Ecovyst Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unless the context requires otherwise, references in this report to “Ecovyst,” “the company,” “we,” “us” or “our” refer to Ecovyst Inc. and its consolidated subsidiaries. Forward-looking Statements This periodic report on Form 10-Q (“Form 10-Q”) includes “forward-looking statements” that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should” and similar expressions are intended to identify these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs. Examples of forward-looking statements include, but are not limited to, statements we make regarding demand trends, economic effects on our operations and financial results and our liquidity, and our belief that our current level of operations, cash and cash equivalents, cash flow from operations and borrowings under our credit facilities and other lines of credit will provide us adequate cash to fund the working capital, capital expenditure, debt service and other requirements for our business for at least the next twelve months. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include the following risks related to our business: • as a global business, we are exposed to local business risks in different countries; • we are affected by general economic conditions and economic downturns; • exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows; • our international operations require us to comply with anti-corruption laws, trade and export controls and regulations of the U.S. government and various international jurisdictions in which we do business; • alternative technology or other changes in our customers’ products may reduce or eliminate the need for certain of our products; • our new product development and research and development efforts may not succeed and our competitors may develop more effective or successful products; • our substantial level of indebtedness could adversely affect our financial condition; • if we are unable to manage the current and future inflationary environment and to pass on increases in raw material prices, including natural gas, or labor costs to our customers or to retain or replace our key suppliers, our results of operations and cash flows may be negatively affected; • we face substantial competition in the industries in which we operate; • we are subject to the risk of loss resulting from non-payment or non-performance by our customers; • we rely on a limited number of customers for a meaningful portion of our business; • multi-year customer contracts in our Ecoservices segment are subject to potential early termination and such contracts may not be renewed at the end of their respective terms; • our quarterly results of operations are subject to fluctuations because demand for some of our products is seasonal; • our growth projects may result in significant expenditures before generating revenues, if any, which may materially and adversely affect our ability to implement our business strategy; • we may be liable to damages based on product liability claims brought against us or our customers for costs associated with recalls of our or our customers’ products; 29 Table of Contents • we are subject to extensive environmental, health and safety regulations and face various risks associated with potential non-compliance or releases of hazardous materials; • existing and proposed regulations to address climate change by limiting greenhouse gas emissions may cause us to incur significant additional operating and capital expenses and may impact our business and results of operations; • production and distribution of our products could be disrupted for a variety of reasons, including as a result of supply chain constraints, and such disruptions could expose us to significant losses or liabilities; • the insurance that we maintain may not fully cover all potential exposures; • we could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications; • our failure to protect our intellectual property and infringement on the intellectual property rights of third parties; • disruption, failure or cyber security breaches affecting or targeting computers and infrastructure used by us or our business partners may adversely impact our business and operations; and • other factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented in “Item 1A, Risk Factors” in our quarterly reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023. The forward-looking statements included herein are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations. Overview We are a leading integrated and innovative global provider of specialty catalysts and services. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment. We conduct operations through two reporting segments: (1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture). Ecoservices: We are a leading provider of sulfuric acid recycling to the North American refining industry for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards. We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining and industrial applications. Catalyst Technologies: We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications. This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of zeolites used for catalysts that help produce renewable fuels, remove nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process. Stock Repurchase Program On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $450 million of the Company’s common stock over the four-year period from the date of approval. For the nine months ended September 30, 2023, the Company repurchased 541,494 shares on the open market at an average price of $9.85, for a total of $5.3 million, 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 $73.4 million, excluding accrued excise tax. As of September 30, 2023, $234.6 million was available for additional share repurchases under the program. For the nine months ended September 30, 2022, the Company repurchased 1,970,763 shares on the op en market at an average price of $9.82, for a total of $19.4 million, 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 the underwriters at a price of $8.36 per share concurrently with the closing of the offering, for a total of $54.3 million. 