- Sales of $352.4 million for the fourth quarter and $1,567.1
million for the year;
- Net income of $19.1 million with diluted EPS of $0.14 and
Adjusted net income of $18.0 million with Adjusted diluted EPS of
$0.13 for the quarter; Net income of $79.5 million with diluted EPS
of $0.59 and Adjusted net income of $125.2 million with Adjusted
diluted EPS of $0.92 for the year;
- Adjusted EBITDA of $103.1 million for the quarter and $474.3
million for the year; Adjusted EBITDA margin of 27.3% for the year
expanded 100 basis points;
- Net cash provided by operating activities of $267.7 million and
Adjusted free cash flow of $166.2 million for the year;
- Repaid debt of $215 million and reduced leverage ratio to 3.9x
at year-end;
- Launched transformation of the Performance Chemicals business
focusing on future efficiency and growth
The financial results and outlook include non-GAAP financial
measures. These non-GAAP measures are more fully described and are
reconciled from the respective measures determined under GAAP in
“Presentation of Non-GAAP Financial Measures” and the attached
appendix tables.
PQ Group Holdings Inc. (NYSE:PQG) (“PQ” or the “Company”)
reported results for the fourth quarter and year ended December 31,
2019. For the fourth quarter, sales of $352.4 million declined 7.3%
from the fourth quarter of 2018. Net income was $19.1 million with
$0.14 diluted EPS and Adjusted net income was $18.0 million with
$0.13 Adjusted diluted EPS. Adjusted EBITDA was $103.1 million. For
the year, sales were $1,567.1 million, a decrease of 2.6% over
2018. Net income was $79.5 million with $0.59 diluted EPS. Adjusted
net income was $125.2 million with $0.92 Adjusted diluted EPS.
Adjusted EBITDA was $474.3 million.
“We had a better than expected finish to 2019 driven by the
excellent performance of our Catalysts business in the fourth
quarter,” commented Belgacem Chariag, PQ Chairman, President and
Chief Executive Officer. “For the year, our Catalysts and
Performance Materials business segments delivered outstanding
results leading to a solid financial outcome. Strong commercial
execution and improved capital efficiency coupled with asset
monetizations drove a record $166 million of Adjusted free cash
flow, ahead of our guidance. This enabled us to repay $215 million
of debt and reduce our leverage ratio by more than one-half turn,
in line with our commitment.”
Review of Segment Results
Refining Services
For the quarter ended December 31, 2019, sales of $105.7 million
decreased 11.5% versus the same period in 2018 largely on the
pass-through of $7 million of lower sulfur pricing coupled with
lower volumes from unplanned customer outages and weaker demand for
virgin sulfuric acid. Adjusted EBITDA of $41.9 million declined
16.4% on lower volumes. The prior year period included a gain of
$4.0 million related to an insurance recovery.
For the year ended December 31, 2019, sales of $447.1 million
decreased 1.9% versus the same period in 2018 due to lower volumes
from unplanned customer outages, softer demand for virgin sulfuric
acid and pass-through of lower sulfur pricing, offset by higher
average pricing from the roll-off of a below-market contract.
Adjusted EBITDA of $175.6 million was in line with prior year, as
favorable pricing offset lower volumes.
Catalysts
For the quarter ended December 31, 2019, Silica Catalysts sales
of $23.3 million increased 5.9% versus the same period in 2018,
largely driven by accelerated methyl methacrylate sales. Zeolyst JV
sales rose 29.6% on continued robust demand for hydrocracking
catalysts. Adjusted EBITDA of $28.5 million increased 50.8% on
higher sales volumes and favorable mix in both Silica Catalysts and
the Zeolyst JV.
For the year ended December 31, 2019, Silica Catalysts sales of
$85.7 million increased 18.9% versus the same period in 2018,
driven by higher sales across the portfolio. Zeolyst JV sales rose
8.7% as higher demand for hydrocracking catalysts and specialty
catalysts more than offset lower sales in emission control
catalysts. Adjusted EBITDA of $107.8 million increased 32.9% on
higher sales volumes and lower costs.
Performance Materials
For the quarter ended December 31, 2019, sales of $67.9 million
decreased 7.9%, or 6.4% on a constant currency basis, as strong
pricing was more than offset by lower volumes of engineered glass
materials (EGM) for industrial applications. Adjusted EBITDA of
$11.2 million increased 6.7%, or 8.6% on a constant currency basis
versus the same period in 2018, benefiting from favorable pricing
and lower variable costs.
For the year ended December 31, 2019, sales of $363.0 million
decreased 4.0%, or 1.5% on a constant currency basis, driven by
lower sales volumes of EGM for industrial applications. Adjusted
EBITDA of $76.7 million increased 5.8%, or 7.6% on a constant
currency basis versus the same period in 2018, largely on favorable
pricing.
In February 2020, we entered into a long-term agreement with a
leading global thermoplastic producer to supply glass beads, and to
meet that supply, exchanged our ThermoDrop® product line for their
glass bead production facilities in the U.S.
