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, potential strategic acquisitions or divestitures, potential increased borrowing under our credit facilities, 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 working capital requirements, capital expenditure projects, debt service requirements 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; 28 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, 2023 (the “Annual Report on Form 10-K”). 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 and services contribute to improving the sustainability of the environment. We conduct operations through two reporting segments: (1) Ecoservices and (2) Advanced Materials & Catalysts (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 high quality and high strength virgin sulfuric acid for industrial and mining applications. We also provide chemical waste handling and treatment services, as well as ex-situ catalyst activation services for the refining and petrochemical industry. Advanced Materials & Catalysts: We are a global supplier of finished silica catalyst, catalyst supports and functionalized silicas necessary to produce high performing plastics and to enable sustainable chemistry through our Advanced Silicas business. This segment also includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of specialty zeolites used in catalysts that supports the production of sustainable fuels, remove nitrogen oxides from diesel engine emissions and that are broadly applied in refining and petrochemical processes. Stock Repurchase Program On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $450.0 million of the Company’s common stock over the four-year period from the date of approval. For the six months ended June 30, 2024, the Company repurchased 552,081 shares on the open market at an average price of $9.05 per share, for a total of $5.0 million excluding brokerage commissions and accrued excise tax. As of June 30, 2024, $229.6 million was available for share repurchases under the program. For the six months ended June 30, 2023, in connection with secondary offerings of the Company’s common stock by an equity sponsor in March and May 2023, the Company repurchased 7,000,000 shares of its common stock in the offerings from underwriters at a weighted average price of $10.48 per share concurrently with the close of the offerings, for a total of $73.4 million, excluding accrued excise tax. 29 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 Sales in our Ecoservices and Advanced Materials & Catalysts segments are made on both a purchase order basis and pursuant to long-term contracts. Our Advanced Materials & Catalysts segment may also experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements. Overall, our Ecoservices and Advanced Materials & Catalysts segments continued to benefit from positive demand trends for our products and services in the industries we serve. For Ecoservices, 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 turbo-charged 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. For our Advanced Materials & Catalysts segment, global polyethylene demand remained positive, supporting our sales of polyethylene catalysts. Hydrocracking catalyst sales experienced demand fluctuations driven by customer order timing associated by the timing of fixed bed catalyst replacement cycles. In addition, we expect variability in specialty and niche-custom catalyst sales, which tend to be event driven. With a current imbalance between the production of renewable diesel and current demand, we expect demand may decrease in the near to mid-term for catalyst sales into sustainable fuels. Similarly, given various macro-economic conditions which have adversely impacted sales of heavy-duty diesel vehicles, we have reduced our expectations for sales of emission control catalysts. 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 Advanced Materials & Catalysts segment include sodium silicate and cesium hydroxide. 30 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, 2023 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 5% of our sales for the six months ended June 30, 2024 and approximately 6% for the year ended December 31, 2023 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. Results of Operations Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023 Highlights The following is a summary of our financial performance for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Sales • Sales decreased $1.3 million to $182.8 million. The decrease in sales was primarily due to the result of lower average selling prices due to the pass-through of lower costs in Ecoservices, partially offset by higher sales volume in regeneration services, virgin sulfuric acid and advanced silicas. Gross Profit • Gro ss profit decreased $7.3 million to $53.7 million. The decrease in gross profit was primarily due to lower average selling pricing, partially offset by higher volume and favorable variable costs. Operating Income • Operating income decreased by $5.4 million to $27.9 million. The decrease in operating income was due to a decrease in gross profit and other operating expenses, net. Equity in Net Income of Affiliated Companies • Equity in net income of affiliated companies for the three months ended June 30, 2024 was $1.4 million, compared to $11.4 million for the three months ended June 30, 2023. The decrease of $10.0 million was due to lower earnings generated by the Zeolyst Joint Venture for the three months ended June 30, 2024, driven by lower sales volume. 