- Sales of $359.5 million and Net income of $15.9 million with
diluted EPS of $0.12; Adjusted net income of $30.0 million with
Adjusted diluted EPS of $0.22;
- Adjusted EBITDA of $113.0 million; Adjusted EBITDA margin of
28.2% in line with prior year on effective cost management
actions;
- Monetization of non-strategic assets leads to ~$27 million in
cash proceeds ($18 million of which was received on July 1,
2020)
- Secured notes refinancing significantly lowers interest costs
and extends maturities
PQ Group Holdings Inc. (NYSE:PQG) (“PQ” or the “Company”) today
reported results for the second quarter ended June 30, 2020. Sales
of $359.5 million decreased 16.7% compared with the same period in
2019, or 14.4% on a constant currency basis, largely on lower
volume from COVID-19 impacts related to stay-at-home mandates and
demand disruption for industrial applications. Net income was $15.9
million with $0.12 diluted EPS and Adjusted net income was $30.0
million with $0.22 Adjusted diluted EPS. Adjusted EBITDA of $113.0
million declined 14.7% from the prior year, or 12.6% on a constant
currency basis, as the effects of lower sales volumes were
mitigated by PQ’s active management of production and costs that
drove a robust Adjusted EBITDA margin of 28.2%.
“PQ’s favorable second quarter performance demonstrates the
resilience of our portfolio and the impressive execution of the
team, which quickly adjusted our cost structure to hold the line on
margins despite the stiff macroeconomic headwinds,” said Belgacem
Chariag, PQ Chairman, President and Chief Executive Officer. “Based
on current visibility into demand trends for the balance of the
year, we are pleased to reinitiate 2020 financial guidance and
raise our expectations for our annual Adjusted free cash flow to
$145 to $155 million, with Adjusted EBITDA margin now expected to
be in line with 2019 levels.”
Review of Segment Results
While second quarter macroeconomic activity experienced a sharp
downdraft from the prior year, the quarter was marked by solid
month-to-month improvement through June on rebounding driving
activity and industrial demand. Approximately 70% of product sales
are expected to come from end uses that are stable or improving in
the second half of 2020. For PQ, favorable end-use conditions in
regeneration services, highway striping, personal care and other
product lines are expected to be more than offset by deferral of
specialty and hydrocracking catalysts to 2021.
Refining Services
Regeneration services demand was predominately shaped by
gasoline consumption that recovered late in the quarter following
lows in April. By the end of June, U.S. gasoline use had improved
70% from its lows in early April and returned to about 90% of 2019
levels. Virgin sulfuric acid experienced automotive and industrial
production demand declines that were in line with PQ’s
expectations. For the remainder of 2020, gasoline consumption is
anticipated to exceed 90% of 2019 levels, reflecting a blend of
reopening activities and likely containment setbacks. The Company
expects a stronger recovery for regeneration services and improving
demand for virgin sulfuric acid.
Sales of $90.4 million and Adjusted EBITDA of $35.0 million
decreased 22.9% and 18.2%, respectively, versus the same period in
2019. Lower gasoline consumption reduced demand for regeneration
services and weakness in automotive and industrial applications
affected virgin sulfuric acid sales, which were mitigated by a
sharp reduction in costs.
Catalysts
For polyethylene, elevated demand for packaging largely
normalized while demand for construction and consumer discretionary
items began to recover as the second quarter progressed. Within
refining and emission control, after a strong first half, demand is
expected to be soft in the second half with change-outs by
refineries deferred to 2021 and heavy-duty diesel truck production
down more than 30% versus 2019 levels.
Silica Catalysts sales of $25.2 million increased 20.6%, or
23.9% on a constant currency basis, versus the same period in 2019,
largely driven by higher sales for both chemical and polyolefin
catalysts. Zeolyst JV sales of $41.0 million rose 4.9% as higher
sales volumes for specialty and hydrocracking catalysts more than
offset lower demand for emission control catalysts. Adjusted EBITDA
of $25.3 million decreased 14.5%, or 13.5% on a constant currency
basis, largely on unfavorable fixed cost absorption from inventory
reductions to align with expected second half demand.
Performance Materials
North American highway striping activity remains healthy, with
demand for European highway safety lagging. Within engineered glass
materials, metal finishing and polymer additive demand remains
suppressed, but orders are improving as industrial activity
resumes.
