~~See accompanying notes to condensed consolidated financial statements.~~

~~PQ GROUP HOLDINGS INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(in thousands)~~

~~(unaudited)~~

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Net loss $ (3,016 ) $ (9,606 ) $ (7,001 ) $ (89,685 )
Other comprehensive income (loss), net of tax:
Pension and postretirement benefits (20 ) 162
(223 ) 486
Net (loss) gain from hedging activities (301 ) 201
(3,326 ) 1,302
Foreign currency translation 18,850
1,286
60,492
(7,919 )
Total other comprehensive income (loss) 18,529
1,649
56,943
(6,131 )
Comprehensive income (loss) 15,513
(7,957 ) 49,942
(95,816 )
Less: Comprehensive income (loss) attributable to noncontrolling interests 82
(165 ) 661
(165 )
Comprehensive income (loss) attributable to PQ Group Holdings Inc. $ 15,431
$ (7,792 ) $ 49,281
$ (95,651 )

~~See accompanying notes to condensed consolidated financial statements.~~

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)


	Common stock		Additional paid-in capital		(Accumulated deficit)		Treasury stock, at cost		Accumulated other comprehensive income		Total
Balance, December 31, 2022	$	1,396	$	1,091,475	$	(242,010)	$	(149,624)	$	5,992	$	707,229
Net loss	—		—		(1,471)		—		—		(1,471)
Other comprehensive loss	—		—		—		—		(5,759)		(5,759)
Repurchases of common shares	—		—		—		(29,850)		—		(29,850)
Tax withholdings on equity award vesting	—		—		—		(866)		—		(866)
Stock compensation expense	—		4,756		—		—		—		4,756
Shares issued under equity incentive plan, net of forfeitures	10		102		—		—		—		112
Balance, March 31, 2023	$	1,406	$	1,096,333	$	(243,481)	$	(180,340)	$	233	$	674,151
Net income	—		—		26,122		—		—		26,122
Other comprehensive income	—		—		—		—		6,692		6,692
Repurchases of common shares	—		—		—		(43,524)		—		(43,524)
Excise tax on repurchases of common shares	—		—		—		(630)		—		(630)
Stock compensation expense	—		4,739		—		—		—		4,739
Shares issued under equity incentive plan, net of forfeitures	1		213		—		—		—		214
Balance, June 30, 2023	$	1,407	$	1,101,285	$	(217,359)	$	(224,494)	$	6,925	$	667,764
Net income	—		—		16,574		—		—		16,574
Other comprehensive loss	—		—		—		—		(2,197)		(2,197)
Repurchases of common shares	—		—		—		(5,344)		—		(5,344)
Tax withholdings on equity award vesting	—		—		—		(2,506)		—		(2,506)
Excise tax on repurchases of common shares	—		—		—		(8)		—		(8)
Stock compensation expense	—		3,392		—		—		—		3,392
Shares issued under equity incentive plan, net of forfeitures	—		(5,461)		—		5,642		—		181
Balance, September 30, 2023	$	1,407	$	1,099,216	$	(200,785)	$	(226,710)	$	4,728	$	677,856

Table of Contents

Common
stock Additional
paid-in
capital Accumulated deficit
Treasury
stock, at
cost
Accumulated
other
comprehensive
income (loss) Non-controlling
interest Total
Balance, December 31, 2016 $ 73
$ 1,167,137
$ (90,380 ) $ (239 ) $ (53,711 ) $ 5,064
$ 1,027,944
Net income (loss) —
—
(7,408 ) —
—
407
(7,001 )
Stock split and conversion 989
(1,228 ) —
239
—
—
—
Other comprehensive income (loss) —
—
—
—
56,689
254
56,943
Dividend distribution —
—
—
—
—
(785 ) (785 )
Stock compensation expense —
3,869
—
—
—
—
3,869
Balance, September 30, 2017 $ 1,062
$ 1,169,778
$ (97,788 ) $ —
$ 2,978
$ 4,940
$ 1,080,970

Common
stock Additional
paid-in
capital Accumulated
deficit
Treasury
stock, at
cost
Accumulated
other
comprehensive
income (loss)
Non-controlling
interest

Total
Balance, December 31, 2015 $ —
$ 245,279
$ (10,634 ) $ —
$ 648
$ —
$ 235,293
Business Combination 73
912,127
—
—
—
6,569
918,769
Net income (loss) —
—
(90,410 ) —
—
725
(89,685 )
Other comprehensive income (loss) —
—
—
—
(5,518 ) (613 ) (6,131 )
Stock repurchase —
—
—
(2,540 ) —
—
(2,540 )
Equity contribution —
6,486
—
114
—
—
6,600
Dividend distribution —
—
—
—
—
(476 ) (476 )
Stock compensation expense —
2,666
—
2,237
—
—
4,903
Balance, September 30, 2016 $ 73
$ 1,166,558
$ (101,044 ) $ (189 ) $ (4,870 ) $ 6,205
$ 1,066,733


	Common stock		Additional paid-in capital		(Accumulated deficit)		Treasury stock, at cost		Accumulated other comprehensive income (loss)		Total
Balance, December 31, 2021	$	1,378	$	1,073,409	$	(315,707)	$	(12,551)	$	(5,792)	$	740,737
Net income	—		—		7,875		—		—		7,875
Other comprehensive income	—		—		—		—		11,378		11,378
Tax withholdings on equity award vesting	—		—		—		(332)		—		(332)
Stock compensation expense	—		5,946		—		—		—		5,946
Shares issued under equity incentive plan, net of forfeitures	18		9		—		—		—		27
Balance, March 31, 2022	$	1,396	$	1,079,364	$	(307,832)	$	(12,883)	$	5,586	$	765,631
Net income	—		—		19,245		—		—		19,245
Other comprehensive loss	—		—		—		—		(3,276)		(3,276)
Repurchases of common shares	—		—		—		(8,842)		—		(8,842)
Stock compensation expense	—		5,409		—		—		—		5,409
Shares issued under equity incentive plan, net of forfeitures	—		17		—		—		—		17
Balance, June 30, 2022	$	1,396	$	1,084,790	$	(288,587)	$	(21,725)	$	2,310	$	778,184
Net income	—		—		21,325		—		—		21,325
Other comprehensive income	—		—		—		—		972		972
Repurchase of common shares	—		—		—		(64,869)		—		(64,869)
Stock compensation expense	—		3,872		—		—		—		3,872
Shares issued under equity incentive plan, net of forfeitures	(1)		42		—		—		—		41
Balance, September 30, 2022	$	1,395	$	1,088,704	$	(267,262)	$	(86,594)	$	3,282	$	739,525

See accompanying notes to condensed consolidated financial statements.

Table of Contents

~~PQ GROUP HOLDINGS~~

ECOVYST INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	41,225	$	48,445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	51,920		48,256
Amortization	10,536		10,547
Amortization of deferred financing costs and original issue discount	1,548		1,515


Foreign currency exchange (gain) loss	(41)		2,179
Deferred income tax provision	(1,011)		12,454
Net loss on asset disposals	3,326		1,174
Stock compensation	12,547		17,419
Equity in net income from affiliated companies	(16,305)		(17,422)
Dividends received from affiliated companies	10,000		30,000
Other, net	(5,270)		(2,603)
Working capital changes that provided (used) cash:
Receivables	(8,939)		(28,443)
Inventories	(3,909)		3,206
Prepaids and other current assets	856		(5,223)
Accounts payable	(3,694)		1,954
Accrued liabilities	(19,383)		(14,133)
Net cash provided by operating activities	73,406		109,325

Cash flows from investing activities:
Purchases of property, plant and equipment	(53,642)		(39,474)

Payments for business divestiture, net of cash	—		(3,744)
Business combinations, net of cash acquired	—		(488)
Other, net	—		81
Net cash used in investing activities	(53,642)		(43,625)

Cash flows from financing activities:
Draw down of revolving credit facilities	14,500		—
Repayments of revolving credit facilities	(14,500)		—



Repayments of long-term debt	(6,750)		(6,750)


Repurchases of common shares	(78,717)		(73,711)
Tax withholdings on equity award vesting	(3,372)		(332)
Repayment of financing obligation	(2,087)		(1,849)
Other, net	457		84
Net cash used in financing activities	(90,469)		(82,558)

Effect of exchange rate changes on cash and cash equivalents	(1,898)		(2,585)
Net change in cash and cash equivalents	(72,603)		(19,443)
Cash and cash equivalents at beginning of period	110,920		140,889
Cash and cash equivalents at end of period	$	38,317	$	121,446

Nine months ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (7,001 ) $ (89,685 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 89,987
60,173
Amortization 39,148
25,429
Acquisition accounting valuation adjustments on inventory sold 871
23,518
Amortization of deferred financing costs and original issue discount 6,626
4,443
Debt extinguishment costs 253
7,182
Debt modification creditor fees capitalized —
(1,932 )
Foreign currency exchange loss 21,612
6,240
Pension and postretirement healthcare benefit expense 2,642
2,741
Pension and postretirement healthcare benefit funding (7,525 ) (2,258 )
Deferred income tax (benefit) expense (12,447 ) 18,741
Net loss on asset disposals 6,419
2,288
Supplemental pension plan mark-to-market gain (708 ) (393 )
Stock compensation 3,869
4,904
Equity in net (income) loss from affiliated companies (24,879 ) 9,309
Dividends received from affiliated companies 19,071
136
Working capital changes that provided (used) cash, excluding the effect of business combinations:
Receivables (28,900 ) 3,483
Inventories 4,897
13,832
Prepaids and other current assets (6,000 ) (824 )
Accounts payable (9,044 ) (7,332 )
Accrued liabilities 13,460
10,125
Other, net (2,535 ) (812 )
Net cash provided by operating activities 109,816
89,308
Cash flows from investing activities:
Purchases of property, plant and equipment (90,229 ) (69,798 )
Investment in affiliated companies (9,000 ) —
Change in restricted cash, net 12,135
(6,199 )
Loan receivable under the New Markets Tax Credit Arrangement (6,221 ) (7,823 )
Business combinations, net of cash acquired (41,572 ) (1,777,740 )
Other, net 391
—
Net cash used in investing activities (134,496 ) (1,861,560 )
Cash flows from financing activities:
Draw down of revolver 302,725
118,000
Repayments of revolver (270,088 ) (125,000 )
Issuance of long-term debt under the New Market Tax Credit arrangement 8,820
11,000
Issuance of long-term debt, net of original issue discount and financing fees —
1,172,980
Issuance of long-term notes, net of original issue discount and financing fees —
1,123,777
Debt issuance costs (1,205 ) (5,397 )
Repayments of long-term debt (10,289 ) (475,998 )
Interest hedge premium —
(1,551 )
Equity contribution —
6,600
Stock repurchase —
(2,540 )
Distributions to noncontrolling interests (785 ) (476 )
Net cash provided by financing activities 29,178
1,821,395
Effect of exchange rate changes on cash and cash equivalents (6,402 ) (2,375 )
Net change in cash and cash equivalents (1,904 ) 46,768
Cash and cash equivalents at beginning of period 70,742
25,155
Cash and cash equivalents at end of period $ 68,838
$ 71,923
Supplemental cash flow information:
Cash paid for taxes $ 21,005
$ 10,740
Cash paid for interest $ 118,793
$ 56,932
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the period end $ 12,924
$ 14,875
Non-cash financing activity:
Equity consideration for the Business Combination $ —
$ 910,800
Debt assumed in the Business Combination $ —
$ 22,911
Debt assumed in the Acquisition $ 16,609
$ —
For supplemental cash flow disclosures, see Note 19.

See accompanying notes to condensed consolidated financial statements.

~~PQ GROUP HOLDINGS~~

Table of Contents

ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

1. Background and Basis of Presentation:

Description of Business

~~PQ Group Holdings~~Ecovyst Inc.and subsidiaries (the “Company” or ~~“PQ Group Holdings”~~“Ecovyst”) conducts operations through two principal segments: (1) Performance Materials & Chemicals: a fully integrated, global leader in silicate technology, producing sodium silicate, specialty silicas, zeolites, spray dry silicates, magnesium silicate, and other high performance chemical products used in a variety of end-uses such as adsorbents for surface coatings, clarifying agents for beverages, cleaning and personal care products and engineered glass products for use in highway safety, polymer additives, metal finishing and electronics end uses; and (2) Environmental Catalysts & Services:is a leading integrated and innovative global ~~innovator~~provider of specialty catalysts and ~~producer~~services. The Company supports customers globally through its strategically located network of ~~silica catalysts used in~~manufacturing facilities. The Company believes that its products, which are predominantly inorganic, and services contribute to improving the sustainability of the environment.

The Company has two uniquely positioned specialty businesses: Ecoservices provides sulfuric acid recycling to the North American refining industry for the production of ~~high-density polyethylene (“HDPE”), methyl methacrylate (“MMA”), specialty zeolite-based catalysts sold to the emissions control industry, the petrochemical industry~~alkylate and ~~other areas of the broader chemicals industry and a merchant~~provides on-purpose virgin sulfuric acid ~~producer operating a network of plants serving a variety of end uses, including~~for water treatment, mining and industrial applications; and Catalyst Technologies provides finished silica catalysts and catalyst supports necessary to produce high strength and high stiffness plastics and, through the ~~oil refining, nylon, mining, general industrial and chemical industries.~~

The Company experiences some seasonality, primarily with respect to the performance materials and refining services product groups. With respect to the performance materials product group, sales and earnings are generally higherZeolyst Joint Venture, supplies zeolites used for catalysts that help produce renewable fuels, remove nitrogen oxides from diesel engine emissions as well as sulfur from fuels during the ~~second and third quarters of the year as highway striping projects typically occur during warmer weather months. Additionally, the~~ refining process.

The Company’s regeneration services product group, which is a part of the Company’s Ecoservices segment, typically experiences ~~similar~~ seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. ~~As a~~These demand fluctuations result in higher sales and working capital requirements ~~tend to be higher in the first and fourth quarters of the year, while higher cash generation occurs~~ in the second and third ~~quarters of the year.~~quarters.

Basis of Presentation

On August 17, 2015, the Company, PQ Holdings Inc. (“PQ Holdings”), Eco Services Operations LLC (“Eco Services”), certain investment funds affiliated with CCMP Capital Advisors, LLC (now known as CCMP Capital Advisors, LP; “CCMP”), and stockholders of PQ Holdings and Eco Services entered into a reorganization and transaction agreement pursuant to which the companies consummated a series of transactions to reorganize and combine the businesses of PQ Holdings and Eco Services (the “Business Combination”), under a new holding company, PQ Group Holdings Inc. The Business Combination was consummated on May 4, 2016.

In accordance with accounting principles generally accepted in the United States (“GAAP”), Eco Services is the accounting predecessor to PQ Group Holdings. Certain investment funds affiliated with CCMP held a controlling interest position in Eco Services prior to the Business Combination. In addition, certain investment funds affiliated with CCMP owned a non-controlling interest in PQ Holdings prior to the Business Combination and the merger with Eco Services constituted a change in control under the PQ Holdings credit agreements and bond indenture that were in place at the time of the Business Combination. Therefore, Eco Services is deemed to be the accounting acquirer. These condensed consolidated financial statements are the continuation of Eco Services’ business prior to the Business Combination.

The condensed consolidated financial statements included herein are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with ~~GAAP~~accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of management, all adjustments of a normal and recurring nature necessary to state fairly the financial position and results of operations have been included. The results of operations are not necessarily indicative of the expected results ~~to be expected~~ for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s ~~prospectus dated September 28, 2017,~~Annual Report on Form 10-K for the year ended December 31, 2022.

Correction of an Error

During the preparation of the condensed consolidated financial statements for the period ended June 30, 2023, the Company identified a presentation error in the components of accumulated other comprehensive income (loss) that originated in the year ended December 31, 2021 and remained uncorrected through the quarter ended March 31, 2023. As a result, the presentation of accumulated other comprehensive income (loss) in Note 5 was corrected by revising the opening balances as ~~filed with~~follows:


	Defined benefit and other postretirement plans		Net gain (loss) from hedging activities		Foreign currency translation
As reported, December 31, 2021	$	14,808	$	2,254	$	(22,854)
Correction to opening balances	(12,640)		(1,964)		14,604
Revised, December 31, 2021	$	2,168	$	290	$	(8,250)

As reported, December 31, 2022	$	12,132	$	26,636	$	(32,776)
Correction to opening balances	(12,640)		(1,964)		14,604
Revised, December 31, 2022	$	(508)	$	24,672	$	(18,172)

This classification error within accumulated other comprehensive income (loss) did not impact total accumulated other comprehensive income (loss) for the ~~SEC pursuant to Rule 424(b) under~~periods included in these condensed consolidated financial statements. Additionally, there was no impact on the ~~Securities Act~~condensed consolidated statements of ~~1933, as amended.~~income and other comprehensive income (loss), condensed consolidated balance sheets and condensed consolidated statements of cash flows for the periods included in these condensed consolidated financial statements. The Company ~~has continued~~assessed the materiality of this presentation error and concluded it was not material to ~~follow~~ the ~~accounting policies set forth in those consolidated~~Company’s previously issued financial statements.

~~Prior to September 22, 2017, the Company had two classes~~

Table of common stock designated as Class A and Class B common stock. On September 22, 2017, the Company reclassified its Class A common stock into common stock and then effected a 8.8275-for-1 split of its common stock. On September 28, 2017, the Company converted each outstanding share of Class B common stock into 8.8275 shares of common stock plus an additional number of shares determined by dividing the unreturned paid-in capital amount of such Class B common stock, or $113.74 per share, by $17.50, the initial public offering price of a share of our common stock in the Company’s initial public offering (“IPO”), rounded to the nearest whole share. Holders of Class B common stock did not receive any cash payments from the Company in connection with the conversion of the Class B common stock.Contents

On October 3, 2017, the Company completed its IPO whereby it issued 29,000,000 shares of its common stock at an initial public offering price of $17.50 per share. The shares began trading on the New York Stock Exchange on September 29, 2017. The aggregate

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

Net income for the nine months ended September 30, 2023 increased by $1,390 from adjustments for the Company’s interest rate cap agreements related to prior year interest expense amortization. The impact of this adjustment was not material to the consolidated financial statements for any prior quarterly or annual periods, and is not expected to be material to the current annual period.

proceeds received by the Company from the offering were approximately $480,525, net of underwriting discounts, commissions and estimated offering expenses. The net proceeds were used to repay existing indebtedness as further described in Note 20.

2. New Accounting Standards:

Recently Adopted Accounting Standards

In October ~~2016,~~2023, the Financial Accounting Standards Board (“FASB”) issued guidance ~~which eliminates~~to amend either presentation or disclosure requirements related to fourteen subtopics in the ~~deferral~~FASB Accounting Standards Codification, that are currently in the SEC Regulation S-X or Regulation S-K. The new guidance was issued in response to the SEC’s ruling on disclosure simplification. For entities subject to existing SEC disclosure requirements, the effective date of each amendment of the ~~tax effects~~topics will be the date that the SEC removes the related disclosure from Regulation S-X or Regulation S-K. The guidance must be applied prospectively, with no early adoption permitted for entities subject to those existing SEC disclosures. The Company is currently evaluating the impact of ~~intra-entity transfers~~the new guidance as it pertains to the fourteen subtopics that would impact the business and will apply prospectively once in effect.

In August 2023, the FASB issued guidance for entities that meet the definition of ~~an asset other than inventory. Previous GAAP prohibited~~a joint venture or a corporate joint venture, to adopt a new basis of accounting upon the formation of the joint venture. The new guidance requires the initial measurement of contributed net assets and liabilities at fair value on the formation date, recognition of goodwill for the difference between the fair value of the joint venture’s equity and net assets, and disclosures about the nature and financial impact of the transaction. The new guidance requires prospective application and is effective for all joint ventures that are formed on or after January 1, 2025, with early adoption permitted. Joint ventures that formed before January 1, 2025 may elect to retrospectively apply the new guidance. The Company will apply the guidance to any new joint ventures formed after the effective date.

In March 2020 and January 2021, the FASB issued guidance to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected over time as reference rate reform activities occur. The time period through which the practical expedients provided in the guidance is available was set to expire on December 31, 2022, but was extended through December 31, 2024 by the FASB in December 2022. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index of the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. In February 2023, the Company amended the 2021 Term Loan Facility (as defined below), the ABL Facility (as defined below) and all existing interest rate caps agreements to replace LIBOR with a secured overnight financing rate (“SOFR”) as the benchmark interest rate. See Note 11 and Note 12 to these condensed consolidated financial statements for additional information. The Company utilized the practical expedients under the guidance with respect to the transition of its debt facilities and interest rate hedging arrangements to SOFR, with no impact to its condensed consolidated financial statements.

In October 2021, the FASB issued guidance that requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with revenue recognition guidance. Under current GAAP, contract assets and ~~deferred income taxes for~~contract liabilities acquired in a business combination are recorded by the acquirer at fair value. The new guidance creates an ~~intra-entity asset transfer until~~exception to the ~~asset had been sold~~general recognition and measurement principles related to ~~an outside party which has resulted~~business combinations, and is expected to result in ~~diversity in practice~~the acquirer recognizing contract assets and ~~increased complexity within financial reporting. For public companies,~~liabilities at the same amounts recorded by the acquiree. The new guidance is effective for business combinations occurring during fiscal years beginning after December 15, ~~2017, and~~2022, including interim periods within those fiscal ~~years. The Company~~years, with early ~~adopted the guidance effective January 1, 2017. The guidance did not have a material impact on the Company’s consolidated financial statements.~~

In March 2016, the FASB issued guidance that includes targeted improvements to the accounting for employee stock-based compensation. The updates in the guidance include changes in the income tax consequences, balance sheet classification and cash flow statement reporting of stock-based payment transactions. The guidance also includes certain modifications applicable only to nonpublic entities. For public companies, the new guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those years. The Company adopted this new guidance as required on January 1, 2017, with no material impact upon adoption to the Company’s consolidated financial statements. On a prospective basis from the adoption date, the Company will record all tax effects related to stock-based compensation through the statement of operations, and all tax-related cash flows resulting from stock-based award payments will be reported as operating activities in the statement of cash flows. The Company made an accounting policy election under the new guidance to account for forfeitures of stock-based compensation awards as they occur.