Performance Chemicals
For the quarter ended December 31, 2019, sales of $158.9 million
decreased 5.9%, or 5.1% on a constant currency basis versus the
same period in 2018, from continued weaker demand for sodium
silicate in the Americas. Adjusted EBITDA of $33.6 million
decreased 14.3%, or 13.3% on a constant currency basis, on lower
sales volumes.
For the year ended December 31, 2019, sales of $685.1 million
decreased 4.5%, or 1.9% on a constant currency basis versus the
same period in 2018, primarily due to weaker demand for sodium
silicate. Adjusted EBITDA of $154.3 million decreased 9.7%, or 6.8%
on a constant currency basis, on lower sales volumes coupled with
higher maintenance costs.
In January 2020, we launched a transformation plan for
Performance Chemicals to improve efficiency and growth in four key
areas - manufacturing excellence, network optimization, commercial
discipline and integrated business management.
Cash Flows and Balance Sheet
For the year ended December 31, 2019, cash flows from operating
activities increased $19.1 million to $267.7 million, compared to
$248.6 million for the same period in 2018. This increase was
primarily driven by an increase in net income and favorable changes
in working capital.
At December 31, 2019, the Company had cash and cash equivalents
of $72.3 million and total debt outstanding of $1,932.1 million.
During the year ended December 31, 2019, the Company repaid $215
million of long term debt and the net debt to Adjusted EBITDA ratio
was 3.9x as of December 31, 2019.
2020 Financial Outlook
The outlook for 2020 is impacted by the limited recovery in
demand for Performance Chemicals products in the first part of the
year. While three of our business units are set for healthy growth,
the Catalysts business is projected to decline following an
excellent year in 2019.
Commenting on the 2020 outlook, Chariag said, “During 2020, we
will build on our 2019 performance and portfolio optimization
actions by executing the transformation plan for Performance
Chemicals. The combination of these efforts with our improving
financial flexibility positions us to accelerate our future growth
prospects.”
The Company provides 2020 guidance as below.
- Sales of $1,595 million to $1,625 million, reflecting lower
sulfur prices and continued weak demand for Performance Chemicals
through the first half of 2020
- Adjusted EBITDA of $470 million to $480 million range
- Adjusted diluted EPS of approximately $0.85 to $1.02
- Adjusted free cash flow in the range of $155 million to $175
million
Conference Call and Webcast Details
On Thursday, February 20, 2020, PQ management will release its
fourth quarter and full year 2019 results during a conference call
and audio-only webcast scheduled for 11:00 a.m. Eastern Time.
Conference Call: Investors may listen to the conference call
live via telephone by dialing 1 (877) 883-0383 (domestic) or 1
(412) 902-6506 (international) and use the participant code
2786673.
Webcast: An audio-only webcast of the conference call and
presentation materials can be accessed at
http://investor.pqcorp.com.
A replay of the conference call/webcast will be made available
at http://investor.pqcorp.com/events-presentations.
Investor Contact:
Nahla A. Azmy
(610) 651-4561
Nahla.Azmy@pqcorp.com
About PQ Group Holdings Inc.
PQ Group Holdings Inc. and subsidiaries is a leading integrated
and innovative global provider of specialty catalysts, materials,
chemicals and services. We support customers globally through our
strategically located network of manufacturing facilities. We
believe that our products, which are predominantly inorganic, and
services contribute to improving the sustainability of the
environment.
We have four uniquely positioned specialty businesses:
Refining Services provides sulfuric acid recycling to the
North American refining industry; Catalysts serves the
packaging and engineering plastics and the global refining,
petrochemical and emissions control industries; Performance
Materials produces transportation reflective safety markings
for roads and airports; and Performance Chemicals supplies
diverse product end uses, including personal and industrial
cleaning products, fuel-efficient tires, surface coatings, and food
and beverage products.
We serve over 4,000 customers globally across many end uses and
operate over 70 manufacturing facilities which are strategically
located across six continents. For more information, see our
website at https://www.pqcorp.com.
Presentation of Non-GAAP Financial Measures
In addition to the results provided in accordance with U.S.
generally accepted accounting principles (“GAAP”) throughout this
press release, the Company has provided non-GAAP financial
measures—Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free
cash flow, Adjusted net income, Adjusted EPS, Adjusted diluted EPS,
constant currency sales and constant currency Adjusted EBITDA—which
present results on a basis adjusted for certain items. The Company
uses these non-GAAP financial measures for business planning
purposes and in measuring its performance relative to that of its
competitors. The Company believes that these non-GAAP financial
measures are useful financial metrics to assess its operating
performance from period-to-period by excluding certain items that
the Company believes are not representative of its core business.
These non-GAAP financial measures are not intended to replace, and
should not be considered superior to, the presentation of the
Company’s financial results in accordance with GAAP. The use of the
terms Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash
flow, Adjusted net income, Adjusted EPS, Adjusted diluted EPS,
constant currency sales and constant currency Adjusted EBITDA may
differ from similar measures reported by other companies and may
not be comparable to other similarly titled measures. Adjusted
EBITDA, Adjusted free cash flow, Adjusted net income, Adjusted EPS,
Adjusted diluted EPS, constant currency sales and constant currency
Adjusted EBITDA are reconciled from the respective measures under
GAAP in the appendix below.