Second quarter sales of $104.3 million decreased 12.3%, or 11.0%
on a constant currency basis, as steady North America highway sales
volumes and price were more than offset by slower recovery in
European highway activities and lower global industrial demand for
engineered glass materials. Adjusted EBITDA of $27.3 million
decreased 6.5%, or 5.1% on a constant currency basis, versus the
same period in 2019 as effective cost reduction actions mitigated
the volume impact.
Performance Chemicals
Stay-at-home trends have translated into higher demand for
personal care, cleaning products and detergents, which exceeded
expectations in the second quarter but may normalize in the second
half. As expected, industrial applications were negatively impacted
while demand for beer and coatings are improving. PQ expects demand
for the industrial product line to recover gradually as automotive
and tire production rebound.
Sales of $142.6 million decreased 19.8%, or 15.4% on a constant
currency basis, versus the same period in 2019 on demand weakness
within several applications that more than offset stability in
global specialty silicas. Adjusted EBITDA of $34.0 million
decreased 17.5%, or 12.4% on a constant currency basis, on lower
sales volumes that were partly offset by expanding margins.
Balance Sheet and Liquidity
At June 30, 2020, PQ had total available liquidity of $285.3
million, including cash and cash equivalents of $88.6 million. On
July 22, 2020, PQ further improved its financial position by
closing on a new $650 million senior secured term loan facility
with a floating interest rate of LIBOR (with a 1.0% minimum LIBOR
floor) plus 3.0% per annum, maturing in February 2027. Proceeds
were used to redeem the Company’s 6.750% 2022 Senior Secured Notes.
PQ’s collective financing activities in the first half of 2020
resulted in the lowering of annual cash interest by approximately
$19 million (at current rates) and extended all material debt
maturities to 2025 or later with prepayment flexibility.
“We were pleased to further enhance our financial flexibility,
lower interest expense, reduce our cost of capital and extend
maturities with the refinancings,” said PQ Executive Vice President
and Chief Financial Officer Mike Crews. “PQ has reduced debt by
approximately $770 million and lowered annualized cash interest by
more than $100 million since our initial public offering in 2017,
and we look to continue to de-lever over time.”
2020 Financial Outlook
“PQ is executing well operationally and commercially, delivering
good financial results in a challenging environment and continuing
to optimize the portfolio,” said Chariag. “Looking ahead, we see
the vast majority of PQ’s end uses as either favorable or
improving, even as we are mindful of the cautious global economic
environment that surrounds us all. We are appropriately managing
costs and exercising capital discipline, while we build
capabilities and invest for targeted growth.”
The Company provided full-year 2020 guidance which includes:
- Sales of $1,430 to $1,460 million(1)
- Adjusted EBITDA of $410 to $425 million
- Adjusted EBITDA margin of ~27% in line with 2019 margins
- Adjusted diluted EPS of $0.67 to $0.86
- Adjusted free cash flow in the range of $145 to $155 million,
excluding $18 million in cash proceeds from product line sale;
increased from $130 to $150 million
(1)
GAAP sales only; Excludes proportionate
50% share of Zeolyst Joint Venture sales target of $120 to $130
million
Conference Call and Webcast Details
On Thursday, July 30, 2020, PQ management will review the
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
5849647.
Webcast: An audio-only live 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
(collectively, “Non-GAAP Financial Measures”) —which present
results on a basis adjusted for certain items. The Company uses
these Non-GAAP Financial Measures for business planning purposes
and in measuring its performance relative to that of its
competitors. The Company believes that these Non-GAAP Financial
Measures are useful financial metrics to assess its operating
performance from period-to-period by excluding certain items that
the Company believes are not representative of its core business.
These Non-GAAP Financial Measures are not intended to replace, and
should not be considered superior to, the presentation of the
Company’s financial results in accordance with GAAP. The use of the
Non-GAAP Financial Measures terms may differ from similar measures
reported by other companies and may not be comparable to other
similarly titled measures. These Non-GAAP Financial Measures are
reconciled from the respective measures under GAAP in the appendix
below.
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, including the impact of the COVID-19 pandemic on
such items, expected demand trends and our 2020 financial outlook.
