Market Overview

PQ Group Holdings Reports Solid Second Quarter 2018; Reaffirms 2018 Outlook for Sales, Adjusted EBITDA and Free Cash Flow

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- Strong underlying demand trends drive double-digit sales growth

  • Sales up 11.7% to $434.7 million
  • Net income of $15.8 million or Diluted EPS of $0.12; Adjusted Net
    Income of $37.2 million or Adjusted Diluted EPS of $0.28
  • Adjusted EBITDA up 5.0% to $128.9 million for an Adjusted EBITDA
    margin of 26.6%
  • 2018 outlook reaffirmed: Sales of $1,545 million to $1,575 million;
    Adjusted EBITDA of $470 million to $490 million; and Free Cash Flow of
    $120 million to $140 million
  • On track for debt paydown in second half 2018

PQ Group Holdings Inc. (NYSE:PQG) ("PQ" or the "Company") reported
results for the three months ended June 30, 2018. Sales of $434.7
million increased 11.7% from the same period in 2017, driven by higher
sales in both business segments. Net income was $15.8 million or diluted
EPS of $0.12 as compared to a net loss of $1.6 million or diluted loss
per share of $0.02 for the same period in 2017.

Adjusted Net Income improved to $37.2 million or diluted adjusted EPS of
$0.28 from Adjusted Net Income of $15.3 million or diluted adjusted EPS
of $0.15 for the same period in 2017 largely driven by higher adjusted
EBITDA coupled with lower interest expense. Adjusted EBITDA was $128.9
million, a 5.0% increase largely attributed to the Performance Materials
& Chemicals business segment and the Zeolyst Joint Venture.

"Our solid second quarter performance demonstrates the strength of our
competitive positions and diverse product portfolio, which enable us to
capture the underlying strong demand growth trends in nearly all of our
end markets," commented Jim Gentilcore, Executive Chairman of PQ. "We
remain on track with our outlook for strong free cash flow generation
with a primary focus on deleveraging in the second half of 2018."

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 $129.4 million increased 4.4% versus the same period in 2017
primarily on pass-through of higher costs in Refining Services and
strong performance in polyolefin catalysts offset by lower chemical
catalysts sales. Net sales from the Zeolyst Joint Venture rose by 61.5%
to $49.5 million, benefiting from continued strong demand growth for
hydrocracking catalysts. Adjusted EBITDA of $64.9 million was up 0.9%,
which was largely driven by increased volumes from hydrocracking
catalysts. Offsetting this were lower sales of chemical catalysts due to
timing of customer orders coupled with timing of maintenance costs,
including turnarounds. Adjusted EBITDA margin of 36.3% was down from the
same period in 2017 due to the timing of maintenance costs and
pass-through of higher raw material costs.

Performance Materials & Chemicals Segment Results ("PM&C")

Sales of $306.2 million increased 15.1% and Adjusted EBITDA of $73.4
million increased 10.5% from the same period in 2017, largely on higher
volumes from the Sovitec acquisition and ThermoDrop® in Performance
Materials and higher demand for sodium silicates in Performance
Chemicals. Adjusted EBITDA margin was 24.0%.

Cash Flows and Balance Sheet

For the six months ended June 30, 2018, cash flows from operating
activities increased to $50.1 million, as compared to $21.8 million for
the same period in 2017. This increase was due largely to improved
business performance and lower cash interest. As is seasonally typical,
the second half of 2018 is expected to generate the Company's strongest
cash flows.

At June 30, 2018, the Company had cash and cash equivalents of $52.6
million and total gross debt outstanding of $2,287.7 million. The
Company has a $1 billion notional interest rate cap with rates ranging
from 2.0% to 3.0% to mitigate interest rate volatility through July 2020.

2018 Financial Outlook

The Company reaffirms its 2018 guidance as below:

  • Sales of $1,545 million to $1,575 million, up 5% to 7%
  • Adjusted EBITDA of $470 million to $490 million, up 4% to 8%
  • Depreciation and Amortization of $185 million to $190 million, up from
    $175 million to $185 million, and excludes $12 million to $14 million
    for 50% share in Zeolyst Joint Venture
  • Interest expense of $120 million to $130 million
  • Capital expenditures of $150 million to $155 million
  • Effective tax rate of approximately 30%, up from mid-20% range,
    excluding the non-cash impact of tax reform
  • Free cash flow of $120 million to $140 million

Conference Call and Webcast Details

On Thursday, August 9, 2018, PQ management will review the results
during a conference call and audio-only webcast scheduled for 10:00 a.m.
Eastern Daylight 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 4630215.