In July 2015, the FASB issued new guidance that changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value. The amendments in this guidance do not apply to inventory that is measured using LIFO or the retail inventory method; rather, the amendments apply to all other inventory, which includes inventory that is measured using FIFO or average cost. Within the scope of this new guidance, an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation, which is consistent with existing GAAP.permitted. The Company adopted the new guidance oneffective January 1, ~~2017~~2023 as ~~required. The~~required, and will apply the guidance ~~did not have a material impact on the Company’s consolidated financial statements.~~

~~Accounting Standards Not Yet Adopted~~

In August 2017, the FASB issued amendments intended to better align hedge accounting with an entities risk management activities. The amendments expand hedge accounting for non-financial and financial risk components and revise the measurement methodologies to better align with an entities risk management activities. Separate presentation of hedge ineffectiveness is eliminated to provide greater transparency of the full impact of hedging by requiring presentation of the results of the hedged item and hedging instrument in a single financial statement line item. In addition, the amendments reduce complexity by simplifying the manner in which assessments of hedge effectiveness may be performed. The new guidance is effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, and the new guidance should be applied prospectively to ~~the presentation and disclosure guidance. The Company is evaluating the impact~~business combinations that ~~the new guidance will have on its consolidated financial statements.~~

In May 2017, the FASB issued guidance to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, an entity should not account for the effects of a change in a share-based payment award using modification accounting unless the fair value, vesting conditions and classification as either a liability or equity are all the same with respect to the award immediately prior to modification and the modified award itself. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted, and the new guidance should be applied prospectively to awards modified on oroccur after the adoption date. ~~Based on the Company’s existing policies regarding the application~~

Table of ~~modification accounting to its share-based payment awards, the Company does not believe that the new guidance will have a material impact on its consolidated financial statements.~~Contents

In March 2017, the FASB issued guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost (collectively, “pension costs”). Under current GAAP, there are several components of pension costs which are presented net to arrive at pension costs as included in the income statement and disclosed in the notes. As part of this amendment to the existing guidance, the service cost component of pension costs will be bifurcated from the other components and included in the same line item of the income statement as compensation costs are reported. The remaining components will be reported together below operating income on the income

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

3. Revenue from Contracts with Customers:

~~statement, either as a separate line item or combined with another line item on the income statement and disclosed. Additionally, with respect~~Disaggregated Revenue

The Company’s primary means of disaggregating revenues is by reportable segments, which can be found in Note 16 to capitalization to inventory, fixed assets, etc., only the service cost component will be eligible for capitalization upon adoption of the guidance. The new guidance is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The amendments should be applied retrospectively upon adoption with respect to the presentation of the service and other cost components of pension costs in the income statement, and prospectively for the capitalization of the service cost component in assets. The Company is evaluating the impact that the new guidance will have on itsthese condensed consolidated financial statements.

~~In January 2017, the FASB issued guidance~~The Company’s portfolio of products is integrated into a variety of end uses, which eliminates the second step from the traditional two-step goodwill impairment test. Under current guidance, an entity performed the first step of the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount; if an impairment loss was indicated, the entity computed the implied fair value of goodwill to determine whether an impairment loss existed, and if so, the amount to recognize. Under the new guidance, an impairment loss is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value (the Step 1 test), with no further testing required. Any impairment loss recognized is limited to the amount of goodwill allocated to the reporting unit. The new guidance is effective for public companies that are SEC registrants for fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed on testing dates after January 1, 2017. All entities are required to apply the guidance prospectively to goodwill impairment tests subsequent to adoption of the standard. The Company is evaluating the impact that the new guidance will have on its consolidated financial statements.

In January 2017, the FASB issued guidance which clarifies the definition of a business and provides revised criteria and a framework to determine whether an integrated set of assets and activities is a business. For public companies, the new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted. The Company is evaluating the impact that the new guidance will have on its consolidated financial statements.

~~In November 2016, the FASB issued guidance which clarifies the classification and presentation of changes in restricted cash on the statement of cash flows. The updates~~described in the ~~guidance require that the statement~~table below.


Key End Uses			Key Products
Clean fuels, emission control & other			• Refining hydrocracking catalysts
			• Emission control catalysts
			• Catalysts used in production of renewable fuels
			• Catalyst activation
			• Aluminum sulfate solution
			• Ammonium bisulfite solution
Polymers & engineered plastics			• Catalysts for high-density polyethylene and chemicals syntheses
			• Antiblocks for film packaging
			• Niche custom catalyst
Regeneration and treatment services			• Sulfuric acid regeneration services
			• Treatment services
Industrial, mining & automotive			• Sulfur derivatives for industrial production
			• Sulfuric acid for mining
			• Sulfuric derivatives for nylon production

Table of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash when reconciling the beginning-of-period and end-of-period total amounts. The updates also require a reconciliation between cash, cash equivalents and restricted cash presented on the balance sheet to the total of the same amounts presented on the statement of cash flows. For public companies, the new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted, and the new guidance should be applied retrospectively to each period presented. The Company is evaluating the impact that the new guidance will have on its consolidated financial statements. As of September 30, 2017, the Company had $1,645 of restricted cash included in prepaid and other current assets on its balance sheet related to its New Market Tax Credit financing arrangements as well as other small restricted cash balances.Contents

In August 2016, the FASB issued guidance which clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs and distributions from certain equity method investees. For public companies, the new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, and the new guidance should be applied retrospectively to each period presented. The Company is evaluating the impact that the new guidance will have on its consolidated financial statements.

In February 2016, the FASB issued guidance that amends the accounting for leases. Under the new guidance, a lessee will recognize assets and liabilities for most leases (including those classified under existing GAAP as operating leases, which based on current standards are not reflected on the balance sheet), but will recognize expenses similar to current lease accounting. For public companies, the new guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted. The new guidance must be adopted using a modified retrospective transition and provides for certain practical expedients. The Company is currently evaluating the impact that the new guidance will have on its consolidated financial statements. The Company has operating lease agreements for which it expects to recognize right of use assets and corresponding liabilities on its balance sheet upon adoption of the new guidance. A complete discussion of these leases is included in the Company’s audited consolidated financial statements for the year ended December 31, 2016 in Note 20, Commitments and Contingent Liabilities.

In May 2014, the FASB issued accounting guidance (with subsequent targeted amendments) that will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that revenue recognized from a transaction or event that arises from a contract with a customer should reflect the consideration to which an entity expects to be entitled in exchange for goods or services provided. To achieve that core principle, the new guidance sets forth a five-step revenue recognition model that will need to be applied consistently to all contracts with customers, except those that are within the scope of other topics in the Accounting Standards Codification (“ASC”). Also required are enhanced disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The enhanced disclosures include qualitative and quantitative information about contracts with customers, significant

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

judgments made in applying the revenue guidance, and assets recognized related to the costs to obtain or fulfill a contract. For public companies, the new requirements are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those years. The Company is reviewing its key revenue streams and assessing the underlying customer contracts within the framework of the new guidance. The Company has evaluated the key aspects of its revenue streams for impact under the new guidance and is currently performing a detailed analysis of its customer agreements to quantify the potential changes under the guidance. The Company believes that the guidance will not have a material impact on its existing revenue recognition practices, but there are new robust disclosure requirements that will have an impact onfollowing tables disaggregate the Company’s ~~reporting. The~~sales, by segment and end uses, for the three and nine months ended September 30, 2023 and 2022, respectively:


	Three months ended September 30, 2023
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	8,393	$	—	$	8,393
Polymers & engineered plastics	—		25,697		25,697
Regeneration and treatment services(1)	87,692		—		87,692
Industrial, mining & automotive	51,544		—		51,544
Total segment sales	$	147,629	$	25,697	$	173,326

	Three months ended September 30, 2022
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	7,991	$	—	$	7,991
Polymers & engineered plastics	—		36,859		36,859
Regeneration and treatment services(1)	92,676		—		92,676
Industrial, mining & automotive	95,007		—		95,007
Total segment sales	$	195,674	$	36,859	$	232,533


	Nine months ended September 30, 2023
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	21,559	$	—	$	21,559
Polymers & engineered plastics	—		74,877		74,877
Regeneration and treatment services(1)	274,529		—		274,529
Industrial, mining & automotive	147,345		—		147,345
Total segment sales	$	443,433	$	74,877	$	518,310

	Nine months ended September 30, 2022
	Ecoservices		Catalyst Technologies(2)		Total
Clean fuels, emission control & other	$	22,474	$	—	$	22,474
Polymers & engineered plastics	—		94,716		94,716
Regeneration and treatment services(1)	253,793		—		253,793
Industrial, mining & automotive	266,436		—		266,436
Total segment sales	$	542,703	$	94,716	$	637,419

(1)As described in Note 1 to these condensed consolidated financial statements, the Company ~~anticipates adopting the new guidance~~experiences seasonal sales fluctuations to customers in the ~~first quarter~~regeneration services product group.

(2)Excludes the Company’s proportionate share of ~~2018 as required,~~sales from the Zeolyst International and ~~expects~~Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 9 to ~~implement the guidance under the modified retrospective transition method~~these condensed consolidated financial statements for further information).

Table of ~~adoption.~~Contents

3.ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

4. Fair Value Measurements:

Fair values are based on quoted market prices when available. When market prices are not available, fair values are generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, the Company estimates fair values using methods, models and assumptions that management believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment that becomes significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model or input used.

The Company’s financial assets and liabilities carried at fair value have been classified based upon a fair value hierarchy. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). The classification of an asset or a liability is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

•Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.

•Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves.

•Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date.

The following ~~table presents~~tables present information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.


	September 30, 2023		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 12)	$	32,178	$	—	$	32,178	$	—


	December 31, 2022		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivative assets:
Interest rate caps (Note 12)	$	34,374	$	—	$	34,374	$	—
Derivative liabilities:
Interest rate caps (Note 12)	$	2,071	$	—	$	2,071	$	—

As of September 30, 2017
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Derivative contracts $ 1,098
$ —
$ 1,098
$ —
Restoration plan assets 5,566
5,566
—
—
Total $ 6,664
$ 5,566
$ 1,098
$ —

Liabilities:
Derivative contracts $ 58
$ —
$ 58
$ —

Table of Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

As of December 31, 2016
Quoted Prices in
Active Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:
Derivative contracts $ 6,434
$ —
$ 6,434
$ —
Restoration plan assets 5,594
5,594
—
—
Total $ 12,028
$ 5,594
$ 6,434
$ —

~~Restoration plan assets~~

The fair values of the Company’s restoration plan assets are determined through quoted prices in active markets. Restoration plan assets are assets held in a Rabbi trust to fund the obligations of the Company’s defined benefit supplementary retirement plans and include various stock and fixed income mutual funds. See Note 15 to these condensed consolidated financial statements regarding defined supplementary retirement plans.

Derivative contracts

Derivative assets and liabilities can be exchange-traded or traded over-the-counter (“OTC”). The Company generally values exchange-traded derivatives using models that calibrate to market transactions and eliminate timing differences between the closing price of the exchange-traded derivatives and their underlying instruments. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, forward curves, measures of volatility, and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as forward contracts, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.

~~The~~As of September 30, 2023, the Company ~~has~~had interest rate ~~caps and natural gas caps and swaps that are~~caps that were fair valued using Level 2 inputs. In addition, the Company applies a credit valuation adjustment to reflect credit risk which is calculated based on credit default swaps. To the extent that the Company’s net exposure under a specific master agreement is an asset, the Company utilizes the counterparty’s default swap rate. If the net exposure under a specific master agreement is a liability, the Company utilizes a default swap rate comparable to ~~PQ Group Holdings.~~Ecovyst. The credit valuation adjustment is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company’s liabilities or that a market participant would be willing to pay for the Company’s assets. As

5. Stockholders' Equity:

Accumulated Other Comprehensive Income (Loss)

The following tables present the tax effects of each component of other comprehensive income (loss) for the three and nine months ended September 30, ~~2017~~2023 and ~~December 31, 2016, the credit valuation adjustment resulted in a minimal change in the fair value~~2022, respectively:


	Three months ended September 30,
	2023						2022
	Pre-tax amount		Tax benefit/ (expense)		After-tax amount		Pre-tax amount		Tax benefit/ (expense)		After-tax amount
Defined benefit and other postretirement plans:
Net prior service credit (cost)	$	(31)	$	8	$	(23)	$	(53)	$	13	$	(40)
Net gain (loss)	(253)		63		(190)		(1,226)		304		(922)
Benefit plans, net	(284)		71		(213)		(1,279)		317		(962)
Net gain (loss) from hedging activities	1,247		(119)		1,128		12,188		(3,047)		9,141
Foreign currency translation	(3,112)		—		(3,112)		(7,207)		—		(7,207)
Other comprehensive income (loss)	$	(2,149)	$	(48)	$	(2,197)	$	3,702	$	(2,730)	$	972

	Nine months ended September 30,
	2023						2022
	Pre-tax amount		Tax benefit/ (expense)		After-tax amount		Pre-tax amount		Tax benefit/ (expense)		After-tax amount
Defined benefit and other postretirement plans:
Net prior service credit (cost)	$	(94)	$	23	$	(71)	$	(158)	$	39	$	(119)
Net gain (loss)	398		(99)		299		(1,225)		304		(921)
Benefit plans, net	304		(76)		228		(1,383)		343		(1,040)
Net gain (loss) from hedging activities	(1,998)		605		(1,393)		36,827		(9,207)		27,620
Foreign currency translation	(99)		—		(99)		(17,506)		—		(17,506)
Other comprehensive income (loss)	$	(1,793)	$	529	$	(1,264)	$	17,938	$	(8,864)	$	9,074

Table of ~~the derivatives.~~Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

~~4. Accumulated Other Comprehensive Income (Loss):~~

The following ~~table presents~~tables present the ~~tax effects of each component of other comprehensive income (loss) for the three and nine months ended September 30, 2017 and 2016:~~

Three months ended September 30,
2017 2016
Pre-tax
amount Tax
benefit /
(expense) After-tax
amount Pre-tax
amount Tax
benefit /
(expense) After-tax
amount
Defined benefit and other postretirement plans
Amortization and unrealized losses $ (33 ) $ 13
$ (20 ) $ 162
$ —
$ 162
Benefit plans, net (33 ) 13
(20 ) 162
—
162
Net loss (gain) from hedging activities (486 ) 185
(301 ) 324
(123 ) 201
Foreign currency translation 21,343
(2,493 ) 18,850
1,930
(644 ) 1,286
Other comprehensive income (loss) $ 20,824
$ (2,295 ) $ 18,529
$ 2,416
$ (767 ) $ 1,649

Nine months ended September 30,
2017 2016
Pre-tax
amount Tax
benefit /
(expense) After-tax
amount Pre-tax
amount Tax
benefit /
(expense) After-tax
amount
Defined benefit and other postretirement plans
Amortization and unrealized losses $ (261 ) $ 38
$ (223 ) $ 486
$ —
$ 486
Benefit plans, net (261 ) 38
(223 ) 486
—
486
Net loss (gain) from hedging activities (5,373 ) 2,047
(3,326 ) 2,100
(798 ) 1,302
Foreign currency translation 69,202
(8,710 ) 60,492
(9,605 ) 1,686
(7,919 )
Other comprehensive income (loss) $ 63,568
$ (6,625 ) $ 56,943
$ (7,019 ) $ 888
$ (6,131 )

~~The following table presents the change~~changes in accumulated other comprehensive income, ~~(loss),~~ net of tax, by component for the nine months ended September 30, ~~2017~~2023 and ~~2016:~~2022, respectively:


	Defined benefit and other postretirement plans		Net gain (loss) from hedging activities		Foreign currency translation		Total
December 31, 2022	$	(508)	$	24,672	$	(18,172)	$	5,992
Other comprehensive income (loss) before reclassifications	207		12,057		(99)		12,165
Amounts reclassified from accumulated other comprehensive income(1)	21		(13,450)		—		(13,429)
Net current period other comprehensive income (loss)	228		(1,393)		(99)		(1,264)
September 30, 2023	$	(280)	$	23,279	$	(18,271)	$	4,728

December 31, 2021	$	2,168	$	290	$	(8,250)	$	(5,792)
Other comprehensive income (loss) before reclassifications	(1,157)		27,148		(17,506)		8,485
Amounts reclassified from accumulated other comprehensive income(1)	117		472		—		589
Net current period other comprehensive income (loss)	(1,040)		27,620		(17,506)		9,074
September 30, 2022	$	1,128	$	27,910	$	(25,756)	$	3,282

Defined benefit
and other
postretirement
plans
Net gain (loss)
from hedging
activities
Foreign
currency
translation

Total
December 31, 2016 $ 7,513
$ 4,557
$ (65,781 ) $ (53,711 )
Other comprehensive income (loss) before reclassifications (322 ) (3,404 ) 60,238
56,512
Amounts reclassified from accumulated other comprehensive income^(a)
99
78
—
177
Net current period other comprehensive income (loss) (223 ) (3,326 ) 60,238
56,689
September 30, 2017 $ 7,290
$ 1,231
$ (5,543 ) $ 2,978

December 31, 2015 $ 648
$ —
$ —
$ 648
Other comprehensive income (loss) before reclassifications 486
591
(7,306 ) (6,229 )
Amounts reclassified from accumulated other comprehensive income^(a)
—
711
—
711
Net current period other comprehensive income (loss) 486
1,302
(7,306 ) (5,518 )
September 30, 2016 $ 1,134
$ 1,302
$ (7,306 ) $ (4,870 )

~~—————~~


^(a)			~~See the following table for details about these reclassifications.~~

~~PQ GROUP HOLDINGS~~(1)See the following table for details about these reclassifications. Amounts in parentheses indicate debits.

The following table presents the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2023 and 2022, respectively:


Details about Accumulated Other Comprehensive Income Components	Amounts reclassified from Accumulated Other Comprehensive Income(1)								Affected line item where Income is presented
	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Amortization of defined benefit and other postretirement items:
Net prior service (credit) cost	$	(31)	$	(53)	$	(94)	$	(158)	Other (expense) income(2)
Net (gain) loss	21		1		48		3		Other (expense) income(2)
	(10)		(52)		(46)		(155)		Total before tax
	7		12		25		38		Tax benefit
	$	(3)	$	(40)	$	(21)	$	(117)	Net of tax

Gains and losses on cash flow hedges:
Interest rate caps	$	6,048	$	(29)	$	17,933	$	(627)	Interest expense
	(1,511)		7		(4,483)		155		Tax (expense) benefit
	$	4,537	$	(22)	$	13,450	$	(472)	Net of tax

Total reclassifications for the period	$	4,534	$	(62)	$	13,429	$	(589)	Net of tax

(1)Amounts in parentheses indicate debits to profit/loss.

(2)These accumulated other comprehensive income (loss) components are components of net periodic pension and other postretirement cost (see Note 14 to these condensed consolidated financial statements for additional details).

Table of Contents

ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

Treasury Stock Repurchases

~~The following table presents~~2022 Stock Repurchase Program

On April 27, 2022, the ~~reclassifications out~~Board approved a stock repurchase program that authorized the Company to purchase up to $450,000 of ~~accumulated~~ the Company’s common stock over the four-year period from the date of approval. Under the plan, the Company is permitted to repurchase shares from time to time for cash in open market transactions or in privately negotiated transactions in accordance with applicable federal securities laws, with the Company determining the timing and the amount of any repurchases based on its evaluation of market conditions, share price and other ~~comprehensive income (loss) for~~factors.

During the ~~three and~~ nine months ended September 30, ~~2017~~2023, the Company repurchased 541,494 shares on the open market at an average price of $9.85 per share, for a total of $5,333, excluding brokerage commissions and ~~2016. Amounts~~accrued excise tax. Additionally, in ~~parenthesis indicate debits to profit/loss.~~

Details about Accumulated Other
Comprehensive Income Components

Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Statement Where Net
Income is Presented
Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Defined benefit and other postretirement plans
Amortization of prior service cost $ 20
$ —
$ 60
$ —
(a)
Amortization of net gain (loss) 19
—
58
—
(a)
39
—
118
—
Total before tax
(6 ) —
(19 ) —
Tax (expense) benefit
$ 33
$ —
$ 99
$ —
Net of tax

Net gain (loss) from hedging activities
Interest rate caps $ 13
$ (2 ) $ 22
$ (2 ) Interest expense
Natural gas swaps 94
420
104
1,148
Cost of goods sold
107
418
126
1,146
Total before tax
(41 ) (159 ) (48 ) (435 ) Tax (expense) benefit
$ 66
$ 259
$ 78
$ 711
Net of tax

Total reclassifications for the period $ 99
$ 259
$ 177
$ 711
Net of tax

~~—————~~


^(a)	These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other postretirement cost (see Note 15 to these condensed consolidated financial statements for additional details).

~~5. Acquisition:~~

~~On June 12, 2017 (the “Closing Date”)~~connection with secondary offerings of the Company’s common stock in March and May 2023, the Company ~~acquired~~repurchased 7,000,000 shares of its common stock sold in the ~~facilities~~offerings from the underwriters at a weighted average price of ~~Sovitec Mondial S.A. (“Sovitec”) located~~$10.48 per share concurrently with the closing of the offerings, for a total of $73,374, excluding accrued excise tax. As of September 30, 2023, $234,592 was available for additional share repurchases under the program.