Our actual results may differ materially from those contemplated by
the forward-looking statements. We caution you, therefore, against
relying on any of these forward-looking statements. They are
neither statements of historical fact nor guarantees or assurances
of future performance. Important factors that could cause actual
results to differ materially from those in the forward-looking
statements include, but are not limited to, regional, national or
global political, economic, business, competitive, market and
regulatory conditions, including the ongoing COVID-19 pandemic,
tariffs and trade disputes, currency exchange rates and other
factors, including those described in the sections titled “Risk
Factors” and “Management Discussion & Analysis of Financial
Condition and Results of Operations” in our filings with the SEC,
which are available on the SEC’s website at www.sec.gov. These
forward-looking statements speak only as of the date of this
release. Factors or events that could cause our actual results to
differ may emerge from time to time, and it is not possible for us
to predict all of them. We undertake no obligation to update any
forward-looking statement, whether as a result of new information,
future developments or otherwise, except as may be required by
applicable law.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(in millions, except share and
per share amounts)
Three months ended
June 30,
Six months ended
June 30,
2020
2019
% Change
2020
2019
% Change
Sales
$
359.5
$
431.7
(16.7)
%
$
721.1
$
790.9
(8.8)
%
Cost of goods sold
266.7
316.2
(15.7)
%
539.7
594.5
(9.2)
%
Gross profit
92.8
115.5
(19.7)
%
181.4
196.4
(7.6)
%
Selling, general and administrative
expenses
38.9
43.4
(10.4)
%
82.2
84.1
(2.3)
%
Other operating expense, net
12.7
1.8
605.6
%
34.7
12.6
175.4
%
Operating income
41.2
70.3
(41.4)
%
64.5
99.7
(35.3)
%
Equity in net (income) from affiliated
companies
(11.5)
(12.3)
(6.5)
%
(19.8)
(14.4)
37.5
%
Interest expense, net
22.3
28.5
(21.8)
%
46.7
57.2
(18.4)
%
Debt extinguishment costs
—
—
—
%
2.5
—
—
%
Other (income) expense, net
(2.1)
3.1
(167.7)
%
0.6
—
—
%
Income before income taxes and
noncontrolling interest
32.5
51.0
(36.3)
%
34.5
56.9
(39.4)
%
Provision for income taxes(1)
16.3
20.3
(19.7)
%
17.7
22.8
(22.4)
%
Effective tax rate
50.0
%
39.8
%
51.4
%
40.0
%
Net income
16.2
30.7
(47.2)
%
16.8
34.1
(50.7)
%
Less: Net income attributable to the
noncontrolling interest
0.3
0.1
200.0
%
0.6
0.4
50.0
%
Net income attributable to PQ Group
Holdings Inc.
$
15.9
$
30.6
(48.0)
%
$
16.2
$
33.7
(51.9)
%
Earnings per share:
Basic earnings per share
$
0.12
$
0.23
$
0.12
$
0.25
Diluted earnings per share
$
0.12
$
0.23
$
0.12
$
0.25
Weighted average shares outstanding:
Basic
135,083,126
134,142,552
135,278,764
134,044,972
Diluted
135,671,830
135,323,024
136,079,540
135,107,007
(1)
Net of a $4.1 million and $6.0 million
provision for Global Intangible Low-Taxed Income (“GILTI”) for the
three and six months ended June 30, 2020, respectively. Net of a
$7.8 million and $7.3 million provision for Global Intangible
Low-Taxed Income (“GILTI”) for the three and six months ended June
30, 2019, respectively.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions, except share and
per share amounts)
June 30,
2020
December 31,
2019
ASSETS
Cash and cash equivalents
$
88.6
$
72.3
Accounts receivable, net
197.8
179.6
Inventories, net
266.6
280.9
Prepaid and other current assets
34.7
35.8
Total current assets
587.7
568.6
Investments in affiliated companies
476.7
472.9
Property, plant and equipment, net
1,132.7
1,186.8
Goodwill
1,255.0
1,259.8
Other intangible assets, net
643.2
676.4
Right-of-use lease assets
50.3
57.3
Other long-term assets
101.6
99.1
Total assets
