UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38221

~~PQ Group Holdings Inc.~~ECOVYST INC.

Delaware

81-3406833

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

300 Lindenwood Drive

Malvern, Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)

~~(610)~~(484)

~~651-4400~~617-1200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

~~PQG~~ECVT

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐☒

Accelerated filer

☒☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding as of ~~May 13, 2021~~April 29, 2022 was ~~136,924,458.~~138,696,941.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC.

INDEX—FORM 10-Q

March 31, ~~2021~~2022

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

(unaudited)

Three months ended
March 31,
2021 2020
Sales $ 126,624 $ 125,554
Cost of goods sold 96,505 87,850
Gross profit 30,119 37,704
Selling, general and administrative expenses 22,130 22,280
Other operating expense, net 5,507 3,450
Operating income 2,482 11,974
Equity in net (income) from affiliated companies (5,210) (8,295)
Interest expense, net 10,456 15,298
Debt extinguishment costs 0 2,513
Other expense, net 5,174 7,470
Loss from continuing operations before income taxes and noncontrolling interest (7,938) (5,012)
Benefit for income taxes (5,190) (1,665)
Net loss from continuing operations (2,748) (3,347)
Net (loss) income from discontinued operations, net of tax (89,770) 3,856
Net (loss) income (92,518) 509
Less: Net income attributable to the noncontrolling interest - discontinued operations 117 285
Net (loss) income attributable to PQ Group Holdings Inc. $ (92,635) $ 224
Loss from continuing operations attributable to PQ Group Holdings Inc. $ (2,748) $ (3,347)
(Loss) income from discontinued operations attributable to PQ Group Holdings Inc. (89,887) 3,571
Net (loss) income attributable to PQ Group Holdings Inc. $ (92,635) $ 224
Net (loss) income per share:
Basic loss per share - continuing operations $ (0.02) $ (0.02)
Diluted loss per share - continuing operations $ (0.02) $ (0.02)
Basic (loss) income per share - discontinued operations $ (0.66) $ 0.02
Diluted (loss) income per share - discontinued operations $ (0.66) $ 0.02
Basic loss per share $ (0.68) $ 0.00
Diluted loss per share $ (0.68) $ 0.00
Weighted average shares outstanding:
Basic 136,006,082 135,240,897
Diluted 136,006,082 136,086,082


	Three months ended March 31,
		2022		2021
Sales		$	179,714	$	126,624
Cost of goods sold		131,979		96,505
Gross profit		47,735		30,119
Selling, general and administrative expenses		23,536		22,130
Other operating expense, net		7,763		5,507
Operating income		16,436		2,482
Equity in net (income) from affiliated companies		(5,749)		(5,210)
Interest expense, net		8,450		10,456

Other expense, net		140		5,174
Income (loss) from continuing operations before income taxes and noncontrolling interest		13,595		(7,938)
Provision (benefit) for income taxes		5,720		(5,190)
Net income (loss) from continuing operations		7,875		(2,748)
Net loss from discontinued operations, net of tax		—		(89,770)
Net income (loss)		7,875		(92,518)

Less: Net income attributable to the noncontrolling interest—discontinued operations		—		117
Net income (loss) attributable to Ecovyst Inc.		$	7,875	$	(92,635)

Income (loss) from continuing operations attributable to Ecovyst Inc.		$	7,875	$	(2,748)
Loss from discontinued operations attributable to Ecovyst Inc.		—		(89,887)
Net income (loss) attributable to Ecovyst Inc.		$	7,875	$	(92,635)

Net income (loss) per share:
Basic income (loss) per share—continuing operations		$	0.06	$	(0.02)
Diluted income (loss) per share—continuing operations		$	0.06	$	(0.02)
Basic loss per share—discontinued operations		$	—	$	(0.66)
Diluted loss per share—discontinued operations		$	—	$	(0.66)
Basic income (loss) per share		$	0.06	$	(0.68)
Diluted income (loss) per share		$	0.06	$	(0.68)

Weighted average shares outstanding:
Basic		137,684,773		136,006,082
Diluted		138,749,065		136,006,082

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

Three months ended
March 31,
2021 2020
Net (loss) income $ (92,518) $ 509
Other comprehensive loss, net of tax:
Pension and postretirement benefits (43) (15)
Net gain (loss) from hedging activities 765 (529)
Foreign currency translation (3,861) (46,355)
Total other comprehensive loss (3,139) (46,899)
Comprehensive loss (95,657) (46,390)
Less: Comprehensive loss attributable to noncontrolling interests (277) (3,203)
Comprehensive loss attributable to PQ Group Holdings Inc. $ (95,380) $ (43,187)


	Three months ended March 31,
		2022		2021
Net income (loss)		$	7,875	$	(92,518)
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits		(39)		(43)
Net gain from hedging activities		13,722		765
Foreign currency translation		(2,305)		(3,861)
Total other comprehensive income (loss)		11,378		(3,139)
Comprehensive income (loss)		19,253		(95,657)
Less: Comprehensive loss attributable to noncontrolling interests		—		(277)
Comprehensive income (loss) attributable to Ecovyst Inc.		$	19,253	$	(95,380)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	55,171	$	114,011	Cash and cash equivalents	$	129,748	$	140,889
Accounts receivable, net	Accounts receivable, net	56,987		46,183		Accounts receivable, net	91,106		80,802
Inventories, net	Inventories, net	48,934		52,789		Inventories, net	54,748		53,813
Prepaid and other current assets	Prepaid and other current assets	16,767		11,677		Prepaid and other current assets	26,696		16,165
Current assets held for sale		191,380		204,007

Total current assets	Total current assets	369,239		428,667		Total current assets	302,298		291,669
Investments in affiliated companies	Investments in affiliated companies	455,285		458,128		Investments in affiliated companies	436,074		446,074
Property, plant and equipment, net	Property, plant and equipment, net	593,016		591,710		Property, plant and equipment, net	588,733		596,231
Goodwill	Goodwill	429,505		391,565		Goodwill	405,304		406,139
Other intangible assets, net	Other intangible assets, net	134,661		137,446		Other intangible assets, net	141,654		145,617
Right-of-use lease assets	Right-of-use lease assets	31,711		28,943		Right-of-use lease assets	30,948		30,115
Other long-term assets	Other long-term assets	15,142		12,445		Other long-term assets	30,237		15,374
Long-term assets held for sale		1,035,418		1,149,443

Total assets	Total assets	$	3,063,977	$	3,198,347	Total assets	$	1,935,248	$	1,931,219
LIABILITIES	LIABILITIES					LIABILITIES
Current maturities of long-term debt	Current maturities of long-term debt	$	0	$	0	Current maturities of long-term debt	$	9,000	$	9,000
Accounts payable	Accounts payable	42,012		38,106		Accounts payable	52,525		51,860
Operating lease liabilities—current	Operating lease liabilities—current	7,458		6,715		Operating lease liabilities—current	8,422		8,306
Accrued liabilities	Accrued liabilities	47,065		45,475		Accrued liabilities	43,127		75,915
Current liabilities held for sale		96,087		111,569

Total current liabilities	Total current liabilities	192,622		201,865		Total current liabilities	113,074		145,081
Long-term debt, excluding current portion	Long-term debt, excluding current portion	1,401,573		1,400,369		Long-term debt, excluding current portion	871,086		872,839
Deferred income taxes	Deferred income taxes	120,928		125,668		Deferred income taxes	140,584		126,749
Operating lease liabilities—noncurrent	Operating lease liabilities—noncurrent	24,079		21,972		Operating lease liabilities—noncurrent	22,366		21,719
Other long-term liabilities	Other long-term liabilities	15,247		15,744		Other long-term liabilities	22,507		24,094
Long-term liabilities held for sale		123,045		155,550

Total liabilities	Total liabilities	1,877,494		1,921,168		Total liabilities	1,169,617		1,190,482
Commitments and contingencies (Note 17)	Commitments and contingencies (Note 17)	0		0		Commitments and contingencies (Note 17)	0		0
EQUITY	EQUITY					EQUITY
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 137,815,163 and 137,102,143 on March 31, 2021 and December 31, 2020, respectively; outstanding shares 136,932,950 and 136,318,557 on March 31, 2021 and December 31, 2020, respectively		1,378		1,371
Preferred stock ($0.01 par); authorized shares 50,000,000; 0 shares issued or outstanding on March 31, 2021 and December 31, 2020		0		0
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 139,611,212 and 137,820,971 on March 31, 2022 and December 31, 2021, respectively; outstanding shares 138,696,941 and 136,938,758 on March 31, 2022 and December 31, 2021, respectively						Common stock ($0.01 par); authorized shares 450,000,000; issued shares 139,611,212 and 137,820,971 on March 31, 2022 and December 31, 2021, respectively; outstanding shares 138,696,941 and 136,938,758 on March 31, 2022 and December 31, 2021, respectively	1,396		1,378
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on March 31, 2022 and December 31, 2021						Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on March 31, 2022 and December 31, 2021	—		—
Additional paid-in capital	Additional paid-in capital	1,484,799		1,477,859		Additional paid-in capital	1,079,364		1,073,409
Accumulated deficit	Accumulated deficit	(268,393)		(175,758)		Accumulated deficit	(307,832)		(315,707)
Treasury stock, at cost; shares 882,213 and 783,586 on March 31, 2021 and December 31, 2020, respectively		(12,551)		(11,081)
Accumulated other comprehensive loss		(18,010)		(15,265)
Total PQ Group Holdings Inc. equity		1,187,223		1,277,126
Noncontrolling interest		(740)		53
Treasury stock, at cost; shares 914,271 and 882,213 on March 31, 2022 and December 31, 2021, respectively						Treasury stock, at cost; shares 914,271 and 882,213 on March 31, 2022 and December 31, 2021, respectively	(12,883)		(12,551)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	5,586		(5,792)

Total equity	Total equity	1,186,483		1,277,179		Total equity	765,631		740,737
Total liabilities and equity	Total liabilities and equity	$	3,063,977	$	3,198,347	Total liabilities and equity	$	1,935,248	$	1,931,219

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

Common
stock Additional
paid-in
capital (Accumulated deficit) Treasury
stock, at
cost Accumulated
other
comprehensive
income (loss) Non-
controlling
interest Total
Balance, December 31, 2020 $ 1,371 $ 1,477,859 $ (175,758) $ (11,081) $ (15,265) $ 53 $ 1,277,179
Net (loss) income — — (92,635) — — 117 (92,518)
Other comprehensive loss — — — — (2,745) (394) (3,139)
Repurchases of common shares — — — (1,470) — — (1,470)
Distributions to noncontrolling interests — — — — — (516) (516)
Stock compensation expense — 6,877 — — — — 6,877
Shares issued under equity incentive plan, net of forfeitures 7 63 — — — — 70
Balance, March 31, 2021 $ 1,378 $ 1,484,799 $ (268,393) $ (12,551) $ (18,010) $ (740) $ 1,186,483
Common
stock Additional
paid-in
capital Retained
earnings Treasury
stock, at
cost Accumulated
other
comprehensive
income (loss) Non-
controlling
interest Total
Balance, December 31, 2019 $ 1,369 $ 1,696,899 $ 103,013 $ (6,483) $ (15,348) $ 5,868 $ 1,785,318
Net income — — 224 — — 285 509
Other comprehensive loss — — — — (43,411) (3,488) (46,899)
Repurchases of common shares — — — (3,889) — — (3,889)
Stock compensation expense — 5,920 — — — — 5,920
Shares issued under equity incentive plan, net of forfeitures 4 177 — — — — 181
Balance, March 31, 2020 $ 1,373 $ 1,702,996 $ 103,237 $ (10,372) $ (58,759) $ 2,665 $ 1,741,140


	Common stock		Additional paid-in capital		(Accumulated deficit)		Treasury stock, at cost		Accumulated other comprehensive income (loss)		Non- controlling interest		Total
Balance, December 31, 2021	$	1,378	$	1,073,409	$	(315,707)	$	(12,551)	$	(5,792)	$	—	$	740,737
Net income	—		—		7,875		—		—		—		7,875
Other comprehensive income	—		—		—		—		11,378		—		11,378


Tax withholdings on equity award vesting	—		—		—		(332)		—		—		(332)
Stock compensation expense	—		5,946		—		—		—		—		5,946
Shares issued under equity incentive plan, net of forfeitures	18		9		—		—		—		—		27
Balance, March 31, 2022	$	1,396	$	1,079,364	$	(307,832)	$	(12,883)	$	5,586	$	—	$	765,631



















	Common stock		Additional paid-in capital		(Accumulated deficit)		Treasury stock, at cost		Accumulated other comprehensive loss		Non- controlling interest		Total
Balance, December 31, 2020	$	1,371	$	1,477,859	$	(175,758)	$	(11,081)	$	(15,265)	$	53	$	1,277,179
Net income (loss)	—		—		(92,635)		—		—		117		(92,518)
Other comprehensive loss	—		—		—		—		(2,745)		(394)		(3,139)

Tax withholdings on equity award vesting	—		—		—		(1,470)		—		—		(1,470)
Distributions to noncontrolling interests	—		—		—		—		—		(516)		(516)
Stock compensation expense	—		6,877		—		—		—		—		6,877
Shares issued under equity incentive plan, net of forfeitures	7		63		—		—		—		—		70
Balance, March 31, 2021	$	1,378	$	1,484,799	$	(268,393)	$	(12,551)	$	(18,010)	$	(740)	$	1,186,483

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three months ended
March 31,
2021 2020
Cash flows from operating activities:
Net (loss) income $ (92,518) $ 509
Net loss (income) from discontinued operations 89,770 (3,856)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 16,526 15,777
Amortization 2,974 2,898
Amortization of deferred financing costs and original issue discount 532 724
Foreign currency exchange loss 5,101 7,070
Pension and postretirement healthcare (benefit) expense (595) 131
Pension and postretirement healthcare funding 0 (891)
Deferred income tax benefit (4,344) (699)
Net loss on asset disposals 778 163
Stock compensation 6,305 4,294
Equity in net income from affiliated companies (5,210) (8,295)
Dividends received from affiliated companies 5,000 0
Other, net (3,395) (267)
Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions:
Receivables (9,404) (1,219)
Inventories 4,564 3,495
Prepaids and other current assets (2,232) (291)
Accounts payable 4,652 (3,111)
Accrued liabilities (1,958) (5,352)
Net cash provided by operating activities, continuing operations 16,546 11,080
Net cash provided by (used in) operating activities, discontinued operations 877 (6,549)
Net cash provided by operating activities 17,423 4,531
Cash flows from investing activities:
Purchases of property, plant and equipment (12,563) (10,005)
Business combinations, net of cash acquired (41,994) 0
Proceeds from sale of assets 0 2,375
Net cash used in investing activities, continuing operations (54,557) (7,630)
Net cash used in investing activities, discontinued operations (22,012) (14,568)
Net cash used in investing activities (76,569) (22,198)

~~Table of Contents~~


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021
Cash flows from financing activities:
Draw down of revolving credit facilities		0		104,029
Repayments of revolving credit facilities		0		(44,983)
Cash flows from operating activities:						Cash flows from operating activities:
Net income (loss)						Net income (loss)	$	7,875	$	(92,518)
Net loss from discontinued operations						Net loss from discontinued operations	—		89,770
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation						Depreciation	16,011		16,526
Amortization						Amortization	3,535		2,974

Amortization of deferred financing costs and original issue discount						Amortization of deferred financing costs and original issue discount	497		532

Debt issuance costs		0		(3,023)
Foreign currency exchange loss						Foreign currency exchange loss	647		5,101
Pension and postretirement healthcare benefit						Pension and postretirement healthcare benefit	(553)		(595)

Deferred income tax provision						Deferred income tax provision	9,341		(4,344)
Net loss on asset disposals						Net loss on asset disposals	133		778

Stock compensation						Stock compensation	7,294		6,305
Equity in net income from affiliated companies						Equity in net income from affiliated companies	(5,749)		(5,210)
Dividends received from affiliated companies						Dividends received from affiliated companies	15,000		5,000

Stock repurchases		(1,470)		(3,889)
Other, net						Other, net	(6,841)		(3,395)
Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions:						Working capital changes that provided (used) cash, excluding the effect of acquisitions and dispositions:
Receivables						Receivables	(10,386)		(9,404)
Inventories						Inventories	(1,034)		4,564
Prepaids and other current assets						Prepaids and other current assets	(3,590)		(2,232)
Accounts payable						Accounts payable	2,154		4,652
Accrued liabilities						Accrued liabilities	(27,911)		(1,958)

Net cash provided by operating activities, continuing operations						Net cash provided by operating activities, continuing operations	6,423		16,546
Net cash provided by operating activities, discontinued operations						Net cash provided by operating activities, discontinued operations	—		877
Net cash provided by operating activities						Net cash provided by operating activities	6,423		17,423

Cash flows from investing activities:						Cash flows from investing activities:
Purchases of property, plant and equipment						Purchases of property, plant and equipment	(10,750)		(12,563)

Payments for business divestiture						Payments for business divestiture	(3,744)		—
Business combinations, net of cash acquired						Business combinations, net of cash acquired	—		(41,994)

Other, net	Other, net	12		447		Other, net	81		—
Net cash (used in) provided by financing activities, continuing operations		(1,458)		52,581
Net cash (used in) provided by financing activities, discontinued operations		(520)		5,720
Net cash (used in) provided by financing activities		$	(1,978)	$	58,301
Net cash used in investing activities, continuing operations						Net cash used in investing activities, continuing operations	(14,413)		(54,557)
Net cash used in investing activities, discontinued operations						Net cash used in investing activities, discontinued operations	—		(22,012)
Net cash used in investing activities						Net cash used in investing activities	(14,413)		(76,569)

Cash flows from financing activities:						Cash flows from financing activities:

Repayments of long-term debt						Repayments of long-term debt	(2,250)		—

Tax withholdings on equity award vesting						Tax withholdings on equity award vesting	(332)		(1,470)

Other, net						Other, net	27		12
Net cash used in financing activities, continuing operations						Net cash used in financing activities, continuing operations	(2,555)		(1,458)
Net cash used in financing activities, discontinued operations						Net cash used in financing activities, discontinued operations	—		(520)
Net cash used in financing activities						Net cash used in financing activities	(2,555)		(1,978)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,708)		(4,263)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(596)		(2,708)
Net change in cash, cash equivalents and restricted cash	Net change in cash, cash equivalents and restricted cash	(63,832)		36,371		Net change in cash, cash equivalents and restricted cash	(11,141)		(63,832)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	137,219		73,917		Cash, cash equivalents and restricted cash at beginning of period	140,889		137,219
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	73,387	$	110,288	Cash, cash equivalents and restricted cash at end of period	$	129,748	$	73,387
Less: cash, cash equivalents, and restricted cash of discontinued operations	Less: cash, cash equivalents, and restricted cash of discontinued operations	(16,625)		(53,356)		Less: cash, cash equivalents, and restricted cash of discontinued operations	—		(16,625)
Cash, cash equivalents and restricted cash at end of period of continuing operations	Cash, cash equivalents and restricted cash at end of period of continuing operations	$	56,762	$	56,932	Cash, cash equivalents and restricted cash at end of period of continuing operations	$	129,748	$	56,762

For supplemental cash flow disclosures, see Note 21.