31 Table of Contents The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended June 30, 2024 and 2023: Three months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Sales $ 182.8 $ 184.1 $ (1.3) (0.7) % Cost of goods sold 129.1 123.1 6.0 4.9 % Gross profit 53.7 61.0 (7.3) (12.0) % Gross profit margin 29.4 % 33.1 % Selling, general and administrative expenses 22.7 21.4 1.3 6.1 % Other operating expense, net 3.1 6.3 (3.2) (50.8) % Operating income 27.9 33.3 (5.4) (16.2) % Operating income margin 15.2 % 18.1 % Equity in net (income) from affiliated companies (1.4) (11.4) 10.0 (87.7) % Interest expense, net 12.9 9.2 3.7 40.2 % Debt extinguishment costs 4.6 — 4.6 NM Other expense, net 0.4 0.6 (0.2) (33.3) % Income before income taxes 11.4 34.9 (23.5) (67.3) % Provision for income taxes 3.1 8.8 (5.7) (64.8) % Effective tax rate 27.1 % 25.2 % Net income $ 8.3 $ 26.1 $ (17.8) (68.2) % Sales Three months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Sales: Ecoservices $ 153.9 $ 158.1 $ (4.2) (2.7) % Advanced Materials & Catalysts 28.9 26.0 2.9 11.2 % Total sales $ 182.8 $ 184.1 $ (1.3) (0.7) % Ecoservices: Sales in Ecoservices for the three months ended June 30, 2024 were $153.9 million, a decrease of $4.2 million, or 2.7%, compared to sales of $158.1 million for the three months ended June 30, 2023. The decrease in sales was due to lower average selling prices of $17.0 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $3 million, partially offset by higher sales volume of $12.8 million. Average selling price was lower primarily due to the pass-through of lower costs, including sulfur, natural gas, freight and other variable costs. The increase in sales volume was primarily related to increased demand for regeneration services and virgin sulfuric acid. Advanced Materials & Catalysts: Sales in Advanced Materials & Catalysts for the three months ended June 30, 2024 were $28.9 million, an increase of $2.9 million, or 11.2%, compared to sales of $26.0 million for the three months ended June 30, 2023. Of the increase in sales, $2.7 million was associated with higher sales volume and $0.2 million associated with higher average selling prices. The increase in sales volume was primarily driven by higher end use demand for niche custom catalysts. 32 Table of Contents Gross Profit Gross profit for the three months ended June 30, 2024 was $53.7 million, a decrease of $7.3 million, or 12.0%, compared to $61.0 million for the three months ended June 30, 2023. The decrease in gross profit was primarily due to lower average selling prices of $13.5 million, exclusive of the pass-through of lower sulfur costs, partially offset by favorable variable costs of $1.6 million along with higher sales volume of $7.7 million. Average selling prices were lower primarily due to the pass-through of lower costs, including sulfur, natural gas, electricity, and other variable costs. The increase in sales volume was primarily related to higher demand for regeneration services and virgin sulfuric acid. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 2024 were $22.7 million, an increase of $1.3 million, compared to $21.4 million for the three months ended June 30, 2023. The increase in selling, general and administrative expenses was primarily due to an increase in other compensation-related expenses of $4.0 million, offset by a decrease $1.2 million in stock compensation due to fewer overall awards granted and outstanding for the three months ended June 30, 2024 as compared to the prior year period and decrease of $1.3 million in other expenses. Other Operating Expense, Net Other operating expense, net for the three months ended June 30, 2024 was $3.1 million, a decrease of $3.2 million, compared to $6.3 million for the three months ended June 30, 2023. The decrease in other operating expense, net was primarily due to a decrease in net loss from asset disposals of $1.2 million, a decrease of $0.9 million in restructuring, integration and business optimization costs and a decrease of $1.1 million in transactions costs. The decrease i n restructuring, integration and business optimization costs was primarily driven by lower business optimization costs and t he decrease in transactions costs was primarily driven by lower 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 June 30, 2024 was $1.4 million, compared to $11.4 million for the three months ended June 30, 2023. The decrease was due to $10.0 million of lower earnings from the Zeolyst Joint Venture during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. The decrease in earnings from the Zeolyst Joint Venture was due to lower sales volume of catalyst used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts. Interest Expense, Net Interest expense, net for the three month s ended June 30, 2024 was $12.9 million, an increase of $3.7 million, as compared to $9.2 million for the three months ended June 30, 2023. 