# Ecovyst Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Ecovyst Inc.](/companies/ecvt.md) (CIK 1708035)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 08:18 ET
- Period: 2023-06-30
- Accession: 0001708035-23-000029
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1708035/000170803523000029/ecvt-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1708035/000170803523000029/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $184.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $345.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $123.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $247.5m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $61.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $97.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $21.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $42.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $33.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $42.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $9.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $19.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $8.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $9.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $26.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $24.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.22 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.20 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.22 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $0.20 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 119,920,742 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 121,831,942 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $41.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $39.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $29.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $197.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.81bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $103.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $1.15bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $862.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $9.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $667.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 66,079 characters.

*Unless the context requires otherwise, references in this report to “Ecovyst,” “the company,” “we,” “us” or “our” refer to Ecovyst Inc. and its consolidated subsidiaries.*

### Forward-looking Statements

*This periodic report on Form 10-Q (“Form 10-Q”) includes “forward-looking statements” that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should” and similar expressions are intended to identify these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short- and long-term business operations and objectives, and financial needs. Examples of forward-looking statements include, but are not limited to, statements we make regarding demand trends, economic effects on our operations and financial results and our liquidity, and our belief that our current level of operations, cash and cash equivalents, cash flow from operations and borrowings under our credit facilities and other lines of credit will provide us adequate cash to fund the working capital, capital expenditure, debt service and other requirements for our business for at least the next twelve months.*

*These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed herein may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.*

#### Some of the key factors that could cause actual results to differ from our expectations include the following risks related to our business:

- as a global business, we are exposed to local business risks in different countries;
- we are affected by general economic conditions and economic downturns;
- exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows;
- our international operations require us to comply with anti-corruption laws, trade and export controls and regulations of the U.S. government and various international jurisdictions in which we do business;
- alternative technology or other changes in our customers’ products may reduce or eliminate the need for certain of our products;
- our new product development and research and development efforts may not succeed and our competitors may develop more effective or successful products;
- our substantial level of indebtedness could adversely affect our financial condition;
- if we are unable to manage the current and future inflationary environment and to pass on increases in raw material prices, including natural gas, or labor costs to our customers or to retain or replace our key suppliers, our results of operations and cash flows may be negatively affected;
- we face substantial competition in the industries in which we operate;
- we are subject to the risk of loss resulting from non-payment or non-performance by our customers;
- we rely on a limited number of customers for a meaningful portion of our business;
- multi-year customer contracts in our Ecoservices segment are subject to potential early termination and such contracts may not be renewed at the end of their respective terms;
- our quarterly results of operations are subject to fluctuations because demand for some of our products is seasonal;
- our growth projects may result in significant expenditures before generating revenues, if any, which may materially and adversely affect our ability to implement our business strategy;
- we may be liable to damages based on product liability claims brought against us or our customers for costs associated with recalls of our or our customers’ products;
- we are subject to extensive environmental, health and safety regulations and face various risks associated with potential non-compliance or releases of hazardous materials;
- existing and proposed regulations to address climate change by limiting greenhouse gas emissions may cause us to incur significant additional operating and capital expenses and may impact our business and results of operations;
- production and distribution of our products could be disrupted for a variety of reasons, including as a result of supply chain constraints, and such disruptions could expose us to significant losses or liabilities;
- the insurance that we maintain may not fully cover all potential exposures;
- we could be subject to damages based on claims brought against us by our customers or lose customers as a result of the failure of our products to meet certain quality specifications;
- our failure to protect our intellectual property and infringement on the intellectual property rights of third parties;
- disruption, failure or cyber security breaches affecting or targeting computers and infrastructure used by us or our business partners may adversely impact our business and operations; and
- other factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented in “Item 1A, Risk Factors” in our quarterly reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023.

*The forward-looking statements included herein are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.*

### Overview

We are a leading integrated and innovative global provider of specialty catalysts and services. We believe that our products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

We conduct operations through two reporting segments: (1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture).

Ecoservices: We are a leading provider of sulfuric acid recycling to North American refining industry for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards. We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining and industrial applications.

Catalyst Technologies: We are a global supplier of finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics used in packaging films, bottles, containers, and other molded applications. This segment includes our 50% interest in the Zeolyst Joint Venture, where we are a leading global supplier of 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.

#### Stock Repurchase Program

On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $450 million of the Company’s common stock over the four-year period from the date of approval. For the six months ended June 30, 2023, in connection with secondary offerings of the Company’s common stock in March and May 2023, the Company repurchased 7,000,000 shares of its common stock sold in the offerings from the underwriters at a weighted average price of $10.48 per share concurrently with the closing of the offerings, for a total of $73.4 million, excluding accrued excise tax.

As of June 30, 2023, $239.9 million was available for additional share repurchases under the program.

In addition, during the six months ended June 30, 2022, the Company repurchased 893,123 shares on the open market at an average price of $9.88, for a total of $8.8 million.

### Key Performance Indicators

### Adjusted EBITDA and Adjusted Net Income

Adjusted EBITDA and adjusted net income are financial measures that are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and that we use to evaluate our operating performance, for business planning purposes and to measure our performance relative to that of our competitors. Adjusted EBITDA and adjusted net income are presented as key performance indicators as we believe these financial measures will enhance a prospective investor’s understanding of our results of operations and financial condition. EBITDA consists of net income attributable to continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA consists of EBITDA adjusted for (i) non-operating income or expense, (ii) the impact of certain non-cash, nonrecurring or other items included in net income and EBITDA that we do not consider indicative of our ongoing operating performance, and (iii) depreciation, amortization and interest of our 50% share of the Zeolyst Joint Venture. Adjusted net income consists of net income adjusted for (i) non-operating income or expense and (ii) the impact of certain non-cash, nonrecurring or other items included in net income that we do not consider indicative of our ongoing operating performance. We believe that these non-GAAP financial measures provide investors with useful financial metrics to assess our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.