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, free cash flow, Adjusted net income, Adjusted
earnings per share and Adjusted diluted earnings per share—which present
operating 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, free cash flow, 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, 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.

 

PQ GROUP HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
    Three months ended
June 30,
        Six months ended
June 30,
   
2018     2017 % Change 2018     2017 % Change
(in millions, except percentages, share and per share amounts)
Sales $ 434.7 $ 389.3 11.7 % $ 800.9 $ 722.2 10.9 %
Cost of goods sold 326.3   281.8   15.8 % 614.4   532.1   15.5 %
Gross profit 108.4 107.5 0.8 % 186.5 190.1 (1.9 )%
Selling, general and administrative expenses 43.5 35.3 23.2 % 84.1 70.1 20.0 %
Other operating expense, net 15.9   17.0   (6.5 )% 25.2   27.3   (7.7 )%
Operating income 49.0 55.2 (11.2 )% 77.2 92.7 (16.7 )%
Equity in net (income) from affiliated companies (13.7 ) (8.7 ) 57.5 % (25.5 ) (14.6 ) 74.7 %
Interest expense, net 27.2 48.2 (43.6 )% 56.4 95.0 (40.6 )%
Debt extinguishment costs 5.9
Other expense, net 5.7   14.4   (60.4 )% 10.6   16.1   (34.2 )%
Income (loss) before income taxes and noncontrolling interest 29.8 1.3 NM 29.8 (3.8 ) NM
Provision for income taxes(1) 13.6   3.0   NM 13.1   0.1   NM
Effective tax rate 45.8 % 224.9 % 44.0 % (2.5 )%
Net income (loss) 16.2 (1.7 ) NM 16.7 (3.9 ) NM
Less: Net income (loss) attributable to the noncontrolling interest 0.4   (0.1 ) NM 0.7   0.1   NM
Net income (loss) attributable to PQ Group Holdings Inc. $ 15.8   $ (1.6 ) NM $ 16.0   $ (4.0 ) NM
 
Net earnings (loss) per share:
Basic earnings (loss) per share $ 0.12 $ (0.02 ) $ 0.12 $ (0.04 )
Diluted earnings (loss) per share $ 0.12 $ (0.02 ) $ 0.12 $ (0.04 )
 
Weighted average shares outstanding:
Basic 133,222,463 104,015,815 133,188,303 103,981,851
Diluted 134,209,740 104,015,815 134,047,362 103,981,851
 
(1)   Net of a $3.2 million and $3.6 million provision for GILTI for the
three and six months ended June 30, 2018, respectively, and a $1.1
million provisional adjustment for the impact of the U.S. Tax Cuts
and Job Act of 2017 for the three and six months ended June 30, 2018.
 
 

PQ GROUP HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

 
    June 30,
2018
   

December 31,
2017

ASSETS
Cash and cash equivalents $ 52.6 $ 66.2
Receivables, net 242.0 193.5
Inventories 268.4 262.4
Prepaid and other current assets 39.0   26.9  
Total current assets 602.0 549.0
Investments in affiliated companies 477.3 469.3
Property, plant and equipment, net 1,217.0 1,230.4
Goodwill 1,260.3 1,306.0
Other intangible assets, net 759.6 786.1
Other long-term assets 98.3   74.7  
Total assets $ 4,414.5   $ 4,415.5  
LIABILITIES
Notes payable and current maturities of long-term debt $ 54.1 $ 45.2
Accounts payable 139.7 149.3
Accrued liabilities 76.4   93.9  
Total current liabilities 270.2 288.4
Long-term debt, excluding current portion 2,193.8 2,185.3
Deferred income taxes 197.7 189.3
Other long-term liabilities 113.5   120.6  
Total liabilities 2,775.2   2,783.6  
Commitments and contingencies
EQUITY

