- Sales of $380.3 million and Net income of $7.5 million with
diluted EPS of $0.06; Adjusted net income of $27.5 million with
Adjusted diluted EPS of $0.20;
- Adjusted EBITDA of $108.6 million impacted by $5 million
related to Hurricane Laura and a hydrocracking order deferred to
the fourth quarter; Adjusted EBITDA margin of 26.7%;
- Advancing Simpler + Stronger portfolio strategy with planned
sale of Performance Materials and launch of strategic alternatives
process for Performance Chemicals
PQ Group Holdings Inc. (NYSE:PQG) (“PQ” or the “company”) today
reported results for the third quarter ended September 30, 2020.
Sales of $380.3 million decreased 10.3% compared with the same
period in 2019, largely on lower sales volume related to the pace
of economic recovery from COVID-19. Net income was $7.5 million
with $0.06 diluted EPS and Adjusted net income was $27.5 million
with $0.20 Adjusted diluted EPS. Adjusted EBITDA of $108.6 million
was down 21.1% from the same period in the prior year, primarily
from lower sales volumes offset by favorable pricing and cost
reductions. This performance resulted in a solid Adjusted EBITDA
margin of 26.7%. Third quarter financial performance was largely in
line with the second quarter, with results modestly suppressed from
Hurricane Laura and the deferral of a hydrocracking order into the
fourth quarter.
“As the global economy gradually recovers from the pandemic, the
PQ team continued to perform well, and Refining Services again led
the way with Adjusted EBITDA margins of more than 40%,” said
Belgacem Chariag, PQ Chairman, President and Chief Executive
Officer. “PQ also is taking significant steps to unlock value for
shareholders with the planned sale of Performance Materials, review
of strategic alternatives for Performance Chemicals and expansion
of our capital allocation program beyond reinvestment and debt
reduction to include special dividends.”
Review of Segment Results
Aligned with the pace of the global economy recovery, the
company continues to carefully match costs and output with the
evolving demand picture. The company sees signs that the second
quarter of 2020 marked the trough in global demand. While
consumption generally remains below prior-year levels, the vast
majority of the company’s key end use areas shows moderate to
improving demand patterns.
Refining Services
Global gasoline demand has recovered since June to about 90% of
2019 levels on steady increases in miles driven combined with
reduction in production supply as a number of North American
refineries closed or idled their facilities. For the high-grade
virgin sulfuric acid product line, demand from mining customers led
the rebound, followed by signs of recovery in general industrial
and automotive applications.
Sales of $107.6 million and Adjusted EBITDA of $44.3 million
decreased 9.0% and 13.5%, respectively, versus the same period in
2019, as lower refinery utilization rates impacted volume demand
for regeneration services.
Catalysts
Demand for silica-based catalysts continued to outpace the
broader polyethylene industry for packaging, containers and film.
As expected for hydrocracking catalysts and specialty catalysts,
refinery customers have shifted facility change-outs beyond 2020 on
reduced fuel consumption patterns.
Silica Catalysts sales of $23.1 million decreased 9.8% versus
the same period in 2019 as higher demand for polyolefin catalysts
was more than offset by lower methyl methacrylate catalysts orders.
Due to deferrals of refinery change outs, Zeolyst JV sales of $26.6
million were down $27.8 million on lower order demand for specialty
and hydrocracking catalysts. Adjusted EBITDA of $11.8 million
decreased $19.8 million as lower revenues outpaced cost reductions
given the fixed nature of some costs.
Performance Chemicals
Since the second quarter, improving signs of economic recovery
are benefiting a few consumer product and industrial and process
chemicals applications. However, demand for commercial cleaning
remained soft and detergents and personal care eased from the
strong second-quarter surge by consumers stocking up for COVID-19
stay-at-home mandates.
