,433 $ 542,703 Catalyst Technologies (1) 25,697 36,859 74,877 94,716 Total $ 173,326 $ 232,533 $ 518,310 $ 637,419 Adjusted EBITDA: (2) Ecoservices $ 54,674 $ 64,110 $ 151,598 $ 173,435 Catalyst Technologies (3) 16,360 19,272 54,718 57,676 Adjusted EBITDA from reportable segments $ 71,034 $ 83,382 $ 206,316 $ 231,111 (1) Excludes the Company’s proportionate share of sales from the Zeolyst Joint Venture accounted for using the equity method (see Note 9 to these condensed consolidated financial statements for further information). The proportionate share of sales excluded is $ 36,958 and $ 103,721 for the three and nine months ended September 30, 2023, respectively. The proportionate share of sales excluded is $ 27,773 and $ 92,656 for the three and nine months ended September 30, 2022, respectively. (2) The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of the Company’s operating performance. Adjusted EBITDA as defined by the Company may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. (3) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 9,640 for the three months ended September 30, 2023, which includes $ 4,748 of equity in net income plus $ 1,601 of amortization of investment in affiliate step-up and $ 3,291 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 31,270 for the nine months ended September 30, 2023, which includes $ 16,356 of equity in net income plus $ 4,802 of amortization of investment in affiliate step-up and $ 10,112 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 8,704 for the three months ended September 30, 2022, which includes $ 3,187 of equity in net income plus $ 1,601 of amortization of investment in affiliate step-up and $ 3,917 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $ 34,306 for the nine months ended September 30, 2022, which includes $ 17,500 of equity in net income plus $ 4,802 of amortization of investment in affiliate step-up and $ 12,004 of joint venture depreciation, amortization and interest. 23 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) A reconciliation of income before income taxes to Adjusted EBITDA is as follows: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Reconciliation of income before income taxes to Adjusted EBITDA from reportable segments Income before income taxes $ 24,465 $ 30,291 $ 58,850 $ 70,428 Interest expense, net 11,811 9,542 30,812 26,880 Depreciation and amortization 21,290 19,599 62,456 58,803 Unallocated corporate expenses 3,163 7,945 16,243 23,543 Joint venture depreciation, amortization and interest 3,292 3,917 10,112 12,004 Amortization of investment in affiliate step-up 1,601 1,601 4,802 4,802 Net loss on asset disposals 1,020 468 3,326 1,174 Foreign exchange loss (gain) 774 1,030 ( 362 ) 2,179 LIFO (benefit) expense — ( 436 ) 2,510 ( 4 ) Transaction and other related costs 187 1,789 2,811 6,860 Equity-based compensation 3,477 4,740 12,547 17,419 Restructuring, integration and business optimization expenses 310 2,338 2,438 8,011 Other ( 356 ) 558 ( 229 ) ( 988 ) Adjusted EBITDA from reportable segments $ 71,034 $ 83,382 $ 206,316 $ 231,111 24 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 17. Stock-Based Compensation: The Company has an equity incentive plan under which it grants common stock awards to employees, directors and affiliates of the Company. At September 30, 2023, 9,413,264 shares of common stock were available for issuance under the plan. The Company historically has settled these awards through the issuance of new shares. Beginning on July 1, 2023, the Company commenced reissuing shares from treasury in connection with the settlement of awards under its equity incentive plan. Restricted Stock Units and Performance Stock Units Restricted Stock Units During the nine months ended September 30, 2023, the Company granted 1,195,835 restricted stock units under its equity incentive plan. Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the nine months ended September 30, 2023, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees. The value of the restricted stock units granted during the nine months ended September 30, 2023 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period. Performance Stock Units 2023 Grants During the nine months ended September 30, 2023, the Company granted 721,537 performance stock units (at target) under its equity incentive plan. The performance stock units granted during the nine months ended September 30, 2023 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award. The performance period for the TSR goal is measured based on a three-year performance period from January 1, 2023 through December 31, 2025. The TSR goal is based on the Company’s actual TSR percentage increase over the performance period. Depending on the Company’s performance relative to the TSR goal, each performance stock unit award recipient is eligible to receive a percentage of the target number of shares granted to the recipient, ranging from zero to 200 %. The performance stock units, to the extent earned, will vest on the date the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) certifies the achievement of the performance metric for the three-year period ending December 31, 2025, which will