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 June 30, 2024, as compared to the three months ended June 30, 2023 and benefits associated with the interest rate caps. Debt Extinguishment Costs Debt extinguishment costs for the three months ended June 30, 2024 were $4.6 million. On June 12, 2024, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to June 2031. The Company evaluated the terms of the amendment in accordance with ASC 470-50 Debt - Modification and Extinguishment and determined that the amendment was primarily a modification of debt. As a result, we recorded $4.5 million of third-party financing fees as debt extinguishment costs in the condensed consolidated income statement during the three months ended June 30, 2024. In addition, previously unamortized deferred financing costs and original issue discount of $0.1 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the three months ended June 30, 2024 . Other Expense, Net Other expense, net for the three months ended June 30, 2024 was $0.4 million, a decrease of $0.2 million, as compared to $0.6 million for the three months ended June 30, 2023. The decrease in other expense, net primarily relates to a decrease of $0.3 million in other taxes. 33 Table of Contents Provision for Income Taxes The provision for income taxes for the three months ended June 30, 2024 was $3.1 million, compared to $8.8 million for the three months ended June 30, 2023. The effective income tax rate for the three months ended June 30, 2024 was 27.1%, compared to 25.2% for the three months ended June 30, 2023. The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to an increased discrete tax impact relative to pre-tax book income 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 June 30, 2024 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions. Net Income For the foregoing reasons, net income was $8.3 million for the three months ended June 30, 2024, compared to $26.1 million for the three months ended June 30, 2023. Adjusted EBITDA Summarized Adjusted EBITDA information is shown below in the following table: Three months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Adjusted EBITDA: (1) Ecoservices $ 49.7 $ 60.1 $ (10.4) (17.3) % Advanced Materials & Catalysts (2) 14.7 25.4 (10.7) (42.1) % Unallocated corporate expenses (7.5) (6.2) (1.3) (21.0) % Total $ 56.9 $ 79.3 $ (22.4) (28.2) % (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 for the Advanced Materials & Catalysts segment includes our 50% portion of the Adjusted EBITDA from the Zeolyst Joint Venture. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $5.6 million for the three months ended June 30, 2024, which includes $1.4 million of equity in net income, excluding $0.9 million of amortization of investment in affiliate step-up plus $3.2 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $16.2 million for the three months ended June 30, 2023, which includes $11.4 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.2 million of joint venture depreciation, amortization and interest. Ecoservices: Adjusted EBITDA for the three months ended June 30, 2024 was $49.7 million, a decrease of $10.4 million, or 17.3%, compared to $60.1 million for the three months ended June 30, 2023. The decrease in Adjusted EBITDA was a result of unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs, including energy and other indexed costs and an increase in turnaround and maintenance costs, partially offset by higher sales volume in both regeneration services and virgin sulfuric acid. Advanced Materials & Catalysts: Adjusted EBITDA for the three months ended June 30, 2024 was $14.7 million, a decrease of $10.7 million, or 42.1%, compared to $25.4 million for the three months ended June 30, 2023. The decrease in Adjusted EBITDA was primarily a result of lower sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts, partially offset by higher sales in Advanced Silicas. 34 Table of Contents A reconciliation of net income to Adjusted EBITDA is as follows: Three months ended June 30, 2024 2023 (in millions) Reconciliation of net income to Adjusted EBITDA Net income $ 8.3 $ 26.1 Provision for income taxes 3.1 8.8 Interest expense, net 12.9 9.2 Depreciation and amortization 21.6 21.0 EBITDA 45.9 65.1 Joint venture depreciation, amortization and interest (a) 3.2 3.2 Amortization of investment in affiliate step-up (b) 0.9 1.6 Debt extinguishment costs 4.6 — Net loss on asset disposals (c) — 1.1 Foreign currency exchange gain (d) (0.1) (0.4) LIFO (benefit) expense (e) (1.5) 1.1 Transaction and other related costs (f) 0.1 1.2 Equity-based compensation 3.8 5.0 Restructuring, integration and business optimization expenses (g) 0.2 1.1 Other (h) (0.2) 0.3 Adjusted EBITDA $ 56.9 $ 79.3 (a) We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Advanced Materials & Catalysts 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). 