$
4,247.2
$
4,320.9
LIABILITIES
Notes payable and current maturities of
long-term debt
$
8.6
$
7.8
Accounts payable
109.2
144.4
Operating lease liabilities—current
14.4
15.2
Accrued liabilities
88.9
102.2
Total current liabilities
221.1
269.6
Long-term debt, excluding current
portion
1,898.9
1,899.2
Deferred income taxes
222.2
218.0
Operating lease liabilities—noncurrent
34.8
40.2
Other long-term liabilities
94.0
108.6
Total liabilities
2,471.0
2,535.6
Commitments and contingencies
EQUITY
Common stock ($0.01 par); authorized
shares 450,000,000; issued shares 136,763,507 and 136,861,382 on
June 30, 2020 and December 31, 2019, respectively; outstanding
shares 136,045,822 and 136,464,961 on June 30, 2020 and December
31, 2019, respectively
1.4
1.4
Preferred stock ($0.01 par); authorized
shares 50,000,000; no shares issued or outstanding on June 30, 2020
and December 31, 2019
—
—
Additional paid-in capital
1,709.4
1,696.9
Retained earnings
119.1
103.0
Treasury stock, at cost; shares 717,685
and 396,421 on June 30, 2020 and December 31, 2019,
respectively
(10.4)
(6.5)
Accumulated other comprehensive loss
(46.7)
(15.4)
Total PQ Group Holdings Inc. equity
1,772.8
1,779.4
Noncontrolling interest
3.4
5.9
Total equity
1,776.2
1,785.3
Total liabilities and equity
$
4,247.2
$
4,320.9
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Six months ended
June 30,
2020
2019
Cash flows from operating activities:
(in millions)
Net income
$
16.8
$
34.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
66.7
65.5
Amortization
23.7
25.4
Amortization of deferred financing costs
and original issue discount
2.4
2.9
Foreign currency exchange loss
2.5
0.9
Pension and postretirement healthcare
benefit expense
—
2.2
Pension and postretirement healthcare
benefit funding
(4.2)
(3.6)
Deferred income tax provision
6.0
10.8
Net (gain) loss on asset disposals
8.4
(8.8)
Stock compensation
12.3
8.8
Equity in net income from affiliated
companies
(19.8)
(14.4)
Dividends received from affiliated
companies
15.1
5.1
Net interest income on swaps designated as
net investment hedges
(2.2)
(4.5)
Other, net
(1.2)
(4.3)
Working capital changes that provided
(used) cash, excluding the effect of acquisitions and
dispositions:
Receivables
(24.6)
(46.3)
Inventories
(9.3)
(12.2)
Prepaids and other current assets
—
2.2
Accounts payable
(15.3)
(0.2)
Accrued liabilities
(15.2)
(3.7)
Net cash provided by operating
activities
62.1
60.0
Cash flows from investing activities:
Purchases of property, plant and
equipment
(50.5)
(65.5)
Proceeds from sale of product line
—
26.7
Proceeds from sale of assets
10.3
—
Proceeds from sale of investment
1.8
—
Net interest proceeds on swaps designated
as net investment hedges
2.2
4.5
Other, net
—
0.4
Net cash used in investing activities
(36.2)
(33.9)
Cash flows from financing activities:
Draw down of revolving credit
facilities
164.7
74.9
Repayments of revolving credit
facilities
(163.9)
(72.2)
Debt issuance costs
(3.0)
—
Repayments of long-term debt
—
(5.0)
Stock repurchases
(3.9)
(1.3)
Proceeds from stock options exercised
0.2
3.5
Other, net
—
(0.2)
Net cash used in financing activities
(5.9)
(0.3)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(3.3)
(1.5)
Net change in cash, cash equivalents and
restricted cash
16.7
24.3
Cash, cash equivalents and restricted cash
at beginning of period
73.9
59.7
Cash, cash equivalents and restricted cash
at end of period
$
90.6
$
84.0
Appendix Table A-1: Reconciliation of
Net Income to Segment Adjusted EBITDA
Three months ended
June 30,
Six months ended
June 30,
2020
2019
2020
2019
(in millions)
Reconciliation of net income
attributable to PQ Group Holdings Inc. to Segment Adjusted
EBITDA
Net income attributable to PQ Group
Holdings Inc.