During the nine months ended September 30, 2023, the Company accrued excise tax of $638 related to these repurchases, net of shares issued under the Company’s equity incentive program (see Note 17 to these condensed consolidated financial statements). This amount is included in ~~Belgium, Spain, Argentina~~accrued liabilities in the condensed consolidated balance sheet and ~~France~~is treated by the Company as ~~part~~a cost of the treasury stock transactions in equity.

During the nine months ended September 30, 2022, the Company repurchased 1,970,763 shares on the open market at an average price of $9.82 per share, for a total of $19,356, excluding brokerage commissions. Additionally, in connection with a secondary offering of the Company’s common stock ~~transaction (the “Acquisition”)~~in August 2022, the Company repurchased 6,500,000 shares of its common stock sold in the offering from underwriters at a price of $8.36 per share concurrently with the closing of the offering, for ~~$41,572~~a total of $54,316.

Tax Withholdings on Equity Award Vesting

In connection with the vesting of restricted stock awards, restricted stock units and performance stock units, shares of common stock may be delivered to the Company by employees to satisfy withholding tax obligations at the instruction of the employee award holders. These transactions, when they occur, are accounted for as stock repurchases by the Company, with the shares returned to treasury stock at a cost representing the payment by the Company of the tax obligations on behalf of the employees in ~~cash, excluding assumed debt. Based in Fleurus, Belgium, Sovitec is a high quality producer~~lieu of ~~engineered glass products used in transportation safety, metal finishing~~shares for the vesting unit. There were 315,635 and ~~polymer additives.~~32,058 shares delivered to the Company to cover tax payments for the nine months ended September 30, 2023 and 2022, respectively and the fair value of those shares withheld were $3,372 and $332 for the nine months ended September 30, 2023 and 2022, respectively.

6. Goodwill:

The ~~Acquisition was accounted~~change in the carrying amount of goodwill for ~~using~~ the ~~acquisition method~~nine months ended September 30, 2023 is summarized as follows:


	Ecoservices		Catalyst Technologies		Total
Balance as of December 31, 2022	$	326,589	$	76,574	$	403,163


Foreign exchange impact	—		205		205
Balance as of September 30, 2023	$	326,589	$	76,779	$	403,368

Table of accounting. Under the acquisition method, the purchase price was allocated to the identifiable net assets acquired based on the fair values of the identifiable assets acquired and liabilities assumed as of the Closing Date. The excess of the purchase price over the fair values of the identifiable net assets acquired was recorded to goodwill.Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

7. Other Operating Expense, Net:

~~The following table sets forth the calculation and preliminary allocation~~A summary of ~~the purchase price to the identifiable net assets acquired with respect to the Acquisition:~~

Total consideration, net of cash acquired $ 41,572

Recognized amounts of identifiable assets acquired and liabilities assumed:
Receivables $ 14,305
Inventories 7,645
Prepaid and other current assets 230
Property, plant and equipment 9,020
Other long-term assets 129

Fair value of assets acquired 31,329
Current debt (6,420 )
Accounts payable (10,748 )
Long-term debt (10,189 )
Other long-term liabilities (154 )

Fair value of net assets acquired 3,818
Goodwill 37,754
$ 41,572

The valuation of the identifiable assets and liabilities included in the table above is preliminary and is subject to change, as the Company is in the process of evaluating the information required to determine the fair values of certain identifiable assets and liabilities acquired, including inventory, property, plant and equipment, and intangible assets. An increased portion of the purchase price allocated to the identifiable net assets acquired will reduce the amount recognized for goodwill and may result in increased cost of goods sold, depreciation and/or amortization expense. Adjustments to the provisional amounts during the measurement period that result in changes to depreciation, amortization or other income effects will be recognized in the reporting period(s) in which the adjustments are determined.

The Company’s condensed consolidated financial statements include Sovitec’s results of operations for the period from the Closing Date through September 30, 2017. Net sales and net income attributable to Sovitec during this period are included in the Company’s condensed consolidated statement of operations and total $13,490 and $644, respectively, for the three months ended September 30, 2017, and $17,194 and $1,148, respectively, for the nine months ended September 30, 2017. Acquisition costs of $737 and $2,065 are included in other operating expense, net ~~in the Company’s condensed consolidated statement of operations for~~is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Amortization expense	$	2,645	$	2,632	$	7,924	$	7,931
Transaction and other related costs	187		1,789		2,811		6,860
Restructuring, integration and business optimization costs(1)	310		2,338		2,438		8,011
Net loss on asset disposals	1,020		468		3,326		1,174
Other, net	148		446		789		1,125
	$	4,310	$	7,673	$	17,288	$	25,101

(1)During the three and nine months ended September 30, ~~2017, respectively.~~

The Company believes that the Acquisition will enable it to offer a more comprehensive, cost-effective and high-quality portfolio of products and services to its customers worldwide when, combined with anticipated synergies within its existing business, contributed to a total purchase price that resulted in the recognition of goodwill. All of the goodwill was assigned to 2022, respectively, the Company’s ~~Performance Materials and Chemicals segment. The goodwill~~results were impacted by costs associated with ~~the Acquisition is not deductible~~severance charges for ~~tax purposes.~~certain former executives and employees.

~~Pro Forma Financial Information~~

~~The unaudited pro forma financial information for the three months ended September 30, 2016~~8. Inventories, Net:

Inventories, net are classified and the nine months ended September 30, 2017 and 2016 has been derived from the Company’s historical consolidated financial statements and prepared to give effect to the Acquisition, assuming that the Acquisition occurred on January 1, 2016. The unaudited pro forma consolidated resultsvalued as follows:


	September 30, 2023		December 31, 2022
Finished products and work in process	$	44,406	$	39,909
Raw materials	3,857		4,453
	$	48,263	$	44,362
Valued at lower of cost or market:
LIFO basis	$	28,157	$	25,258
Valued at lower of cost and net realizable value:
FIFO or average cost basis	20,106		19,104
	$	48,263	$	44,362

Table of operations are provided for illustrative purposes only and are not indicative of the Company’s actual consolidated results of operations had the Acquisition been made as of January 1, 2016. The unaudited pro forma results of operations do not reflect any operating efficiencies or potential cost savings which may result from the Acquisition. The results of operations for the three months ended September 30, 2017 include the operating results of the combined company for the full period and therefore, there is no pro forma presentation included in the table below.Contents

~~PQ GROUP HOLDINGS~~ECOVYST INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share amounts)

(unaudited)

Three months ended September 30, Nine months ended
September 30,
2016 2017 2016
(unaudited)
Pro forma sales $ 381,065
$ 1,130,454
$ 772,549
Pro forma net loss (8,289 ) (6,511 ) (88,300 )

Certain non-recurring charges included in the Company’s results of operations for the nine months ended September 30, 2017 were allocated to the respective prior year periods for pro forma purposes. For the nine months ended September 30, 2017, non-recurring charges allocated to the prior year period include transaction fee charges of $2,065 which were excluded from the pro forma net loss for the nine months ended September 30, 2017.

~~6. Business Combination:~~

As described in Note 1 to these condensed consolidated financial statements, on May 4, 2016, the Company, PQ Holdings, Eco Services, certain investment funds affiliated with CCMP and certain other stockholders of PQ Holdings and Eco Services completed the Business Combination. Eco Services is the accounting predecessor to PQ Group Holdings. Certain investment funds affiliated with CCMP held a controlling interest position in Eco Services prior to the Business Combination. In addition, certain investment funds affiliated with CCMP owned a noncontrolling interest in PQ Holdings prior to the Business Combination and the merger with Eco constituted a change in control under the various PQ Holdings credit agreements and bond indenture. Therefore, Eco Services is deemed to be the accounting acquirer. These condensed consolidated financial statements are the continuation of Eco Services’ business prior to the Business Combination.

Total consideration for the Business Combination included $1,777,740 of cash, $910,800 of equity in the acquired PQ Holdings entities and $1,401 of assumed stock awards of PQ Holdings. The fair value of the equity consideration was determined based on an estimated enterprise value using a market approach as of the date of the Business Combination, reduced by borrowings to arrive at the fair value of equity. The existing PQ Holdings credit facilities were not legally assumed as part of the Business Combination and the extinguishment of the debt concurrent with the Business Combination was included as part of the consideration transferred.

The Company’s condensed consolidated financial statements include PQ Holdings results of operations from May 4, 2016 through September 30, 2016. Net sales and net loss attributable to PQ Holdings during this period are included in the Company’s condensed consolidated statement of operations and total $276,726 and $29,070 for the three months ended September 30, 2016 and $462,097 and $122,497 for the nine months ended September 30, 2016. Acquisition costs of $896 and $1,398 are included in other operating expense, net in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2016, respectively.

In accordance with the requirements of the purchase method of accounting for acquisitions, inventories were recorded at fair market value (which is defined as estimated selling prices less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity), which was $58,683 higher than the historical cost. The Company’s cost of goods sold includes a pre-tax charge of $5,804 and $23,518 for the three and nine months ended September 30, 2016, respectively, relating to the portion of the step-up on inventory sold during the period. A separate portion of the fair value step-up related to the domestic inventory accounted for under the LIFO method was included in inventory on the consolidated balance sheet as of December 31, 2016 as part of the new LIFO base layer on the acquired inventory.

~~Pro Forma Financial Information~~

The unaudited pro forma financial information for the nine months ended September 30, 2016 has been derived from the Company’s historical consolidated financial statements and prepared to give effect to the Business Combination, assuming that the Business Combination occurred on January 1, 2015. These pro forma adjustments primarily relate to incremental depreciation expense on the step up of fixed assets, amortization of acquired intangibles, higher cost of goods sold related to the sale of revalued inventory, incremental interest expense related to the additional debt that needed to fund the Business Combination, and the estimated impact of these adjustments on the Company’s tax provision. The unaudited pro forma consolidated results of operations are provided for illustrative purposes only and are not indicative of the Company’s actual consolidated results of operations had the Business Combination been made as of January 1, 2015. The unaudited pro forma results of operations do not reflect any operating efficiencies or potential cost savings which may result from the Business Combination. The results of operations for the three months ended September 30, 2016 include the operating results of the combined company for the full period and therefore, there is no pro forma presentation included in the table below.

~~PQ GROUP HOLDINGS INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollars in thousands, except share and per share amounts)~~

~~(unaudited)~~

Table of ~~legacy PQ and legacy Eco that is included in the financial results for such periods presented in accordance with GAAP.~~Contents

Three Months Ended
September 30, Nine Months Ended
September 30,

2017

2016

2017

2016

Operations of legacy Eco Included Included Included Included

Operations of legacy PQ Included Included Included
Partially included
(May 4 to September 30)

Key Performance Indicators

Adjusted EBITDA and Adjusted Net Income

Adjusted EBITDA and adjusted net income are ~~non-GAAP~~ 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 ~~PQ Group Holdings~~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 PQ Group Holdings~~ 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~~Adjusted EBITDA ~~and~~or adjusted net income in isolation or as alternatives to the presentation of our financial results in accordance with GAAP. The presentation of ~~our adjusted~~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~~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~~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~~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

~~Our environmental catalysts~~Overall, our Ecoservices and Catalyst Technologies segments continued to benefit from positive demand trends for our products and services ~~business consists~~in the industries we serve. Strong domestic and export demand for refined products continued to support high refinery utilization rates, while more stringent gasoline standards and growing demand for premium gasoline to power higher-compression and turbocharged engines continued to drive demand for alkylate and for our regeneration services. In addition, demand for virgin sulfuric acid across a wide range of ~~three product groups: silica catalysts, zeolite catalysts,~~industrial applications remained favorable.However, sales in our Ecoservices segment were impacted primarily by unplanned production downtime at our sites, which adversely impacted sales and ~~refining services. Our environmental catalysts~~maintenance costs in 2023. During the second quarter of 2023, we began to see a slowdown in global polyethylene demand impact the sales of our silica-based catalyst, while still seeing increasing demand for renewable fuels and ~~services sales have grown primarily due to expansion into new end applications, including~~more stringent regulation in traditional fuels, and in emission control ~~catalysts, polymer catalysts,~~applications.

For the remainder of 2023, we believe weaker demand fundamentals may adversely impact sales of virgin sulfuric acid into nylon production.In addition, we anticipate declining global polyethylene demand and ~~refining catalysts, as well as continued supply share gains.~~ lower polyethylene production plant operating rates may adversely impact sales of polyethylene catalysts.

Sales in our ~~environmental catalysts~~Ecoservices and ~~services segment~~Catalyst Technologies segments are made on both a purchase order basis and pursuant to long-term contracts.

Our ~~performance materials and chemicals business consists~~Catalyst Technologies segment may experience demand fluctuations based upon the timing of two product groups: performance chemicals and performance materials. Expansions into new applications, including personal care and consumer cleaning, as well as share gains in existing end uses, have added to the growthsome of our sales. Historically, our performance materials and chemicals business has experienced relatively stable demand both seasonally and throughout economic cycles, due to the diverse consumer and industrial end uses that our products serve. Product sales from our performance chemicals product group are made on both a purchase order basis and pursuant to long-term contracts. In the performance materials product group, sales have been driven by the growth of spending on repair, maintenance and upgrade of existing highways and the construction of new highways and roads by governments around the world. Product sales in our performance materials product group are made principally on a purchase order basis. There may be modest fluctuations in timing of orders, but orders are mainly driven by demand and general economic conditions.

customer’s fixed bed catalyst replacements.

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 all plant employment costs, manufacturing overhead and periodic 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 ~~performance materials and chemicals business~~Catalyst Technologies segment include ~~soda ash, industrial sand, aluminum trihydrate, sodium hydroxide, and cullet. For the year ended December 31, 2016 approximately 45% of sales with our largest~~ sodium silicate ~~customers in North America were made under contracts that include price adjustments~~and cesium hydroxide. During the second quarter of 2023, inflationary pressures began to ease, which reduced the cost of goods for changes in the price of raw materials and natural gas. Under these contracts, there generally is a time lag of three to nine months for price changes to pass through, depending on the magnitude of the change in costsulfur, energy, logistics and other ~~market dynamics. The primary~~ raw ~~materials for our environmental catalysts and services business include spent sulfuric acid, sulfur, sodium silicates, acids, bases, and certain metals.~~ materials.

Table of Contents

Most of our ~~refining services~~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 ~~94%~~80% of our ~~refining services product group pro forma~~Ecoservices segment sales for the ~~years~~year ended December 31, ~~2016~~2022 were under contracts featuring quarterly price adjustments. The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing. ~~Freight expenses are generally passed~~The take-or-pay volume protection allows us to cover fixed costs through ~~directly to customers. Spent acid for our refining services product group is supplied by customers for a nominal charge as part of their contracts.~~ intermittent, temporary production issues at customer refineries.

While natural gas is not a direct feedstock for any product, ~~all businesses use~~ natural gas powered ~~furnaces~~machinery and equipment are used to heat raw materials and create the chemical reactions necessary to produce end-products. We maintain multiple suppliers wherever possible hedge exposure to fluctuations in prices for natural gas purchases in the United States, make forward purchases of natural gas in the United States, Canada, and Europe to mitigate our exposure to price volatility, and structure our customer contracts when possible to allow for the pass-through of raw material, labor and natural gas costs.

Joint ~~Ventures~~Venture

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~~high-performance, specialty, zeolite-based catalysts, ~~for use~~used in ~~the emissions~~emission control, ~~industry, the~~refining and petrochemical industry applications and ~~other areas of~~by the broader chemicals industry. Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements. We share proportionally in the management of our joint ~~ventures~~venture with the other parties to ~~each~~ such joint venture.

~~Industry~~

We compete in the specialty chemicals and materials industry. Our industry is characterized by constant development of new products and the need to support customers with new product innovation and technical services to meet their challenges. In addition, products must maintain consistent quality and be a reliable source of supply in order to meet the needs of customers. In addition, many products in the specialty chemicals and materials industry benefit from economics that favor incumbent producers because the capital cost to expand existing capacity is typically significantly less than the capital cost necessary to build a new plant. Our industry is also characterized by the need to produce consistent quality in a safe and environmentally sustainable manner.

Seasonality

We experience some seasonality, primarily with respect to the performance materials and refining services product groups. With respect to the performance materials product group, sales and earnings are generally higher during the second and third quarters of the year as highway striping projects typically occur during warmer weather months. Additionally, the refiningOur regeneration services product group, which is a part of our Ecoservices segment, typically experiences ~~similar~~ seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months. ~~As a~~These demand fluctuations generally result in higher sales and working capital requirements ~~tend to be higher in the first and fourth quarters of the year, while higher cash generation occurs~~ in the second and third ~~quarters of the year.~~

~~Inflation~~

Inflationary pressures may have an adverse effect on us, impacting raw material costs and other operating costs, as well as resulting in higher fixed asset replacement costs. We attempt to manage these impacts with cost control, productivity improvements and contractual arrangements, as well as price increases to customers.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 ~~a geographically diverse business~~in various geographies with approximately ~~40% and 34%~~6% of our sales for the nine months ended September 30, ~~2017~~2023 and for the year ended December 31, ~~2016, respectively,~~2022 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 ~~currencies~~currency to which we have the most significant exchange rate exposure ~~include~~is the ~~Euro,~~ British ~~pound, Canadian dollar, Brazilian real and the Mexican peso.~~pound.

~~Recent Developments~~

~~On August 28, 2017, in anticipation~~

Table of the arrival of Hurricane Harvey, we shut down our Houston and Baytown refining services facilities in coordination with our refinery partners. We restarted our Houston facility on September 3, 2017 and our Baytown facility on September 24, 2017 and both have returned to normal operation. We believe that the operational interruption at these facilities negatively impacted our sales for the three and nine months ending September 30, 2017 by $5.6 million and our Adjusted EBITDA for the same periods by $4.7 million. We maintain business interruption insurance coverage and we expect to submit claims under such policy. However, there is no assurance that such impacts will be offset in whole or in part by recoveries under any such insurance claims in a timely manner or at all. We do not expect that these operational interruptions will have a material adverse affect on our business, financial condition or results of operations.Contents

~~Pro Forma Results of Operations~~

In addition to the analysis of historical results of operations, we have prepared unaudited supplemental pro forma results of operations for the nine months ended September 30, 2016. The unaudited pro forma statements of operations reflect pro forma adjustments to the results of PQ Group Holdings to give effect to the Business Combination and the related financing transactions as if they had occurred on January 1, 2015. The unaudited pro forma adjustments include:

~~elimination of intercompany sales between legacy PQ and legacy Eco;~~

~~adjustments to depreciation expense related to the step-up in fair value of property, plant and equipment;~~

~~adjustments to amortization expense related to the step-up in fair value of definite-lived intangible assets;~~

~~removal of non-recurring adjustments related to the step-up in the fair value of inventory;~~

~~adjustments to stock compensation expense to reflect charges as they relate to our new capital structure;~~

~~adjustments related to the amortization of the step-up in fair value of property, plant, equipment and definite-lived intangible assets related to our Zeolyst Joint Venture;~~

~~adjustments to interest expense related to the senior secured term loan facility;~~

~~adjustments related to the write-off of existing deferred financing fees, original issue discounts and prepayment penalties; and~~

~~the tax effect of the aforementioned adjustments, including the effect related to the change in tax status of Eco from a limited liability company to a C-corporation.~~

The unaudited pro forma statements of operations have been prepared in accordance with Article 11 of Regulation S-X by combining the historical results of operations of legacy Eco and legacy PQ for the periods prior to May 4, 2016 and should be read in conjunction with our historical consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q.

The unaudited pro forma statements of operations have been prepared for illustrative purposes only and are not necessarily indicative of the combined results of operations that would have been realized had the pro forma transactions been completed as of the dates indicated, nor are they meant to be indicative of any anticipated future results of operations. The unaudited pro forma adjustments are based upon available information and assumptions we believe are factually supportable, directly attributable to the Business Combination and the related financing transactions, and with respect to the statement of operations, expected to have a continuing impact on our business, and that we believe are reasonable under the circumstances. In addition, the unaudited pro forma statements of operations do not include any pro forma adjustments to reflect expected cost savings or restructuring actions which may be achievable or the impact of any non-recurring activity and transaction-related costs.

We believe that the unaudited pro forma statements of operations are a useful presentation of our results of operations as they provide comparative information, period-over-period, on a more comparable basis.

Results of Operations

Three Months Ended September 30, ~~2017~~2023 Compared to the Three Months Ended September 30, ~~2016~~2022

Highlights

The following is a summary of our financial performance for the three months ended September 30, ~~2017~~2023 compared ~~with~~to the three months ended September 30, ~~2016.~~

2022.

Sales

~~Net sales increased $21.8~~•Sales decreased $59.2 million to ~~$391.8~~$173.3 million. The ~~increase~~decrease in sales was primarily due to ~~organic growth driven by favorable price~~ the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group and ~~mix, and the contribution of $13.5 million of~~lower sales related to our recent Sovitec acquisition, which was completed on June 12, 2017. These factors more than offset the negative impact on sales volumes from Hurricane Harvey, which caused a temporary shutdown of two refining services plants in southeast Texas.volume.

Gross Profit

~~Gross~~•Gross profit ~~increased $7.2~~decreased $14.5 million to ~~$102.5~~$53.2 million. ~~Our increase~~The decrease in gross profit was primarily due to ~~organic growth driven by favorable price~~lower sales volume and ~~mix, as well as the gross profit contributed by the Sovitec acquisition for the three months ended September 30, 2017.~~higher manufacturing costs.

