ecvt-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

Commission File Number: 001-38221

Ecovyst Inc.

Delaware

81-3406833

(State or other jurisdiction of
incorporation or organization)

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

300 Lindenwood Drive

Malvern, Pennsylvania

19355

(Address of principal executive offices)

(Zip Code)

(484)

617-1200

(Registrant’s telephone number, including area code)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, par value $0.01 per share

ECVT

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The number of shares of common stock outstanding as of May 2, 2023 was 120,161,142.

Table of Contents

Ecovyst Inc.

INDEX—FORM 10-Q

March 31, 2023


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

Item 6.	Exhibits	41

	SIGNATURES	42

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

(unaudited)


	Three months ended March 31,
		2023		2022
Sales		$	160,874	$	179,714
Cost of goods sold		124,381		131,979
Gross profit		36,493		47,735
Selling, general and administrative expenses		21,119		23,536
Other operating expense, net		6,716		7,763
Operating income		8,658		16,436
Equity in net (income) from affiliated companies		(223)		(5,749)
Interest expense, net		9,832		8,450

Other (income) expense, net		(427)		140
(Loss) income before income taxes		(524)		13,595
Provision for income taxes		947		5,720
Net (loss) income attributable to Ecovyst Inc.		$	(1,471)	$	7,875

Net (loss) income per share:
Basic (loss) income per share		$	(0.01)	$	0.06
Diluted (loss) income per share		$	(0.01)	$	0.06

Weighted average shares outstanding:
Basic		122,178,867		137,684,773
Diluted		122,178,867		138,749,065

See accompanying notes to condensed consolidated financial statements.

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ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three months ended March 31,
		2023		2022
Net (loss) income attributable to Ecovyst Inc.		$	(1,471)	$	7,875
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits		(24)		(39)
Net (loss) gain from hedging activities		(7,920)		13,722
Foreign currency translation		2,185		(2,305)
Total other comprehensive (loss) income		(5,759)		11,378


Comprehensive (loss) income attributable to Ecovyst Inc.		$	(7,230)	$	19,253

See accompanying notes to condensed consolidated financial statements.

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ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)


	March 31, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	61,619	$	110,920
Accounts receivable, net	66,609		74,758
Inventories, net	45,828		44,362
Derivative assets	15,996		18,510
Prepaid and other current assets	31,301		19,154

Total current assets	221,353		267,704
Investments in affiliated companies	437,172		436,013
Property, plant and equipment, net	583,703		584,889
Goodwill	403,762		403,163
Other intangible assets, net	126,739		129,932
Right-of-use lease assets	27,575		28,265
Other long-term assets	29,745		34,587

Total assets	$	1,830,049	$	1,884,553
LIABILITIES
Current maturities of long-term debt	$	9,000	$	9,000
Accounts payable	34,130		40,019
Operating lease liabilities—current	8,070		8,155
Accrued liabilities	57,770		72,229

Total current liabilities	108,970		129,403
Long-term debt, excluding current portion	864,128		865,870
Deferred income taxes	136,591		136,184
Operating lease liabilities—noncurrent	19,440		20,021
Other long-term liabilities	26,769		25,846

Total liabilities	1,155,898		1,177,324
Commitments and contingencies (Note 15)
EQUITY
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 140,604,563 and 139,571,272 on March 31, 2023 and December 31, 2022, respectively; outstanding shares 120,124,260 and 122,186,238 on March 31, 2023 and December 31, 2022, respectively	1,406		1,396
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on March 31, 2023 and December 31, 2022	—		—
Additional paid-in capital	1,096,333		1,091,475
Accumulated deficit	(243,481)		(242,010)
Treasury stock, at cost; shares 20,480,303 and 17,385,034 on March 31, 2023 and December 31, 2022, respectively	(180,340)		(149,624)
Accumulated other comprehensive income	233		5,992
Total equity	674,151		707,229
Total liabilities and equity	$	1,830,049	$	1,884,553

See accompanying notes to condensed consolidated financial statements.

