First Quarter 2020 Highlights
Net sales of $421.5 million, down 10.2%, or down 9.2% on constant currency, including estimated 4.3%, or $20 million, COVID-19 impactDiluted EPS of $0.63, up $0.26 primarily due to 1Q19 pretax charge for estimated costs related to legacy liabilities which did not repeat in 1Q20Adjusted EPS of $0.71, down $0.22 including estimated $0.10 COVID-19 net impact; high end of February 4, 2020 outlook rangeCOVID-19 UpdateFully implemented pandemic response plan to ensure health and safety of our employees, including significant new safety protocols throughout our global operationsFocused on business continuity for our customers; no material impact to global manufacturing operations and supply chainDecisive actions to adjust operations, including reducing full year 2020 capital spending by $35-$40 million, working capital by $35-$40 million, and operating costs by $25-$30 millionStrong Financial Position and Cash FlowStrong financial position and resilient cash flows; over $600 million of available liquidity, including over $190 million cash-on-hand, as of March 31, 2020Fully committed to maintaining dividend; declared 2Q20 quarterly cash dividend of $0.30 per shareTemporarily suspended share repurchases; repurchased $40.4 million of common stock during 1Q20(See Analysis of Operations and Notes for information on Non-GAAP financial measures; all results based on year-over-year comparison unless otherwise noted.)COLUMBIA, Md., April 30, 2020 (GLOBE NEWSWIRE) — W. R. Grace & Co. (NYSE: GRA) today announced financial results for the first quarter of 2020.“Grace is well positioned to meet the operating and financial challenges caused by the global pandemic,” said Hudson La Force, Grace’s President and Chief Executive Officer.“Our first priority is the health and safety of our employees. We have fully implemented our pandemic response plan, including significant new safety protocols throughout our operations. We are also focused on business continuity for our customers.“I want to thank our 4,000 employees around the world for their extraordinary efforts that have enabled us to safely maintain a high level of productivity and continue to deliver value to our customers.“Based on discussions with our customers, current economic indicators, and our extensive experience in our markets, we are planning for a 20-25% year-over-year decrease in sales in the second quarter, consistent with demand declines in our primary end markets.“In response, we have taken decisive actions to adjust our operations and focus on cash flow, including lowering capital spending, improving working capital, and reducing operating costs.”Strong Financial Position and Focus on Cash Generation“Grace’s balance sheet is strong and as always we are using cash flow to guide our economic response decisions,” said Bill Dockman, Grace’s Senior Vice President and Chief Financial Officer. “Our resilient cash flows and ample liquidity will allow us to successfully navigate these uncertain times without stressing our balance sheet. We will remain nimble and take immediate additional actions if necessary.”Ample Liquidity: Over $600 million in available liquidity, including over $190 million of cash-on-hand, at March 31, 2020. We have not drawn on our revolver.Resilient Cash Flows: Decisive actions to support cash flow include:Lowering capital spending by $35-$40 million;Improving working capital to generate $35-$40 million of cash flow;Reducing operating costs by $25-$30 million; andAligning production volumes to match near-term demand.Well Positioned Balance Sheet and Limited Debt Service:No material maturities related to our term loans, revolving credit facility or bonds until September 2021;Net debt of $1.8 billion and net debt to trailing twelve months Adjusted EBITDA of 3.2x at March 31, 2020; andOne revolver maintenance covenant; not expected to affect ability to access the full amount of the facility.Minimal Pension Funding Requirements:U.S. qualified pension plans are well funded; expected cash contributions of approximately $1 million per year for the next three years;Cash contributions related to pay-as-you-go, unfunded plans and non-U.S. pension plans expected to be approximately $15 million per year for the next three years; andCash contributions and pension expense consistent with 2019, and fully reflected in operating cash flows and EBITDA.First Quarter Consolidated PerformanceFirst quarter sales of $421.5 million decreased 10.2%, down 9.2% on constant currency. Sales growth was impacted by lower sales volumes (-10.9%) including an estimated 4%, or $20 million, impact related to COVID-19. Lower customer demand resulted from the weak manufacturing environment and significantly higher refinery customer turnarounds, in line with our expectations communicated February 4, 2020. The