You should not consider adjusted EBITDA or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with GAAP. The presentation of adjusted EBITDA and adjusted net income financial measures may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. In evaluating adjusted EBITDA and adjusted net income, you should be aware that we are likely to incur expenses similar to those eliminated in this presentation in the future and that certain of these items could be considered recurring in nature. Our presentation of adjusted EBITDA and adjusted net income should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Reconciliations of adjusted EBITDA and adjusted net income to GAAP net income are included in the results of operations discussion that follows for each of the respective periods.

### Key Factors and Trends Affecting Operating Results and Financial Condition

### Sales

Overall, our Ecoservices and Catalyst Technologies segments continued to benefit from positive demand trends for our products and services in the industries we serve. Strong domestic and export demand for refined products continued to support high refinery utilization rates, while more stringent gasoline standards and growing demand for premium gasoline to power higher-compression and turbocharged engines continued to drive demand for alkylate and for our regeneration services. In addition, demand for virgin sulfuric acid across a wide range of industrial applications remained favorable. However, sales in our Ecoservices segment were impacted primarily by unplanned production downtime at one of our sites, which may adversely impact sales and maintenance costs into the third quarter of 2023. During the second quarter of 2023, we began to see a slowdown in global polyethylene demand impact the sales of our silica-based catalyst, while still seeing increasing demand for renewable fuels and more stringent regulation in traditional fuels, and in emission control applications.

For the remainder of 2023, we believe weaker demand fundamentals may adversely impact sales of virgin sulfuric acid into nylon production. In addition, we anticipate declining global polyethylene demand and lower polyethylene production plant operating rates may adversely impact sales of polyethylene catalysts.

Sales in our Ecoservices and Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts.

Our Catalyst Technologies segment may experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements.

### Cost of Goods Sold

Cost of goods sold consists of variable product costs, fixed manufacturing expenses, depreciation expense and freight expenses. Variable product costs include all raw materials, energy and packaging costs that are directly related to the manufacturing process. Fixed manufacturing expenses include all plant employment costs, manufacturing overhead and periodic maintenance costs.

The primary raw materials for our Ecoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or “caustic soda”), and certain metals. Spent sulfuric acid for our Ecoservices segment is supplied by customers. The primary raw materials used in the manufacture of products in our Catalyst Technologies segments include sodium silicate and cesium hydroxide. During the second quarter of 2023, inflationary pressures began to ease, which reduced the cost of goods for sulfur, energy, logistics and other raw materials.

Most of our Ecoservices contracts feature take-or-pay volume protection and/or quarterly price adjustments for commodity inputs, labor, the Chemical Engineering Index (U.S. chemical plant construction cost index) and natural gas. Over 80% of our Ecoservices segment sales for the year ended December 31, 2022 were under contracts featuring quarterly price adjustments. The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing. The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries.

While natural gas is not a direct feedstock for any product, natural gas powered machinery and equipment are used to heat raw materials and create the chemical reactions necessary to produce end-products. We maintain multiple suppliers wherever possible and structure our customer contracts when possible to allow for the pass-through of raw material, labor and natural gas costs.

### Joint Venture

We account for our investments in our equity joint ventures under the equity method. Our joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts, emission control, refining and petrochemical industries and other areas of the broader chemicals industry. Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements. We share proportionally in the management of our joint venture with the other parties to such joint venture.

### Seasonality

Our regeneration services product group, which is a part of our 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 quarter.

### Foreign Currency

As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated into U.S. dollars. We operate in various geographies with approximately 6% of our sales for the six months ended June 30, 2023 and for the year ended December 31, 2022 in currencies other than the U.S. dollar. Because our consolidated financial results are reported in U.S. dollars, sales or earnings generated in currencies other than the U.S. dollar can result in a significant increase or decrease in the amount of those sales and earnings when translated to U.S. dollars. The foreign currency to which we have the most significant exchange rate exposure is the British pound.

### Results of Operations

### Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

### Highlights

The following is a summary of our financial performance for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

#### Sales

- Sales decreased $41.1 million to $184.1 million. The decrease in sales was primarily due to lower sales volumes and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group, offset by higher average selling prices.

#### Gross Profit

- Gross profit increased $1.1 million to $61.0 million. The increase in gross profit was primarily due to favorable mix and increased pricing, which more than offset higher variable costs and lower sales volume.

#### Operating Income

- Operating income increased by $5.9 million to $33.3 million. The increase in operating income was due to an increase in gross profit and lower selling, general and administrative expenses and other operating expenses.

#### Equity in Net Income of Affiliated Companies

- Equity in net income of affiliated companies for the three months ended June 30, 2023 was $11.4 million, compared to $8.5 million for the three months ended June 30, 2022. The increase of $2.9 million was due to higher earnings generated by the Zeolyst Joint Venture for the three months ended June 30, 2023, driven by higher sales volumes of catalyst used in the production of renewable fuels, emission control and hydrocracking catalysts.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended June 30, 2023 and 2022:

*(in millions, except percentages)*

|  | Three months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales | $184.1 | $225.2 | $(41.1) | (18.3)% |
| Cost of goods sold | 123.1 | 165.3 | (42.2) | (25.5)% |
| Gross profit | 61.0 | 59.9 | 1.1 | 1.8% |
| Gross profit margin | 33.1% | 26.6% |  |  |
| Selling, general and administrative expenses | 21.4 | 22.8 | (1.4) | (6.1)% |
| Other operating expense, net | 6.3 | 9.7 | (3.4) | (35.1)% |
| Operating income | 33.3 | 27.4 | 5.9 | 21.5% |
| Operating income margin | 18.1% | 12.2% |  |  |
| Equity in net (income) from affiliated companies | (11.4) | (8.5) | (2.9) | 34.1% |
| Interest expense, net | 9.2 | 8.9 | 0.3 | 3.4% |
| Other expense, net | 0.6 | 0.5 | 0.1 | 20.0% |
| Income before income taxes | 34.9 | 26.5 | 8.4 | 31.7% |
| Provision for income taxes | 8.8 | 7.3 | 1.5 | 20.5% |
| Effective tax rate | 25.2% | 27.5% |  |  |
| Net income | $26.1 | $19.2 | $6.9 | 35.9% |