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ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common stock		Additional paid-in capital		(Accumulated deficit)		Treasury stock, at cost		Accumulated other comprehensive income		Total
Balance, December 31, 2022	$	1,396	$	1,091,475	$	(242,010)	$	(149,624)	$	5,992	$	707,229
Net loss	—		—		(1,471)		—		—		(1,471)
Other comprehensive loss	—		—		—		—		(5,759)		(5,759)

Repurchases of common shares	—		—		—		(29,850)		—		(29,850)
Tax withholdings on equity award vesting	—		—		—		(866)		—		(866)
Stock compensation expense	—		4,756		—		—		—		4,756
Shares issued under equity incentive plan, net of forfeitures	10		102		—		—		—		112
Balance, March 31, 2023	$	1,406	$	1,096,333	$	(243,481)	$	(180,340)	$	233	$	674,151


















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

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

See accompanying notes to condensed consolidated financial statements.

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ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net (loss) income attributable to Ecovyst Inc.	$	(1,471)	$	7,875
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	16,692		16,011
Amortization	3,505		3,535

Amortization of deferred financing costs and original issue discount	508		497



Foreign currency exchange (gain) loss	(437)		647
Pension and postretirement healthcare benefit	8		(553)

Deferred income tax provision	2,790		9,341
Net loss on asset disposals	1,178		133

Stock compensation	4,068		7,294
Equity in net income from affiliated companies	(223)		(5,749)
Dividends received from affiliated companies	—		15,000

Other, net	(3,783)		(6,841)
Working capital changes that provided (used) cash:
Receivables	8,364		(10,386)
Inventories	(1,323)		(1,034)
Prepaids and other current assets	(9,732)		(3,590)
Accounts payable	(1,946)		2,154
Accrued liabilities	(14,084)		(27,911)

Net cash provided by operating activities	4,114		6,423

Cash flows from investing activities:
Purchases of property, plant and equipment	(18,698)		(10,750)


Payments for business divestiture, net of cash	—		(3,744)





Other, net	—		81
Net cash used in investing activities	(18,698)		(14,413)

Cash flows from financing activities:






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



Repurchases of common shares	(29,850)		—
Tax withholdings on equity award vesting	(866)		(332)


Repayment of financing obligation	(701)		—
Other, net	97		27
Net cash used in financing activities	(33,570)		(2,555)

Effect of exchange rate changes on cash and cash equivalents	(1,147)		(596)
Net change in cash and cash equivalents	(49,301)		(11,141)
Cash and cash equivalents at beginning of period	110,920		140,889
Cash and cash equivalents at end of period	$	61,619	$	129,748

For supplemental cash flow disclosures, see Note 19.

See accompanying notes to condensed consolidated financial statements.

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

1. Background and Basis of Presentation:

Description of Business

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

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

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

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

2. New Accounting Standards:

Recently Adopted Accounting Standards

In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. The time period through which the practical expedients provided in the guidance is available was set to expire on December 31, 2022, but was extended through December 31, 2024 by the FASB in December 2022. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. In February 2023, the Company amended the 2021 Term Loan Facility, the ABL Facility and all existing interest rate caps agreements to replace LIBOR with a secured overnight financing rate (“SOFR”) as the benchmark interest rate. See Notes 11 and 12 to these condensed consolidated financial statements for additional information. The Company utilized the practical expedients under the guidance with respect to the transition of its debt facilities and interest rate hedging arrangements to SOFR, with no impact to its condensed consolidated financial statements.

In October 2021, the FASB issued guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with revenue recognition guidance. Under current GAAP, contract assets and contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The new guidance creates an exception to the general recognition and measurement principles related to business combinations, and is expected to result in the acquirer recognizing contract assets and liabilities at the same amounts recorded by the acquiree. The new guidance is effective for business combinations occurring during fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the new guidance effective January 1, 2023 as required, and will apply the guidance prospectively to business combinations that occur after the adoption date.

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

3. Revenue from Contracts with Customers:

Disaggregated Revenue

The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 16 to these condensed consolidated financial statements.

