MALVERN, Pa.--(BUSINESS WIRE)--PQ Group Holdings Inc. (NYSE:PQG) today reported results for the third quarter ended September 30, 2020. Sales of $380.3 million decreased 10.3% compared with the same period in 2019, largely on lower sales volume related to the pace of economic recovery from COVID-19. Net income was $7.5 million with $0.06 diluted EPS and Adjusted net income was $27.5 million with $0.20 Adjusted diluted EPS. Adjusted EBITDA of $108.6 million was down 21.1% from the same period in the prior year, primarily from lower sales volumes offset by favorable pricing and cost reductions. This performance resulted in a solid Adjusted EBITDA margin of 26.7%. Third quarter financial performance was largely in line with the second quarter, with results modestly suppressed from Hurricane Laura and the deferral of a hydrocracking order into the fourth quarter.

“As the global economy gradually recovers from the pandemic, the PQ team continued to perform well, and Refining Services again led the way with Adjusted EBITDA margins of more than 40%,” said Belgacem Chariag, PQ Chairman, President and Chief Executive Officer. “PQ also is taking significant steps to unlock value for shareholders with the planned sale of Performance Materials, review of strategic alternatives for Performance Chemicals and expansion of our capital allocation program beyond reinvestment and debt reduction to include special dividends.”

Review of Segment Results

Aligned with the pace of the global economy recovery, the company continues to carefully match costs and output with the evolving demand picture. The company sees signs that the second quarter of 2020 marked the trough in global demand. While consumption generally remains below prior-year levels, the vast majority of the company’s key end use areas shows moderate to improving demand patterns.

Refining Services

Global gasoline demand has recovered since June to about 90% of 2019 levels on steady increases in miles driven combined with reduction in production supply as a number of North American refineries closed or idled their facilities. For the high-grade virgin sulfuric acid product line, demand from mining customers led the rebound, followed by signs of recovery in general industrial and automotive applications.

Sales of $107.6 million and Adjusted EBITDA of $44.3 million decreased 9.0% and 13.5%, respectively, versus the same period in 2019, as lower refinery utilization rates impacted volume demand for regeneration services.

Catalysts

Demand for silica-based catalysts continued to outpace the broader polyethylene industry for packaging, containers and film. As expected for hydrocracking catalysts and specialty catalysts, refinery customers have shifted facility change-outs beyond 2020 on reduced fuel consumption patterns.

Silica Catalysts sales of $23.1 million decreased 9.8% versus the same period in 2019 as higher demand for polyolefin catalysts was more than offset by lower methyl methacrylate catalysts orders. Due to deferrals of refinery change outs, Zeolyst JV sales of $26.6 million were down $27.8 million on lower order demand for specialty and hydrocracking catalysts. Adjusted EBITDA of $11.8 million decreased $19.8 million as lower revenues outpaced cost reductions given the fixed nature of some costs.

Performance Chemicals

Since the second quarter, improving signs of economic recovery are benefiting a few consumer product and industrial and process chemicals applications. However, demand for commercial cleaning remained soft and detergents and personal care eased from the strong second-quarter surge by consumers stocking up for COVID-19 stay-at-home mandates.

Sales of $148.5 million decreased 11.6% versus the same period in 2019 on demand weakness for sodium silicate within detergents, general industrial and oil processing. Adjusted EBITDA of $33.9 million decreased 7.9%, on lower sales volumes that were partly offset by cost benefits from the company’s Performance Chemicals transformation and other cost initiatives.

Performance Materials

European highway safety and industrial end use demand is showing a steady recovery from trough levels in the second quarter. North American highway demand reflects a modestly reduced level of striping activity from COVID-related work restrictions.

Third quarter sales of $104.6 million decreased 9.1% versus the same period in 2019 due to lower volume partly offset by favorable pricing. Adjusted EBITDA of $25.3 million decreased 1.9%, with lower sales largely offset by improved pricing and active cost reductions.

Strategic Transformation

On October 15, 2020, the company announced it had entered into a definitive agreement to sell Performance Materials for $650 million to an affiliate of the private equity firm The Jordan Company, L.P., with closing expected by the end of the year, subject to regulatory approvals and customary closing conditions. The company also announced that it was beginning a strategic review of Performance Chemicals.

“As we complete the sale of Performance Materials and advance the strategic review of Performance Chemicals, our focus is on reshaping the portfolio for higher margins and higher growth potential. We believe that our core business fits very well within the global secular trends toward a clean energy transition and a circular plastics economy,” said Chariag. “In addition, after deploying nearly all capital since our initial public offering to reinvestment and debt reduction, we are pleased to be adding special dividends as an option to provide direct returns to shareholders.”

Balance Sheet and Cash Utilization

At September 30, 2020, the company had total available liquidity of $345.4 million, including cash and cash equivalents of $164.3 million. The company expects to use after-tax cash proceeds from the sale of Performance Materials, along with a portion of cash balances, to reduce approximately $460 million in debt while also allocating up to $250 million, or $1.84 per share, to a planned special dividend to shareholders. The special dividend is subject to board approval and declaration.

2020 Financial Outlook

With execution to date resulting in solid financial performance, the outlook for 2020 remains on track. On a consolidated basis including Performance Materials, the company projects sales of $1,430 to $1,460 million(1), Adjusted EBITDA of $410 to $425 million and Adjusted Free Cash Flow of $145 million to $155 million, excluding $18 million in cash proceeds from a product line sale earlier in 2020.

With the pending transaction, Performance Materials is expected to be reported as a discontinued operation beginning in the fourth quarter of 2020. Consequently, the company is also providing 2020 guidance from continuing operations, excluding Performance Materials, as below:

• Sales of $1,080 to $1,100 million(1)
• Adjusted EBITDA of $330 to $345 million
• Adjusted free cash flow of $95 to $105 million

The company is withdrawing its 2020 EPS guidance as it finalizes the tax effect of the divestiture.

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.