Operating Income

•Operating income ~~increased~~decreased by ~~$2.2~~$6.5 million to ~~$46.5~~$32.0 million. ~~Our~~The decrease in operating income ~~increased~~was due to ~~the Sovitec acquisition~~a decrease in gross profit, offset by lower selling, general and ~~the margins generated by the increase in customer pricing for the three months ended September 30, 2017.~~administrative expenses and other operating expenses.

Equity in Net Income of Affiliated Companies

•Equity in net income of affiliated companies for the three months ended September 30, ~~2017~~2023 was ~~$10.3~~$4.7 million, compared ~~with a $4.6~~to $3.2 million ~~loss~~ for the three months ended September 30, ~~2016.~~2022. The increase of $1.5 millionwas due to ~~$4.2 million of~~higher earnings generated by ~~our~~the Zeolyst Joint Venture ~~and $10.4 million of lower amortization of investment in affiliate inventory step-up costs incurred~~ for the three months ended September 30, ~~2017.~~2023, driven by higher sales volume of catalyst used in the production of renewable fuels and hydrocracking catalysts.

Table of Contents

The following is our unaudited condensed consolidated ~~statement~~statements of ~~operations~~income and a summary of financial results for the three months ended September 30, ~~2017~~2023 and ~~2016:~~2022:


	Three months ended September 30,						Change
	2017			2016			$			%			Three months ended September 30,						Change
	Unaudited			Unaudited									2023			2022			$		%
	(in millions, except percentages)												(in millions, except percentages)
Sales	$	391.8		$	370.0		$	21.8		5.9	%	Sales	$	173.3		$	232.5		$	(59.2)	(25.5)	%
Cost of goods sold	289.3			274.7			14.6			5.3	%	Cost of goods sold	120.1			164.8			(44.7)		(27.1)	%
Gross profit	102.5			95.3			7.2			7.6	%	Gross profit	53.2			67.7			(14.5)		(21.4)	%
Gross profit margin	26.2		%	25.8		%						Gross profit margin	30.7		%	29.1		%
Selling, general and administrative expenses	36.2			36.0			0.2			0.6	%	Selling, general and administrative expenses	16.9			21.5			(4.6)		(21.4)	%
Other operating expense, net	19.8			15.0			4.8			32.0	%	Other operating expense, net	4.3			7.7			(3.4)		(44.2)	%
Operating income	46.5			44.3			2.2			5.0	%	Operating income	32.0			38.5			(6.5)		(16.9)	%
Operating income margin	11.9		%	12.0		%						Operating income margin	18.4		%	16.6		%
Equity in net (income) loss of affiliated companies	(10.3		)	4.6			(14.9		)	(323.9	)%
Equity in net (income) from affiliated companies												Equity in net (income) from affiliated companies	(4.7)			(3.2)			(1.5)		46.9	%
Interest expense, net	49.1			48.6			0.5			1.0	%	Interest expense, net	11.8			9.5			2.3		24.2	%
Debt extinguishment costs	0.5			—			0.5			—	%

Other expense, net	5.1			4.2			0.9			21.4	%	Other expense, net	0.4			1.9			(1.5)		(78.9)	%
Income (loss) before income taxes and noncontrolling interest	2.1			(13.1		)	15.2			(116.0	)%
Provision for (benefit) income taxes	5.2			(3.5		)	8.7			(248.6	)%
Income before income taxes												Income before income taxes	24.5			30.3			(5.8)		(19.1)	%
Provision for income taxes												Provision for income taxes	7.9			9.0			(1.1)		(12.2)	%
Effective tax rate	239.9		%	26.9		%						Effective tax rate	32.3		%	29.6		%
Net loss	(3.1		)	(9.6		)	6.5			(67.7	)%
Less: Net income attributable to the noncontrolling interest	0.3			0.4			(0.1		)	(25.0	)%
Net loss attributable to PQ Group Holdings Inc.	$	(3.4	)	$	(10.0	)	$	6.6		(66.0	)%
Net income												Net income	$	16.6		$	21.3		$	(4.7)	(22.1)	%

Sales


	Three months ended September 30,				Change
	2023		2022		$		%
	(in millions, except percentages)
Sales:
Ecoservices	$	147.6	$	195.7	$	(48.1)	(24.6)	%
Catalyst Technologies	25.7		36.8		(11.1)		(30.2)	%
Total sales	$	173.3	$	232.5	$	(59.2)	(25.5)	%

Historical
Three months ended
September 30,
Change
2017 2016
$

%

(in millions, except percentages)
Net Sales:
Performance Chemicals $ 175.5
$ 167.8
$ 7.7
4.6 %
Performance Materials 104.4
90.2
14.2
15.7 %
Eliminations (2.8) (1.9) (0.9) 47.4 %
Performance Materials & Chemicals $ 277.1
$ 256.1
$ 21.0
8.2 %

Silica Catalyst $ 15.1
$ 21.0
$ (5.9 ) (28.1 )%
Refining Services 100.4 93.3 7.1 7.6 %
Environmental Catalysts & Services 115.5 114.3 1.2 1.1 %

Inter-segment sales eliminations (0.8) (0.4) (0.4) 100.0 %

Total net sales $ 391.8
$ 370.0
$ 21.8
5.9 %

~~Performance Materials & Chemicals:~~Ecoservices: Sales in ~~performance materials and chemicals~~Ecoservices for the three months ended September 30, ~~2017~~2023 were ~~$277.1~~$147.6 million, ~~an increase~~a decrease of ~~$21.0~~$48.1 million, or ~~8.2%~~24.6%, compared to sales of ~~$256.1~~$195.7 million for the three months ended September 30, ~~2016.~~2022. The ~~increase~~decrease in sales was ~~primarily~~ due to ~~$13.5~~lower sales volume of $9.3 million and lower average selling prices of $38.8 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $39 million.

Lower average selling prices were primarily a result of the pass-through of lower sulfur costs of approximately $39 million within our virgin sulfuric acid product group. The decrease in sales volume was primarily related to the ~~Sovitec acquisition, favorable effects~~lower end use demand of ~~foreign currency exchange~~virgin sulfuric acid, primarily into the production of ~~$4.5 million, higher average selling price and favorable customer mix of $2.6 million and slightly higher volumes.~~nylon intermediates during the quarter.

The higher average selling price was principally a result of customer mix, favorable U.S. dollar denominated sales and U.S. dollar cost pass through pricing in certain foreign locations. The favorable effects of foreign currency were primarily driven by the stronger Euro compared to the U.S. dollar.

~~Environmental Catalysts & Services:~~Catalyst Technologies: Sales in ~~environmental catalysts and services~~Catalyst Technologies for the three months ended September 30, ~~2017~~2023 were ~~$115.5~~$25.7 million, ~~an increase~~a decrease of ~~$1.2~~$11.1 million, or ~~1.1%~~30.2%, compared to sales of ~~$114.3~~$36.8 million for the three months ended September 30, ~~2016. The increase~~2022. Of the decrease in sales, $13.3 million was ~~primarily due to higher average selling price and customer mix of $6.1 million,~~associated with lower sales volume, which was partially offset by ~~lower volumes of $4.9 million.~~

~~The~~ higher average selling ~~price~~prices of $1.5 million and $0.7 million of favorable foreign exchange.

The decrease in sales volume was primarily driven by lower end use demand for polyethylene catalysts associated with destocking and lower customer ~~mix~~operating rates and the absence of certain niche custom catalyst sales realized in the third quarter of 2022 that did not occur in the third quarter of 2023. Higher average selling prices was driven by the ~~higher realization from sulfuric acid regeneration contract renewals partly offset by unfavorable virgin sulfuric acid pricing due to the mix~~implemented price increases.

Table of customers. The decrease in volumes was driven by lower chemical catalysts sales due to record methyl methacrylate sales volumes in the prior year and the negative impact of Hurricane Harvey on sulfuric acid regeneration sales, which was partially offset by stronger virgin sulfuric acid sales volumes due to the timing of customer plant turnarounds.Contents

Gross Profit

Gross profit for the three months ended September 30, ~~2017~~2023 was ~~$102.5~~$53.2 million, ~~an increase~~a decrease of ~~$7.2~~$14.5 million, or ~~7.6%~~21.4%, compared ~~with $95.3~~to $67.7 million for the three months ended September 30, ~~2016.~~2022. The ~~increase~~decrease in gross profit was primarily due to unfavorable manufacturing costs, including higher ~~average selling price~~variable and maintenance costs, and lower sales volume of ~~$8.7~~$0.9 million, ~~and $4.5 million in gross profit contributed from the Sovitec acquisition, which was~~ partially offset by ~~higher depreciation expense of $3.0 million, unfavorable product mix of $2.2 million and lower volumes~~favorable average selling prices of $1.7 ~~million.~~

~~The higher average selling price and customer mix was driven by~~million, exclusive of the ~~higher realization from sulfuric acid regeneration contract renewals partly offset by unfavorable virgin sulfuric acid pricing due to the mix~~pass-through of ~~customers. This was partly offset by unfavorable product mix and volumes due to higher methyl methacrylate sales in the prior year as well as the negative impact of Hurricane Harvey.~~lower sulfur costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, ~~2017~~2023 were ~~$36.2~~$16.9 million, a ~~slight increase~~decrease of ~~$0.2~~$4.6 million, compared ~~with $36.0~~to $21.5 million for the three months ended September 30, ~~2016.~~2022. The decrease in selling, general and administrative expenses was primarily due to a decrease in other compensation-related expenses of $3.9 million and a decrease in stock compensation of $1.3 million due to fewer overall awards granted and outstanding for the three months ended September 30, 2023 as compared to the prior year period. This was partly offset by an increase in professional fees of $1.1 million primarily related to consulting and recruiting charges.

Other Operating Expense, Net

Other operating expense, net for the three months ended September 30, ~~2017~~2023 was ~~$19.8~~$4.3 million, ~~an increase~~a decrease of ~~$4.8~~$3.4 million, compared ~~with $15.0~~to $7.7 million for the three months ended September 30, ~~2016.~~2022. The ~~increase~~decrease in other operating expense, net was primarily due to ~~increased losses on~~$2.0 million decrease in restructuring, integration and business optimization costs, driven by severance charges incurred in the prior period from contracts associated with former executives and a decrease of $1.6 million in transactions costs, primarily associated with the sale of ~~assets~~ the Performance Chemicals business in 2021 and ~~restructuring and plant closure~~ costs ~~offset by lower severance and transaction costs related to the Business Combination.~~associated with share repurchases.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated ~~companies~~companies for the three months ended September 30, ~~2017~~2023 was ~~$10.3~~$4.7 million, compared ~~with a loss of $4.6~~to $3.2 million for the three months ended September 30, ~~2016.~~2022. The increase was ~~primarily~~ due to ~~an increase of $4.2~~$1.5 million of higher earnings ~~generated by our~~from the Zeolyst Joint Venture during the three months ended September 30, ~~2017 and $10.4 million of lower amortization on~~2023, as compared to the ~~fair value step-up of inventory and other underlying assets of our Zeolyst Joint Venture.~~three months ended September 30, 2022. The increase in earnings ~~generated by our~~from the Zeolyst Joint Venture was due to higher ~~specialty~~sales volume of catalyst ~~sales~~used in the production of ~~aromatic~~renewable fuels and ~~dewaxing~~hydrocracking catalysts ~~and an increase in hydrocracking volumes to the oil refining industry.~~.

Interest Expense, Net

Interest expense, net for the three ~~months~~months ended September 30, ~~2017~~2023 was ~~$49.1~~$11.8 million, an increase of ~~$0.5~~$2.3 million, as compared ~~with $48.6~~to $9.5 million for the three months ended September 30, ~~2016.~~

~~Debt Extinguishment Costs~~

~~Debt extinguishment costs for~~2022. The increase in interest expense, net was primarily due to the year over year increase in variable rates, which was partially offset by lower outstanding debt during the three months ended September 30, ~~2017 were $0.5 million. On August 7, 2017, we re-priced~~2023, as compared to the ~~existing U.S. dollar-denominated tranche~~three months ended September 30, 2022 and existing Euro-denominated tranche of our term loans to reduce the applicable interest rates. The company recorded $0.2 million of new creditor and third-party financing fees as debt extinguishment costs. In addition, previous unamortized deferred financing costs of $0.1 million and original issue discount of $0.2 millionbenefits associated with the ~~old debt were written off as debt extinguishment costs.~~interest rate caps.

Other Expense, Net

Other expense, net for the three months ended September 30, ~~2017~~2023 was ~~$5.1~~$0.4 million, ~~an increase~~a change of ~~$0.9~~$1.5 million, as compared ~~with $4.2~~to $1.9 million for the three months ended September 30, ~~2016.~~2022. The ~~change~~decrease in other expense, net primarily ~~consisted of an increase of $1.8 million of~~relates to lower foreign currency ~~losses, which was partially offset by $0.9~~exchange of $0.4 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S. dollar, a lower net periodic benefit for the defined benefit pension and postretirement plans of $0.3 million and $0.4 million in ~~lower professional fees.~~other income.

Provision ~~(Benefit)~~ for Income Taxes

The provision for income taxes for the three months ended September 30, ~~2017~~2023 was ~~$5.2~~$7.9 million, compared to a ~~$3.5~~$9.0 million ~~benefit~~provision for the three months ended September 30, ~~2016.~~2022. The effective income tax rate for the three months ended September 30, ~~2017~~2023 was ~~239.9%~~32.3%, compared to ~~26.9%~~29.6% for the three months ended September 30, ~~2016.~~2022.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to the impact of the Section 162m Compensation disallowance on the Company’s annualized effective tax rate, discrete tax benefit related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes. The difference between the U.S. federal statutory income tax rate and ~~our~~the Company’s effective income tax rate for the three months ended September 30, ~~2017 and 2016~~2023 was mainly due to ~~the tax effect of our foreign currency exchange loss recognized as~~state and local taxes, a discrete ~~item for~~shortfall tax expense related to stock compensation, a discrete tax expense associated with the ~~purposes~~recording of ~~calculating the effective~~accrued penalties and interest associated with historical uncertain tax ~~rate as well as the~~positions, and a discrete tax ~~effect~~benefit connected to state and local tax law changes.

Table of repatriating foreign earnings back to the U.S. as dividends, partially offset by lower tax rates in foreign jurisdictions as compared to the U.S. federal tax rate, state taxes and foreign withholding taxes.Contents

Net ~~Loss Attributable to PQ Group Holdings~~Income

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 PQ Group Holdings~~income was ~~$3.4~~$16.6 million for the three months ended September 30, ~~2017~~2023, compared ~~with a net loss of $10.0~~to $21.3 million for the three months ended September 30, ~~2016.~~

2022.

Adjusted EBITDA

Summarized ~~Segment~~ Adjusted EBITDA information is shown below in the following table:


	Three months ended September 30,				Change
	2023		2022		$		%
	(in millions, except percentages)
Adjusted EBITDA:(1)
Ecoservices	$	54.7	$	64.1	$	(9.4)	(14.7)	%
Catalyst Technologies(2)	16.4		19.3		(2.9)		(15.0)	%
Unallocated corporate expenses	(3.2)		(8.0)		4.8		(60.0)	%
Total	$	67.9	$	75.4	$	(7.5)	(9.9)	%

Three months ended
September 30, Change
2017 2016 $ %
Segment Adjusted EBITDA ⁽¹⁾:

Performance Materials & Chemicals $ 65.9
$ 64.6
$ 1.3
2.0 %
Environmental Catalysts & Services ⁽²⁾
61.9
56.4
5.5
9.8 %
Total Segment Adjusted EBITDA⁽³⁾
127.8
121.0
6.8
5.6 %
Unallocated corporate costs (7.9 ) (7.4 ) (0.5 ) 6.8 %
Total Adjusted EBITDA ⁽³⁾
$ 119.9
$ 113.6
$ 6.3
5.5 %


⁽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 our Zeolyst Joint Venture included in the environmental catalyst and services segment is $14.4 million for the three months ended September 30, 2017, which includes $10.2 million of equity in net income plus $1.7 million of amortization of investment in affiliate step-up plus $2.6 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from our Zeolyst Joint Venture included in the environmental catalyst and services segment is $10.3 million for the three months ended September 30, 2016, which includes $4.7 million of equity in net loss plus $12.3 million of amortization of investment in affiliate step-up plus $2.7 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.~~

(1)We define 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 Adjusted EBITDA. 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. 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 $9.6 million for the three months ended September 30, 2023, which includes $4.7 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.3 million of joint venture depreciation, amortization and interest. The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $8.7 million for the three months ended September 30, 2022, which includes $3.2 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.9 million of joint venture depreciation, amortization and interest.

Ecoservices:Adjusted EBITDA for the three months ended September 30, ~~2017~~2023 was ~~$119.9~~$54.7 million, ~~an increase~~a decrease of ~~$6.3~~$9.4 million, or ~~5.5%~~14.7%, compared ~~with $113.6~~to $64.1 million for the three months ended September 30, ~~2016.~~2022. The decrease in Adjusted EBITDA was a result of lower virgin sulfuric acid sales volume and higher costs associated with increased maintenance and networking costs arising from production downtime in July at our Dominguez site.

~~Performance Materials & Chemicals:~~Catalyst Technologies: Adjusted EBITDA for the three months ended September 30, ~~2017~~2023 was ~~$65.9~~$16.4 million, ~~an increase~~a decrease of ~~$1.3~~$2.9 million, or ~~2.0%~~15.0%, compared ~~with $64.6~~to $19.3 million for the three months ended September 30, ~~2016.~~

2022. The ~~increase~~decrease in Adjusted EBITDA was ~~due to earnings contributed by the Sovitec acquisition~~primarily a result of ~~$2.0 million~~lower sales of silica-based catalysts, partially offset by the impact of higher ~~manufacturing costs to support~~sales in the ~~start-up of the ThermoDrop® production facility and higher non-pass through raw materials costs.~~

~~Environmental Catalysts & Services:~~ ~~Adjusted EBITDA for the three months ended September 30, 2017 was $61.9 million, an increase of $5.5 million, or 9.8%, compared with $56.4 million for the three months ended September 30, 2016.~~

~~The increase in Adjusted EBITDA was driven primarily by the higher realization from sulfuric acid regeneration contract renewals and higher~~ Zeolyst Joint Venture ~~volumes driven by specialty catalyst sales~~and higher pricing.

Table of ~~aromatic and dewaxing catalysts as well as hydrocracking sales to the oil markets. This was partly offset by the timing of plant turnaround costs and costs incurred due to Hurricane Harvey.~~Contents

A reconciliation of ~~Segment~~net income to Adjusted EBITDA ~~to net loss attributable to PQ Group Holdings~~ is as follows:


	Three months ended September 30,
	2023		2022
	(in millions)
Reconciliation of net income to Adjusted EBITDA
Net income	$	16.6	$	21.3
Provision for income taxes	7.9		9.0
Interest expense, net	11.8		9.5
Depreciation and amortization	21.3		19.6
EBITDA	57.6		59.4
Joint venture depreciation, amortization and interest(a)	3.3		3.9
Amortization of investment in affiliate step-up(b)	1.6		1.6

Net loss on asset disposals(c)	1.0		0.5
Foreign currency exchange loss(d)	0.8		1.0
LIFO benefit(e)	—		(0.4)
Transaction and other related costs(f)	0.2		1.8
Equity-based compensation	3.5		4.7
Restructuring, integration and business optimization expenses(g)	0.3		2.3
Other(h)	(0.4)		0.6
Adjusted EBITDA	$	67.9	$	75.4

Three months ended
September 30,
2017 2016
Reconciliation of net loss attributable to PQ Group Holdings Inc. to Segment Adjusted EBITDA
Net loss attributable to PQ Group Holdings Inc. $ (3.4 ) $ (10.0 )
Provision for (benefit from) income taxes 5.2
(3.5 )
Interest expense, net 49.1
48.6
Depreciation and amortization 45.9
43.6
EBITDA 96.8
78.7
Joint venture depreciation, amortization and interest ^(a)
2.6
2.7
Amortization of investment in affiliate step-up ^(b)
1.7
12.3
Amortization of inventory step-up ^(c)
—
5.8
Debt extinguishment costs 0.5
—
Net loss on asset disposals ^(d)
3.5
0.6
Foreign currency exchange loss ^(e)
5.3
3.2
Non-cash revaluation of inventory, including LIFO 0.8
0.3
Management advisory fees ^(f)
1.3
1.3
Transaction related costs ^(g)
1.0
1.7
Equity-based and other non-cash compensation 1.0
1.1
Restructuring, integration and business optimization expenses ^(h)
5.0
2.8
Defined benefit plan pension cost ⁽ⁱ⁾
0.8
1.2
Other ^(j)
(0.4 ) 1.9
Adjusted EBITDA 119.9
113.6

Unallocated corporate expenses 7.9
7.4
Total Segment Adjusted EBITDA $ 127.8
$ 121.0


^(a)			We use Adjusted EBITDA as a performance measure 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)

(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 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 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, effectively reflecting the results as if these inventories were valued using the FIFO 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)Other consists of adjustments for items that are not core to our ongoing business operations. These adjustments include environmental remediation and other legal costs, expenses for capital and franchise taxes, and defined benefit pension and postretirement plan (benefits) costs, for which our obligations are under plans that are frozen. Also included in this amount are adjustments to eliminate the benefit realized in cost of goods sold of the allocation of a portion of the contract manufacturing payments under the five-year agreement with the buyer of the Performance Chemicals business to the financing obligation under the failed sale-leaseback. Included in this line-item are rounding discrepancies that may arise from rounding from dollars (in thousands) to dollars (in millions).

Table of Contents

Represents the amortization of the fair value adjustments associated with the equity affiliate investment in our Zeolyst Joint Venture as a result of 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, such as customer relationships, formulations and product technology.