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


Key End Uses			Key Products
Clean fuels, emission control & other			• Refining hydrocracking catalysts
			• Emission control catalysts
			• Catalysts used in production of renewable fuels
			• Catalyst activation
			• Aluminum sulfate solution
			• Ammonium bisulfite solution
Polymers & engineered plastics			• Catalysts for high-density polyethylene and chemicals syntheses
			• Antiblocks for film packaging
			• Niche custom catalyst
Regeneration and treatment services			• Sulfuric acid regeneration services
			• Treatment services
Industrial, mining & automotive			• Sulfur derivatives for industrial production
			• Sulfuric acid for mining
			• Sulfuric derivatives for nylon production

The following tables disaggregate the Company’s sales, by segment and end uses, for the three months ended March 31, 2023 and 2022, respectively:


	Three months ended March 31, 2023
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	4,740	$	—	$	4,740
Polymers & engineered plastics	—		23,134		23,134
Regeneration and treatment services(1)	88,344		—		88,344
Industrial, mining & automotive	44,656		—		44,656
Total segment sales	$	137,740	$	23,134	$	160,874



	Three months ended March 31, 2022
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	7,096	$	—	$	7,096
Polymers & engineered plastics	—		25,654		25,654
Regeneration and treatment services(1)	73,973		—		73,973
Industrial, mining & automotive	72,991		—		72,991
Total segment sales	$	154,060	$	25,654	$	179,714

(1)As described in Note 1 to these condensed consolidated financial statements, the Company experiences seasonal sales fluctuations to customers in the regeneration services product group.

(2)Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 9 to these condensed consolidated financial statements for further information).

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

4. Fair Value Measurements:

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

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

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

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

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

The following tables present information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.


	March 31, 2023		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 12)	$	26,512	$	—	$	26,512	$	—



Derivative liabilities:
Interest rate caps (Note 12)	$	3,815	$	—	$	3,815	$	—


	December 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 12)	$	34,374	$	—	$	34,374	$	—



Derivative liabilities:
Interest rate caps (Note 12)	$	2,071	$	—	$	2,071	$	—

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Derivative contracts

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

As of March 31, 2023, the Company had interest rate caps that were fair valued using Level 2 inputs. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to Ecovyst. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets.

5. Stockholders' Equity:

Accumulated Other Comprehensive Income (Loss)

The following table presents the tax effects of each component of other comprehensive (loss) income for the three months ended March 31, 2023 and 2022, respectively:














	Three months ended March 31,
	2023						2022
	Pre-tax amount		Tax benefit/ (expense)		After-tax amount		Pre-tax amount		Tax benefit/ (expense)		After-tax amount
Defined benefit and other postretirement plans:
Amortization of net loss	$	(1)	$	—	$	(1)	$	1	$	—	$	1
Amortization of prior service credit	(31)		8		(23)		(53)		13		(40)

Benefit plans, net	(32)		8		(24)		(52)		13		(39)
Net (loss) gain from hedging activities	(10,303)		2,383		(7,920)		18,296		(4,574)		13,722
Foreign currency translation	2,185		—		2,185		(2,305)		—		(2,305)
Other comprehensive (loss) income	$	(8,150)	$	2,391	$	(5,759)	$	15,939	$	(4,561)	$	11,378

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

The following table presents the changes in accumulated other comprehensive income, net of tax, by component for the three months ended March 31, 2023 and 2022, respectively:


	Defined benefit and other postretirement plans		Net gain (loss) from hedging activities		Foreign currency translation		Total
December 31, 2022	$	12,132	$	26,636	$	(32,776)	$	5,992
Other comprehensive (loss) income before reclassifications	(48)		(7,394)		2,185		(5,257)
Amounts reclassified from accumulated other comprehensive income(1)	24		(526)		—		(502)
Net current period other comprehensive (loss) income	(24)		(7,920)		2,185		(5,759)
March 31, 2023	$	12,108	$	18,716	$	(30,591)	$	233