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

1. Background and Basis of Presentation:

Description of Business

~~PQ Group Holdings~~Ecovyst Inc.and subsidiaries (the “Company” or ~~“PQ Group Holdings”~~“Ecovyst”) is a leading integrated and innovative global provider of specialty catalysts and services. The Company supports customers globally through its strategically located network of manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

On December 14, 2020, the Company completed the sale of its Performance Materials business for $650,000, and the financial results of this business were presented as discontinued operations in the condensed consolidated financial statements.

On August 1, 2021, the Company completed the sale of its Performance Chemicals business, and the financial results of this business are presented as discontinued operations in the condensed consolidated financial statements for the 2021 period presented. See Note 3 for more information on the transaction.

The Company has 2 uniquely positioned specialty businesses: ~~Refining Services~~ Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of alkylate and provides on-purpose virgin sulfuric acid for water treatment, mining and industrial applications; and ~~Catalysts~~Catalyst Technologies provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through ~~its~~the Zeolyst ~~joint venture,~~Joint Venture, supplies zeolites used for catalysts that remove ~~nitric oxide~~nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process.

The Company’s ~~Refining Services~~regeneration services product group, which is a part of the Company’s Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. These demand fluctuations result in higher sales and working capital requirements in the second and third quarters.

Effective December 14, 2020, the Company completed the sale of its Performance Materials business and the results of operations of this business have been presented as discontinued operations in the condensed consolidated financial statements for the three months ended March 31, 2020. See ~~Note 3~~ ~~for more information on the transaction.~~

On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business for $1,100,000, subject to certain purchase price adjustments as set forth in the agreement. Upon entering into the definitive agreement, the transaction met the held for sale criteria and consequently the financial results of the Performance Chemicals business are reported in discontinued operations in the condensed consolidated financial statements for all periods presented. See ~~Note 3~~ ~~for more information on the transaction.~~

The notes to the condensed consolidated financial statements, unless otherwise indicated, are on a continuing operations basis.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results ~~to be expected~~ for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

2. New Accounting Standards:

Recently Adopted Accounting Standards

In November 2021, the FASB issued guidance that requires entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. Previously, there was no guidance under GAAP on recognizing or measuring government grants to business entities. The new guidance does not provide any additional guidance on this topic; rather, it only provides guidance on required disclosures for business entities that receive government assistance and apply another grant or contribution accounting framework by analogy. The new guidance is effective for fiscal years beginning after December 15, 2021 with the new disclosures required on an annual basis, and can be applied either prospectively or retrospectively. The Company adopted the new guidance on January 1, 2022 and will include the disclosures as required in its annual reporting with respect to any government assistance or grants subject to the scope of the guidance to the extent material.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

~~2. New Accounting Standards:~~

~~Recently Adopted~~ Accounting Standards Not Yet Adopted

In ~~December 2019,~~October 2021, the FASB issued guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with revenue recognition guidance. Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The new guidance ~~to simplify the accounting for income taxes by removing certain exceptions~~creates an exception to the general recognition and measurement principles related to business combinations, and ~~also simplification of areas such as franchise taxes, step-up~~is expected to result in ~~tax basis goodwill, separate entity financial statements~~the acquirer recognizing contract assets and ~~interim recognition of enactment of tax laws or rate changes.~~liabilities at the same amounts recorded by the acquiree. The new guidance is effective for business combinations occurring during fiscal years beginning after December 15, ~~2020 and~~2022, including interim periods within those fiscal years, with early adoption permitted. The Company ~~adopted~~is currently evaluating the impact of the new guidance, ~~effective January 1, 2021, with no material impact~~which would only be applied prospectively to business combinations upon the ~~Company’s condensed consolidated financial position, results~~adoption of ~~operations or cash flows.~~

~~Accounting Standards Not Yet Adopted~~the guidance.

In March 2020 and January 2021, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. ~~The~~During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based on matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. During the year ended December 31, 2021, the FASB extended the guidance adoption date to June 30, 2023. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

3. Divestitures:

Performance Materials Divestiture

OnUpon the close of the transaction on December 14, 2020, the Company ~~completed~~entered into a Transition Services Agreement with the ~~sale~~buyer pursuant to which the buyer received certain services to provide for the orderly transition of ~~its Performance Materials business. In~~various functions and processes after the ~~fourth quarter~~closing of ~~2020,~~ the ~~Performance Materials business met~~transaction. The services under the ~~criteria set forth~~Transition Services Agreement included information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services were provided for a period of nine months, with three 30-day extensions available. The Company billed $1,571 under the Transition Services Agreement to the buyer during the three months ended March 31, 2021. Those billings were included in ~~Accounting Standards Codification 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), as the sale represented a strategic shift that had a major effect~~selling, general and administrative expenses on the ~~Company’s operations and financial results. As a result, the Company’s~~ condensed consolidated financial statements for the three months ended March 31, 2020 reflect the Performance Materials business as a discontinued operation. The divested business historically represented a reportable segment of the Company, including certain Australian operations that were historically reported in the Performance Chemicals reportable segment.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

~~The following table summarizes the results of discontinued operations related to the Performance Materials divestiture:~~


	Three months ended March 31,
	~~2020~~
~~Sales~~	$	~~67,891~~
~~Cost of goods sold~~	~~51,587~~
~~Selling, general and administrative expenses~~	~~9,285~~
~~Other operating expense, net~~	~~12,874~~
~~Operating loss~~	~~(5,855)~~

~~Interest expense, net~~ ~~(1)~~	~~5,132~~
~~Other income, net~~	~~(912)~~

~~Loss from discontinued operations before income tax~~	~~(10,075)~~
~~Benefit for income taxes~~	~~(4,285)~~
~~Loss from discontinued operations, net of tax~~	$	~~(5,790)~~

~~(1)~~The closing of the transaction triggered the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s mandatory repayment of $275,787 of the Senior Secured Term Loan Facility due February 2027 and its mandatory repayment of $188,722 of the New Senior Secured Term Loan Facility due February 2027.2021.

During the three months ended March 31, 2021, the Company incurred transaction costs of $1,446 and stock-based compensation expense of $653, and an associated tax benefit of $514 related to the Performance Materials divestiture which is included in loss from discontinued operations, net of tax.

Net income attributable to the noncontrolling interest related to the Performance Materials business, net of tax was $51 for the three months ended March 31, 2020. Net loss attributable to PQ Group Holdings Inc., related to the Performance Materials business, net of tax was $5,841 for the three months ended March 31, 2020.

Upon the close of the transaction, the Company entered into a Transition Services Agreement with the buyer pursuant to which the buyer is receiving certain services to provide for the orderly transition of various functions and processes after the closing of the transaction. The services under the Transition Services Agreement include information technology, accounting, tax, financial services, human resources, facilities, and other administrative support services. These services are provided for a period of nine months, with three 30-day extensions available. The Company billed $1,571 under the Transition Services Agreement to the buyer during the three months ended March 31, 2021. Those billings are included in selling, general and administrative expenses on the condensed consolidated financial statements for the three months ended March 31, 2021.

Performance Chemicals Divestiture

On February 28, 2021, the Company entered into a definitive agreement to sell its Performance Chemicals business to Sparta Aggregator L.P. (the “Buyer”), a partnership established by Koch Minerals & Trading, LLC and Cerberus Capital Management, L.P., for ~~a purchase price of~~ $1,100,000, ~~which is~~ subject to certain adjustments including indebtedness, cash, working capital and transaction expenses. The ~~transaction is expected to close by~~Company completed the ~~end~~sale of ~~2021, subject to regulatory approvals and customary closing conditions.~~

~~In the first quarter of 2021,~~ the Performance Chemicals business ~~met~~on August 1, 2021. During the ~~criteria set forth in ASC 205-20, as~~year ended December 31, 2021, the net cash proceeds to the Company from the sale ~~represents~~were $978,449 after certain customary adjustments for indebtedness, working capital and cash at the closing of the transaction. During the three months ended March 31, 2022, the Company made a ~~strategic shift that will have a major effect on~~payment to the ~~Company’s~~buyer for $3,744, representing the final adjustments to the sale price. The Company classified the payment within net cash used in investing activities – continuing operations ~~and financial results. As a result,~~in the ~~Company’s~~ condensed consolidated ~~financial~~ statements ~~for all periods presented reflect~~of cash flows.

Prior to the ~~Performance Chemicals business as a discontinued operation. The Performance Chemicals business historically represented a reportable segment~~close of the ~~Company.~~

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

~~The~~transaction, the disposal group was tested for recoverability asat each of the balance sheet ~~date,~~dates subsequent to meeting the discontinued operations criteria, and the Company recognized an ~~expected~~estimated disposal loss of ~~approximately~~ $95,594 during the three months ended March 31, ~~2021. The expected disposal loss is~~2021 which was included in net loss from discontinued operations, net of tax on the condensed consolidated statement of income. In the condensed consolidated balance sheet as of March 31, 2021, the Company recorded the disposal loss to goodwill and a valuation allowance of approximately $75,084 and $20,514, respectively, included in long-term assets held for sale. Completion of the sale may be for amounts that could vary from the current fair value estimate. The Company’s estimate of fair value will be evaluated and recognized each reporting period until the divestiture is complete.

~~The following table summarizes the results of discontinued operations related to Performance Chemicals for the periods presented:~~

Three months ended
March 31,
2021 2020
Sales $ 164,523 $ 171,184
Cost of goods sold 125,853 136,593
Selling, general and administrative expenses 11,716 11,733
Other operating expense, net 17,480 5,617
Impairment of assets held for sale 95,594 0
Operating (loss) income (86,120) 17,241
Equity in net income from affiliated companies (38) (55)
Interest expense, net (1)
3,215 4,026
Other income, net (5,523) (3,753)
(Loss) income from discontinued operations before income tax (83,774) 17,023
Provision for income taxes 4,411 7,377
(Loss) income from discontinued operations, net of tax $ (88,185) $ 9,646

~~(1)~~Upon the close of the transaction and finalization of net cash proceeds, the Company is required to use a portion of the proceeds to repay outstanding debt and is expected to restructure its debt, which is estimated to result in a debt reduction of $450,000 to $550,000. Certain debt requirements will be triggered that will result in the Company’s obligation to provide partial repayment under its Amended and Restated Term Loan Credit Agreement, dated May 4, 2016 and its New Term Loan Credit Agreement, dated as of July 22, 2020. As such, interest expense has been allocated to discontinued operations on the basis of the Company’s estimated mandatory repayment of $296,859 of the Senior Secured Term Loan Facility due February 2027 and its estimated mandatory repayment of $203,141 of the New Senior Secured Term Loan Facility due February 2027.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $117 and $234 for the three months ended March 31, 2021 and 2020, respectively. Net (loss) income attributable to PQ Group Holdings Inc., related to the Performance Chemicals business, net of tax was $(88,302) and $9,412 for the three months ended March 31, 2021 and 2020, respectively.

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(Dollars in thousands, except share and per share amounts)

(unaudited)

The following table summarizes the ~~assets and liabilities~~results of discontinued operations related to the Performance Chemicals ~~divestiture as of~~business for the three months ended March 31, ~~2021 and December 31, 2020.~~2021:

March 31,
2021 December 31,
2020
ASSETS
Cash and cash equivalents $ 16,579 $ 21,520
Accounts receivables, net 91,265 86,961
Inventories, net 68,907 74,647
Prepaid and other current assets 14,629 20,879
Current assets held for sale $ 191,380 $ 204,007
Investments in affiliated companies $ 362 $ 324
Property, plant and equipment, net 382,699 391,524
Goodwill 248,736 326,173
Other intangible assets, net 381,001 388,857
Right-of-use lease assets 19,610 19,296
Other long-term assets 23,524 23,269
Valuation allowance (20,514) 0
Long-term assets held for sale $ 1,035,418 $ 1,149,443
LIABILITIES
Accounts payable $ 63,918 $ 74,754
Operating lease liabilities—current 8,105 8,479
Accrued liabilities 24,064 28,336
Current liabilities held for sale $ 96,087 $ 111,569
Deferred income taxes $ 53,572 $ 50,232
Operating lease liabilities—noncurrent 10,256 10,047
Other long-term liabilities 59,217 95,271
Long-term liabilities held for sale $ 123,045 $ 155,550


	Three months ended March 31, 2021

Sales		$	164,523
Cost of goods sold		125,853
Selling, general and administrative expenses		11,716
Other operating expense, net		17,480
Goodwill impairment charge		95,594

Operating loss		(86,120)
Equity in net (income) from affiliated companies		(38)
Interest expense, net (1)		3,215
Other income, net		(5,523)
Loss from discontinued operations before income tax		(83,774)
Provision for income taxes		4,411
Loss from discontinued operations, net of tax		$	(88,185)

(1)Upon the close of the transaction, the Company used a portion of the net proceeds to repay a portion of its outstanding debt amounting to $526,363. Prior to the Company’s debt refinancing in June 2021, the Company’s outstanding term loan facilities had mandatory repayment provisions. As a result, interest expense has been allocated to discontinued operations on the basis of the Company’s total repayment of $526,363.

Net income attributable to the noncontrolling interest related to the Performance Chemicals business, net of tax was $117 for the three months ended March 31, 2021. Net loss attributable to Ecovyst Inc., related to the Performance Chemicals business, net of tax was $88,302 for the three months ended March 31, 2021.

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(Dollars in thousands, except share and per share amounts)

(unaudited)

4. Revenue from Contracts with Customers:

Disaggregated Revenue

The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 18 to these condensed consolidated financial statements.

The Company’s portfolio of products is integrated into a variety of end uses, which are described in the table below.


Key End Uses			Key Products
Industrial & process chemicals			• Sulfur derivatives for industrial production
			• Treatment services
Fuels & emission control			• Refining hydrocracking catalysts
			• Emission control catalysts
			• Catalyst recycling regeneration services
Packaging & engineered plastics			• Catalysts for high-density ~~polyethlene~~polyethylene and chemicals syntheses
			• ~~Antiblock~~Antiblocks for film packaging
			• Sulfur derivatives for nylon production
Natural resources			• Sulfur derivatives for mining

The following tables disaggregate the Company’s sales, by segment and end use, for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three months ended March 31, 2021				Three months ended March 31, 2022
		Refining Services		Catalysts			Total			Ecoservices		Catalyst Technologies		Total
Industrial & process chemicals	Industrial & process chemicals	$	16,947	$	0		$	16,947	Industrial & process chemicals	$	32,854	$	—	$	32,854
Fuels & emission control(1)	Fuels & emission control(1)	55,192		0			55,192		Fuels & emission control(1)	71,658		—		71,658
Packaging & engineered plastics	Packaging & engineered plastics	10,622		26,402			37,024		Packaging & engineered plastics	24,479		25,654		50,133

Natural resources	Natural resources	17,461		0			17,461		Natural resources	25,069		—		25,069
Total segment sales	Total segment sales	100,222		26,402			126,624		Total segment sales	$	154,060	$	25,654	$	179,714

Three months ended March 31, 2020
Refining
Services Catalysts Total
Industrial & process chemicals $ 19,359 $ 47 $ 19,406
Fuels & emission control(1)
55,710 0 55,710
Packaging & engineered plastics 10,734 24,817 35,551
Natural resources 14,887 0 14,887
Total segment sales 100,690 24,864 125,554














	Three months ended March 31, 2021
	Ecoservices		Catalyst Technologies		Total
Industrial & process chemicals	$	16,947	$	—	$	16,947
Fuels & emission control(1)	55,192		—		55,192
Packaging & engineered plastics	10,622		26,402		37,024


Natural resources	17,461		—		17,461
Total segment sales	$	100,222	$	26,402	$	126,624

(1)As described in Note 1, the Company experiences seasonal sales fluctuations to customers in the fuels & emission control end use.

~~Contract Assets and Liabilities~~

A contract asset is a right to consideration in exchange for goods that the Company has transferred to a customer when that right is conditional on something other than the passage of time. A contract liability exists when the Company receives consideration in advance of performance obligations being satisfied. The Company has 0 contract assets or liabilities on its condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020. For the three months ended March 31, 2021 and 2020, revenue recognized from performance obligations related to prior periods was not material.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

5. Fair Value Measurements:

Fair values are based on quoted market prices when available. When market prices are not available, fair values are generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, the Company estimates fair values using methods, models and assumptions that management believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment that

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model or input used.

The Company’s financial assets and liabilities carried at fair value have been classified based upon a fair value hierarchy. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The classification of an asset or a liability is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

•Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.

•Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.

•Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.