^(c)	~~As a result of the Business Combination, there was a step-up in the fair value of inventory at PQ Holdings, which is amortized through cost of goods sold in the income statement.~~


^(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 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 for the quarter ended September 30, 2017 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 that are related to specific, one-time items, including severance for a reduction in force and post-merger integration costs that are not expected to recur.

⁽ⁱ⁾

Represents adjustments for defined benefit pension plan costs in our income statement. 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 and are generally related to specific, one-time items, 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.

Adjusted Net Income

Summarized adjusted net income information is shown below in the following table:


	Three months ended September 30,
	2023						2022
	Pre-tax		Tax expense (benefit)		After-tax		Pre-tax		Tax expense (benefit)		After-tax
	(in millions)
Reconciliation of net income to Adjusted Net Income(1)(2)
Net income	$	24.5	$	7.9	$	16.6	$	30.3	$	9.0	$	21.3
Amortization of investment in affiliate step-up(b)	1.6		0.5		1.1		1.6		0.5		1.1

Net loss on asset disposals(c)	1.0		0.3		0.7		0.5		0.2		0.3
Foreign currency exchange loss(d)	0.8		0.2		0.6		1.0		0.2		0.8
LIFO benefit(e)	—		—		—		(0.4)		(0.1)		(0.3)
Transaction and other related costs(f)	0.2		0.1		0.1		1.8		0.5		1.3
Equity-based compensation	3.5		0.3		3.2		4.7		0.1		4.6
Restructuring, integration and business optimization expenses(g)	0.3		0.1		0.2		2.3		0.7		1.6
Other(h)	(0.4)		(0.1)		(0.3)		0.6		0.2		0.4
Adjusted Net Income	$	31.5	$	9.3	$	22.2	$	42.4	$	11.3	$	31.1

Three months ended
September 30,
2017 2016
Reconciliation of net loss attributable to PQ Group Holdings Inc. to Adjusted Net Income ^{(1) (2)}

Net loss attributable to PQ Group Holdings Inc. $ (3.4 ) $ (10.0 )
Amortization of investment in affiliate step-up ^(b)
1.0
7.5
Amortization of inventory step-up ^(c)
—
3.6
Debt extinguishment costs 0.3
—
Net loss on asset disposals ^(d)
2.1
0.4
Foreign currency exchange loss ^(e)
5.2
4.3
Non-cash revaluation of inventory, including LIFO 0.5
0.2
Management advisory fees ^(f)
0.8
0.8
Transaction related costs ^(g)
0.6
1.0
Equity-based and other non-cash compensation 0.7
0.7
Restructuring, integration and business optimization expenses ^(h)
2.9
1.8
Defined benefit plan pension cost ⁽ⁱ⁾
0.5
0.8
Other ^(j)
—
1.2
Adjusted net income $ 11.2
$ 12.3


⁽¹⁾			We define adjusted net income as net 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 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⁾

(1)We define adjusted net income as net income 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.

~~Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.~~

The adjustments to net ~~loss attributable to PQ Group Holdings Inc.~~income are shown net of applicable tax rates ~~which range between 34.6% and 42.1%~~as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended September 30, ~~2017~~2023 and September 30, ~~2016,~~2022, except for the foreign currency exchange (gain) loss ~~for which~~and equity-based compensation. The tax effect on equity-based compensation is derived by removing the tax ~~is calculated~~effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec. 162(m), and adding the tax effect of equity-based stock compensation shortfall recorded as a discrete ~~item using~~item. The tax effect of the ~~applicable~~foreign currency exchange (gain) loss is derived from tax effecting the actual year to date foreign currency exchange (gain) loss by the respective local country statutory ~~income tax rates.~~rates which is recorded as a discrete item.

Table of Contents

Results of Operations

~~Historical and Pro Forma—~~Nine Months Ended September 30, ~~2017~~2023 Compared to the Nine Months Ended September 30, ~~2016 (the Pro Forma Discussion Compares the Historical Nine Months Ended September 30, 2017 to the Pro Forma Nine Months Ended September 30, 2016)~~2022

Highlights

The following is a summary of our financial performance for the nine months ended September 30, ~~2017~~2023 compared ~~with~~to the nine months ended September 30, ~~2016.~~2022.

Sales

~~Historical:~~ ~~Net sales increased $372.6~~•Sales decreased $119.1 million to ~~$1,114.0~~$518.3 million. The ~~increase~~decrease in sales was primarily due to lower sales volume and the ~~inclusion~~result of ~~$818.2 million~~the pass-through of ~~legacy PQ sales in~~lower sulfur costs within our results of operations for the nine months ended September 30, 2017 as compared to $462.1 million of legacy PQ sales included in our results of operations for the period of May 4, 2016 through September 30, 2016.

~~Pro Forma:~~ Net sales increased $33.7 million to $1,114.0 million. The increase in sales was primarily due to the inclusion of $17.2 million of sales related to the Sovitec acquisition and higher average customer prices and mix for the nine months ended September 30, 2017.

virgin sulfuric acid product group.

Gross Profit

~~Historical:~~ •Gross profit ~~increased $109.0~~decreased $24.7 million to ~~$292.7~~$150.6 million. Our increase in gross profit was primarily due to the inclusion of $196.1 million of legacy PQ gross profit in our results of operations for the nine months ended September 30, 2017 as compared to $91.6 million of legacy PQ gross profit included in our results of operations for the period of May 4, 2016 through September 30, 2016.

~~Pro Forma:~~ ~~Gross profit increased $3.6 million to $292.7 million. Our increase~~The decrease in gross profit was primarily due to higher ~~pricing and the earnings contributed by the Sovitec acquisition, which was partially offset by increased depreciation and higher~~ manufacturing costs ~~for the nine months ended September 30, 2017.~~

and lower sales volume.

Operating Income

~~Historical:~~ •Operating income ~~increased~~decreased by ~~$70.5~~$8.5 million to ~~$139.6~~$73.9 million. ~~Our increase~~The decrease in operating income was ~~primarily~~ due to ~~the inclusion of $61.2 million of legacy PQ operating income~~a decrease in our results of operations for the nine months ended September 30, 2017 as compared to the inclusion of $19.9 million of legacy PQ operating income in our results of operations for the period of May 4, 2016 through September 30, 2016. The increase in operating income was also due togross profit, offset by lower selling, general and administrative expenses ~~due to cost reduction initiatives~~ and ~~lower~~ other operating ~~expense, net from lower restructuring and severance related charges.~~

~~Pro forma:~~ Operating income increased by $17.9 million to $139.6 million. Our operating income increased due to the Sovitec acquisition, the margins generated by customer pricing increases and the result of cost reduction measures for the nine months ended September 30, 2017.

expenses.

Equity in Net Income of Affiliated Companies

~~Historical:~~ •Equity in net income of affiliated companies for the nine months ended September 30, ~~2017~~2023 was ~~$24.9~~$16.3 million, compared ~~with a loss of $9.3~~to $17.4 million for the nine months ended September 30, ~~2016.~~2022. The ~~increase~~decrease of $1.1 million was due to ~~an increase in~~lower earnings ~~of $15.9 million generated by our~~from the Zeolyst Joint ~~Venture~~Venture during the nine months ended September 30, ~~2017 as compared to~~2023.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the nine months ended September 30, ~~2016~~2023 and ~~$17.7~~2022:


	Nine months ended September 30,						Change
	2023			2022			$		%
	(in millions, except percentages)
Sales	$	518.3		$	637.4		$	(119.1)	(18.7)	%
Cost of goods sold	367.7			462.2			(94.5)		(20.4)	%
Gross profit	150.6			175.3			(24.7)		(14.1)	%
Gross profit margin	29.1		%	27.5		%
Selling, general and administrative expenses	59.5			67.8			(8.3)		(12.2)	%
Other operating expense, net	17.2			25.1			(7.9)		(31.5)	%
Operating income	73.9			82.4			(8.5)		(10.3)	%
Operating income margin	14.3		%	12.9		%
Equity in net (income) from affiliated companies	(16.3)			(17.4)			1.1		(6.3)	%
Interest expense, net	30.8			26.9			3.9		14.5	%

Other expense, net	0.6			2.5			(1.9)		(76.0)	%
Income before income taxes	58.8			70.4			(11.6)		(16.5)	%
Provision for income taxes	17.6			22.0			(4.4)		(20.0)	%
Effective tax rate	29.9		%	31.2		%
Net income	$	41.2		$	48.4		$	(7.2)	(14.9)	%

Table of Contents

Sales


	Nine months ended September 30,				Change
	2023		2022		$		%
	(in millions, except percentages)
Sales:
Ecoservices	$	443.4	$	542.7	$	(99.3)	(18.3)	%
Catalyst Technologies	74.9		94.7		(19.8)		(20.9)	%
Total sales	$	518.3	$	637.4	$	(119.1)	(18.7)	%

Ecoservices: Sales in Ecoservices for the nine months ended September 30, 2023 were $443.4 million, a decrease of $99.3 million, or 18.3%, compared to sales of $542.7 million for the nine months ended September 30, 2022. The decrease in sales reflects lower ~~amortization on~~sales volume of $60.3 million and the ~~fair value step-up~~negative impact associated with the pass-through of sulfur costs of approximately $75 million, offset by higher average selling pricing of $39.0 million, after adjusting for the impact of the ~~underlying assets~~pass-through of sulfur costs.

Sales volume was lower primarily due to lower virgin sulfuric acid sales associated with the adverse impact of Winter Storm Elliott earlier in the year, extended maintenance turnaround activity at our ~~Zeolyst Joint Venture.~~facilities that limited our ability to produce inventory in advance of significant planned turnaround activity to meet customer demand, and lower end use demand of virgin sulfuric acid, primarily into the production of nylon intermediates during the nine months ended September 30, 2023.

Catalyst Technologies: Sales in Catalyst Technologies for the nine months ended September 30, 2023 were $74.9 million, a decrease of $19.8 million, or 20.9%, compared to sales of $94.7 million for the nine months ended September 30, 2022. The decrease in sales was due to lower sales volume of $26.0 million, lower average selling prices of $6.4 million and the unfavorable effects of foreign currency of $0.2 million.

The decrease in sales volume was primarily driven by lower end use demand for polyethylene catalysts during the nine months ended September 30, 2023. The lower average selling prices were driven by customer mix.

Gross Profit

Gross profit for the nine months ended September 30, 2023 was $150.6 million, a decrease of $24.7 million, or 14.1%, compared to $175.3 million for the nine months ended September 30, 2022. The decrease in gross profit is primarily driven by lower sales volume of $23.6 million as well as unfavorable manufacturing costs of $43.5 million, partially offset by favorable average selling prices of $42.4 million, exclusive of the pass-through of sulfur costs.

Sales volume was lower primarily due to lower virgin sulfuric acid sales and lower polyethylene catalysts sales. The unfavorable manufacturing costs was primarily driven by costs related to the extended maintenance turnaround activity, planned turnaround activity, and higher unplanned repair and maintenance costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine months ended September 30, 2023 was $59.5 million, a decrease of $8.3 million, as compared to $67.8 million for the nine months ended September 30, 2022. The decrease in selling, general and administrative expenses was mainly due to a decrease in other compensation-related expenses of $7.3 million and a decrease in stock-based compensation expense of $4.9 million due to fewer overall awards granted and outstanding for the nine months ended September 30, 2023 as compared to the prior year period. This was partly offset by an increase in professional fees of $3.6 million primarily related to consulting and recruiting charges.

Other Operating Expense, Net

Other operating expense, net for the nine months ended September 30, 2023 was $17.2 million, a decrease of $7.9 million, compared to $25.1 million for the nine months ended September 30, 2022. The decrease in other operating expense, net was mainly driven by a decrease of $4.0 million in transactions costs, primarily associated with the sale of the Performance Chemicals business and a decrease of $5.4 million in restructuring, integration and business optimization costs driven by severance charges incurred in the prior period from contracts associated with former executives. This was also offset by an increase in net losses on asset disposals of $2.2 million, primarily associated with costs related to Winter Storm Elliott.

Table of Contents

Equity in Net Income of Affiliated Companies

~~Pro Forma:~~ Equity in net income of affiliated companies for the nine months ended September 30, ~~2017~~2023 was ~~$24.9~~$16.3 million, compared ~~with income of $8.9~~to $17.4 million for the nine months ended September 30, ~~2016.~~2022. The ~~increase in earnings generated by our Zeolyst Joint Venture~~decrease was due to ~~higher sales in~~lower earnings from the ~~emission control, dewaxing and aromatics end markets, partly offset by lower hydrocracking volumes to the oil refining industry.~~

~~The following is our condensed consolidated statement of operations and a summary of financial results, presented on a historical and pro forma basis, for~~Zeolyst Joint Venture during the nine months ended September 30, ~~2017 and 2016. The historical results of operations include legacy Eco~~2023.

Interest Expense, Net

Interest expense, net for ~~all periods presented and legacy PQ for~~ the nine months ended September 30, 2017 and the period of May 4, 2016 through September 30, 2016. The unaudited pro forma results of operations reflect pro forma adjustments to the results of PQ Group Holdings to give effect to the Business Combination and the related financing transactions as if they had occurred on January 1, 2015.

Historical Historical Pro Forma
Nine Months Ended
September 30, Change Nine Months Ended
September 30, Change
2017 2016 $ % 2017 2016 $ %
(in millions, except percentages)
Sales $ 1,114.0
$ 741.4
$ 372.6
50.3 % $ 1,114.0
$ 1,080.3
$ 33.7
3.1 %
Cost of goods sold 821.3
557.7
263.6
47.3 % 821.3
791.2
30.1
3.8 %
Gross profit 292.7
183.7
109.0
59.3 % 292.7
289.1
3.6
1.2 %
Gross profit margin 26.3 % 24.8 % 26.3 % 26.8 %
Selling, general and administrative expenses 105.9
74.0
31.9
43.1 % 105.9
111.5
(5.6 ) (5.0 )%
Other operating expense, net 47.2
40.6
6.6
16.3 % 47.2
55.9
(8.7 ) (15.6 )%
Operating income 139.6
69.1
70.5
102.0 % 139.6
121.7
17.9
14.7 %
Operating income margin
12.5 % 9.3 % 12.5 % 11.3 %
Equity in net (income) loss of affiliated companies (24.9 ) 9.3
(34.2 ) (367.7 )% (24.9 ) (8.9 ) (16.0 ) 179.8 %
Interest expense, net 144.0
94.4
49.6
52.5 % 144.0
142.6
1.4
1.0 %
Debt extinguishment costs 0.5
11.9
(11.4 ) (95.8 )% 0.5
—
0.5
— %
Other expense, net 21.7
7.2
14.5
201.4 % 21.7
1.7
20.0
1,176.5 %
Loss before income taxes and noncontrolling interest (1.7 ) (53.7 ) 52.0
(96.8 )% (1.7 ) (13.7 ) 12.0
(87.6 )%
Provision for income taxes 5.3
36.0
(30.7 ) (85.3 )% 5.3
42.3
(37.0 ) (87.5 )%
Effective tax rate -304.2 % -67.1 % -304.2 % -308.4 %
Net loss (7.0 ) (89.7 ) 82.7
(92.2 )% (7.0 ) (56.0 ) 49.0
(87.5 )%
Less: Net income attributable to the noncontrolling interest 0.4
0.7
(0.3 ) (42.9 )% 0.4
1.4
(1.0 ) (71.4 )%
Net loss attributable to PQ Group Holdings Inc. $ (7.4 ) $ (90.4 ) $ 83.0
(91.8 )% $ (7.4 ) $ (57.4 ) $ 50.0
(87.1 )%

~~Sales~~

Historical Pro Forma
Nine Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
2017 2016
$

%

2017 2016
$

%

(in millions, except percentages)
Net Sales:
Performance Chemicals $ 515.5
$ 278.9
$ 236.6
84.8 % $ 515.5
$ 505.3
$ 10.2
2.0 %
Performance Materials 257.7
154.1
103.6
67.2 % 257.7
238.9
18.8
7.8 %
Eliminations (7.3) (3.1) (4.2) 135.5 % (7.3) (6.1) (1.2) 21.0 %
Performance Materials & Chemicals $ 765.9
$ 429.9
$ 336.0
78.2 % $ 765.9
$ 738.1
$ 27.8
3.7 %

Silica Catalyst $ 52.3
$ 33.1
$ 19.2
58.0 % $ 52.3
$ 64.3
$ (12.0 ) (18.7 )%
Refining Services 298.5 279.3 19.2 6.9 % 298.5 279.3 19.2 6.9 %
Environmental Catalysts & Services 350.8 312.4 38.4 12.3 % 350.8 343.6 7.2 2.1 %

Inter-segment sales eliminations (2.7) (0.9) (1.8) 200.0 % (2.7) (1.4) (1.3) 79.5 %

Total net sales $ 1,114.0
$ 741.4
$ 372.6
50.3 % $ 1,114.0
$ 1,080.3
$ 33.7
3.1 %

~~Historical Sales~~

~~Sales for the nine months ended September 30, 2017 were $1,114.0~~2023 was $30.8 million, an increase of ~~$372.6~~$3.9 million, ~~or 50.3%,~~as compared to ~~sales of $741.4~~$26.9 million for the nine months ended September 30, ~~2016.~~ 2022. The increase in ~~sales within our performance materials and chemicals segment~~interest expense, net was primarily due to ~~the inclusion of legacy PQ sales of $818.2 million~~year over year increase in ~~our results of operations for~~variable rates, which was partially offset by lower outstanding debt during the nine months ended September 30, ~~2017~~2023, as compared to legacy PQ sales of $462.1 million in our results of operations for the period of May 4, 2016 through September 30, 2016. The increase in sales within our environmental catalysts and services segment was due to the inclusion of legacy PQ sales of $52.3 million in our results of operations for the nine months ended September 30, 2017 as compared to $33.1 million of legacy PQ sales in our results of operations for the period of May 4, 2016 through September 30, 2016 and an increase of $19.2 million in our refining services product group. The increase in our refining services product group was primarily driven by higher average selling prices of $12.6 million and increased volumes of $6.6 million. The increase in average selling price was driven by the higher realization from sulfuric acid regeneration contract renewals2022 and the ~~increase in volumes was due~~benefits associated with our interest rate caps, which included an adjustment related to ~~an increased demand for virgin sulfuric acid.~~

~~Pro Forma Sales~~

~~Performance Materials & Chemicals:~~ Sales in performance materials and chemicals for the nine months ended September 30, 2017 were $765.9 million, an increase of $27.8 million, or 3.7%, compared to sales of $738.1 million for the nine months ended September 30, 2016. The increase in sales was primarily due to the Sovitec acquisition, which contributed $17.2 million in sales, higher average selling price and customer mix of $9.3 million and favorable volumes of $3.6 million, which was partially offset by the unfavorable effects of foreign currency translation of $2.4 million.

The higher average selling price was principally a result of favorable U.S. dollar denominated sales and U.S. dollar cost pass through pricing in certain foreign locations. The increase in volumes within performance materials and chemicals was primarily driven by higher sodium silicate industrial demand and an increased silicas demand in the personal care industry, which was partially offset by lower North America highway sales as well as lower conductive sales volumes due to timing of product life cycles in the electronics markets. The stronger U.S. dollar compared to the British pound unfavorably impacted our sales which was partly offset by a stronger Brazilian Real which favorably impacted our sales.

~~Environmental Catalysts & Services:~~ Sales in environmental catalysts and services for the nine months ended September 30, 2017 were $350.8 million, an increase of $7.2 million, or 2.1%, compared to sales of $343.6 million for the nine months ended September 30, 2016. The increase in sales was primarily due to higher average selling price and customer mix of $14.9 million, which was partially offset by lower volumes of $6.8 million and the unfavorable effects of foreign currency translation of $0.9 million.

The higher average selling price and customer mix was driven by the higher realization from sulfuric acid regeneration contract renewals partly offset by unfavorable virgin sulfuric acid pricing due to the mix of customers. The decrease in volumes was driven by

~~lower chemical catalysts sales due to record methyl methacrylate sales volumes in the~~ prior year ~~and lower high-density polyethylene demand, which was partially offset by stronger virgin sulfuric acid sales volumes due to the timing of our customer’s plant turnarounds.~~

~~Gross Profit~~

~~Historical:~~ Gross profit for the nine months ended September 30, 2017 was $292.7 million, an increase of $109.0 million, or 59.3%, compared with $183.7 million for the nine months ended September 30, 2016. The increase in gross profit was due to $196.1 million attributable to the inclusion of legacy PQ gross profit in our results of operations for the nine months ended September 30, 2017 as compared to legacy PQ gross profit of $91.6 million in our results of operations for the period of May 4, 2016 through September 30, 2016 and an increase of $11.0 million from our refining services product group. The increase in our refining services gross profit was due to favorable pricing of $12.6 million and higher volumes of $4.7 million, which was partially offset by higher manufacturing costs of $4.9 million and higher depreciation expense of $1.4 million.

The favorable pricing was due to higher realization from sulfuric acid regeneration contract renewals. The increase in volume was driven by higher virgin sulfuric acid shipments to the mining industry.

~~Pro Forma:~~ Gross profit for the nine months ended September 30, 2017 was $292.7 million, an increase of $3.6 million, or 1.2%, compared with $289.1 million for the nine months ended September 30, 2016. The increase in gross profit was due to favorable pricing of $24.2 million, $4.7 million related to the Sovitec acquisition and higher volumes of $2.9 million, which was partially offset by higher depreciation expense of $14.6 million, higher manufacturing costs of $9.0 million, unfavorable product mix of $3.2 million and the unfavorable effects of foreign currency translation of $1.4 million.