30 Table of Contents Key Performance Indicators Adjusted EBITDA and Adjusted Net Income Adjusted EBITDA and adjusted net income are financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that we use to evaluate our operating performance, for business planning purposes and to measure our performance relative to that of our competitors. Adjusted EBITDA and adjusted net income are presented as key performance indicators as we believe these financial measures will enhance a prospective investor’s understanding of our results of operations and financial condition. EBITDA consists of net income attributable to continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, (ii) the impact of certain non-cash, nonrecurring or other items included in net income and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) depreciation, amortization and interest of our 50% share of the Zeolyst Joint Venture. Adjusted net income consists of net income adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income that we do not consider indicative of our ongoing operating performance. We believe that these non-GAAP financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business. You should not consider Adjusted EBITDA or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with GAAP. The presentation of Adjusted EBITDA and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. In evaluating Adjusted EBITDA and adjusted net income, you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of Adjusted EBITDA and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Reconciliations of Adjusted EBITDA and adjusted net income to GAAP net income are included in the results of operations discussion that follows for each of the respective periods. Key Factors and Trends Affecting Operating Results and Financial Condition Sales 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. In addition, demand for virgin sulfuric acid across a wide range of industrial applications remained favorable. However, sales in our Ecoservices segment were impacted primarily by unplanned production downtime at our sites, which adversely impacted sales and maintenance costs in 2023. During the second quarter of 2023, we began to see a slowdown in global polyethylene demand impact the sales of our silica-based catalyst, while still seeing increasing demand for renewable fuels and more stringent regulation in traditional fuels, and in emission control applications. For the remainder of 2023, we believe weaker demand fundamentals may adversely impact sales of virgin sulfuric acid into nylon production. In addition, we anticipate declining global polyethylene demand and lower polyethylene production plant operating rates may adversely impact sales of polyethylene catalysts. Sales in our Ecoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts. Our Catalyst Technologies segment may experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements. Cost of Goods Sold Cost of goods sold consists of variable product costs, fixed manufacturing expenses, depreciation expense and freight expenses. Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process. Fixed manufacturing expenses include all plant employment costs, manufacturing overhead and periodic maintenance costs. The primary raw materials for our Ecoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or “caustic soda”), and certain metals. Spent sulfuric acid for our Ecoservices segment is supplied by customers for a nominal charge as part of their contracts. The primary raw materials used in the manufacture of products in our Catalyst Technologies segment include sodium silicate and cesium hydroxide. During the second quarter of 2023, inflationary pressures began to ease, which reduced the cost of goods for sulfur, energy, logistics and other raw materials. 31 Table of Contents Most of our Ecoservices contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S. chemical plant construction cost index) and natural gas. Over 80% of our Ecoservices segment sales for the year ended December 31, 2022 were under contracts featuring quarterly price adjustments. The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing. The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries. While natural gas is not a direct feedstock for any product, natural gas powered machinery and equipment are used to heat raw materials and create the chemical reactions necessary to produce end-products. We maintain multiple suppliers wherever possible and structure our customer contracts when possible to allow for the pass-through of raw material, labor and natural gas costs. Joint Venture We account for our investments in our equity joint ventures under the equity method. Our joint venture, the Zeolyst Joint Venture, manufactures high-performance, specialty, zeolite-based catalysts, used in emission control, refining and petrochemical industry applications and by the broader chemicals industry. Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements. We share proportionally in the management of our joint venture with the other parties to such joint venture. Seasonality Our regeneration services product group, which is a part of our Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. These demand fluctuations generally result in higher sales and working capital requirements in the second and third quarter. Foreign Currency As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated into U.S. dollars. We operate in various geographies with approximately 6% of our sales for the nine months ended September 30, 2023 and for the year ended December 31, 2022 in currencies other than the U.S. dollar. Because our consolidated financial results are reported in U.S. dollars, sales or earnings generated in currencies other than the U.S. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to U.S. dollars. The foreign currency to which we have the most significant exchange rate exposure is the British pound. 32 Table of Contents Results of Operations Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 Highlights The following is a summary of our financial performance for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Sales • Sales decreased $59.2 million to $173.3 million. The decrease in sales was primarily due to the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group and lower sales volume. Gross Profit • Gro ss profit decreased $14.5 million to $53.2 million. The decrease in gross profit was primarily due to lower sales volume and higher manufacturing costs. Operating Income • Operating income decreased by $6.5 million to $32.0 million. The decrease in operating income was due to a decrease in gross profit, offset by lower selling, general and administrative expenses and other operating expenses. Equity in Net Income of Affiliated Companies • Equity in net income of affiliated companies for the three months ended September 30, 2023 was $4.7 million, compared to $3.2 million for the three months ended September 30, 2022. The increase of $1.5 million was due to higher earnings generated by the Zeolyst Joint Venture for the three months ended September 30, 2023, driven by higher sales volume of catalyst used in the production of renewable fuels and hydrocracking catalysts. 33 Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended September 30, 2023 and 2022: Three months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Sales $ 173.3 $ 232.5 $ (59.2) (25.5) % Cost of goods sold 120.1 164.8 (44.7) (27.1) % Gross profit 53.2 67.7 (14.5) (21.4) % Gross profit margin 30.7 % 29.1 % Selling, general and administrative expenses 16.9 21.5 (4.6) (21.4) % Other operating expense, net 4.3 7.7 (3.4) (44.2) % Operating income 32.0 38.5 (6.5) (16.9) % Operating income margin 18.4 % 16.6 % Equity in net (income) from affiliated companies (4.7) (3.2) (1.5) 46.9 % Interest expense, net 11.8 9.5 2.3 24.2 % Other expense, net 0.4 1.9 (1.5) (78.9) % Income before income taxes 24.5 30.3 (5.8) (19.1) % Provision for income taxes 7.9 9.0 (1.1) (12.2) % Effective tax rate 32.3 % 29.6 % Net income $ 16.6 $ 21.3 $ (4.7) (22.1) % Sales Three months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Sales: Ecoservices $ 147.6 $ 195.7 $ (48.1) (24.6) % Catalyst Technologies 25.7 36.8 (11.1) (30.2) % Total sales $ 173.3 $ 232.5 $ (59.2) (25.5) % Ecoservices: Sales in Ecoservices for the three months ended September 30, 2023 were $147.6 million, a decrease of $48.1 million, or 24.6%, compared to sales of $195.7 million for the three months ended September 30, 2022. The decrease in sales was due to lower sales volume of $9.3 million and lower average selling prices of $38.8 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $39 million . Lower average selling prices were primarily a result of the pass-through of lower sulfur costs of approximately $39 million within our virgin sulfuric acid product group. The decrease in sales volume was primarily related to the lower end use demand of virgin sulfuric acid, primarily into the production of nylon intermediates during the quarter. Catalyst Technologies: Sales in Catalyst Technologies for the three months ended September 30, 2023 were $25.7 million, a decrease of $11.1 million, or 30.2%, compared to sales of $36.8 million for the three months ended September 30, 2022. Of the decrease in sales, $13.3 million was associated with lower sales volume, which was partially offset by higher average selling prices of $1.5 million and $0.7 million of favorable foreign exchange. The decrease in sales volume was primarily driven by lower end use demand for polyethylene catalysts associated with destocking and lower customer operating rates and the absence of certain niche custom catalyst sales realized in the third quarter of 2022 that did not occur in the third quarter of 2023. Higher average selling prices was driven by the implemented price increases. 34 Table of Contents Gross Profit Gross profit for the three months ended September 30, 2023 was $53.2 million, a decrease of $14.5 million, or 21.4%, compared to $67.7 million for the three months ended September 30, 2022. The decrease in gross profit was primarily due to unfavorable manufacturing costs, including higher variable and maintenance costs, and lower sales volume of $0.9 million, partially offset by favorable average selling prices of $1.7 million, exclusive of the pass-through of lower sulfur costs. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended September 30, 2023 were $16.9 million, a decrease of $4.6 million, compared to $21.5 million for the three months ended September 30, 2022. The decrease in selling, general and administrative expenses was primarily due to a decrease in other compensation-related expenses of $3.9 million and a decrease in stock compensation of $1.3 million due to fewer overall awards granted and outstanding for the three months ended September 30, 2023 as compared to the prior year period. This was partly offset by an increase in professional fees of $1.1 million primarily related to consulting and recruiting charges. Other Operating Expense, Net Other operating expense, net for the three months ended September 30, 2023 was $4.3 million, a decrease of $3.4 million, compared to $7.7 million for the three months ended September 30, 2022. The decrease in other operating expense, net was primarily due to $2.0 million decrease i n restructuring, integration and business optimization costs, driven by severance charges incurred in the prior period from contracts associated with fo rmer executives and a decrease of $1.6 million in transactions costs, primarily associated with the sale of the Performance Chemicals business in 2021 and costs associated with share repurchases. Equity in Net Income of Affiliated Companies Equity in net income of affiliated comp anies for the three months ended September 30, 2023 was $4.7 million, compared to $3.2 million for the three months ended September 30, 2022. The increase was due to $1.5 million of higher earnings from the Zeolyst Joint Venture during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022. The increase in earnings from the Zeolyst Joint Venture was due to higher sales volume of catalyst used in the production of renewable fuels and hydrocracking catalysts . Interest Expense, Net Interest expense, net for the three month s ended September 30, 2023 was $11.8 million, an increase of $2.3 million, as compared to $9.5 million for the three months ended September 30, 2022. The increase in interest expense, net was primarily due to the year over year increase in variable rates, which was partially offset by lower outstanding debt during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 and benefits associated with the interest rate caps. Other Expense, Net Other expense, net for the three months ended September 30, 2023 was $0.4 million, a change of $1.5 million, as compared to $1.9 million for the three months ended September 30, 2022. The decrease in other expense, net primarily relates to lower foreign currency exchange of $0.4 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar, a lower net periodic benefit for the defined benefit pension and postretirement plans of $0.3 million and $0.4 million in other income. Provision for Income Taxes The provision for income taxes for the three months ended September 30, 2023 was $7.9 million, compared to a $9.0 million provision for the three months ended September 30, 2022. 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 Company’s quarter over quarter effective income tax rate has fluctuated primarily due to the impact of the Section 162m Compensation disallowance on the Company’s annualized effective tax rate, discrete tax benefit 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 three 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. 35 Table of Contents Net Income For the foregoing reasons, net income was $16.6 million for the three months ended September 30, 2023, compared to $21.3 million for the three months ended September 30, 2022. Adjusted EBITDA Summarized Adjusted EBITDA information is shown below in the following table: Three months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Adjusted EBITDA: (1) Ecoservices $ 54.7 $ 64.1 $ (9.4) (14.7) % Catalyst Technologies (2) 16.4 19.3 (2.9) (15.0) % Unallocated corporate expenses (3.2) (8.0) 4.8 (60.0) % Total $ 67.9 $ 75.4 $ (7.5) (9.9) % (1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA. Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. (2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $9.6 million for the three months ended September 30, 2023, which includes $4.7 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.3 million of joint venture depreciation, amortization and interest. 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. Ecoservices: Adjusted EBITDA for the three months ended September 30, 2023 was $54.7 million, a decrease of $9.4 million, or 14.7%, compared to $64.1 million for the three months ended September 30, 2022. The decrease in Adjusted EBITDA was a result of lower virgin sulfuric acid sales volume and higher costs associated with increased maintenance and networking costs arising from production downtime in July at our Dominguez site. Catalyst Technologies: Adjusted EBITDA for the three months ended September 30, 2023 was $16.4 million, a decrease of $2.9 million, or 15.0%, compared to $19.3 million for the three months ended September 30, 2022. The decrease in Adjusted EBITDA was primarily a result of lower sales of silica-based catalysts, partially offset by the impact of higher sales in the Zeolyst Joint Venture and higher pricing. 