decline in sales was partially offset by improved pricing (+1.7%).Net income of $42.0 million was up 70.0% and Diluted EPS of $0.63 was up 70.3%, primarily due to a pre-tax charge taken in 1Q19 for estimated costs related to legacy liabilities which did not repeat in 1Q20.Adjusted EBIT of $82.3 million was down 21.4% and Adjusted EPS of $0.71 was down 23.7%. The estimated net impact to Adjusted EBIT and Adjusted EPS related to COVID-19 in the quarter was $10 million and $0.10 per share, respectively.Adjusted Free Cash Flow of $9.3 million decreased $33.5 million primarily due to lower Adjusted EBIT of $22 million and $19 million in higher capital expenditures primarily related to our strategic growth investments.Delivering on Our Strategic Initiatives“The disruption from the pandemic is temporary and does not change our profitable growth strategy or the long-term value of our strategic growth initiatives” continued La Force. “We continue to invest in accelerating our growth and extending our competitive advantages.”Grace’s strategic framework for profitable growth includes four elements:Invest to accelerate growth and extend our competitive advantagesInvest in great people to strengthen our high-performance cultureExecute the Grace Value Model to drive operating excellenceAcquire to build our technology and manufacturing capabilities for our customersFirst Quarter Segment PerformanceCatalysts TechnologiesCatalysts Technologies includes catalysts and related products and technologies used in petrochemical, refining, and other chemical manufacturing applications.First quarter sales of $308.0 million decreased 11.9%, down 11.2% on constant currency, impacted by lower sales volumes (-13.3%), partially offset by improved pricing (+2.1%) in both businesses.Refining Technologies sales decreased 7.3% primarily due to higher refinery turnaround activity and the June 2019 closure of a North American refinery, in line with our expectations. FCC catalysts pricing improved more than 200 bps for the trailing twelve months.Specialty Catalysts sales decreased 17.0% primarily due to lower sales volumes in chemical catalysts for industrial applications and in polyolefin catalysts due to the weak manufacturing environment as well as an estimated 10% impact related to COVID-19. The impact to sales volumes from the weak manufacturing environment and COVID-19 pandemic was in line with our expectations.Gross margin of 40.7% decreased 170 bps, primarily due to under-absorbed fixed costs resulting from lower production volumes in 4Q19 and 1Q20 in response to the weak manufacturing environment and lower sales volumes, partially offset by improved pricing and lower raw materials and energy costs.Operating income of $82.0 million was down $19.7 million, or 19.4%, primarily due to lower gross profit and lower income from our ART joint venture (-$2.9 million), partially offset by $8.0 million of insurance recoveries in the quarter. As discussed in 1Q20, ART earnings are expected to be heavily weighted to 2H20 due to back-end loaded customer orders and timing of new hydroprocessing catalysts capacity coming on line.In July 2019, a North American FCC catalysts customer filed for bankruptcy protection after announcing that it would not resume refinery operations following a fire in its refinery. Grace received insurance recoveries of $8.0 million in 1Q20, as well as $8.0 million in 4Q19 under its business interruption insurance policy for lost profits. The policy has a $25 million limit per event. Grace expects to receive an additional $9.0 million of insurance recoveries related to this event in the remainder of 2020.Materials TechnologiesMaterials Technologies includes specialty materials, including silica-based and silica-alumina-based materials, used in consumer/pharma, coatings, and chemical process applications.First quarter sales of $113.5 million decreased 5.3%, down 3.4% on a constant currency basis. Sales growth was impacted by lower sales volumes (-4.0%), partially offset by improved pricing (+0.6%). Lower sales volumes were primarily due to the expected weak manufacturing environment, and included an estimated 2.5% impact related to COVID-19, primarily in coatings and chemical process applications.Gross margin of 33.0% decreased 340 bps, primarily due to under-absorbed fixed costs resulting from lower production volumes in 4Q19 and 1Q20 in response to the weak manufacturing environment and lower sales volumes, partially offset by lower raw materials and energy costs, improved pricing and favorable mix.Operating income of $19.0 million was down $5.0 million, or 20.8%.Capital AllocationCapital investments: Year to date, we spent $57.1 million primarily to complete new capacity additions to meet long-term customer demand and support operating excellence investments and other priorities.