$
15.9
$
30.6
$
16.2
$
33.7
Provision for income taxes
16.3
20.3
17.7
22.8
Interest expense, net
22.3
28.5
46.7
57.2
Depreciation and amortization
44.8
45.1
90.5
91.0
EBITDA
99.3
124.5
171.1
204.7
Joint venture depreciation, amortization
and interest(a)
3.7
3.7
7.5
7.5
Amortization of investment in affiliate
step-up(b)
1.7
1.7
3.3
4.2
Debt extinguishment costs
—
—
2.5
—
Net (gain) loss on asset disposals(c)
(1.0)
(9.7)
8.4
(8.8)
Foreign currency exchange loss
(gain)(d)
(0.9)
3.6
2.5
0.9
LIFO expense(e)
(1.5)
0.1
(1.8)
10.3
Transaction and other related costs(f)
0.7
1.0
2.8
1.1
Equity-based compensation
6.4
5.4
12.3
8.8
Restructuring, integration and business
optimization expenses(g)
3.6
—
5.6
0.7
Defined benefit pension plan (benefit)
cost (h)
(0.3)
0.6
(0.5)
1.5
Other(i)
1.3
1.6
2.5
2.6
Adjusted EBITDA
113.0
132.5
216.2
233.5
Unallocated corporate expenses
8.6
10.3
19.3
20.3
Segment Adjusted EBITDA
$
121.6
$
142.8
$
235.5
$
253.8
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 in
May 2016 (the “Business Combination”). We determined the fair value
of the equity affiliate investment and the fair value step-up was
then attributed to the underlying assets of the Zeolyst Joint
Venture. Amortization is primarily related to the fair value
adjustments associated with fixed assets and intangible assets,
including customer relationships and technical know-how.
(c)
When asset disposals occur, we remove the
impact of net gain/loss of the disposed asset because such impact
primarily reflects the non-cash write-off of long-lived assets no
longer in use.
(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. 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 income
or expenses as core to our ongoing business operations.
(i)
Other costs consist of certain expenses
that are not core to our ongoing business operations, including
environmental remediation-related costs associated with the legacy
operations of our business prior to the Business Combination,
capital and franchise taxes, non-cash asset retirement obligation
accretion and the initial implementation of procedures to comply
with Section 404 of the Sarbanes-Oxley Act. Included in this
line-item are rounding discrepancies that may arise from rounding
from dollars (in thousands) to dollars (in millions).
Appendix Table A-2: Reconciliation of
Net Income to Adjusted Net Income(1)
Three months ended June
30,
2020
2019
Pre-tax
Tax expense
(benefit)
After-tax
Pre-tax
Tax expense
(benefit)
After-tax
(in millions)
Net income before non-controlling
interest
$
32.5
$
16.3
$
16.2
$
51.0
$
20.3
$
30.7
Less: Net income attributable to
non-controlling interest
0.3
—
0.3
0.1
—
0.1
Net income attributable to PQ Group
Holdings Inc.
32.2
16.3
15.9
50.9
20.3
30.6
Earnings per share:
Basic earnings per share
$
0.12
$
0.23
Diluted earnings per share
$
0.12
$
0.23
Net income attributable to PQ Group
Holdings Inc.
$
32.2
$
16.3
$
15.9
$
50.9
$
20.3
$
30.6
Amortization of investment in affiliate
step-up(b)
1.7
0.7
1.0
1.7
0.7
1.0
Net loss on asset disposals(d)
(1.0)
0.1
(1.1)
(9.7)
(2.3)
(7.4)
Foreign currency exchange loss(e)
(0.9)
(1.4)
0.5
3.6
(0.5)
4.1
LIFO expense(f)
(1.5)
(0.6)
(0.9)
0.1
(0.1)
0.2
Transaction and other related costs(g)
0.7
0.4
0.3
1.0
0.4
0.6
Equity-based compensation
6.4
2.7
3.7
5.4
1.9
3.5
Restructuring, integration and business
optimization expenses(h)
3.6
1.5
2.1
—
—
—
Defined benefit plan pension (benefit)
cost(i)
(0.3)
(0.1)
(0.2)
0.6
0.2
0.4
Other(j)
1.3
0.5
0.8
1.6
0.6
1.0
Adjusted Net Income, including non-cash
GILTI tax
42.2
20.1
22.1
55.2
21.2
34.0
Impact of non-cash GILTI tax(2)
—
(7.9)
7.9
—
(7.5)
7.5
Adjusted Net Income(1)
$
42.2
$
12.2
$
30.0
$
55.2
$
13.7
$
41.5
Adjusted earnings per share:
Adjusted basic earnings per share
$
0.22
$
0.31
Adjusted diluted earnings per share
$
0.22
$
0.31
Weighted average shares outstanding:
Basic
135,083,126
134,142,552
Diluted
135,671,830
135,323,024
Six months ended June
30,
2020
2019
Pre-tax
Tax expense
(benefit)
After-tax
Pre-tax
Tax expense
(benefit)
After-tax
(in millions)
Net income before non-controlling
interest
$
34.5
$
17.7
$
16.8
$
56.9
$
22.8
$
34.1
Less: Net income attributable to
non-controlling interest
0.6
—
0.6
0.4
—
0.4
Net income attributable to PQ Group
Holdings Inc.