Sales of $148.5 million decreased 11.6% versus the same period
in 2019 on demand weakness for sodium silicate within detergents,
general industrial and oil processing. Adjusted EBITDA of $33.9
million decreased 7.9%, on lower sales volumes that were partly
offset by cost benefits from the company’s Performance Chemicals
transformation and other cost initiatives.
Performance Materials
European highway safety and industrial end use demand is showing
a steady recovery from trough levels in the second quarter. North
American highway demand reflects a modestly reduced level of
striping activity from COVID-related work restrictions.
Third quarter sales of $104.6 million decreased 9.1% versus the
same period in 2019 due to lower volume partly offset by favorable
pricing. Adjusted EBITDA of $25.3 million decreased 1.9%, with
lower sales largely offset by improved pricing and active cost
reductions.
Strategic Transformation
On October 15, 2020, the company announced it had entered into a
definitive agreement to sell Performance Materials for $650 million
to an affiliate of the private equity firm The Jordan Company,
L.P., with closing expected by the end of the year, subject to
regulatory approvals and customary closing conditions. The company
also announced that it was beginning a strategic review of
Performance Chemicals.
“As we complete the sale of Performance Materials and advance
the strategic review of Performance Chemicals, our focus is on
reshaping the portfolio for higher margins and higher growth
potential. We believe that our core business fits very well within
the global secular trends toward a clean energy transition and a
circular plastics economy,” said Chariag. “In addition, after
deploying nearly all capital since our initial public offering to
reinvestment and debt reduction, we are pleased to be adding
special dividends as an option to provide direct returns to
shareholders.”
Balance Sheet and Cash Utilization
At September 30, 2020, the company had total available liquidity
of $345.4 million, including cash and cash equivalents of $164.3
million. The company expects to use after-tax cash proceeds from
the sale of Performance Materials, along with a portion of cash
balances, to reduce approximately $460 million in debt while also
allocating up to $250 million, or $1.84 per share, to a planned
special dividend to shareholders. The special dividend is subject
to board approval and declaration.
2020 Financial Outlook
With execution to date resulting in solid financial performance,
the outlook for 2020 remains on track. On a consolidated basis
including Performance Materials, the company projects sales of
$1,430 to $1,460 million(1), Adjusted EBITDA of $410 to $425
million and Adjusted Free Cash Flow of $145 million to $155
million, excluding $18 million in cash proceeds from a product line
sale earlier in 2020.
With the pending transaction, Performance Materials is expected
to be reported as a discontinued operation beginning in the fourth
quarter of 2020. Consequently, the company is also providing 2020
guidance from continuing operations, excluding Performance
Materials, as below:
- Sales of $1,080 to $1,100 million(1)
- Adjusted EBITDA of $330 to $345 million
- Adjusted free cash flow of $95 to $105 million
The company is withdrawing its 2020 EPS guidance as it finalizes
the tax effect of the divestiture.
(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 Friday, October 30, 2020, PQ management will review the
results during a conference call and audio-only webcast scheduled
for 10:00 a.m. Eastern Time.
Conference Call: Investors may listen to the conference call
live via telephone by dialing 1 (877) 876-9177 (domestic) or 1
(785) 424-1672 (international) and use the participant code
PQGQ320.