35 Table of Contents Adjusted Net Income Summarized Adjusted Net Income information is shown below in the following table: Three months ended June 30, 2024 2023 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 $ 11.4 $ 3.1 $ 8.3 $ 34.9 $ 8.8 $ 26.1 Amortization of investment in affiliate step-up (b) 0.9 0.2 0.7 1.6 0.4 1.2 Debt extinguishment costs 4.6 1.2 3.4 — — — Net loss on asset disposals (c) — — — 1.1 0.3 0.8 Foreign currency exchange gain (d) (0.1) — (0.1) (0.4) (0.2) (0.2) LIFO (benefit) expense (e) (1.5) (0.3) (1.2) 1.1 0.3 0.8 Transaction and other related costs (f) 0.1 — 0.1 1.2 0.3 0.9 Equity-based compensation 3.8 0.9 2.9 5.0 1.0 4.0 Restructuring, integration and business optimization expenses (g) 0.2 0.1 0.1 1.1 0.3 0.8 Other (h) (0.2) (0.1) (0.1) 0.3 0.1 0.2 Adjusted Net Income $ 19.2 $ 5.1 $ 14.1 $ 45.9 $ 11.3 $ 34.6 (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 as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended June 30, 2024 and June 30, 2023, except for 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. 36 Table of Contents Results of Operations Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023 Highlights The following is a summary of our financial performance for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. Sales • Sales decreased $1.6 million to $343.4 million. The decrease in sales was primarily due to lower average selling price as a result of the pass-through of lower costs, partially offset by higher sales volume. Gross Profit • Gross profit decreased $4.6 million to $92.9 million. The decrease in gross profit was primarily due to lower average selling price, partially offset by favorable variable costs. Operating Income • Operating income decreased by $0.2 million to $41.8 million. The decrease in operating income was due to a decrease in gross profit and other operating expenses, net. Equity in Net Income of Affiliated Companies • Equity in net income of affiliated companies for the six months ended June 30, 2024 was $3.5 million, compared to $11.6 million for the six months ended June 30, 2023. The decrease of $8.1 million was due to lower earnings from the Zeolyst Joint Ventur e during the six months ended June 30, 2024, driven by lower sales volume. The following is our unaudited condensed consolidated statements of income and a summary of financial results for the six months ended June 30, 2024 and 2023: Six months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Sales $ 343.4 $ 345.0 $ (1.6) (0.5) % Cost of goods sold 250.5 247.5 3.0 1.2 % Gross profit 92.9 97.5 (4.6) (4.7) % Gross profit margin 27.1 % 28.3 % Selling, general and administrative expenses 44.3 42.5 1.8 4.2 % Other operating expense, net 6.8 13.0 (6.2) (47.7) % Operating income 41.8 42.0 (0.2) (0.5) % Operating income margin 12.2 % 12.2 % Equity in net (income) from affiliated companies (3.5) (11.6) 8.1 (69.8) % Interest expense, net 26.3 19.0 7.3 38.4 % Debt extinguishment costs 4.6 — 4.6 NM Other expense, net 0.6 0.2 0.4 200.0 % Income before income taxes 13.8 34.4 (20.6) (59.9) % Provision for income taxes 4.3 9.7 (5.4) (55.7) % Effective tax rate 30.9 % 28.3 % Net income $ 9.5 $ 24.7 $ (15.2) (61.5) % 37 Table of Contents Sales Six months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Sales: Ecoservices $ 295.6 $ 295.8 $ (0.2) (0.1) % Advanced Materials & Catalysts 47.8 49.2 (1.4) (2.8) % Total sales $ 343.4 $ 345.0 $ (1.6) (0.5) % Ecoservices : Sales in Ecoservices for the six months ended June 30, 2024 were $295.6 million, a decrease of $0.2 million, or 0.1%, compared to sales of $295.8 million for the six months ended June 30, 2023. The change in sales reflects higher sales volume of $33.1 million, offset by lower average selling pricing of $33.3 million, before adjusting for the impact of the pass-through of lower sulfur costs of approximately $8 million. Sales volume was higher primarily due to increased virgin sulfuric acid and regeneration services sales for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 which had the adverse impact of Winter Storm Elliott and extended maintenance turnaround activity at our facilities in 2023, as well as strong demand for regeneration services in the gulf coast in 2024. Average selling price was lower primarily due to the pass-through of lower costs, including sulfur, natural gas, freight and other variable costs. Advanced Materials & Catalysts: Sales in Advanced Materials & Catalysts for the six months ended June 30, 2024 were $47.8 million, a decrease of $1.4 million, or 2.8%, compared to sales of $49.2 million for the six months ended June 30, 2023. The decrease in sales was primarily due to lower sales volume of advanced silicas used for the production of polyethylene compared to the six months ended June 30, 2023. Gross Profit Gross profit for the six months ended June 30, 2024 was $92.9 million, a decrease of $4.6 million, or 4.7%, compared to $97.5 million for the six months ended June 30, 2023. The decrease in gross profit was primarily driven by lower average selling prices of $25.3 million, exclusive of the approximately $8 million of pass-through of sulfur