33.9
17.7
16.2
56.5
22.8
33.7
Earnings per share:
Basic earnings per share
$
0.12
$
0.25
Diluted earnings per share
$
0.12
$
0.25
Net income attributable to PQ Group
Holdings Inc.
$
33.9
$
17.7
$
16.2
$
56.5
$
22.8
$
33.7
Amortization of investment in affiliate
step-up(b)
3.3
1.3
2.0
4.2
1.5
2.7
Debt extinguishment costs
2.5
1.0
1.5
—
—
—
Net loss on asset disposals(c)
8.4
2.4
6.0
(8.8)
(1.9)
(6.9)
Foreign currency exchange loss
(gain)(d)
2.5
1.0
1.5
0.9
(1.2)
2.1
LIFO expense(e)
(1.8)
(0.7)
(1.1)
10.3
3.7
6.6
Transaction and other related costs(f)
2.8
1.1
1.7
1.1
0.4
0.7
Equity-based compensation
12.3
4.8
7.5
8.8
3.2
5.6
Restructuring, integration and business
optimization expenses(g)
5.6
2.2
3.4
0.7
0.2
0.5
Defined benefit plan pension (benefit)
cost(h)
(0.5)
(0.2)
(0.3)
1.5
0.5
1.0
Other(i)
2.5
1.0
1.5
2.6
0.9
1.7
Adjusted Net Income, including non-cash
GILTI tax
71.5
31.6
39.9
77.8
30.1
47.7
Impact of non-cash GILTI tax(2)
—
(11.8)
11.8
—
(11.2)
11.2
Adjusted Net Income(1)
$
71.5
$
19.8
$
51.7
$
77.8
$
18.9
$
58.9
Adjusted earnings per share:
Adjusted basic earnings per share
$
0.38
$
0.44
Adjusted diluted earnings per share
$
0.38
$
0.44
Weighted average shares outstanding:
Basic
135,278,764
134,044,972
Diluted
136,079,540
135,107,007
See Appendix Table A-1 for Descriptions to
PQ Non-GAAP Reconciliations in the table above.
(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”). As of 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.
Appendix Table A-3: Business Segment
Sales and Adjusted EBITDA
Three months ended
June 30, 2020
Six months ended
June 30,
2020
2019
% Change
2020
2019
% Change
Sales:
Refining Services
$
90.4
$
117.3
(22.9)
%
$
191.1
$
223.1
(14.3)
%
Silica Catalysts
25.2
20.9
20.6
%
50.1
36.7
36.5
%
Performance Materials
104.3
118.9
(12.3)
%
169.8
180.0
(5.7)
%
Performance Chemicals
142.6
177.8
(19.8)
%
316.9
358.3
(11.6)
%
Eliminations
(3.0)
(3.2)
(6.8)
(7.2)
Total sales
$
359.5
$
431.7
(16.7)
%
$
721.1
$
790.9
(8.8)
%
Zeolyst joint venture sales
$
41.0
$
39.1
4.9
%
$
73.0
$
68.6
6.4
%
Adjusted EBITDA:
Refining Services
$
35.0
$
42.8
(18.2)
%
$
72.2
$
82.6
(12.6)
%
Catalysts
25.3
29.6
(14.5)
%
48.0
47.7
0.6
%
Performance Materials
27.3
29.2
(6.5)
%
40.8
39.7
2.8
%
Performance Chemicals
34.0
41.2
(17.5)
%
74.5
83.8
(11.1)
%
Total Segment Adjusted EBITDA
$
121.6
$
142.8
(14.8)
%
$
235.5
$
253.8
(7.2)
%
Corporate
(8.6)
(10.3)
16.5
%
(19.3)
(20.3)
4.9
%
Total Adjusted EBITDA
$
113.0
$
132.5
(14.7)
%
$
216.2
$
233.5
(7.4)
%
Adjusted EBITDA Margin:
Refining Services
38.7
%
36.5
%
37.8
%
37.0
%
Catalysts(1)
38.2
%
49.4
%
39.0
%
45.3
%
Performance Materials
26.2
%
24.6
%
24.0
%
22.1
%
Performance Chemicals
23.8
%
23.1
%
23.5
%
23.4
%
Total Adjusted EBITDA Margin(1)
28.2
%
28.1
%
27.2
%
27.2
%
(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 and six months ended June 30, 2020.