Common stock ($0.01 par); authorized shares 450,000,000; issued
shares 135,143,229 and
135,244,379 on June 30, 2018 and
December 31, 2017, respectively; outstanding shares
135,139,716
and 135,244,379 on June 30, 2018 and December 31, 2017,
respectively

1.4 1.4

Preferred stock ($0.01 par); authorized shares 50,000,000; no
shares issued or outstanding on
June 30, 2018 and December
31, 2017

Additional paid-in capital 1,662.8 1,655.1
Accumulated deficit (16.8 ) (32.8 )
Treasury stock, at cost; shares 3,513 and 0 on June 30, 2018 and
December 31, 2017, respectively
(0.1 )
Accumulated other comprehensive income (loss) (12.2 ) 4.3  
Total PQ Group Holdings Inc. equity 1,635.1 1,628.0
Noncontrolling interest 4.2   3.9  
Total equity 1,639.3   1,631.9  
Total liabilities and equity $ 4,414.5   $ 4,415.5  
 
 

PQ GROUP HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 
    Six months ended
June 30,
2018     2017
Cash flows from operating activities:
Net income (loss) $ 16.7 $ (3.9 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 68.9 58.0
Amortization 26.6 25.2
Acquisition accounting valuation adjustments on inventory sold 1.6 0.9
Amortization of deferred financing costs and original issue discount 3.1 4.3
Debt extinguishment costs 3.8
Foreign currency exchange loss 11.8 16.4
Pension and postretirement healthcare benefit expense 0.6 2.1
Pension and postretirement healthcare benefit funding (4.0 ) (3.6 )
Deferred income tax provision (benefit) 3.1 (5.3 )
Net loss on asset disposals 5.9 2.9
Stock compensation 7.6 2.8
Equity in net (income) from affiliated companies (25.5 ) (14.6 )
Dividends received from affiliated companies 15.9 15.1
Other, net (4.1 ) (1.9 )
Working capital changes that provided (used) cash:
Receivables (54.3 ) (44.0 )
Inventories (9.9 ) 2.0
Prepaids and other current assets (3.6 ) (1.4 )
Accounts payable 1.0 (7.4 )
Accrued liabilities (15.1 ) (25.8 )
Net cash provided by operating activities 50.1   21.8  
Cash flows from investing activities:
Purchases of property, plant and equipment (66.1 ) (60.6 )
Investment in affiliated companies (5.0 )
Loan receivable under the New Markets Tax Credit Arrangement (6.2 )
Business combinations, net of cash acquired (1.0 ) (41.6 )
Other, net 0.8   0.5  
Net cash used in investing activities (66.3 ) (112.9 )
Cash flows from financing activities:
Draw down of revolver 123.9 250.0
Repayments of revolver (114.8 ) (185.0 )
Issuance of long-term debt 1,267.0 8.8
Debt issuance costs (6.4 )
Repayments of long-term debt (1,264.7 ) (6.2 )
Distributions to noncontrolling interests (0.2 ) (0.8 )
Repurchase of common shares (0.1 )  
Net cash provided by financing activities 4.7 66.8
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(1.8 ) (5.4 )
Net change in cash, cash equivalents and restricted cash (13.3 ) (29.7 )
Cash, cash equivalents and restricted cash at beginning of period 67.2   85.1  
Cash, cash equivalents and restricted cash at end of period $ 53.9   $ 55.4  
 
 

