- Solid quarter performance driven by demand recovery across many
end uses and benefit of Performance Chemicals business
transformation plan;
- Year results reflect lower volumes from global pandemic, offset
by cost actions undertaken at all businesses;
- Net cash provided by operating activities of $223.6 million and
Adjusted free cash flow of $152.5 million for the year;
- Portfolio transformation accelerated with agreement for the
sale of the Performance Chemicals business for $1.1 billion and the
completed sale of Performance Materials for $650 million; and
- Closed strategic acquisition of fast-growing catalyst
activation company
Financial results are on a continuing operations basis, which
excludes the Performance Materials business from all quarterly and
yearly results presented, unless otherwise indicated.
Financial results and outlook include non-GAAP financial
measures. These non-GAAP measures are more fully described and are
reconciled from the respective measures determined under GAAP in
“Presentation of Non-GAAP Financial Measures” and the attached
appendix.
PQ Group Holdings Inc. (NYSE:PQG) (“PQ” or the “Company”)
reported results from continuing operations1 for the fourth quarter
and year ended December 31, 2020.
For the fourth quarter, sales of $281.5 million matched the
fourth quarter of 2019, reflecting a rebound in demand. Net loss
was $182.8 million with $1.35 diluted loss per share and Adjusted
net income was $82.5 million with Adjusted diluted EPS of $0.61 per
share. The fourth quarter and year end results included the impact
of a non-cash goodwill impairment charge for Performance Chemicals
of $260.0 million, or $1.92 per share, and the recognition of
deferred tax assets associated with foreign tax credits of $56.3
million, or $0.42 per share. Adjusted EBITDA totaled $81.8 million,
with Performance Chemicals benefiting from demand recovery and the
successful implementation of its business transformation plans,
which were offset by refiners recalibrating their activity and
delaying change outs in the Catalysts segment.
For the year, lower sales demand due to the global COVID-19
pandemic impacted sales volumes, partially offset by aggressive
cost actions undertaken at all the business segments. Sales were
$1,107.4 million, a decrease of 7.7 percent from 2019. Net loss was
$176.3 million with $1.30 diluted loss per share. Adjusted net
income was $136.9 million with Adjusted diluted EPS of $1.00 per
share. Adjusted EBITDA totaled $338.0 million.
“Within the confines of the pandemic-influenced year, PQ
delivered solid results in 2020, generated $153 million of adjusted
free cash flow and drove an Adjusted EBITDA margin of more than 27
percent. The PQ team demonstrated steadfast character dealing with
the uncertainties and complexities of the situation, supporting
customers, protecting the business continuity, while tightly
managing operations,” said Belgacem Chariag, PQ Chairman, President
and Chief Executive Officer. “We are also excited at our growth
prospects for 2021 and beyond, as we stand at the cusp of our most
notable accomplishments within our ‘Simpler + Stronger’
portfolio transformation. As the economy begins to turn the corner,
we are now positioning to be a high growth pure-play catalyst and
services company that enables customer transitions to cleaner fuels
and a circular economy for plastics.”
(1) Continuing operations for 2020 include the Company’s
Refining Services, Catalysts and Performance Chemicals
businesses.
Review of Segment Results
As anticipated, most of PQ’s customers experienced increased end
use demand during the fourth quarter, ranging from packaged
products to automotive sales. The construction and mining segments
also demonstrated demand strength. The company expects stronger
demand recovery in the second half of 2021 across all sectors, with
most end uses improving at varying paces.
Refining Services
Refining Services saw North American gasoline demand partially
recover in the second half of 2020 and end the year approximately
10 percent below 2019 demand levels, with U.S. refinery utilization
rates in the low-to-mid-80 percent range. Looking ahead,
utilization is expected to improve during the second quarter of
2021 and into the active summer season, especially with the
anticipated progress in vaccination rates. As demand stabilizes,
alkylate production is expected to continue to grow on higher
octane fuel blending. Virgin sulfuric acid demand ended the year
higher than 2019 levels as a recovery of mining and auto production
improved heading into 2021.
For the quarter ended December 31, 2020, sales of $103.2 million
decreased 2.3 percent versus the same period in 2019. Lower
regeneration services volumes driven by reduced refinery run rates
were partially offset by higher spot sales for virgin sulfuric
acid. Adjusted EBITDA of $40.7 million decreased 2.9 percent on
lower volumes and product mix.
For the year, sales of $401.9 million decreased 10.1 percent
versus the same period in 2019. With the onset of the global
pandemic, demand for regeneration services was impacted by lower
refinery production rates as lower miles driven resulted in high
gasoline inventories. Virgin sulfuric acid volumes were flat
compared to prior year as the COVID-19 impact on industrial and
automotive applications gave way to a recovery in the second half.
Adjusted EBITDA of $157.2 million declined 10.5 percent due to
lower overall volumes, partly offset by cost containment
actions.