	March 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 14)	$	18,151	$	—	$	18,151	$	—



Derivative liabilities:
Interest rate caps (Note 14)	$	304	$	—	$	304	$	—

March 31,
2021 Quoted Prices in
Active Markets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3)
Assets:
Derivative contracts (Note 14) $ 285 $ 0 $ 285 $ 0
Liabilities:
Derivative contracts (Note 14) $ 3,023 $ 0 $ 3,023 $ 0


	December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 14)	$	1,080	$	—	$	1,080	$	—



Derivative liabilities:
Interest rate caps (Note 14)	$	1,288	$	—	$	1,288	$	—

December 31,
2020 Quoted Prices in
Active Markets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3)
Liabilities:
Derivative contracts (Note 14) $ 3,704 $ 0 $ 3,704 $ 0

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

Derivative contracts

Derivative assets and liabilities can be exchange-traded or traded over-the-counter (“OTC”). The Company generally values exchange-traded derivatives using models that calibrate to market transactions and eliminate timing differences between the closing price of the exchange-traded derivatives and their underlying instruments. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, forward curves, measures of volatility, and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as forward contracts, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

As of March 31, ~~2021, the~~2022, the Company had interest rate caps ~~and cross-currency swaps~~ that were fair valued using Level 2 inputs. In March 2021, the Company settled its cross-currency swaps, which were used as a hedging instrument of its net investment in foreign assets in its Performance Chemicals segment. Refer to Note 14 of these condensed consolidated financial statements for additional information. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to ~~PQ Group Holdings.~~Ecovyst. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets.

6. Stockholders' Equity:

Accumulated Other Comprehensive Income (Loss)

The following tables present the tax effects of each component of other comprehensive income (loss) for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:

Three months ended March 31,
2021 2020
Pre-tax
amount Tax benefit/
(expense) After-tax amount Pre-tax
amount Tax benefit/
(expense) After-tax amount
Defined benefit and other postretirement plans:
Amortization of net gains $ 1 $ 0 $ 1 $ 44 $ (8) $ 36
Amortization of prior service cost (58) 14 (44) (64) 13 (51)
Benefit plans, net (57) 14 (43) (20) 5 (15)
Net gain (loss) from hedging activities 1,020 (255) 765 (705) 176 (529)
Foreign currency translation(1)
(6,308) 2,447 (3,861) (50,057) 3,702 (46,355)
Other comprehensive loss $ (5,345) $ 2,206 $ (3,139) $ (50,782) $ 3,883 $ (46,899)














	Three months ended March 31,
	2022						2021
	Pre-tax amount		Tax benefit/ (expense)		After-tax amount		Pre-tax amount		Tax benefit/ (expense)		After-tax amount
Defined benefit and other postretirement plans:
Amortization of net gains	$	1	$	—	$	1	$	1	$	—	$	1
Amortization of prior service cost	(53)		13		(40)		(58)		14		(44)

Benefit plans, net	(52)		13		(39)		(57)		14		(43)
Net gain from hedging activities	18,296		(4,574)		13,722		1,020		(255)		765
Foreign currency translation(1)	(2,305)		—		(2,305)		(6,308)		2,447		(3,861)
Other comprehensive income (loss)	$	15,939	$	(4,561)	$	11,378	$	(5,345)	$	2,206	$	(3,139)

(1)The income tax benefit or expense included in other comprehensive income is attributed to the portion of foreign currency translation associated with the Company’s cross-currency interest rate swaps for the three months ended March 31, 2021, for which the tax effect is based on the applicable U.S. deferred income tax rate. See Note 14 to these condensed consolidated financial statements for information regarding the Company’s cross-currency interest rate ~~swaps.~~swaps, which were settled in March 2021.

The following table presents the changes in accumulated other comprehensive income (loss), net of tax, by component for the three months ended March 31, 2022 and 2021:


	Defined benefit and other postretirement plans		Net gain (loss) from hedging activities		Foreign currency translation		Total
December 31, 2021	$	11,072	$	2,254	$	(19,118)	$	(5,792)
Other comprehensive income (loss) before reclassifications	(78)		13,208		(2,305)		10,825
Amounts reclassified from accumulated other comprehensive income(1)	39		514		—		553

March 31, 2022	$	11,033	$	15,976	$	(21,423)	$	5,586

December 31, 2020	$	5,278	$	(660)	$	(19,883)	$	(15,265)
Other comprehensive income (loss) before reclassifications	(86)		683		(3,467)		(2,870)
Amounts reclassified from accumulated other comprehensive income(1)	43		82		—		125
March 31, 2021	$	5,235	$	105	$	(23,350)	$	(18,010)

(1)See the following table for details about these reclassifications. Amounts in parentheses indicate debits.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

The following table presents the ~~changes in accumulated other comprehensive income (loss), net of tax, by component for the three months ended March 31, 2021 and 2020:~~

Defined benefit
and other
postretirement
plans Net gain (loss)
from hedging
activities Foreign
currency
translation Total
December 31, 2020 $ 5,278 $ (660) $ (19,883) $ (15,265)
Other comprehensive income (loss) before reclassifications (86) 683 (3,467) (2,870)
Amounts reclassified from accumulated other comprehensive income(1)
43 82 0 125
March 31, 2021 $ 5,235 $ 105 $ (23,350) $ (18,010)
December 31, 2019 $ 3,568 $ (1,838) $ (17,078) $ (15,348)
Other comprehensive loss before reclassifications (2) (984) (42,867) (43,853)
Amounts reclassified from accumulated other comprehensive income(1)
(13) 455 0 442
March 31, 2020 $ 3,553 $ (2,367) $ (59,945) $ (58,759)

~~(1)See the following table for details about these reclassifications. Amounts in parentheses indicate debits.~~

~~The following table presents the~~ reclassifications out of accumulated other comprehensive income for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:

Details about Accumulated Other Comprehensive
Income Components
Amounts Reclassified from Accumulated Other
Comprehensive Income(1)
Affected Line Item where
Income is Presented
Three months ended
March 31,
2021 2020
Amortization of defined benefit and other postretirement items:
Prior service (cost) credit $ (58) $ 52
Other income (expense)(2)
Actuarial gains (losses) 1 (34)
Other income (expense)(2)
(57) 18 Total before tax
14 (5) Tax benefit (expense)
$ (43) $ 13 Net of tax
Gains and losses on cash flow hedges:
Interest rate caps $ (109) $ (231) Interest expense
Natural gas swaps 0 (373) Cost of goods sold
(109) (604) Total before tax
27 149 Tax benefit
$ (82) $ (455) Net of tax
Total reclassifications for the period $ (125) $ (442) Net of tax


Details about Accumulated Other Comprehensive Income Components		Amounts Reclassified from Accumulated Other Comprehensive Income(1)				Affected Line Item where Income is Presented
	Three months ended March 31,
		2022		2021
Amortization of defined benefit and other postretirement items:
Prior service (cost) credit		$	(53)	$	(58)	Other income (expense)(2)
Actuarial gains (losses)		1		1		Other income (expense)(2)
		(52)		(57)		Total before tax
		13		14		Tax benefit (expense)
		$	(39)	$	(43)	Net of tax

Gains and losses on cash flow hedges:
Interest rate caps		$	(683)	$	(109)	Interest expense


		169		27		Tax benefit
		$	(514)	$	(82)	Net of tax

Total reclassifications for the period		$	(553)	$	(125)	Net of tax

(1)Amounts in parentheses indicate debits to profit/loss.

(2)These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 16 to these condensed consolidated financial statements for additional details).

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~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

Treasury Stock ~~Repurchase Program~~Repurchases

The Company records repurchases of its common stock for treasury at cost. Upon the reissuance of the Company’s common stock from treasury, differences between the proceeds from reissuance and the average cost of the treasury stock are credited or charged to capital in excess of par value to the extent of prior credits related to the reissuance of treasury stock. If no such credits exist, the differences are charged to retained earnings.

2020 Stock Repurchase Program

On March 12, 2020, the Company’s Board of Directors (the “Board”) approved a plan to purchase up to $50,000 of ~~PQ Group Holdings~~Ecovyst Inc. common stock under a stock repurchase program approved by the ~~Company’s Board of Directors.~~Board. Under the plan, the Company could repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws. The Company ~~may~~determined the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors. The stock repurchase program expired in March 2022, with no repurchases made during the three months ended March 31, 2022 and 2021.

2022 Stock Repurchase Program

On April 27, 2022, the Board approved a plan to purchase up to $450,000 of Ecovyst Inc. common stock over the next four years under a stock repurchase program. Under the plan, the Company can repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws. The Company will determine the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors. ~~The stock~~No repurchases have been made under the repurchase program ~~is valid until March 2022.~~since the announcement date of the program.

~~During~~Tax Withholdings on Equity Award Vesting

In connection with the vesting of restricted stock awards, restricted stock units and performance stock units, shares of common stock may be delivered to the Company by employees to satisfy withholding tax obligations at the instruction of the employee award holders. These transactions when they occur are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in lieu of shares for the vesting unit. The fair value of the shares withheld to cover tax payments were $332 and $1,470 for the three months ended March 31, 2020, the Company repurchased 211,700 shares on the open market at an average price of $9.73, for a total of $2,059. The Company has not made any additional repurchases under the program through March 31, 2021. As of March 31,2022 and 2021, ~~$47,941 was available for additional share repurchases under the program.~~respectively.

7. Acquisition:

On March 1, 2021 (the “Closing Date”), the Company completed the acquisition of Chem32, LLC (“Chem32”) as part of a stock transaction (the “Acquisition”) for $44,000 in cash. Based in Orange, Texas, Chem32 is a leader in ex situ pre-sulfiding and pre-activation for hydro-processing catalysts. The net cash paid on the ~~closing date~~Closing Date by the Company was $41,994, after certain customary adjustments for indebtedness, working capital, cash and a holdback amount pursuant to the agreement. ~~Based~~A portion of the holdback was settled in ~~Orange, Texas,~~ July 2021 for a payment of $645, with $1,000 of the holdback remaining as of March 31, 2022.

Chem32 is reported as part of the Ecoservices segment. The Company believes that the Acquisition enables it to offer a ~~leader in ex situ pre-sulfiding and pre-activation for hydro-processing catalysts.~~

~~The Acquisition was accounted for using~~more robust portfolio of services within the ~~acquisition method of accounting. Under~~refining industry leveraging the ~~acquisition method, the~~Company’s existing relationships, therefore contributing to a total purchase price that resulted in the recognition of $14,778 of goodwill, which was ~~allocated~~deductible for tax purposes. During the three months ended March 31, 2022, the Company recorded an immaterial adjustment between goodwill and deferred tax liabilities related to the ~~identifiable net assets acquired based on the fair values of the identifiable assets acquired and liabilities assumed as of the Closing Date. The excess of the~~final tax purchase price ~~over fair values of the identifiable net assets acquired was recorded~~allocation. See Note 8 to ~~goodwill.~~these condensed consolidated financial statements for further information.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

The following table sets forth the calculation ~~and preliminary allocation~~ of the purchase price to the identifiable net assets acquired with respect to the ~~Acquisition:~~

Acquisition, which was complete as of
December 31, 2021:


	Provisional Purchase Price Allocation				Purchase Price Allocation
Cash paid, net of cash acquired	$		~~41,994~~			$	42,639
Holdback	~~2,000~~				1,000
Total consideration, net of cash acquired	$		~~43,994~~			$	43,639

Recognized amounts of identifiable assets acquired and liabilities assumed:
Receivables					$	1,368
Inventories	~~204~~				204
Prepaid and other current assets	~~351~~				351
Property, plant and equipment					5,046
Other intangible assets
				22,100
Other long-term assets	38				187
Fair value of assets acquired	~~7,007~~				29,256

Accounts payable	~~207~~				207
Accrued liabilities	~~452~~				188



Fair value of net identifiable assets acquired	~~6,348~~				28,861
Goodwill					~~37,646~~14,778

	$	~~43,994~~43,639

In accordance with the requirements of the purchase method of accounting for acquisitions, accounts receivable and inventories were recorded at fair market value. As of the Closing Date, the fair value of accounts receivable approximated historical cost. The gross contractual amount of accounts receivable at the Closing Date was $1,368, of which there was no amount deemed uncollectible. Fair value of inventory is defined as estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity, which the Company determined acquired cost equaled fair value of the inventory acquired.

The valuation of the identifiable assets and liabilities included in the table above is preliminary and is subject to change, as the Company is in the process of evaluating the information required to determine the fair values of certain identifiable assets and liabilities acquired, including inventory, property, plant and equipment and intangible assets. An increased portion of the purchase price allocated to the identifiable netintangibles assets acquired ~~will reduce~~and the ~~amount recognized for goodwill and may result in increased cost of goods sold, depreciation and/or~~related weighted-average amortization expense. Adjustments to the provisional amounts during the measurement period that result in changes to depreciation, amortization or other income effects will be recognized in the reporting period(s) in which the adjustments are determined.periods were as follows:


	Amount		Weighted-Average Expected Useful Life (in years)
Intangible assets subject to amortization:
Customer relationships	$	16,000	10
Technical know-how	3,800		10
Contracts	700		5
Trade names	1,600		10
Total intangible assets subject to amortization	$	22,100

~~The Company’s condensed consolidated financial statements include Chem32’s results of operations from the Closing Date through March 31, 2021.~~ Net sales and net income attributable to Chem32 during ~~this period are included in the Company’s condensed consolidated statement of income and are immaterial for~~ the period ~~presented.~~from the Closing Date through March 31, 2021 were immaterial. Pro forma financial information has not been presented as it is immaterial for the three months ended March 31, 2021. Acquisition and integration costs was immaterial for the three months ended March 31, 2021 and ~~2020~~.

The Company believes that the Acquisition will enable it to offer a more robust portfolio of services within the refining industry leveraging our existing relationships, which contributed to a total purchase price that resultedare included in other operating expense, net in the ~~recognition~~Company’s consolidated statement of ~~goodwill. All of the goodwill was assigned to the Company’s Refining Services segment. The goodwill associated with the Acquisition is deductible for tax purposes.~~income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

8. Goodwill:

The change in the carrying amount of goodwill for the three months ended March 31, ~~2021~~2022 is summarized as follows:

Refining Services Catalysts Total
Balance as of December 31, 2020 $ 311,892 $ 79,673 $ 391,565
Goodwill recognized (Note 7) 37,646 0 37,646
Foreign exchange impact 0 294 294
Balance as of March 31, 2021 $ 349,538 $ 79,967 $ 429,505


	Ecoservices		Catalyst Technologies		Total
Balance as of December 31, 2021	$	326,670	$	79,469	$	406,139

Goodwill adjustments(1)	(81)		—		(81)
Foreign exchange impact	—		(754)		(754)
Balance as of March 31, 2022	$	326,589	$	78,715	$	405,304

(1) During the three months ended March 31, 2022, the Company recorded an adjustment of $81 between goodwill and deferred tax liabilities related to the final tax purchase price allocation for the Chem32 acquisition.

9. Other Operating Expense, Net:

A summary of other operating expense, net is as follows:

Three months ended
March 31,
2021 2020
Amortization expense $ 2,186 $ 2,172
Transaction and other related costs 472 800
Restructuring, integration and business optimization costs(1)
2,259 348
Net loss on asset disposals 778 163
Other, net (188) (33)
$ 5,507 $ 3,450


	Three months ended March 31,
		2022		2021
Amortization expense		$	2,656	$	2,186
Transaction and other related costs		4,281		472
Restructuring, integration and business optimization costs(1)		352		2,259
Net loss on asset disposals		133		778


Other, net		341		(188)
		$	7,763	$	5,507

(1)During the three months ended March 31, 2021, the Company’s results were impacted by costs associated with severance charges for certain executives and employees.

10. Inventories, Net:

Inventories, net are classified and valued as follows:

March 31,
2021 December 31,
2020
Finished products and work in process $ 44,171 $ 48,500
Raw materials 4,763 4,289
$ 48,934 $ 52,789
Valued at lower of cost or market:
LIFO basis $ 32,074 $ 31,072
Valued at lower of cost and net realizable value:
FIFO or average cost basis 16,860 21,717
$ 48,934 $ 52,789


	March 31, 2022		December 31, 2021
Finished products and work in process	$	46,864	$	46,894
Raw materials	7,884		6,919
	$	54,748	$	53,813
Valued at lower of cost or market:
LIFO basis	$	33,603	$	33,330
Valued at lower of cost and net realizable value:
FIFO or average cost basis	21,145		20,483
	$	54,748	$	53,813

2017

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~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

11. Investments in Affiliated Companies:

The Company accounts for investments in affiliated companies under the equity method. Affiliated companies accounted for on the equity basis as of March 31, ~~2021~~2022 are as follows:

Company

Country

Percent
Ownership

Zeolyst International

USA

50%

Zeolyst C.V.

Netherlands

50%

Following is summarized information of the combined investments(1):

Three months ended
March 31,
2021 2020
Sales $ 66,205 $ 70,300
Gross profit 21,946 30,864
Operating income 14,174 20,861
Net income 13,737 19,924


	Three months ended March 31,
		2022		2021
Sales		$	66,683	$	66,205
Gross profit		23,584		21,946
Operating income		14,636		14,174
Net income		14,698		13,737

(1)Summarized information of the combined investments is presented at 100%; the Company’s share of the net assets and net income of affiliates is calculated based on the percent ownership specified in the table above.

