ECOVYST: DISCUSSION AND ANALYSIS BY THE DEPARTMENT OF FINANCIAL POSITION AND OPERATING RESULTS. (form 10-Q)

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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 statements that express
our opinions, expectations, beliefs, plans, objectives, assumptions or
projections regarding future events or future results and therefore are, or may
be deemed to be, "forward-looking statements". The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect," "should" and
similar expressions are intended to identify 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 the use of proceeds from the sale of the Performance Chemicals
business segment, including the special cash dividend, our financial results and
our liquidity, including our belief that our existing cash, cash equivalents and
cash flow 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 12 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
risks related to:
•the impact of the ongoing COVID-19 pandemic on the global economy and financial
markets, as well as on our business and our suppliers, and the response of
governments and of our company to the outbreak;
•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 elevated level of indebtedness could adversely affect our financial
condition;
•if we are unable to pass on increases in raw material prices, including natural
gas, 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;
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•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, 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;
•losses and damages in connection with information technology risks could
adversely affect our 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, 2020.
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.
In connection with the closing of the sale of the Performance Chemicals
business, we changed our name from "PQ Group Holdings Inc." to "Ecovyst Inc.",
changed the ticker symbol of our common stock listed on the New York Stock
Exchange from "PQG" to "ECVT" and rebranded our former segments from "Refining
Services" to "Ecoservices" and "Catalysts" to "Catalyst Technologies." We
conduct operations through two reporting segments:
Ecoservices: We are the leading provider of sulfuric acid recycling services to
North American refineries for the production of alkylate, an essential gasoline
component for lowering vapor pressure and increase 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 remove nitric
oxide from diesel engine emissions as well as sulfur from fuels during the
refining process.
Recent Developments
On December 14, 2020, we completed the sale of our Performance Materials
business for $650.0 million, which was subject to certain adjustments for
indebtedness, working capital and cash at the closing of the transaction. The
results of operations, financial condition, and cash flows for the Performance
Materials business are presented herein as discontinued operations. Except where
noted, any tables, percentages or metrics included within this filing exclude
the results of our former Performance Materials business. Refer to Note 3 to our
condensed consolidated financial statements for additional information.
Effective on August 1, 2021, we completed the sale of our Performance Chemicals
business for $1.1 billion, subject to certain adjustments set forth in the
agreement. We used a portion of the net cash proceeds to repay the entire Senior
Secured Term Loan Facility due February 2027 of $231.4 million and the 5.750%
Senior Notes due 2025 (the "Senior Notes") of $295.0 million. The Senior Notes
were redeemed at a redemption price equal to the sum of 102.875% of the
principal amount of the Senior Notes plus accrued and unpaid interest to, but
excluding, August 2, 2021. Additionally, our Board of Directors (the "Board")
declared a special cash dividend of $3.20 per share, payable on August 23, 2021
to shareholders of record as of the close of business on August 12, 2021. The
results of operations, financial condition, and cash flows for the Performance
Chemicals business are presented herein as discontinued operations. Except where
noted, any tables, percentages or metrics included within this filing exclude
the results of our Performance Chemicals business. Refer to Note 3 to our
condensed consolidated financial statements for additional information.


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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 (loss) 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 (loss) 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 (loss) attributable to continuing operations adjusted for
(i) non-operating income or expense and (ii) the impact of certain non-cash,
nonrecurring or other items included in net income (loss) 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 (loss) 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 economic demand has significantly rebounded since the 2020 lows that
resulted from the impact of COVID-19. Refineries have seen demand return with
increasing miles driven, recovery from winter storm Uri and a general increase
in economic activity. Emission control and refining catalysts continue to lag,
as vehicle builds have been slowed for numerous reasons including computer chip
shortages, but show signs of rebound in the second half of 2021.
In February 2021, the Gulf Coast of the United States experienced significant
and unexpectedly severe weather from winter storm Uri. Extended freezing
temperatures led to slowdowns or shutdowns at nearly all refineries and caused
extensive damage due to frozen piping. Some refineries and facilities remained
down for nearly a month. Our Ecoservices facilities located in the Gulf
experienced damage, which required additional maintenance and some plant
shutdowns.
Our Silica Catalysts product group, which is a part of our Catalyst Technologies
segment, experiences demand fluctuations based upon the timing of our customer's
fixed bed catalyst replacements.
Sales in our Ecoservices and Catalyst Technologies segments are made on both a
purchase order basis and pursuant to long-term contracts.
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 plant
employment costs, manufacturing overhead and 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 for a nominal charge as part of their contracts. The primary raw
materials used in the manufacture of products in our Catalyst Technologies
segments include sodium silicate and cesium hydroxide.
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, 2020
were under contracts featuring quarterly price adjustments. The price
adjustments generally reflect actual costs for producing sulfuric 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.
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While natural gas is not a direct feedstock for any product, natural gas powered
furnaces are used to heat raw materials and create the chemical reactions
necessary to produce end-products. We maintain multiple suppliers wherever
possible, make forward purchases of natural gas in the United States and
structure our customer contracts when possible to allow for the pass-through of
raw material and natural gas costs.
Joint Ventures
We account for our investments in our equity joint ventures under the equity
method. Our largest joint venture, the Zeolyst Joint Venture, manufactures high
performance, specialty, zeolite-based catalysts for use in the packaging and
engineered plastics, emission control, refining and petrochemical industries and
other areas of the broader chemicals industry. Demand for the Zeolyst Joint
Venture products fluctuate based upon the timing of our customer's fixed bed
catalyst replacements. We share proportionally in the management of our joint
ventures with the other parties to each 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 10% of our sales for the six months ended June 30, 2021 and
the year ended December 31, 2020 are 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, 2021 Compared to the Three Months Ended June 30,
2020
Highlights
The following is a summary of our financial performance for the three months
ended June 30, 2021 compared with the three months ended June 30, 2020.
Sales
•Sales increased $31.4 million to $147.0 million. The increase in sales was
primarily due to a rebound in Ecoservices volumes and the impact of the
pass-through of higher sulfur costs.
Gross Profit
•Gross profit increased $3.6 million to $38.5 million. The increase in gross
profit was primarily due an increase in sales volumes partially offset by higher
production and maintenance costs.
Operating Income
•Operating income increased by $1.7 million to $11.6 million. The increase in
operating income was due to an increase in gross profit, which was partly offset
by higher selling, general and administrative expenses.
Equity in Net Income of Affiliated Companies
•Equity in net income of affiliated companies for the three months ended June
30, 2021 was $6.8 million, compared to $11.5 million for the three months ended
June 30, 2020. The decrease of $4.7 million was due to lower earnings generated
by the Zeolyst Joint Venture for the three months ended June 30, 2021.
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The following is our unaudited condensed consolidated statements of income and a
summary of financial results for the three months ended June 30, 2021 and 2020:
                                                     Three months ended
                                                          June 30,                        Change
                                                     2021              2020           $            %
                                                           (in millions, except percentages)
Sales                                          $      147.0         $ 115.6       $  31.4         27.2  %
Cost of goods sold                                    108.5            80.7          27.8         34.4  %
Gross profit                                           38.5            34.9           3.6         10.3  %
Gross profit margin                                    26.2   %        30.2  %
Selling, general and administrative
expenses                                               21.9            20.6           1.3          6.3  %
Other operating expense, net                            5.0             4.4           0.6         13.6  %
Operating income                                       11.6             9.9           1.7         17.2  %
Operating income margin                                 7.9   %         8.5  %
Equity in net (income) from affiliated
companies                                              (6.8)          (11.5)          4.7        (40.9) %
Interest expense, net                                   8.7            15.1          (6.4)       (42.4) %
Debt extinguishment costs                              11.7               -          11.7            -  %
Other income, net                                      (1.8)           (3.4)          1.6        (47.1) %
(Loss) Income before income taxes and
noncontrolling interest                                (0.2)            9.7          (9.9)      (102.1) %
Provision (benefit) for income taxes                    7.7           (24.6)         32.3       (131.3) %
Effective tax rate                                 (4,371.6)  %      (254.3) %
Net (loss) income from continuing
operations                                             (7.9)           34.3         (42.2)      (123.0) %
Net income (loss) from discontinued
operations, net of tax                                  6.5           (18.1)         24.6              NM
Net (loss) income                                      (1.4)           16.2         (17.6)      (108.6) %
Less: Net income attributable to the
noncontrolling interest - discontinued
operations                                              0.1             0.3          (0.2)       (66.7) %
Net (loss) income attributable to Ecovyst
Inc.                                           $       (1.5)        $  15.9       $ (17.4)      (109.4) %