Catalysts
Sales for hydrocracking catalysts were strong in the first half
of 2020 but tapered off in the second half as lower refinery
utilization delayed the need for fixed bed change-outs. Demand for
our emission control catalysts used in heavy-duty diesel vehicles
decreased since the first quarter of 2020 as our customers
temporarily curtailed production to align with demand. Offsetting
these impacts was higher polyethylene catalyst demand in 2020 on
increased consumer consumption of films and packaging. We expect
higher catalyst demand in the second half of 2021 versus the first
half, as polyolefin catalyst growth continues and refiners begin to
restart hydrocracking and specialty catalyst change-outs.
For the quarter ended December 31, 2020, Silica Catalysts sales
of $20.9 million decreased 10.3 percent versus the same period in
2019. Continued favorable demand growth for polyolefin catalysts
was more than offset by lower methyl methacrylate sales. Zeolyst JV
sales of $28.9 million declined 38.9 percent on lower hydrocracking
orders due to deferred catalyst change-outs by refineries and the
pace of recovery for custom and emission control catalysts.
Adjusted EBITDA of $14.8 million decreased 47.9 percent due to
lower sales volumes and unfavorable product mix.
For the year, Silica Catalysts sales of $94.0 million increased
9.7 percent versus the same period in 2019, benefiting from higher
sales volumes for polyolefin catalysts. Zeolyst JV sales of $128.6
million declined 24.5 percent largely due to lower demand for
hydrocracking and specialty catalysts following a robust 2019 that
saw the second highest year on record followed by deferrals in 2020
customer change-outs. Results also reflected lower emission control
catalyst sales on heavy-duty diesel production. Adjusted EBITDA of
$74.5 million decreased 30.9 percent on reduced sales volumes from
Zeolyst JV.
Performance Chemicals
Industrial demand continued to strengthen driven by automotive
and coatings applications and the early signs of restocking within
the global supply chain. In the fourth quarter, PQ experienced its
best sales and Adjusted EBITDA results for Performance Chemicals
since the first quarter of 2020.
For the quarter ended December 31, 2020, sales of $158.2 million
increased 1.8 percent over the same period in 2019. This
improvement was largely driven by recovery of sodium silicate for
industrial applications and continued healthy demand of specialty
silicas for personal care and surface coatings. Adjusted EBITDA of
$35.5 million increased 7.6 percent on improved sales volumes and
improved costs from the company’s business transformation
initiatives.
For the year, sales of $614.7 million decreased 8.3 percent
versus the same period in 2019 on lower global demand for sodium
silicates across multiple customer industrial applications.
Adjusted EBITDA of $142.4 million decreased 6.0 percent as
favorable business transformation cost initiatives were more than
offset by lower sales volumes.
Cash Flows and Balance Sheet
For the year ended December 31, 2020, cash flows from operating
activities from continuing operations decreased $22.3 million to
$205.4 million, compared to $227.7 million for the same period in
2019. This decrease was primarily driven by a decrease in net
income.
At December 31, 2020, the Company had cash and cash equivalents
of $135.5 million and total debt outstanding of $1,426.4 million.
During the year ended December 31, 2020, the Company repaid $467
million of long term debt and the net debt to Adjusted EBITDA ratio
was 3.8x as of December 31, 2020.
Strategic Transformation
On March 1, 2021, the Company announced that it has entered into
a definitive agreement to sell its Performance Chemicals business
to a partnership between Cerberus Capital Management, L.P. and Koch
Minerals & Trading LLC for a purchase price of $1.1
billion.
Upon the anticipated close in 2021 and finalization of net cash
proceeds, PQ plans to return capital to shareholders through a
special dividend of $2.50 to $3.25 per share (subject to Board
approval and declaration), which is expected to result in a debt
reduction of $450 million to $550 million.
In addition, on March 1, 2021 PQ closed on its acquisition of
Chem32, LLC from its founders for a purchase price of $44 million
to complement our Refining Services business. Chem32 is a leading
supplier of catalyst pre-activation services used in the production
of traditional and renewable fuels. This addition, with its
patented technology and services, is expected to grow rapidly and
generate higher margins.
2021 Financial Outlook from Continuing Operations
With the announced sale of Performance Chemicals, PQ will be
reporting this business as a discontinued operation beginning in
the first quarter of 2021. Consequently, the company is providing
2021 guidance from continuing operations for Target PQ, which
reflects the Refining Services and Catalyst businesses and excludes
Performance Chemicals, as below:
- Sales of $555 to $565 million(2)
- Adjusted EBITDA of $215 to $225 million
- Adjusted free cash flow of $75 to $85 million
(2) GAAP sales only; Excludes proportionate 50 percent share of
Zeolyst Joint Venture sales target of $140 to $150 million.
Conference Call and Webcast Details
On Tuesday, March 9, 2021, PQ management will release its fourth
quarter and full year 2020 results from continuing operations
during a conference call and audio-only webcast scheduled for 11:00
a.m. Eastern Time.
Conference Call: Investors may listen to the conference call
live via telephone by dialing 1-866-342-8591 (domestic) or
1-203-518-9713 (international) and use the participant code
PQGQ420.