The greater average selling price was a result of the positive impact of U.S. dollar denominated sales and U.S. dollar pass through pricing in certain foreign locations and higher realization from sulfuric acid regeneration customer contracts, partially offset by unfavorable virgin sulfuric acid customer mix. Higher manufacturing costs were primarily driven by increased costs to support the start-up of the ThermoDrop® production facility for which the product offering was released for sale towards the end of the second quarter of 2017, and higher production and labor inflation costs. The unfavorable product mix is due to the effect of higher methyl methacrylate sales volumes through the nine months ended September 30, 2016.

~~Selling, General and Administrative Expenses~~

~~Historical:~~ Selling, general and administrative expenses for the nine months ended September 30, 2017 were $105.9 million, an increase of $31.9 million, or 43.1%, compared with $74.0 million for the nine months ended September 30, 2016. The increase in selling, general and administrative expenses was due to $89.8 million attributable to the inclusion of legacy PQ selling, general and administrative expenses in our results of operations for the nine months ended September 30, 2017 as compared to legacy PQ selling, general and administrative expenses of $49.1 million in our results of operations for the period of May 4, 2016 through September 30, 2016. This was partly offset by $8.7 million of lower selling, general and administrative expenses as a result of cost reduction initiatives.

~~Pro Forma:~~ Selling, general and administrative expenses for the nine months ended September 30, 2017 were $105.9 million, a decrease of $5.6 million, or 5.0%, compared with $111.5 million for the nine months ended September 30, 2016. The reduction in selling, general and administrative expenses primarily related to our cost reduction initiatives.interest rate amortization.

Other ~~Operating~~ Expense, Net

~~Historical:~~Other ~~operating~~ expense, net for the nine months ended September 30, ~~2017~~2023 was ~~$47.2~~ $0.6 million, ~~an increase~~a decrease of ~~$6.6~~$1.9 million, ~~or 16.3%,~~as compared ~~with $40.6~~to $2.5 million for the nine months ended September 30, ~~2016.~~2022. The increase in other operating expense, net was due to $35.7 million attributable to the inclusion of legacy PQ other operating expense, net in our results of operations for the nine months ended September 30, 2017 as compared to legacy PQ other operating expense, net of $22.6 million in our results of operations for the period of May 4, 2016 through September 30, 2016. Included in other operating expense, net was an increase in losses on the sale of assets of $2.1 million, which was partly offset by $6.8 million of lower restructuring and severance related costs and $2.8 million in lower transaction related costs.

~~Pro Forma:~~ ~~Other operating expense, net for the nine months ended September 30, 2017 was $47.2 million, a~~ decrease of $8.7 million, or 15.6%, compared with $55.9 million for the nine months ended September 30, 2016. The decrease in other operating expense, net was due to $10.5 million of lower restructuring and severance related costs associated with the Business Combination and $1.3 million of lower environmental remediation charges, which were offset by $3.3 million in restructuring and plant closure costs incurred during the nine months ended September 30, 2017.

~~Equity in Net Income of Affiliated Companies~~

~~Historical:~~ Equity in net income of affiliated companies for the nine months ended September 30, 2017 was $24.9 million, an increase of $34.2 million, compared with a loss of $9.3 million for the nine months ended September 30, 2016. The increase was primarily due to $31.0 million of earnings generated by our Zeolyst Joint Venture during the nine months ended September 30, 2017 as compared

to $15.1 million for the period of May 4, 2016 through September 30, 2016 and $17.7 million of lower amortization expense on the fair value step-up of the underlying assets of our Zeolyst Joint Venture.

~~Pro Forma:~~ Equity in net income of affiliated companies for the nine months ended September 30, 2017 was $24.9 million, an increase of $16.0 million, compared with income of $8.9 million for the nine months ended September 30, 2016. The increase in earnings generated by our Zeolyst Joint Venture was due to higher sales for emission control and increased sales of aromatic catalysts.

~~Interest Expense, Net~~

~~Historical:~~ Interest expense, net for the nine months ended September 30, 2017 was $144.0 million, an increase of $49.6 million, as compared with $94.4 million for the nine months ended September 30, 2016. Interest expense increased primarily due to higher third-party interest expense under our debt structure compared to the legacy Eco debt structure on a stand-alone basis.

~~Pro Forma:~~ ~~Interest expense, net for the nine months ended September 30, 2017 was $144.0 million, an increase of $1.4 million, as compared with $142.6 million for the nine months ended September 30, 2016.~~

~~Debt Extinguishment Costs~~

~~Historical:~~ Debt extinguishment costs for the nine months ended September 30, 2017 and 2016 were $0.5 million and $11.9 million, respectively. On August 7, 2017, we re-priced the existing U.S. dollar-denominated tranche and existing Euro-denominated trance of our term loans to reduce the applicable interest rates. The company recorded $0.2 million of new creditor and third-party financing fees as debt extinguishment costs. In addition, previous unamortized deferred financing costs of $0.1 million and original issue discount of $0.2 million associated with the old debt were written off as debt extinguishment costs. On May 4, 2016, and concurrently with the consummation of the Business Combination, the company refinanced its existing credit facilities. The company recorded $4.6 million of new creditor and third-party financing fees as debt extinguishment costs. In addition, previous unamortized deferred financing costs of $6.3 million and original issue discount of $1.0 million associated with the old debt were written off as debt extinguishment costs.

~~Other Expense, Net~~

~~Historical:~~ Other expense, net was $21.7 million for the nine months ended September 30, 2017, an unfavorable change of $14.5 million, compared with other expense, net of $7.2 million for the nine months ended September 30, 2016. The change in other expense, net primarily consisted of ~~$21.5 million of~~favorable foreign currency ~~losses for~~exchange of $2.2 million mainly related to the ~~nine months ended September 30, 2017 as compared~~non-permanent intercompany debt denominated in local currency and translated to ~~foreign currency losses of $6.2 million for~~ the ~~nine months ended September 30, 2016.~~

~~Pro Forma:~~ Other expense, net was $21.7 million for the nine months ended September 30, 2017, an unfavorable change of $20.0 million, compared with other expense, net of $1.7 million for the nine months ended September 30, 2016. The change in other income, net primarily consisted of $21.5 million of foreign currency losses for the nine months ended September 30, 2017 as compared to foreign currency losses of $0.9 million for the nine months ended September 30, 2016.U.S. dollar.

Provision for Income Taxes

~~Historical:~~The provision for income taxes for the nine months ended September 30, ~~2017~~2023 was ~~$5.3~~$17.6 million, compared to a ~~$36.0~~$22.0 million ~~provision~~ for the nine months ended September 30, ~~2016.~~2022. The effective income tax rate for the nine months ended September 30, ~~2017~~2023 was ~~(304.2)%~~29.9%, compared to ~~(67.1)%~~31.2% forthe nine months ended September 30, ~~2016.~~ 2022. The Company’s effective income tax rate fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes.

The difference between the U.S. federal statutory income tax rate and ~~our~~the Company’s effective income tax rate for the nine months ended September 30, ~~2017~~2023 was mainly due to ~~the tax effect of our foreign currency exchange loss recognized as~~state and local taxes, a discrete ~~item for the purposes of calculating the effective~~shortfall tax ~~rate as well as the tax effect of repatriating foreign earnings back~~expense related to the U.S. as dividends, partially offset by lower tax rates in foreign jurisdictions as compared to the U.S. federal tax rate, foreign withholdings taxes, state taxes and non-deductible transaction costs. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the nine months ended September 30, 2016 was mainly due to the tax effect of our foreign currency exchange loss recognized asstock compensation, a discrete ~~item for~~tax expense associated with the ~~purposes~~recording of ~~calculating the effective~~accrued penalties and interest associated with historical uncertain tax rate as well as the tax effect of repatriating foreign earnings back to the U.S. as dividends, partially offset by lower tax rates in foreign jurisdictions as compared to the U.S. federal tax rate, foreign withholding taxes, state taxes, non-deductible transaction costs,positions, and change in tax status of legacy Eco. Prior to the Business Combination on May 4, 2016, legacy Eco was a single member limited liability company and taxed as a partnership for federal and state income tax purposes. As such, all income tax liabilities and/or benefits of legacy Eco were passed through to its members. Because legacy Eco was taxed as a partnership, it did not record deferred taxes on the basis difference on its financial statements. Following the Business Combination on May 4, 2016, legacy Eco had a change in tax status and is now taxed as a C-Corporation subject to federal and state corporate level income taxes at prevailing corporate rates. Minimal taxes were recorded on the book losses incurred by legacy Eco during the periods preceding the Business Combination included in the nine months ended September 30, 2016, causing the fluctuation to the Company’s effective income tax rate in comparison to the taxes recorded for the nine months ended September 30, 2016.

~~Pro Forma:~~ The provision for income taxes for the nine months ended September 30, 2017 was $5.3 million compared to a $42.3 million provision for the nine months ended September 30, 2016. The effective income tax rate for the nine months ended September 30, 2017 was (304.2)% compared to (308.4)% for the nine months ended September 30, 2016. The difference between the U.S. federal

~~statutory income tax rate and our effective income tax rate for the nine months ended September 30, 2017 was mainly due to the tax effect of our foreign currency exchange loss recognized as~~ a discrete ~~item for the purposes of calculating the effective~~ tax ~~rate as well as the~~benefit connected to state and local tax effect of repatriating foreign earnings back to the U.S. as dividends, partially offset by lower tax rates in foreign jurisdictions as compared to the U.S. federal tax rate, state taxes and foreign withholdings taxes. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the nine months ended September 30, 2016 was mainly due to the tax effect of our foreign currency exchange loss recognized as a discrete item for the purposes of calculating the effective tax rate as well as the tax effect of repatriating foreign earnings back to the U.S. as dividends, partially offset by lower tax rates in foreign jurisdictions as compared to the U.S. federal tax rate, foreign withholding taxes, state taxes, non-deductible transaction costs, and change in tax status of legacy Eco. Prior to the Business Combination on May 4, 2016, legacy Eco was a single member limited liability company and taxed as a partnership for federal and state income tax purposes. As such, all income tax liabilities and/or benefits of legacy Eco were passed through to its members. Because legacy Eco was taxed as a partnership, it did not record deferred taxes on the basis difference on its financial statements. Following the Business Combination on May 4, 2016, legacy Eco had a change in tax status and is now taxed as a C-Corporation subject to federal and state corporate level income taxes at prevailing corporate rates. Minimal taxes were recorded on the book losses incurred by legacy Eco during the periods preceding the Business Combination included in the nine months ended September 30, 2016, causing the fluctuation to the Company’s effective income tax rate in comparison to the taxes recorded for the nine months ended September 30, 2016.law changes.

Net ~~Loss Attributable to PQ Group Holdings~~Income

~~Historical:~~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 PQ Group Holdings Inc.~~net income was ~~$7.4~~$41.2 million for the nine months ended September 30, ~~2017 as~~2023, compared to ~~a net loss of $90.4~~$48.4 million for the nine months ended September 30, ~~2016.~~2022.

~~Pro Forma:~~ 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 PQ Group Holdings Inc. was $7.4 million for the nine months ended September 30, 2017 as compared to a net loss of $57.4 million for the nine months ended September 30, 2016.

~~Historical and Pro Forma~~ Adjusted EBITDA

Summarized ~~historical and pro forma Segment~~ Adjusted EBITDA information is shown below in the following table:


	Nine months ended September 30,				Change
	2023		2022		$		%
	(in millions, except percentages)
Adjusted EBITDA:(1)
Ecoservices	$	151.6	$	173.4	$	(21.8)	(12.6)	%
Catalyst Technologies(2)	54.7		57.7		(3.0)		(5.2)	%
Unallocated corporate expenses	(16.2)		(23.5)		7.3		(31.1)	%
Total	$	190.1	$	207.6	$	(17.5)	(8.4)	%

Historical Pro Forma
Nine Months Ended
September 30, Change
2017 2016 $ %
Segment Adjusted EBITDA ⁽¹⁾:

Performance Materials & Chemicals $ 184.8
$ 184.3
$ 0.5
0.3 %
Environmental Catalysts & Services ⁽²⁾
182.6
160.0
22.6
14.1 %
Total Segment Adjusted EBITDA ⁽³⁾
367.4
344.3
23.1
6.7 %
Unallocated corporate costs (23.5 ) (22.8 ) (0.7 ) 3.1 %
Total Adjusted EBITDA ⁽³⁾
$ 343.9
$ 321.5
$ 22.4
7.0 %


⁽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 environmental catalyst and services segment is $39.7 million for the nine months ended September 30, 2017, which includes $24.6 million of equity in net income plus $6.9 million of amortization of investment in affiliate step-up plus $8.1 million of joint venture depreciation, amortization and interest. The pro forma Adjusted EBITDA from the Zeolyst Joint Venture included in the environmental catalyst and services segment is $31.9 million for the nine months ended September 30, 2016, which includes $8.7 million of equity in net income plus $15.3 million of amortization of investment in affiliate step-up plus $7.9 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.~~

(2)The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $31.3 million for the nine months ended September 30, 2023, which includes $16.4 million of equity in net income, excluding $4.8 million of amortization of investment in affiliate step-up plus $10.1 million of joint venture depreciation, amortization and interest.

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The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $34.3 million for the nine months ended September 30, 2022, which includes $17.5 million of equity in net income, excluding $4.8 million of amortization of investment in affiliate step-up plus $12.0 million of joint venture depreciation, amortization and interest.

Ecoservices:Adjusted EBITDA for the nine months ended September 30, ~~2017~~2023 was ~~$343.9~~$151.6 million, ~~an increase~~a decrease of ~~$22.4~~$21.8 million, or ~~7.0%~~12.6%, compared ~~with $321.5~~to $173.4 million ~~on a pro forma basis~~ for the nine ~~months~~months ended September 30, ~~2016.~~2022. The decrease in Adjusted EBITDA was primarily a result of lower virgin sulfuric acid sales volume related to Winter Storm Elliott and the extended maintenance turnaround activity, higher unplanned repair and maintenance costs and costs associated with planned turnaround activity, partially offset by higher pricing for regeneration services.

~~Performance Materials & Chemicals:~~Catalyst Technologies: Adjusted EBITDA for the nine months ended September 30, ~~2017~~2023 was ~~$184.8~~$54.7 million, ~~an increase~~a decrease of ~~$0.5~~$3.0 million or ~~0.3%~~5.2%, compared ~~with $184.3~~to $57.7 million ~~on a pro forma basis~~ for the nine ~~months~~months ended September 30, ~~2016.~~

2022. The ~~increase~~decrease was primarily a result of a decrease in ~~Adjusted EBITDA was due to stronger demand in North America industrials and earnings from the Sovitec acquisition partly~~sales volume offset by ~~start-up costs for the new ThermoDrop® production facility.~~

~~Environmental Catalysts & Services:~~ Adjusted EBITDA for the nine months ended September 30, 2017 was $182.6 million, an increase of $22.6 million, or 14.1%, compared with $160.0 million on a pro forma basis for the nine months ended September 30, 2016.

The increase in Adjusted EBITDA was driven primarily by higher pricing from renegotiated regeneration services contracts and increased earnings generated by our Zeolyst Joint Venture due to higher sales volumes of aromatic catalyst and catalyst sales for emission control.continued strong pricing.

A reconciliation of ~~Segment~~net income to Adjusted EBITDA ~~and pro forma Segment Adjusted EBITDA to net loss and pro forma net loss attributable to PQ Group Holdings~~ is as follows:


	Nine months ended September 30,
	2023		2022
	(in millions)
Reconciliation of net income to Adjusted EBITDA
Net income	$	41.2	$	48.4
Provision for income taxes	17.6		22.0
Interest expense, net	30.8		26.9
Depreciation and amortization	62.5		58.8
EBITDA	152.1		156.1
Joint venture depreciation, amortization and interest(a)	10.1		12.0
Amortization of investment in affiliate step-up(b)	4.8		4.8

Net loss on asset disposals(c)	3.3		1.2
Foreign currency exchange (gain) loss(d)	(0.4)		2.2
LIFO expense(e)	2.5		—
Transaction and other related costs(f)	2.8		6.9
Equity-based compensation	12.6		17.4
Restructuring, integration and business optimization expenses(g)	2.4		8.0
Other(h)	(0.1)		(1.0)
Adjusted EBITDA	$	190.1	$	207.6

Historical Pro Forma
Nine Months Ended
September 30,
2017 2016
Reconciliation of net loss attributable to PQ Group Holdings Inc. to Segment Adjusted EBITDA
Net loss attributable to PQ Group Holdings Inc. $ (7.4 ) $ (57.4 )
Provision for income taxes 5.3
42.3
Interest expense, net 144.0
142.6
Depreciation and amortization 129.1
123.2
EBITDA 271.0
250.7
Joint venture depreciation, amortization and interest ^(a)
8.1
7.9
Amortization of investment in affiliate step-up ^(b)
6.9
15.3
Amortization of inventory step-up ^(c)
0.9
5.8
Debt extinguishment costs 0.5
—
Net loss on asset disposals ^(d)
6.4
2.9
Foreign currency exchange loss ^(e)
21.6
1.0
Non-cash revaluation of inventory, including LIFO 3.2
0.8
Management advisory fees ^(f)
3.8
4.0
Transaction related costs ^(g)
5.3
5.3
Equity-based and other non-cash compensation 3.9
4.4
Restructuring, integration and business optimization expenses ^(h)
8.0
16.2
Defined benefit plan pension cost ⁽ⁱ⁾
2.2
4.0
Other ^(j)
2.1
3.2
Adjusted EBITDA 343.9
321.5

Unallocated corporate expenses 23.5
22.8
Total Segment Adjusted EBITDA $ 367.4
$ 344.3


^(a)			We use Adjusted EBITDA as a performance measure 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)

(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.

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(g)Includes the impact of restructuring, integration and business optimization expenses, which are incremental costs that are not representative of our ongoing business operations.


^(c)	~~As a result of the Business Combination, there was a step-up in the fair value of inventory at PQ Holdings, which is amortized through cost of goods sold in the income statement.~~


^(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 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 as of the closing of our initial public offering.


^(g)	Relates to certain transaction costs described elsewhere in our consolidated financial statements as well as other costs related to several transactions that are either 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 that are related to specific, one-time items, including severance for a reduction in force and post-merger integration costs that are not expected to recur.

⁽ⁱ⁾

^(j)

Adjusted Net Income

Summarized adjusted net income information is shown below in the following table:


	Nine months ended September 30,
	2023						2022
	Pre-tax amount		Tax expense (benefit)		After-tax amount		Pre-tax amount		Tax expense (benefit)		After-tax amount
	(in millions)
Reconciliation of net income to Adjusted Net Income(1)(2)
Net income	$	58.8	$	17.6	$	41.2	$	70.4	$	22.0	$	48.4
Amortization of investment in affiliate step-up(b)	4.8		1.3		3.5		4.8		1.3		3.5

Net loss on asset disposals(c)	3.3		0.9		2.4		1.2		0.3		0.9
Foreign currency exchange (gain) loss(d)	(0.4)		(0.1)		(0.3)		2.2		0.4		1.8
LIFO expense(e)	2.5		0.7		1.8		—		—		—
Transaction and other related costs(f)	2.8		0.8		2.0		6.9		1.7		5.2
Equity-based compensation	12.6		1.1		11.5		17.4		0.6		16.8
Restructuring, integration and business optimization expenses(g)	2.4		0.7		1.7		8.0		2.2		5.8
Other(h)	(0.1)		—		(0.1)		(1.0)		(0.2)		(0.8)
Adjusted Net Income	$	86.7	$	23.0	$	63.7	$	109.9	$	28.3	$	81.6

Historical Pro Forma
Nine Months Ended
September 30,
2017 2016
Reconciliation of net loss attributable to PQ Group Holdings Inc. to Adjusted Net Income ^{(1) (2)}

Net loss attributable to PQ Group Holdings Inc. $ (7.4 ) $ (57.4 )
Amortization of investment in affiliate step-up ^(b)
4.0
9.4
Amortization of inventory step-up ^(c)
0.5
3.6
Debt extinguishment costs 0.3
—
Net loss on asset disposals ^(d)
3.7
1.8
Foreign currency exchange loss ^(e)
14.9
2.5
Non-cash revaluation of inventory, including LIFO 1.9
0.5
Management advisory fees ^(f)
2.2
2.4
Transaction related costs ^(g)
3.1
3.2
Equity-based and other non-cash compensation 2.2
2.7
Restructuring, integration and business optimization expenses ^(h)
4.6
9.9
Defined benefit plan pension cost ⁽ⁱ⁾
1.3
2.5
Other ^(j)
1.2
2.0
Adjusted net income $ 32.5
$ (16.9 )


⁽¹⁾			We define adjusted net income as net 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 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⁾

(2)Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.

~~Refer to the Adjusted EBITDA notes above for more information with respect to each adjustment.~~

The adjustments to net ~~loss attributable to PQ Group Holdings Inc.~~income are shown net of applicable tax rates of ~~42.1%~~27.4% and ~~38.8%~~27.7% for the nine months ended September 30, ~~2017~~2023 and ~~September 30, 2016,~~2022, respectively, except for the foreign currency exchange (gain) loss ~~for which~~and equity-based compensation. The tax effect on equity-based compensation is derived by removing the tax ~~is calculated~~effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec. 162(m), and adding the tax effect of equity-based stock compensation shortfall recorded as a discrete ~~item using~~item. The tax effect of the ~~applicable~~foreign currency exchange (gain) loss is derived from tax effecting the actual year to date foreign currency exchange (gain) loss by the respective local country statutory ~~income tax rates.~~rates which is recorded as a discrete item.