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 the sale of the Performance Materials business
segment and the review of strategic alternatives for the
Performance Chemicals business segment, including the intended use
of proceeds therefrom, our future results of operations, financial
condition, liquidity, prospects, growth, strategies, capital
allocation program, product and service offerings, including the
impact of the COVID-19 pandemic on such items, expected demand
trends and our 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, our ability to close on the sale of the
Performance Materials business segment on our anticipated timeline,
or at all, our ability to identify a strategic alternative for the
Performance Chemicals business segment and to execute on such
alternative, 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
September 30,
Nine months ended
September 30,
2020
2019
% Change
2020
2019
% Change
Sales
$
380.3
$
423.8
(10.3)
%
$
1,101.4
$
1,214.7
(9.3)
%
Cost of goods sold
283.8
310.9
(8.7)
%
823.5
905.4
(9.0)
%
Gross profit
96.5
112.9
(14.5)
%
277.9
309.3
(10.2)
%
Selling, general and administrative
expenses
37.1
39.5
(6.1)
%
119.3
123.6
(3.5)
%
Other operating expense, net
12.4
15.7
(21.0)
%
47.0
28.4
65.5
%
Operating income
47.0
57.6
(18.4)
%
111.6
157.2
(29.0)
%
Equity in net (income) from affiliated
companies
(0.2)
(17.3)
(98.8)
%
(20.0)
(31.6)
(36.7)
%
Interest expense, net
18.6
27.7
(32.9)
%
65.4
84.9
(23.0)
%
Debt extinguishment costs
14.0
1.8
677.8
%
16.5
1.8
816.7
%
Other (income) expense, net
(5.0)
1.9
(363.2)
%
(4.3)
1.8
(338.9)
%
Income before income taxes and
noncontrolling interest
19.6
43.5
(54.9)
%
54.0
100.4
(46.2)
%
Provision for income taxes(1)
11.8
16.7
(29.3)
%
29.4
39.5
(25.6)
%
Effective tax rate
60.1
%
38.4
%
54.5
%
39.3
%
Net income
7.8
26.8
(70.9)
%
24.6
60.9
(59.6)
%
Less: Net income attributable to the
noncontrolling interest
0.3
0.1
200.0
%
0.9
0.5
80.0
%
Net income attributable to PQ Group
Holdings Inc.
$
7.5
$
26.7
(71.9)
%
$
23.7
$
60.4
(60.8)
%
Earnings per share:
Basic earnings per share
$
0.06
$
0.20
$
0.17
$
0.45
Diluted earnings per share
$
0.06
$
0.20
$
0.17
$
0.45
Weighted average shares outstanding:
Basic
135,106,969
134,511,819
135,292,163
134,213,571
Diluted
135,979,118
135,649,710
136,188,033
135,305,370
(1)
Net of a $1.0 million and $8.8 million provision for Global
Intangible Low-Taxed Income (“GILTI”) for the three and nine months
ended September 30, 2020, respectively. Net of a $6.2 million and
$13.9 million provision for Global Intangible Low-Taxed Income
(“GILTI”) for the three and nine months ended September 30, 2019,
respectively.
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions, except share and
per share amounts)
September 30,
2020
December 31,
2019
ASSETS
Cash and cash equivalents
$
164.3
$
72.3
Accounts receivable, net
196.1
179.6
Inventories, net
249.7
280.9
Prepaid and other current assets
37.4
35.8
Total current assets
647.5
568.6
Investments in affiliated companies
479.5
472.9
Property, plant and equipment, net
1,135.8
1,186.8
Goodwill
1,263.9
1,259.8
Other intangible assets, net
638.8
676.4
Right-of-use lease assets
56.2
57.3
Other long-term assets
102.7
99.1
Total assets
$
4,324.4
$
4,320.9
LIABILITIES
Notes payable and current maturities of
long-term debt
$
8.0
$
7.8
Accounts payable
116.8
144.4
Operating lease liabilities—current
16.8
15.2