Webcast: An audio-only webcast of the conference call and
presentation materials can be accessed at
http://investor.pqcorp.com.
A replay of the conference call/webcast will be made available
at http://investor.pqcorp.com/events-presentations.
Investor Contact: Nahla A. Azmy (610) 651-4561
Nahla.Azmy@pqcorp.com
About PQ Group Holdings Inc.
PQ Group Holdings Inc. and subsidiaries is a leading integrated
and innovative global provider of specialty catalysts, chemicals
and services. We support customers globally through our
strategically located network of manufacturing facilities. We
believe that our products, which are predominantly inorganic, and
services contribute to improving the sustainability of the
environment.
We have three uniquely positioned specialty businesses:
Refining Services provides sulfuric acid recycling to the
North American refining industry; Catalysts serves the
packaging and engineering plastics and the global refining,
petrochemical and emissions control industries; and Performance
Chemicals supplies diverse product end uses, including personal
and industrial cleaning products, fuel-efficient tires, surface
coatings, and food and beverage products.
For more information, see our website at
https://www.pqcorp.com.
Presentation of Non-GAAP Financial Measures
In addition to the results provided in accordance with U.S.
generally accepted accounting principles (“GAAP”) throughout this
press release, the company has provided non-GAAP financial measures
— Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash flow,
Adjusted net income, Adjusted EPS, Adjusted diluted EPS, and net
debt (collectively, “Non-GAAP Financial Measures”) — which present
results on a basis adjusted for certain items. The company uses
these Non-GAAP Financial Measures for business planning purposes
and in measuring its performance relative to that of its
competitors. The company believes that these Non-GAAP Financial
Measures are useful financial metrics to assess its operating
performance from period-to-period by excluding certain items that
the company believes are not representative of its core business.
These Non-GAAP Financial Measures are not intended to replace, and
should not be considered superior to, the presentation of the
company’s financial results in accordance with GAAP. The use of the
Non-GAAP Financial Measures terms may differ from similar measures
reported by other companies and may not be comparable to other
similarly titled measures. These Non-GAAP Financial Measures are
reconciled from the respective measures under GAAP in the appendix
below.
The company is not able to provide a reconciliation of the
company’s non-GAAP financial guidance to the corresponding GAAP
measures without unreasonable effort because of the inherent
difficulty in forecasting and quantifying certain amounts necessary
for such a reconciliation such as certain non-cash, nonrecurring or
other items that are included in net income and EBITDA as well as
the related tax impacts of these items and asset dispositions /
acquisitions and changes in foreign currency exchange rates that
are included in cash flow, due to the uncertainty and variability
of the nature and amount of these future charges and costs.
Zeolyst Joint Venture
The company’s zeolite catalysts product group operates through
its Zeolyst Joint Venture, which is accounted for as an equity
method investment in accordance with GAAP. The presentation of the
Zeolyst Joint Venture’s sales represents 50% of the sales of the
Zeolyst Joint Venture. The company does not record sales by the
Zeolyst Joint Venture as revenue and such sales are not
consolidated within the company’s results of operations. However,
the company’s Adjusted EBITDA reflects the share of earnings of the
Zeolyst Joint Venture that have been recorded as equity in net
income from affiliated companies in the company’s consolidated
statements of income for such periods and includes Zeolyst Joint
Venture adjustments on a proportionate basis based on the company’s
50% ownership interest. Accordingly, the company’s Adjusted EBITDA
margins are calculated including 50% of the sales of the Zeolyst
Joint Venture for the relevant periods in the denominator.
Note on Forward-Looking Statements
Some of the information contained in this press release
constitutes “forward-looking statements.” Forward-looking
statements can be identified by words such as “anticipates,”
“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,”
“projects” and similar references to future periods.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. Examples of
forward-looking statements include, but are not limited to,
statements regarding the sale of the Performance Chemicals business
segment, including the intended use of proceeds therefrom, our
