PQ Group Holdings Reports Third Quarter 2018; Updates 2018 Guidance Raising adjusted free cash flow outlook to $125 million to $140 million, a yield of ~ 6%

November 6, 2018

MALVERN, Pa.--(BUSINESS WIRE)--Nov 6, 2018--PQ Group Holdings Inc. (NYSE:PQG) reported results for the three months ended September 30, 2018. Sales of $427.2 million increased 9.0% from the same period in 2017, driven by higher sales in both business segments. Net income was $14.2 million with diluted EPS of $0.11 as compared to a net loss of $3.4 million with diluted loss per share of $0.03 for the same period in 2017. Net cash provided by operating activities was $115.9 million for the three months ended September 30, 2018, as compared to $88.0 million for the same period in 2017.

Adjusted Net Income grew 216.1% to $35.4 million with diluted adjusted EPS of $0.26, from Adjusted Net Income of $11.2 million with diluted adjusted EPS of $0.11 for the same period in 2017 driven largely by lower interest expense. Adjusted EBITDA was $118.1 million, a 1.5% decrease largely attributable to the Performance Materials & Chemicals business segment more than offsetting improved performance in the Environmental Catalysts & Services business segment. Adjusted free cash flow generation in the quarter increased by 55.8% to $91.0 million from the same period in 2017, largely driven by lower interest costs attributed to reduced debt levels.

“While we delivered solid top line growth this quarter driven by overall healthy demand, our financial results were impacted by unfavorable sales mix and higher operating expenses in Performance Materials,” commented Belgacem Chariag, PQ President and Chief Executive Officer. “Despite this result, we generated strong free cash flow during the quarter and our free cash flow outlook for the year has improved. Our debt repayment plans for this year are on track and we remain committed to our deleveraging goals.”

Chariag added, “I am very excited by PQ’s high niche specialty businesses and the potential for profitable growth. Since joining the Company as CEO in August, the team and I have been focused squarely on the three key drivers of shareholder value - growth, effective capital allocation and free cash flow.”

The financial results and outlook include non-GAAP financial measures. These non-GAAP measures are more fully described and are reconciled from the respective measures determined under GAAP in “Presentation of Non-GAAP Financial Measures” and the attached appendix tables.

Environmental Catalysts & Services Segment Results (“EC&S”)

Sales of $139.7 million increased 21.0% from the same period in 2017 primarily due to higher demand for Refining Services regeneration services and virgin sulfuric acid and Silica Catalyst polyolefin catalysts. Net sales from the Zeolyst Joint Venture decreased by 14.2% to $32.3 million, on lower specialty catalysts to petrochemicals. Adjusted EBITDA of $65.3 million was up 5.5% primarily driven by growth in the refining services product group. Adjusted EBITDA margin of 38.0% was down from the same period in 2017 due to higher costs related to inventory depletion and the impact of higher sulfur pass-through costs.

Performance Materials & Chemicals Segment Results (“PM&C”)

Sales of $288.3 million increased 4.0% from the same period in 2017 driven by North America highway demand. Adjusted EBITDA of $63.1 million decreased 4.2% and Adjusted EBITDA margin of 21.9% was lower on higher Performance Materials manufacturing costs, including freight, and weaker highway sales in Europe.

Cash Flows and Balance Sheet

For the nine months ended September 30, 2018, cash flows from operating activities increased to $166.0 million, as compared to $109.8 million for the same period in 2017. This increase was due largely to lower interest expense and improved business performance. Due to seasonality, the Company’s strongest cash flows are typically in the second half of the year. At September 30, 2018, the Company had cash and cash equivalents of $56.7 million and total gross debt outstanding of $2,205.9 million.

2018 Financial Outlook

The Company updates its 2018 guidance as below:

Sales of $1,580 million to $1,600 million, up from $1,545 million to $1,575 million Adjusted EBITDA of $460 million to $465 million, down from $470 million to $490 million Depreciation and Amortization of $185 million to $190 million, unchanged; excludes $12 million to $14 million for 50% share in Zeolyst Joint Venture Interest expense of $115 million to $120 million, down from $120 million to $130 million Capital expenditures of $140 million to $145 million, down from $150 million to $155 million Effective tax rate of approximately 25% - 30%, excluding the non-cash impact of tax reform, down from 30% Adjusted free cash flow of $125 million to $140 million, up from $120 million to $140 million, a yield of ~6% (defined as the mid-point of the adjusted free cash flow 2018 guidance divided by the Company’s market capitalization as of November 2, 2018) 1

Conference Call and Webcast Details

On Tuesday, November 6, 2018, PQ management will review the results during a conference call and audio-only webcast scheduled for 11:00 a.m. Eastern Time.