In discussing our operating results, the term currency exchange
rates refers to the currency exchange rates we use to convert the
operating results for all countries where the functional currency
is not the U.S. dollar. We calculate constant currency sales and
constant currency Adjusted EBITDA by translating current period
results at the prior period’s currency exchange rates. When we
refer to constant currency sales and constant currency Adjusted
EBITDA, this means sales and Adjusted EBITDA without the impact of
the currency exchange rate fluctuations from period-to period.
The Company is not able to provide a reconciliation of the
Company’s non-GAAP financial guidance to the corresponding GAAP
measures without unreasonable effort because of the inherent
difficulty in forecasting and quantifying certain amounts necessary
for such a reconciliation such as certain non-cash, nonrecurring or
other items that are included in net income and EBITDA as well as
the related tax impacts of these items and asset dispositions /
acquisitions and changes in foreign currency exchange rates that
are included in cash flow, due to the uncertainty and variability
of the nature and amount of these future charges and costs.
Zeolyst Joint Venture
The Company’s zeolite catalysts product group operates through
its Zeolyst Joint Venture, which is accounted for as an equity
method investment in accordance with GAAP. The presentation of the
Zeolyst Joint Venture’s sales represents 50% of the sales of the
Zeolyst Joint Venture. The Company does not record sales by the
Zeolyst Joint Venture as revenue and such sales are not
consolidated within the Company’s results of operations. However,
the Company’s Adjusted EBITDA reflects the share of earnings of the
Zeolyst Joint Venture that have been recorded as equity in net
income from affiliated companies in the Company’s consolidated
statements of income for such periods and includes Zeolyst Joint
Venture adjustments on a proportionate basis based on the Company’s
50% ownership interest. Accordingly, the Company’s Adjusted EBITDA
margins are calculated including 50% of the sales of the Zeolyst
Joint Venture for the relevant periods in the denominator.
Note on Forward-Looking Statements
Some of the information contained in this press release
constitutes “forward-looking statements.” Forward-looking
statements can be identified by words such as “anticipates,”
“intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,”
“projects” and similar references to future periods.
Forward-looking statements are based on our current expectations
and assumptions regarding our business, the economy and other
future conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks and
changes in circumstances that are difficult to predict. Examples of
forward-looking statements include, but are not limited to,
statements regarding our future results of operations, financial
condition, liquidity, prospects, growth, strategies, product and
service offerings and 2020 outlook. Our actual results may differ
materially from those contemplated by the forward-looking
statements. We caution you, therefore, against relying on any of
these forward-looking statements. They are neither statements of
historical fact nor guarantees or assurances of future performance.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, regional, national or global political,
economic, business, competitive, market and regulatory conditions,
including tariffs and trade disputes, currency exchange rates and
other factors, including those described in the sections titled
“Risk Factors” and “Management Discussion & Analysis of
Financial Condition and Results of Operations” in our filings with
the SEC, which are available on the SEC’s website at www.sec.gov.
These forward-looking statements speak only as of the date of this
release. Factors or events that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We undertake no obligation to update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by
applicable law.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
INCOME
Three months ended December
31,
%
Years ended December
31,
%
2019
2018
Change
2019
2018
Change
(in millions, except
percentages, share and per share amounts)
Sales
$
352.4
$
380.1
(7.3
)%
$
1,567.1
$
1,608.2
(2.6
)%
Cost of goods sold
271.2
292.4
(7.2
)%
1,176.6
1,226.5
(4.1
)%
Gross profit
81.2
87.7
(7.4
)%
390.5
381.7
2.3
%
Selling, general and administrative
expenses
43.3
42.3
2.4
%
166.9
168.6
(1.0
)%
Other operating expense, net
7.4
(12.2
)
(161.0
)%
35.8
29.5
21.4
%
Operating income
30.5
57.6
(47.0
)%
187.8
183.6
2.3
%
Equity in net income from affiliated
companies
(14.3
)
(6.5
)
120.6
%
(46.0
)
(37.6
)
22.3
%
Interest expense, net
26.6
29.1
(8.4
)%
111.5
113.7
(1.9
)%
Debt extinguishment costs
1.6
1.1
45.5
%
3.4
7.8
(56.4
)%
Other (income) expense, net
(4.0
)
(2.0
)
97.8
%
(2.1
)
11.1
(118.9
)%
Income before income taxes and
noncontrolling interest
20.6
35.9
(42.6
)%
121.0
88.6
36.6
%
Provision for income taxes(1)
1.2
7.4
(83.2
)%
40.7
29.0
40.3
%
Effective tax rate
6.0
%
20.6 %
33.6
%
32.7 %
Net income
19.4
28.5
(31.9
)%
80.3
59.6
34.7
%
Less: Net income attributable to the
noncontrolling interest
0.3
0.3
(11.7
)%
0.8
1.3
(38.5
)%
Net income attributable to PQ Group
Holdings Inc.