future results of operations, financial condition, liquidity,
prospects, growth, strategies, capital allocation program, product
and service offerings, including the impact of the COVID-19
pandemic on such items, expected demand trends and our 2021
financial outlook. Our actual results may differ materially from
those contemplated by the forward-looking statements. We caution
you, therefore, against relying on any of these forward-looking
statements. They are neither statements of historical fact nor
guarantees or assurances of future performance. Important factors
that could cause actual results to differ materially from those in
the forward-looking statements include, but are not limited to, our
ability to close on the sale of the Performance Chemicals business
segment on our anticipated timeline, or at all, our ability to
successfully integrate Chem32, regional, national or global
political, economic, business, competitive, market and regulatory
conditions, including the ongoing COVID-19 pandemic, tariffs and
trade disputes, currency exchange rates and other factors,
including those described in the sections titled “Risk Factors” and
“Management Discussion & Analysis of Financial Condition and
Results of Operations” in our filings with the SEC, which are
available on the SEC’s website at www.sec.gov. These
forward-looking statements speak only as of the date of this
release. Factors or events that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We undertake no obligation to update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by
applicable law.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three months ended
December 31,
%
Years ended December
31,
%
2020
2019
Change
2020
2019
Change
(in millions, except
percentages, share and per share amounts)
Sales
$
281.5
$
283.5
(0.7
)%
$
1,107.4
$
1,199.9
(7.7
)%
Cost of goods sold
214.3
217.6
(1.5
)%
834.0
901.5
(7.5
)%
Gross profit
67.2
65.9
1.9
%
273.4
298.4
(8.4
)%
Selling, general and administrative
expenses
32.3
34.1
(5.1
)%
125.3
129.5
(3.2
)%
Goodwill impairment charge
260.0
—
—
%
260.0
—
—
%
Other operating expense, net
20.5
3.3
513.8
%
51.0
21.4
138.3
%
Operating (loss) income
(245.6
)
28.5
(962.3
)%
(162.9
)
147.5
(210.4
)%
Equity in net income from affiliated
companies
(1.2
)
(14.4
)
(91.8
)%
(21.2
)
(46.0
)
(53.9
)%
Interest expense, net
14.4
20.9
(30.9
)%
67.0
87.1
(23.1
)%
Debt extinguishment costs
8.5
1.6
419.5
%
25.0
3.4
635.3
%
Other (income) expense, net
(2.6
)
(4.0
)
(35.8
)%
(6.1
)
(2.4
)
154.2
%
Income (loss) from continuing operations
before income taxes and noncontrolling interest
(264.7
)
24.3
NM
(227.6
)
105.4
(315.9
)%
(Benefit) provision for income taxes
(77.9
)
(4.1
)
NM
(48.1
)
39.7
(221.2
)%
Effective tax rate
29.4
%
(16.7
)%
21.1
%
37.6
%
Net (loss) income from continuing
operations
(186.8
)
28.4
NM
(179.5
)
65.7
(373.2
)%
Net (loss) income from discontinued
operations, net of tax
(33.9
)
(1.0
)
NM
(19.9
)
14.6
(236.3
)%
Net (loss) income
(220.6
)
27.4
NM
(199.3
)
80.3
(348.2
)%
Less: Net (loss) income attributable to
the noncontrolling interest - continuing operations
(3.9
)
0.2
NM
(3.2
)
0.6
(633.3
)%
Less: Net income (loss) attributable to
the noncontrolling interest - discontinued operations
0.1
—
NM
0.3
0.2
50.0
%
Net (loss) income attributable to PQ Group
Holdings Inc.
$
(216.7
)
$
27.2
NM
$
(196.4
)
$
79.5
(347.0
)%
(Loss) income from continuing
operations
$
(182.8
)
$
28.2
$
(176.3
)
$
65.1
(Loss) income from discontinued
operations
$
(33.9
)
$
(1.0
)
$
(20.1
)
$
14.4
Net (loss) income attributable to PQ Group
Holdings Inc.
$
(216.7
)
$
27.2
$
(196.4
)
$
79.5
Net (loss) income per share:
Basic (loss) income per share - continuing
operations
$
(1.35
)
$
0.21
$
(1.30
)
$
0.48
Diluted (loss) income per share -
continuing operations
$
(1.35
)
$
0.21
$
(1.30
)
$
0.48
Weighted average shares outstanding:
Basic
135,406,081
134,912,212
135,528,977
134,389,667
Diluted
135,406,081
136,151,739
135,528,977
135,548,694
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except share
and per share amounts)
December 31,
2020
December 31,
2019
ASSETS
Cash and cash equivalents
$
135.5
$
53.9
Accounts receivables, net
132.6
139.1
Inventories, net
127.4
137.6
Prepaid and other current assets
32.6
31.6
Current assets held for sale
—
206.4
Total current assets
428.1
568.6
Investments in affiliated companies
458.5
472.8
Property, plant and equipment, net
983.2
1,011.2
Goodwill
717.7
973.6
Other intangible assets, net
526.3
555.3
Right-of-use lease assets
48.2
48.4
Long-term assets held for sale
—
663.6
Other long-term assets
35.8
27.4
Total assets
$
3,197.8
$
4,320.9
LIABILITIES
Notes payable and current maturities of
long-term debt
$
6.5
$
—
Accounts payable
112.3
114.1
Operating lease liabilities—current
15.2
11.9