Three months ended June 30,
2020
Three months ended
June 30, 2019
As Reported
FX
Constant
Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
90.4
$
—
$
90.4
$
117.3
(22.9)
%
Silica Catalysts
25.2
0.7
25.9
20.9
23.9
%
Performance Materials
104.3
1.5
105.8
118.9
(11.0)
%
Performance Chemicals
142.6
7.9
150.5
177.8
(15.4)
%
Eliminations
(3.0)
(0.1)
(3.1)
(3.2)
3.1
%
Total sales
$
359.5
$
10.0
$
369.5
$
431.7
(14.4)
%
Zeolyst joint venture sales
$
41.0
$
—
$
41.0
$
39.1
4.9
%
Adjusted EBITDA:
Refining Services
$
35.0
$
—
$
35.0
$
42.8
(18.2)
%
Catalysts
25.3
0.3
25.6
29.6
(13.5)
%
Performance Materials
27.3
0.4
27.7
29.2
(5.1)
%
Performance Chemicals
34.0
2.1
36.1
41.2
(12.4)
%
Total Segment Adjusted EBITDA
$
121.6
$
2.8
$
124.4
$
142.8
(12.9)
%
Corporate
(8.6)
—
(8.6)
(10.3)
16.5
%
Total Adjusted EBITDA
$
113.0
$
2.8
$
115.8
$
132.5
(12.6)
%
Six months ended June 30,
2020
Six months ended
June 30, 2019
As Reported
FX
Constant
Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
191.1
$
—
$
191.1
$
223.1
(14.3)
%
Silica Catalysts
50.1
0.9
51.0
36.7
39.0
%
Performance Materials
169.8
2.9
172.7
180.0
(4.1)
%
Performance Chemicals
316.9
12.1
329.0
358.3
(8.2)
%
Eliminations
(6.8)
(0.2)
(7.0)
(7.2)
2.8
%
Total sales
$
721.1
$
15.7
$
736.8
$
790.9
(6.8)
%
Zeolyst joint venture sales
$
73.0
$
—
$
73.0
$
68.6
6.4
%
Adjusted EBITDA:
Refining Services
$
72.2
$
—
$
72.2
$
82.6
(12.6)
%
Catalysts
48.0
0.4
48.4
47.7
1.5
%
Performance Materials
40.8
0.5
41.3
39.7
4.0
%
Performance Chemicals
74.5
3.1
77.6
83.8
(7.4)
%
Total Segment Adjusted EBITDA
$
235.5
$
4.0
$
239.5
$
253.8
(5.6)
%
Corporate
(19.3)
—
(19.3)
(20.3)
4.9
%
Total Adjusted EBITDA
$
216.2
$
4.0
$
220.2
$
233.5
(5.7)
%
Appendix Table A-5: Adjusted Free Cash
Flow
Three months ended
June 30,
Six months ended
June 30,
2020
2019
2020
2019
(in millions)
Net cash provided by operating
activities
$
57.6
$
33.2
$
62.1
$
60.0
Less:
Purchases of property, plant and
equipment(1)
(22.4)
(31.9)
(50.5)
(65.5)
Free cash flow
35.2
1.3
11.6
(5.5)
Adjustments to free cash flow:
Proceeds from sale of assets
7.9
—
10.3
—
Net interest proceeds on currency
swaps
0.4
0.6
2.2
4.5
Adjusted free cash flow(2)
$
43.5
$
1.9
$
24.1
$
(1.0)
Net cash used in investing
activities(3)
$
(14.1)
$
(4.6)
$
(36.2)
$
(33.9)
Net cash used in financing activities
$
(64.1)
$
2.3
$
(5.9)
$
(0.3)
(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/20200730005145/en/
Investor Contact: Nahla A. Azmy (610) 651-4561
Nahla.Azmy@pqcorp.com
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