occur subsequent to the end of the performance period and after the Company files its annual consolidated financial statements for the year ending December 31, 2025. The TSR goal is considered a market condition as opposed to a vesting condition. Because a market condition is not considered a vesting condition, it is reflected in the grant date fair value of the award and the associated compensation cost based on the fair value of the award is recognized over the performance period, regardless of whether the Company actually achieves the market condition or the level of achievement, as long as service is provided by the recipient. The Company used a Monte Carlo simulation to estimate the $ 12.28 weighted average fair value of the awards granted during the nine months ended September 30, 2023, with the following weighted average assumptions: Expected dividend yield — % Risk-free interest rate 3.80 % Expected volatility 48.82 % Expected term (in years) 2.96 25 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) 2020 Grants In March 2023, the Compensation Committee certified the achievement of the performance metrics for the three-year period ended December 31, 2022, related to the performance stock units (“PSUs”) granted during the year ended December 31, 2020. Fifty percent of the target number of such PSUs could be earned depending on performance against a Company-specific financial performance target, and 50 % of the target number of such PSUs could be earned depending on performance against a TSR goal, subject to the provision of service through the vesting date of the awards. The Company-specific financial performance target and the TSR goal were measured independently of each other, and each PSU award recipient was eligible to earn a percentage of the target number of shares granted to the recipient, ranging from zero to 200 %. The awards vested during the nine months ended September 30, 2023 as follows: 53.3 % of target with respect to the portion of the PSU award subject to the Company-specific financial measure, and 56.0 % of target with respect to the portion of the PSU award subject to the TSR goal. Award Activity The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the nine months ended September 30, 2023: Restricted Stock Units Performance Stock Units Number of units Weighted average grant date fair value (per share) Number of units Weighted average grant date fair value (per share) Nonvested as of December 31, 2022 2,464,718 $ 11.73 639,532 (1) $ 16.32 Granted 1,195,835 $ 9.84 721,537 $ 12.28 Vested ( 1,436,301 ) $ 11.84 ( 200,204 ) $ 20.48 Forfeited ( 195,334 ) $ 11.37 ( 183,864 ) $ 19.50 Nonvested as of September 30, 2023 2,028,918 $ 10.57 977,001 (1) $ 11.88 (1) Based on target. During the nine months ended September 30, 2023, the Company also granted 5,081 restricted stock awards with a weighted average grant date fair value of $ 9.84 per share that immediately vested. Stock-Based Compensation Expense For the three months ended September 30, 2023 and 2022, stock-based compensation expense for the Company was $ 3,477 and $ 4,740 , respectively. The associated income tax benefit recognized in the condensed consolidated statements of income for the three months ended September 30, 2023 and 2022 was $ 826 and $ 1,162 , respectively. For the nine months ended September 30, 2023 and 2022, stock-based compensation expense for the Company was $ 12,547 and $ 17,419 , respectively. The associated income tax benefit based on the applicable statutory rate recognized in the condensed consolidated statements of income for the nine months ended September 30, 2023 and 2022 was $ 2,980 and $ 4,271 , respectively. Performance-based restricted stock awards and performance-based stock options would vest only on the achievement with respect to shares of our common stock of an average closing trading price equal or exceeding, in any ten trading-day period, the lowest amount which, when multiplied by the number of shares of our common stock then held by investment funds affiliated with CCMP Capital Advisors, LP (“CCMP”) and added to the aggregate net proceeds received by investment funds affiliated with CCMP with respect to their shares of capital stock of the Company, would yield a quotient of equal or greater than two when divided by the equity investment in the Company by investment funds affiliated with CCMP (such quotient, the “MOI Target”). On March 7, 2023, all of the outstanding performance-based stock options ( 284,956 options) and performance-based restricted shares ( 277,056 shares) that would vest upon the achievement of the MOI Target were canceled due to the failure of the MOI Target to be achieved upon the sale by investment funds affiliated with CCMP of all of their remaining shares of our common stock. No expense had previously been recognized for either the restricted stock awards or the stock options subject to this performance condition, as the condition was not achieved nor was previously considered probable of achievement. In addition to the forfeitures described above, 328,677 vested stock options expired unexercised during the nine months ended September 30, 2023. Cash proceeds received by the Company from the exercise of stock options were not material for the nine months ended September 30, 2023. 