$
19.1
$
28.2
(32.1
)%
$
79.5
$
58.3
36.4
%
Net income per share:
Basic income per share:
$
0.14
$
0.21
$
0.59
$
0.44
Diluted income per share:
$
0.14
$
0.21
$
0.59
$
0.43
Weighted average shares outstanding:
Basic
134,912,212
133,765,294
134,389,667
133,380,567
Diluted
136,151,739
134,987,604
135,548,694
134,684,931
(1)
Net of a $4.6 million benefit and $9.2
million provision for Global Intangible Low-Taxed Income (“GILTI”)
for the three months and year ended December 31, 2019,
respectively. Net of a $5.8 million and $15.6 million provision for
GILTI for the three months and year ended December 31, 2018,
respectively, and a $4.5 million and $6.0 million provisional
benefit adjustment for the impact of the U.S. Tax Cuts and Job Act
of 2017 and the Dutch Tax Plan 2019 for the three months and year
ended December 31, 2018, respectively.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS
(in millions, except share and
per share amounts)
December 31, 2019
December 31, 2018
ASSETS
Cash and cash equivalents
$
72.3
$
57.9
Accounts receivables, net
179.6
196.8
Inventories, net
280.9
264.7
Prepaid and other current assets
35.8
39.2
Total current assets
568.6
558.6
Investments in affiliated companies
472.9
468.2
Property, plant and equipment, net
1,186.8
1,209.0
Goodwill
1,259.8
1,254.9
Other intangible assets, net
676.4
728.4
Right-of-use lease assets
57.3
—
Other long-term assets
99.1
108.3
Total assets
$
4,320.9
$
4,327.4
LIABILITIES
Notes payable and current maturities of
long-term debt
$
7.8
$
7.2
Accounts payable
144.4
148.4
Operating lease liabilities—current
15.2
—
Accrued liabilities
102.2
100.0
Total current liabilities
269.6
255.6
Long-term debt, excluding current
portion
1,899.2
2,106.7
Deferred income taxes
218.0
196.1
Operating lease liabilities—noncurrent
40.2
—
Other long-term liabilities
108.6
104.8
Total liabilities
2,535.6
2,663.2
Commitments and contingencies
EQUITY
Common stock ($0.01 par); authorized
shares 450,000,000; issued shares 136,861,382 and 135,758,269 on
December 31, 2019 and 2018, respectively; outstanding shares
136,464,961 and 135,592,045 on December 31, 2019 and 2018,
respectively
1.4
1.4
Preferred stock ($0.01 par); authorized
shares 50,000,000; no shares issued or outstanding on December 31,
2019 and 2018, respectively
—
—
Additional paid-in capital
1,696.9
1,674.7
Retained earnings
103.0
25.5
Treasury stock, at cost; shares 396,421
and 166,224 on December 31, 2019 and 2018, respectively
(6.5
)
(2.9
)
Accumulated other comprehensive loss
(15.4
)
(39.1
)
Total PQ Group Holdings Inc. equity
1,779.4
1,659.6
Noncontrolling interest
5.9
4.6
Total equity
1,785.3
1,664.2
Total liabilities and equity
$
4,320.9
$
4,327.4
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CASH FLOWS
Years ended December
31,
2019
2018
Cash flows from operating activities:
Net income
$
80.3
$
59.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
131.6
132.6
Amortization
50.4
52.6
Amortization of inventory step-up
—
1.6
Intangible asset impairment charge
1.6
—
Amortization of deferred financing costs
and original issue discount
5.8
6.1
Debt extinguishment costs
3.4
5.6
Foreign currency exchange loss
2.8
13.8
Pension and postretirement healthcare
benefit expense
3.7
1.1
Pension and postretirement healthcare
benefit funding
(9.7
)
(7.6
)
Deferred income tax provision
18.3
3.4
Net (gain) loss on asset disposals
(13.1
)
6.6
Stock compensation
18.2
19.5
Equity in net income from affiliated
companies
(46.0
)
(37.6
)
Dividends received from affiliated
companies
40.1
40.2
Net interest income on swaps designated as
net investment hedges
(8.5
)
(4.9
)
Gain on contract termination
—
(20.6
)
Other, net
(6.3
)
(1.5
)
Working capital changes that provided
(used) cash, excluding the effect of acquisitions and
dispositions:
Receivables
14.5
(10.5
)
Inventories
(18.9
)
(9.0
)
Prepaids and other current assets
1.3
(6.3
)
Accounts payable
(2.3
)
(0.1
)
Accrued liabilities
0.5
4.0
Net cash provided by operating
activities
267.7
248.6
Cash flows from investing activities:
Purchases of property, plant and
equipment
(127.6
)
(131.7
)
Investment in affiliated companies
—
(5.0
)
Business combinations, net of cash
acquired
—
(1.0
)
Proceeds from sale of assets
17.6
12.4
Proceeds from sale of product line
27.7
—
Proceeds from settlement of swaps
designated as net investment hedges
38.1
—
Net interest proceeds on swaps designated
as net investment hedges
8.5
4.9
Other, net
0.4
1.1
Net cash used in investing activities
(35.3
)
(119.3
)
Cash flows from financing activities:
Draw down of revolving credit
facilities
203.5
141.8
Repayments of revolving credit
facilities
(202.8
)
(166.8
)
Issuance of long-term debt
—
1,267.0
Debt issuance costs
—
(6.4
)
Repayments of long-term debt
(216.7
)
(1,369.7
)
Repurchases of common shares
(3.6
)
(2.8
)
Proceeds from stock options exercised
4.0
0.1
Other, net
(0.5
)
(0.4
)
Net cash used in financing activities
(216.1
)
(137.2
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(2.1
)
0.4
Net change in cash, cash equivalents and
restricted cash
14.2
(7.5
)
Cash, cash equivalents and restricted cash
at beginning of period
59.7
67.2
Cash, cash equivalents and restricted cash
at end of period
$
73.9
$
59.7
Appendix Table A-1: Reconciliation of Net Income to Segment
Adjusted EBITDA
Three months ended December
31,
Years ended December
31,
2019
2018
2019
2018
(in millions)
Reconciliation of net income
attributable to PQ Group Holdings Inc. to Segment Adjusted
EBITDA
Net income attributable to PQ Group
Holdings Inc.