December 31, 2021	$	11,072	$	2,254	$	(19,118)	$	(5,792)
Other comprehensive income (loss) before reclassifications	(78)		13,208		(2,305)		10,825
Amounts reclassified from accumulated other comprehensive income(1)	39		514		—		553
Net current period other comprehensive (loss) income	(39)		13,722		(2,305)		11,378
March 31, 2022	$	11,033	$	15,976	$	(21,423)	$	5,586

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

The following table presents the reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2023 and 2022, respectively:


Details about Accumulated Other Comprehensive Income Components		Amounts Reclassified from Accumulated Other Comprehensive Income(1)				Affected Line Item where Income is Presented
	Three months ended March 31,
		2023		2022
Amortization of defined benefit and other postretirement items:
Prior service credit		$	(31)	$	(53)	Other expense(2)
Actuarial gains		(1)		1		Other (expense) income(2)

		(32)		(52)		Total before tax
		8		13		Tax benefit
		$	(24)	$	(39)	Net of tax

Gains and losses on cash flow hedges:
Interest rate caps		$	698	$	(683)	Interest expense


		(172)		169		Tax (expense) benefit
		$	526	$	(514)	Net of tax





Total reclassifications for the period		$	502	$	(553)	Net of tax

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

(2)These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 14 to these condensed consolidated financial statements for additional details).

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

Treasury Stock Repurchases

2022 Stock Repurchase Program

On April 27, 2022, the Board approved a stock repurchase program that permits the Company to purchase up to $450,000 of the Company’s common stock over the four-year period from the date of approval. Under the plan, the Company can repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws. The Company will determine the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other factors.

During the three months ended March 31, 2023, in connection with a secondary offering of the Company’s common stock in March 2023, the Company repurchased 3,000,000 shares of its common stock sold in the offering from the underwriter at a price of $9.95 per share concurrently with the closing of the offering, for a total of $29,850.

As of March 31, 2023, $283,448 was available for additional share repurchases under the program.

Tax Withholdings on Equity Award Vesting

In connection with the vesting of restricted stock awards, restricted stock units and performance stock units, shares of common stock may be delivered to the Company by employees to satisfy withholding tax obligations at the instruction of the employee award holders. These transactions, when they occur, are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in lieu of shares for the vesting unit. There were 95,269 and 32,058 shares delivered to the Company to cover tax payments for the three months ended March 31, 2023 and 2022, respectively and the fair value of those shares withheld were $866 and $332 for the three months ended March 31, 2023 and 2022, respectively.

6. Goodwill:

The change in the carrying amount of goodwill for the three months ended March 31, 2023 is summarized as follows:


	Ecoservices		Catalyst Technologies		Total
Balance as of December 31, 2022	$	326,589	$	76,574	$	403,163


Foreign exchange impact	—		599		599
Balance as of March 31, 2023	$	326,589	$	77,173	$	403,762

7. Other Operating Expense, Net:

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


	Three months ended March 31,
		2023		2022
Amortization expense		$	2,637	$	2,656
Transaction and other related costs		1,434		4,281
Restructuring, integration and business optimization costs		1,023		382
Net loss on asset disposals		1,178		133

Other, net		444		311
		$	6,716	$	7,763

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

8. Inventories, Net:

Inventories, net are classified and valued as follows:


	March 31, 2023		December 31, 2022
Finished products and work in process	$	41,803	$	39,909
Raw materials	4,025		4,453
	$	45,828	$	44,362
Valued at lower of cost or market:
LIFO basis	$	25,647	$	25,258
Valued at lower of cost and net realizable value:
FIFO or average cost basis	20,181		19,104
	$	45,828	$	44,362

9. Investments in Affiliated Companies:

The Company accounts for investments in affiliated companies under the equity method. Affiliated companies accounted for on the equity basis as of March 31, 2023 are as follows:

Company

Country

Percent
Ownership

Zeolyst International

USA

50%

Zeolyst C.V.