costs, partially offset by favorable variable costs along with higher sales volume of $11.1 million and unfavorable manufacturing costs of $9.6 million. Average selling prices were lower primarily due to the pass-through of lower costs, including sulfur, natural gas, electricity and other variable costs. The higher manufacturing costs were primarily driven by planned maintenance turnaround. The increase in sales volume was primarily related to higher demand for regeneration services and virgin sulfuric acid. Selling, General and Administrative Expenses Selling, general and administrative expenses for the six months ended June 30, 2024 were $44.3 million, an increase of $1.8 million, as compared to $42.5 million for the six months ended June 30, 2023. The increase in selling, general and administrative expenses was mainly due to an increase in other compensation-related expenses of $6.0 million, partially offset by a decrease in stock compensation of $1.6 million, professional fees of $0.6 million and other expenses of $2.0 million. Other Operating Expense, Net Other operating expense, net for the six months e nded June 30, 2024 was $6.8 million, a decrease of $6.2 million, compared to $13.0 million for the six months ended June 30, 2023. The decrease in other operating expense, net was mainly driven by a decrease of $2.4 million in transaction costs, a decrease of $1.7 million in restructuring, integration and business optimization costs and a decrease in net losses on asset disposals of $1.7 million. The decrease i n restructuring, integration and business optimization costs was primarily driven by lower business optimization costs and t he decrease in transactions costs was primarily associated with the sale of the Performance Chemicals business in 2021 and costs associated with share repurchases. 38 Table of Contents Equity in Net Income of Affiliated Companies Equity in net income of affiliated companies for the six months ended June 30, 2024 was $3.5 million, compared to $11.6 million for the six months ended June 30, 2023. The decrease in earnings from the Zeolyst Joint Venture was due to lower sales of catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts. Interest Expense, Net Interest expense, net for the six months ended June 30, 2024 was $26.3 million, an increase of $7.3 million, as compared to $19.0 million for the six months ended June 30, 2023. 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 six months ended June 30, 2024, as compared to the six months ended June 30, 2023. This was offset by the benefits associated with our interest rate caps. Debt Extinguishment Costs Debt extinguishment costs for the six months ended June 30, 2024 were $4.6 million . On June 12, 2024, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to June 2031. The Company evaluated the terms of the amendment in accordance with ASC 470-50 Debt - Modification and Extinguishment and determined that the amendment was primarily a modification of debt. As a result, we recorded $4.5 million of third-party financing fees as debt extinguishment costs in the condensed consolidated income statement during the six months ended June 30, 2024. In addition, previously unamortized deferred financing costs and original issue discount of $0.1 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the six months ended June 30, 2024. Other Expense, Net Other expense, net for the six months ended June 30, 2024 was $0.6 million, an increase of $0.4 million, as compared to $0.2 million for the six months ended June 30, 2023. The increase in other expense, net primarily consisted of an increase in foreign currency exchange of $0.8 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar, offset by a decrease in pension costs of $0.1 million. Provision for Income Taxes The provision for income taxes for the six months ended June 30, 2024 was $4.3 million, compared to $9.7 million for the six months ended June 30, 2023. The effective income tax rate for the six months ended June 30, 2024 was 30.9%, compared to 28.3% for the six months ended June 30, 2023. The Company’s effective income tax rate for the six months ended June 30, 2024 was different from the effective tax rate for the six months ended June 30, 2023 primarily due to an increased discrete tax impact relative to pre-tax book income related to stock compensation shortfall recognized discretely in the respective quarters and a discrete tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions. The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the six months ended June 30, 2024 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions. Net Income For the foregoing reasons, n et income was $9.5 million for the six months ended June 30, 2024, compared to $24.7 million for the six months ended June 30, 2023. 39 Table of Contents Adjusted EBITDA Summarized Adjusted EBITDA information is shown below in the following table: Six months ended June 30, Change 2024 2023 $ % (in millions, except percentages) Adjusted EBITDA (1) Ecoservices $ 91.2 $ 96.9 $ (5.7) (5.9) % Advanced Materials & Catalysts (2) 25.8 38.4 (12.6) (32.8) % Unallocated corporate expenses (14.6) (13.1) (1.5) (11.5) % Total $ 102.4 $ 122.2 $ (19.8) (16.2) % (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 for the Advanced Materials & Catalysts segment includes our 50% portion of the Adjusted EBITDA from the Zeolyst Joint Venture. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $12.5 million for the six months ended June 30, 2024, which includes $3.5 million of equity in net income, excluding $2.5 million of amortization of investment in affiliate step-up plus $6.5 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $21.6 million for the six months ended June 30, 2023, which includes $11.6 million of equity in net income, excluding $3.2 million of amortization of investment in affiliate step-up plus $6.8 million of joint venture depreciation, amortization and interest. Ecoservices: Adjusted EBITDA for the six months ended June 30, 2024 was $91.2 million, a decrease of $5.7 million, or 5.9%, compared to $96.9 million for the six mo nths ended June 30, 2023. The decrease in Adjusted EBITDA was primarily a result of higher turnaround and maintenance costs and unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs including energy and other indexed costs. This was partially offset by higher sales volume for both virgin sulfuric acid and regeneration services. Advanced Materials & Catalysts: Adjusted EBITDA for the six months ended June 30, 2024 was $25.8 million, a decrease of $12.6 million or 32.8%, compared to $38.4 million for the six mo nths ended June 30, 2023 . The decrease in Adjusted EBITDA was primarily a result of lower pricing on sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts. 40 Table of Contents A reconciliation of net income to Adjusted EBITDA is as follows: Six months ended June 30, 2024 2023 (in millions) Reconciliation of net income to Adjusted EBITDA Net income $ 9.5 $ 24.7 Provision for income taxes 4.3 9.7 Interest expense, net 26.3 19.0 Depreciation and amortization 43.6 41.2 EBITDA 83.7 94.6 Joint venture depreciation, amortization and interest (a) 6.5 6.8 Amortization of investment in affiliate step-up (b) 2.5 3.2 Debt extinguishment costs 4.6 — Net loss on asset disposals (c) 0.6 2.3 Foreign currency exchange loss (gain) (d) 0.1 (1.1) LIFO (benefit) expense (e) (2.7) 2.5 Transaction and other related costs (f) 0.2 2.6 Equity-based compensation 7.5 9.1 Restructuring, integration and business optimization expenses (g) 0.4 2.1 Other (h) (1.0) 0.1 Adjusted EBITDA $ 102.4 $ 122.2 (a) We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Advanced Materials & Catalysts 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). 41 Table of Contents Adjusted Net Income Summarized Adjusted Net Income information is shown below in the following table: Six months ended June 30, 2024 2023 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 $ 13.8 $ 4.3 $ 9.5 $ 34.4 $ 9.7 $ 24.7 Amortization of investment in affiliate step-up (b) 2.5 0.6 1.9 3.2 0.8 2.4 Debt extinguishment costs 4.6 1.2 3.4 — — — Net loss on asset disposals (c) 0.6 0.1 0.5 2.3 0.6 1.7 Foreign currency exchange loss (gain) (d) 0.1 — 0.1 (1.1) (0.2) (0.9) LIFO (benefit) expense (e) (2.7) (0.7) (2.0) 2.5 0.7 1.8 Transaction and other related costs (f) 0.2 0.1 0.1 2.6 0.7 1.9 Equity-based compensation 7.5 1.4 6.1 9.1 0.8 8.3 Restructuring, integration and business optimization expenses (g) 0.4 0.1 0.3 2.1 0.6 1.5 Other (h) (1.0) (0.3) (0.7) 0.1 — 0.1 Adjusted Net Income $ 26.0 $ 6.8 $ 19.2 $ 55.2 $ 13.7 $ 41.5 (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 25.1% and 26.2% for the six months ended June 30, 2024 and 2023, respectively, except 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. 42 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 and 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 June 30, 2024, we had cash and cash equivalents of $83.3 million and availability of $72.3 million under our ABL Facility, after giving effect to $3.3 million of outstanding letters of credit, for a total available liquidity of $155.6 million. We did not have any revolving credit facility borrowings as of June 30, 2024. As of June 30, 2024, 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 June 30, 2024, we were in compliance with the financial covenant under the ABL Facility. The 2024 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 2024 Term Loan Facility and the ABL Facility as of June 30, 2024. Included in our cash and cash equivalents balance as of June 30, 2024 was $14.0 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 six months ended June 30, 2024 and 2023 was approximately $33.2 million and $19.4 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 $8.7 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 Instruments of our condensed consolidated financials statements included in Part 1, Item 1 — Financial Statements (Unaudited). Off-Balance Sheet Arrangements The Company’s off-balance sheet arrangements include $3.3 million of outstanding letters of credit on our ABL Facility as of June 30, 2024. 