MALVERN, Pa.--(BUSINESS WIRE)--PQ Group Holdings Inc. (NYSE:PQG) today reported results for the second quarter ended June 30, 2020. Sales of $359.5 million decreased 16.7% compared with the same period in 2019, or 14.4% on a constant currency basis, largely on lower volume from COVID-19 impacts related to stay-at-home mandates and demand disruption for industrial applications. Net income was $15.9 million with $0.12 diluted EPS and Adjusted net income was $30.0 million with $0.22 Adjusted diluted EPS. Adjusted EBITDA of $113.0 million declined 14.7% from the prior year, or 12.6% on a constant currency basis, as the effects of lower sales volumes were mitigated by PQ’s active management of production and costs that drove a robust Adjusted EBITDA margin of 28.2%.

“PQ’s favorable second quarter performance demonstrates the resilience of our portfolio and the impressive execution of the team, which quickly adjusted our cost structure to hold the line on margins despite the stiff macroeconomic headwinds,” said Belgacem Chariag, PQ Chairman, President and Chief Executive Officer. “Based on current visibility into demand trends for the balance of the year, we are pleased to reinitiate 2020 financial guidance and raise our expectations for our annual Adjusted free cash flow to $145 to $155 million, with Adjusted EBITDA margin now expected to be in line with 2019 levels.”

Review of Segment Results

While second quarter macroeconomic activity experienced a sharp downdraft from the prior year, the quarter was marked by solid month-to-month improvement through June on rebounding driving activity and industrial demand. Approximately 70% of product sales are expected to come from end uses that are stable or improving in the second half of 2020. For PQ, favorable end-use conditions in regeneration services, highway striping, personal care and other product lines are expected to be more than offset by deferral of specialty and hydrocracking catalysts to 2021.

Refining Services

Regeneration services demand was predominately shaped by gasoline consumption that recovered late in the quarter following lows in April. By the end of June, U.S. gasoline use had improved 70% from its lows in early April and returned to about 90% of 2019 levels. Virgin sulfuric acid experienced automotive and industrial production demand declines that were in line with PQ’s expectations. For the remainder of 2020, gasoline consumption is anticipated to exceed 90% of 2019 levels, reflecting a blend of reopening activities and likely containment setbacks. The Company expects a stronger recovery for regeneration services and improving demand for virgin sulfuric acid.

Sales of $90.4 million and Adjusted EBITDA of $35.0 million decreased 22.9% and 18.2%, respectively, versus the same period in 2019. Lower gasoline consumption reduced demand for regeneration services and weakness in automotive and industrial applications affected virgin sulfuric acid sales, which were mitigated by a sharp reduction in costs.

Catalysts

For polyethylene, elevated demand for packaging largely normalized while demand for construction and consumer discretionary items began to recover as the second quarter progressed. Within refining and emission control, after a strong first half, demand is expected to be soft in the second half with change-outs by refineries deferred to 2021 and heavy-duty diesel truck production down more than 30% versus 2019 levels.

Silica Catalysts sales of $25.2 million increased 20.6%, or 23.9% on a constant currency basis, versus the same period in 2019, largely driven by higher sales for both chemical and polyolefin catalysts. Zeolyst JV sales of $41.0 million rose 4.9% as higher sales volumes for specialty and hydrocracking catalysts more than offset lower demand for emission control catalysts. Adjusted EBITDA of $25.3 million decreased 14.5%, or 13.5% on a constant currency basis, largely on unfavorable fixed cost absorption from inventory reductions to align with expected second half demand.

Performance Materials

North American highway striping activity remains healthy, with demand for European highway safety lagging. Within engineered glass materials, metal finishing and polymer additive demand remains suppressed, but orders are improving as industrial activity resumes.

Second quarter sales of $104.3 million decreased 12.3%, or 11.0% on a constant currency basis, as steady North America highway sales volumes and price were more than offset by slower recovery in European highway activities and lower global industrial demand for engineered glass materials. Adjusted EBITDA of $27.3 million decreased 6.5%, or 5.1% on a constant currency basis, versus the same period in 2019 as effective cost reduction actions mitigated the volume impact.

Performance Chemicals

Stay-at-home trends have translated into higher demand for personal care, cleaning products and detergents, which exceeded expectations in the second quarter but may normalize in the second half. As expected, industrial applications were negatively impacted while demand for beer and coatings are improving. PQ expects demand for the industrial product line to recover gradually as automotive and tire production rebound.

Sales of $142.6 million decreased 19.8%, or 15.4% on a constant currency basis, versus the same period in 2019 on demand weakness within several applications that more than offset stability in global specialty silicas. Adjusted EBITDA of $34.0 million decreased 17.5%, or 12.4% on a constant currency basis, on lower sales volumes that were partly offset by expanding margins.

Balance Sheet and Liquidity

At June 30, 2020, PQ had total available liquidity of $285.3 million, including cash and cash equivalents of $88.6 million. On July 22, 2020, PQ further improved its financial position by closing on a new $650 million senior secured term loan facility with a floating interest rate of LIBOR (with a 1.0% minimum LIBOR floor) plus 3.0% per annum, maturing in February 2027. Proceeds were used to redeem the Company’s 6.750% 2022 Senior Secured Notes. PQ’s collective financing activities in the first half of 2020 resulted in the lowering of annual cash interest by approximately $19 million (at current rates) and extended all material debt maturities to 2025 or later with prepayment flexibility.

“We were pleased to further enhance our financial flexibility, lower interest expense, reduce our cost of capital and extend maturities with the refinancings,” said PQ Executive Vice President and Chief Financial Officer Mike Crews. “PQ has reduced debt by approximately $770 million and lowered annualized cash interest by more than $100 million since our initial public offering in 2017, and we look to continue to de-lever over time.”

2020 Financial Outlook

“PQ is executing well operationally and commercially, delivering good financial results in a challenging environment and continuing to optimize the portfolio,” said Chariag. “Looking ahead, we see the vast majority of PQ’s end uses as either favorable or improving, even as we are mindful of the cautious global economic environment that surrounds us all. We are appropriately managing costs and exercising capital discipline, while we build capabilities and invest for targeted growth.”

The Company provided full-year 2020 guidance which includes:

• Sales of $1,430 to $1,460 million(1)
• Adjusted EBITDA of $410 to $425 million
• Adjusted EBITDA margin of ~27% in line with 2019 margins
• Adjusted diluted EPS of $0.67 to $0.86
• Adjusted free cash flow in the range of $145 to $155 million,excluding $18 million in cash proceeds from product line sale; increased from $130 to $150 million

About PQ Group Holdings Inc.

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

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

We serve over 4,000 customers globally across many end uses and operate over 70 manufacturing facilities which are strategically located across six continents. For more information, see our website at https://www.pqcorp.com.