PQ Group Reports Solid First Quarter 2020 Results; Provides COVID-19 Update

PQ Group Holdings
Sales of $361.6 million increased 0.7%, or 2.3% on constant currency basis

MALVERN, PA — PQ Group Holdings Inc. (NYSE: PQG) reported results for the first quarter ended March 31, 2020.

Sales of $361.6 million were up 0.7% versus the same period in 2019, or 2.3% on a constant currency basis, largely benefiting from volume growth in Catalysts, Performance Materials and Refining Services.

Net income was $0.2 million with $0.00 diluted EPS, which includes a loss impact of ($7.5 million) with ($0.06) diluted EPS related to the Performance Materials asset swap transaction.

Adjusted net income was $21.7 million with $0.16 Adjusted diluted EPS. Adjusted EBITDA was $103.1 million, up 2.1%, or 3.3% on a constant currency basis, largely on higher sales volumes. Adjusted EBITDA margin was 26.2%.

“We had a solid start to the year, delivering volume growth from three of our four business segments led by North America highway safety in Performance Materials and continued polyolefin growth in Catalysts,” commented Belgacem Chariag, PQ Chairman, President and Chief Executive Officer. “As for the balance of the year, the COVID-19 pandemic has created significant demand uncertainty. We believe our aggressive response, business diversification and financial flexibility position PQ well to navigate through this crisis.”

Review of Segment Results

Refining Services

Sales of $100.7 million decreased 4.8% versus the same period in 2019, largely on pass-through of lower sulfur pricing which more than offset higher demand for virgin sulfuric acid. Adjusted EBITDA of $37.2 million was down 6.3% on higher raw material usage and production costs.

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Catalysts

Silica Catalyst sales of $24.9 million increased 56.6%, or 57.9% on a constant currency basis, versus the same period in 2019, largely driven by continued strong demand for polyolefin catalysts and timing for methyl methacrylate sales. Zeolyst JV sales rose 9.6% on a normalized demand level for emission control catalysts. Adjusted EBITDA of $22.7 million increased 25.4%, or 26.0% on a constant currency basis, on higher sales volumes.

Performance Materials

Sales of $65.5 million increased 7.2%, or 9.5% on a constant currency basis. Adjusted EBITDA of $13.5 million increased 28.6%, or 29.5% on a constant currency basis versus the same period in 2019, due to increased demand for North American highway safety products coupled with favorable weather conditions.

Performance Chemicals

Sales of $174.3 million decreased 3.4%, or 1.1% on a constant currency basis, versus the same period in 2019 on slower global demand for detergents and personal care products in Latin America. Adjusted EBITDA of $40.5 million decreased 5.2%, or 2.8% on a constant currency basis, due to lower sales volumes.

COVID-19 Update and 2020 Outlook

“Our highest priority is the health and safety of our employees and their families,” said Chariag. “In addition, our focus has been on serving our customers while ensuring that our plant operations are in compliance with recommended preventive and safety measures.”

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PQ’s businesses and many of its vendors and customers have been able to continue operations through the pandemic as essential businesses under government regulations. While there have been some modest production delays through the first quarter, PQ has not experienced material operational issues in terms of facility shutdowns or its supply chain.

“At the executive leadership and Board levels, we are continuously monitoring the situation,” Chariag concluded. “While we continue to believe in the favorable long-term demand drivers for our businesses, the pandemic is expected to reduce demand in the near- to mid-term. We will continue to navigate through this crisis to mitigate the impacts on PQ and its employees, customers and shareholders.”

Liquidity and Balance Sheet

At March 31, 2020, the Company had total debt outstanding of $1,996.8 million. During the quarter ended March 31, 2020, the Company amended its Term Loan Facility to reduce the applicable interest rate and extend the maturity of the facility to February 2027 and amended its ABL Credit Agreement to reduce the applicable interest rate, extend the maturity to March 2025 and increase the aggregate amount of the revolving loan commitments available by $50.0 million to $250.0 million.

With total available liquidity of $236.3 million, including cash and cash equivalents of $107.7 million at March 31, 2020, PQ is well positioned to meet anticipated future cash and business needs during this period of uncertainty. With the recent amendments and extensions of its Term Loan and ABL Credit Agreement, PQ has no significant debt maturities prior to November 2022. Additionally, PQ’s outstanding debt obligations do not contain material financial covenants requiring it to maintain a leverage ratio below a particular level.

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PQ is undertaking additional steps to enhance its liquidity by lowering discretionary costs and capital expenditures. Furthermore, business optimization initiatives continue, including the potential for asset monetization transactions. These actions will help to mitigate the potential prolonged effects of a challenging demand environment.

2020 Financial Outlook

Due to the uncertainty of COVID-19 related impact on near term demand trends, PQ Group Holdings is withdrawing their previously announced annual 2020 financial outlook except for the below:

  • Adjusted free cash flow in range of $130 million to $150 million, revised from a range of $155 million to $175 million
  • Adjusted EBITDA margin in range of mid-20 percent

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