### Sales

*(in millions, except percentages)*

| Sales: | Three months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Ecoservices | $158.1 | $193.0 | $(34.9) | (18.1)% |
| Catalyst Technologies | 26.0 | 32.2 | (6.2) | (19.3)% |
| Total sales | $184.1 | $225.2 | $(41.1) | (18.3)% |

*Ecoservices:* Sales in Ecoservices for the three months ended June 30, 2023 were $158.1 million, a decrease of $34.9 million, or 18.1%, compared to sales of $193.0 million for the three months ended June 30, 2022. The decrease in sales was due to lower sales volume of $24.5 million and lower average selling prices of $10.4 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $32 million.

The decrease in sales volume was primarily related to the virgin sulfuric acid product group during the quarter. Lower average selling prices were primarily a result of the pass-through of lower sulfur costs of approximately $32 million within our virgin sulfuric acid product group, partially offset by higher pricing within our regeneration services product group, including the pass-through of higher freight, labor, and energy indexed costs.

*Catalyst Technologies:* Sales in Catalyst Technologies for the three months ended June 30, 2023 were $26.0 million, a decrease of $6.2 million, or 19.3%, compared to sales of $32.2 million for the three months ended June 30, 2022. Of the decrease in sales, $9.3 million was associated with lower sales volume, which was partially offset by higher average selling prices of $3.1 million.

The decrease in sales volumes was primarily driven by lower polyethylene catalysts sales and the absence of certain niche custom catalyst sales used in the production of methyl methacrylate realized in the second quarter of 2022 that did not occur in the second quarter of 2023. Higher average selling prices was driven by implemented price increases.

### Gross Profit

Gross profit for the three months ended June 30, 2023 was $61.0 million, an increase of $1.1 million, or 1.8%, compared to $59.9 million for the three months ended June 30, 2022. The increase in gross profit was due to higher average selling prices, exclusive of the $32 million negative impact associated with the pass-through of lower sulfur costs, and favorable mix, partially offset by lower sales volume and unfavorable manufacturing costs.

The unfavorable change in volumes was primarily a result of lower sales of virgin sulfuric acid, polyethylene catalysts and niche custom catalysts. Favorable customer pricing was primarily driven by increased prices to cover rising variable costs. The increase in manufacturing costs was a result of higher variable costs, maintenance and transportation costs.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2023 were $21.4 million, a decrease of $1.4 million, compared to $22.8 million for the three months ended June 30, 2022. The decrease in selling, general and administrative expenses was primarily due to a decrease in other compensation-related expenses of $3.4 million, partially offset by an increase in professional fees of $1.4 million.

### Other Operating Expense, Net

Other operating expense, net for the three months ended June 30, 2023 was $6.3 million, a decrease of $3.4 million, compared to $9.7 million for the three months ended June 30, 2022. The decrease in other operating expense, net was mainly driven by $4.4 million of severance charges incurred in the prior period from contracts associated with former executives.

### Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the three months ended June 30, 2023 was $11.4 million, compared to $8.5 million for the three months ended June 30, 2022. The increase was due to $2.9 million of higher earnings from the Zeolyst Joint Venture during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. The increase in earnings from the Zeolyst Joint Venture was due to higher sales volumes of catalyst used in the production of renewable fuels, emission control and hydrocracking catalysts.

### Interest Expense, Net

Interest expense, net for the three months ended June 30, 2023 was $9.2 million, an increase of $0.3 million, as compared to $8.9 million for the three months ended June 30, 2022. The increase in interest expense, net was primarily due to the year over year increase in variable rates, which was partially offset by lower outstanding debt during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 and benefits associated with the interest rate caps, which included an adjustment related to prior year interest rate amortization.

### Other Expense, Net

Other expense, net for the three months ended June 30, 2023 was $0.6 million, a change of $0.1 million, as compared to $0.5 million for the three months ended June 30, 2022. The decrease in other expense, net primarily relates to higher pension costs of $0.6 million offset by a foreign exchange benefit of $0.7 million as compared to the prior year period.

### Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2023 was $8.8 million, compared to a $7.3 million provision for the three months ended June 30, 2022. The effective income tax rate for the three months ended June 30, 2023 was 25.2%, compared to 27.5% for the three months ended June 30, 2022.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes. The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the three months ended June 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

### Net Income

For the foregoing reasons, net income was $26.1 million for the three months ended June 30, 2023, compared to $19.2 million for the three months ended June 30, 2022.

### Adjusted EBITDA

Summarized Segment Adjusted EBITDA information is shown below in the following table:

*(in millions, except percentages)*

| Segment Adjusted EBITDA:(1) | Three months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Ecoservices | $60.1 | $60.0 | $0.1 | 0.2% |
| Catalyst Technologies(2) | 25.4 | 21.4 | 4.0 | 18.7% |
| Unallocated corporate expenses | (6.2) | (8.5) | 2.3 | (27.1)% |
| Total Adjusted EBITDA | $79.3 | $72.9 | $6.4 | 8.8% |

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA. Segment Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $16.2 million for the three months ended June 30, 2023, which includes $11.4 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.2 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $14.1 million for the three months ended June 30, 2022, which includes $8.5 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $4.0 million of joint venture depreciation, amortization and interest.