36 Table of Contents A reconciliation of net income to Adjusted EBITDA is as follows: Three months ended September 30, 2023 2022 (in millions) Reconciliation of net income to Adjusted EBITDA Net income $ 16.6 $ 21.3 Provision for income taxes 7.9 9.0 Interest expense, net 11.8 9.5 Depreciation and amortization 21.3 19.6 EBITDA 57.6 59.4 Joint venture depreciation, amortization and interest (a) 3.3 3.9 Amortization of investment in affiliate step-up (b) 1.6 1.6 Net loss on asset disposals (c) 1.0 0.5 Foreign currency exchange loss (d) 0.8 1.0 LIFO benefit (e) — (0.4) Transaction and other related costs (f) 0.2 1.8 Equity-based compensation 3.5 4.7 Restructuring, integration and business optimization expenses (g) 0.3 2.3 Other (h) (0.4) 0.6 Adjusted EBITDA $ 67.9 $ 75.4 (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 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 related to the non-permanent intercompany debt denominated in local currency translated to U.S. dollars. (e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S. that are valued using the LIFO method, effectively reflecting the results as if these inventories were valued using the FIFO 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) 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). 37 Table of Contents Adjusted Net Income Summarized adjusted net income information is shown below in the following table: Three months ended September 30, 2023 2022 Pre-tax Tax expense (benefit) After-tax Pre-tax Tax expense (benefit) After-tax (in millions) Reconciliation of net income to Adjusted Net Income (1)(2) Net income $ 24.5 $ 7.9 $ 16.6 $ 30.3 $ 9.0 $ 21.3 Amortization of investment in affiliate step-up (b) 1.6 0.5 1.1 1.6 0.5 1.1 Net loss on asset disposals (c) 1.0 0.3 0.7 0.5 0.2 0.3 Foreign currency exchange loss (d) 0.8 0.2 0.6 1.0 0.2 0.8 LIFO benefit (e) — — — (0.4) (0.1) (0.3) Transaction and other related costs (f) 0.2 0.1 0.1 1.8 0.5 1.3 Equity-based compensation 3.5 0.3 3.2 4.7 0.1 4.6 Restructuring, integration and business optimization expenses (g) 0.3 0.1 0.2 2.3 0.7 1.6 Other (h) (0.4) (0.1) (0.3) 0.6 0.2 0.4 Adjusted Net Income $ 31.5 $ 9.3 $ 22.2 $ 42.4 $ 11.3 $ 31.1 (1) We define adjusted net income as net income 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. The adjustments to net income 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, 2023 and September 30, 2022, 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. 162(m), 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. 38 Table of Contents Results of Operations Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 Highlights The following is a summary of our financial performance for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Sales • Sales decreased $119.1 million to $518.3 million. The decrease in sales was primarily due to lower sales volume and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group. Gross Profit • Gross profit decreased $24.7 million to $150.6 million. The decrease in gross profit was primarily due to higher manufacturing costs and lower sales volume. Operating Income • Operating income decreased by $8.5 million to $73.9 million. The decrease in operating income was due to a decrease in gross profit, offset by lower selling, general and administrative expenses and other operating expenses. Equity in Net Income of Affiliated Companies • Equity in net income of affiliated companies for the nine months ended September 30, 2023 was $16.3 million, compared to $17.4 million for the nine months ended September 30, 2022. The decrease of $1.1 million was due to lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2023. The following is our unaudited condensed consolidated statements of income and a summary of financial results for the nine months ended September 30, 2023 and 2022: Nine months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Sales $ 518.3 $ 637.4 $ (119.1) (18.7) % Cost of goods sold 367.7 462.2 (94.5) (20.4) % Gross profit 150.6 175.3 (24.7) (14.1) % Gross profit margin 29.1 % 27.5 % Selling, general and administrative expenses 59.5 67.8 (8.3) (12.2) % Other operating expense, net 17.2 25.1 (7.9) (31.5) % Operating income 73.9 82.4 (8.5) (10.3) % Operating income margin 14.3 % 12.9 % Equity in net (income) from affiliated companies (16.3) (17.4) 1.1 (6.3) % Interest expense, net 30.8 26.9 3.9 14.5 % Other expense, net 0.6 2.5 (1.9) (76.0) % Income before income taxes 58.8 70.4 (11.6) (16.5) % Provision for income taxes 17.6 22.0 (4.4) (20.0) % Effective tax rate 29.9 % 31.2 % Net income $ 41.2 $ 48.4 $ (7.2) (14.9) % 39 Table of Contents Sales Nine months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Sales: Ecoservices $ 443.4 $ 542.7 $ (99.3) (18.3) % Catalyst Technologies 74.9 94.7 (19.8) (20.9) % Total sales $ 518.3 $ 637.4 $ (119.1) (18.7) % Ecoservices : Sales in Ecoservices for the nine months ended September 30, 2023 were $443.4 million, a decrease of $99.3 million, or 18.3%, compared to sales of $542.7 million for the nine months ended September 30, 2022. The decrease in sales reflects lower sales volume of $60.3 million and the negative impact associated with the pass-through of sulfur costs of approximately $75 million, offset by higher average selling pricing of $39.0 million, after adjusting for the impact of the pass-through of sulfur costs. Sales volume was lower primarily due to lower virgin sulfuric acid sales associated with the adverse impact of Winter Storm Elliott earlier in the year, extended maintenance turnaround activity at our facilities that limited our ability to produce inventory in advance of significant planned turnaround activity to meet customer demand, and lower end use demand of virgin sulfuric acid, primarily into the production of nylon intermediates during the nine months ended September 30, 2023. Catalyst Technologies: Sales in Catalyst Technologies for the nine months ended September 30, 2023 were $74.9 million, a decrease of $19.8 million, or 20.9%, compared to sales of $94.7 million for the nine months ended September 30, 2022. The