PQ Group Reports Fourth Quarter and Full Year 2020 Results from Continuing Operations; Achieved Significant Milestones on Strategic Transformation to a Pure-Play Catalyst and Services Company

• Solid quarter performance driven by demand recovery across many end uses and benefit of Performance Chemicals business transformation plan;
• Year results reflect lower volumes from global pandemic, offset by cost actions undertaken at all businesses;
• Net cash provided by operating activities of $223.6 million and Adjusted free cash flow of $152.5 million for the year;
• Portfolio transformation accelerated with agreement for the sale of the Performance Chemicals business for $1.1 billion and the completed sale of Performance Materials for $650 million; and
• Closed strategic acquisition of fast-growing catalyst activation company

Financial results are on a continuing operations basis, which excludes the Performance Materials business from all quarterly and yearly results presented, unless otherwise indicated.

Financial results and outlook include non-GAAP financial measures. These non-GAAP measures are more fully described and are reconciled from the respective measures determined under GAAP in “Presentation of Non-GAAP Financial Measures” and the attached appendix.

MALVERN, Pa.--(BUSINESS WIRE)-- PQ Group Holdings Inc. (NYSE:PQG) (“PQ” or the “Company”) reported results from continuing operations¹ for the fourth quarter and year ended December 31, 2020.

For the fourth quarter, sales of $281.5 million matched the fourth quarter of 2019, reflecting a rebound in demand. Net loss was $182.8 million with $1.35 diluted loss per share and Adjusted net income was $82.5 million with Adjusted diluted EPS of $0.61 per share. The fourth quarter and year end results included the impact of a non-cash goodwill impairment charge for Performance Chemicals of $260.0 million, or $1.92 per share, and the recognition of deferred tax assets associated with foreign tax credits of $56.3 million, or $0.42 per share. Adjusted EBITDA totaled $81.8 million, with Performance Chemicals benefiting from demand recovery and the successful implementation of its business transformation plans, which were offset by refiners recalibrating their activity and delaying change outs in the Catalysts segment.

For the year, lower sales demand due to the global COVID-19 pandemic impacted sales volumes, partially offset by aggressive cost actions undertaken at all the business segments. Sales were $1,107.4 million, a decrease of 7.7 percent from 2019. Net loss was $176.3 million with $1.30 diluted loss per share. Adjusted net income was $136.9 million with Adjusted diluted EPS of $1.00 per share. Adjusted EBITDA totaled $338.0 million.

“Within the confines of the pandemic-influenced year, PQ delivered solid results in 2020, generated $153 million of adjusted free cash flow and drove an Adjusted EBITDA margin of more than 27 percent. The PQ team demonstrated steadfast character dealing with the uncertainties and complexities of the situation, supporting customers, protecting the business continuity, while tightly managing operations,” said Belgacem Chariag, PQ Chairman, President and Chief Executive Officer. “We are also excited at our growth prospects for 2021 and beyond, as we stand at the cusp of our most notable accomplishments within our ‘Simpler + Stronger’ portfolio transformation. As the economy begins to turn the corner, we are now positioning to be a high growth pure-play catalyst and services company that enables customer transitions to cleaner fuels and a circular economy for plastics.”

⁽¹⁾ Continuing operations for 2020 include the Company’s Refining Services, Catalysts and Performance Chemicals businesses.

Review of Segment Results

As anticipated, most of PQ’s customers experienced increased end use demand during the fourth quarter, ranging from packaged products to automotive sales. The construction and mining segments also demonstrated demand strength. The company expects stronger demand recovery in the second half of 2021 across all sectors, with most end uses improving at varying paces.

Refining Services

Refining Services saw North American gasoline demand partially recover in the second half of 2020 and end the year approximately 10 percent below 2019 demand levels, with U.S. refinery utilization rates in the low-to-mid-80 percent range. Looking ahead, utilization is expected to improve during the second quarter of 2021 and into the active summer season, especially with the anticipated progress in vaccination rates. As demand stabilizes, alkylate production is expected to continue to grow on higher octane fuel blending. Virgin sulfuric acid demand ended the year higher than 2019 levels as a recovery of mining and auto production improved heading into 2021.

For the quarter ended December 31, 2020, sales of $103.2 million decreased 2.3 percent versus the same period in 2019. Lower regeneration services volumes driven by reduced refinery run rates were partially offset by higher spot sales for virgin sulfuric acid. Adjusted EBITDA of $40.7 million decreased 2.9 percent on lower volumes and product mix.