*Ecoservices:* Adjusted EBITDA for the three months ended June 30, 2023 was $60.1 million, an increase of $0.1 million, or 0.2%, compared to $60.0 million for the three months ended June 30, 2022. The increase in Adjusted EBITDA was a result of favorable pricing for regeneration services, partially offset by lower virgin sulfuric acid sales volume and higher unplanned repair and maintenance costs.

*Catalyst Technologies:* Adjusted EBITDA for the three months ended June 30, 2023 was $25.4 million, an increase of $4.0 million, or 18.7%, compared to $21.4 million for the three months ended June 30, 2022. The increase in Adjusted EBITDA was primarily a result of continued strong pricing, favorable product mix and lower production costs.

A reconciliation of net income to Adjusted EBITDA is as follows:

*(in millions)*

| Reconciliation of net income to Adjusted EBITDA | Three months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | $26.1 | $19.2 |
| Provision for income taxes | 8.8 | 7.3 |
| Interest expense, net | 9.2 | 8.9 |
| Depreciation and amortization | 21.0 | 19.7 |
| EBITDA | 65.1 | 55.1 |
| Joint venture depreciation, amortization and interest(a) | 3.2 | 4.0 |
| Amortization of investment in affiliate step-up(b) | 1.6 | 1.6 |
| Net loss on asset disposals(c) | 1.1 | 0.6 |
| Foreign currency exchange (gain) loss(d) | (0.4) | 0.5 |
| LIFO expense(e) | 1.1 | 0.2 |
| Transaction and other related costs(f) | 1.2 | 0.8 |
| Equity-based compensation | 5.0 | 5.4 |
| Restructuring, integration and business optimization expenses(g) | 1.1 | 5.3 |
| Other(h) | 0.3 | (0.6) |
| Adjusted EBITDA | $79.3 | $72.9 |

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Catalyst Technologies 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. 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 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, effectively reflecting the results as if these inventories were valued using the FIFO 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) Other consists of adjustments for items that are not core to our ongoing business operations. These adjustments include environmental remediation and other legal costs, expenses for capital and franchise taxes, and defined benefit pension and postretirement plan (benefits) costs, for which our obligations are under plans that are frozen. Also included in this amount are adjustments to eliminate the benefit realized in cost of goods sold of the allocation of a portion of the contract manufacturing payments under the five-year agreement with the buyer of the Performance Chemicals business to the financing obligation under the failed sale-leaseback. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

### Adjusted Net Income

Summarized adjusted net income information is shown below in the following table:

*(in millions)*

| Reconciliation of net income to Adjusted Net Income(1)(2) | Three months ended June 30, 2023 Pre-tax | Tax expense (benefit) | After-tax | 2022 Pre-tax | Tax expense (benefit) | After-tax |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income | $34.9 | $8.8 | $26.1 | $26.5 | $7.3 | $19.2 |
| Amortization of investment in affiliate step-up(b) | 1.6 | 0.4 | 1.2 | 1.6 | 0.4 | 1.2 |
| Net loss on asset disposals(c) | 1.1 | 0.3 | 0.8 | 0.6 | 0.2 | 0.4 |
| Foreign currency exchange (gain) loss(d) | (0.4) | (0.2) | (0.2) | 0.5 | 0.1 | 0.4 |
| LIFO expense(e) | 1.1 | 0.3 | 0.8 | 0.2 | — | 0.2 |
| Transaction and other related costs(f) | 1.2 | 0.3 | 0.9 | 0.8 | 0.2 | 0.6 |
| Equity-based compensation | 5.0 | 1.0 | 4.0 | 5.4 | 0.7 | 4.7 |
| Restructuring, integration and business optimization expenses(g) | 1.1 | 0.3 | 0.8 | 5.3 | 1.4 | 3.9 |
| Other(h) | 0.3 | 0.1 | 0.2 | (0.6) | (0.1) | (0.5) |
| Adjusted Net Income | $45.9 | $11.3 | $34.6 | $40.3 | $10.2 | $30.1 |

(1) We define adjusted net income as net income 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) Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

The adjustments to net income are shown net of applicable tax rates as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended June 30, 2023 and June 30, 2022, except for the foreign currency exchange (gain) loss and equity-based compensation. The tax effect on equity-based compensation is derived by removing the tax effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec. 162m, and adding the tax effect of equity-based stock compensation shortfall recorded as a discrete item. The tax effect of the foreign currency exchange (gain) loss is derived from tax effecting the actual year to date foreign currency exchange (gain) loss by the respective local country statutory rates which is recorded as a discrete item.

### Results of Operations

### Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

### Highlights

The following is a summary of our financial performance for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

#### Sales

- Sales decreased $59.9 million to $345.0 million. The decrease in sales was primarily due to lower sales volume and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group, partially offset by favorable average selling prices.

#### Gross Profit

- Gross profit decreased $10.1 million to $97.5 million. The decrease in gross profit was primarily due to higher manufacturing costs and lower sales volume, partially offset by higher average selling prices.

#### Operating Income

- Operating income decreased by $1.9 million to $42.0 million. The decrease in operating income was due to a decrease in gross profit.