Accrued liabilities
66.4
85.4
Current liabilities held for sale
—
58.1
Total current liabilities
200.4
269.5
Long-term debt, excluding current
portion
1,393.9
1,843.2
Deferred income taxes
100.9
209.4
Operating lease liabilities—noncurrent
32.0
34.9
Long-term liabilities of held for sale
—
87.2
Other long-term liabilities
111.0
91.3
Total liabilities
1,838.2
2,535.5
Commitments and contingencies
EQUITY
Common stock ($0.01 par); authorized
shares 450,000,000; issued shares 137,102,143 and 136,861,382 on
December 31, 2020 and 2019, respectively; outstanding shares
136,318,557 and 136,464,961 on December 31, 2020 and 2019,
respectively
1.4
1.4
Preferred stock ($0.01 par); authorized
shares 50,000,000; no shares issued or outstanding on December 31,
2020 and 2019, respectively
—
—
Additional paid-in capital
1,477.9
1,696.9
(Accumulated deficit) retained
earnings
(93.4
)
103.0
Treasury stock, at cost; shares 783,586
and 396,421 on December 31, 2020 and 2019, respectively
(11.1
)
(6.5
)
Accumulated other comprehensive loss
(15.3
)
(15.3
)
Total PQ Group Holdings Inc. equity
1,359.5
1,779.5
Noncontrolling interest
0.1
5.9
Total equity
1,359.6
1,785.4
Total liabilities and equity
$
3,197.8
$
4,320.9
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December
31,
2020
2019
Cash flows from operating activities:
Net (loss) income
$
(199.3
)
$
80.3
Net loss (income) from discontinued
operations
19.9
(14.6
)
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation
114.6
111.0
Amortization
37.2
40.8
Goodwill impairment charge
260.0
—
Impairment of long-lived assets
0.3
—
Amortization of deferred financing costs
and original issue discount
3.8
3.8
Debt extinguishment costs
22.7
3.4
Foreign currency exchange (gain) loss
(4.2
)
2.4
Pension and postretirement healthcare
benefit expense
0.9
3.7
Pension and postretirement healthcare
benefit funding
(9.1
)
(9.7
)
Deferred income tax provision
(benefit)
(64.7
)
15.5
Net (gain) loss on asset disposals
(11.4
)
(13.2
)
Stock compensation
21.5
16.2
Equity in net income from affiliated
companies
(21.2
)
(46.0
)
Dividends received from affiliated
companies
40.1
40.1
Net interest income on swaps designated as
net investment hedges
(5.0
)
(8.5
)
Other, net
(3.9
)
(4.5
)
Working capital changes that provided
(used) cash, excluding the effect of acquisitions and
dispositions:
Receivables
7.0
11.4
Inventories
9.4
(10.0
)
Prepaids and other current assets
2.0
2.3
Accounts payable
4.2
(0.6
)
Accrued liabilities
(19.2
)
3.9
Net cash provided by operating activities,
continuing operations
205.4
227.7
Net cash provided by operating activities,
discontinued operations
18.2
40.1
Net cash provided by operating
activities
223.6
267.8
Cash flows from investing activities:
Purchases of property, plant and
equipment
(97.1
)
(111.1
)
Business divestiture, net of cash and
indebtedness
624.3
—
Proceeds from sale of assets
9.4
17.6
Proceeds from sale of product line
18.0
27.7
Proceeds from settlement of swaps
designated as net investment hedges
—
38.1
Proceeds from sale of investment
1.8
—
Net interest proceeds on swaps designated
as net investment hedges
5.0
8.5
Other, net
0.9
0.4
Net cash provided by (used in) investing
activities, continuing operations
562.3
(18.8
)
Net cash (used in) provided by investing
activities, discontinued operations
(10.8
)
(16.5
)
Net cash (used in) provided by investing
activities
551.5
(35.3
)
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Cash flows from financing activities:
Draw down of revolving credit
facilities
$
140.6
$
177.9
Repayments of revolving credit
facilities
(140.6
)
(177.9
)
Issuance of long-term debt, net of
original issue discount and financing fees
640.3
—
Debt issuance costs
(9.0
)
—
Debt prepayment fees
(10.6
)
—
Repayments of long-term debt
(1,091.1
)
(215.0
)
Dividends paid to stockholders
(245.4
)
—
Repurchases of common shares
(4.6
)
(3.6
)
Proceeds from stock options exercised
0.4
4.0
Other, net
(1.3
)
(0.3
)
Net cash used in financing activities,
continuing operations
(721.3
)
(214.9
)
Net cash used in financing activities,
discontinued operations
(1.6
)
(1.2
)
Net cash used in financing activities
(722.8
)
(216.1
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
11.1
(2.1
)
Net change in cash, cash equivalents and
restricted cash
63.3
14.2
Cash, cash equivalents and restricted cash
at beginning of period
73.9
59.7
Cash, cash equivalents and restricted cash
at end of period
137.2
73.9
Less cash, cash equivalents and restricted
cash of discontinued operations
—
(18.7
)
Cash, cash equivalents and restricted cash
at end of period of continuing operations
$
137.2
$
55.2
Appendix Table A-1: Reconciliation of
Net Income to Segment Adjusted EBITDA
Three months ended
December 31,
Years ended December
31,
2020
2019
2020
2019
(in millions)