The Company’s investments in affiliated companies balance as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 includes net purchase accounting fair value adjustments of ~~$242,240~~$235,819 and ~~$243,899,~~$237,419, respectively, related to ~~the series of transactions consummated on May 4, 2016 to reorganize and combine the businesses of PQ Holdings Inc. and Eco Services Operations LLC,~~a prior business combination, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names. Consolidated equity in net income from affiliates is net of ~~$1,658~~$1,601 and $1,658 of amortization expense related to purchase accounting fair value adjustments for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

12. Property, Plant and Equipment:

A summary of property, plant and equipment, at cost, and related accumulated depreciation is as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Land	Land	$	93,912	$	93,650	Land	$	96,946	$	97,047
Buildings		79,181		76,010
Buildings and improvements						Buildings and improvements	77,953		77,851
Machinery and equipment	Machinery and equipment	669,655		656,502		Machinery and equipment	713,765		714,435
Construction in progress	Construction in progress	43,777		42,446		Construction in progress	54,800		45,952
		886,525		868,608			943,464		935,285
Less: accumulated depreciation	Less: accumulated depreciation	(293,509)		(276,898)		Less: accumulated depreciation	(354,731)		(339,054)
		$	593,016	$	591,710		$	588,733	$	596,231

Depreciation expense was ~~$16,526~~$16,011 and ~~$15,777~~$16,526 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

13. Long-term Debt:

The summary of long-term debt is as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Senior Secured Term Loan Facility due February 2027		$	671,710	$	671,710
New Senior Secured Term Loan Facility due February 2027		459,653		459,653
5.75% Senior Unsecured Notes due 2025		295,000		295,000
Senior Secured Term Loan Facility due June 2028						Senior Secured Term Loan Facility due June 2028	$	893,250	$	895,500
ABL Facility	ABL Facility	0		0		ABL Facility	—		—

Total debt	Total debt	1,426,363		1,426,363		Total debt	893,250		895,500
Original issue discount	Original issue discount	(15,072)		(15,641)		Original issue discount	(8,440)		(8,762)
Deferred financing costs	Deferred financing costs	(9,718)		(10,353)		Deferred financing costs	(4,724)		(4,899)
Total debt, net of original issue discount and deferred financing costs	Total debt, net of original issue discount and deferred financing costs	1,401,573		1,400,369		Total debt, net of original issue discount and deferred financing costs	880,086		881,839
Less: current portion	Less: current portion	0		0		Less: current portion	(9,000)		(9,000)
Total long-term debt, excluding current portion	Total long-term debt, excluding current portion	$	1,401,573	$	1,400,369	Total long-term debt, excluding current portion	$	871,086	$	872,839

The fair value of a financial instrument is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value of the senior secured term loan ~~facilities, senior secured~~facility was $882,084 and ~~unsecured notes was $1,428,967 and $1,427,123,~~$894,381, respectively. The fair value is classified as Level 2 based upon the fair value hierarchy (see Note 5 to these condensed consolidated financial statements for further information on fair value measurements).

14. Financial Instruments:

The Company uses interest rate related derivative instruments to manage its exposure to changes in interest rates on its variable-rate debt instruments. The Company does not speculate using derivative instruments.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is an asset, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is a liability, the Company owes the counterparty and therefore, the Company is not exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.

Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with the Company’s derivative instruments is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

Use of Derivative Financial Instruments to Manage Interest Rate Risk. The Company is exposed to fluctuations in interest rates on its senior secured credit facilities. Changes in interest rates will not affect the market value of such debt but will affect the Company’s interest payments over the term of the loans. Likewise, an increase in interest rates could have a material impact on the Company’s cash flow. The Company hedges the interest rate fluctuations on debt obligations through interest rate cap agreements. The Company records these agreements at fair value as assets or liabilities in its consolidated balance sheet. As the derivatives are designated and qualify as cash flow hedges, the gains or losses on the interest rate cap agreements are recorded in stockholders’ equity as a component of OCI, net of tax. Reclassifications of the gains and losses on the interest rate cap agreements into earnings are recorded as part of interest expense in the condensed consolidated statements of income as the Company makes its interest payments on the hedged portion of its senior secured credit facilities. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices.

~~Table of Contents~~

~~PQ GROUP HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

In November 2018, the Company entered into interest rate cap agreements to mitigate interest volatility from July 2020 through July 2022, with a cap rate of 3.50% on $500,000 of notional variable-rate debt and a $3,380 premium annuitized during the effective period. In February 2020, the Company restructured ~~its $500,000 of notional variable-rate debt interest rate cap~~these agreements ~~from July 2020 through July 2022,~~ to lower the interest cap rate to 2.50% with an incremental $130 premium annuitized during the effective period. In March 2020, the Company again amended such interest rate cap agreements to lower the cap rate to 0.84% ~~from 2.50% on $500,000 of notional variable-rate debt~~ and paid an additional ~~incremental~~ $900 premium annuitized during the effective period. The term ~~remains~~and notional amount remained unchanged, ~~from July 2020 through July 2022. The~~and the total cumulative annuitized premium on the $500,000 of notional variable-rate debt is $4,410. The cap rate in effect at March 31, ~~2021~~2022 was 0.84% associated with the $500,000 of notional variable-rate debt.

InTable of Contents

ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

Upon the expiration of the July 2016 interest rate cap agreements in July 2020, the Company entered into additional interest rate cap agreements to mitigate interest rate volatility from August 2020 to August 2023, with a cap rate of 1.00% on $400,000 of notional variable-rate debt. The cap rate in effect at March 31, ~~2021~~2022 was 1.00% associated with the $400,000 of notional variable-rate debt. The total annuitized premium on the $400,000 of notional variable-rate debt is $137.

In August 2021, PQ Corporation novated $900,000 of its interest rate caps to Ecovyst Catalyst Technologies LLC. Other than the novation, there were no other changes to the interest rate cap.

In January 2022, the Company entered into two new interest rate cap agreements, with notional amounts of $250,000 each and cap rates of 1.00%. The total cumulative annuitized premium is $4,450. The term for one of the interest rate caps is August 2022 through October 2024 and the term for the other is September 2023 through October 2025.

Use of Derivative Financial Instruments to Manage Foreign Currency Risk. The Company is exposed to risks related to its net investments in foreign operations due to fluctuations in foreign currency exchange rates, particularly between the United States dollar and the Euro. In February 2018, the Company entered into multiple cross-currency interest rate swap arrangements with an aggregate notional amount of €280,000 ~~($328,098 as of March 31, 2021)~~ to hedge this exposure on the net investments of certain of its Euro-denominated subsidiaries in its Performance Materials and Performance Chemicals businesses. The Company recorded these swap agreements at fair value as assets or liabilities in its consolidated balance sheet. As the derivatives are designated and qualify as net investment hedges, changes in the fair value of the swaps attributable to changes in the spot exchange rates are recognized in cumulative translation adjustment (“CTA”) within OCI and are held there until the hedged net investments are sold or substantially liquidated. Upon such sale or liquidation, the amount recognized in CTA is reclassified to earnings and reported in the same line item as the gain or loss on the liquidation of the net investments. Changes in the fair value of the swaps attributable to the cross-currency basis spread are excluded from the assessment of hedge effectiveness and are recorded in current period earnings.

In March 2021, as a result of the divestitures of the Performance Materials and Performance Chemicals ~~divestitures,~~businesses, the Company settled its cross-currency swaps. At the date of settlement, the total notional value of the cross-currency swaps was $311,380. The Company paid $13,170 in cash to settle the swaps, which is included in net cash used in investing activities, discontinued operations in the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2021, as the underlying subsidiary subject to the net investment hedging relationship is part of the Performance Chemicals business.

~~As of March 31, 2021, an unrealized pre-tax gain of~~ ~~$16,708~~ is recorded in accumulated other comprehensive income in the Company’s condensed consolidated balance sheet. This gain will be reclassified into earnings as part of the gain (loss) on sale upon completion of the Performance Chemicals divestiture.

The fair values of derivative instruments held as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are shown below:


		Balance sheet location	March 31, 2021		December 31, 2020			Balance sheet location	March 31, 2022		December 31, 2021
Derivative assets:	Derivative assets:						Derivative assets:
Derivatives designated as cash flow hedges:	Derivatives designated as cash flow hedges:						Derivatives designated as cash flow hedges:

Interest rate caps							Interest rate caps	Prepaid and other current assets	2,982		—

Interest rate caps	Interest rate caps	Other long-term assets	$	285	$	0	Interest rate caps	Other long-term assets	$	15,169	$	1,080

Total derivative assets	Total derivative assets		$	285	$	0	Total derivative assets		$	18,151	$	1,080

Derivative liabilities:	Derivative liabilities:						Derivative liabilities:
Derivatives designated as cash flow hedges:	Derivatives designated as cash flow hedges:						Derivatives designated as cash flow hedges:

Interest rate caps	Interest rate caps	Accrued liabilities	$	1,974	$	1,954	Interest rate caps	Accrued liabilities	$	304	$	1,288

Interest rate caps		Other long-term liabilities	1,049		1,750

Total derivative liabilities	Total derivative liabilities		$	3,023	$	3,704	Total derivative liabilities		$	304	$	1,288

The following tables show the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three months ended March 31, 2022 and 2021:










		Three months ended March 31,
		2022				2021
	Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized in OCI on derivatives		Amount of gain (loss) reclassified from AOCI into income		Amount of gain (loss) recognized in OCI on derivatives		Amount of gain (loss) reclassified from AOCI into income
Interest rate caps	Interest (expense) income	$	17,612	$	(683)	$	912	$	(109)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

The following tables show the effect of the Company’s ~~derivative instruments designated as cash flow hedges on AOCI for the three months ended March 31, 2021 and 2020:~~

Three months ended March 31,
2021 2020
Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income Amount of gain (loss) recognized in OCI on derivatives Amount of gain (loss) reclassified from AOCI into income
Interest rate caps Interest (expense) income $ 912 $ (109) $ (595) $ (231)

~~The following tables show the effect of the Company’s~~ cash flow hedge accounting on the condensed consolidated statements of income for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Location and amount of gain (loss) recognized in income on cash flow hedging relationships					Location and amount of gain (loss) recognized in income on cash flow hedging relationships
		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021
		Cost of goods sold	Interest (expense) income	Cost of goods sold	Interest (expense) income		Interest (expense) income		Interest (expense) income
Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded	Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded	(96,505)	(10,456)	(87,850)	(15,298)	Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded	$	(8,450)	$	(10,456)

The effects of cash flow hedging:	The effects of cash flow hedging:					The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships:	Gain (loss) on cash flow hedging relationships:					Gain (loss) on cash flow hedging relationships:
Interest contracts:	Interest contracts:					Interest contracts:
Amount of gain (loss) reclassified from AOCI into income	Amount of gain (loss) reclassified from AOCI into income	—	(109)	—	(231)	Amount of gain (loss) reclassified from AOCI into income	(683)		(109)

The amount of unrealized losses in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the condensed consolidated statement of income over the next twelve months is ~~$574~~$545 as of March 31, ~~2021.~~2022.

The following ~~tables show~~table shows the effect of the Company’s net investment hedges on AOCI and the condensed consolidated statements of income for the three months ended March 31, ~~2021 and 2020:~~2021:

Amount of pre-tax gain (loss) recognized in OCI on derivative Location of gain (loss) reclassified from AOCI into income Amount of gain (loss) reclassified from AOCI into income Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing) Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)
Three months ended
March 31, Three months ended
March 31, Three months ended
March 31,
2021 2020 2021 2020 2021 2020
Cross-currency interest rate swaps $ 9,787 $ 14,809
Net income from discontinued operations (1)
$ 0 $ 0 Interest (expense) income $ 545 $ 1,692







	Amount of pre-tax gain (loss) recognized in OCI on derivative		Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) reclassified from AOCI into income		Location of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)	Amount of gain (loss) recognized in income on derivative (amount excluded from effectiveness testing)


Cross-currency interest rate swaps	$	9,787	Net (loss) income from discontinued operations, net of tax	$	—	Interest (expense) income	$	545

~~(1)Includes the gain (loss) on the sale of the underlying subsidiary.~~

~~Table of Contents~~

~~PQ GROUP HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

15. Income Taxes:

The effective income tax rate for the three months ended March 31, ~~2021~~2022 was ~~65.4%~~42.1% compared to ~~33.2%~~65.4% for the three months ended March 31, ~~2020.~~2021. The Company’s effective income tax rate has fluctuated primarily due to changes in income mix, the impacts of the Global Intangible Low Taxed Income (“GILTI”) tax rules, discrete impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of the divestiture of the Performance Chemicals ~~divestiture~~business, tax rate changes and changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions.

The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2022 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, and a discrete tax expense associated with the Employee Retention Credit.

The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2021 was mainly due to state and local taxes, discrete tax impacts related to ~~intraperiod~~intra-period allocation revaluation of deferred tax assets and liabilities as a result of the Performance Chemicals divestiture, and the tax effect of permanent differences related to foreign currency exchange gain or loss.

The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2020 was mainly due to the impacts of GILTI, state and local taxes, and the tax effect of permanent differences related to foreign currency exchange gain or loss.

~~16. Benefit Plans:~~

The following information is provided for (1) the Company-sponsored defined benefit pension plans covering employees in the U.S. and certain employees at its foreign subsidiaries and (2) the Company-sponsored unfunded plans to provide certain health care benefits to retired employees in the U.S.

~~Components of net periodic expense (benefit) are as follows:~~

~~Defined Benefit Pension Plans~~

U.S. Foreign
Three months ended
March 31, Three months ended
March 31,
2021 2020 2021 2020
Service cost $ 0 $ 192 $ 0 $ 261
Interest cost 551 675 65 72
Expected return on plan assets (1,094) (970) (65) (69)
Amortization of net loss 0 0 0 23
Net periodic (benefit) expense $ (543) $ (103) $ 0 $ 287

~~Other Postretirement Benefit Plans~~

Three months ended
March 31,
2021 2020
Interest cost 4 5
Amortization of prior service credit (58) (58)
Amortization of net loss 1 0
Net periodic benefit $ (53) $ (53)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

16. Benefit Plans:

The following tables present the components of net periodic cost (benefit) for the Company-sponsored defined benefit pension and postretirement plans, which cover certain employees and retirees located in the U.S.

Defined Benefit Pension Plans














	Three months ended March 31,
	2022		2021

Interest cost	604		551
Expected return on plan assets	(1,110)		(1,094)



Net periodic benefit	$	(506)	$	(543)

Other Postretirement Benefit Plan


	Three months ended March 31,
		2022		2021

Interest cost		4		4
Amortization of prior service credit		(53)		(58)
Amortization of net loss		1		1
Net periodic benefit		$	(48)	$	(53)

17. Commitments and Contingent Liabilities:

There is a risk of environmental impact in ~~chemical~~the Company’s manufacturing operations. The Company’s environmental policies and practices are designed to comply with existing laws and regulations and to minimize the possibility of significant environmental impact. The Company is also subject to various other lawsuits and claims with respect to matters such as governmental regulations, labor and other actions arising out of the normal course of business. ~~While management believes~~All claims that ~~the liabilities resulting from such lawsuits~~are probable and ~~claims are not probable or~~ reasonably estimable ~~certain accruals~~ have been ~~reflected~~accrued for in the Company’s condensed consolidated financial statements. When these matters are ultimately concluded and determined, the Company believes that there will be no material adverse effect on its consolidated financial position, results of operations or liquidity.

Table of Contents

ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

18. Reportable Segments:

Summarized financial information for the Company’s reportable segments is shown in the following table:

Three months ended
March 31,
2021 2020
Sales:
Refining Services $ 100,222 $ 100,690
Catalysts(1)
26,402 24,864
Total $ 126,624 $ 125,554
Segment Adjusted EBITDA:(2)
Refining Services $ 33,002 $ 37,183
Catalysts(3)
18,469 22,667
Total Segment Adjusted EBITDA(4)
$ 51,471 $ 59,850


	Three months ended March 31,
		2022		2021
Sales:
Ecoservices		$	154,060	$	100,222
Catalyst Technologies(1)		25,654		26,402

Total		$	179,714	$	126,624

Adjusted EBITDA:(2)
Ecoservices		$	49,341	$	33,002
Catalyst Technologies(3)		16,975		18,469
Unallocated corporate expenses		(7,076)		(9,167)
Total		$	59,240	$	42,304

(1)Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 11 to these condensed consolidated financial statements for further information). The proportionate share of sales is ~~$28,978~~$28,977 and ~~$32,291~~$28,978 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

(2)The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of the Company’s operating performance. Adjusted EBITDA as defined by the Company may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(3)The Adjusted EBITDA from the Zeolyst Joint Venture included in the ~~Catalysts~~Catalyst Technologies segment is $11,474 for the three months ended March 31, 2022, which includes $5,787 of equity in net income plus $1,601 of amortization of investment in affiliate step-up and $4,087 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $10,537 for the three months ended March 31, 2021, which includes $5,237 of equity in net income plus $1,658 of amortization of investment in affiliate step-up and $3,645 of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $13,725 for the three months ended March 31, 2020, which includes $8,317 of equity in net income plus $1,658 of amortization of investment in affiliate step-up and $3,750 of joint venture depreciation, amortization and interest.

~~(4)Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses.~~

2623

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

A reconciliation of net ~~loss from continuing operations~~income (loss) to ~~Segment~~Ecovyst to Adjusted EBITDA is as follows:


		Three months ended March 31,						Three months ended March 31,
			2021		2020				2022		2021
Reconciliation of net loss from continuing operations to Segment Adjusted EBITDA
Net loss from continuing operations			$	(2,748)	$	(3,347)
Benefit for income taxes			(5,190)		(1,665)
Reconciliation of net income (loss) from continuing operations to Adjusted EBITDA							Reconciliation of net income (loss) from continuing operations to Adjusted EBITDA
Net income (loss) from continuing operations							Net income (loss) from continuing operations		$	7,875	$	(2,748)
Provision (benefit) for income taxes							Provision (benefit) for income taxes		5,720		(5,190)
Interest expense, net	Interest expense, net		10,456		15,298		Interest expense, net		8,450		10,456
Depreciation and amortization	Depreciation and amortization		19,500		18,675		Depreciation and amortization		19,546		19,500
Segment EBITDA			22,018		28,961
EBITDA							EBITDA		41,591		22,018
Joint venture depreciation, amortization and interest	Joint venture depreciation, amortization and interest		3,645		3,750		Joint venture depreciation, amortization and interest		4,087		3,645
Amortization of investment in affiliate step-up	Amortization of investment in affiliate step-up		1,658		1,658		Amortization of investment in affiliate step-up		1,601		1,658

Debt extinguishment costs			0		2,513

Net loss on asset disposals	Net loss on asset disposals		778		163		Net loss on asset disposals		133		778
Foreign currency exchange loss			5,101		7,070
LIFO benefit			(253)		(1,681)
Foreign exchange losses							Foreign exchange losses		647		5,101
LIFO expense (benefit)							LIFO expense (benefit)		245		(253)

Transaction and other related costs	Transaction and other related costs		472		800		Transaction and other related costs		4,281		472
Equity-based compensation	Equity-based compensation		6,305		4,294		Equity-based compensation		7,294		6,305
Restructuring, integration and business optimization expenses	Restructuring, integration and business optimization expenses		2,259		348		Restructuring, integration and business optimization expenses		352		2,259
Defined benefit pension plan benefit	Defined benefit pension plan benefit		(595)		(131)		Defined benefit pension plan benefit		(554)		(595)
Other	Other		916		896		Other		(437)		916
Adjusted EBITDA	Adjusted EBITDA		42,304		48,641		Adjusted EBITDA		$	59,240	$	42,304
Unallocated corporate expenses			9,167		11,209
Segment Adjusted EBITDA			$	51,471	$	59,850

2724

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

19. Stock-Based Compensation:

The Company ~~is authorized to issue shares for~~has an equity incentive plan under which it grants common stock awards to employees, directors and affiliates of the Company. At March 31, 2022, 8,594,638 shares of common stock were available for issuance under the plan. The Company ~~in connection with~~settles these awards through the ~~PQ Group Holdings Inc. 2017 Omnibus Incentive Plan, as Amended~~issuance of new shares.