Sales
                                          Three months ended
                                               June 30,                          Change
                                        2021                   2020          $            %
                                               (in millions, except percentages)
          Sales:
          Ecoservices           $       120.8                $  90.4      $ 30.4        33.6  %
          Silica Catalysts               26.2                   25.2         1.0         4.0  %
          Total sales           $       147.0                $ 115.6      $ 31.4        27.2  %


Ecoservices: Sales in Ecoservices for the three months ended June 30, 2021 were
$120.8 million, an increase of $30.4 million, or 33.6%, compared to sales of
$90.4 million for the three months ended June 30, 2020. The increase in sales
was due to an increase in volumes of $21.0 million and higher average selling
prices of $9.4 million.
Sales increased as result of a rebound in gasoline production by refiners
compared to the prior year period that was depressed by stay-at-home mandates
related to the COVID-19 pandemic. Higher average selling prices were primarily a
result of the pass-through of higher sulfur costs of $9.8 million in our virgin
sulfuric acid product group.
Silica Catalysts: Sales in Silica Catalysts for the three months ended June 30,
2021 were $26.2 million, an increase of $1.0 million, or 4.0%, compared to sales
of $25.2 million for the three months ended June 30, 2020. The increase in sales
was primarily due to a favorable product mix of polyethylene catalysts resulting
in an increase in pricing of $1.8 million, which was partially offset by lower
demand for our methyl methacrylate catalysts due to the timing of orders.
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Gross Profit
Gross profit for the three months ended June 30, 2021 was $38.5 million, an
increase of $3.6 million, or 10.3%, compared with $34.9 million for the three
months ended June 30, 2020. The increase in gross profit was due to higher sales
volumes of $13.3 million, favorable product mix of $2.0 million and favorable
customer pricing of $11.2 million, which was partially offset by unfavorable
manufacturing and maintenance costs of $22.3 million.
The increase in volumes was a result of a rebound in gasoline production by
refiners compared to the prior year period that was depressed by the COVID-19
pandemic. Favorable product mix was a result of increased sales of higher-margin
polyethylene catalysts. The increase in manufacturing costs was a result of the
timing of plant "turnaround" maintenance projects and higher inventory
absorption costs, which was offset by the pass-through of $9.8 million in higher
sulfur costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30,
2021 were $21.9 million, an increase of $1.3 million compared with $20.6 million
for the three months ended June 30, 2020. The increase in selling, general and
administrative expenses was due to an increase in compensation-related expenses
partially offset by income generated from the transition service agreement
entered into as part of the sale of the Performance Materials business.
Other Operating Expense, Net
Other operating expense, net was comparable between both periods. Other
operating expense, net for the three months ended June 30, 2021 was $5.0
million, an increase of $0.6 million, compared with $4.4 million for the three
months ended June 30, 2020.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies for the three months ended June 30,
2021 was $6.8 million, compared to $11.5 million for the three months ended June
30, 2020. The decrease was primarily due to $4.7 million of lower earnings from
the Zeolyst Joint Venture during the three months ended June 30, 2021 as
compared to the three months ended June 30, 2020. The decrease in earnings from
the Zeolyst Joint Venture was due to lower demand for hydrocracking and
specialty catalysts.
Interest Expense, Net
Interest expense, net for the three months ended June 30, 2021 was $8.7 million,
a decrease of $6.4 million, as compared with $15.1 million for the three months
ended June 30, 2020. The decrease in interest expense, net was primarily due to
lower interest rates on our variable-rate debt, along with lower average debt
balances and a favorable increase in variable versus fixed-rate debt during the
three months ended June 30, 2021 as compared to the three months ended June 30,
2020.
Debt Extinguishment Costs
Debt extinguishment costs for the three months ended June 30, 2021 were $11.7
million.
In June 2021, we entered into an agreement for a new senior secured term loan
facility and used the proceeds to repay portions of our existing term loan
facilities. As a result of this transaction, we recorded $5.7 million of new
creditor and third-party financing costs as debt extinguishment costs during the
three months ended June 30, 2021. In addition, previous unamortized deferred
financing costs of $1.7 million and original issue discount of $3.7 million
associated with the previously outstanding debt were written off as debt
extinguishment costs.
In June 2021, we amended our ABL Credit Agreement to decrease the aggregate
amount of revolving loan commitments and extend the maturity date. As a result
of the amendment, we wrote off $0.6 million of unamortized deferred financing
costs as debt extinguishment costs.
Other (Income) Expense, Net
Other (income) expense, net for the three months ended June 30, 2021 was income
of $1.8 million, a decrease of $1.6 million, as compared with income of $3.4
million for the three months ended June 30, 2020. The change in other expense,
net primarily consisted of a decrease in foreign currency gains related to the
non-permanent intercompany debt denominated in local currency and translated to
the U.S. dollar.
Provision (Benefit) for Income Taxes
The provision for income taxes for the three months ended June 30, 2021 was $7.7
million compared to a $24.6 million provision for the three months ended June
30, 2020. The effective income tax rate for the three months ended June 30, 2021
was (4,371.6)% compared to (254.3)% for the three months ended June 30, 2020.
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The Company's effective income tax rate fluctuates based primarily on changes in
income mix, the impacts of the Global Intangible Low Taxed Income ("GILTI") tax
rules, tax rate changes and changes in foreign exchange gains and losses, which
create permanent differences in certain jurisdictions.
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, 2021 was
mainly due to the tax effect of permanent differences related to foreign
currency exchange gain or loss, the inclusion of foreign earnings in U.S.
taxable income, the discrete impact of the product line and asset sales, foreign
tax rate changes, pre-tax losses with no associated tax benefit and state taxes.
Net Income Attributable to Ecovyst
For the foregoing reasons and after the effect of the non-controlling interest
in earnings of subsidiaries for each period presented, net income attributable
to Ecovyst was $1.5 million for the three months ended June 30, 2021 compared
with net income of $15.9 million for the three months ended June 30, 2020.
Adjusted EBITDA
Summarized Segment Adjusted EBITDA information is shown below in the following
table:
                                                   Three months ended
                                                        June 30,                         Change
                                                    2021                2020         $           %
                                                        (in millions, except percentages)