Accrued liabilities
86.1
102.2
Total current liabilities
227.7
269.6
Long-term debt, excluding current
portion
1,911.5
1,899.2
Deferred income taxes
224.5
218.0
Operating lease liabilities—noncurrent
38.3
40.2
Other long-term liabilities
118.2
108.6
Total liabilities
2,520.2
2,535.6
Commitments and contingencies
EQUITY
Common stock ($0.01 par); authorized
shares 450,000,000; issued shares 136,787,670 and 136,861,382 on
September 30, 2020 and December 31, 2019, respectively; outstanding
shares 136,056,817 and 136,464,961 on September 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 September 30,
2020 and December 31, 2019
—
—
Additional paid-in capital
1,715.5
1,696.9
Retained earnings
126.6
103.0
Treasury stock, at cost; shares 730,853
and 396,421 on September 30, 2020 and December 31, 2019,
respectively
(10.5)
(6.5)
Accumulated other comprehensive loss
(32.5)
(15.4)
Total PQ Group Holdings Inc. equity
1,800.5
1,779.4
Noncontrolling interest
3.7
5.9
Total equity
1,804.2
1,785.3
Total liabilities and equity
$
4,324.4
$
4,320.9
PQ GROUP HOLDINGS INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
Nine months ended
September 30,
2020
2019
Cash flows from operating activities:
(in millions)
Net income
$
24.6
$
60.9
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
100.0
97.1
Amortization
36.3
38.1
Amortization of deferred financing costs
and original issue discount
3.7
4.5
Debt extinguishment costs
14.1
1.8
Foreign currency exchange (gain) loss
(2.1)
5.4
Deferred income tax provision
9.8
16.8
Net (gain) loss on asset disposals
3.9
(7.7)
Stock compensation
18.4
13.6
Equity in net income from affiliated
companies
(20.0)
(31.6)
Dividends received from affiliated
companies
15.1
20.1
Net interest income on swaps designated as
net investment hedges
(4.6)
(8.4)
Other, net
(9.1)
(7.2)
Working capital changes that provided
(used) cash, excluding the effect of acquisitions and
dispositions:
Receivables
(20.7)
(22.5)
Inventories
8.6
(1.8)
Prepaids and other current assets
(0.4)
0.3
Accounts payable
(10.1)
(4.1)
Accrued liabilities
(17.0)
6.6
Net cash provided by operating
activities
150.6
181.9
Cash flows from investing activities:
Purchases of property, plant and
equipment
(76.8)
(91.7)
Proceeds from sale of product line
18.0
28.0
Proceeds from sale of assets
10.3
—
Proceeds from sale of investment
1.8
—
Net interest proceeds on swaps designated
as net investment hedges
4.6
8.4
Other, net
—
0.6
Net cash used in investing activities
(42.1)
(54.7)
Cash flows from financing activities:
Draw down of revolving credit
facilities
175.4
161.6
Repayments of revolving credit
facilities
(174.7)
(160.3)
Issuance of long-term debt
650.0
—
Debt issuance costs
(18.6)
—
Repayments of long-term debt
(627.5)
(105.8)
Debt prepayment fees
(10.6)
—
Stock repurchases
(4.1)
(2.2)
Proceeds from stock options exercised
0.2
4.0
Other, net
(0.3)
(0.5)
Net cash used in financing activities
(10.2)
(103.2)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(6.0)
(3.4)
Net change in cash, cash equivalents and
restricted cash
92.3
20.6
Cash, cash equivalents and restricted cash
at beginning of period
73.9
59.7
Cash, cash equivalents and restricted cash
at end of period
$
166.2
$
80.3
Appendix Table A-1: Reconciliation of
Net Income to Segment Adjusted EBITDA
Three months ended
September 30,
Nine months ended
September 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.