Reconciliation of net (loss) income
attributable to PQ Group Holdings Inc. to Segment Adjusted
EBITDA
Net (loss) income from continuing
operations
$
(182.8
)
$
28.2
$
(176.3
)
$
65.1
(Benefit) Provision for income taxes
(77.9
)
(4.1
)
(48.1
)
39.7
Interest expense, net
14.4
20.9
67.0
87.1
Depreciation and amortization
39.5
39.1
151.8
151.8
EBITDA
(206.8
)
84.1
(5.6
)
343.7
Joint venture depreciation, amortization
and interest(a)
3.6
3.5
14.7
14.7
Amortization of investment in affiliate
step-up(b)
1.6
1.7
6.6
7.5
Impairment of intangibles and goodwill
260.0
—
260.0
—
Debt extinguishment costs
8.5
1.8
25.0
3.4
Net loss (gain) on asset disposals(c)
3.5
(5.3
)
(0.1
)
(13.2
)
Foreign currency exchange (gain)
loss(d)
(2.8
)
(2.7
)
(4.2
)
2.4
LIFO (benefit) expense(e)
(0.6
)
0.7
(5.2
)
9.7
Transaction and other related costs(f)
5.2
1.6
8.6
0.4
Equity-based compensation
5.5
4.1
21.5
16.2
Restructuring, integration and business
optimization expenses(g)
5.7
2.6
15.6
3.6
Defined benefit plan pension cost(h)
0.1
0.7
—
3.0
Other(i)
(1.7
)
(1.7
)
1.1
2.5
Adjusted EBITDA
81.8
91.1
338.0
393.9
Unallocated corporate expenses
9.2
12.2
36.1
41.0
Segment Adjusted EBITDA
$
91.0
$
103.3
$
374.1
$
434.9
Descriptions to PQ Non-GAAP
Reconciliations
(a)
We use Adjusted EBITDA as a performance
measure to evaluate our financial results. Because our 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
(“Eco”) in May 2016 (the “Business Combination”). We determined the
fair value of the equity affiliate investment and the fair value
step-up was then attributed to the underlying assets of the Zeolyst
Joint Venture. Amortization is primarily related to the fair value
adjustments associated with fixed assets and intangible assets,
including customer relationships and technical know-how.
(c)
When asset disposals occur, we remove the
impact of net gain/loss of the disposed asset because such impact
primarily reflects the non-cash write-off of long-lived assets no
longer in use. During the year ended December 31, 2019, the net
gain on asset disposals includes the gains related to the sale of a
non-core product line and sale of property.
(d)
Reflects the exclusion of the foreign
currency transaction gains and losses in the statements of income
primarily related to the non-permanent intercompany debt
denominated in local currency translated to U.S. dollars.
(e)
Represents non-cash adjustments to the
Company’s LIFO reserves for certain inventories in the U.S. that
are valued using the LIFO method, which we believe provides a means
of comparison to other companies that may not use the same basis of
accounting for inventories.
(f)
Represents the costs related to several
transactions that are completed, pending or abandoned and that we
believe are not representative of our ongoing business
operations.
(g)
Includes the impact of restructuring,
integration and business optimization expenses which are
incremental costs that are not representative of our ongoing
business operations.
(h)
Represents adjustments for defined benefit
pension plan costs in our statement of income. More than two-thirds
of our defined benefit pension plan obligations are under defined
benefit pension plans that are frozen, and the remaining
obligations primarily relate to plans operated in certain of our
non-U.S. locations that, pursuant to jurisdictional requirements,
cannot be frozen. As such, we do not view such expenses as core to
our ongoing business operations.
(i)
Other costs consist of certain expenses
that are not core to our ongoing business operations, including
environmental remediation-related costs associated with the legacy
operations of our business prior to the Business Combination,
capital and franchise taxes, non-cash asset retirement obligation
accretion and the initial implementation of procedures to comply
with Section 404 of the Sarbanes-Oxley Act. Included in this
line-item are rounding discrepancies that may arise from rounding
from dollars (in thousands) to dollars (in millions).
Appendix Table A-2: Reconciliation of
Net Income to Adjusted Net Income(1)
Three months ended December
31,
2020
2019
Pre-tax
Tax expense (benefit)
After-tax
Pre-tax
Tax expense (benefit)
After-tax
(in millions)
Net (loss) income from continuing
operations
$
(264.6
)
$
(77.9
)
$
(186.7
)
$
24.3
$
(4.1
)
$
28.4
Less: Net (loss) income attributable to
non-controlling interest - continuing operations
(3.9
)
—
(3.9
)
0.2
—
0.2
Net (loss) income attributable to PQ Group
Holdings Inc. from continuing operations
(260.7
)
(77.9
)
(182.8
)
24.1
(4.1
)
28.2
Earnings per share:
Basic (loss) income per share - continuing
operations
$
(1.35
)
$
0.21
Diluted (loss) income per share -
continuing operations
$
(1.35
)
$
0.21
Net (loss) income attributable to PQ Group
Holdings Inc.