Restricted Stock Units and ~~Restated (the “2017 Plan”).~~ Performance Stock Units

Restricted Stock Units

During the three months ended March 31, ~~2021,~~2022, the Company granted ~~1,697,623~~2,645,758 restricted stock units ~~and 211,985 performance stock units (at target)~~ under ~~the 2017 Plan as part of~~ its equity incentive ~~compensation program.~~plan. Each restricted stock unit provides the recipient with the right to receive a share of common stock subject to graded vesting terms based on service, which for the awards granted during the three months ended March 31, ~~2021,~~2022, generally requires approximately one year of service for members of the Company’s board of directors and approximately three years of service for employees. The awards granted during the three months ended March 31, 2022 also included a special grant for certain employees based on service which cliff vests on July 1, 2023. The value of the restricted stock units granted during the three months ended March 31, 2022 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period.

Performance Stock Units

2022 Grants

During the three months ended March 31, 2022, the Company granted 245,380 performance stock units (at target) under its equity incentive plan. The performance stock units granted during the three months ended March 31, ~~2021~~2022 provide the recipients with the right to receive shares of common stock dependent on the achievement of a total shareholder return (“TSR”) goal, and are generally subject to the provision of service through the vesting date of the award. The performance period for the TSR goal is measured based on a three-year performance period from January 1, ~~2021~~2022 through December 31, ~~2023.~~2024. The TSR goal is based on the Company’s actual TSR percentage increase over the performance period. Depending on the Company’s performance relative to the TSR goal, each performance stock unit award recipient is eligible to ~~earn~~receive a percentage of the target number of shares granted to the recipient, ranging from 0zero to 200%. The performance stock units, to the extent earned, will vest on the date the Company’s compensation and governance committee certifies the achievement of the performance metric for the three-year period ending December 31, ~~2023,~~2024, which will occur subsequent to the end of the performance period ~~but before~~and after the Company files its annual consolidated financial statements for the year ending December 31, ~~2023.~~

The value of the restricted stock units granted during the three months ended March 31, 2021 was based on the average of the high and low trading prices of the Company’s common stock on the NYSE on the preceding trading day, in accordance with the Company’s policy for valuing such awards. Compensation expense related to the restricted stock units is recognized on a straight-line basis over the respective vesting period.2024.

The TSR goal ~~of the performance stock units granted during the three months ended March 31, 2021~~ is considered a market condition as opposed to a vesting condition. Because a market condition is not considered a vesting condition, it is reflected in the grant date fair value of the award and the associated compensation cost based on the fair value of the award is recognized over the performance period, regardless of whether the Company actually achieves the market condition or the level of achievement, as long as service is provided by the recipient. The Company used a Monte Carlo simulation to estimate the fair value of the ~~portion of~~awards, with the ~~awards subject to the TSR goal. The~~ following table provides the assumptions used to determine the grant date fair value of the market condition-dependent / TSR goal-based portion of the Company’s performance stock units granted during the three months ended March 31, 2021 using a Monte Carlo simulation:assumptions:


Expected dividend yield	0—		%
Risk-free interest rate	~~0.20~~1.24		%
Expected volatility	~~41.70~~44.00		%
Expected term (in years)	~~2.95~~2.96
~~Grant date fair value~~Stock price	$	~~13.21~~10.41

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

2019 Grants

During the three months ended March 31, 2022, the Company’s compensation and governance committee certified the achievement of the performance metrics for the three-year period ended December 31, 2021, related to the performance stock units granted during the year ended December 31, 2019. These awards provided the recipients with the right to receive shares of common stock dependent on the achievement of two Company-specific financial performance targets and the provision of service through the vesting date, with each award holder eligible to earn a percentage of the target number of shares granted to the holder, ranging from zero to 200%. The awards vested during the three months ended March 31, 2022 at 100% of target.

Award Activity

The following table summarizes the activity for the Company’s restricted stock units and performance stock units for the three months ended March 31, ~~2021:~~2022:


		Restricted Stock Units			Performance Stock Units				Restricted Stock Units			Performance Stock Units
		Number of Units	Weighted Average Grant Date Fair Value (per share)		Number of Units	Weighted Average Grant Date Fair Value (per share)			Number of Units	Weighted Average Grant Date Fair Value (per share)		Number of Units	Weighted Average Grant Date Fair Value (per share)
Nonvested as of December 31, 2020		1,841,139	$	16.14	965,736	$	17.69
Nonvested as of December 31, 2021								Nonvested as of December 31, 2021	2,507,421	$	15.68	1,117,555	$	16.91
Granted	Granted	1,697,623	$	15.39	211,985	$	13.21	Granted	2,645,758	$	10.29	245,380	$	8.95
Vested	Vested	(745,647)	$	16.06	0	$	0	Vested	(1,316,703)	$	15.67	(496,442)	$	15.41
Forfeited	Forfeited	(4,966)	$	16.11	(7,829)	$	12.24	Forfeited	(268,567)	$	14.96	(14,664)	$	12.08
Nonvested as of March 31, 2021		2,788,149	$	15.70	1,169,892	$	16.92
Nonvested as of March 31, 2022								Nonvested as of March 31, 2022	3,567,909	$	11.74	851,829	$	15.50

~~Stock-based~~Stock-Based Compensation Expense

For the three months ended March 31, 2022 and 2021, stock-based compensation expense for the Company ~~is as follows:~~

Three months ended
March 31,
2021 2020
Continuing operations $ 6,305 $ 4,294
Discontinued operations 1,875 1,626
Stock-based compensation expense 8,180 5,920
Continuing operations (1,543) (1,065)
Discontinued operations (459) (403)
Income tax benefit (2,002) (1,468)
Continuing operations 4,762 3,229
Discontinued operations 1,416 1,223
Stock-based compensation expense, net of income tax benefit $ 6,178 $ 4,452
was $7,294 and $6,305, respectively. The associated income tax benefit recognized in the statements of income for the three months ended March 31, 2022 and 2021 was $1,788 and $1,543, respectively.

With the new grants of restricted stock units and performance stock units during the three months ended March 31, ~~2021,~~2022, unrecognized compensation cost at March 31, ~~2021~~2022 was ~~$40,425~~$39,583 for restricted stock units and ~~$11,962~~$7,414 for performance stock units considered probable of vesting. The weighted-average period over which these costs are expected to be recognized at March 31, ~~2021~~2022 is ~~2.02~~1.96 years for the restricted stock units and ~~1.66~~1.72 years for the performance stock units. Activity related to the Company’s stock options and restricted stock awards was not material for the three months ended March 31, ~~2021. No expense had previously been recognized related to these awards, as the performance vesting condition was not achieved nor considered probable of achievement.~~2022.

20. Earnings per Share:

Basic earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding during the period for the computation of basic earnings per share excludes restricted stock awards that have legally been issued but are nonvested during the period, as the sale of these shares is prohibited pending satisfaction of certain vesting conditions by the award recipients in order to earn the rights to the shares.

Diluted earnings per share is calculated as income (loss) available to common stockholders, divided by the weighted average number of common and potential common shares outstanding during the period, if dilutive. Potential common shares reflect (1) unvested restricted stock awards and restricted stock units with service vesting conditions, (2) performance stock units with vesting conditions considered probable of achievement and (3) options to purchase common stock, all of which have been included in the diluted earnings per share calculation using the treasury stock method.

2926

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~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

The reconciliation from basic to diluted weighted average shares outstanding is as follows:


		Three months ended March 31,				Three months ended March 31,
			2021	2020			2022	2021
Weighted average shares outstanding – Basic	Weighted average shares outstanding – Basic		136,006,082	135,240,897	Weighted average shares outstanding – Basic		137,684,773	136,006,082
Dilutive effect of unvested common shares and restricted stock units with service conditions, performance stock units considered probable of vesting and assumed stock option exercises and conversions	Dilutive effect of unvested common shares and restricted stock units with service conditions, performance stock units considered probable of vesting and assumed stock option exercises and conversions		0	845,185	Dilutive effect of unvested common shares and restricted stock units with service conditions, performance stock units considered probable of vesting and assumed stock option exercises and conversions		1,064,292	—
Weighted average shares outstanding – Diluted	Weighted average shares outstanding – Diluted		136,006,082	136,086,082	Weighted average shares outstanding – Diluted		138,749,065	136,006,082

Basic and diluted ~~loss~~income (loss) per share are calculated as follows:


		Three months ended March 31,						Three months ended March 31,
			2021		2020				2022		2021
Numerator:	Numerator:						Numerator:
Net (loss) income attributable to PQ Group Holdings Inc.			$	(92,635)	$	224
Income (loss) from continuing operations attributable to Ecovyst Inc.							Income (loss) from continuing operations attributable to Ecovyst Inc.		$	7,875	$	(2,748)
Loss from discontinued operations attributable to Ecovyst Inc.							Loss from discontinued operations attributable to Ecovyst Inc.		—		(89,887)
Net income (loss) attributable to Ecovyst Inc.							Net income (loss) attributable to Ecovyst Inc.		$	7,875	$	(92,635)

Denominator:	Denominator:						Denominator:
Weighted average shares outstanding – Basic	Weighted average shares outstanding – Basic		136,006,082		135,240,897		Weighted average shares outstanding – Basic		137,684,773		136,006,082
Weighted average shares outstanding – Diluted	Weighted average shares outstanding – Diluted		136,006,082		136,086,082		Weighted average shares outstanding – Diluted		138,749,065		136,006,082

Net loss per share:	Net loss per share:						Net loss per share:
Basic loss per share			$	(0.68)	$	0.00
Diluted loss per share			$	(0.68)	$	0.00
Basic income (loss) per share - continuing operations							Basic income (loss) per share - continuing operations		0.06		(0.02)
Diluted income (loss) per share - continuing operations							Diluted income (loss) per share - continuing operations		0.06		(0.02)
Basic loss per share - discontinued operations							Basic loss per share - discontinued operations		—		(0.66)
Diluted loss per share - discontinued operations							Diluted loss per share - discontinued operations		—		(0.66)
Basic income (loss) per share							Basic income (loss) per share		$	0.06	$	(0.68)
Diluted income (loss) per share							Diluted income (loss) per share		$	0.06	$	(0.68)

Table of Contents

ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

The table below presents the details of the Company’s weighted average equity-based awards outstanding during each respective period that were excluded from the calculation of diluted earnings per share:


		Three months ended March 31,				Three months ended March 31,
			2021	2020			2022	2021
Restricted stock awards with performance only targets not yet achieved	Restricted stock awards with performance only targets not yet achieved		883,380	1,526,613	Restricted stock awards with performance only targets not yet achieved		613,903	883,380
Stock options with performance only targets not yet achieved	Stock options with performance only targets not yet achieved		376,812	516,000	Stock options with performance only targets not yet achieved		326,689	376,812
Anti-dilutive restricted stock awards, restricted stock units and performance stock units	Anti-dilutive restricted stock awards, restricted stock units and performance stock units		0	1,264,324	Anti-dilutive restricted stock awards, restricted stock units and performance stock units		—	—
Anti-dilutive stock options	Anti-dilutive stock options		0	850,807	Anti-dilutive stock options		807,301	—

Restricted stock awards and stock options with performance only vesting conditions were not included in the dilution calculation, as the performance targets have not been achieved nor were probable of achievement as of the end of the respective periods. ~~On a weighted average basis,~~Certain stock options to purchase ~~609,491~~ shares of common stock ~~at $16.97 per share and 241,316 shares of common stock at $17.50 per share for the three months ended March 31, 2020,~~ were excluded from the computation of diluted earnings per share for the respective periods, because the combination of the options’ exercise price and remaining unamortized stock-based compensation expense was greater than the average market price of the common shares. ~~The stock options with an exercise price of $16.97 per share expire on October 2, 2027, while the stock options with an exercise price of $17.50 per share expire on August 9, 2028.~~ Anti-dilutive awards are not included in the dilution calculation, as their inclusion would have the effect of increasing diluted income per share.

~~Table of Contents~~

~~PQ GROUP HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

21. Supplemental Cash Flow Information:

With the exception of operating leases, the following table presents supplemental cash flow information for the consolidated Company:

Three months ended
March 31,
2021 2020
Cash paid during the period for:
Income taxes, net of refunds $ 4,248 $ 8,388
Interest(1)
17,791 19,751
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the period end 8,118 13,223
Right-of-use assets obtained in exchange for new lease liabilities (non-cash):
Operating leases 4,738 499


	Three months ended March 31,
	2022		2021
Cash paid during the period for:
Income taxes, net of refunds	$	10,662	$	4,248
Interest(1)	8,363		17,791
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the period end	4,674		8,118
Right-of-use assets obtained in exchange for new lease liabilities (non-cash):
Operating leases	2,955		4,738

(1)Cash paid for interest is shown net of capitalized interest for the periods presented and excludes $2,307 ~~and $1,771~~ of net interest proceeds on swaps designated as net investment hedges for the three months ended March 31, 2021, ~~and 2020, respectively,~~ which are included within cash flows from investing activities, discontinued operations in the Company’s condensed consolidated statements of cash flows.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets as of March 31, ~~2021~~2022 and ~~2020~~2021 to the total of the same amounts shown in the condensed consolidated statements of cash flows for the three months then ended:


		March 31,					March 31,
		2021		2020			2022		2021
Cash and cash equivalents	Cash and cash equivalents	$	55,171	$	54,655	Cash and cash equivalents	$	129,748	$	55,171
Restricted cash included in prepaid and other current assets	Restricted cash included in prepaid and other current assets	1,591		2,277		Restricted cash included in prepaid and other current assets	—		1,591
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	56,762	$	56,932	Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	129,748	$	56,762

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22. Subsequent Events:

~~The~~On April 27, 2022, the Board approved a plan to purchase up to $450,000 of Ecovyst Inc. common stock over the next four years under a stock repurchase program. See Note 6 to these condensed consolidated financial statements for further information.

Other than this item, the Company has evaluated subsequent events since the balance sheet date and determined that there are no additional items to disclose.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Unless the context requires otherwise, references in this report to ~~“PQ Group Holdings,~~“Ecovyst,” “the company,” “we,” “us” or “our” refer to ~~PQ Group Holdings~~Ecovyst Inc. and its consolidated subsidiaries.

Forward-looking Statements

This periodic report on Form 10-Q (“Form 10-Q”) includes ~~statements~~“forward-looking statements” that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future ~~results and therefore are, or may be deemed to be, “forward-looking statements”.~~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, the ~~announced pending sale~~impact of the novel coronavirus (“COVID-19”) pandemic and/or, Russia’s invasion of Ukraine and related economic effects on our ~~Performance Chemicals segment, our~~operations and financial results and our liquidity, ~~including~~and our belief that our ~~existing~~current level of operations, cash and cash equivalents, ~~and~~ cash flow from operations ~~combined with availability~~and borrowings under our ~~asset based lending revolving~~ credit ~~facility~~facilities and other lines of credit will ~~be sufficient~~provide us adequate cash to ~~meet~~fund the working capital, capital expenditure, debt service and other requirements for our ~~presently anticipated future cash needs~~business for at least the next 12twelve 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:~~

•~~the impact of the ongoing COVID-19 pandemic on the global economy and financial markets, as well as on~~to our ~~business and our suppliers, and the response of governments and of our company to the outbreak;~~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 pass on increases in raw material prices, including natural gas, 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 ~~refining services~~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;

•we are subject to extensive environmental, health and safety regulations and face various risks associated with potential non-compliance or releases of hazardous materials;

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•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, 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;

•losses and damages in connection with information technology and cyber security risks could adversely affect our operations;

•the impact of the ongoing COVID-19 pandemic on the global economy and financial markets, as well as on our business and our suppliers, and the response of governments and of our company to the outbreak, including variants of the virus and associated containment, remediation and vaccination efforts; 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, ~~2020.~~2021.

The forward-looking statements included herein are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.

Overview

We are a leading integrated and innovative global provider of specialty catalysts and services. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

We conduct operations through two ~~reporting~~reporting segments: (1) ~~Refining Services~~Ecoservices and (2) ~~Catalysts~~Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture).

~~Refining Services:~~Ecoservices: We are ~~the~~a leading provider of sulfuric acid recycling services to North American refineries for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards. We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining, and industrial applications.

~~Catalysts:~~Catalyst Technologies: We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications. WeThis segment includes our 50% interest in the Zeolyst Joint Venture, where we are ~~also~~ a leading global supplier of zeolites used for catalysts that remove ~~nitric oxide~~nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the refining process.

~~Recent Developments~~Impact of Russia’s invasion of Ukraine on our Business and Results

~~On December 14, 2020,~~We are continuing to monitor the developments in Russia and Ukraine, as well as the related economic sanctions and export controls imposed on certain industry sectors. Although the current conflict may create global economic and political uncertainties and potential supply chain disruptions, we ~~completed~~do not believe we have significant exposure in those countries. We have no operations in Russia or Ukraine. We had no sales to customers in Ukraine and our sales to a customer in Russia w immaterial for the ~~sale~~three months ended March 31, 2022 and 2021, respectively. We also did not make any purchases from suppliers in Russia or Ukraine. As Russia’s invasion of Ukraine continues to unfold, we will continue to monitor compliance with sanctions imposed by the U.S. government and other countries.