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Financial Condition, Liquidity and Capital Resources

Our primary sources of liquidity consist of cash ~~flow~~flows from operations, existing cash balances as well as funds available under our asset based lending revolving credit ~~facility.~~facility (“ABL 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 ~~of business~~ and health, safety ~~environmental initiatives~~ and ~~cost savings~~environmental initiatives as well as ~~expansion,~~growth, which includes spending to drive organic sales ~~growth. As reported for the nine months ended September 30, 2017, we spent approximately $66.7 million in maintenance capital expenditures~~growth and $18.2 million in expansion capital expenditures. For the nine months ended September 30, 2016, we spent approximately $55.9 million in maintenance capital expenditures and $19.5 million in expansion capital expenditures.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,~~ABL Facility, will be sufficient to meet our presently anticipated future cash needs for at least the next 12twelve 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~~ABL Facility to meet our future cash needs. As of September 30, ~~2017,~~2023, we had cash and cash equivalents of ~~$68.8~~$38.3 million and availability of ~~$140.6~~$70.8 million under our ~~asset based lending revolving credit facility,~~ABL Facility, after giving effect to ~~$19.6~~$4.0 million of outstanding letters of credit, ~~and $35.0 million of revolving credit facility borrowings,~~ for a total available liquidity of ~~$209.4~~$109.1 million.

We did not have any revolving credit facility borrowings as of September 30, 2023. As of September 30, ~~2017,~~2023, we were in compliance with all covenants under our debt agreements.

Our ABL Facility has one financial covenant with two ratios to maintain. The first ratio compares the total ABL availability against a threshold: the greater of 10% of the line cap (which is defined as the lesser of our revolving loan commitments and the value of our assets) or $20.0 million. The greater of this threshold cannot be greater than the total availability of the ABL Facility. The second ratio compares the ABL Facility availability of the U.S. revolving credit facility against a $15.0 million threshold. As of September 30, 2023, we were in compliance with the financial covenant under the ABL Facility.

The 2021 Term Loan Facility and the ABL Facility contain various restrictive covenants. Each limits the ability of the Company and its restricted subsidiaries to incur certain indebtedness or liens, merge, consolidate or liquidate, dispose of certain property, make investments or declare or pay dividends, make optional payments, modify certain debt instruments, enter into certain transactions with affiliates, enter into certain sales and leasebacks, and certain other non-financial restrictive covenants. During such time, the Company is required to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0. The Company was ~~$2,703.1 million,~~in compliance with ~~up to $140.6~~all debt covenants under the 2021 Term Loan Facility and the ABL Facility as of September 30, 2023.

Included in our cash and cash equivalents balance as of September 30, 2023 was $8.5 million of ~~available borrowings under our asset based lending revolving credit facility.~~ cash and cash equivalents in foreign jurisdictions. Depending on foreign cash balances, we have certain flexibility to repatriate funds should the need arise. Should the need arise, we would repatriate the funds in the most 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~~include interest payments related to our debt ~~service requirements.~~structure. As reported, our cash interest ~~expense~~paid for the nine months ended September 30, ~~2017~~2023 and ~~2016~~2022 was approximately ~~$118.8~~$28.5 million and ~~$56.9~~$24.4 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 ~~$18.1~~$8.8 million on interest expense.

~~On October 3, 2017, we completed~~We hedge the ~~initial public offering~~interest rate fluctuations on debt obligations through interest rate cap agreements. For more information about our interest rate cap agreements, refer to Note 12 — Financial Instrument of our ~~common stock and issued and sold 29,000,000 shares of our common stock at a public offering price of $17.50 per share, for aggregate gross proceeds of $507.5 million.~~ condensed consolidated financials statements included in Part 1, Item 1 — Financial Statements (Unaudited).

The aggregate net proceeds received by us from the offering were approximately $480.5 million, net of underwriting discounts of $24.1 million and offering expenses of $2.9 million, net of reimbursements. The net proceeds were used to repay $446.2 million in aggregate principal amount of PQ Corporation’s Floating Rate Senior Unsecured Notes due 2022, together with accrued and unpaid interest and applicable redemption premiums. We recorded approximately $40.5Company’s off-balance sheet arrangements include $4.0 million of ~~debt extinguishment costs related to the repayment~~outstanding letters of the Floating Rate Senior Unsecured Notes due 2022 in October 2017. We anticipate the redemption of the Floating Rate Senior Unsecured Notes will reduce our annual interest expense by approximately $53.9 million.

~~Our ability to make payments on and to refinance our indebtedness will depend~~credit on our ability to generate cash in the future. We believe that our cash on hand, together with cash from operations and, if required, borrowings under our asset based lending revolving credit facility, will be sufficient for our cash requirements for the next twelve months.ABL Facility as of September 30, 2023.

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Cash Flow


	Nine months ended September 30,
	2023		2022
	(in millions)
Net cash provided by (used in):
Operating activities	$	73.4	$	109.3
Investing activities	(53.6)		(43.6)
Financing activities	(90.5)		(82.6)
Effect of exchange rate changes on cash and cash equivalents	(1.9)		(2.6)
Net change in cash and cash equivalents	(72.6)		(19.5)
Cash and cash equivalents at beginning of period	110.9		140.9
Cash and cash equivalents at end of period	$	38.3	$	121.4


	Nine months ended September 30,
	2023		2022
	(in millions)
Net income	$	41.2	$	48.4
Non-cash and non-working capital related activities(1)	72.4		106.2
Changes in working capital	(35.0)		(42.5)
Other operating activities	(5.2)		(2.8)
Net cash provided by operating activities	$	73.4	$	109.3

(1)Includes depreciation, amortization, amortization of deferred financing costs and original issue discount, foreign currency exchange (gain) loss, deferred income tax provision (benefit), net (gain) loss on asset disposals, stock compensation expense, equity in net income and dividends received from affiliated companies.


	Nine months ended September 30,
	2023		2022
	(in millions)
Working capital changes that (used) provided cash:
Receivables	$	(8.9)	$	(28.4)
Inventories	(3.9)		3.2
Prepaids and other current assets	0.9		(5.2)
Accounts payable	(3.7)		2.0
Accrued liabilities	(19.4)		(14.1)

	$	(35.0)	$	(42.5)


	Nine months ended September 30,
	2023		2022
	(in millions)
Purchases of property, plant and equipment	$	(53.6)	$	(39.5)

Payments for business divestiture, net of cash	—		(3.7)
Business combinations, net of cash acquired	—		(0.5)
Other, net	—		0.1
Net cash used in investing activities	$	(53.6)	$	(43.6)

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Nine Months Ended
September 30,
2017 2016
(in millions)
Net cash provided by (used in)
Operating activities $ 109.8
$ 89.3
Investing activities (134.5 ) (1,861.6 )
Financing activities 29.2
1,821.4
Effect of exchange rate changes on cash and cash equivalents (6.4 ) (2.4 )
Net change in cash and cash equivalents (1.9 ) 46.7
Cash and cash equivalents at beginning of period 70.7
25.2
Cash and cash equivalents at end of period $ 68.8
$ 71.9


	Nine months ended September 30,
	2023		2022
	(in millions)

Cash repayments on debt obligations	$	(6.8)	$	(6.8)

Repurchases of common shares	(78.7)		(73.7)
Tax withholdings on equity award vesting	(3.4)		(0.3)
Repayment of financing obligation	(2.1)		(1.8)
Other	0.5		—
Net cash used in financing activities	$	(90.5)	$	(82.6)

Nine Months Ended
September 30,
2017 2016
(in millions)
Working capital changes that provided (used) cash:
Receivables $ (28.9 ) $ 3.5
Inventories 4.9
13.8
Prepaids and other current assets (6.0 ) (0.8 )
Accounts payable (9.0 ) (7.3 )
Accrued liabilities 13.5
10.1
Other, net (2.5 ) (0.8 )
$ (28.0 ) $ 18.5

Net cash provided by operating activities was ~~$109.8~~$73.4 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$89.3~~$109.3 million ~~provided~~ for the nine months ended September 30, ~~2016.~~ 2022. Cash generated by operating ~~earnings after giving effect to non-cash items recognized~~activities, other than changes in ~~the income statement during the period~~working capital was ~~higher~~ lower by $43.4 million during the nine months ended September 30, ~~2017 by $67.1 million~~2023, as compared to the same period in the prior ~~year. Cash provided by~~year primarily due to a decrease in dividends received from affiliated companies and deferred income tax provision. The increase in cash from working capital during the nine months ended September 30, ~~2017~~ 2023 of $7.5 million was ~~unfavorable~~favorable, compared to the nine months ended September 30, ~~2016. Working capital for the nine months ended September 30, 2017 used cash of $28.0 million, compared to cash provided of $18.5 million for the nine months ended September 30, 2016.~~

~~The increase in cash generated by operating earnings after giving effect to non-cash items of $67.1 million as compared to the prior year period was~~2022 primarily due to ~~the inclusion of legacy PQ cash from operations for the nine months ended September 30, 2017 as compared to the period from May 4, 2016 through September 30, 2016~~favorable changes in ~~the prior year. This resulted in a decrease in our net loss of $82.7 million, an increase of $43.5 million of depreciation~~receivables and ~~amortization expense, $18.9 million of dividends received from affiliated companies~~prepaids and ~~$15.4 million of foreign currency losses, which was partially~~other current assets, offset by $34.2 million of net income from affiliated companies, $31.2 million of deferred income tax benefits, $22.6 million in lower acquisition accounting valuation adjustments on inventory sold and $5.4 million of pension and postretirement plan net funding.

The decrease in cash from working capital of $46.5 million compared to the prior year was primarily due to the inclusion of legacy PQ working capital for the nine months ended September 30, 2017 as compared to the period from May 4, 2016 through September 30, 2016 in the prior year. This resulted in unfavorable changes in inventories, accounts ~~receivable, inventory,~~payable and accrued liabilities.

The favorable change in receivables was driven by the collection of sales. The favorable change in prepaid and other current assets ~~and accounts payable. The unfavorable change was partially offset by favorable changes in accrued liabilities.~~

~~In addition~~primarily relates to the ~~inclusion~~timing of ~~a full period of legacy PQ working capital, the unfavorable change in accounts receivable was a result of higher accounts~~non-trade receivables from ~~higher current year pricing~~related parties and ~~volumes.~~the interest rate cap agreements. The unfavorable change in ~~inventory was driven~~accrued liabilities mainly relates to payments for other compensation-related liabilities in the current period offset by ~~inventory build for our new ThermoDrop® product offering.~~higher income tax payments in the prior period. The unfavorable change in accounts payable is due to the timing of ~~payments for capital expenditures, timing of plant turnaround costs and higher raw material costs.~~vendor payments. The ~~favorable~~unfavorable change in ~~accrued liabilities is~~inventory was primarily due to the timing of ~~accrued interest under our new debt structure.~~sales orders and inventory build.

Net cash used in investing activities was ~~$134.5~~$53.6 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~cash used of $1,861.6~~$43.6 million during the same period in ~~2016. Current year uses~~2022. Cash used in investing activities consisted of ~~cash include utilizing $90.2~~$53.6 million and $39.5 million to fund capital expenditures during the nine months ended September 30, 2023 and ~~$41.6~~2022, respectively. During the nine months ended September 30, 2022, we made an additional payment of $3.7 million related to ~~fund~~our divestiture of our Performance Chemicals business representing the ~~Sovitec acquisition. Prior year uses of cash include utilizing $1,777.7 million~~final adjustments to ~~fund~~ the ~~Business Combination and $69.8 million to fund capital expenditures.~~sale price.

Net cash ~~provided by~~used in financing activities was ~~$29.2~~$90.5 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~net cash provided of $1,821.4~~$82.6 million during the same period in ~~2016. The change~~2022. Net cash used in ~~cash from~~ financing activities was primarily driven by the

~~issuance~~ Company repurchases of ~~$2,296.8~~common stock of $78.7 million ~~in debt, net of financing fees, related~~during the nine months ended September 30, 2023, compared to $73.7 million during the ~~Business Combination in the prior year, partially offset by $465.7 million in lower debt repayments and $39.6 million in net revolver borrowings in the current year.~~nine months ended September 30, 2022.

Debt

September 30,
2017 December 31,
2016
(in millions)
Term Loan Facility (U.S. dollar denominated) $ 918.5
$ 925.4
Term Loan Facility (Euro denominated) 331.4
297.3
6.75% Senior Secured Notes due 2022 625.0
625.0
Floating Rate Senior Unsecured Notes due 2022 525.0
525.0
8.5% Senior Notes due 2022 200.0
200.0
ABL Facility 35.0
—
Other 68.2
45.2
Total debt 2,703.1
2,617.9
Original issue discount (26.5)
(28.5)
Deferred financing costs (24.8)
(27.3)
Total debt, net of original issue discount and deferred financing costs 2,651.8
2,562.1
Less: current portion (54.3)
(14.5)
Total long-term debt $ 2,597.5
$ 2,547.6


	September 30, 2023		December 31, 2022
	(in millions)
Senior Secured Term Loan Facility due June 2028	$	879.8	$	886.5
ABL Facility	—		—
Total debt	879.8		886.5
Original issue discount	(6.5)		(7.5)
Deferred financing costs	(3.6)		(4.1)
Total debt, net of original issue discount and deferred financing costs	869.7		874.9
Less: current portion	(9.0)		(9.0)
Total long-term debt, excluding current portion	$	860.7	$	865.9

As of September 30, ~~2017,~~2023, our total debt was ~~$2,703.1~~$879.8 million, ~~including $16.4 million of other foreign debt and $51.8 million of notes payable for the NMTC financing and~~ excluding the original issue discount of ~~$26.5~~$6.5 million and deferred financing ~~fees~~costs of ~~$24.8~~$3.6 million for our senior secured credit facilities. Our net debt as of September 30, ~~2017~~2023 was ~~$2,703.7~~$841.5 million, ~~excluding $16.4 million~~including cash and cash equivalents of ~~other foreign debt and $51.8 million of NMTC notes payable, and net of cash of $68.8~~$38.3 million. We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt.

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Capital Expenditures

Maintenance capital expenditures include spending on maintenance of business, ~~cost savings initiatives and~~ health, safety and environmental initiatives. ~~Expansion~~Growth capital expenditures include spending to drive organic sales ~~growth.~~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.


	Nine Months Ended September 30,					Nine months ended September 30,
	2017		2016			2023		2022
	(in millions)					(in millions)
Maintenance capital expenditures	$	66.7	$	55.9	Maintenance capital expenditures	$	42.6	$	31.5
Expansion capital expenditures	18.2		19.5
Growth capital expenditures					Growth capital expenditures	5.1		6.0
Total capital expenditures	$	84.9	$	75.4	Total capital expenditures	$	47.7	$	37.5

Capital expenditures remained at a level sufficient for required maintenance and certain expansion growth initiatives during these periods.

~~Pension Funding~~

~~We paid $7.5 million and $2.3 million~~ Maintenance capital expenditures were higher in ~~cash contributions into our defined benefit pension plans and other post-retirement plans during~~ the nine months ended September 30, ~~2017 and 2016, respectively. The periodic pension expense was $2.6 million and $2.7 million for those same periods, respectively.~~

~~Off–Balance Sheet Arrangements~~

~~We had $19.6 million of outstanding letters of credit on our revolver facility as of~~2023, compared to the nine months ended September 30, ~~2017.~~2022 due to extended turnaround activities and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities. Growth capital expenditures were slightly lower in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the completion of several expansion projects in 2022.

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 ~~Prospectus filed pursuant to Rule 424(b)(4) with the SEC~~Annual Report on ~~October 2, 2017.~~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 ~~under~~in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations,” included in our ~~Prospectus filed pursuant to Rule 424(b)(4) with the SEC~~Annual Report on ~~October 2, 2017.~~Form 10-K.

Accounting Standards Not Yet Adopted

~~Refer to~~See Note 2 into our ~~September 30, 2017~~ unaudited condensed consolidated financial statements for a ~~description~~discussion of ~~recent~~recently issued accounting ~~standards.~~standards and their effect on us.

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~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our major market risk exposure is potential losses arising from changing rates and prices regarding foreign currency exchange rate risk, interest rate risk ~~commodity price risk~~ and credit risk. The audit committee of our board of directors regularly reviews foreign exchange and interest rate ~~and commodity hedging~~ activity, and monitors compliance with our hedging policy. We do not use financial instruments for speculative purposes, and we limit our hedging activity to the underlying economic exposure.

There ~~has~~have been no material ~~change~~changes in the foreign currency exchange rate risk, interest rate ~~risk, commodity~~ risk or credit risk discussed in ~~“Management’s Discussion~~Item 7A., “Quantitative and ~~Analysis of Financial Condition and Results of Operations”~~Qualitative Disclosures about Market Risk,” included in our ~~Prospectus filed pursuant to Rule 424(b)(4) with the SEC~~Annual Report on ~~October 2, 2017.~~Form 10-K.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES.~~

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2017,~~2023, the end of the period covered by this Quarterly Report on Form 10-Q.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, asas of such date, our disclosure controls and procedures were ~~effective.~~effective at a reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the quarter ended September 30, 2023 that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may be subject to various legal claims and proceedings incidental to the normal conduct of business, relating to such matters as personal injury, product liability and warranty claims, waste disposal practices, release of chemicals into the environment and other matters that may arise in the ordinary course of our business. We currently believe that there is no litigation pending that is likely to have a material adverse effect on our business. Regardless of the outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. ~~Refer~~

ITEM 1A. RISK FACTORS.

“Item 1A, Risk Factors” in our Annual Report on Form 10-K, as supplemented by “Item 1A, Risk Factors” in our quarterly report on Form 10-Q for the quarter ended March 31, 2023, which we refer to ~~Note 16~~as the First Quarter Form 10-Q, and by “Item 1A, Risk Factors” in our quarterly report on Form 10-Q for the quarter ended June 30, 2023, which we refer to as the Second Quarter Form 10-Q, includes a discussion of our ~~September 30, 2017 unaudited condensed consolidated financial statements for additional~~risk factors. The information ~~regarding~~should be read in conjunction with, the ~~Company’s legal proceedings.~~


~~ITEM 1A.~~	~~RISK FACTORS~~

risk factors disclosed in our Annual Report on Form 10-K, as supplemented by our First and Second Quarter Form 10-Q. There ~~has~~have been no material ~~change~~changes from the risk factors described in our ~~Prospectus filed pursuant~~Annual Report on Form 10-K, as supplemented by our First and Second Quarter Form 10-Q.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table contains information about purchases of our common stock, excluding excise tax, during the third quarter of 2023:


	Total number of shares of common stock purchased		Average price paid per share of common stock (1)		Total number of shares of common stock purchased as part of publicly announced plan or programs	Maximum number (or dollar value) of shares of common stock that may yet be purchased under the plans or programs (in thousands)
July 1, 2023—July 31, 2023	220,366	(2)	$	11.37	N/A	N/A
August 1, 2023—August 31, 2023	541,494	(3)	$	9.85	541,494	$	234,592
September 1, 2023—September 30, 2023	—		$	—	—	$	234,592
Total	761,860

(1)Excludes brokerage commissions and other costs of execution.

(2)Represents shares of common stock delivered to ~~Rule 424(b)(4)~~the Company by employees to satisfy income tax withholding obligations of the employees in connection with the ~~SEC~~vesting of restricted stock units.

(3)In April 2022, our Board of Directors approved and announced a new stock repurchase program authorizing the repurchase of up to $450 million of the Company’s outstanding common stock over the next four years. This program is expected to be funded using cash on ~~October 2, 2017.~~hand and cash generated from operations. We primarily expect to conduct the repurchase program through negotiated transactions with the Company’s equity sponsors, as well as through open market repurchases or other means, including through Rule 10b-18 trading plans or through the use of other techniques such as accelerated share repurchases. The actual timing, number and nature of shares repurchased will depend on a variety of factors, including stock, price, trading volume, and general business and market conditions. The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be amended, suspended or discontinued at any time at our discretion.

During the three months ended September 30, 2023, the Company repurchased 541,494 shares on the open market at an average price of $9.85 per share, for a total of $5.3 million, excluding brokerage commissions and accrued excise tax.

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ITEM 5. OTHER INFORMATION.

Trading Arrangements

During the three months ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each item is defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS.

The following exhibits are being filed or furnished as part of this Quarterly Report on Form 10-Q:


Exhibit No.			Description

~~ITEM 2.~~			~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~
31.1			Certification of Chief Executive Officer of Ecovyst Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer of Ecovyst Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Chief Executive Officer of Ecovyst Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer of Ecovyst Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following materials from the Quarterly Report on Form 10-Q of Ecovyst Inc. for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, (vi) Notes to Condensed Consolidated Financial Statements and (vii) document and entity information, tagged as blocks of text and including detailed tags
104			The cover page from the Quarterly Report on Form 10-Q of Ecovyst Inc. for the quarter ended September 30, 2023, formatted in Inline XBRL and included as Exhibit 101

~~Recent Sales~~

Table of ~~Unregistered Securities~~Contents

~~During the three months ended September 30, 2017, and after giving effect~~SIGNATURES

Pursuant to the automatic conversion of our Class B common stock into shares of our common stock in connection with the initial public offering, we issued an aggregate of 24,750 shares of our common stock subject to vesting conditions under the PQ Group Holdings Inc. Stock Incentive Plan. The shares were issued without registration in reliance on the exemptions afforded by Section 4(a)(2)requirements of the Securities Exchange Act ~~and Rule 701 promulgated thereunder.~~

~~Use~~ of ~~Proceeds from Initial Public Offering of Common Stock~~

~~On September 28, 2017, our Registration Statement~~1934, the registrant has duly caused this report to be signed on ~~Form S-1, as amended (File No. 333-218650), relating to our initial public offering of 29,000,000 shares of common stock was declared effective~~its behalf by the SEC. On October 3, 2017, we closed the sale of 29,000,000 shares of our common stock at a price of $17.50. Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC served as joint book-running managers of the offering. The offering commenced on September 28, 2017 and closed on October 3, 2017.undersigned thereunto duly authorized.