Appendix Table A-1: Reconciliation of Net Income (Loss) to
Adjusted EBITDA

 
    Three months ended
June 30,
    Six months ended
June 30,
2018     2017 2018     2017
(in millions)
Reconciliation of net income (loss) attributable to PQ Group
Holdings Inc. to Segment Adjusted EBITDA
Net income (loss) attributable to PQ Group Holdings Inc. $ 15.8 $ (1.6 ) $ 16.0 $ (4.0 )
Provision for income taxes 13.6 3.0 13.1 0.1
Interest expense, net 27.2 48.2 56.4 95.0
Depreciation and amortization 47.0   42.6   95.5   83.2  
EBITDA 103.6 92.2 181.0 174.3
Joint venture depreciation, amortization and interest(a) 2.6 2.9 5.9 5.5
Amortization of investment in affiliate step-up(b) 1.7 1.7 3.3 5.3
Amortization of inventory step-up(c) 1.6 0.9
Debt extinguishment costs 5.9
Net loss on asset disposals(d) 4.8 2.6 5.9 2.9
Foreign currency exchange loss(e) 6.8 14.4 11.8 16.4
Non-cash revaluation of inventory, including LIFO 0.1 5.0 2.5
Management advisory fees(f) 1.3 2.5
Transaction and other related costs(g) 0.3 3.0 0.7 4.3
Equity-based and other non-cash compensation 3.8 1.2 7.6 2.8
Restructuring, integration and business optimization expenses(h) 2.4 1.4 3.5 3.1
Defined benefit pension plan cost(i) (0.4 ) 0.7 0.1 1.4
Other(j) 3.2   1.4   4.5   2.1  
Adjusted EBITDA 128.9 122.8 236.8 224.0
Unallocated corporate expenses 9.4   7.9   17.0   15.6  
Total Segment Adjusted EBITDA $ 138.3   $ 130.7   $ 253.8   $ 239.6  
 

Descriptions to PQ Non-GAAP Reconciliations

 
(a)   We use Adjusted EBITDA, Adjusted Net Income, and Adjusted Basic and
Diluted EPS as performance measures to evaluate our financial
results. Because our Environmental Catalysts and Services segment
includes our 50% interest in our Zeolyst Joint Venture, we include
an adjustment for our 50% proportionate share of depreciation,
amortization and interest expense of our Zeolyst Joint Venture.
 
(b) Represents the amortization of the fair value adjustments associated
with the equity affiliate investment in our 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 our Zeolyst Joint Venture. Amortization is
primarily related to the fair value adjustments associated with
inventory, fixed assets and intangible assets, including customer
relationships and technical know-how.
 
(c) As a result of the Sovitec acquisition and the Business Combination,
there was a step-up in the fair value of inventory, which is
amortized through cost of goods sold in the statement of operations.
 
(d) We do not have a history of significant asset disposals. However,
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.
 
(e) Reflects the exclusion of the negative or positive transaction gains
and losses of foreign currency in the income statement primarily
related to the Euro denominated term loan (which was settled as part
of the February 2018 term loan refinancing) and the non-permanent
intercompany debt denominated in local currency translated to U.S.
dollars.
 
(f) Reflects consulting fees paid to CCMP and affiliates of INEOS for
consulting services that include certain financial advisory and
management services. These payments ceased upon the closing of our
initial public offering.
 
(g) Relates to certain transaction costs described in our condensed
consolidated financial statements as well as other costs related to
several transactions that are completed, pending or abandoned and
that we believe are not representative of our ongoing business
operations.
 
(h) Includes the impact of restructuring, integration and business
optimization expenses which are incremental costs that are not
representative of our ongoing business operations, including
severance for a reduction in force and post-merger integration costs.
 
(i) Represents adjustments for defined benefit pension plan costs in our
statement of operations. More than two-thirds of our defined benefit
pension plan obligations are under defined benefit pension plans
that are frozen, and the remaining obligations primarily relate to
plans operated in certain of our non-U.S. locations that, pursuant
to jurisdictional requirements, cannot be frozen. As such, we do not
view such expenses as core to our ongoing business operations.
 
(j) 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 the Business Combination, capital and
franchise taxes, non-cash asset retirement obligation accretion and
the initial implementation of procedures to comply with Section 404
of the Sarbanes-Oxley Act. Included in this line-item are rounding
discrepancies that may arise from rounding from dollars (in
thousands) to dollars (in millions).
 