Segment adjusted EBITDA: (1)

    Ecoservices                            $        40.5              $ 

35.0 $ 5.5 15.7%

    Catalyst Technologies(2)                        20.7                

25.3 (4.6) (18.2)%

    Total Segment Adjusted EBITDA(3)                61.2                

60.3 0.9 1.5%

    Unallocated corporate expenses                  (8.5)              

(10.3) 1.8 17.5%

    Total Adjusted EBITDA                  $        52.7              $ 50.0      $ 2.7         5.4  %






(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 $12.1 million for the three months ended June 30, 2021,
which includes $6.8 million of equity in net income, excluding $1.6 million of
amortization of investment in affiliate step-up plus $3.7 million of joint
venture depreciation, amortization and interest. The Adjusted EBITDA from the
Zeolyst Joint Venture included in the Catalyst Technologies segment was $16.9
million for the three months ended June 30, 2020, which includes $11.5 million
of equity in net income, excluding $1.7 million of amortization of investment in
affiliate step-up plus $3.7 million of joint venture depreciation, amortization
and interest.
(3)Our total Segment Adjusted EBITDA differs from our total consolidated
Adjusted EBITDA due to unallocated corporate expenses.
Ecoservices: Adjusted EBITDA for the three months ended June 30, 2021 was $40.5
million, an increase of $5.5 million, or 15.7%, compared with $35.0 million for
the three months ended June 30, 2020. The increase in Adjusted EBITDA was a
result of a rebound in sales volumes as compared to the prior year period
partially offset by higher plant "turnaround" maintenance expenses.
Catalyst Technologies: Adjusted EBITDA for the three months ended June 30, 2021
was $20.7 million, a decrease of $4.6 million, or 18.2%, compared with $25.3
million for the three months ended June 30, 2020. The decrease in Adjusted
EBITDA was primarily a result of reduced volumes in the Zeolyst Joint Venture
due to timing of customer orders.
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A reconciliation of net loss from continuing operations to Segment Adjusted
EBITDA is as follows:
                                                                       Three months ended
                                                                            June 30,
                                                                        2021           2020
                                                                         (in millions)

Reconciliation of net income from continuing operations

to adjusted EBITDA by segment

 Net (loss) income from continuing operations                      $     

(7.9) $ 34.3

 Provision (benefit) for income taxes                                     

7.7 (24.6)

 Interest expense, net                                                    

8.7 15.1

 Depreciation and amortization                                           

20.0 18.8

 EBITDA                                                                  

28.5 43.6

 Joint venture depreciation, amortization and interest(a)                 3.7           3.7
 Amortization of investment in affiliate step-up(b)                       1.6           1.7

 Debt extinguishment costs                                               11.7             -
 Net loss on asset disposals(c)                                           1.6           0.4
 Foreign currency exchange gain(d)                                       

(1.2) (3.4)

 LIFO benefit(e)                                                         

(0.5) (2.0)

 Transaction and other related costs(f)                                   0.6           0.4
 Equity-based compensation                                                6.3           4.6

Business restructuring, integration and optimization

 expenses(g)                                                              0.1           0.8
 Defined benefit pension benefit(h)                                      (0.6)         (0.2)
 Other(i)                                                                 0.9           0.4
 Adjusted EBITDA                                                         52.7          50.0
 Unallocated corporate expenses                                           8.5          10.3
 Segment Adjusted EBITDA                                           $     61.2        $ 60.3