#### Equity in Net Income of Affiliated Companies

- Equity in net income of affiliated companies for the six months ended June 30, 2023 was $11.6 million, compared to $14.3 million for the six months ended June 30, 2022. The decrease of $2.7 million was due to lower sales volume driven by timing of customer orders from the Zeolyst Joint Venture during the six months ended June 30, 2023.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the six months ended June 30, 2023 and 2022:

*(in millions, except percentages)*

|  | Six months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Sales | $345.0 | $404.9 | $(59.9) | (14.8)% |
| Cost of goods sold | 247.5 | 297.3 | (49.8) | (16.8)% |
| Gross profit | 97.5 | 107.6 | (10.1) | (9.4)% |
| Gross profit margin | 28.3% | 26.6% |  |  |
| Selling, general and administrative expenses | 42.5 | 46.3 | (3.8) | (8.2)% |
| Other operating expense, net | 13.0 | 17.4 | (4.4) | (25.3)% |
| Operating income | 42.0 | 43.9 | (1.9) | (4.3)% |
| Operating income margin | 12.2% | 10.8% |  |  |
| Equity in net (income) from affiliated companies | (11.6) | (14.3) | 2.7 | (18.9)% |
| Interest expense, net | 19.0 | 17.3 | 1.7 | 9.8% |
| Other expense, net | 0.2 | 0.8 | (0.6) | (75.0)% |
| Income before income taxes | 34.4 | 40.1 | (5.7) | (14.2)% |
| Provision for income taxes | 9.7 | 13.0 | (3.3) | (25.4)% |
| Effective tax rate | 28.3% | 32.4% |  |  |
| Net income | $24.7 | $27.1 | $(2.4) | (8.9)% |

37

### Sales

*(in millions, except percentages)*

| Sales: | Six months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Ecoservices | $295.8 | $347.0 | $(51.2) | (14.8)% |
| Catalyst Technologies | 49.2 | 57.9 | (8.7) | (15.0)% |
| Total sales | $345.0 | $404.9 | $(59.9) | (14.8)% |

*Ecoservices:* Sales in Ecoservices for the six months ended June 30, 2023 were $295.8 million, a decrease of $51.2 million, or 14.8%, compared to sales of $347.0 million for the six months ended June 30, 2022. The decrease in sales reflects lower sales volume of $51.0 million and lower average selling pricing of $0.2 million, inclusive of the negative impact associated with the pass-through of sulfur costs of approximately $37 million.

Sales volume was lower primarily due to lower virgin sulfuric acid sales associated with the adverse impact of Winter Storm Elliott earlier in the year and extended maintenance turnaround activity at our facilities, limit our ability to produce inventory in advance of significant planned turnaround activity to meet customer demand during the six months ended June 30, 2023.

*Catalyst Technologies:* Sales in Catalyst Technologies for the six months ended June 30, 2023 were $49.2 million, a decrease of $8.7 million, or 15.0%, compared to sales of $57.9 million for the six months ended June 30, 2022. The decrease in sales was due to lower sales volume of $12.8 million and the unfavorable effects of foreign currency of $0.8 million, partially offset by higher average selling prices of $4.9 million.

The decrease in sales volume was primarily driven by lower polyethylene catalysts sales during the six months ended June 30, 2023 and the timing of customer orders for catalyst used in the production of methyl methacrylate for the six months ended June 30, 2022. Higher average selling prices during the six months ended June 30, 2023 was driven by implemented price increases.

### Gross Profit

Gross profit for the six months ended June 30, 2023 was $97.5 million, a decrease of $10.1 million, or 9.4%, compared to $107.6 million for the six months ended June 30, 2022. The decrease in gross profit reflects lower sales volume of $23.8 million and higher manufacturing costs, exclusive of the $37 million impact associated with lower sulfur costs that are passed through in price, partially offset by higher average selling prices and favorable mix.

The higher manufacturing costs was primarily driven by higher variable costs, transportation costs and costs related to the extended maintenance turnaround.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2023 was $42.5 million, a decrease of $3.8 million, as compared to $46.3 million for the six months ended June 30, 2022. The decrease in selling, general and administrative expenses was mainly due to a decrease in other compensation-related expenses of $3.4 million and a decrease in stock-based compensation expense of $3.6 million due to fewer overall awards granted and outstanding for the six months ended June 30, 2023 as compared to the prior year period. This was partly offset by an increase in professional fees of $2.5 million.

### Other Operating Expense, Net

Other operating expense, net for the six months ended June 30, 2023 was $13.0 million, a decrease of $4.4 million, compared to $17.4 million for the six months ended June 30, 2022. The decrease in other operating expense, net was mainly driven by a decrease of $2.4 million in transactions costs, primarily associated with the sale of the Performance Chemicals business in 2021 and a decrease in restructuring, integration and business optimization costs driven by severance charges incurred in the prior period from contracts associated with former executives for $4.4 million, offset by an increase of $1.3 million in business optimization costs. This was also offset by an increase in net losses on asset disposals of $1.6 million, primarily associated with costs associated with Winter Storm Elliott.

### Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the six months ended June 30, 2023 was $11.6 million, compared to $14.3 million for the six months ended June 30, 2022. The decrease was due to lower earnings from the Zeolyst Joint Venture largely due to the comparative timing of customer orders for hydrocracking and lower specialty catalysts sales during the six months ended June 30, 2023.

### Interest Expense, Net

Interest expense, net for the six months ended June 30, 2023 was $19.0 million, an increase of $1.7 million, as compared to $17.3 million for the six months ended June 30, 2022. The increase in interest expense, net was primarily due to year over year increase in variable rates, which was partially offset by lower outstanding debt during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022 and the benefits associated with our interest rate caps, which included an adjustment related to prior year interest rate amortization.

### Other Expense, Net

Other expense, net for the six months ended June 30, 2023 was $0.2 million, a decrease of $0.6 million, as compared to $0.8 million for the six months ended June 30, 2022. The decrease in other expense, net primarily consisted of favorable foreign currency exchange of $1.8 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar, which was partially offset by higher pension costs of $1.1 million.

### Provision for Income Taxes

The provision for income taxes for the six months ended June 30, 2023 was $9.7 million, compared to a $13.0 million for the six months ended June 30, 2022. The effective income tax rate for the six months ended June 30, 2023 was 28.3%, compared to 32.4% for the six months ended June 30, 2022. The Company’s effective income tax rate fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes.

The difference between the U.S. federal statutory income tax rate and the Company’s effective income tax rate for the six months ended June 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

### Net Income

For the foregoing reasons, net income was $24.7 million for the six months ended June 30, 2023, compared to $27.1 million for the six months ended June 30, 2022.