 

Appendix Table A-2: Reconciliation of Net Income to Adjusted
Net Income
(1)

 
    Three months ended June 30,
2018     2017
Pre-tax    

Tax expense
(benefit)

    After-tax Pre-tax    

Tax expense
(benefit)

    After-tax
(in millions)
Net income (loss) before non-controlling interest $ 29.8 $ 13.6 $ 16.2 $ 1.3 $ 3.0 $ (1.7 )
Less: Net income attributable to non-controlling interest 0.4   (0.1 )
Net income (loss) attributable to PQ Group Holdings Inc. 15.8 (1.6 )
 
Amortization of investment in affiliate step-up(b) 1.7 0.7 1.0 1.7 0.8 0.9
Net loss on asset disposals(d) 4.8 1.7 3.1 2.6 1.2 1.4
Foreign currency exchange loss(e) 6.8 1.6 5.2 14.4 4.9 9.5
Non-cash revaluation of inventory, including LIFO 0.1 0.1
Management advisory fees(f) 1.3 0.6 0.7
Transaction and other related costs(g) 0.3 0.1 0.2 3.0 1.3 1.7
Equity-based and other non-cash compensation 3.8 1.3 2.5 1.2 0.6 0.6
Restructuring, integration and business optimization expenses(h) 2.4 0.8 1.6 1.4 0.7 0.7
Defined benefit pension plan cost(i) (0.4 ) (0.1 ) (0.3 ) 0.7 0.3 0.4
Other(j) 3.2 1.2 2.0   1.4 0.4 1.0  
Adjusted Net Income, including non-cash GILTI tax 31.1 15.3
Impact of non-cash GILTI tax(2) 5.0 5.0
Impact of tax reform(3) 1.1 1.1    
Adjusted Net Income(1) $ 37.2   $ 15.3  
 
Adjusted Net Income per share:
Basic income per share $ 0.28 $ 0.15
Diluted income per share $ 0.28 $ 0.15
 
Weighted average shares outstanding:
Basic 133,222,463 104,015,815
Diluted 134,209,740 104,015,815
 
    Six months ended June 30,
2018     2017
Pre-tax    

Tax expense
(benefit)

    After-tax Pre-tax    

Tax expense
(benefit)

    After-tax
(in millions)
Net income (loss) before non-controlling interest $ 29.8 $ 13.1 $ 16.7 $ (3.8 ) $ 0.1 $ (3.9 )
Less: Net income attributable to non-controlling interest 0.7   0.1  
Net income (loss) attributable to PQ Group Holdings Inc. 16.0 (4.0 )
 
Amortization of investment in affiliate step-up(b) 3.3 1.1 2.2 5.3 2.3 3.0
Amortization of inventory step-up(c) 1.6 0.5 1.1 0.9 0.4 0.5
Debt extinguishment costs 5.9 1.8 4.1
Net loss on asset disposals(d) 5.9 2.0 3.9 2.9 1.3 1.6
Foreign currency exchange loss(e) 11.8 3.7 8.1 16.4 6.6 9.8
Non-cash revaluation of inventory, including LIFO 5.0 1.6 3.4 2.5 1.1 1.4
Management advisory fees(f) 2.5 1.1 1.4
Transaction and other related costs(g) 0.7 0.2 0.5 4.3 1.9 2.4
Equity-based and other non-cash compensation 7.6 2.5 5.1 2.8 1.2 1.6
Restructuring, integration and business optimization expenses(h) 3.5 1.2 2.3 3.1 1.4 1.7
Defined benefit pension plan cost(i) 0.1 0.1 1.4 0.6 0.8
Other(j) 4.5 1.8 2.7   2.1 0.9 1.2  
Adjusted Net Income, including non-cash GILTI tax 49.5 21.4
Impact of non-cash GILTI tax(2) 7.5 7.5
Impact of tax reform(3) 1.1 1.1    
Adjusted Net Income(1) $ 58.1   $ 21.4  
 
Adjusted Net Income per share:
Basic income per share $ 0.44 $ 0.21
Diluted income per share $ 0.43 $ 0.21
 
Weighted average shares outstanding:
Basic 133,188,303 103,981,851
Diluted 134,047,362 103,981,851
 
See Appendix Table A-1 for Descriptions to PQ Non-GAAP
Reconciliations in the table above.
 