For the year, sales of $401.9 million decreased 10.1 percent versus the same period in 2019. With the onset of the global pandemic, demand for regeneration services was impacted by lower refinery production rates as lower miles driven resulted in high gasoline inventories. Virgin sulfuric acid volumes were flat compared to prior year as the COVID-19 impact on industrial and automotive applications gave way to a recovery in the second half. Adjusted EBITDA of $157.2 million declined 10.5 percent due to lower overall volumes, partly offset by cost containment actions.

Catalysts

Sales for hydrocracking catalysts were strong in the first half of 2020 but tapered off in the second half as lower refinery utilization delayed the need for fixed bed change-outs. Demand for our emission control catalysts used in heavy-duty diesel vehicles decreased since the first quarter of 2020 as our customers temporarily curtailed production to align with demand. Offsetting these impacts was higher polyethylene catalyst demand in 2020 on increased consumer consumption of films and packaging. We expect higher catalyst demand in the second half of 2021 versus the first half, as polyolefin catalyst growth continues and refiners begin to restart hydrocracking and specialty catalyst change-outs.

For the quarter ended December 31, 2020, Silica Catalysts sales of $20.9 million decreased 10.3 percent versus the same period in 2019. Continued favorable demand growth for polyolefin catalysts was more than offset by lower methyl methacrylate sales. Zeolyst JV sales of $28.9 million declined 38.9 percent on lower hydrocracking orders due to deferred catalyst change-outs by refineries and the pace of recovery for custom and emission control catalysts. Adjusted EBITDA of $14.8 million decreased 47.9 percent due to lower sales volumes and unfavorable product mix.

For the year, Silica Catalysts sales of $94.0 million increased 9.7 percent versus the same period in 2019, benefiting from higher sales volumes for polyolefin catalysts. Zeolyst JV sales of $128.6 million declined 24.5 percent largely due to lower demand for hydrocracking and specialty catalysts following a robust 2019 that saw the second highest year on record followed by deferrals in 2020 customer change-outs. Results also reflected lower emission control catalyst sales on heavy-duty diesel production. Adjusted EBITDA of $74.5 million decreased 30.9 percent on reduced sales volumes from Zeolyst JV.

Performance Chemicals

Industrial demand continued to strengthen driven by automotive and coatings applications and the early signs of restocking within the global supply chain. In the fourth quarter, PQ experienced its best sales and Adjusted EBITDA results for Performance Chemicals since the first quarter of 2020.

For the quarter ended December 31, 2020, sales of $158.2 million increased 1.8 percent over the same period in 2019. This improvement was largely driven by recovery of sodium silicate for industrial applications and continued healthy demand of specialty silicas for personal care and surface coatings. Adjusted EBITDA of $35.5 million increased 7.6 percent on improved sales volumes and improved costs from the company’s business transformation initiatives.

For the year, sales of $614.7 million decreased 8.3 percent versus the same period in 2019 on lower global demand for sodium silicates across multiple customer industrial applications. Adjusted EBITDA of $142.4 million decreased 6.0 percent as favorable business transformation cost initiatives were more than offset by lower sales volumes.

Cash Flows and Balance Sheet

For the year ended December 31, 2020, cash flows from operating activities from continuing operations decreased $22.3 million to $205.4 million, compared to $227.7 million for the same period in 2019. This decrease was primarily driven by a decrease in net income.

At December 31, 2020, the Company had cash and cash equivalents of $135.5 million and total debt outstanding of $1,426.4 million. During the year ended December 31, 2020, the Company repaid $467 million of long term debt and the net debt to Adjusted EBITDA ratio was 3.8x as of December 31, 2020.

Strategic Transformation

On March 1, 2021, the Company announced that it has entered into a definitive agreement to sell its Performance Chemicals business to a partnership between Cerberus Capital Management, L.P. and Koch Minerals & Trading LLC for a purchase price of $1.1 billion.

Upon the anticipated close in 2021 and finalization of net cash proceeds, PQ plans to return capital to shareholders through a special dividend of $2.50 to $3.25 per share (subject to Board approval and declaration), which is expected to result in a debt reduction of $450 million to $550 million.

In addition, on March 1, 2021 PQ closed on its acquisition of Chem32, LLC from its founders for a purchase price of $44 million to complement our Refining Services business. Chem32 is a leading supplier of catalyst pre-activation services used in the production of traditional and renewable fuels. This addition, with its patented technology and services, is expected to grow rapidly and generate higher margins.

2021 Financial Outlook from Continuing Operations

With the announced sale of Performance Chemicals, PQ will be reporting this business as a discontinued operation beginning in the first quarter of 2021. Consequently, the company is providing 2021 guidance from continuing operations for Target PQ, which reflects the Refining Services and Catalyst businesses and excludes Performance Chemicals, as below:

• Sales of $555 to $565 million⁽²⁾
• Adjusted EBITDA of $215 to $225 million
• Adjusted free cash flow of $75 to $85 million

⁽²⁾ GAAP sales only; Excludes proportionate 50 percent share of Zeolyst Joint Venture sales target of $140 to $150 million.