$
7.5
$
26.7
$
23.7
$
60.4
Provision for income taxes
11.8
16.7
29.4
39.5
Interest expense, net
18.6
27.7
65.4
84.9
Depreciation and amortization
45.8
44.2
136.3
135.2
EBITDA
83.7
115.4
254.8
320.1
Joint venture depreciation, amortization
and interest(a)
3.6
3.7
11.1
11.2
Amortization of investment in affiliate
step-up(b)
1.7
1.7
5.0
5.9
Debt extinguishment costs
14.0
1.8
16.5
1.8
Net (gain) loss on asset disposals(c)
(4.5)
1.1
3.9
(7.7)
Foreign currency exchange (gain)
loss(d)
(4.6)
4.5
(2.1)
5.4
LIFO (benefit) expense(e)
(0.8)
0.5
(2.5)
10.8
Transaction and other related costs(f)
3.3
0.7
6.1
1.7
Equity-based compensation
6.1
4.8
18.4
13.6
Restructuring, integration and business
optimization expenses(g)
4.6
0.7
10.2
1.4
Defined benefit pension plan cost
(benefit) (h)
0.4
0.8
(0.1)
2.4
Other(i)
1.1
2.1
3.4
4.7
Adjusted EBITDA
108.6
137.7
324.7
371.2
Unallocated corporate expenses
6.7
7.7
26.0
28.0
Segment Adjusted EBITDA
$
115.3
$
145.4
$
350.7
$
399.2
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 September
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
$
19.6
$
11.8
$
7.8
$
43.5
$
16.7
$
26.8
Less: Net income attributable to
non-controlling interest
0.3
—
0.3
0.1
—
0.1
Net income attributable to PQ Group
Holdings Inc.
19.3
11.8
7.5
43.4
16.7
26.7
Earnings per share:
Basic earnings per share
$
0.06
$
0.20
Diluted earnings per share
$
0.06
$
0.20
Net income attributable to PQ Group
Holdings Inc.
$
19.3
$
11.8
$
7.5
$
43.4
$
16.7
$
26.7
Amortization of investment in affiliate
step-up(b)
1.7
0.8
0.9
1.7
0.6
1.1
Debt extinguishment costs
14.0
6.1
7.9
1.8
0.6
1.2
Net (gain) loss on asset disposals(d)
(4.5)
(2.6)
(1.9)
1.1
0.3
0.8
Foreign currency exchange (gain)
loss(e)
(4.6)
(1.1)
(3.5)
4.5
0.6
3.9
LIFO (benefit) expense(f)
(0.8)
(0.4)
(0.4)
0.5
0.1
0.4
Transaction and other related costs(g)
3.3
1.5
1.8
0.7
0.3
0.4
Equity-based compensation
6.1
3.0
3.1
4.8
1.6
3.2
Restructuring, integration and business
optimization expenses(h)
4.6
2.1
2.5
0.7
0.2
0.5
Defined benefit plan pension cost(i)
0.4
0.2
0.2
0.8
0.3
0.5
Other(j)
1.1
0.6
0.5
2.1
0.7
1.4
Adjusted Net Income, including non-cash
GILTI tax
40.6
22.0
18.6
62.1
22.0
40.1
Impact of non-cash GILTI tax(2)
—
(7.3)
7.3
—
(8.2)
8.2
Impact of tax reform(3)
—
(1.6)
1.6
—
—
—
Adjusted Net Income(1)
$
40.6
$
13.1
$
27.5
$
62.1
$
13.8
$
48.3
Adjusted earnings per share:
Adjusted basic earnings per share
$
0.20
$
0.36
Adjusted diluted earnings per share
$
0.20
$
0.36
Weighted average shares outstanding:
Basic
135,106,969
134,511,819
Diluted
135,979,118
135,649,710
Nine months ended September
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
$
54.0
$
29.4
$
24.6
$
100.4
$
39.5
$
60.9
Less: Net income attributable to
non-controlling interest
0.9
—
0.9
0.5
—
0.5
Net income attributable to PQ Group
Holdings Inc.
53.1
29.4
23.7
99.9
39.5
60.4
Earnings per share:
Basic earnings per share
$
0.17
$
0.45
Diluted earnings per share
$
0.17
$
0.45
Net income attributable to PQ Group
Holdings Inc.