(260.7
)
(77.9
)
(182.8
)
24.1
(4.1
)
28.2
Amortization of investment in affiliate
step-up(b)
1.7
0.4
1.3
1.7
0.5
1.2
Impairment of goodwill
260.0
—
260.0
—
—
—
Debt extinguishment costs
8.5
2.1
6.4
1.8
0.4
1.4
Net loss (gain) on asset disposals(c)
3.5
(0.1
)
3.6
(5.3
)
(1.3
)
(4.0
)
Foreign currency exchange (gain)
loss(d)
(2.8
)
0.2
(3.0
)
(2.6
)
0.8
(3.4
)
LIFO (benefit) expense(e)
(0.6
)
(0.1
)
(0.5
)
0.7
0.2
0.5
Transaction and other related costs(f)
5.2
1.3
3.9
1.6
0.4
1.2
Equity-based and other non-cash
compensation
5.6
1.3
4.3
4.1
1.0
3.1
Restructuring, integration and business
optimization expenses(g)
5.7
1.4
4.3
2.6
0.7
1.9
Defined benefit pension plan cost(h)
0.1
—
0.1
0.7
0.2
0.5
Other(i)
(1.9
)
(0.4
)
(1.5
)
(1.6
)
(0.4
)
(1.2
)
Adjusted Net Income, includes non-cash
GILTI tax
24.3
(71.8
)
96.1
27.8
(1.6
)
29.4
Impact of non-cash GILTI tax(2)
—
12.0
(12.0
)
—
10.2
(10.2
)
Impact of tax reform(3)
—
1.6
(1.6
)
—
(2.4
)
2.4
Adjusted Net Income(1)
$
24.3
$
(58.2
)
$
82.5
$
27.8
$
6.2
$
21.6
Adjusted Net Income per share:
Basic income per share
$
0.61
$
0.16
Diluted income per share
$
0.61
$
0.16
Weighted average shares outstanding:
Basic
135,406,081
134,912,212
Diluted
136,284,272
136,151,739
See Appendix Table A-1 for Descriptions to PQ Non-GAAP
Reconciliations in the table above.
Years ended December
31,
2020
2019
Pre-tax
Tax expense (benefit)
After-tax
Pre-tax
Tax expense benefit)
After-tax
(in millions)
Net (loss) income from continuing
operations
$
(227.6
)
$
(48.1
)
$
(179.5
)
$
105.4
$
39.7
$
65.7
Less: Net (loss) income attributable to
non-controlling interest
(3.2
)
—
(3.2
)
0.6
—
0.6
Net (loss) income attributable to PQ Group
Holdings Inc. from continuing operations
(224.4
)
(48.1
)
(176.3
)
104.8
39.7
65.1
Earnings per share:
Basic (loss) income per share - continuing
operations
$
(1.30
)
$
0.48
Diluted (loss) income per share -
continuing operations
$
(1.30
)
$
0.48
Net (loss) income attributable to PQ Group
Holdings Inc.
(224.4
)
(48.1
)
(176.3
)
104.8
39.7
65.1
Amortization of investment in affiliate
step-up(b)
6.6
1.7
4.9
7.5
1.9
5.6
Impairment of goodwill
260.0
—
260.0
—
—
—
Debt extinguishment costs
25.0
6.3
18.7
3.4
0.9
2.5
Net (gain) loss on asset disposals(c)
(0.1
)
(2.5
)
2.4
(13.2
)
(3.3
)
(9.9
)
Foreign currency exchange (gain)
loss(d)
(4.2
)
0.3
(4.5
)
2.4
1.4
1.0
LIFO (benefit) expense(e)
(5.2
)
(1.3
)
(3.9
)
9.7
2.4
7.3
Transaction and other related costs(f)
8.6
2.1
6.5
0.4
0.1
0.3
Equity-based and other non-cash
compensation
21.5
4.9
16.6
16.2
3.7
12.5
Restructuring, integration and business
optimization expenses(g)
15.6
3.9
11.7
3.6
0.9
2.7
Defined benefit plan pension cost(h)
—
—
—
3.0
0.7
2.3
Other(i)
1.1
0.3
0.8
2.5
0.5
2.0
Adjusted Net Income, includes non-cash
GILTI tax
104.5
(32.4
)
136.9
140.3
48.9
91.4
Impact of non-cash GILTI tax(2)
—
—
—
—
(9.4
)
9.4
Impact of tax reform(3)
—
—
—
—
(2.3
)
2.3
Adjusted Net Income(1)
$
104.5
$
(32.4
)
$
136.9
$
140.3
$
37.2
$
103.1
Adjusted Net Income per share:
Basic income per share
$
1.01
$
0.77
Diluted income per share
$
1.00
$
0.76
Weighted average shares outstanding:
Basic
135,528,977
134,389,667
Diluted
136,450,953
135,548,694
(1)
We define adjusted net income as net
income attributable to PQ Group Holdings 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)
Amount represents the impact to tax
expense in net income before non-controlling interest and the
related adjustments to net income associated with GILTI provisions
of the Tax Cuts and Jobs Act of 2017 (“TCJA”). The Company is
required to record incremental tax provision impact with respect to
GILTI as a result of having historical U.S. net operating loss
(“NOL”) amounts to offset the GILTI taxable income inclusion. This
NOL utilization precluded us from recognizing foreign tax credits
(“FTCs”) which would otherwise help offset the tax impacts of
GILTI. During the fourth quarter of 2020, as a result of the sale
of the Performance Materials business, our NOL balance will be
fully utilized. Beginning in the fourth quarter of 2020, we are no
longer adjusting for the impact of GILTI provisions of the TCJA
since the NOLs have been fully utilized and GILTI now represents a
cash tax impact.