Conference Call and Webcast Details

On Tuesday, March 9, 2021, PQ management will release its fourth quarter and full year 2020 results from continuing operations during a conference call and audio-only webcast scheduled for 11:00 a.m. Eastern Time.

Conference Call: Investors may listen to the conference call live via telephone by dialing 1-866-342-8591 (domestic) or 1-203-518-9713 (international) and use the participant code PQGQ420.

Webcast: An audio-only webcast of the conference call and presentation materials can be accessed at http://investor.pqcorp.com.

A replay of the conference call/webcast will be made available at http://investor.pqcorp.com/events-presentations.

Investor Contact:
Nahla A. Azmy
(610) 651-4561
Nahla.Azmy@pqcorp.com

About PQ Group Holdings Inc.

PQ Group Holdings Inc. and subsidiaries is a leading integrated and innovative global provider of specialty catalysts, chemicals and services. We support customers globally through our strategically located network of manufacturing facilities. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

We have three uniquely positioned specialty businesses: Refining Services provides sulfuric acid recycling to the North American refining industry; Catalysts serves the packaging and engineering plastics and the global refining, petrochemical and emissions control industries; and Performance Chemicals supplies diverse product end uses, including personal and industrial cleaning products, fuel-efficient tires, surface coatings, and food and beverage products.

For more information, see our website at https://www.pqcorp.com.

Presentation of Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. generally accepted accounting principles (“GAAP”) throughout this press release, the company has provided non-GAAP financial measures — Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash flow, Adjusted net income, Adjusted EPS, Adjusted diluted EPS, and net debt (collectively, “Non-GAAP Financial Measures”) — which present results on a basis adjusted for certain items. The company uses these Non-GAAP Financial Measures for business planning purposes and in measuring its performance relative to that of its competitors. The company believes that these Non-GAAP Financial Measures are useful financial metrics to assess its operating performance from period-to-period by excluding certain items that the company believes are not representative of its core business. These Non-GAAP Financial Measures are not intended to replace, and should not be considered superior to, the presentation of the company’s financial results in accordance with GAAP. The use of the Non-GAAP Financial Measures terms may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. These Non-GAAP Financial Measures are reconciled from the respective measures under GAAP in the appendix below.

The company is not able to provide a reconciliation of the company’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as certain non-cash, nonrecurring or other items that are included in net income and EBITDA as well as the related tax impacts of these items and asset dispositions / acquisitions and changes in foreign currency exchange rates that are included in cash flow, due to the uncertainty and variability of the nature and amount of these future charges and costs.

Zeolyst Joint Venture

The company’s zeolite catalysts product group operates through its Zeolyst Joint Venture, which is accounted for as an equity method investment in accordance with GAAP. The presentation of the Zeolyst Joint Venture’s sales represents 50% of the sales of the Zeolyst Joint Venture. The company does not record sales by the Zeolyst Joint Venture as revenue and such sales are not consolidated within the company’s results of operations. However, the company’s Adjusted EBITDA reflects the share of earnings of the Zeolyst Joint Venture that have been recorded as equity in net income from affiliated companies in the company’s consolidated statements of income for such periods and includes Zeolyst Joint Venture adjustments on a proportionate basis based on the company’s 50% ownership interest. Accordingly, the company’s Adjusted EBITDA margins are calculated including 50% of the sales of the Zeolyst Joint Venture for the relevant periods in the denominator.

Note on Forward-Looking Statements

Some of the information contained in this press release constitutes “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects” and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Examples of forward-looking statements include, but are not limited to, statements regarding the sale of the Performance Chemicals business segment, including the intended use of proceeds therefrom, our future results of operations, financial condition, liquidity, prospects, growth, strategies, capital allocation program, product and service offerings, including the impact of the COVID-19 pandemic on such items, expected demand trends and our 2021 financial outlook. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, our ability to close on the sale of the Performance Chemicals business segment on our anticipated timeline, or at all, our ability to successfully integrate Chem32, regional, national or global political, economic, business, competitive, market and regulatory conditions, including the ongoing COVID-19 pandemic, tariffs and trade disputes, currency exchange rates and other factors, including those described in the sections titled “Risk Factors” and “Management Discussion & Analysis of Financial Condition and Results of Operations” in our filings with the SEC, which are available on the SEC’s website at www.sec.gov. These forward-looking statements speak only as of the date of this release. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.

See Appendix Table A-1 for Descriptions to PQ Non-GAAP Reconciliations in the table above.