(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 (the "Business Combination"). 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, which primarily relates 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, 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)Represents adjustments for defined benefit pension plan (benefit) costs in
our statements of income. All of our defined benefit pension plan obligations
are under defined benefit pension plans that are frozen. As such, we do not view
such income or expenses as core to our ongoing business operations.
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(i)Other costs consist of certain expenses that are not core to our ongoing
business operations, including environmental remediation-related costs
associated with the legacy operations of our business prior to a business
combination consummated in a prior year period and capital and franchise taxes.
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:
                                                         Three months ended June 30,
                                             2021                                           2020
                                        Tax expense                                    Tax expense
                          Pre-tax        (benefit)        After-tax       Pre-tax       (benefit)        After-tax
                                                                (in millions)
 Reconciliation of
 net (loss) income
 from continuing
 operations to
 Adjusted Net
 Income(1)(2)

 Net (loss) income
 attributable to
 Ecovyst Inc.            $  (0.2)     $         7.7      $     (7.9)     $   9.7      $      (24.6)     $     34.3
 Amortization of
 investment in
 affiliate step-up(b)        1.6                0.4             1.2          1.7               0.7             1.0

 Debt extinguishment
 costs                      11.7                3.1             8.6            -                 -               -
 Net loss on asset
 disposals(c)                1.6                0.4             1.2          0.4               0.2             0.2
 Foreign currency
 exchange gain(d)           (1.2)              (0.4)           (0.8)        (3.4)             (0.9)           (2.5)
 LIFO benefit(e)            (0.5)              (0.1)           (0.4)        (2.0)             (0.8)           (1.2)

 Transaction and
 other related
 costs(f)                    0.6                0.2             0.4          0.4               0.2             0.2
 Equity-based
 compensation                6.3                1.7             4.6          4.6               1.8             2.8
 Restructuring,
 integration and
 business
 optimization
 expenses(g)                 0.1                  -             0.1          0.8               0.3             0.5
 Defined benefit
 pension plan
 benefit(h)                 (0.6)              (0.2)           (0.4)        (0.2)             (0.1)           (0.1)
 Other(i)                    0.9                0.4             0.5          0.4               0.1             0.3
 Adjusted Net Income,
 including non-cash
 GILTI tax               $  20.3      $        13.2      $      7.1      $  12.4      $      (23.1)     $     35.5

 Intraperiod
 allocation for
 restating
 discontinued
 operations(3)                 -               (7.8)            7.8            -              27.9           (27.9)

 Adjusted Net Income     $  20.3      $         5.4      $     14.9      $  12.4      $        4.8      $      7.6




(1)We define adjusted net income as net income attributable to Ecovyst 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.
(3)Due to reporting the Performance Chemicals business as held for sale in
discontinued operations, the estimated tax rate used to value deferred tax
assets ("DTAs") and deferred tax liabilities ("DTLs") needs to be adjusted to
remove the Performance Chemicals rate. Given it is a direct result of the sale
of discontinued operations and the need to adjust the estimated tax rate arose
because of discontinued operations, the impact of revaluing the reporting
entity's DTAs and DTLs are reflected in continuing operations. Due to this
revaluation being solely as a result of the Performance Chemicals divestiture
and a non-cash item, it is treated as an addback.
The adjustments to net income attributable to Ecovyst Inc. 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,
2021 and June 30, 2020, except for the foreign currency exchange loss, impacts
of tax rate changes and the effects of the sale of assets for which the taxes
are calculated as discrete items using the applicable statutory income tax
rates.
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Results of Operations
Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
Highlights
The following is a summary of our financial performance for the six months ended
June 30, 2021 compared with the six months ended June 30, 2020.
Sales
•Sales increased $32.4 million to $273.6 million. The increase in sales was
primarily due to favorable cost pass-through pricing and a rebound in volume in
our Ecoservices segment.
Gross Profit
•Gross profit decreased $4.0 million to $68.6 million. The decrease in gross
profit was primarily due an increase in manufacturing costs, which was partially
offset by higher sales volumes.
Operating Income
•Operating income decreased by $7.7 million to $14.1 million. The decrease in
operating income was due to a decrease in gross profit during the current year
period.
Equity in Net Income of Affiliated Companies
•Equity in net income of affiliated companies for the six months ended June 30,
2021 was $12.0 million, compared with $19.8 million for the six months ended
June 30, 2020. The decrease of $7.8 million was due to a decrease in sales
volume in the Zeolyst Joint Venture for the six months ended June 30, 2021.

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The following is our unaudited condensed consolidated statements of income and a
summary of financial results for the six months ended June 30, 2021 and 2020:
                                                      Six months ended
                                                          June 30,                        Change
                                                    2021              2020           $             %
                                                           (in millions, except percentages)
Sales                                          $    273.6          $ 241.2       $   32.4         13.4  %
Cost of goods sold                                  205.0            168.6           36.4         21.6  %
Gross profit                                         68.6             72.6           (4.0)        (5.5) %
Gross profit margin                                  25.1   %         30.1  %
Selling, general and administrative
expenses                                             44.0             42.9            1.1          2.6  %
Other operating expense, net                         10.5              7.9            2.6         32.9  %
Operating income                                     14.1             21.8           (7.7)       (35.3) %
Operating income margin                               5.2   %          9.0  %
Equity in net (income) from affiliated
companies                                           (12.0)           (19.8)           7.8        (39.4) %
Interest expense, net                                19.2             30.4          (11.2)       (36.8) %
Debt extinguishment costs                            11.7              2.5            9.2        368.0  %
Other expense, net                                    3.3              4.0           (0.7)       (17.5) %
(Loss) income before income taxes and
noncontrolling interest                              (8.1)             4.7          (12.8)      (272.3) %
Provision (benefit) for income taxes                  2.5            (26.3)          28.8       (109.5) %
Effective tax rate                                  (30.9)  %       (562.5) %
Net (loss) income from continuing
operations                                          (10.6)            31.0          (41.6)      (134.2) %
Net loss from discontinued operations, net
of tax                                              (83.3)           (14.2)         (69.1)             NM
Net (loss) income                                   (93.9)            16.8         (110.7)             NM

Less: Net income attributable to the
noncontrolling interest - discontinued
operations                                            0.3              0.6           (0.3)       (50.0) %
Net (loss) income attributable to Ecovyst
Inc.                                           $    (94.2)         $  16.2       $ (110.4)             NM