We raised a total of $507.5 million in gross proceeds in the initial public offering, or approximately $480.5 million in net proceeds after deducting underwriting discounts and commissions of $24.1 million and $2.9 million of offering-related expenses, net of reimbursements. On October 3, 2017, all of the net proceeds from the offering were used to redeem $446.2 million in aggregate principal amount of PQ Corporation’s Floating Rate Senior Unsecured Notes due 2022 (the “Floating Rate Senior Unsecured Notes”), together with accrued and unpaid interest, and applicable redemption premiums. Andrew Currie, a member of our board of directors, held $4.0 million in principal amount of the Floating Rate Senior Unsecured Notes, and, as a result, received a portion of the net proceeds from the initial public offering.


			Ecovyst Inc.

Date:	November 3, 2023	By:	/s/ MICHAEL FEEHAN
			Michael Feehan
			Vice President and Chief Financial Officer
			(Duly Authorized Officer and Principal Financial and Accounting Officer)


~~ITEM 6.~~	~~EXHIBITS.~~

~~The following exhibits are being filed or furnished as part of this Quarterly Report on Form 10-Q:~~



~~Exhibit No.~~	~~Description~~
~~3.1~~	~~Second Restated Certificate of Incorporation of PQ Group Holdings Inc.~~
~~3.2~~	~~Amended and Restated Bylaws of PQ Group Holdings Inc. (Incorporated by reference to Exhibit 3.2 of the Company’s Third Amendment to its Registration Statement on Form S-1 dated September 1, 2017.)~~
~~31.1~~	~~Certification of Chief Executive Officer of PQ Group Holdings Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~	~~Certification of Chief Financial Officer of PQ Group Holdings Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~	~~Certification of Chief Executive Officer of PQ Group Holdings Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~	~~Certification of Chief Financial Officer of PQ Group Holdings Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~	~~XBRL Instance Document.~~
~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~	~~XBRL Taxonomy Definition Linkbase Document.~~
~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~
~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~



			~~PQ GROUP HOLDINGS INC.~~

~~Date:~~	~~November 13, 2017~~	~~By:~~	~~/s/ MICHAEL CREWS~~
			~~Michael Crews~~
			~~Executive Vice President and Chief Financial Officer~~
			~~(Duly Authorized Officer and Principal Financial and Accounting Officer)~~



~~Delaware~~		~~81-3406833~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~

~~300 Lindenwood Drive~~ ~~Valleybrooke Corporate Center~~ ~~Malvern, Pennsylvania~~	~~19355~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~



		Page
PART I			FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited)
			~~Condensed Consolidated Balance Sheets~~	3
	Condensed Consolidated Statements of ~~Operations~~Income	43
			Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	54
			Condensed Consolidated Balance Sheets	5
			Condensed Consolidated Statements of Stockholders’ Equity	6
			Condensed Consolidated Statements of Cash Flows	78
			Notes to Condensed Consolidated Financial Statements	89
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	3029
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	5248
Item 4.			Controls and Procedures	5248

PART II			OTHER INFORMATION
Item 1.			Legal Proceedings	5348
Item 1A.			Risk Factors	5348
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	5349
Item 5.			Other Information	50
Item 6.			Exhibits	5450

	~~SIGNATURES~~	55


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Sales	$	173,326	$	232,533	$	518,310	$	637,419
Cost of goods sold	120,142		164,864		367,662		462,156
Gross profit	53,184		67,669		150,648		175,263
Selling, general and administrative expenses	16,945		21,460		59,460		67,779
Other operating expense, net	4,310		7,673		17,288		25,101
Operating income	31,929		38,536		73,900		82,383
Equity in net (income) from affiliated companies	(4,708)		(3,169)		(16,305)		(17,422)
Interest expense, net	11,811		9,542		30,812		26,880

Other expense, net	361		1,872		543		2,497
Income before income taxes	24,465		30,291		58,850		70,428
Provision for income taxes	7,891		8,966		17,625		21,983
Net income	$	16,574	$	21,325	$	41,225	$	48,445

Net income per share:
Basic income per share	$	0.14	$	0.16	$	0.35	$	0.36
Diluted income per share	$	0.14	$	0.16	$	0.34	$	0.35

Weighted average shares outstanding:
Basic	116,446,085		132,622,105		119,042,161		136,115,598
Diluted	117,374,347		134,096,839		120,417,132		137,666,215


	September 30, 2017			December 31, 2016				September 30, 2023		December 31, 2022
ASSETS							ASSETS
Cash and cash equivalents	$	68,838		$	70,742		Cash and cash equivalents	$	38,317	$	110,920
Receivables, net	212,018			160,581
Inventories	235,921			227,048
Accounts receivable, net							Accounts receivable, net	83,793		74,758
Inventories, net							Inventories, net	48,263		44,362
Derivative assets							Derivative assets	16,374		18,510
Prepaid and other current assets	29,010			34,307			Prepaid and other current assets	17,570		19,154
Total current assets	545,787			492,678			Total current assets	204,317		267,704
Investments in affiliated companies	479,366			459,406			Investments in affiliated companies	441,769		436,013
Property, plant and equipment, net	1,209,047			1,181,388			Property, plant and equipment, net	580,809		584,889
Goodwill	1,306,547			1,241,429			Goodwill	403,368		403,163
Other intangible assets, net	800,423			816,573			Other intangible assets, net	119,522		129,932
Right-of-use lease assets							Right-of-use lease assets	26,431		28,265
Other long-term assets	74,433			68,197			Other long-term assets	36,609		34,587
Total assets	$	4,415,603		$	4,259,671		Total assets	$	1,812,825	$	1,884,553
LIABILITIES							LIABILITIES
Notes payable and current maturities of long-term debt	$	54,255		$	14,481
Current maturities of long-term debt							Current maturities of long-term debt	$	9,000	$	9,000
Accounts payable	129,793			128,478			Accounts payable	32,308		40,019
Operating lease liabilities—current							Operating lease liabilities—current	8,503		8,155
Accrued liabilities	112,788			99,433			Accrued liabilities	50,611		72,229
Total current liabilities	296,836			242,392			Total current liabilities	100,422		129,403
Long-term debt	2,597,481			2,547,717
Long-term debt, excluding current portion							Long-term debt, excluding current portion	860,668		865,870
Deferred income taxes	319,738			318,463			Deferred income taxes	134,828		136,184
Operating lease liabilities—noncurrent							Operating lease liabilities—noncurrent	17,871		20,021
Other long-term liabilities	120,578			123,155			Other long-term liabilities	21,180		25,846
Total liabilities	3,334,633			3,231,727			Total liabilities	1,134,969		1,177,324
Commitments and contingencies (Note 16)
Commitments and contingencies (Note 15)							Commitments and contingencies (Note 15)
EQUITY							EQUITY
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 106,219,759 and 106,452,330 on September 30, 2017 and December 31, 2016, respectively; outstanding shares 104,109,932 and 103,947,887 on September 30, 2017 and December 31, 2016, respectively	1,062			73
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on September 30, 2017 and December 31, 2016	—			—
Common stock ($0.01 par); authorized shares 450,000,000; issued shares 140,744,045 and 139,571,272 on September 30, 2023 and December 31, 2022, respectively; outstanding shares 116,116,895 and 122,186,238 on September 30, 2023 and December 31, 2022, respectively							Common stock ($0.01 par); authorized shares 450,000,000; issued shares 140,744,045 and 139,571,272 on September 30, 2023 and December 31, 2022, respectively; outstanding shares 116,116,895 and 122,186,238 on September 30, 2023 and December 31, 2022, respectively	1,407		1,396
Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on September 30, 2023 and December 31, 2022							Preferred stock ($0.01 par); authorized shares 50,000,000; no shares issued or outstanding on September 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	1,169,778			1,167,137			Additional paid-in capital	1,099,216		1,091,475
Accumulated deficit	(97,788		)	(90,380		)	Accumulated deficit	(200,785)		(242,010)
Treasury stock, at cost; shares 21,519 on December 31, 2016	—			(239		)
Accumulated other comprehensive income (loss)	2,978			(53,711		)
Total PQ Group Holdings Inc. equity	1,076,030			1,022,880
Noncontrolling interest	4,940			5,064
Treasury stock, at cost; shares 24,627,150 and 17,385,034 on September 30, 2023 and December 31, 2022, respectively							Treasury stock, at cost; shares 24,627,150 and 17,385,034 on September 30, 2023 and December 31, 2022, respectively	(226,710)		(149,624)
Accumulated other comprehensive income							Accumulated other comprehensive income	4,728		5,992
Total equity	1,080,970			1,027,944			Total equity	677,856		707,229
Total liabilities and equity	$	4,415,603		$	4,259,671		Total liabilities and equity	$	1,812,825	$	1,884,553



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Sales	$	391,829		$	369,979		$	1,114,027		$	741,446
Cost of goods sold	289,270			274,680			821,342			557,748
Gross profit	102,559			95,299			292,685			183,698
Selling, general and administrative expenses	36,169			36,003			105,907			74,017
Other operating expense, net	19,833			15,042			47,156			40,630
Operating income	46,557			44,254			139,622			69,051
Equity in net (income) loss from affiliated companies	(10,257		)	4,616			(24,879		)	9,309
Interest expense	49,079			48,610			144,041			94,362
Debt extinguishment costs	453			—			453			11,858
Other expense, net	5,126			4,170			21,739			7,194
Income (loss) before income taxes and noncontrolling interest	2,156			(13,142		)	(1,732		)	(53,672		)
Provision for (benefit from) income taxes	5,172			(3,536		)	5,269			36,013
Net loss	(3,016		)	(9,606		)	(7,001		)	(89,685		)
Less: Net income attributable to the noncontrolling interest	329			411			407			725
Net loss attributable to PQ Group Holdings Inc.	$	(3,345	)	$	(10,017	)	$	(7,408	)	$	(90,410	)

Net loss per common share:
Basic loss per share	$	(0.03	)	$	(0.10	)	$	(0.07	)	$	(1.10	)
Diluted loss per share	$	(0.03	)	$	(0.10	)	$	(0.07	)	$	(1.10	)

Weighted average shares outstanding:
Basic	104,096,837			103,783,719			104,020,180			81,986,221
Diluted	104,096,837			103,783,719			104,020,180			81,986,221


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	~~(610) 651-4400~~ ~~(Registrant’s telephone number, including area code)~~


~~ITEM 1.~~			~~FINANCIAL STATEMENTS (UNAUDITED).~~ SIGNATURES			51



	As of September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Derivative contracts	$	1,098	$	—	$	1,098	$	—
Restoration plan assets	5,566		5,566		—		—
Total	$	6,664	$	5,566	$	1,098	$	—

Liabilities:
Derivative contracts	$	58	$	—	$	58	$	—



	As of December 31, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Derivative contracts	$	6,434	$	—	$	6,434	$	—
Restoration plan assets	5,594		5,594		—		—
Total	$	12,028	$	5,594	$	6,434	$	—



Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income												Affected Line Item in the Statement Where Net Income is Presented
	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Defined benefit and other postretirement plans
Amortization of prior service cost	$	20		$	—		$	60		$	—		(a)
Amortization of net gain (loss)	19			—			58			—			(a)
	39			—			118			—			Total before tax
	(6		)	—			(19		)	—			Tax (expense) benefit
	$	33		$	—		$	99		$	—		Net of tax

Net gain (loss) from hedging activities
Interest rate caps	$	13		$	(2	)	$	22		$	(2	)	Interest expense
Natural gas swaps	94			420			104			1,148			Cost of goods sold
	107			418			126			1,146			Total before tax
	(41		)	(159		)	(48		)	(435		)	Tax (expense) benefit
	$	66		$	259		$	78		$	711		Net of tax

Total reclassifications for the period	$	99		$	259		$	177		$	711		Net of tax



Total consideration, net of cash acquired	$	41,572

Recognized amounts of identifiable assets acquired and liabilities assumed:
Receivables	$	14,305
Inventories	7,645
Prepaid and other current assets	230
Property, plant and equipment	9,020
Other long-term assets	129

Fair value of assets acquired	31,329
Current debt	(6,420		)
Accounts payable	(10,748		)
Long-term debt	(10,189		)
Other long-term liabilities	(154		)

Fair value of net assets acquired	3,818
Goodwill	37,754
	$	41,572



	Nine months ended September 30, 2016
	(unaudited)
Pro forma sales	$	1,080,310
Pro forma net loss	(55,985		)



	Performance Materials & Chemicals		Environmental Catalysts & Services		Total
Balance as of December 31, 2016	$	852,506	$	388,923	$	1,241,429
Goodwill recognized	37,754		—		37,754
Foreign exchange impact	25,189		2,175		27,364
Balance as of September 30, 2017	$	915,449	$	391,098	$	1,306,547



			~~FORM 10-Q~~


⁽¹⁾	Transaction and other related costs primarily include acquisition costs directly attributable to the Acquisition (see Note 5 to these condensed consolidated financial statements for further information) and the Business Combination (see Note 6 to these condensed consolidated financial statements for further information), as well as other business development costs.


	September 30, 2023		December 31, 2022
Land	$	96,686	$	96,659
Buildings and improvements	83,346		82,061
Machinery and equipment	802,823		751,145
Construction in progress	47,974		56,448
	1,030,829		986,313
Less: accumulated depreciation	(450,020)		(401,424)
	$	580,809	$	584,889



	September 30, 2017			December 31, 2016
Term Loan Facility (U.S. dollar denominated)	$	918,473		$	925,430
Term Loan Facility (Euro denominated)	331,368			297,317
6.75% Senior Secured Notes due 2022	625,000			625,000
Floating Rate Senior Unsecured Notes due 2022	525,000			525,000
8.5% Senior Notes due 2022	200,000			200,000
ABL Facility	35,000			—
Other	68,207			45,223
Total debt	2,703,048			2,617,970
Original issue discount	(26,470		)	(28,497		)
Deferred financing costs	(24,842		)	(27,275		)
Total debt, net of original issue discount and deferred financing costs	2,651,736			2,562,198
Less: current portion	(54,255		)	(14,481		)
Total long-term debt	$	2,597,481		$	2,547,717


Financial instrument	Number of instruments	In effect as of September 30, 2023	Current notional amount of instruments in effect		Annuitized premium of instruments in effect
Interest rate cap	4	3	$	650,000	$	24,817



	Balance sheet location	September 30, 2017		December 31, 2016
Asset derivatives:
Derivatives designated as cash flow hedges:
Natural gas swaps	Current assets	$	—	$	573
Interest rate caps	Current assets	9		—
Natural gas swaps	Other long-term assets	7		58
Interest rate caps	Other long-term assets	1,082		5,803
Total asset derivatives		$	1,098	$	6,434
Liability derivatives:
Derivatives designated as cash flow hedges:
Natural gas swaps	Accrued liabilities	$	58	$	—
Total liability derivatives		$	58	$	—


	Location and amount of gain (loss) recognized in income on cash flow hedging relationships
	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Total amounts of income and expense line items presented in the statement of income in which the effects of cash flow hedges are recorded in interest (expense) income	$	(11,811)	$	(9,542)	$	(30,812)	$	(26,880)
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships:
Interest contracts:
Amount of loss reclassified from AOCI into income	6,048		(29)		17,933		(627)



	U.S.						Foreign
	Three months ended September 30,						Three months ended September 30,
	2017			2016			2017			2016
Service cost	$	305		$	547		$	859		$	792
Interest cost	2,536			2,522			1,339			837
Expected return on plan assets	(3,061		)	(3,104		)	(1,111		)	(769		)
Net periodic expense (benefit)	$	(220	)	$	(35	)	$	1,087		$	860


⁽¹⁾			Excludes the Company’s proportionate share of sales from the Zeolyst International and Zeolyst C.V. joint ventures (collectively, the “Zeolyst Joint Venture”) accounted for using the equity method (see Note 10 to these condensed consolidated financial statements for further information). The proportionate share of sales is $37,622 and $28,184 for the three months ended September 30, 2017 and 2016, respectively. The proportionate share of sales is $100,991 and $48,461 for the nine months ended September 30, 2017 and 2016, respectively.


⁽²⁾	~~The Company eliminates intersegment sales when reconciling to the Company’s consolidated statements of operations.~~


⁽³⁾	The Company defines Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBITDA. Adjusted EBITDA should not be considered as an alternative to net income as an indicator of the Company’s operating


⁽⁵⁾	~~Total Segment Adjusted EBITDA differs from the Company’s consolidated Adjusted EBITDA due to unallocated corporate expenses.~~


Expected dividend yield	—	%
Risk-free interest rate	3.80	%
Expected volatility	48.82	%
Expected term (in years)	2.96


	Restricted Stock Units			Performance Stock Units
	Number of units	Weighted average grant date fair value (per share)		Number of units		Weighted average grant date fair value (per share)
Nonvested as of December 31, 2022	2,464,718	$	11.73	639,532	(1)	$	16.32
Granted	1,195,835	$	9.84	721,537		$	12.28
Vested	(1,436,301)	$	11.84	(200,204)		$	20.48
Forfeited	(195,334)	$	11.37	(183,864)		$	19.50
Nonvested as of September 30, 2023	2,028,918	$	10.57	977,001	(1)	$	11.88



	Legacy Eco Restructuring Plan			Performance Materials Plant Closure		Total Restructuring Charges
Balance at December 31, 2016	$	1,643		$	—	$	1,643
Restructuring charges	830			3,868		4,698
Cash payments	(1,971		)	—		(1,971		)
Balance at September 30, 2017	$	502		$	3,868	$	4,370


~~ITEM 2.~~	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.



	Historical
	Three months ended September 30,				Change
	2017		2016		$			%
	(in millions, except percentages)
Net Sales:
Performance Chemicals	$	175.5	$	167.8	$	7.7		4.6	%
Performance Materials	104.4		90.2		14.2			15.7	%
Eliminations	(2.8)		(1.9)		(0.9)			47.4	%
Performance Materials & Chemicals	$	277.1	$	256.1	$	21.0		8.2	%

Silica Catalyst	$	15.1	$	21.0	$	(5.9	)	(28.1	)%
Refining Services	100.4		93.3		7.1			7.6	%
Environmental Catalysts & Services	115.5		114.3		1.2			1.1	%

Inter-segment sales eliminations	(0.8)		(0.4)		(0.4)			100.0	%

Total net sales	$	391.8	$	370.0	$	21.8		5.9	%



	Historical											Historical			Pro Forma
	Nine Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2017			2016			$			%		2017			2016			$			%
	(in millions, except percentages)
Sales	$	1,114.0		$	741.4		$	372.6		50.3	%	$	1,114.0		$	1,080.3		$	33.7		3.1	%
Cost of goods sold	821.3			557.7			263.6			47.3	%	821.3			791.2			30.1			3.8	%
Gross profit	292.7			183.7			109.0			59.3	%	292.7			289.1			3.6			1.2	%
Gross profit margin	26.3		%	24.8		%						26.3		%	26.8		%
Selling, general and administrative expenses	105.9			74.0			31.9			43.1	%	105.9			111.5			(5.6		)	(5.0	)%
Other operating expense, net	47.2			40.6			6.6			16.3	%	47.2			55.9			(8.7		)	(15.6	)%
Operating income	139.6			69.1			70.5			102.0	%	139.6			121.7			17.9			14.7	%
Operating income margin	12.5		%	9.3		%						12.5		%	11.3		%
Equity in net (income) loss of affiliated companies	(24.9		)	9.3			(34.2		)	(367.7	)%	(24.9		)	(8.9		)	(16.0		)	179.8	%
Interest expense, net	144.0			94.4			49.6			52.5	%	144.0			142.6			1.4			1.0	%
Debt extinguishment costs	0.5			11.9			(11.4		)	(95.8	)%	0.5			—			0.5			—	%
Other expense, net	21.7			7.2			14.5			201.4	%	21.7			1.7			20.0			1,176.5	%
Loss before income taxes and noncontrolling interest	(1.7		)	(53.7		)	52.0			(96.8	)%	(1.7		)	(13.7		)	12.0			(87.6	)%
Provision for income taxes	5.3			36.0			(30.7		)	(85.3	)%	5.3			42.3			(37.0		)	(87.5	)%
Effective tax rate	-304.2		%	-67.1		%						-304.2		%	-308.4		%
Net loss	(7.0		)	(89.7		)	82.7			(92.2	)%	(7.0		)	(56.0		)	49.0			(87.5	)%
Less: Net income attributable to the noncontrolling interest	0.4			0.7			(0.3		)	(42.9	)%	0.4			1.4			(1.0		)	(71.4	)%
Net loss attributable to PQ Group Holdings Inc.	$	(7.4	)	$	(90.4	)	$	83.0		(91.8	)%	$	(7.4	)	$	(57.4	)	$	50.0		(87.1	)%



	September 30, 2017		December 31, 2016
	(in millions)
Term Loan Facility (U.S. dollar denominated)	$	918.5	$	925.4
Term Loan Facility (Euro denominated)	331.4		297.3
6.75% Senior Secured Notes due 2022	625.0		625.0
Floating Rate Senior Unsecured Notes due 2022	525.0		525.0
8.5% Senior Notes due 2022	200.0		200.0
ABL Facility	35.0		—
Other	68.2		45.2
Total debt	2,703.1		2,617.9
Original issue discount	(26.5)		(28.5)
Deferred financing costs	(24.8)		(27.3)
Total debt, net of original issue discount and deferred financing costs	2,651.8		2,562.1
Less: current portion	(54.3)		(14.5)
Total long-term debt	$	2,597.5	$	2,547.6