$
19.1
$
28.2
$
79.5
$
58.3
Provision for income taxes
1.2
7.4
40.7
29.0
Interest expense, net
26.7
29.1
111.5
113.7
Depreciation and amortization
46.9
45.9
182.1
185.2
EBITDA
93.9
110.6
413.8
386.2
Joint venture depreciation, amortization
and interest(a)
3.5
3.4
14.7
12.6
Amortization of investment in affiliate
step-up(b)
1.7
1.6
7.5
6.6
Amortization of inventory step-up(c)
—
—
—
1.6
Impairment of fixed assets, intangibles,
and goodwill
1.6
—
1.6
—
Debt extinguishment costs
1.6
1.1
3.4
7.8
Net (gain) loss on asset disposals(d)
(5.3
)
(4.5
)
(13.1
)
6.6
Foreign currency exchange (gain)
loss(e)
(2.6
)
(1.5
)
2.8
13.8
LIFO expense(f)
0.3
2.5
11.1
8.4
Transaction and other related costs(g)
1.8
—
3.6
0.9
Equity-based compensation
4.6
7.6
18.2
19.5
Restructuring, integration and business
optimization expenses(h)
2.7
8.3
4.1
14.0
Defined benefit plan pension cost(i)
0.7
(1.1
)
3.1
(0.8
)
Gain on contract termination(j)
—
(20.6
)
—
(20.6
)
Other(k)
(1.4
)
1.7
3.5
7.4
Adjusted EBITDA
103.1
109.1
474.3
464.0
Unallocated corporate expenses
12.1
9.7
40.1
37.0
Segment Adjusted EBITDA
$
115.2
$
118.8
$
514.4
$
501.0
Descriptions to PQ Non-GAAP
Reconciliations
(a)
We use Adjusted EBITDA as a performance
measure to evaluate our financial results. Because our Catalysts
segment includes our 50% interest in the Zeolyst Joint Venture, we
include an adjustment for our 50% proportionate share of
depreciation, amortization and interest expense of the Zeolyst
Joint Venture.
(b)
Represents the amortization of the fair
value adjustments associated with the equity affiliate investment
in the Zeolyst Joint Venture as a result of the combination of the
businesses of PQ Holdings Inc. and Eco Services Operations LLC
(“Eco”) in May 2016 (the “Business Combination”). We determined the
fair value of the equity affiliate investment and the fair value
step-up was then attributed to the underlying assets of the Zeolyst
Joint Venture. Amortization is primarily related to the fair value
adjustments associated with fixed assets and intangible assets,
including customer relationships and technical know-how.
(c)
As a result of the Sovitec acquisition,
there was a step-up in the fair value of inventory, which is
amortized through cost of goods sold in the statement of
income.
(d)
When asset disposals occur, we remove the
impact of net gain/loss of the disposed asset because such impact
primarily reflects the non-cash write-off of long-lived assets no
longer in use. During the year ended December 31, 2019, the net
gain on asset disposals includes the gains related to the sale of a
non-core product line and sale of property.
(e)
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 and, for
the year ended December 31, 2018, the Euro-denominated term loan
(which was settled as part of the February 2018 term loan
refinancing).
(f)
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.
(g)
Represents the costs related to several
transactions that are completed, pending or abandoned and that we
believe are not representative of our ongoing business
operations.
(h)
Includes the impact of restructuring,
integration and business optimization expenses which are
incremental costs that are not representative of our ongoing
business operations.
(i)
Represents adjustments for defined benefit
pension plan costs in our statement of income. More than two-thirds
of our defined benefit pension plan obligations are under defined
benefit pension plans that are frozen, and the remaining
obligations primarily relate to plans operated in certain of our
non-U.S. locations that, pursuant to jurisdictional requirements,
cannot be frozen. As such, we do not view such expenses as core to
our ongoing business operations.