Sales
                                           Six months ended
                                               June 30,                           Change
                                           2021                 2020          $            %
                                               (in millions, except percentages)
          Sales:
          Ecoservices           $        221.0                $ 191.1      $ 29.9        15.6  %
          Silica Catalysts                52.6                   50.1         2.5         5.0  %

          Total sales           $        273.6                $ 241.2      $ 32.4        13.4  %



Ecoservices: Sales in Ecoservices for the six months ended June 30, 2021 were
$221.0 million, an increase of $29.9 million, or 15.6%, compared to sales of
$191.1 million for the six months ended June 30, 2020. The increase in sales was
due to higher average selling prices of $15.2 million and an increase in sales
volumes of $14.7 million. Higher average selling prices benefited from the
pass-through of higher sulfur costs of $12.8 million. Sales volumes increased as
result of a rebound in gasoline production by refiners compared to the prior
year period that was depressed by the COVID-19 pandemic.
Silica Catalysts: Sales in Silica Catalysts for the six months ended June 30,
2021 were $52.6 million, an increase of $2.5 million, or 5.0%, compared to sales
of $50.1 million for the six months ended June 30, 2020. The increase in sales
was primarily due to product mix of polyethylene catalysts resulting in an
increase in pricing of $2.5 million.
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Gross Profit
Gross profit for the six months ended June 30, 2021 was $68.6 million, a
decrease of $4.0 million, or 5.5%, compared with $72.6 million for the six
months ended June 30, 2020. The decrease in gross profit was due to higher
maintenance costs and unfavorable inventory absorption, which was partially
offset by favorable volumes in Ecoservices of $10.0 million.
The increase in manufacturing costs is due to one-time repair costs related to
winter storms in the Gulf region, timing of plant "turnaround" maintenance
expenditures and higher inventory absorption costs. Favorable product mix was a
result of increased sales of higher-margin polyethylene catalysts. The increase
in volumes was a result of a rebound in gasoline production by refiners compared
to the prior year period that was burdened by the COVID-19 pandemic.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30,
2021 was $44.0 million, a increase of $1.1 million as compared to $42.9 million
for the six months ended June 30, 2020. The increase in selling, general and
administrative expenses was due to increased compensation-related expenses,
partially offset by income generated from the transition service agreement
entered into as part of the sale of the Performance Materials business.
Other Operating Expense, Net
Other operating expense, net for the six months ended June 30, 2021 was $10.5
million, an increase of $2.6 million, compared with $7.9 million for the six
months ended June 30, 2020. The increase in other operating expense, net was a
result of severance charges incurred in the current year period.
Equity in Net Income of Affiliated Companies
Equity in net income of affiliated companies for the six months ended June 30,
2021 was $12.0 million, compared to $19.8 million for the six months ended June
30, 2020. The decrease was primarily due to $7.8 million of lower earnings from
the Zeolyst Joint Venture during the six months ended June 30, 2021. The decline
in earnings was a result of lower volume from deferred customer change-outs
related to reduced output from oil refineries and heavy duty vehicle production,
which led to a decrease in demand for our emission control and hydrocracking
catalysts.
Interest Expense, Net
Interest expense, net for the six months ended June 30, 2021 was $19.2 million,
a decrease of $11.2 million, as compared with $30.4 million for the six months
ended June 30, 2020. The decrease in interest expense was primarily due to lower
interest rates on our variable-rate debt.
Debt Extinguishment Costs
Debt extinguishment costs were $11.7 million and $2.5 million for the six months
ended June 30, 2021 and 2020, respectively.
In June 2021, we entered into an agreement for a new senior secured term loan
facility and used the proceeds to repay a portion of our existing term loan
facilities. As a result of this transaction, we recorded $5.7 million of new
creditor and third-party financing costs as debt extinguishment costs during the
three months ended June 30, 2021. In addition, previous unamortized deferred
financing costs of $1.7 million and original issue discount of $3.7 million
associated with the previously outstanding debt were written off as debt
extinguishment costs.
In June 2021, we amended our ABL Credit Agreement to decrease the aggregate
amount of revolving loan commitments and extend the maturity date. As a result
of the amendment, we wrote off $0.6 million of unamortized deferred financing
costs as debt extinguishment costs.

On February 7, 2020, we amended our existing senior secured term loan facility
to reduce the applicable interest rates and extend the maturity of the facility
to February 2027. We recorded $2.2 million of new creditor and third-party
financing fees as debt extinguishment costs for the six months ended June 30,
2020. In addition, previously unamortized deferred financing costs of
$0.1 million and original issue discount of $0.2 million associated with the
existing senior secured term loan facility were written off as debt
extinguishment costs for the six months ended June 30, 2020.
Other (Income) Expense, Net
Other expense, net for the six months ended June 30, 2021 was expense of $3.3
million, a decrease of $0.7 million, as compared with expense of $4.0 million
for the six months ended June 30, 2020. The decrease in other expense, net
primarily consisted of a decrease in franchise taxes.
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Provision (Benefit) for Income Taxes
The benefit for income taxes for the six months ended June 30, 2021 was $2.5
million compared to a $26.3 million benefit for the six months ended June 30,
2020. The effective income tax rate for the six months ended June 30, 2021 was
(30.9)% compared to (562.5)% for the six months ended June 30, 2020.
The Company's effective income tax rate fluctuates primarily due to income mix,
the impacts of GILTI, discrete impacts of the divestiture of the Performance
Chemicals business, tax rate changes and changes in foreign exchange gains and
losses, which create permanent differences in certain jurisdictions.
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, 2021 was
mainly due to the impacts of GILTI, discrete tax impacts related to intraperiod
allocation revaluation of deferred tax assets and liabilities as a result of the
Performance Chemicals divestiture, tax rate changes and the tax effect of
permanent differences related to foreign currency exchange gain or loss.
Net (Loss) Income Attributable to Ecovyst
For the foregoing reasons and after the effect of the non-controlling interest
in earnings of subsidiaries for each period presented, net loss attributable to
Ecovyst was $94.2 million for the six months ended June 30, 2021 compared with
net income of $16.2 million for the six months ended June 30, 2020.
Adjusted EBITDA
Summarized Segment Adjusted EBITDA information is shown below in the following
table:
                                                   Six months ended
                                                       June 30,                           Change
                                                2021                     2020         $            %
                                                       (in millions, except percentages)