Netherlands

50%

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


	Three months ended March 31,
		2023		2022
Sales		$	55,897	$	66,683
Gross profit		10,110		23,584
Operating income		2,399		14,636
Net income		3,647		14,698

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

The Company’s investments in affiliated companies balance as of March 31, 2023 and December 31, 2022 includes net purchase accounting fair value adjustments of $229,416 and $231,017, respectively, related to a prior business combination, consisting primarily of goodwill and intangible assets such as customer relationships, technical know-how and trade names. Consolidated equity in net income from affiliates is net of $1,601 and $1,601 of amortization expense related to purchase accounting fair value adjustments for the three months ended March 31, 2023 and 2022, respectively.

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

10. Property, Plant and Equipment:

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


	March 31, 2023		December 31, 2022
Land	$	96,739	$	96,659
Buildings and improvements	81,473		82,061
Machinery and equipment	754,529		751,145
Construction in progress	69,134		56,448
	1,001,875		986,313
Less: accumulated depreciation	(418,172)		(401,424)
	$	583,703	$	584,889

Depreciation expense was $16,692 and $16,011 for the three months ended March 31, 2023 and 2022, respectively.

11. Long-term Debt:

The summary of long-term debt is as follows:


	March 31, 2023		December 31, 2022
Senior Secured Term Loan Facility due June 2028 (the "2021 Term Loan Facility")	$	884,250	$	886,500
ABL Facility	—		—

Total debt	884,250		886,500
Original issue discount	(7,152)		(7,472)
Deferred financing costs	(3,970)		(4,158)
Total debt, net of original issue discount and deferred financing costs	873,128		874,870
Less: current portion	(9,000)		(9,000)
Total long-term debt, excluding current portion	$	864,128	$	865,870

In February 2023, the Company amended the 2021 Term Loan Facility to replace LIBOR with SOFR as the benchmark interest rate. Following this amendment, the 2021 Term Loan Facility bears interest at an adjusted term SOFR, which includes a credit spread adjustment of 10 basis points (with a 0.50% minimum floor) plus 2.75% per annum (or, depending on the Company’s first lien net leverage ratio, 2.50%). The interest rate on the 2021 Term Loan Facility was 7.325% as of March 31, 2023.

Also in February 2023, the Company amended its senior secured asset-based revolving credit facility (the “ABL Facility”) to replace LIBOR with SOFR as the benchmark interest rate. Following this amendment, the borrowings under the ABL Facility bear interest at a rate equal to an adjusted term SOFR rate or the base rate, which includes a credit spread adjustment of 10 basis points, plus a margin of between 1.25% to 1.75% or 0.25% to 0.75%, respectively. The interest rate on the ABL Facility was 8.50% as of March 31, 2023.

Fair Value of Debt

The fair value of a financial instrument is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of March 31, 2023 and December 31, 2022, the fair value of the senior secured term loan facility was $876,513 and $870,986, respectively. The fair value is classified as Level 2 based upon the fair value hierarchy (see Note 4 to these condensed consolidated financial statements for further information on fair value measurements).

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

12. Financial Instruments:

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

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

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

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

In November 2018, the Company entered into an interest rate cap agreement to mitigate interest volatility from July 2020 through July 2022, with a cap rate of 3.50% on $500,000 of notional variable-rate debt and a $3,380 premium annuitized during the effective period. In February 2020, the Company restructured this agreement to lower the interest cap rate to 2.50% with an incremental $130 premium annuitized during the effective period. In March 2020, the Company again amended such interest rate cap agreement to lower the cap rate to 0.84% for an additional $900 premium annuitized during the effective period. The term and notional amount remained unchanged, with a total cumulative annuitized premium on the $500,000 of notional variable-rate debt of $4,410.

In July 2020, the Company entered into an additional interest rate cap agreement to mitigate interest rate volatility from September 2020 to August 2023, with a cap rate of 1.00% on $400,000 of notional variable-rate debt and a $416 premium annuitized during the effective period. The cap rate in effect at March 31, 2023 was 1.00%.

