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PQ Group Reports Sales of $352.4 Million for the Fourth Quarter and $1,567.1 Million for the Year

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MALVERN, PA — PQ Group Holdings Inc. (NYSE: PQG) reported results for the fourth quarter and year ended December 31, 2019.

For the fourth quarter, sales of $352.4 million declined 7.3% from the fourth quarter of 2018. Net income was $19.1 million with $0.14 diluted EPS and Adjusted net income was $18.0 million with $0.13 Adjusted diluted EPS. Adjusted EBITDA was $103.1 million. For the year, sales were $1,567.1 million, a decrease of 2.6% over 2018. Net income was $79.5 million with $0.59 diluted EPS. Adjusted net income was $125.2 million with $0.92 Adjusted diluted EPS. Adjusted EBITDA was $474.3 million.

“We had a better than expected finish to 2019 driven by the excellent performance of our Catalysts business in the fourth quarter,” commented Belgacem Chariag, PQ Chairman, President and Chief Executive Officer. “For the year, our Catalysts and Performance Materials business segments delivered outstanding results leading to a solid financial outcome. Strong commercial execution and improved capital efficiency coupled with asset monetizations drove a record $166 million of Adjusted free cash flow, ahead of our guidance. This enabled us to repay $215 million of debt and reduce our leverage ratio by more than one-half turn, in line with our commitment.”

Review of Segment Results

Refining Services

For the quarter ended December 31, 2019, sales of $105.7 million decreased 11.5% versus the same period in 2018 largely on the pass-through of $7 million of lower sulfur pricing coupled with lower volumes from unplanned customer outages and weaker demand for virgin sulfuric acid. Adjusted EBITDA of $41.9 million declined 16.4% on lower volumes. The prior year period included a gain of $4.0 million related to an insurance recovery.

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For the year ended December 31, 2019, sales of $447.1 million decreased 1.9% versus the same period in 2018 due to lower volumes from unplanned customer outages, softer demand for virgin sulfuric acid and pass-through of lower sulfur pricing, offset by higher average pricing from the roll-off of a below-market contract. Adjusted EBITDA of $175.6 million was in line with prior year, as favorable pricing offset lower volumes.

Catalysts

For the quarter ended December 31, 2019, Silica Catalysts sales of $23.3 million increased 5.9% versus the same period in 2018, largely driven by accelerated methyl methacrylate sales. Zeolyst JV sales rose 29.6% on continued robust demand for hydrocracking catalysts. Adjusted EBITDA of $28.5 million increased 50.8% on higher sales volumes and favorable mix in both Silica Catalysts and the Zeolyst JV.

For the year ended December 31, 2019, Silica Catalysts sales of $85.7 million increased 18.9% versus the same period in 2018, driven by higher sales across the portfolio. Zeolyst JV sales rose 8.7% as higher demand for hydrocracking catalysts and specialty catalysts more than offset lower sales in emission control catalysts. Adjusted EBITDA of $107.8 million increased 32.9% on higher sales volumes and lower costs.

Performance Materials

For the quarter ended December 31, 2019, sales of $67.9 million decreased 7.9%, or 6.4% on a constant currency basis, as strong pricing was more than offset by lower volumes of engineered glass materials (EGM) for industrial applications. Adjusted EBITDA of $11.2 million increased 6.7%, or 8.6% on a constant currency basis versus the same period in 2018, benefiting from favorable pricing and lower variable costs.

For the year ended December 31, 2019, sales of $363.0 million decreased 4.0%, or 1.5% on a constant currency basis, driven by lower sales volumes of EGM for industrial applications. Adjusted EBITDA of $76.7 million increased 5.8%, or 7.6% on a constant currency basis versus the same period in 2018, largely on favorable pricing.

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In February 2020, the Company entered into a long-term agreement with a leading global thermoplastic producer to supply glass beads, and to meet that supply, exchanged their ThermoDrop® product line for their glass bead production facilities in the U.S.

Performance Chemicals

For the quarter ended December 31, 2019, sales of $158.9 million decreased 5.9%, or 5.1% on a constant currency basis versus the same period in 2018, from continued weaker demand for sodium silicate in the Americas. Adjusted EBITDA of $33.6 million decreased 14.3%, or 13.3% on a constant currency basis, on lower sales volumes.

For the year ended December 31, 2019, sales of $685.1 million decreased 4.5%, or 1.9% on a constant currency basis versus the same period in 2018, primarily due to weaker demand for sodium silicate. Adjusted EBITDA of $154.3 million decreased 9.7%, or 6.8% on a constant currency basis, on lower sales volumes coupled with higher maintenance costs.

In January 2020, the Company launched a transformation plan for Performance Chemicals to improve efficiency and growth in four key areas – manufacturing excellence, network optimization, commercial discipline and integrated business management.

Cash Flows and Balance Sheet

For the year ended December 31, 2019, cash flows from operating activities increased $19.1 million to $267.7 million, compared to $248.6 million for the same period in 2018. This increase was primarily driven by an increase in net income and favorable changes in working capital.

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At December 31, 2019, the Company had cash and cash equivalents of $72.3 million and total debt outstanding of $1,932.1 million. During the year ended December 31, 2019, the Company repaid $215 million of long term debt and the net debt to Adjusted EBITDA ratio was 3.9x as of December 31, 2019.

2020 Financial Outlook

The outlook for 2020 is impacted by the limited recovery in demand for Performance Chemicals products in the first part of the year. While three of their business units are set for healthy growth, the Catalysts business is projected to decline following an excellent year in 2019.

Commenting on the 2020 outlook, Chariag said, “During 2020, we will build on our 2019 performance and portfolio optimization actions by executing the transformation plan for Performance Chemicals. The combination of these efforts with our improving financial flexibility positions us to accelerate our future growth prospects.”

The Company provides 2020 guidance as below.

  • Sales of $1,595 million to $1,625 million, reflecting lower sulfur prices and continued weak demand for Performance Chemicals through the first half of 2020
  • Adjusted EBITDA of $470 million to $480 million range
  • Adjusted diluted EPS of approximately $0.85 to $1.02
  • Adjusted free cash flow in the range of $155 million to $175 million

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