Stock Repurchase Program

In April 2022, our ~~Performance Materials business for $650.0~~Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $450 million ~~which was subject~~of Ecovyst’s outstanding common stock over the next four years. This new program is expected to ~~certain adjustments for indebtedness, working capital~~be funded using cash on hand and cash atgenerated from operations. We primarily expect to conduct the ~~closing~~repurchase program through negotiated transactions with Ecovyst’s equity sponsors, as well as through open market repurchases or other means, including through Rule 10b-18 trading plans or through the use of ~~the transaction.~~other techniques such as accelerated share repurchases. The ~~results~~actual timing, number and nature of ~~operations, financial condition,~~shares repurchased will depend on a variety of factors, including stock price, trading volume, and ~~cash flows for the Performance Materials~~general business are presented herein as discontinued operations. Except where noted, any tables, percentages or metrics included within this filing exclude the results of our former Performance Materials business. Refer to Note 3 to our condensed consolidated financial statements for additional information.

~~On February 28, 2021, we announced the entry into a definitive agreement to sell our Performance Chemicals business to a partnership established by Koch Mineral & Trading LLC~~ and Cerberus Capital Management, L.P. for a purchase price of $1.1 billion, which is subject to certain adjustments including for indebtedness, cash, working capital and transaction expenses. The results of operations, financial condition, and cash flows for the Performance Chemicals business are presented herein as discontinued operations. Except where noted, any tables, percentages or metrics included within this filing exclude the results of our Performance Chemicals business. Refer to Note 3 to our condensed consolidated financial statements for additional information.

market conditions.

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The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be amended, suspended or discontinued at any time at our discretion.

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 (loss) 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 (loss) 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 (loss) attributable to ~~continuing operations~~Ecovyst Inc. adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income (loss) 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 (loss) 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

~~Market demand~~Overall our Ecoservices and Catalyst Technologies segments' sales have grown despite delays in shipments from supply chain constraints. Demand for our products has ~~significantly~~ rebounded since the 2020 lows that resulted from the impact of ~~COVID-19. Refineries have seen demand return with increasing miles driven. Emission control~~COVID-19 and ~~refining catalysts continue to lag, but show signs of rebound in~~ the ~~second half of 2021.~~

~~In February~~early 2021 lows that resulted from the ~~Gulf Coast of the United States experienced significant and unexpectedly severe weather. Extended~~ freezing ~~temperatures led to shutdowns or slowdowns at nearly all refineries and extensive damage due to frozen piping. Some plants remained down for nearly a month. Our Refining Services facilities located~~weather in the Gulf ~~experienced damage~~region. Polyethlene demand has remained strong, driven by the growing consumer demand for stronger and ~~required certain repairs.~~lighter weighted plastics. Higher refinery utilization rates increased catalyst demand for both traditional and renewable fuels on the continued recovery in vehicle miles driven. Tightening gasoline standards and growing demand for premium grade gasoline to power fuel efficient engines has supported high alkylation utilization rates. Virgin sulfuric acid has benefited from strong mining for metals and minerals which provide conductivity in low carbon technologies, as well as strong demand from numerous industrial segments producing construction, auto, and packaging materials.

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

Our Catalyst Technologies segment, experiences demand fluctuations based upon the timing of our customer’s fixed bed catalyst replacements.

Cost of Goods Sold

Cost of goods sold consists of variable product costs, fixed manufacturing expenses, depreciation expense and freight expenses. Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process. Fixed manufacturing expenses include all plant employment costs, manufacturing overhead and periodic maintenance costs.

The primary raw materials for our ~~Refining Services~~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. The primary raw materials used in the manufacture of products in our ~~Catalysts~~Catalyst Technologies segments include sodium silicate and cesium hydroxide.

Most of our ~~Refining Services~~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. ~~Spent acid for our Refining Services segment is supplied by customers for a nominal charge as part of their contracts.~~ Over 80% of our ~~Refining Services~~Ecoservices segment sales for the year ended December 31, ~~2020~~2021 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

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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 ~~furnaces~~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 ~~make forward purchases of natural gas in the United States~~ and structure our customer contracts when possible to allow for the pass-through of raw material, labor and natural gas costs.

~~Table of Contents~~

Joint ~~Ventures~~Venture

We account for our investments in our equity joint ventures under the equity method. Our ~~largest~~ joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts for use in the packaging and engineered plastics, emission control, refining and petrochemical industries and other areas of the broader chemicals industry. 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 ~~ventures~~venture with the other parties to ~~each~~ such joint venture.

Seasonality

Our ~~Refining Services~~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 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 ~~10%~~5% of our sales for the three months ended March 31, ~~2021~~2022 and 6% for the year ended December 31, ~~2020~~2021 are 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~~months ended March 31, ~~2021~~2022 Compared to the Three ~~Months Ended~~months ended March 31, ~~2020~~2021

Highlights

The following is a summary of our financial performance for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020.~~2021.

Sales

•Sales increased ~~$1.0~~$53.1 million to ~~$126.6~~$179.7 million. The increase in sales was primarily due to higher sales volumes and the favorable ~~cost~~ pass-through ~~pricing and higher polyethylene catalysts volumes offset by lower volumes~~ of ~~regeneration and virgin sulfuric acid.~~sulfur pricing.

Gross Profit

•Gross profit ~~decreased $7.6~~increased $17.6 million to ~~$30.1~~$47.7 million. The ~~decrease~~increase in gross profit was primarily due to ~~lower~~higher sales volumes, ~~and an increase in manufacturing costs, which was~~favorable pricing, partially offset by ~~favorable customer pricing and product mix.~~higher manufacturing costs.

Operating Income

•Operating income ~~decreased~~increased by ~~$9.4~~$14.0 million to ~~$2.5~~$16.5 million. The ~~decrease~~increase in operating income was due to ~~a decrease~~an increase in gross profit, ~~during the current year period.~~partially offset by higher selling, general, and administrative expenses.

Equity in Net Income of Affiliated Companies

•Equity in net income of affiliated companies for the three months ended March 31, ~~2021~~2022 was ~~$5.2~~$5.7 million, compared with ~~$8.3~~$5.2 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease of $3.1 million~~increase was primarily due to ~~a decrease in~~$0.5 million of higher earnings ~~generated by~~from the Zeolyst Joint ~~Venture for~~Venture during the three months ended March 31, ~~2021.~~2022.

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The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended March 31, ~~2021~~2022 and ~~2020:~~2021:


		Three months ended March 31,						Change					Three months ended March 31,						Change
		2021			2020			$		%			2022			2021			$		%
		(in millions, except percentages)											(in millions, except percentages)
Sales	Sales	$	126.6		$	125.6		$	1.0	0.8	%	Sales	$	179.7		$	126.6		$	53.1	41.9	%
Cost of goods sold	Cost of goods sold	96.5			87.9			8.6		9.8	%	Cost of goods sold	132.0			96.5			35.5		36.8	%
Gross profit	Gross profit	30.1			37.7			(7.6)		(20.2)	%	Gross profit	47.7			30.1			17.6		58.5	%
Gross profit margin	Gross profit margin	23.8		%	30.0		%					Gross profit margin	26.6		%	23.8		%
Selling, general and administrative expenses	Selling, general and administrative expenses	22.1			22.3			(0.2)		(0.9)	%	Selling, general and administrative expenses	23.5			22.1			1.4		6.3	%
Other operating expense, net	Other operating expense, net	5.5			3.5			2.0		57.1	%	Other operating expense, net	7.7			5.5			2.2		40.0	%
Operating income	Operating income	2.5			11.9			(9.4)		(79.0)	%	Operating income	16.5			2.5			14.0		560.0	%
Operating income margin	Operating income margin	2.0		%	9.5		%					Operating income margin	9.1		%	2.0		%
Equity in net (income) from affiliated companies	Equity in net (income) from affiliated companies	(5.2)			(8.3)			3.1		(37.3)	%	Equity in net (income) from affiliated companies	(5.7)			(5.2)			(0.5)		9.6	%
Interest expense, net	Interest expense, net	10.5			15.3			(4.8)		(31.4)	%	Interest expense, net	8.5			10.5			(2.0)		(19.0)	%
Debt extinguishment costs		—			2.5			(2.5)		(100.0)	%
Other expense, net		5.1			7.5			(2.4)		(32.0)	%
Loss before income taxes and noncontrolling interest		(7.9)			(5.1)			(2.8)		54.9	%
Benefit for income taxes		(5.2)			(1.7)			(3.5)		205.9	%

Other expense (income), net												Other expense (income), net	0.1			5.1			(5.0)		(98.0)	%
Income before income taxes and noncontrolling interest												Income before income taxes and noncontrolling interest	13.6			(7.9)			21.5		(272.2)	%
Provision (benefit) for income taxes												Provision (benefit) for income taxes	5.7			(5.2)			10.9		(209.6)	%
Effective tax rate	Effective tax rate	65.4		%	33.2		%					Effective tax rate	42.1		%	65.4		%
Net loss from continuing operations		(2.7)			(3.4)			0.7		(20.6)	%
Net (loss) income from discontinued operations, net of tax		(89.8)			3.9			(93.7)		NM
Net (loss) income		(92.5)			0.5			(93.0)		NM
Net income (loss) from continuing operations												Net income (loss) from continuing operations	7.9			(2.7)			10.6		(392.6)	%
Net loss from discontinued operations, net of tax												Net loss from discontinued operations, net of tax	—			(89.8)			89.8		(100.0)	%
Net income (loss)												Net income (loss)	7.9			(92.5)			100.4		(108.5)	%

Less: Net income attributable to the noncontrolling interest - discontinued operations		0.1			0.3			(0.2)		(66.7)	%
Net (loss) income attributable to PQ Group Holdings Inc.		$	(92.6)		$	0.2		$	(92.8)	NM
Less: Net income attributable to the noncontrolling interest—discontinued operations												Less: Net income attributable to the noncontrolling interest—discontinued operations	—			0.1			(0.1)		(100.0)	%
Net income (loss) attributable to Ecovyst Inc.												Net income (loss) attributable to Ecovyst Inc.	$	7.9		$	(92.6)		$	100.5	(108.5)	%

Sales


		Three months ended March 31,				Change
		2021		2020		$		%			Three months ended March 31,				Change
		(in millions, except percentages)									2022		2021		$		%
Sales:	Sales:									Sales:	(in millions, except percentages)
Refining Services		$	100.2	$	100.7	$	(0.5)	(0.5)	%
Catalysts		26.4		24.9		1.5		6.0	%
Ecoservices										Ecoservices	$	154.0	$	100.2	$	53.8	53.7	%
Catalyst Technologies										Catalyst Technologies	25.7		26.4		(0.7)		(2.7)	%

Total sales	Total sales	$	126.6	$	125.6	$	1.0	0.8	%	Total sales	$	179.7	$	126.6	$	53.1	41.9	%

~~Refining Serv~~Ecoservices~~ices:~~: Sales in ~~Refining Services~~Ecoservices for the three months ended March 31, ~~2021~~2022 were ~~$100.2~~$154.0 million, ~~a decrease~~an increase of ~~$0.5~~$53.8 million, or ~~0.5%~~53.7%, compared to sales of ~~$100.7~~$100.2 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase in sales was due to ~~lower~~higher average selling price of $37.3 million and an increase in sales volumes of ~~$7.4 million partially offset by higher~~$16.5 million. Higher average selling prices benefited from favorable pricing, including the pass-through of ~~$5.8~~higher freight, labor, and energy indexed costs, as well as the pass-through of higher sulfur costs of $21.3 million. ~~The decline~~Sales volumes increased in ~~sales volumes, estimated at $6.0 million,~~both regeneration services and virgin sulfuric acid on demand recovery and the comparability to the prior year that was ~~a result of extensive damages to both our facilities and our customers facilities due to~~depressed by the freezing weather in the Gulf region, as well as the impact of ~~Mexico. Higher average selling prices benefited from pass-through of favorable sulfur pricing of $3.1 million in~~ our ~~virgin sulfuric acid product group.~~Chem32 acquisition.

~~Catalysts:~~Catalyst Technologies: Sales in ~~Silica Catalysts~~Catalyst Technologies for the three months ended March 31, ~~2021~~2022 were ~~$26.4~~$25.7 million, ~~an increase~~a decrease of ~~$1.5~~$0.7 million, or ~~6.0%~~(2.7)%, compared to sales of ~~$24.9~~$26.4 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in sales was ~~primarily due to product mix~~driven by delayed shipments and the timing of the niche custom catalyst sales, offset by higher polyethylene ~~catalysts resulting~~catalyst sales. Price increases implemented late in 2021 and an ~~increase in pricing of $0.8 million.~~energy surcharge program are offsetting inflating costs.

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Gross Profit

Gross profit for the three months ended March 31, ~~2021~~2022 was ~~$30.1~~$47.7 million, ~~a decrease~~an increase of ~~$7.6~~$17.6 million, or ~~20.2%~~58.5%, compared with ~~$37.7~~$30.1 million for the three ~~months~~months ended March 31, ~~2020.~~2021. The ~~decrease~~increase in gross profit was due to ~~lower sales~~favorable volumes of $9.6 million, ~~and~~higher pricing of $36.5 million, partially offset by higher manufacturing costs of ~~$7.0 million, which~~$28.1 million.

The higher average selling prices and favorable volumes on our gross profit was ~~partially offset~~a driven by favorable ~~customer~~ pricing and pass through of ~~$6.6 million~~higher variable costs along with higher volume demand in our Ecoservices business. Rising inflation costs on raw materials, energy, and ~~favorable product mix of $3.2 million.~~

~~Sales volumes declined within~~transportation primarily drove the ~~fuels and emission control end uses as a result of extensive damages to both our facilities and our customers facilities due to the freezing weather in the Gulf of Mexico. The increase in~~higher manufacturing costs, ~~estimated at $9.0 million, included one-time repair costs and higher inventory absorption costs. Favorable product mix was a result of increased sales of higher-margin polyethylene catalysts sales.~~that were more than offset in price, in March 31, 2022 as compared to March 31, 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, ~~2021~~2022 was ~~$22.1~~$23.5 million, ~~a decrease~~an increase of ~~$0.2~~$1.4 million as compared to ~~$22.3~~$22.1 million for the three months ended March 31, ~~2020.~~ 2021. The ~~decrease~~increase in selling, general and administrative expenses was due to ~~the benefits of the transition service agreement entered into as part of the sale of the Performance Materials business, which was partially offset by increased stock compensation expense.~~higher compensation-related expenses.

Other Operating Expense, Net

Other operating expense, net for the three months ~~ended~~ended March 31, ~~2021~~2022 was ~~$5.5~~$7.7 million, an increase of ~~$2.0~~$2.2 million, compared with ~~$3.5~~$5.5 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in other operating expense, net was primarily a result of lower severance charges incurred in the current ~~year~~ period.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the three months ended March 31, ~~2021~~2022 was ~~$5.2~~$5.7 million, compared to ~~$8.3~~$5.2 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase was primarily due to ~~$3.1~~$0.5 million of ~~lower~~higher earnings from the Zeolyst Joint ~~Venture d~~Ventur~~uring~~e during the three months ended March 31, 2021. The decline in earnings was a result of deferred change-outs related to reduced output from oil refineries and heavy duty vehicle production, which led to a decrease in demand for our emission control and hydrocracking catalysts.2022.

Interest Expense, Net

Interest expense, net for the three months ended March 31, ~~2021~~2022 was ~~$10.5~~$8.5 million, a decrease of ~~$4.8~~$2.0 million, as compared with ~~$15.3~~$10.5 million for the three ~~months~~months ended March 31, ~~2020.~~ 2021. The decrease in interest expense was primarily due to lower interest rates on our ~~variable~~variable-rate debt ~~offset by higher interest due on our interest rate caps.~~

~~Debt~~ ~~Extinguishment Costs~~

~~Debt extinguishment costs for the three months ended~~ ~~March 31, 2020~~ ~~was~~ ~~$2.5 million.~~ ~~On February 7, 2020, we amended our existing senior secured term loan facility to reduce the applicable interest rates~~ and ~~extend the maturity of the facility to February 2027. We recorded $2.2 million of new creditor and third-party financing fees as~~lower average debt extinguishment costs. In addition, previously unamortized deferred financing costs of $0.1 million and original issue discount of $0.2 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the three months ended ~~March 31, 2020~~.balances.

Other Expense, Net

Other expense, net for the three months ended March 31, ~~2021~~2022 was ~~expense~~ ~~of $5.1~~$0.1 million, a decrease of ~~$2.4~~$5.0 million, as compared with ~~expense~~income of ~~$7.5~~$5.1 million for the three months ended March 31, ~~2020.~~2021. The ~~change~~decrease in other expense, net primarily consisted of ~~a decrease in~~smaller foreign currency ~~losses for~~gain in the ~~three months ended March 31, 2021~~current year as compared to ~~foreign currency losses for~~ the ~~three months ended March 31, 2020. Foreign currency gains and losses are primarily driven by~~prior year related to the ~~fluctuations in our~~ non-permanent intercompany debt denominated in local currency and translated to the U.S. ~~dollars.~~dollar, offset by net periodic benefit for the defined benefit pension and postretirement plans.

~~Benefit~~Provision (Benefit) for Income Taxes

The ~~benefit~~provision for income taxes for the three months ended March 31, ~~2021~~2022 was ~~$5.2~~$5.7 million compared to a ~~$1.7~~$5.2 million benefit for the three months ended March 31, ~~2020.~~2021. The effective income tax rate for the three months ended March 31, ~~2021~~2022 was ~~65.4%~~42.1% compared to ~~33.2%~~65.4% for the three months ended March 31, ~~2020.~~2021.