$
53.1
$
29.4
$
23.7
$
99.9
$
39.5
$
60.4
Amortization of investment in affiliate
step-up(b)
5.0
2.1
2.9
5.9
2.1
3.8
Debt extinguishment costs
16.5
7.0
9.5
1.8
0.6
1.2
Net loss (gain) on asset disposals(c)
3.9
(0.2)
4.1
(7.7)
(1.6)
(6.1)
Foreign currency exchange (gain)
loss(d)
(2.1)
(0.1)
(2.0)
5.4
(0.6)
6.0
LIFO (benefit) expense(e)
(2.5)
(1.0)
(1.5)
10.8
3.8
7.0
Transaction and other related costs(f)
6.1
2.6
3.5
1.7
0.6
1.1
Equity-based compensation
18.4
7.8
10.6
13.6
4.8
8.8
Restructuring, integration and business
optimization expenses(g)
10.2
4.3
5.9
1.4
0.5
0.9
Defined benefit plan pension (benefit)
cost(h)
(0.1)
—
(0.1)
2.4
0.8
1.6
Other(i)
3.4
1.5
1.9
4.7
1.5
3.2
Adjusted Net Income, including non-cash
GILTI tax
111.9
53.4
58.5
139.9
52.0
87.9
Impact of non-cash GILTI tax(2)
—
(19.1)
19.1
—
(19.3)
19.3
Impact of tax reform(3)
—
(1.6)
1.6
—
—
—
Adjusted Net Income(1)
$
111.9
$
32.7
$
79.2
$
139.9
$
32.7
$
107.2
Adjusted earnings per share:
Adjusted basic earnings per share
$
0.59
$
0.80
Adjusted diluted earnings per share
$
0.58
$
0.79
Weighted average shares outstanding:
Basic
135,292,163
134,213,571
Diluted
136,188,033
135,305,370
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.
(3)
Represents the transaction tax adjustment
for the impact of the rate change in the United Kingdom related to
the UK Finance Act recorded in net income.
Appendix Table A-3: Business
Segment Sales and Adjusted EBITDA
Three months ended
September 30,
Nine months ended
September 30,
2020
2019
% Change
2020
2019
% Change
Sales:
Refining Services
$
107.6
$
118.3
(9.0)
%
$
298.7
$
341.5
(12.5)
%
Silica Catalysts
23.1
25.6
(9.8)
%
73.1
62.3
17.3
%
Performance Materials
104.6
115.1
(9.1)
%
274.3
295.1
(7.0)
%
Performance Chemicals
148.5
167.9
(11.6)
%
465.4
526.2
(11.6)
%
Eliminations
(3.5)
(3.1)
(10.1)
(10.4)
Total sales
$
380.3
$
423.8
(10.3)
%
$
1,101.4
$
1,214.7
(9.3)
%
Zeolyst joint venture sales
$
26.6
$
54.4
(51.1)
%
$
99.7
$
123.0
(18.9)
%
Adjusted EBITDA:
Refining Services
$
44.3
$
51.2
(13.5)
%
$
116.5
$
133.7
(12.9)
%
Catalysts
11.8
31.6
(62.7)
%
59.7
79.4
(24.8)
%
Performance Materials
25.3
25.8
(1.9)
%
66.1
65.5
0.9
%
Performance Chemicals
33.9
36.8
(7.9)
%
108.4
120.6
(10.1)
%
Total Segment Adjusted EBITDA
$
115.3
$
145.4
(20.7)
%
$
350.7
$
399.2
(12.1)
%
Corporate
(6.7)
(7.7)
13.0
%
(26.0)
(28.0)
7.1
%
Total Adjusted EBITDA
$
108.6
$
137.7
(21.1)
%
$
324.7
$
371.2
(12.5)
%
Adjusted EBITDA Margin:
Refining Services
41.2
%
43.3
%
39.0
%
39.2
%
Catalysts(1)
23.7
%
39.5
%
34.5
%
42.8
%
Performance Materials
24.2
%
22.4
%
24.1
%
22.2
%
Performance Chemicals
22.8
%
21.9
%
23.3
%
22.9
%
Total Adjusted EBITDA Margin(1)
26.7
%
28.8
%
27.0
%
27.7
%