26 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) As of September 30, 2023, unrecognized compensation cost was $ 13,205 for restricted stock units and $ 7,377 for performance stock units, and the weighted-average period over which these costs are expected to be recognized at September 30, 2023 was 2.02 years for the restricted stock units and 2.31 years for the performance stock units. 18. Earnings per Share: Basic earnings per share is calculated as income available to common stockholders, divided by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding during the period for the computation of basic earnings per share excludes restricted stock awards that have legally been issued but are nonvested during the period, as the sale of these shares is prohibited pending satisfaction of certain vesting conditions by the award recipients in order to earn the rights to the shares. Diluted earnings per share is calculated as income available to common stockholders, divided by the weighted average number of common and potential common shares outstanding during the period, if dilutive. Potential common shares reflect (1) unvested restricted stock awards and restricted stock units with service vesting conditions, (2) performance stock units with vesting conditions considered probable of achievement and (3) options to purchase common stock, all of which have been included in the diluted earnings per share calculation using the treasury stock method. The reconciliation from basic to diluted weighted average shares outstanding is as follows: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Weighted average shares outstanding – Basic 116,446,085 132,622,105 119,042,161 136,115,598 Dilutive effect of unvested common shares and restricted stock units with service conditions, performance stock units considered probable of vesting and assumed stock option exercises and conversions 928,262 1,474,734 1,374,971 1,550,617 Weighted average shares outstanding – Diluted 117,374,347 134,096,839 120,417,132 137,666,215 Basic and diluted income per share are calculated as follows: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Numerator: Net income $ 16,574 $ 21,325 $ 41,225 $ 48,445 Denominator: Weighted average shares outstanding – Basic 116,446,085 132,622,105 119,042,161 136,115,598 Weighted average shares outstanding – Diluted 117,374,347 134,096,839 120,417,132 137,666,215 Net income per share: Basic income per share $ 0.14 $ 0.16 $ 0.35 $ 0.36 Diluted income per share $ 0.14 $ 0.16 $ 0.34 $ 0.35 27 Table of Contents ECOVYST INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except share and per share amounts) (unaudited) The table below presents the details of the Company’s weighted average equity-based awards outstanding during each respective period that were excluded from the calculation of diluted earnings per share: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Restricted stock awards with performance only targets not achieved — 505,439 65,966 574,048 Stock options with performance only targets not achieved — 300,788 68,890 316,187 Anti-dilutive restricted stock units and performance stock units — 487,322 — 19,306 Anti-dilutive stock options 454,461 751,539 556,114 788,509 Restricted stock awards and stock options with performance only vesting conditions were not included in the dilution calculation, as the performance targets have not been achieved nor were probable of achievement as of the end of the respective periods. These awards and stock options were canceled on March 7, 2023 (see Note 17 to these condensed consolidated financial statements for additional information). Certain stock options to purchase shares of common stock were excluded from the computation of diluted earnings per share for the respective periods because the options’ exercise price was greater than the average market price of the common shares. These stock options and anti-dilutive awards are not included in the dilution calculation, as their inclusion would have the effect of increasing diluted income per share or reducing diluted loss per share. 19. Supplemental Cash Flow Information: The following table presents supplemental cash flow information for the Company: Nine months ended September 30, 2023 2022 Cash paid during the period for: Income taxes, net of refunds $ 19,019 $ 24,367 Interest (1) 28,466 24,390 Non-cash investing activity: Capital expenditures acquired on account but unpaid as of the period end 589 4,993 Non-cash financing activity: Accrued excise tax on share repurchases (Note 5) 638 — Right-of-use assets obtained in exchange for new lease liabilities (non-cash): Operating leases 8,048 6,187 (1) Cash paid for interest is shown net of capitalized interest and includes the cash received or paid on the Company’s interest rate cap agreements designated as cash flow hedges for the periods presented (see Note 12 to these condensed consolidated financial statements for details). 20. Subsequent Events: The Company has evaluated subsequent events since the balance sheet date and determined that there are no additional items to disclose. 28 Table of Contents