In January 2022, the Company entered into two new forward starting interest rate cap agreements, with a cap rate of 1.00% on $250,000 of notional variable-rate debt each and a $9,953 of total premium annuitized during the effective period. The term for one interest rate cap is August 2022 through October 2024 and the term for the other interest rate cap is September 2023 through October 2025. The cap rate for the interest rate cap in effect at March 31, 2023 was 1.00%.

In November 2022, the Company entered into a new forward starting interest rate cap agreement to mitigate interest rate volatility from August 2023 through July 2024, with a cap rate of 1.00% on $150,000 of notional variable-rate debt and mitigate interest rate volatility from August 2024 through July 2026, with a cap rate of 1.00% on $175,000 of notional variable-rate debt. The $150,000 of notional variable-debt has $5,372 premium annuitized during the effective period and the $175,000 of notional variable-rate debt has $12,445 premium annuitized during the effective period.

In February 2023, the Company amended all interest rate cap agreements to replace LIBOR with SOFR as the benchmark interest rate, with all other terms of the agreements remaining the same. This amendment changed the previously annuitized premiums on the existing interest rate cap agreements. This resulted in a reduction in the premium annuitized on the $400,000 of notional variable-debt of $172, a reduction in the premium annuitized on the $250,000 of notional variable-debt of $2,022, a reduction in the premium annuitized on the $150,000 of notional variable-debt of $281 and a reduction in the premium annuitized on the $175,000 of notional variable-debt of $651.

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

In May 2023, the Company entered into two new forward starting interest rate cap agreements to mitigate interest rate volatility from November 2024 through October 2025, with a cap rate of 1.00% on $200,000 of notional variable-rate debt and mitigate interest rate volatility from November 2025 through October 2026, with a cap rate of 1.00% on $450,000 of notional variable-rate debt. The $200,000 of notional variable-debt has $4,258 premium annuitized during the effective period and the $450,000 of notional variable-rate debt has $9,555 premium annuitized during the effective period.

The fair values of derivative instruments held as of March 31, 2023 and December 31, 2022, respectively are shown below:


	Balance sheet location	March 31, 2023		December 31, 2022
Derivative assets
Derivatives designated as cash flow hedges:

Interest rate caps	Prepaid and other current assets	$	15,996	$	18,510

Interest rate caps	Other long-term assets	10,516		15,864
Total derivative assets		$	26,512	$	34,374

Derivative liabilities
Derivatives designated as cash flow hedges:



Interest rate caps	Other long-term liabilities	3,815		2,071
Total derivative liabilities		$	3,815	$	2,071

The following table shows the effect of the Company’s derivative instruments designated as cash flow hedges on AOCI for the three months ended March 31, 2023 and 2022, respectively:










		Three months ended March 31,
		2023				2022
	Location of gain (loss) reclassified from AOCI into income	Amount of gain (loss) recognized in OCI on derivatives		Amount of gain (loss) reclassified from AOCI into income		Amount of gain (loss) recognized in OCI on derivatives		Amount of gain (loss) reclassified from AOCI into income
Interest rate caps	Interest (expense) income	$	(9,605)	$	698	$	17,612	$	(683)

The following table shows the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income for the three months ended March 31, 2023 and 2022, respectively:















	Three months ended March 31,
	2023		2022

Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded in interest (expense) income	$	(9,832)	$	(8,450)
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of gain (loss) reclassified from AOCI into income	698		(683)

The amount of unrealized losses in AOCI related to the Company’s cash flow hedges that is expected to be reclassified to the condensed consolidated statement of income over the next twelve months is $7,652 as of March 31, 2023.

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ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(unaudited)

13. Income Taxes:

The effective income tax rate for the three months ended March 31, 2023 was (180.7)% compared to 42.1% for the three months ended March 31, 2022. The Company’s effective income tax rate has fluctuated primarily due to the discrete impact related to a shortfall of stock compensation tax deduction which outweighed the tax benefit from the pre-tax loss during the quarter.

The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the three months ended March 31, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions.

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

14. Benefit Plans:

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

Defined Benefit Pension Plans


	Three months ended March 31,
		2023	2022

Interest cost		$