(j)
Represents a non-cash gain on the
write-off of the remaining liability under a contractual supply
arrangement. As part of the acquisition by Eco of substantially all
of the assets of Solvay USA Inc’s sulfuric acid refining services
business unit on December 1, 2014, we recognized a liability as
part of business combination accounting related to our obligation
to serve a customer under a pre-existing unfavorable supply
agreement. In December 2018, the customer who was party to the
agreement closed its facility, and as a result, we were relieved
from our obligation to continue to supply the customer on the below
market contract. Because the fair value of the unfavorable contract
liability was recognized as part of the application of business
combination accounting, and since the write-off of the remaining
liability was non-cash in nature, we believe this gain is a special
item that is not representative of our ongoing business
operations.
(k)
Other costs consist of certain expenses
that are not core to our ongoing business operations, including
environmental remediation-related costs associated with the legacy
operations of our business prior to the Business Combination,
capital and franchise taxes, non-cash asset retirement obligation
accretion and the initial implementation of procedures to comply
with Section 404 of the Sarbanes-Oxley Act. Included in this
line-item are rounding discrepancies that may arise from rounding
from dollars (in thousands) to dollars (in millions).
Appendix Table A-2: Reconciliation of Net Income to Adjusted
Net Income(1)
Three months ended December
31,
2019
2018
Pre-tax
Tax expense (benefit)
After-tax
Pre-tax
Tax expense (benefit)
After-tax
(in millions)
Net income before non-controlling
interest
$
20.6
$
1.2
$
19.4
$
35.9
$
7.4
$
28.5
Less: Net income attributable to
non-controlling interest
0.3
—
0.3
0.3
—
0.3
Net income attributable to PQ Group
Holdings Inc.
20.3
1.2
19.1
35.6
7.4
28.2
Earnings per share:
Basic earnings per share
$
0.14
$
0.21
Diluted earnings per share
$
0.14
$
0.21
Net income attributable to PQ Group
Holdings Inc.
20.3
1.2
19.1
35.6
7.4
28.2
Amortization of investment in affiliate
step-up(b)
1.7
0.5
1.2
1.6
0.6
1.0
Impairment of intangible assets
1.6
0.5
1.1
—
—
—
Debt extinguishment costs
1.6
0.5
1.1
1.1
0.5
0.6
Net (gain) loss on asset disposals(d)
(5.3
)
(1.8
)
(3.5
)
(4.5
)
(1.8
)
(2.7
)
Foreign currency exchange gain(e)
(2.6
)
(0.9
)
(1.7
)
(1.5
)
2.3
(3.8
)
LIFO expense(f)
0.3
(0.1
)
0.4
2.5
0.8
1.7
Transaction and other related costs(h)
1.8
0.5
1.3
—
—
—
Equity-based and other non-cash
compensation
4.6
1.3
3.3
7.6
—
7.6
Restructuring, integration and business
optimization expenses(i)
2.7
0.9
1.8
8.3
3.0
5.3
Defined benefit pension plan cost(j)
0.7
0.2
0.5
(1.1
)
(0.4
)
(0.7
)
Gain on contract termination
—
—
—
(20.6
)
(7.6
)
(13.0
)
Other(k)
(1.4
)
(0.4
)
(1.0
)
1.7
0.4
1.3
Adjusted Net Income, includes non-cash
GILTI tax
26.0
2.4
23.6
30.6
5.2
25.5
Impact of non-cash GILTI tax(2)
—
5.6
(5.6
)
—
(2.2
)
2.2
Impact of tax reform(3)
—
—
—
—
4.5
(4.5
)
Adjusted Net Income(1)
$
26.0
$
8.0
$
18.0
$
30.6
$
7.5
$
23.2
Adjusted Net Income per share:
Basic income per share
$
0.13
$
0.17
Diluted income per share
$
0.13
$
0.17
Weighted average shares outstanding:
Basic
134,912,212
133,765,294
Diluted
136,151,739
134,987,604
See Appendix Table A-1 for Descriptions to PQ Non-GAAP
Reconciliations in the table above.
Years ended December
31,
2019
2018
Pre-tax
Tax expense (benefit)
After-tax
Pre-tax
Tax expense (benefit)
After-tax
(in millions)
Net income before non-controlling
interest
$
121.0
$
40.7
$
80.3
$
88.6
$
29.0
$
59.6
Less: Net income attributable to
non-controlling interest
0.8
—
0.8
1.3
—
1.3
Net income attributable to PQ Group
Holdings Inc.
120.2
40.7
79.5
87.3
29.0
58.3
Earnings per share:
Basic earnings per share
$
0.59
$
0.44
Diluted earnings per share
$
0.59
$
0.43
Net income attributable to PQ Group
Holdings Inc.