The Company’s effective income tax rate fluctuates primarily due to ~~income mix, the impacts of~~ GILTI, discrete impacts of the divestiture of the Performance Chemicals business, and ~~changes in foreign exchange gains and losses, which create permanent differences in certain jurisdictions.~~

~~Table of Contents~~

tax rate 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 March 31, ~~2021~~2022 was mainly due to ~~the impacts of GILTI,~~state and local taxes, a discrete shortfall tax expense related to stock compensation, and a discrete tax ~~impacts related to intraperiod allocation revaluation of deferred tax assets and liabilities as a result of~~expense associated with the ~~Performance Chemicals divestiture, and the tax effect of permanent differences related to foreign currency exchange gain or loss.~~Employee Retention Credit.

Net Income (Loss) ~~Income~~ Attributable to ~~PQ Group Holdings~~Ecovyst

For the foregoing reasons and after the effect of the non-controlling interest in earnings of subsidiaries for ~~each~~the period ~~presented,~~ending March 31, 2021, net income attributable to Ecovyst was $7.9 million for the three months ended March 31, 2022 compared with net loss ~~attributable to PQ Group Holdings was~~of $92.6 million for the three months ended March 31, ~~2021 compared with net income~~2021.

Table of ~~$0.2 million for the three months ended March 31, 2020.~~Contents

Adjusted EBITDA

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

Three months ended
March 31, Change
2021 2020 $ %
(in millions, except percentages)
Segment Adjusted EBITDA:(1)
Refining Services $ 33.0 $ 37.2 $ (4.2) (11.3) %
Catalysts(2)
18.5 22.7 (4.2) (18.5) %
Total Segment Adjusted EBITDA(3)
51.5 59.9 (8.4) (14.0) %
Unallocated corporate expenses (9.2) (11.3) 2.1 18.6 %
Total Adjusted EBITDA $ 42.3 $ 48.6 $ (6.3) (13.0) %


	Three months ended March 31,				Change
	2022		2021		$		%
	(in millions, except percentages)
Adjusted EBITDA:(1)
Ecoservices	$	49.3	$	33.0	$	16.3	49.4	%
Catalyst Technologies(2)	17.0		18.5		(1.5)		(8.1)	%
Unallocated corporate expenses	(7.1)		(9.2)		2.1		(22.8)	%
Total	$	59.2	$	42.3	$	16.9	40.0	%

(1)We define ~~Segment~~ Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on ~~Segment~~ Adjusted EBITDA. ~~Segment~~ Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. ~~Segment~~ Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2)The Adjusted EBITDA from the Zeolyst Joint Venture included in the ~~Catalysts~~Catalyst Technologies segment is $11.5 million for the three months ended March 31, 2022, which includes $5.8 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $4.1 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $10.5 million for the three months ended March 31, 2021, which includes $5.2 million of equity in net income, excluding $1.7 million of amortization of investment in affiliate step-up plus $3.6 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalysts segment is $13.7 million for the three months ended March 31, 2020, which includes $8.3 million of equity in net income, excluding $1.7 million of amortization of investment in affiliate step-up plus $3.8 million of joint venture depreciation, amortization and interest.

~~(3)~~Our total Segment Adjusted EBITDA differs from our total consolidated Adjusted EBITDA due to unallocated corporate expenses. Rounding discrepancies may arise when rounding segment results from dollars (in thousands) to dollars (in millions).

~~Refining Services:~~Ecoservices: Adjusted EBITDA for the three months ended March 31, ~~2021~~2022 was ~~$33.0~~$49.3 million, ~~a decrease~~an increase of ~~$4.2~~$16.3 million, or ~~11.3%~~49.4%, compared with ~~$37.2~~$33.0 million for the three months ended March 31, ~~2020.~~ 2021. The ~~decrease~~increase in Adjusted EBITDA ~~from lower volumes~~was a result of higher volume, favorable pricing covering rising input costs, and ~~higher repair costs to both our facilities and our customers facilities, estimated at $9.0 million, is related to unfavorable weather conditions~~the benefit of the Chem32 acquisition that closed in ~~the Gulf of Mexico.~~March 2021.

~~Catalysts:~~Catalyst Technologies: Adjusted EBITDA for the three months ended March 31, ~~2021~~2022 was ~~$18.5~~$17.0 million, a decrease of ~~$4.2~~$1.5 million, or ~~18.5%~~8.1%, compared with ~~$22.7~~$18.5 million for the three months ended March 31, ~~2020.~~ 2021. The decrease in Adjusted EBITDA was ~~a result of~~due to lower ~~fuels~~volumes as well as higher input and ~~emission control catalysts and unfavorable fixed cost absorption.~~energy production costs.

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A reconciliation of net ~~loss~~income (loss) from continuing operations to ~~Segment~~ Adjusted EBITDA is as follows:

Three months ended
March 31,
2021 2020
(in millions)
Reconciliation of net loss from continuing operations to Segment Adjusted EBITDA
Net loss from continuing operations $ (2.7) $ (3.4)
Benefit for income taxes (5.2) (1.7)
Interest expense, net 10.5 15.3
Depreciation and amortization 19.5 18.7
EBITDA 22.1 29.0
Joint venture depreciation, amortization and interest(a)
3.6 3.7
Amortization of investment in affiliate step-up(b)
1.7 1.7
Debt extinguishment costs — 2.5
Net loss on asset disposals(c)
0.8 0.2
Foreign currency exchange loss(d)
5.1 7.1
LIFO benefit(e)
(0.3) (1.7)
Transaction and other related costs(f)
0.5 0.8
Equity-based compensation 6.3 4.3
Restructuring, integration and business optimization expenses(g)
2.3 0.3
Defined benefit pension plan benefit(h)
(0.6) (0.1)
Other(i)
0.8 0.8
Adjusted EBITDA 42.3 48.6
Unallocated corporate expenses 9.2 11.3
Segment Adjusted EBITDA $ 51.5 $ 59.9


	Three months ended March 31,
	2022		2021
	(in millions)
Reconciliation of net income (loss) from continuing operations to Adjusted EBITDA
Net income (loss) from continuing operations	$	7.9	$	(2.7)
Provision (benefit) for income taxes	5.7		(5.2)
Interest expense, net	8.5		10.5
Depreciation and amortization	19.5		19.5
EBITDA	41.6		22.1
Joint venture depreciation, amortization and interest(a)	4.1		3.6
Amortization of investment in affiliate step-up(b)	1.6		1.7


Net loss on asset disposals(c)	0.1		0.8
Foreign currency exchange loss(d)	0.6		5.1
LIFO expense (benefit)(e)	0.2		(0.3)

Transaction and other related costs(f)	4.3		0.5
Equity-based compensation	7.3		6.3
Restructuring, integration and business optimization expenses(g)	0.4		2.3
Defined benefit pension plan benefit(h)	(0.6)		(0.6)
Other(i)	(0.4)		0.8
Adjusted EBITDA	$	59.2	$	42.3

(a)We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our ~~Catalysts~~Catalyst Technologies segment includes our 50% interest in the Zeolyst Joint Venture, we include an adjustment for our 50% proportionate share of depreciation, amortization and interest expense of the Zeolyst Joint Venture.

(b)Represents the amortization of the fair value adjustments associated with the equity affiliate investment in the Zeolyst Joint Venture as a result of the combination of the businesses of PQ Holdings Inc. and Eco Services Operations LLC in May 2016. We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture. Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how.

(c)When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

(d)Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income, 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)Relates to certain transaction costs, including debt financing, due diligence and other costs related to transactions that are completed, pending or abandoned, that we believe are not representative of our ongoing business operations.

(g)Includes the impact of restructuring, integration and business optimization expenses which are incremental costs that are not representative of our ongoing business operations.

(h)Represents adjustments for defined benefit pension plan (benefit) costs in our statements of income. All of our defined benefit pension plan obligations are under defined benefit pension plans that are frozen. As such, we do not view such income or expenses as core to our ongoing business operations.

~~Table of Contents~~

(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 a business combination consummated in a prior year period and~~ capital and franchise taxes. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

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Adjusted Net Income

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

Three months ended March 31,
2021 2020
Pre-tax Tax expense (benefit) After-tax Pre-tax Tax expense (benefit) After-tax
(in millions)
Reconciliation of net loss from continuing operations to Adjusted Net Income(1)(2)
Net loss from continuing operations $ (7.9) $ (5.2) $ (2.7) $ (5.1) $ (1.7) $ (3.4)
Less: Net income attributable to non-controlling interest - continuing operations — — — — — —
Net income attributable to PQ Group Holdings Inc. (7.9) (5.2) (2.7) (5.1) (1.7) (3.4)
Amortization of investment in affiliate step-up(b)
1.7 0.6 1.1 1.7 0.6 1.1
Debt extinguishment costs — — — 2.5 0.8 1.7
Net loss on asset disposals(c)
0.8 0.2 0.6 0.2 0.1 0.1
Foreign currency exchange loss(d)
5.1 1.4 3.7 7.1 2.3 4.8
LIFO benefit(e)
(0.3) (0.1) (0.2) (1.7) (0.6) (1.1)
Transaction and other related costs(f)
0.5 0.1 0.4 0.8 0.3 0.5
Equity-based compensation 6.3 1.8 4.5 4.3 1.4 2.9
Restructuring, integration and business optimization expenses(g)
2.3 0.7 1.6 0.3 0.1 0.2
Defined benefit pension plan benefit(h)
(0.6) (0.2) (0.4) (0.1) — (0.1)
Other(i)
0.8 0.4 0.4 0.8 0.2 0.6
Adjusted Net Income, including Intraperiod allocation $ 8.7 $ (0.3) $ 9.0 $ 10.8 $ 3.5 $ 7.3
Intraperiod allocation for restating discontinued operations(3)
— 2.9 (2.9) — — —
Adjusted Net Income $ 8.7 $ 2.6 $ 6.1 $ 10.8 $ 3.5 $ 7.3


	Three months ended March 31,
	2022						2021
	Pre-tax		Tax expense (benefit)		After-tax		Pre-tax		Tax expense (benefit)		After-tax
	(in millions)
Reconciliation of net income (loss) from continuing operations to Adjusted Net Income(1)(2)


Net income (loss) attributable to Ecovyst Inc.	$	13.6	$	5.7	$	7.9	$	(7.9)	$	(5.2)	$	(2.7)
Amortization of investment in affiliate step-up(b)	1.6		0.4		1.2		1.7		0.6		1.1


Net loss on asset disposals(c)	0.1		—		0.1		0.8		0.2		0.6
Foreign currency exchange loss(d)	0.6		0.1		0.5		5.1		1.4		3.7
LIFO expense (benefit)(e)	0.2		0.1		0.1		(0.3)		(0.1)		(0.2)

Transaction and other related costs(f)	4.3		1.0		3.3		0.5		0.1		0.4
Equity-based compensation(4)	7.3		(0.3)		7.6		6.3		1.8		4.5
Restructuring, integration and business optimization expenses(g)	0.4		0.1		0.3		2.3		0.7		1.6
Defined benefit pension plan benefit(h)	(0.6)		(0.2)		(0.4)		(0.6)		(0.2)		(0.4)
Other(i)	(0.4)		(0.1)		(0.3)		0.8		0.4		0.4
Adjusted Net Income, including Intraperiod allocation	$	27.1	$	6.8	$	20.3	$	8.7	$	(0.3)	$	9.0

Intraperiod allocation for restating discontinued operations(3)	—		—		—		—		2.9		(2.9)
Adjusted Net Income	$	27.1	$	6.8	$	20.3	$	8.7	$	2.6	$	6.1

(1)We define adjusted net income as net income attributable to ~~PQ Group Holdings~~Ecovyst adjusted for non-operating income or expense and the impact of certain non-cash or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted net income is presented as a key performance indicator as we believe it will enhance a prospective investor’s understanding of our results of operations and financial condition. Adjusted net income may not be comparable with net income or adjusted net income as defined by other companies.

(2)Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

(3)Due to ~~reporting~~the sale of the Performance Chemicals business, ~~as held for sale in discontinued operations,~~ the ~~estimated~~ tax ~~rate~~rates used to value deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) needs to be ~~adjusted to remove the Performance Chemicals rate.~~adjusted. Given it is a direct result of the sale of discontinued operations and the need to adjust the ~~estimated~~ tax ~~rate~~rates arose because of discontinued operations, the impact of revaluing the reporting entity’s DTAs and DTLs are reflected in continuing operations. ~~Due to this revaluation being solely as a result of~~

(4)Includes tax adjustments for the ~~Performance Chemicals divestiture and a non-cash item, it is treated as an addback.~~shortfall in stock compensation.

The adjustments to net income attributable to ~~PQ Group Holdings~~Ecovyst Inc. are shown net of applicable tax rates of ~~28.8%~~24.7% and ~~32.5%~~28.8% for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, except for the foreign currency exchange loss, equity-based compensation, transactions and other related costs, and discrete impacts of the divestiture of the Performance Chemicals business.

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Financial Condition, Liquidity and Capital Resources

Our primary sources of liquidity consist of cash ~~flow~~flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit facility. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds. Our primary liquidity requirements include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements and capital expenditures. Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our asset based lending revolving credit 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 asset based lending revolving credit facility to meet our future cash needs. As of March 31, ~~2021,~~2022, we had cash and cash equivalents of ~~$55.2~~$129.7 million and availability of ~~$105.6~~$76.8 million under our asset based lending revolving credit facility, after giving effect to ~~$17.8~~$13.4 million of outstanding letters of credit, for a total available liquidity of ~~$160.8~~$206.5 million. We did not have any revolving credit facility borrowings as of March 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, we were in compliance with all covenants under our debt agreements.

~~Included in our cash and cash equivalents~~We held an immaterial balance ~~as of March 31, 2021 was $0.8 million~~ of cash and cash equivalents ~~held~~ in foreign jurisdictions ~~on a continuing operations basis.~~as of March 31, 2022. We continue to repatriate cash held outside of the United States from certain foreign subsidiaries in order to meet domestic liquidity needs. Depending on domestic and foreign cash balances, we have certain flexibility to repatriate funds in order to meet those needs. Specifically, we have an intercompany loan structure in place with ~~several of our~~ foreign subsidiaries that allows us to repatriate foreign cash in a tax efficient manner from those subsidiaries. ~~In certain cases, the repatriation~~Repatriation of foreign cash ~~under previous U.S. tax law had~~is generally ~~been subject to U.S. income taxes at the time of cash distribution. Due to the enactment of the TCJA in December 2017, future overseas earnings repatriation will generally no longer be~~not subject to U.S. federal income taxes at the time of cash distribution. However, ~~future~~ foreign earnings may still be t~~axed~~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 ~~are significant, primarily due~~include interest payments related to our debt ~~service requirements.~~structure. As reported, our cash interest paid for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 was approximately ~~$17.8~~$8.4 million and ~~$19.8~~$17.8 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 ~~$11.3~~$8.9 million on interest expense. We hedge the interest rate fluctuations on debt obligations through interest rate cap agreements. As of March 31, ~~2021,~~2022, we had interest rate caps on $500.0 million of notional ~~variable~~variable-rate debt with a cap rate of 0.84% through July 2022, ~~and~~ $400.0 million of notional variable-rate debt with a cap rate of 1.00% through August ~~2023.~~2023, $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2024, and $250.0 million of notional variable-rate debt with a cap rate of 1.00% through October 2025.

~~Cash Flow~~The Company’s off-balance sheet arrangements include $13.4 million of outstanding letters of credit on our ABL Facility as of March 31, 2022.

Three months ended
March 31,
2021 2020
(in millions)
Continuing Operations
Net cash provided by (used in):
Operating activities $ 16.5 $ 11.1
Investing activities (54.5) (7.6)
Financing activities (1.5) 52.6
Discontinued Operations
Net cash provided by (used in):
Operating activities 0.9 (6.5)
Investing activities (22.0) (14.6)
Financing activities (0.5) 5.7
Effect of exchange rate changes on cash, cash equivalents and restricted cash (2.7) (4.3)
Net change in cash, cash equivalents and restricted cash (63.8) 36.4
Cash, cash equivalents and restricted cash at beginning of period 137.2 73.9
Cash, cash equivalents and restricted cash at end of period 73.4 110.3
Less: cash, cash equivalents and restricted cash of discontinued operations (16.6) (53.4)
Cash, cash equivalents and restricted cash at end of period of continuing operations $ 56.8 $ 56.9

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Cash Flow

Three months ended
March 31,
2021 2020
(in millions)
Continuing Operations
Net (loss) income $ (2.7) $ (3.4)
Non-cash and non-working capital related activities(1)
27.7 22.0
Changes in working capital (4.3) (6.5)
Other operating activities (4.2) (1.0)
Net cash provided by operating activities, continuing operations $ 16.5 $ 11.1


	Three months ended March 31,
	2022		2021
	(in millions)
Continuing Operations
Net cash provided by (used in):
Operating activities	$	6.4	$	16.5
Investing activities	(14.4)		(54.6)
Financing activities	(2.6)		(1.5)
Discontinued Operations
Net cash provided by (used in):
Operating activities	—		0.9
Investing activities	—		(22.0)
Financing activities	—		(0.5)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.6)		(2.7)
Net change in cash, cash equivalents and restricted cash	(11.2)		(63.9)
Cash, cash equivalents and restricted cash at beginning of period	140.9		137.2
Cash, cash equivalents and restricted cash at end of period	129.7		73.3
Less: cash, cash equivalents and restricted cash of discontinued operations	—		(16.6)
Cash, cash equivalents and restricted cash at end of period of continuing operations	$	129.7	$	56.7


	Three months ended March 31,
	2022		2021
	(in millions)
Continuing Operations
Net income	$	7.9	$	(2.7)
Non-cash and non-working capital related activities(1)	46.6		27.7
Changes in working capital	(40.7)		(4.3)
Other operating activities	(7.4)		(4.2)
Net cash provided by operating activities, continuing operations	$	6.4	$	16.5

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

Three months ended
March 31,
2021 2020
(in millions)
Continuing Operations
Working capital changes that provided (used) cash:
Receivables $ (9.4) $ (1.2)
Inventories 4.6 3.5
Prepaids and other current assets (2.2) (0.3)
Accounts payable 4.7 (3.1)
Accrued liabilities (2.0) (5.4)
$ (4.3) $ (6.5)

Three months ended
March 31,
2021 2020
(in millions)
Continuing Operations
Purchases of property, plant and equipment $ (12.6) $ (10.0)
Business combinations, net of cash acquired (42.0) —
Proceeds from sale of assets — 2.4
Net cash used in investing activities, continuing operations $ (54.6) $ (7.6)

Three months ended
March 31,
2021 2020
(in millions)
Continuing Operations
Net revolving credit facilities borrowings $ — $ 59.0
Net cash borrowings (repayments) on debt obligations — (3.0)
Other financing activities (1.5) (3.5)
Net cash (used in) provided by financing activities, continuing operations $ (1.5) $ 52.5


	Three months ended March 31,
	2022		2021
	(in millions)
Continuing Operations
Working capital changes that provided (used) cash:
Receivables	$	(10.4)	$	(9.4)
Inventories	(1.0)		4.6
Prepaids and other current assets	(3.6)		(2.2)
Accounts payable	2.2		4.7
Accrued liabilities	(27.9)		(2.0)

	$	(40.7)	$	(4.3)

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	Three months ended March 31,
	2022		2021
	(in millions)
Continuing Operations
Purchases of property, plant and equipment	$	(10.8)	$	(12.6)


Business combinations, net of cash acquired	—		(42.0)





Net cash used in investing activities, continuing operations	$	(14.4)	$	(54.6)


	Three months ended March 31,
	2022		2021
	(in millions)
Continuing Operations

Net cash borrowings (repayments) on debt obligations	(2.3)		—


Tax withholdings on equity award vesting	(0.3)		(1.5)
Net cash used in financing activities, continuing operations	$	(2.6)	$	(1.5)

The following discussions related to our cash flows are presented on a continuing operations basis, which excludes the cash flows from our Performance ~~Materials and Performance~~ Chemicals ~~businesses~~business accounted for as discontinued ~~operations. The discussion related to our adjusted free cash flow metric is presented on a consolidated basis.~~operations during the three months ended March 31, 2021.