### Adjusted EBITDA

Summarized Adjusted EBITDA information is shown below in the following table:

*(in millions, except percentages)*

| Adjusted EBITDA:(1) | Six months ended June 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Ecoservices | $96.9 | $109.3 | $(12.4) | (11.3)% |
| Catalyst Technologies(2) | 38.4 | 38.4 | — | —% |
| Unallocated corporate expenses | (13.1) | (15.6) | 2.5 | (16.0)% |
| Total | $122.2 | $132.1 | $(9.9) | (7.5)% |

(1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA. Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $21.6 million for the six months ended June 30, 2023, which includes $11.6 million of equity in net income, excluding $3.2 million of amortization of investment in affiliate step-up plus $6.8 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $25.6 million for the six months ended June 30, 2022, which includes $14.3 million of equity in net income, excluding $3.2 million of amortization of investment in affiliate step-up plus $8.1 million of joint venture depreciation, amortization and interest.

*Ecoservices:* Adjusted EBITDA for the six months ended June 30, 2023 was $96.9 million, a decrease of $12.4 million, or 11.3%, compared to $109.3 million for the six months ended June 30, 2022. The decrease in Adjusted EBITDA was primarily a result of lower virgin sulfuric acid sales volume related to Winter Storm Elliott and the extended maintenance turnaround activity, higher unplanned repair and maintenance costs and costs associated with planned turnaround activity, partially offset by higher pricing for regeneration services.

*Catalyst Technologies:* Adjusted EBITDA for the six months ended June 30, 2023 was $38.4 million, in line with the prior year period as continued strong pricing and favorable product mix offset a decrease in sales volume.

A reconciliation of net income to Adjusted EBITDA is as follows:

*(in millions)*

| Reconciliation of net income to Adjusted EBITDA | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | $24.7 | $27.1 |
| Provision for income taxes | 9.7 | 13.0 |
| Interest expense, net | 19.0 | 17.3 |
| Depreciation and amortization | 41.2 | 39.2 |
| EBITDA | 94.6 | 96.6 |
| Joint venture depreciation, amortization and interest(a) | 6.8 | 8.1 |
| Amortization of investment in affiliate step-up(b) | 3.2 | 3.2 |
| Net loss on asset disposals(c) | 2.3 | 0.7 |
| Foreign currency exchange (gain) loss(d) | (1.1) | 1.1 |
| LIFO expense(e) | 2.5 | 0.4 |
| Transaction and other related costs(f) | 2.6 | 5.1 |
| Equity-based compensation | 9.1 | 12.7 |
| Restructuring, integration and business optimization expenses(g) | 2.1 | 5.7 |
| Other(h) | 0.1 | (1.5) |
| Adjusted EBITDA | $122.2 | $132.1 |

(a) We use Adjusted EBITDA as a performance measure to evaluate our financial results. Because our Catalyst Technologies 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. 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 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, effectively reflecting the results as if these inventories were valued using the FIFO 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) Other consists of adjustments for items that are not core to our ongoing business operations. These adjustments include environmental remediation and other legal costs, expenses for capital and franchise taxes, and defined benefit pension and postretirement plan (benefits) costs, for which our obligations are under plans that are frozen. Also included in this amount are adjustments to eliminate the benefit realized in cost of goods sold of the allocation of a portion of the contract manufacturing payments under the five-year agreement with the buyer of the Performance Chemicals business to the financing obligation under the failed sale-leaseback. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

### Adjusted Net Income

Summarized adjusted net income information is shown below in the following table:

*(in millions)*

| Reconciliation of net income to Adjusted Net Income(1)(2) | Six months ended June 30, 2023 Pre-tax amount | Tax expense (benefit) | After-tax amount | 2022 Pre-tax amount | Tax expense (benefit) | After-tax amount |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net income | $34.4 | $9.7 | $24.7 | $40.1 | $13.0 | $27.1 |
| Amortization of investment in affiliate step-up(b) | 3.2 | 0.8 | 2.4 | 3.2 | 0.8 | 2.4 |
| Net loss on asset disposals(c) | 2.3 | 0.6 | 1.7 | 0.7 | 0.2 | 0.5 |
| Foreign currency exchange (gain) loss(d) | (1.1) | (0.2) | (0.9) | 1.1 | 0.2 | 0.9 |
| LIFO expense(e) | 2.5 | 0.7 | 1.8 | 0.4 | 0.1 | 0.3 |
| Transaction and other related costs(f) | 2.6 | 0.7 | 1.9 | 5.1 | 1.2 | 3.9 |
| Equity-based compensation | 9.1 | 0.8 | 8.3 | 12.7 | 0.4 | 12.3 |
| Restructuring, integration and business optimization expenses(g) | 2.1 | 0.6 | 1.5 | 5.7 | 1.5 | 4.2 |
| Other(h) | 0.1 | — | 0.1 | (1.5) | (0.4) | (1.1) |
| Adjusted Net Income | $55.2 | $13.7 | $41.5 | $67.5 | $17.0 | $50.5 |

(1) We define adjusted net income as net income 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) Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

The adjustments to net income are shown net of applicable tax rates of 26.2% and 26.0% for the six months ended June 30, 2023 and 2022, respectively, except for the foreign currency exchange (gain) loss and equity-based compensation. The tax effect on equity-based compensation is derived by removing the tax effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec. 162m, and adding the tax effect of equity-based stock compensation shortfall recorded as a discrete item. The tax effect of the foreign currency exchange (gain) loss is derived from tax effecting the actual year to date foreign currency exchange (gain) loss by the respective local country statutory rates which is recorded as a discrete item.