Segment adjusted EBITDA: (1)

 Ecoservices                            $       73.5                   $ 

72.2 $ 1.3 1.8%

 Catalyst Technologies(2)                       39.2                     

48.0 (8.8) (18.3)%

 Total Segment Adjusted EBITDA(3)              112.6                    

120.2 (7.6) (6.3)%

 Unallocated corporate expenses                (17.6)                   

(21.5) 3.9 18.1%

 Total Adjusted EBITDA                  $       95.0                   $ 98.7      $ (3.7)       (3.7) %




(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 is $22.6 million for the six months ended June 30, 2021,
which includes $12.0 million of equity in net income, excluding $3.3 million of
amortization of investment in affiliate step-up plus $7.3 million of joint
venture depreciation, amortization and interest. The Adjusted EBITDA from the
Zeolyst Joint Venture included in the Catalyst Technologies segment is $30.6
million for the six months ended June 30, 2020, which includes $19.8 million of
equity in net income, excluding $3.3 million of amortization of investment in
affiliate step-up plus $7.5 million of joint venture depreciation, amortization
and interest.
(3)Our total Segment Adjusted EBITDA differs from our total consolidated
Adjusted EBITDA due to unallocated corporate expenses. Rounding discrepancies
may arise when rounding segment results from dollars (in thousands) to dollars
(in millions).
Ecoservices: Adjusted EBITDA for the six months ended June 30, 2021 was $73.5
million, an increase of $1.3 million, or 1.8%, compared with $72.2 million for
the six months ended June 30, 2020. The increase in Adjusted EBITDA was due to a
rebound in sales volumes partially offset by higher repair costs to our
facilities and lost sales related to winter storm Uri.
Catalyst Technologies: Adjusted EBITDA for the six months ended June 30, 2021
was $39.2 million, a decrease of $8.8 million, or 18.3%, compared with $48.0
million for the six months ended June 30, 2020. The decrease in Adjusted EBITDA
was a result of lower Zeolyst Joint Venture sales volumes and unfavorable fixed
cost absorption.
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A reconciliation of net loss from continuing operations to Segment Adjusted
EBITDA is as follows:
                                                                         Six months ended
                                                                             June 30,
                                                                        2021          2020
                                                                          (in millions)
Reconciliation of net (loss) income from continuing operations to
Segment Adjusted EBITDA
Net (loss) income from continuing operations                         $   (10.6)     $  31.0
Provision (benefit) for income taxes                                       2.5        (26.3)
Interest expense, net                                                     19.2         30.4
Depreciation and amortization                                             39.5         37.4
EBITDA                                                                    50.6         72.5
Joint venture depreciation, amortization and interest(a)                   7.3          7.5
Amortization of investment in affiliate step-up(b)                         

3.3 3.3

Debt extinguishment costs                                                 11.7          2.5
Net loss on asset disposals(c)                                             2.4          0.6
Foreign currency exchange loss(d)                                          3.9          3.7
LIFO benefit(e)                                                           

(0.7) (3.6)

Transaction and other related costs(f)                                     1.1          1.2
Equity-based compensation                                                 12.6          8.9
Restructuring, integration and business optimization expenses(g)           2.3          1.2
Defined benefit pension plan benefit(h)                                   (1.2)        (0.3)
Other(i)                                                                   1.7          1.2
Adjusted EBITDA                                                           95.0         98.7
Unallocated corporate expenses                                            17.6         21.5
Segment Adjusted EBITDA                                              $   112.6      $ 120.2




(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, primarily 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, 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)Represents adjustments for defined benefit pension plan (benefit) costs in
our statements of income. All of our defined benefit pension plan obligations
are under defined benefit pension plans that are frozen. As such, we do not view
such income or expenses as core to our ongoing business operations.
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(i)Other costs consist of certain expenses that are not core to our ongoing
business operations, including environmental remediation-related costs
associated with the legacy operations of our business prior to a business
combination consummated in a prior year period and capital and franchise taxes.
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:
                                                          Six months ended June 30,
                                             2021                                           2020
                                        Tax expense                                    Tax expense
                          Pre-tax        (benefit)        After-tax       Pre-tax       (benefit)        After-tax
                                                                (in millions)
 Reconciliation of
 net (loss) income
 from continuing
 operations to
 Adjusted Net
 Income(1)(2)

 Net (loss) income
 attributable to
 Ecovyst Inc.            $  (8.1)     $         2.5      $    (10.6)     $   4.7      $      (26.3)     $     31.0
 Amortization of
 investment in
 affiliate step-up(b)        3.3                0.9             2.4          3.3               1.2             2.1

 Debt extinguishment
 costs                      11.7                3.1             8.6          2.5               0.9             1.6
 Net loss on asset
 disposals(c)                2.4                0.7             1.7          0.6               0.2             0.4
 Foreign currency
 exchange loss(d)            3.9                1.1             2.8          3.7               1.4             2.3
 LIFO benefit(e)            (0.7)              (0.2)           (0.5)        (3.6)             (1.3)           (2.3)

 Transaction and
 other related
 costs(f)                    1.1                0.3             0.8          1.2               0.4             0.8
 Equity-based
 compensation               12.6                3.5             9.1          8.9               3.2             5.7
 Restructuring,
 integration and
 business
 optimization
 expenses(g)                 2.3                0.6             1.7          1.2               0.4             0.8
 Defined benefit
 pension plan
 benefit(h)                 (1.2)              (0.3)           (0.9)        (0.3)             (0.1)           (0.2)
 Other(i)                    1.7                0.5             1.2          1.2               0.6             0.6
 Adjusted Net Income,
 including
 Intraperiod
 allocation              $  29.0      $        12.7      $     16.3      $  23.4      $      (19.4)     $     42.8

 Intraperiod
 allocation for
 restating
 discontinued
 operations(3)                 -               (4.8)            4.8            -              27.9           (27.9)
 Adjusted Net Income     $  29.0      $         7.9      $     21.1      $  23.4      $        8.5      $     14.9