Net cash provided by operating activities was ~~$16.5~~$6.4 million for the three months ended March 31, ~~2021,~~2022, compared to ~~$11.1~~$16.5 million provided for the three months ended March 31, ~~2020.~~2021. Cash generated by operating activities, other than changes in working capital, was higher during the three months ended March 31, ~~2021~~2022 by ~~$3.4~~$26.3 million compared to the same period in the prior year. The change in working capital during the three months ended March 31, ~~2021~~2022 was ~~favorable~~unfavorable compared to the three months ended March 31, ~~2020.~~2021. Cash used to fund working capital was ~~$4.3~~$40.7 million and ~~$6.5~~$4.3 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

The increase in cash generated by operating activities, other than changes in working capital, was higher by ~~$3.4~~$26.3 million as compared to the prior year period primarily due to an increase in operating profit and an increase in dividends received from affiliated ~~companies offset by a decline in operating profit.~~companies.

The ~~increase~~decrease in cash from working capital of ~~$2.2~~$36.4 million as compared to the prior year was primarily due to ~~favorable~~unfavorable changes in accounts receivable, inventories, ~~accounts payable~~prepaid and other current assets, and accrued liabilities which were partially offset by ~~unfavorable~~favorable changes in accounts payable.

The unfavorable change in accounts receivable ~~and~~was driven by the timing of sales. The unfavorable change in prepaid and other current ~~assets.~~

assets primarily relates to the timing of non-trade receivables from related parties and the timing of insurance prepayments. The increase inof cash ~~provided~~used by inventory ~~changes~~ was due to the inflation costs on raw materials and finished goods, where as cash provided in prior period was due to the timing of sales orders ~~for our polyethylene catalysts in the current year period~~ and inventory ~~build in the prior year period.~~ build. The favorable change in accounts payable is due to the timing of vendor payments as well as lower capital ~~spending and the favorable~~spending. The unfavorable change in accrued liabilities relates to changes in various ~~expense~~ accruals. ~~The unfavorable change in accounts receivable was driven by the timing of collections on receivable balances.~~

Net cash used in investing activities was ~~$54.6~~$14.4 million for the three months ended March 31, ~~2021,~~2022, compared to cash used of ~~$7.6~~$54.6 million during the same period in ~~2020.~~2021. Cash used in investing activities consisted of utilizing ~~$12.6~~$10.8 million and ~~$10.0~~$12.6 million to fund capital expenditures during the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. During the ~~quarter~~three months ended March 31, 2021, we acquired Chem32, LLC for $42.0 million. ~~We received proceeds of $2.4 million related to the sale of non-core assets during the three months ended March 31, 2020.~~

Net cash used in financing activities was ~~$1.5~~$2.6 million for the three months ended March 31, ~~2021,~~2022, compared to net cash ~~provided~~used of ~~$52.5~~$1.5 million during the same period in ~~2020.~~2021. Net cash used in financing activities was primarily driven by ~~$1.5 million~~$2.3 of ~~stock repurchases during~~debt repayment charges for the three months ended March 31, ~~2021. Net cash provided by financing activities was primarily driven by $59.0 million of net borrowings under our revolving credit facilities made through the three months ended March 31, 2020.~~

~~Adjusted Free Cash Flow~~

Adjusted free cash flow is a non-GAAP metric management reviews to gauge liquidity performance. Adjusted free cash flow is calculated as cash flow from operating activities less purchases of property, plant and equipment, adjusted for proceeds from the sale of assets, net interest proceeds on swaps designated as net investment hedges and the cash paid for costs related to segment disposals. For the three months ended March 31, 2021, adjusted free cash flow of $2.7 million was favorable to the prior year as cash flow from operating activities increased on a favorable change in working capital. Purchases of property, plant and equipment decreased as lower spending in discontinued operations was partially offset by higher maintenance of business capital in Refining Services.2022.

~~Table of Contents~~

Three months ended
March 31,
2021 2020
(in millions)
Net cash provided by operating activities, continuing operations $ 16.5 $ 11.1
Net cash provided by operating activities, discontinued operations 0.9 (6.5)
Net cash provided by operating activities 17.4 4.6
Less:
Purchases of property, plant and equipment, continuing operations (12.6) (10.0)
Purchases of property, plant and equipment, discontinued operations (11.7) (18.1)
Purchases of property, plant and equipment(1)
(24.3) (28.1)
Free cash flow (6.9) (23.5)
Adjustments to free cash flow:
Proceeds from sale of assets 0.3 2.4
Net interest proceeds on currency swaps 2.3 1.8
Cash paid for costs related to segment disposals 7.0 —
Adjusted free cash flow(2)
$ 2.7 $ (19.3)
Net cash used in investing activities(3)
$ (54.6) $ (7.6)
Net cash used in financing activities $ (1.5) $ 52.5

~~(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. You should not consider adjusted free cash flow in isolation or as an alternative to the presentation of our financial results in accordance with GAAP. The presentation of adjusted free cash flow may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures.

~~(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.

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Debt


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(in millions)					(in millions)
Senior Secured Term Loan Facility due February 2027		$	671.7	$	671.7
New Senior Secured Term Loan Facility due February 2027		459.7		459.7

5.75% Senior Unsecured Notes due 2025		295.0		295.0
Senior Secured Term Loan Facility due June 2028						Senior Secured Term Loan Facility due June 2028	$	893.2	$	895.5
ABL Facility	ABL Facility	—		—		ABL Facility	—		—

Total debt	Total debt	1,426.4		1,426.4		Total debt	893.2		895.5
Original issue discount	Original issue discount	(15.1)		(15.6)		Original issue discount	(8.4)		(8.8)
Deferred financing costs	Deferred financing costs	(9.7)		(10.4)		Deferred financing costs	(4.7)		(4.9)
Total debt, net of original issue discount and deferred financing costs	Total debt, net of original issue discount and deferred financing costs	1,401.6		1,400.4		Total debt, net of original issue discount and deferred financing costs	880.1		881.8
Less: current portion	Less: current portion	—		—		Less: current portion	(9.0)		(9.0)
Total long-term debt, excluding current portion	Total long-term debt, excluding current portion	$	1,401.6	$	1,400.4	Total long-term debt, excluding current portion	$	871.1	$	872.8

As of March 31, ~~2021,~~2022, our total debt was ~~$1,426.4~~$893.2 million, excluding the original issue discount of ~~$15.1~~$8.4 million and deferred financing fees of ~~$9.7~~$4.7 million for our senior secured credit ~~facilities and notes.~~facilities. Our net debt as of March 31, ~~2021~~2022 was ~~$1,371.2~~$763.5 million, including cash and cash equivalents of ~~$55.2~~$129.7 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt.

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.


		Three months ended March 31,					Three months ended March 31,
		2021		2020			2022		2021
		(in millions)					(in millions)
Maintenance capital expenditures	Maintenance capital expenditures	$	9.2	$	7.2	Maintenance capital expenditures	$	7.0	$	9.2
Growth capital expenditures	Growth capital expenditures	2.6		2.3		Growth capital expenditures	2.1		2.6
Total capital expenditures	Total capital expenditures	$	11.8	$	9.5	Total capital expenditures	$	9.1	$	11.8

Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. Maintenance capital expenditures were ~~higher~~lower in the three months ended March 31, ~~2021 as~~2022 compared to the three months ended March 31, ~~2020~~2021 due to ~~higher spending on health and safety.~~lower turnaround expenditures. Growth capital expenditures were ~~in-line~~lower in the three months ended March 31, ~~2021 as~~2022 compared to the three months ended March 31, ~~2020.~~

~~Pension Funding~~

~~We paid $0.0 million and $0.9 million~~2021, due to the completion of several expansion projects in cash contributions into our defined benefit pension plans and other post-retirement plans during the three months ended March 31, 2021 and 2020, respectively. The net periodic pension expense was $0.6 million and $0.1 million for those same periods, respectively.

~~Off–Balance Sheet Arrangements~~

~~We had $17.8 million of outstanding letters of credit on our ABL Facility as of March 31,~~ 2021.

~~Contractual Obligations~~

~~Information related to our contractual obligations at December 31, 2020 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Op~~erations” included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 17, 2021, which we refer to as our Annual Report on Form 10-K. During the three months ended March 31, 2021, there have been no significant c~~hanges to our contractual obligations as disclosed in our Annual Report on Form 10-K.~~

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Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis.

There has been no material change in our critical accounting policies and use of estimates from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K.

Accounting Standards Not Yet Adopted

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards and their effect on us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our major market risk exposure is potential losses arising from changing rates and prices regarding foreign currency exchange rate risk, interest rate risk, commodity price risk and credit risk. The audit committee of our board of directors regularly reviews foreign exchange, interest rate and commodity hedging activity and monitors compliance with our hedging policy. We do not use financial instruments for speculative purposes, and we limit our hedging activity to the underlying economic exposure.

There have been no material changes in the foreign exchange risk, interest rate risk, commodity risk or credit risk discussed in Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” included in our Annual Report on Form 10-K. ~~other than the following item:~~

~~Foreign Exchange Risk~~

In March 2021, as a result of the Performance Materials and Performance Chemicals divestitures, we settled our cross-currency swaps. At the date of settlement, the total notional value of the cross-currency swaps was $311.4 million. We paid $13.2 million in cash to settle the swaps, which is included in net cash used in investing activities, discontinued operations in our condensed consolidated statement of cash flows for the three months ended March 31, 2021, as the underlying subsidiary subject to the net investment hedging relationship is part of the Performance Chemicals business.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, ~~2021,~~2022, the end of the period covered by this Quarterly Report on Form 10-Q.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended March 31, ~~2021~~2022 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time we may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as personal injury, product liability and warranty claims, waste disposal practices, release of chemicals into the environment and other matters that may arise in the ordinary course of our business. We currently believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A. RISK FACTORS.

“Item 1A, Risk Factors” in our Annual Report on Form 10-K includes a discussion of our risk factors. ~~There~~The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K. The effects of the events and circumstances described in the following risk factor may have the additional effect of heightening many of the risks noted in our Annual Report on Form 10-K. Except as presented below, there have been no material changes from the risk factors described in our Annual Report on Form 10-K.

Our international operations require us to comply with anti-corruption laws, economic sanctions, export controls and similar laws and regulations of the U.S. government and various international jurisdictions in which we do business.

Doing business on a worldwide basis requires us and our subsidiaries to comply with the laws and regulations of the U.S. government and various international jurisdictions, and our failure to successfully comply with these laws and regulations may restrict our operations, trade practices, investment decisions and partnering activities and may expose us to liabilities. Such laws and regulations apply to companies, individual directors, officers, employees and agents.

In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the Foreign Corrupt Practices Act (“FCPA”) and the U.K. Bribery Act. For example, the FCPA prohibits us from providing anything of value to foreign officials for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment, and requires us to maintain adequate record-keeping and internal accounting practices to accurately reflect our transactions. As part of our business, we may deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. In addition, some of the international locations into which we sell our products lack a developed legal system and have elevated levels of corruption. As a result, we are exposed to corruption-related risk.

In addition, we are subject to applicable economic sanctions, export controls, and similar laws and regulations imposed by the U.S. government and other countries. These laws and regulations may restrict our business practices, or the counterparties or regions with which we can trade. In addition, these laws and regulations are subject to frequent change, and such changes may require us to adjust our business practices, including by ceasing business activities in newly sanctioned countries or regions or with newly sanctioned entities or individuals, or to modify our compliance program. For example, the current invasion of Ukraine by Russia and the related sanctions, export controls or other actions that have been or may be initiated by nations—including the U.S., the European Union, the United Kingdom, and Russia—could disrupt or otherwise adversely impact our customers in those countries, as well as adversely impact our business or our supply chain, business partners or customers in other countries beyond Ukraine and Russia. Further, violations of these legal requirements are punishable by criminal fines and imprisonment, civil penalties, disgorgement of profits, injunctions, debarment from government contracts, loss of export privileges and other remedial measures.

We have established policies and procedures designed to assist us and our personnel in complying with applicable U.S. and international laws and regulations. These policies and procedures are codified in our Code of Conduct and other various policies. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these laws and regulations in every transaction in which we may engage, and such a violation could subject us to governmental investigations and adversely affect our reputation, business, financial condition and results of operations.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Tax Withholdings

The following table contains information about shares of common stock delivered to the Company by employees to satisfy income tax withholding obligations of the employees in connection with the vesting of restricted stock units during the first quarter of 2021.

Maximum Number
Total Number of (or Dollar Value) of
Shares of Common Stock Shares of Common Stock
Total Number of Average Price Purchased as Part of that May Yet Be
Shares of Common Paid per Share of Publicly Announced Purchased Under the
Stock Purchased Common Stock Plan or Programs Plans or Programs
January 1, 2021 - January 31, 2021 98,627 $ 14.90 N/A N/A
February 1, 2021 - February 28, 2021 — — N/A N/A
March 1, 2021 - March 31, 2021 — — N/A N/A
Total 98,627


	Total Number of Shares of Common Stock Purchased	Average Price Paid per Share of Common Stock		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plan or Programs	Maximum Number (or Dollar Value) of Shares of Common Stock that May Yet Be Purchased Under the Plans or Programs

January 1, 2022—January 31, 2022	23,257	$	10.26	N/A	N/A
February 1, 2022—February 28, 2022	—	$	—	N/A	N/A
March 1, 2022—March 31, 2022	8,801	$	10.63	N/A	N/A
Total	32,058

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ITEM 6. EXHIBITS.

The following exhibits are being filed or furnished as part of this Quarterly Report on Form 10-Q:


Exhibit No.			Description
~~2.1~~			Stock Purchase Agreement, dated as of February 28, 2021, by and among PQ Group Holdings Inc. and Sparta Aggregator L.P. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K, filed March 4, 2021)
10.1			~~Transition Agreement and~~ General Release and Waiver of Claims, bydated April 25, 2022, between Ecovyst Inc., Ecovyst Catalyst Technologies LLC and ~~between the Company, PQ and Michael Crews~~Belgacem Chariag (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed ~~March 23, 2021)~~on April 29, 2022
31.1			Certification of Chief Executive Officer of ~~PQ Group Holdings~~Ecovyst Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer of ~~PQ Group Holdings~~Ecovyst Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer of ~~PQ Group Holdings~~Ecovyst Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer of ~~PQ Group Holdings~~Ecovyst Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following materials from the Quarterly Report on Form 10-Q of ~~PQ Group Holdings~~Ecovyst Inc. for the quarter ended March 31, ~~2021,~~2022, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information, tagged as blocks of text and including detailed tags
104			The cover page from the Quarterly Report on Form 10-Q of ~~PQ Group Holdings~~Ecovyst Inc. for the quarter ended March 31, ~~2021,~~2022, formatted in Inline XBRL and included as Exhibit 101

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			~~PQ GROUP HOLDINGS INC.~~Ecovyst Inc.

Date:	May ~~17, 2021~~3, 2022	By:	/s/ MICHAEL ~~CREWS~~FEEHAN
			Michael ~~Crews~~Feehan
			~~Executive~~ Vice President and Chief Financial Officer
			(Duly Authorized Officer and Principal Financial and Accounting Officer)

4947


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3230
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4643
Item 4.	Controls and Procedures	4643

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	4744
Item 1A.	Risk Factors	4744
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	47

Item 6.	Exhibits	4846

	SIGNATURES	4947














	Three months ended March 31, 2020
	Refining Services		Catalysts		Total
Industrial & process chemicals	$	19,359	$	47	$	19,406
Fuels & emission control(1)	55,710		0		55,710
Packaging & engineered plastics	10,734		24,817		35,551


Natural resources	14,887		0		14,887
Total segment sales	100,690		24,864		125,554













	U.S.				Foreign
	Three months ended March 31,				Three months ended March 31,
	2021		2020		2021		2020
Service cost	$	0	$	192	$	0	$	261
Interest cost	551		675		65		72
Expected return on plan assets	(1,094)		(970)		(65)		(69)
Amortization of net loss	0		0		0		23


Net periodic (benefit) expense	$	(543)	$	(103)	$	0	$	287