### Financial Condition, Liquidity and Capital Resources

Our primary sources of liquidity consist of cash flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit facility (“ABL Facility”). We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources of funds. Our primary liquidity requirements include funding working capital requirements (primarily inventory and accounts receivable, net of accounts payable and other accrued liabilities), debt service requirements and capital expenditures. Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our asset based lending revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next twelve months. We may also pursue strategic acquisition or divestiture opportunities, which may impact our future cash requirements. We may, from time to time, increase borrowings under our asset based lending revolving credit facility to meet our future cash needs. As of June 30, 2023, we had cash and cash equivalents of $29.2 million and availability of $70.0 million under our asset based lending revolving credit facility, after giving effect to $4.0 million of outstanding letters of credit, for a total available liquidity of $99.2 million. We did not have any revolving credit facility borrowings as of June 30, 2023. As of June 30, 2023, we were in compliance with all covenants under our debt agreements.

Our ABL Facility has one financial covenant with two ratios to maintain. The first ratio compares the total ABL availability against a threshold: the greater of 10% of the line cap (which is defined as the lesser of our revolving loan commitments and the value of our assets) or $20.0 million. The greater of this threshold cannot be greater than the total availability of the ABL Facility. The second ratio compares the ABL Facility availability of the U.S. revolving credit facility against a $15.0 million threshold. As of June 30, 2023, we were in compliance with the financial covenant under the ABL Facility.

The 2021 Term Loan Facility and the ABL Facility contain various restrictive covenants. Each limits the ability of the Company and its restricted subsidiaries to incur certain indebtedness or liens, merge, consolidate or liquidate, dispose of certain property, make investments or declare or pay dividends, make optional payments, modify certain debt instruments, enter into certain transactions with affiliates, enter into certain sales and leasebacks, and certain other non-financial restrictive covenants. During such time, the Company is required to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0. The Company was in compliance with all debt covenants under the 2021 Term Loan Facility and the ABL Facility as of June 30, 2023.

Included in our cash and cash equivalents balance as of June 30, 2023 was $12.0 million of cash and cash equivalents in foreign jurisdictions. Depending on foreign cash balances, we have certain flexibility to repatriate funds should the need arise. Should the need arise, we would repatriate the funds in the most tax efficient manner from those subsidiaries. Repatriation of foreign cash is generally not subject to U.S. federal income taxes at the time of cash distribution. However, foreign earnings may still be taxed for state income tax purposes, as well as subject to certain foreign withholding tax obligations, when cash amounts are distributed back to the U.S.

Our liquidity requirements include interest payments related to our debt structure. As reported, our cash interest paid for the six months ended June 30, 2023 and 2022 was approximately $19.4 million and $15.8 million, respectively. Before any impact of hedges, a one percent change in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately $8.8 million on interest expense.

We hedge the interest rate fluctuations on debt obligations through interest rate cap agreements. For more information about our interest rate cap agreements, refer to Note 12 — Financial Instrument of our condensed consolidated financials statements included in Part 1, Item 1 — Financial Statements (Unaudited).

The Company’s off-balance sheet arrangements include $4.0 million of outstanding letters of credit on our ABL Facility as of June 30, 2023.

### Cash Flow

*(in millions)*

| Net cash provided by (used in): | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $41.1 | $52.8 |
| Investing activities | (39.2) | (29.5) |
| Financing activities | (79.9) | (11.9) |
| Effect of exchange rate changes on cash and cash equivalents | (3.7) | (1.1) |
| Net change in cash and cash equivalents | (81.7) | 10.3 |
| Cash and cash equivalents at beginning of period | 110.9 | 140.9 |
| Cash and cash equivalents at end of period | $29.2 | $151.2 |

*(in millions)*

|  | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | $24.7 | $27.1 |
| Non-cash and non-working capital related activities(1) | 52.6 | 81.8 |
| Changes in working capital | (42.4) | (51.7) |
| Other operating activities | 6.2 | (4.4) |
| Net cash provided by operating activities | $41.1 | $52.8 |

(1) Includes depreciation, amortization, amortization of deferred financing costs and original issue discount, foreign currency exchange (gain) loss, deferred income tax provision (benefit), net (gain) loss on asset disposals, stock compensation expense, equity in net income and dividends received from affiliated companies.

*(in millions)*

| Working capital changes that (used) provided cash: | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Receivables | $(3.0) | $(33.2) |
| Inventories | (3.0) | (3.1) |
| Prepaids and other current assets | (5.7) | — |
| Accounts payable | (1.5) | 9.7 |
| Accrued liabilities | (29.2) | (25.1) |
|  | $(42.4) | $(51.7) |

*(in millions)*

|  | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Purchases of property, plant and equipment | $(39.2) | $(25.8) |
| Payments for business divestiture, net of cash | — | (3.7) |
| Net cash used in investing activities | $(39.2) | $(29.5) |

43

*(in millions)*

|  | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Cash repayments on debt obligations | $(4.5) | $(4.5) |
| Repurchases of common shares | (73.4) | (7.1) |
| Tax withholdings on equity award vesting | (0.9) | (0.3) |
| Repayment of financing obligation | (1.4) | — |
| Other | 0.3 | — |
| Net cash used in financing activities | $(79.9) | $(11.9) |

Net cash provided by operating activities was $41.1 million for the six months ended June 30, 2023, compared to $52.8 million for the six months ended June 30, 2022. Cash generated by operating activities, other than changes in working capital was lower by $21.0 million during the six months ended June 30, 2023, as compared to the same period in the prior year primarily due to a decrease in dividends received from affiliated companies. The increase in cash from working capital during the six months ended June 30, 2023 of $9.3 million was favorable, compared to the six months ended June 30, 2022 primarily due to favorable changes in receivables, which was offset by unfavorable changes in prepaids and other current assets, accounts payable and accrued liabilities.