(1)We define adjusted net income as net income attributable to Ecovyst 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.
(3)Due to reporting the Performance Chemicals business as held for sale in
discontinued operations, the estimated tax rate used to value deferred tax
assets ("DTAs") and deferred tax liabilities ("DTLs") needs to be adjusted to
remove the Performance Chemicals rate. Given it is a direct result of the sale
of discontinued operations and the need to adjust the estimated tax rate arose
because of discontinued operations, the impact of revaluing the reporting
entity's DTAs and DTLs are reflected in continuing operations. Due to this
revaluation being solely as a result of the Performance Chemicals divestiture
and a non-cash item, it is treated as an addback.
The adjustments to net income attributable to Ecovyst Inc. are shown net of
applicable tax rates of 27.7% and 195.3% for the six months ended June 30, 2021
and 2020, respectively, except for the foreign currency exchange loss and
discrete impacts of the divestiture of the Performance Chemicals business.
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Contents

 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. 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, 2021, we had cash and cash equivalents of $55.8 million and
availability of $107.1 million under our asset based lending revolving credit
facility, after giving effect to $17.8 million of outstanding letters of credit,
for a total available liquidity of $162.9 million. We did not have any revolving
credit facility borrowings as of June 30, 2021. As of June 30, 2021, we were in
compliance with all covenants under our debt agreements.
On a continuing operations basis, we held an immaterial balance of cash and cash
equivalents in foreign jurisdictions as of June 30, 2021. We repatriate cash
held outside of the United States from certain foreign subsidiaries in order to
meet domestic liquidity needs. Depending on domestic and foreign cash balances,
we have certain flexibility to repatriate funds in order to meet those needs.
Specifically, we have an intercompany loan structure in place with foreign
subsidiaries that allows us to repatriate foreign cash in a 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 are significant, primarily due to debt service
requirements. As reported, our cash interest paid for the six months ended June
30, 2021 and 2020 was approximately $28.8 million and $53.8 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 $2.3 million on interest expense. We hedge the interest
rate fluctuations on debt obligations through interest rate cap agreements. As
of June 30, 2021, we had interest rate caps on $500.0 million of notional
variable-rate debt with a cap rate of 0.84% through July 2022 and $400.0 million
of notional variable-rate debt with a cap rate of 1.00% through August 2023.
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Cash Flow
                                                                       Six months ended
                                                                           June 30,
                                                                       2021            2020
                                                                         (in millions)
Continuing Operations
Net cash provided by (used in):
Operating activities                                              $    37.2          $ 24.3
Investing activities                                                  (70.0)          (19.8)
Financing activities                                                   (5.0)           (6.7)
Discontinued Operations
Net cash provided by (used in):
Operating activities                                                   12.1            37.8
Investing activities                                                  (32.0)          (16.4)
Financing activities                                                   (1.1)            0.8

Effect of exchange rate changes on cash, cash equivalents and restricted cash

                                                        (3.3)           (3.3)
Net change in cash, cash equivalents and restricted cash              (62.1)           16.7

Cash, cash equivalents and restricted cash at the start of the period

                                                                137.2            73.9
Cash, cash equivalents and restricted cash at end of period            75.1            90.6

Less: cash, cash equivalents and restricted cash from discontinued operations

                                               (17.6)          (51.4)
Cash, cash equivalents and restricted cash at end of period of
continuing operations                                             $    57.4          $ 39.1


                                                                          Six months ended
                                                                              June 30,
                                                                          2021          2020
                                                                           (in millions)
Continuing Operations
Net (loss) income                                                     $    (10.6)     $ 31.0
Non-cash and non-working capital related activities(1)                      67.4        47.5
Changes in working capital                                                 (15.2)      (53.8)
Other operating activities                                                 

(4.4) (0.4) Net cash flow from operating activities, continuing operations $ 37.2 $ 24.3




(1)Includes depreciation, amortization, amortization of deferred financing costs
and original issue discount, foreign currency exchange gains and losses,
deferred income tax provision (benefit), net (gains) losses on asset disposals,
stock compensation expense and equity in net income and dividends received from
affiliated companies.
                                                                   Six months ended
                                                                       June 30,
                                                                  2021          2020
                                                                    (in millions)
      Continuing Operations
      Working capital changes that provided (used) cash:
      Receivables                                              $   (18.4)     $  (1.0)
      Inventories                                                    5.5         (1.7)
      Prepaids and other current assets                             (1.8)           -
      Accounts payable                                               2.6         (5.1)
      Accrued liabilities                                           (3.1)       (46.0)

                                                               $   (15.2)     $ (53.8)


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                                                                        Six months ended
                                                                            June 30,
                                                                       2021          2020
                                                                         (in millions)
 Continuing Operations
 Purchases of property, plant and equipment                         $   

(28.0) $ (22.2)

 Business combinations, net of cash acquired                            (42.0)           -

 Proceeds from sale of assets                                               

– 2.4

 Net cash used in investing activities, continuing operations       $   (70.0)     $ (19.8)


                                                                       Six months ended
                                                                           June 30,
                                                                       2021            2020
                                                                         (in millions)
Continuing Operations
Net revolving credit facilities borrowings                        $       -          $    -
Net cash borrowings (repayments) on debt obligations                   (3.5)           (3.0)
Other financing activities                                             (1.5)           (3.7)

Net cash used in financing activities, continuing operations $ (5.0) $ (6.7)