decrease in sales was due to lower sales volume of $26.0 million, lower average selling prices of $6.4 million and the unfavorable effects of foreign currency of $0.2 million. The decrease in sales volume was primarily driven by lower end use demand for polyethylene catalysts during the nine months ended September 30, 2023. The lower average selling prices were driven by customer mix. Gross Profit Gross profit for the nine months ended September 30, 2023 was $150.6 million, a decrease of $24.7 million, or 14.1%, compared to $175.3 million for the nine months ended September 30, 2022. The decrease in gross profit is primarily driven by lower sales volume of $23.6 million as well as unfavorable manufacturing costs of $43.5 million, partially offset by favorable average selling prices of $42.4 million, exclusive of the pass-through of sulfur costs. Sales volume was lower primarily due to lower virgin sulfuric acid sales and lower polyethylene catalysts sales. The unfavorable manufacturing costs was primarily driven by costs related to the extended maintenance turnaround activity, planned turnaround activity, and higher unplanned repair and maintenance costs. Selling, General and Administrative Expenses Selling, general and administrative expenses for the nine months ended September 30, 2023 was $59.5 million, a decrease of $8.3 million, as compared to $67.8 million for the nine months ended September 30, 2022. The decrease in selling, general and administrative expenses was mainly due to a decrease in other compensation-related expenses of $7.3 million and a decrease in stock-based compensation expense of $4.9 million due to fewer overall awards granted and outstanding for the nine months ended September 30, 2023 as compared to the prior year period. This was partly offset by an increase in professional fees of $3.6 million primarily related to consulting and recruiting charges. Other Operating Expense, Net Other operating expense, net for the nine months e nded September 30, 2023 was $17.2 million, a decrease of $7.9 million, compared to $25.1 million for the nine months ended September 30, 2022. The decrease in other operating expense, net was mainly driven by a decrease of $4.0 million in transactions costs, primarily associated with the sale of the Performance Chemicals business and a decrease of $5.4 million i n restructuring, integration and business optimization costs driven by severance charges incurred in the prior period from contracts associated with fo rmer executives. This was also offset by an increase in net losses on asset disposals of $2.2 million, primarily associated with costs related to Winter Storm Elliott. 40 Table of Contents Equity in Net Income of Affiliated Companies Equity in net income of affiliated companies for the nine months ended September 30, 2023 was $16.3 million, compared to $17.4 million for the nine months ended September 30, 2022. The decrease was due to lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2023 . Interest Expense, Net Interest expense, net for the nine months ended September 30, 2023 was $30.8 million, an increase of $3.9 million, as compared to $26.9 million for the nine months ended September 30, 2022. The increase in interest expense, net was primarily due to year over year increase in variable rates, which was partially offset by lower outstanding debt during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 and the benefits associated with our interest rate caps, which included an adjustment related to prior year interest rate amortization. Other Expense, Net Other expense, net for the nine months ended September 30, 2023 was $0.6 million, a decrease of $1.9 million, as compared to $2.5 million for the nine months ended September 30, 2022. The decrease in other expense, net primarily consisted of favorable foreign currency exchange of $2.2 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar. Provision for Income Taxes The provision for income taxes for the nine months ended September 30, 2023 was $17.6 million, compared to a $22.0 million for the nine 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. Net Income For the foregoing reasons, n et income was $41.2 million for the nine months ended September 30, 2023, compared to $48.4 million for the nine months ended September 30, 2022. Adjusted EBITDA Summarized Adjusted EBITDA information is shown below in the following table: Nine months ended September 30, Change 2023 2022 $ % (in millions, except percentages) Adjusted EBITDA: (1) Ecoservices $ 151.6 $ 173.4 $ (21.8) (12.6) % Catalyst Technologies (2) 54.7 57.7 (3.0) (5.2) % Unallocated corporate expenses (16.2) (23.5) 7.3 (31.1) % Total $ 190.1 $ 207.6 $ (17.5) (8.4) % (1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA. Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies. (2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $31.3 million for the nine months ended September 30, 2023, which includes $16.4 million of equity in net income, excluding $4.8 million of amortization of investment in affiliate step-up plus $10.1 million of joint venture depreciation, amortization and interest. 