The favorable change in receivables was driven by the collection of sales. The unfavorable change in accrued liabilities mainly relates to payments for other compensation-related liabilities in the current period offset by higher income tax payments in the prior period. The unfavorable change in prepaid and other current assets primarily relates to the timing of non-trade receivables from related parties and an increase in miscellaneous receivables. The unfavorable change in accounts payable is due to the timing of vendor payments and professional fees.

Net cash used in investing activities was $39.2 million for the six months ended June 30, 2023, compared to $29.5 million during the same period in 2022. Cash used in investing activities consisted of $39.2 million and $25.8 million to fund capital expenditures during the six months ended June 30, 2023 and 2022, respectively. During the six months ended June 30, 2022, we made an additional payment of $3.7 million related to our divestiture of our Performance Chemicals business representing the final adjustments to the sale price.

Net cash used in financing activities was $79.9 million for the six months ended June 30, 2023, compared to $11.9 million during the same period in 2022. Net cash used in financing activities was primarily driven by the Company repurchases of common stock of $73.4 million during the six months ended June 30, 2023, compared to $7.1 million during the six months ended June 30, 2022.

### Debt

*(in millions)*

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Senior Secured Term Loan Facility due June 2028 | $882.0 | $886.5 |
| ABL Facility | — | — |
| Total debt | 882.0 | 886.5 |
| Original issue discount | (6.8) | (7.5) |
| Deferred financing costs | (3.8) | (4.1) |
| Total debt, net of original issue discount and deferred financing costs | 871.4 | 874.9 |
| Less: current portion | (9.0) | (9.0) |
| Total long-term debt, excluding current portion | $862.4 | $865.9 |

As of June 30, 2023, our total debt was $882.0 million, excluding the original issue discount of $6.8 million and deferred financing costs of $3.8 million for our senior secured credit facilities. Our net debt as of June 30, 2023 was $852.8 million, including cash and cash equivalents of $29.2 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt.

### Capital Expenditures

Maintenance capital expenditures include spending on maintenance of business, health, safety and environmental initiatives. Growth capital expenditures include spending to drive organic sales growth and cost savings initiatives. These capital expenditures represent our “book” capital expenditures for which the company has recorded, but not necessarily paid for the capital expenditures.

*(in millions)*

|  | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Maintenance capital expenditures | $30.4 | $18.5 |
| Growth capital expenditures | 3.3 | 3.6 |
| Total capital expenditures | $33.7 | $22.1 |

Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods. Maintenance capital expenditures were higher in the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to higher turnaround expenditures and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities. Growth capital expenditures were slightly lower in the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to the completion of several expansion projects in 2022.

### Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in conformity with GAAP and our significant accounting policies are described in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We base our estimates and judgments on historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our critical accounting estimates, assumptions and judgments on an ongoing basis.

There has been no material change in our critical accounting policies and use of estimates from those described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K.

### Accounting Standards Not Yet Adopted

See Note 2 to our unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards and their effect on us.

## Market risk

As filed, 707 characters.

Our major market risk exposure is potential losses arising from changing rates and prices regarding foreign currency exchange rate risk, interest rate risk and credit risk. The audit committee of our board of directors regularly reviews foreign exchange and interest rate activity, and monitors compliance with our hedging policy. We do not use financial instruments for speculative purposes, and we limit our hedging activity to the underlying economic exposure.

There have been no material changes in the foreign currency exchange rate risk, interest rate risk or credit risk discussed in Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” included in our Annual Report on Form 10-K.

## Controls and procedures

As filed, 1,995 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended June 30, 2023 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,315 characters.

“Item 1A, Risk Factors” in our Annual Report on Form 10-K, as supplemented by “Item 1A, Risk Factors” in our quarterly report on Form 10-Q for the quarter ended March 31, 2022, which we refer to as the First Quarter Form 10-Q, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our Annual Report on Form 10-K, as supplemented by our First Quarter Form 10-Q. The effects of the events and circumstances described in the following risk factors may have additional effect of heightening many of the risks noted in our Annual Report on Form 10-K, as supplemented by our First Quarter Form 10-Q. Except as presented below, there have been no material changes from the risk factors described in our Annual Report on Form 10-K, as supplemented by our First Quarter Form 10-Q.

***There may be sales of a substantial amount of our common stock by our current stockholders, and these sales could cause the price of our common stock to fall.***

As of June 30, 2023, there were 116,263,742 shares of our common stock outstanding, of which 9,040,415 shares are held by INEOS. This represents approximately 8% of our outstanding common stock.

Sales of substantial amounts of our common stock in the public market, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future.

In addition, we have registered shares of our common stock that are reserved for issuance under our 2016 Stock Incentive Plan and 2017 Omnibus Incentive Plan, as amended and restated.

***Provisions in our charter documents and Delaware law may deter takeover efforts that may be beneficial to stockholder value.***

Provisions in our certificate of incorporation and bylaws and Delaware law could make it harder for a third party to acquire us, even if doing so might be beneficial to our stockholders. These provisions include a classified board of directors and the ability of our board of directors to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. Our certificate of incorporation imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock other than INEOS and investment funds affiliated with CCMP Capital Advisors, L.P. (“CCMP”), one of our former stockholders. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may be unsuccessful.

***Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities, which could adversely impact our business.***

INEOS, and the member of our board of directors who is affiliated with INEOS, by the terms of our certificate of incorporation, are not required to offer us any corporate opportunity of which they become aware and can take any such corporate opportunity for themselves or offer it to other companies in which they have an investment. We, by the terms of our certificate of incorporation, expressly renounce any interest or expectancy in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. Our certificate of incorporation may not be amended to eliminate our renunciation of any such corporate opportunity arising prior to the date of any such amendment.

INEOS may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, or may pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if INEOS allocates attractive corporate opportunities to themselves or their affiliates instead of to us.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001708035-23-000029. Last ingested by Listed: Nov 5, 2026, 16:25 ET. No prices; not investment advice.