120.2
40.7
79.5
87.3
29.0
58.3
Amortization of investment in affiliate
step-up(b)
7.5
2.5
5.0
6.6
2.5
4.1
Amortization of inventory step-up(c)
—
—
—
1.6
0.6
1.0
Impairment of intangible assets
1.6
0.5
1.1
—
—
—
Debt extinguishment costs
3.4
1.1
2.3
7.8
2.9
4.9
Net (gain) loss on asset disposals(d)
(13.1
)
(3.4
)
(9.7
)
6.6
2.4
4.2
Foreign currency exchange loss(e)
2.8
(1.5
)
4.3
13.8
5.6
8.2
LIFO expense(f)
11.1
3.7
7.4
8.4
3.1
5.3
Transaction and other related costs(h)
3.6
1.2
2.4
0.9
0.3
0.6
Equity-based and other non-cash
compensation
18.2
6.1
12.1
19.5
4.6
14.9
Restructuring, integration and business
optimization expenses(i)
4.1
1.4
2.7
14.0
5.2
8.8
Defined benefit plan pension cost(j)
3.1
1.0
2.1
(0.8
)
(0.3
)
(0.5
)
Gain on contract termination(k)
—
—
—
(20.6
)
(7.6
)
(13.0
)
Other(l)
3.5
1.3
2.2
7.4
2.8
4.6
Adjusted Net Income, includes non-cash
GILTI tax
166.0
54.6
111.4
152.5
51.1
101.4
Impact of non-cash GILTI tax(2)
—
(13.8
)
13.8
—
(21.2
)
21.2
Impact of tax reform(3)
—
—
—
—
6.0
(6.0
)
Adjusted Net Income(1)
$
166.0
$
40.8
$
125.2
$
152.5
$
35.9
$
116.6
Adjusted Net Income per share:
Basic income per share
$
0.93
$
0.87
Diluted income per share
$
0.92
$
0.87
Weighted average shares outstanding:
Basic
134,389,667
133,380,567
Diluted
135,548,694
134,684,931
(1)
We define adjusted net income as net
income attributable to PQ Group Holdings adjusted for non-operating
income or expense and the impact of certain non-cash or other items
that are included in net income that we do not consider indicative
of our ongoing operating performance. Adjusted net income is
presented as a key performance indicator as we believe it will
enhance a prospective investor’s understanding of our results of
operations and financial condition. Adjusted net income may not be
comparable with net income or adjusted net income as defined by
other companies.
(2)
Amount represents the impact to tax
expense in net income before non-controlling interest and the
related adjustments to net income associated with GILTI provisions
of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Beginning January 1,
2018, GILTI results in taxation of “excess of foreign earnings,”
which is defined as amounts greater than a 10% rate of return on
applicable foreign tangible asset basis. The Company is required to
record incremental tax provision impact with respect to GILTI as a
result of having historical U.S. net operating loss (“NOL”) amounts
to offset the GILTI taxable income inclusion. This NOL utilization
precludes us from recognizing foreign tax credits (“FTCs”) which
would otherwise help offset the tax impacts of GILTI. No FTCs will
be recognized with respect to GILTI until our cumulative NOL
balance has been exhausted. Because the GILTI provision does not
impact our cash taxes (given available U.S. NOLs), and given that
we expect to recognize FTCs to offset GILTI impacts once the NOLs
are exhausted, we do not view this item as a component of core
operations.
(3)
Represents the provisional adjustment for
the impact of the TCJA and the Dutch Tax Plan 2019 recorded in net
income.
Appendix Table A-3: Business Segment Sales and Adjusted
EBITDA
Three months ended December
31,
Years ended December
31,
2019
2018
% Change
2019
2018
% Change
Sales:
Refining Services
$
105.7
$
119.4
(11.5
)%
$
447.1
$
455.6
(1.9
)%
Silica Catalysts
23.3
22.0
5.9
%
85.7
72.1
18.9
%
Performance Materials
67.9
73.7
(7.9
)%
363.0
378.3
(4.0
)%
Performance Chemicals
158.9
168.8
(5.9
)%
685.1
717.3
(4.5
)%
Eliminations
(3.4
)
(3.8
)
(13.8
)
(15.1
)
Total sales
$
352.4
$
380.1
(7.3
)%
$
1,567.1
$
1,608.2
(2.6
)%
Zeolyst joint venture sales
$
47.3
$
36.5
29.6
%
$
170.3
$
156.7
8.7
%
Adjusted EBITDA:
Refining Services
$
41.9
$
50.1
(16.4
)%
$
175.6
$
176.5
(0.5
)%
Catalysts
28.5
18.9
50.8
%
107.8
81.1
32.9
%
Performance Materials
11.2
10.5
6.7
%
76.7
72.5
5.8
%
Performance Chemicals
33.6
39.2
(14.3
)%
154.3
170.9
(9.7
)%
Total Segment Adjusted EBITDA
$
115.2
$
118.7
(2.9
)%
$
514.4
$
501.0
2.7
%
Corporate
(12.1
)
(9.6
)
26.0
%
(40.1
)
(37.0
)
8.4
%
Total Adjusted EBITDA
$
103.1
$
109.1
(5.5
)%
$
474.3
$
464.0
2.2
%
Adjusted EBITDA Margin:
Refining Services
39.6
%
42.0
%
39.3
%
38.7
%
Catalysts(1)
40.4
%
32.3
%
42.1
%
35.4
%
Performance Materials
16.5
%
14.2
%
21.1
%
19.2
%
Performance Chemicals
21.1
%
23.2
%
22.5
%
23.8
%
Total Adjusted EBITDA Margin(1)
25.8
%
26.2
%
27.3
%
26.3
%
(1)
Adjusted EBITDA margin
calculation includes proportionate 50% share of sales from the
Zeolyst Joint Venture.