41 Table of Contents 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. Ecoservices: Adjusted EBITDA for the nine months ended September 30, 2023 was $151.6 million, a decrease of $21.8 million, or 12.6%, compared to $173.4 million for the nine mo nths ended September 30, 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, 2023 was $54.7 million, a decrease of $3.0 million or 5.2%, compared to $57.7 million for the nine mo nths ended September 30, 2022 . The decrease was primarily a result of a decrease in sales volume offset by continued strong pricing. A reconciliation of net income to Adjusted EBITDA is as follows: Nine months ended September 30, 2023 2022 (in millions) Reconciliation of net income to Adjusted EBITDA Net income $ 41.2 $ 48.4 Provision for income taxes 17.6 22.0 Interest expense, net 30.8 26.9 Depreciation and amortization 62.5 58.8 EBITDA 152.1 156.1 Joint venture depreciation, amortization and interest (a) 10.1 12.0 Amortization of investment in affiliate step-up (b) 4.8 4.8 Net loss on asset disposals (c) 3.3 1.2 Foreign currency exchange (gain) loss (d) (0.4) 2.2 LIFO expense (e) 2.5 — Transaction and other related costs (f) 2.8 6.9 Equity-based compensation 12.6 17.4 Restructuring, integration and business optimization expenses (g) 2.4 8.0 Other (h) (0.1) (1.0) Adjusted EBITDA $ 190.1 $ 207.6 (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 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 related to the non-permanent intercompany debt denominated in local currency translated to U.S. dollars. (e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S. that are valued using the LIFO method, effectively reflecting the results as if these inventories were valued using the FIFO 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. 42 Table of Contents (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) 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). Adjusted Net Income Summarized adjusted net income information is shown below in the following table: Nine months ended September 30, 2023 2022 Pre-tax amount Tax expense (benefit) After-tax amount Pre-tax amount Tax expense (benefit) After-tax amount (in millions) Reconciliation of net income to Adjusted Net Income (1)(2) Net income $ 58.8 $ 17.6 $ 41.2 $ 70.4 $ 22.0 $ 48.4 Amortization of investment in affiliate step-up (b) 4.8 1.3 3.5 4.8 1.3 3.5 Net loss on asset disposals (c) 3.3 0.9 2.4 1.2 0.3 0.9 Foreign currency exchange (gain) loss (d) (0.4) (0.1) (0.3) 2.2 0.4 1.8 LIFO expense (e) 2.5 0.7 1.8 — — — Transaction and other related costs (f) 2.8 0.8 2.0 6.9 1.7 5.2 Equity-based compensation 12.6 1.1 11.5 17.4 0.6 16.8 Restructuring, integration and business optimization expenses (g) 2.4 0.7 1.7 8.0 2.2 5.8 Other (h) (0.1) — (0.1) (1.0) (0.2) (0.8) Adjusted Net Income $ 86.7 $ 23.0 $ 63.7 $ 109.9 $ 28.3 $ 81.6 (1) We define adjusted net income as net income 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. The adjustments to net income are shown net of applicable tax rates of 27.4% and 27.7% for the nine months ended September 30, 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. 162(m), 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. 43 Table of Contents Financial Condition, Liquidity and Capital Resources Our primary sources of liquidity consist of cash flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit facility (“ABL Facility”). We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds. Our primary liquidity requirements include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements and capital expenditures. Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives. We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our ABL Facility, will be sufficient to meet our presently anticipated future cash needs for at least the next twelve months. We may also pursue strategic acquisition or divestiture opportunities, which may impact our future cash requirements. We may, from time to time, increase borrowings under our ABL Facility to meet our future cash needs. As of September 30, 2023, we had cash and cash equivalents of $38.3 million and availability of $70.8 million under our ABL Facility, after giving effect to $4.0 million of outstanding letters of credit, for a total available liquidity of $109.1 million. We did not have any revolving credit facility borrowings as of September 30, 2023. As of September 30, 2023, we were in compliance 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 September 30, 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 September 30, 2023. Included in our cash and cash equivalents balance as of September 30, 2023 was $8.5 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. federal income taxes at the time of cash distribution. However, foreign earnings may still be taxed for state income tax purposes, as well as subject to certain foreign withholding tax obligations, when cash amounts are distributed back to the U.S. Our liquidity requirements include interest payments related to our debt structure. As reported, our cash interest paid for the nine months ended September 30, 2023 and 2022 was approximately $28.5 million and $24.4 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. For more information about our interest rate cap agreements, refer to Note 12 — Financial Instrument of our condensed consolidated financials statements included in Part 1, Item 1 — Financial Statements (Unaudited). The Company’s off-balance sheet arrangements include $4.0 million of outstanding letters of credit on our ABL Facility as of September 30, 2023. 