Conference Call: Investors may listen to the conference call live via telephone by dialing 1 (877) 883-0383 (domestic) or 1 (412) 902-6506 (international) and use the participant code 4583942.

Webcast: An audio-only live webcast of the conference call and presentation materials can be accessed at http://investor.pqcorp.com.

A replay of the conference call/webcast will be made available at http://investor.pqcorp.com/events-presentations.

Investor Contact: Nahla A. Azmy (610) 651-4561 Nahla.Azmy@pqcorp.com

About PQ Group Holdings Inc.

PQ Group Holdings Inc. is an integrated global provider of specialty catalysts, specialty materials and chemicals, and services. Our environmental catalysts and services business is a leading global innovator and producer of catalysts for the refinery, emissions control, and petrochemical industries and is also a leading provider of catalyst recycling services to the North American refining industry. Our performance materials and chemicals business is a silicates and specialty materials producer with leading supply positions for the majority of our products sold in North America, Europe, South America, Australia and Asia (excluding China) serving diverse and growing end uses such as personal and industrial cleaning products, fuel efficient tires, surface coatings, and food and beverage products.

Presentation of Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. generally accepted accounting principles (“GAAP”) throughout this press release, the Company has provided non-GAAP financial measures—Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash flow, Adjusted free cash flow yield, Adjusted net income, Adjusted earnings per share and Adjusted diluted earnings per share—which present results on a basis adjusted for certain items. The Company uses these non-GAAP financial measures for business planning purposes and in measuring its performance relative to that of its competitors. The Company believes that these non-GAAP financial measures are useful financial metrics to assess its operating performance from period-to-period by excluding certain items that the Company believes are not representative of its core business. These non-GAAP financial measures are not intended to replace, and should not be considered superior to, the presentation of the Company’s financial results in accordance with GAAP. The use of the terms Adjusted EBITDA, Adjusted EBITDA margin, Adjusted free cash flow, Adjusted free cash flow yield, Adjusted net income, Adjusted earnings per share and Adjusted diluted earnings per share may differ from similar measures reported by other companies and may not be comparable to other similarly titled measures. Adjusted EBITDA, Adjusted free cash flow, Adjusted net income, Adjusted earnings per share and Adjusted diluted earnings per share are reconciled from the respective measures under GAAP in the appendix below.

The Company is not able to provide a reconciliation of the Company’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as certain non-cash, nonrecurring or other items that are included in net income and EBITDA as well as the related tax impacts of these items and asset dispositions/acquisitions and changes in foreign currency exchange rates that are included in cash flow, due to the uncertainty and variability of the nature and amount of these future charges and costs.

Zeolyst Joint Venture

The Company’s zeolite catalysts product group operates through its Zeolyst Joint Venture, which is accounted for as an equity method investment in accordance with GAAP. The presentation of the Zeolyst Joint Venture’s total net sales represents 50% of the total net sales of the Zeolyst Joint Venture. The Company does not record sales by the Zeolyst Joint Venture as revenue and such sales are not consolidated within the Company’s results of operations. However, the Company’s Adjusted EBITDA reflects the share of earnings of the Zeolyst Joint Venture that have been recorded as equity in net income from affiliated companies in the Company’s consolidated statements of operations for such periods and includes Zeolyst Joint Venture adjustments on a proportionate basis based on the Company’s 50% ownership interest. Accordingly, the Company’s Adjusted EBITDA margins are calculated including 50% of the total net sales of the Zeolyst Joint Venture for the relevant periods in the denominator.

Note on Forward-Looking Statements

Some of the information contained in this press release constitutes “forward-looking statements.” Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “projects” and similar references to future periods. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Examples of forward-looking statements include, but are not limited to, statements regarding our results of operations, financial condition, liquidity, prospects, growth, strategies, product and service offerings and 2018 outlook. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you, therefore, against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market and regulatory conditions, currency exchange rates and other factors, including those described in the sections titled “Risk Factors” and “Management Discussion & Analysis of Financial Condition and Results of Operations” in our filings with the SEC, which are available on the SEC’s website at www.sec.gov. These forward-looking statements speak only as of the date of this release. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable law.

See Appendix Table A-1 for Descriptions to PQ Non-GAAP Reconciliations in the table above.

View source version on businesswire.com:https://www.businesswire.com/news/home/20181106005311/en/

CONTACT: PQ Group Holdings Inc.


Nahla A. Azmy, 610-651-4561




SOURCE: PQ Group Holdings Inc.

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PUB: 11/06/2018 06:15 AM/DISC: 11/06/2018 06:15 AM


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