Appendix Table A-4: Constant Currency Sales and Adjusted
EBITDA
The tables below reflect the calculation of constant currency
sales and constant currency Adjusted EBITDA by segment for the
three months and year ended December 31, 2019.
Three months ended December
31, 2019
Three Months Ended December
31, 2018
As Reported
FX
Constant Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
105.7
$
—
$
105.7
$
119.4
(11.5
)%
Silica Catalysts
23.3
—
23.3
22.0
5.9
%
Performance Materials
67.9
1.1
69.0
73.7
(6.4
)%
Performance Chemicals
158.9
1.4
160.3
168.8
(5.1
)%
Eliminations
(3.4
)
(0.1
)
(3.5
)
(3.8
)
(7.9
)%
Total sales
$
352.4
$
2.4
$
354.8
$
380.1
(6.6
)%
Zeolyst joint venture sales
$
47.3
$
—
$
47.3
$
36.5
29.6
%
Adjusted EBITDA:
Refining Services
$
41.9
$
—
$
41.9
$
50.1
(16.4
)%
Catalysts
28.5
—
28.5
18.9
50.8
%
Performance Materials
11.2
0.2
11.4
10.5
8.6
%
Performance Chemicals
33.6
0.4
34.0
39.2
(13.3
)%
Total Segment Adjusted EBITDA
$
115.2
$
0.6
$
115.8
$
118.7
(2.4
)%
Corporate
(12.1
)
—
(12.1
)
(9.6
)
26.0
%
Total Adjusted EBITDA
$
103.1
$
0.6
$
103.7
$
109.1
(4.9
)%
Year ended December 31,
2019
Year ended December 31,
2018
As Reported
FX
Constant Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
447.1
$
—
$
447.1
$
455.6
(1.9
)%
Silica Catalysts
85.7
1.3
87.0
72.1
20.7
%
Performance Materials
363.0
9.6
372.6
378.3
(1.5
)%
Performance Chemicals
685.1
18.7
703.8
717.3
(1.9
)%
Eliminations
(13.8
)
(0.4
)
(14.2
)
(15.1
)
(6.0
)%
Total sales
$
1,567.1
$
29.2
$
1,596.3
$
1,608.2
(0.7
)%
Zeolyst joint venture sales
$
170.3
$
—
$
170.3
$
156.7
8.7
%
Adjusted EBITDA:
Refining Services
$
175.6
$
—
$
175.6
$
176.5
(0.5
)%
Catalysts
107.8
0.9
108.7
81.1
34.0
%
Performance Materials
76.7
1.3
78.0
72.5
7.6
%
Performance Chemicals
154.3
4.9
159.2
170.9
(6.8
)%
Total Segment Adjusted EBITDA
$
514.4
$
7.1
$
521.5
$
501.0
4.1
%
Corporate
(40.1
)
(0.1
)
(40.2
)
(37.0
)
8.6
%
Total Adjusted EBITDA
$
474.3
$
7.0
$
481.3
$
464.0
3.7
%
Appendix Table A-5: Adjusted Free Cash Flow
Three months ended December
31,
Years ended December
31,
2019
2018
2019
2018
(in millions)
Net cash provided by operating
activities
$
85.8
$
82.6
$
267.7
$
248.6
Less:
Purchases of property, plant and
equipment(1)
(35.9
)
(36.4
)
(127.6
)
(131.7
)
Free cash flow
49.9
46.2
140.1
116.9
Adjustments to free cash flow:
Proceeds from sale of assets
17.6
12.4
17.6
12.4
Net interest proceeds on currency
swaps
0.1
0.6
8.5
4.9
Adjusted free cash flow(2)
$
67.6
$
59.2
$
166.2
$
134.2
Net cash provided by (used in) investing
activities(3)
$
19.4
$
(23.5
)
$
(35.3
)
$
(119.3
)
Net cash used in financing activities
$
(112.9
)
$
(59.4
)
$
(216.1
)
$
(137.2
)
(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.
Adjusted free cash flow is a non-GAAP financial measure that we
believe will enhance a prospective investor’s understanding of our
ability to generate additional cash from operations, including the
reduction in cash paid for interest related to our cross-currency
interest rate swaps, and is an important financial measure for use
in evaluating our financial performance. Our presentation of
adjusted free cash flow is not intended to replace, and should not
be considered superior to, the presentation of our net cash
provided by operating activities determined in accordance with
GAAP. Additionally, our definition of adjusted free cash flow is
limited, in that it does not represent residual cash flows
available for discretionary expenditures, due to the fact that the
measure does not deduct the payments required for debt service and
other contractual obligations or payments made for business
acquisitions. Therefore, we believe it is important to view
adjusted free cash flow as a measure that provides supplemental
information to our consolidated statements of cash flows.
(3)
Net cash used in investing activities
includes purchases of property, plant and equipment, proceeds from
sale of assets, and net interest proceeds on swaps designated as
net investment hedges, which are also included in our computation
of adjusted free cash flow.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200220005254/en/
Investor Contact: Nahla A. Azmy (610) 651-4561
Nahla.Azmy@pqcorp.com
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