44 Table of Contents Cash Flow Nine months ended September 30, 2023 2022 (in millions) Net cash provided by (used in): Operating activities $ 73.4 $ 109.3 Investing activities (53.6) (43.6) Financing activities (90.5) (82.6) Effect of exchange rate changes on cash and cash equivalents (1.9) (2.6) Net change in cash and cash equivalents (72.6) (19.5) Cash and cash equivalents at beginning of period 110.9 140.9 Cash and cash equivalents at end of period $ 38.3 $ 121.4 Nine months ended September 30, 2023 2022 (in millions) Net income $ 41.2 $ 48.4 Non-cash and non-working capital related activities (1) 72.4 106.2 Changes in working capital (35.0) (42.5) Other operating activities (5.2) (2.8) Net cash provided by operating activities $ 73.4 $ 109.3 (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. Nine months ended September 30, 2023 2022 (in millions) Working capital changes that (used) provided cash: Receivables $ (8.9) $ (28.4) Inventories (3.9) 3.2 Prepaids and other current assets 0.9 (5.2) Accounts payable (3.7) 2.0 Accrued liabilities (19.4) (14.1) $ (35.0) $ (42.5) Nine months ended September 30, 2023 2022 (in millions) Purchases of property, plant and equipment $ (53.6) $ (39.5) Payments for business divestiture, net of cash — (3.7) Business combinations, net of cash acquired — (0.5) Other, net — 0.1 Net cash used in investing activities $ (53.6) $ (43.6) 45 Table of Contents Nine months ended September 30, 2023 2022 (in millions) Cash repayments on debt obligations $ (6.8) $ (6.8) Repurchases of common shares (78.7) (73.7) Tax withholdings on equity award vesting (3.4) (0.3) Repayment of financing obligation (2.1) (1.8) Other 0.5 — Net cash used in financing activities $ (90.5) $ (82.6) Net cash provided by operating activities was $73.4 million for the nine months ended September 30, 2023, compared to $109.3 million for the nine months ended September 30, 2022. Cash generated by operating activities, other than changes in working capital was lower by $43.4 million during the nine months ended September 30, 2023, as compared to the same period in the prior year primarily due to a decrease in dividends received from affiliated companies and deferred income tax provision. The increase in cash from working capital during the nine months ended September 30, 2023 of $7.5 million was favorable, compared to the nine months ended September 30, 2022 primarily due to favorable changes in receivables and prepaids and other current assets, offset by unfavorable changes in inventories, accounts payable and accrued liabilities. The favorable change in receivables was driven by the collection of sales. The favorable change in prepaid and other current assets primarily relates to the timing of non-trade receivables from related parties and the interest rate cap agreements. The unfavorable change in accrued liabilities mainly relates to payments for other compensation-related liabilities in the current period offset by higher income tax payments in the prior period. The unfavorable change in accounts payable is due to the timing of vendor payments. The unfavorable change in inventory was primarily due to the timing of sales orders and inventory build. Net cash used in investing activities was $53.6 million for the nine months ended September 30, 2023, compared to $43.6 million during the same period in 2022. Cash used in investing activities consisted of $53.6 million and $39.5 million to fund capital expenditures during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 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 $90.5 million for the nine months ended September 30, 2023, compared to $82.6 million during the same period in 2022. Net cash used in financing activities was primarily driven by the Company repurchases of common stock of $78.7 million during the nine months ended September 30, 2023, compared to $73.7 million during the nine months ended September 30, 2022. Debt September 30, 2023 December 31, 2022 (in millions) Senior Secured Term Loan Facility due June 2028 $ 879.8 $ 886.5 ABL Facility — — Total debt 879.8 886.5 Original issue discount (6.5) (7.5) Deferred financing costs (3.6) (4.1) Total debt, net of original issue discount and deferred financing costs 869.7 874.9 Less: current portion (9.0) (9.0) Total long-term debt, excluding current portion $ 860.7 $ 865.9 As of September 30, 2023, our total debt was $879.8 million, excluding the original issue discount of $6.5 million and deferred financing costs of $3.6 million for our senior secured credit facilities. Our net debt as of September 30, 2023 was $841.5 million, including cash and cash equivalents of $38.3 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt. 46 Table of Contents Capital Expenditures Maintenance capital expenditures include spending on maintenance of business, health, safety and environmental initiatives. Growth capital expenditures include spending to drive organic sales growth and cost savings initiatives. These capital expenditures represent our “book” capital expenditures for which the company has recorded, but not necessarily paid for the capital expenditures. Nine months ended September 30, 2023 2022 (in millions) Maintenance capital expenditures $ 42.6 $ 31.5 Growth capital expenditures 5.1 6.0 Total capital expenditures $ 47.7 $ 37.5 Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. Maintenance capital expenditures were higher in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to extended turnaround activities and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities. Growth capital expenditures were slightly lower in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the completion of several expansion projects in 2022. Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis. There has been no material change in our critical accounting policies and use of estimates from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K. Accounting Standards Not Yet Adopted See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards and their effect on us. 47 Table of Contents