(3)
Represents the provisional adjustment for
the impact of the TCJA and the Dutch Tax Plan 2019 recorded in net
income.
Appendix Table A-3: Business Segment
Sales and Adjusted EBITDA
Three months ended
December 31,
Years ended December
31,
2020
2019
% Change
2020
2019
% Change
Sales:
Refining Services
$
103.2
$
105.6
(2.3
)%
$
401.9
$
447.1
(10.1
)%
Silica Catalysts
20.9
23.3
(10.3
)%
94.0
85.7
9.7
%
Performance Chemicals
158.2
155.4
1.8
%
614.7
670.5
(8.3
)%
Eliminations
(0.8
)
(0.8
)
(3.2
)
(3.4
)
Total sales
$
281.5
$
283.5
(0.7
)%
$
1,107.4
$
1,199.9
(7.7
)%
Zeolyst joint venture sales
$
28.9
$
47.3
(38.9
)%
$
128.6
$
170.3
(24.5
)%
Adjusted EBITDA:
Refining Services
$
40.7
$
41.9
(2.9
)%
$
157.2
$
175.6
(10.5
)%
Catalysts
14.8
28.4
(47.9
)%
74.5
107.8
(30.9
)%
Performance Chemicals
35.5
33.0
7.6
%
142.4
151.5
(6.0
)%
Total Segment Adjusted EBITDA
$
91.0
$
103.3
(11.9
)%
$
374.1
$
434.9
(14.0
)%
Corporate
(9.2
)
(12.2
)
(24.6
)%
(36.1
)
(41.0
)
(12.0
)%
Total Adjusted EBITDA
$
81.8
$
91.1
(10.2
)%
$
338.0
$
393.9
(14.2
)%
Adjusted EBITDA Margin:
Refining Services
39.4
%
39.7
%
39.1
%
39.3
%
Catalysts(1)
29.7
%
40.2
%
33.5
%
42.1
%
Performance Chemicals
22.4
%
21.2
%
23.2
%
22.6
%
Total Adjusted EBITDA Margin(1)
26.4
%
27.5
%
27.3
%
28.7
%
(1)
Adjusted EBITDA margin calculation
includes proportionate 50% share of sales from the Zeolyst Joint
Venture.
Appendix Table A-4: Adjusted Free Cash
Flow
Years ended December
31,
2020
2019
(in millions)
Net cash provided by operating activities,
continuing operations
$
205.4
$
227.7
Net cash provided by operating activities,
discontinued operations
18.2
40.1
Net cash provided by operating
activities
223.6
267.8
Less:
Purchases of property, plant and
equipment, continuing operations
(97.1
)
(111.1
)
Purchases of property, plant and
equipment, discontinued operations
(12.5
)
(16.5
)
Purchases of property, plant and
equipment(1)
(109.6
)
(127.6
)
Free cash flow
114.0
140.2
Adjustments to free cash flow:
Proceeds from sale of assets
11.1
17.6
Net interest proceeds on currency
swaps
5.0
8.5
Cash paid for costs related to segment
disposals
22.5
—
Adjusted free cash flow(2)
$
152.5
$
166.2
Net cash provided by (used in) investing
activities(3)
$
551.5
$
(35.3
)
Net cash used in financing activities
$
(722.8
)
$
(216.1
)
(1)
Excludes the Company’s proportionate 50%
share of capital expenditures from the Zeolyst joint venture.
(2)
We define adjusted free cash flow as net
cash provided by operating activities less purchases of property,
plant and equipment, adjusted for proceeds from sale of assets and
net interest proceeds on swaps designated as net investment hedges
and the cash paid for costs related to segment disposals. Adjusted
free cash flow is a non-GAAP financial measure that we believe will
enhance a prospective investor’s understanding of our ability to
generate additional cash from operations, including the reduction
in cash paid for interest related to our cross-currency interest
rate swaps, and is an important financial measure for use in
evaluating our financial performance. Our presentation of adjusted
free cash flow is not intended to replace, and should not be
considered superior to, the presentation of our net cash provided
by operating activities determined in accordance with GAAP.
Additionally, our definition of adjusted free cash flow is limited,
in that it does not represent residual cash flows available for
discretionary expenditures, due to the fact that the measure does
not deduct the payments required for debt service and other
contractual obligations or payments made for business acquisitions.
Therefore, we believe it is important to view adjusted free cash
flow as a measure that provides supplemental information to our
consolidated statements of cash flows.
(3)
Net cash used in investing activities
includes purchases of property, plant and equipment, proceeds from
sale of assets, and net interest proceeds on swaps designated as
net investment hedges, which are also included in our computation
of adjusted free cash flow.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210309005289/en/
Investor Contact: Nahla A. Azmy (610) 651-4561
Nahla.Azmy@pqcorp.com
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