(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
Three months ended September
30, 2020
Three months ended September
30, 2019
As Reported
FX
Constant Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
107.6
$
—
$
107.6
$
118.3
(9.0)
%
Silica Catalysts
23.1
(0.1)
23.0
25.6
(10.2)
%
Performance Materials
104.6
(0.5)
104.1
115.1
(9.6)
%
Performance Chemicals
148.5
2.9
151.4
167.9
(9.8)
%
Eliminations
(3.5)
0.2
(3.3)
(3.1)
(6.5)
%
Total sales
$
380.3
$
2.5
$
382.8
$
423.8
(9.7)
%
Zeolyst joint venture sales
$
26.6
$
—
$
26.6
$
54.4
(51.1)
%
Adjusted EBITDA:
Refining Services
$
44.3
$
—
$
44.3
$
51.2
(13.5)
%
Catalysts
11.8
(0.2)
11.6
31.6
(63.3)
%
Performance Materials
25.3
—
25.3
25.8
(1.9)
%
Performance Chemicals
33.9
0.4
34.3
36.8
(6.8)
%
Total Segment Adjusted EBITDA
$
115.3
$
0.2
$
115.5
$
145.4
(20.6)
%
Corporate
(6.7)
—
(6.7)
(7.7)
13.0
%
Total Adjusted EBITDA
$
108.6
$
0.2
$
108.8
$
137.7
(21.0)
%
Nine months ended September
30, 2020
Nine months ended September
30, 2019
As Reported
FX
Constant Currency
As Reported
% Change
(in millions, except
percentages)
Sales:
Refining Services
$
298.7
$
—
$
298.7
$
341.5
(12.5)
%
Silica Catalysts
73.1
0.8
73.9
62.3
18.6
%
Performance Materials
274.3
2.5
276.8
295.1
(6.2)
%
Performance Chemicals
465.4
15.0
480.4
526.2
(8.7)
%
Eliminations
(10.1)
(0.2)
(10.3)
(10.4)
1.0
%
Total sales
$
1,101.4
$
18.1
$
1,119.5
$
1,214.7
(7.8)
%
Zeolyst joint venture sales
$
99.7
$
—
$
99.7
$
123.0
(18.9)
%
Adjusted EBITDA:
Refining Services
$
116.5
$
—
$
116.5
$
133.7
(12.9)
%
Catalysts
59.7
0.3
60.0
79.4
(24.4)
%
Performance Materials
66.1
0.5
66.6
65.5
1.7
%
Performance Chemicals
108.4
3.5
111.9
120.6
(7.2)
%
Total Segment Adjusted EBITDA
$
350.7
$
4.3
$
355.0
$
399.2
(11.1)
%
Corporate
(26.0)
—
(26.0)
(28.0)
7.1
%
Total Adjusted EBITDA
$
324.7
$
4.3
$
329.0
$
371.2
(11.4)
%
Appendix Table A-5: Adjusted Free Cash
Flow
Three months ended
September 30,
Nine months ended
September 30,
2020
2019
2020
2019
(in millions)
Net cash provided by operating
activities
$
88.5
$
121.9
$
150.6
$
181.9
Less:
Purchases of property, plant and
equipment(1)
(26.3)
(26.2)
(76.8)
(91.7)
Free cash flow
62.2
95.7
73.8
90.2
Adjustments to free cash flow:
Proceeds from sale of assets
—
—
10.3
—
Net interest proceeds on currency
swaps
2.4
3.9
4.6
8.4
Adjusted free cash flow(2)
$
64.6
$
99.6
$
88.7
$
98.6
Net cash used in investing
activities(3)
$
(5.9)
$
(20.8)
$
(42.1)
$
(54.7)
Net cash used in financing activities
$
(4.3)
$
(102.9)
$
(10.2)
$
(103.2)
(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/20201030005109/en/
Investor Contact: Nahla A. Azmy (610) 651-4561
Nahla.Azmy@pqcorp.com
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