(1)   We define Adjusted Net Income as net income (loss) attributable to
PQ Group Holdings adjusted for non-operating income or expense and
the impact of certain non-cash or other items that are included in
net income (loss) 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) Amount represents the impact to tax expense associated with the
Global Intangible Low Taxed Income ("GILTI") provisions of the Tax
Cuts and Jobs Act of 2017 ("TCJA"). Beginning January 1, 2018, GILTI
results in taxation of "excess of foreign earnings," which is
defined as amounts greater than a 10% rate of return on applicable
foreign tangible asset basis. The Company is required to record an
incremental tax provision impact with respect to GILTI as a result
of having historical U.S. Net Operating Loss ("NOL") amounts to
offset the GILTI taxable income inclusion. This NOL utilization
precludes us from recognizing foreign tax credits ("FTCs") which
would otherwise help offset the tax impacts of GILTI. No FTCs will
be recognized with respect to GILTI until our cumulative NOL balance
has been exhausted. Because the GILTI provision does not impact our
cash taxes (given available U.S. NOLs), and given that we expect to
recognize FTCs to offset GILTI impacts once the NOLs are exhausted,
we do not view this item as a component of core operations.
 
(3) Represents the provisional adjustment for the impact of the TCJA
recorded in net income.
 
 

Appendix Table A-3: Business Segment Sales and Adjusted EBITDA

 
    Three months ended
June 30,
        Six months ended
June 30,
   
2018     2017 % Change 2018     2017 % Change
(in millions, except percentages)
Sales:
EC&S $ 129.4 $ 124.0 4.4 % $ 246.6 $ 235.3 4.8 %
PM&C 306.2 266.1 15.1 % 556.0 488.7 13.8 %
Corporate (0.9 ) (0.8 ) 12.5 % (1.7 ) (1.8 ) (5.6 )%
Total sales $ 434.7   $ 389.3   11.7 % $ 800.9   $ 722.2   10.9 %
 
Zeolyst Joint Venture Sales $ 49.5 $ 30.7 61.5 % $ 87.9 $ 63.4 38.7 %
 
Adjusted EBITDA:
EC&S $ 64.9 $ 64.3 0.9 % $ 123.3 $ 120.7 2.2 %
PM&C 73.4 66.4 10.5 % 130.5 118.9 9.8 %
Corporate (9.4 ) (7.9 ) 19.0 % (17.0 ) (15.6 ) 9.0 %
Total Adjusted EBITDA $ 128.9   $ 122.8   5.0 % $ 236.8   $ 224.0   5.7 %
 
Adjusted EBITDA Margin:
EC&S(1) 36.3 % 41.6 % 36.9 % 40.4 %
PM&C 24.0 % 25.0 % 23.5 % 24.3 %
Total Adjusted EBITDA Margin(1) 26.6 % 29.2 % 26.6 % 28.5 %
(1)   Adjusted EBITDA margin calculation includes proportionate 50% share
of sales from the Zeolyst Joint Venture.
 
 

Appendix Table A-4: Free Cash Flow

 
    Six months ended
June 30,
2018     2017
(in millions)
Net cash provided by operating activities $ 50.1 $ 21.8
 
Less:
Purchases of property, plant and equipment(1) (66.1 ) (60.6 )
   
Free cash flow(2) $ (16.0 ) $ (38.8 )
 
Net cash used in investing activities(3) $ (66.3 ) $ (112.9 )
Net cash provided by financing activities $ 4.7 $ 66.8
 
(1)   Excludes the Company's proportionate 50% share of capital
expenditures from the Zeolyst joint venture.
 
(2) We define free cash flow as net cash provided by operating
activities less purchases of property, plant and equipment. Free
cash flow is a non-GAAP financial measure that we believe will
enhance a prospective investor's understanding of our ability to
generate additional cash from operations, and is an important
financial measure for use in evaluating our financial performance.
Our presentation of free cash flow is not intended to replace, and
should not be considered superior to, the presentation of our net
cash provided by operating activities determined in accordance with
GAAP. Additionally, our definition of free cash flow is limited, in
that it does not represent residual cash flows available for
discretionary expenditures, due to the fact that the measure does
not deduct the payments required for debt service and other
contractual obligations or payments made for business acquisitions.
Therefore, we believe it is important to view free cash flow as a
measure that provides supplemental information to our condensed
consolidated statements of cash flows.
 
(3) Net cash used in investing activities includes purchases of
property, plant and equipment, which is also included in our
computation of free cash flow.

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