43 Table of Contents Cash Flow Six months ended June 30, 2024 2023 (in millions) Net cash provided by (used in): Operating activities $ 46.4 $ 41.1 Investing activities (36.8) (39.2) Financing activities (14.4) (79.9) Effect of exchange rate changes on cash and cash equivalents (0.3) (3.7) Net change in cash and cash equivalents (5.1) (81.7) Cash and cash equivalents at beginning of period 88.4 110.9 Cash and cash equivalents at end of period $ 83.3 $ 29.2 Net cash provided by operating activities was $46.4 million for the six months ended June 30, 2024, compared to $41.1 million for the six months ended June 30, 2023. Cash generated by operating activities, other than changes in working capital, was higher by $9.1 million during the six months ended June 30, 2024, as compared to the same period in the prior year primarily due to dividends received from the Zeolyst Joint Venture offset by debt extinguishment costs. The decrease in cash from working capital during the six months ended June 30, 2024 of $3.8 million was unfavorable compared to the six months ended June 30, 2023 primarily due to unfavorable changes in receivables, inventories and accounts payable, offset by favorable changes in prepaids and other current assets and accrued liabilities. The unfavorable change in receivables was driven by the timing of collection of sales. The unfavorable change in inventory was primarily due to the timing of sales orders and inventory build. The unfavorable change in accounts payable was due to the timing of vendor payments. The favorable change in prepaid and other current assets primarily relates to the timing of miscellaneous and interest receivables and non-trade receivables from related parties. The favorable change in accrued liabilities mainly relates to lower payments for variable employee compensation liabilities partially offset by higher payments for taxes in the current period. Net cash used in investing activities was $36.8 million for the six months ended June 30, 2024, compared to $39.2 million during the same period in 2023. Net cash used in investing activities consisted of $36.6 million and $39.2 million to fund capital expenditures during the six months ended June 30, 2024 and 2023, respectively. Net cash used in financing activities was $14.4 million for the six months ended June 30, 2024, compared to $79.9 million during the same period in 2023. Net cash used in financing activities was primarily driven by the lower repurchases of the Company’s common stock of $68.4 million during the six months ended June 30, 2023. Debt June 30, 2024 December 31, 2023 (in millions) 2024 Term Loan Facility $ 873.0 $ 877.5 ABL Facility — — Total debt 873.0 877.5 Original issue discount (7.6) (6.2) Deferred financing costs (3.0) (3.4) Total debt, net of original issue discount and deferred financing costs 862.4 867.9 Less: current portion (6.5) (9.0) Total long-term debt, excluding current portion $ 855.9 $ 858.9 As of June 30, 2024, our total debt was $873.0 million, excluding the original issue discount of $7.6 million and deferred financing costs of $3.0 million for our senior secured credit facilities. Our net debt as of June 30, 2024 was $789.7 million, including cash and cash equivalents of $83.3 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt. 44 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. Six months ended June 30, 2024 2023 (in millions) Maintenance capital expenditures $ 28.3 $ 30.4 Growth capital expenditures 5.2 3.3 Total capital expenditures $ 33.5 $ 33.7 Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. 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. While 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, we continually evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis. The Company completes its annual goodwill and indefinite-lived intangible assets impairment test during the fourth quarter of each year, or more frequently if triggering events indicate a possible impairment. The Company determines the fair value of its reporting units using both a market approach and an income, or discounted cash flow, approach. As of October 1, 2023, the date of the Company’s most recent quantitative assessments, the fair values of each of the Company’s reporting units and the fair values of the Company’s indefinite-lived trade names and trademarks exceeded their respective carrying values. During the six months ended June 30, 2024, the Company did not identify any events or circumstances that would more likely than not reduce the fair value of the Company’s reporting units or intangible assets below their respective carrying values. Although the estimated fair value of the Advanced Materials & Catalysts reporting unit exceeded its carrying value on October 1, 2023 by over 30%, the Company has experienced unfavorable effects on current operations resulting from certain macroeconomic and industry factors in specific end uses during the six months ended June 30, 2024. Prolonged unfavorable effects could adversely impact the estimated fair value of the Advanced Materials & Catalysts reporting unit in future periods and may result in impairment charges. 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.