The following discussions related to our cash flows are presented on a
continuing operations basis, which excludes the cash flows from our Performance
Materials and Performance Chemicals businesses accounted for as discontinued
operations.
Net cash provided by operating activities was $37.2 million for the six months
ended June 30, 2021, compared to $24.3 million provided for the six months ended
June 30, 2020. Cash generated by operating activities, other than changes in
working capital, was lower during the six months ended June 30, 2021 by $25.8
million compared to the same period in the prior year. The change in working
capital during the six months ended June 30, 2021 was favorable compared to the
six months ended June 30, 2020. Cash used to fund working capital was $15.2
million and $53.8 million for the six months ended June 30, 2021 and 2020,
respectively.
The decrease in cash generated by operating activities, other than changes in
working capital, was lower by $25.8 million as compared to the prior year period
primarily due to a decrease in dividends received from affiliated companies
offset by a decline in operating profit.
The increase in cash from working capital of $38.6 million as compared to the
prior year was primarily due to favorable changes in accrued liabilities,
inventories and accounts payable which were partially offset by unfavorable
changes in accounts receivable and prepaid and other current assets.
The favorable change in accrued liabilities was driven by a decrease in current
income taxes payable and lower interest accruals. The increase in cash provided
by inventory changes was due to the timing of sales orders for our polyethylene
catalysts in the current year period compared to an inventory build in the prior
year period. The favorable change in accounts payable is due to the timing of
capital spending and the favorable change in accrued liabilities relates to
changes in various expense accruals. The unfavorable change in accounts
receivable was driven by the increase in sales within our Ecoservices segment.
Net cash used in investing activities was $70.0 million for the six months ended
June 30, 2021, compared to cash used of $19.8 million during the same period in
2020. Cash used in investing activities consisted of utilizing $28.0 million and
$22.2 million to fund capital expenditures during the six months ended June 30,
2021 and 2020, respectively. During the six months ended June 30, 2021, we
acquired Chem32, LLC for $42.0 million. We received proceeds of $2.4 million
related to the sale of non-core assets during the six months ended June 30,
2020.
Net cash used in financing activities was $5.0 million for the six months ended
June 30, 2021, compared to net cash used of $6.7 million during the same period
in 2020. Net cash used in financing activities was primarily driven by $3.5
million of debt issuance costs related to the 2021 Term Loan Facility and $1.5
million of stock repurchases during the six months ended June 30, 2021. Net cash
provided by financing activities was primarily driven by $3.9 million of stock
repurchases and $3.0 million of debt issuance costs the six months ended June
30, 2020.
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Debt
                                                                June 30,       December 31,
                                                                  2021             2020
                                                                       (in millions)

Senior secured term loan facility due February 2027 (the “2016 Term Loan Facility”) (1)

                                  $   231.4    

$ 671.7
Senior secured term loan facility due February 2027 (the “2020 Term Loan Facility”)

                                             -    

459.7

Senior secured term loan facility due June 2028 (the “2021 Term Loan Facility”)

                                               900.0                  -
5.750% Senior Notes due 2025(1)                                    295.0              295.0
ABL Facility                                                           -                  -

Total debt                                                       1,426.4            1,426.4
Original issue discount                                            (13.1)             (15.6)
Deferred financing costs                                            (8.3)             (10.4)

Total debt, net of the initial issue discount and deferred financing costs

                                                  1,404.9    

1,400.4

Less: current portion                                               (9.0)                 -
Total long-term debt, excluding current portion                $ 1,395.9      $     1,400.4




(1)  A portion of the net cash proceeds from the closing of the sale of the
Performance Chemicals business was used to repay the 2016 Term Loan Facility in
full and to redeem all of the 5.750% Senior Notes due 2025.
As of June 30, 2021, our total debt was $1,426.4 million, excluding the original
issue discount of $13.1 million and deferred financing fees of $8.3 million for
our senior secured credit facilities and notes. Our net debt as of June 30, 2021
was $1,370.6 million, including cash and cash equivalents of $55.8 million. We
may seek, subject to market conditions and other factors, opportunities to
repurchase, refinance or otherwise reprice our debt.
In June 2021, PQ Corporation ("PQ Corp"), an indirect, wholly owned subsidiary
of Ecovyst prior to the closing of the sale of the Performance Chemicals
business, and Ecovyst Catalyst Technologies LLC ("Ecovyst LLC" and, following
the closing of the sale of the Performance Chemicals business, the "Borrower"),
an indirect, wholly owned subsidiary entered into an agreement for a new senior
secured term loan facility in an aggregate principal amount of $900.0 million
with an original issue discount of 0.25% and interest at a floating rate of
LIBOR (with a 0.5% minimum LIBOR floor) plus 2.75% per annum (or, depending on
the Borrower's first lien net leverage ratio, 2.5%). The proceeds were used to
pay in full the 2020 Term Loan Facility, partially pay the 2016 Term Loan
Facility and pay the associated fees and expenses. The new senior secured term
loan facility requires scheduled quarterly amortization payments, each equal to
0.25% of the original principal amount of the loans under the new senior secured
term loan facility.
In June 2021, PQ Corp also entered into a third amendment agreement (the "ABL
Amendment"), which amended the ABL Credit Agreement, dated as of May 4, 2016
(the "ABL Credit Agreement" and, as amended by the ABL Amendment, the "Amended
ABL Credit Agreement"). The ABL Amendment amended the ABL Credit Agreement to,
among other things, following the closing of the sale of the Performance
Chemicals business, decrease the aggregate amount of revolving loan commitments
available to the borrowers thereunder by an aggregate amount of $150.0 million
to $100.0 million, consisting of $90.0 million in U.S. commitments and $10.0
million on in European commitments and extended the maturity date with respect
to borrowings under the Amended ABL Credit Agreement to August 2, 2026.

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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.
                                                         Six months ended
                                                             June 30,
                                                         2021            2020
                                                           (in millions)
              Maintenance capital expenditures      $    19.7          $ 12.1
              Growth capital expenditures                 4.1             4.0
              Total capital expenditures            $    23.8          $ 16.1


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, 2021 as compared to
the six months ended June 30, 2020 due to higher spending on health and safety.
Growth capital expenditures were in-line in the six months ended June 30, 2021
as compared to the six months ended June 30, 2020.
Pension Funding
We did not pay any cash contributions into our defined benefit plans and other
postretirement plans during the six months ended June 30, 2021. We paid $0.9
million in cash contributions into our defined benefit pension plans and other
post-retirement plans during the six months ended June 30, 2020. The net
periodic pension expense was $1.2 million and $0.2 million for those same
periods, respectively.
Off-Balance Sheet Arrangements
We had $17.8 million of outstanding letters of credit on our ABL Facility as of
June 30, 2021.
Contractual Obligations
Information related to our contractual obligations at December 31, 2020 can be
found in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in our Annual Report on Form 10-K for the
year ended December 31, 2020, filed with the SEC on March 17, 2021, which we
refer to as our Annual Report on Form 10-K. During the six months ended June 30,
2021, there have been no significant changes to our contractual obligations as
disclosed in our Annual Report on Form 10-K.

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.

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