Prior to the COVID-19 pandemic, our forecast for capital spending in 2020 was approximately $195 million. We have lowered our forecast for the full year by $35-$40 million and are delaying new projects intended to add capacity or debottleneck operations that do not create near-term value given current demand levels. We have not reduced EHS or maintenance capital.

Share repurchase program: In 1Q20, we repurchased approximately 674,000 shares of Grace common stock through March 5 for $40.4 million, at an average per share price of $59.98.

On April 3, we announced we temporarily suspended share repurchases in light of the COVID-19 pandemic. We believe this action, while conservative, is appropriate given the uncertainty regarding the duration and severity of the pandemic.

Dividend: In 1Q20, we paid $20.5 million in cash dividends to shareholders. We remain fully committed to maintaining our quarterly cash dividend.M&A: Strategic bolt-on acquisitions remain important to our long-term strategy. However, we are slowing down these activities given the economic environment, the currently elevated business and integration risks, and our leverage profile.Financial Outlook and 2Q20 Planning AssumptionsFull-Year 2020 Outlook and 2016-2021 Financial FrameworkGiven the significant uncertainty associated with the COVID-19 pandemic, including the duration and severity of the global recession, it is prudent to suspend our February 4, 2020 financial outlook, along with our 2016-2021 Financial Framework. We expect to reinstate our financial outlook and long-term financial framework at the appropriate time.2Q20 Planning AssumptionsWe are planning for 2Q20 quarter sales to be down 20-25% year-over-year. We are planning for 2Q20 gross margin to decrease 500-800 bps year-over-year as a result of lower fixed cost absorption (200-300 bps) and reduced inventory levels (300-500 bps). We expect gross margins to recover as demand increases.Investor CallWe will host an investor conference call and webcast to discuss these results today at 9:00 a.m. ET. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast, and may be accessed from our website at http://investor.grace.com. Participants should access the webcast prior to the start of the call to register for the event and install and test any necessary software. The webcast will be archived on the company’s website for one year.Those without access to the internet can participate by dialing +1 844.583.4545 (U.S.) or +1 825.312.2263 (International). The participant passcode is 7871337. Investors are advised to dial into the call at least 10 minutes early in order to register.An audio replay will be available for one week after 1:00 p.m. ET on April 30. The replay will be accessible by dialing +1 800.585.8367 (U.S.) or +1 416.621.4642 (International) and entering the participant passcode 7871337.About GraceBuilt on talent, technology, and trust, Grace is a leading global supplier of catalysts and engineered materials. The company’s two industry-leading business segments—Catalysts Technologies and Materials Technologies—provide innovative products, technologies, and services that enhance the products and processes of our customers around the world. With approximately 4,000 employees, Grace operates and/or sells to customers in over 60 countries. More information about Grace is available at grace.com.Forward-Looking StatementsThis announcement contains forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, statements regarding: expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology; benefits from cost reduction initiatives, plans and objectives; succession planning; and markets for securities. For these statements, Grace claims the protections of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Grace is subject to risks and uncertainties that could cause actual results or events to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results or events to differ materially from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in areas of active conflicts and in emerging regions; the costs and availability of raw materials, energy and transportation; the effectiveness of Grace’s research and development and growth investments; acquisitions and divestitures of assets and businesses; developments affecting Grace’s outstanding indebtedness; developments affecting Grace’s pension obligations; legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace; its legal and environmental proceedings; environmental compliance costs (including existing and potential laws and regulations pertaining to climate change); the inability to establish or maintain certain business relationships; the inability to hire or retain key personnel; natural disasters such as storms and floods; fires and force majeure events; the economics of our customers’ industries, including the petroleum refining industry; public health and safety concerns, including pandemics and quarantines; changes in tax laws and regulations; international trade disputes, tariffs, and sanctions; the potential effects of cyberattacks; and those additional factors set forth in Grace’s most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, which have been filed with the Securities and Exchange Commission and are readily available on the internet at www.sec.gov. Grace’s reported results should not be considered as an indication of its future performance. Readers are cautioned not to place undue reliance on Grace’s projections and forward-looking statements, which speak only as of the dates those projections and statements are made. Grace undertakes no obligation to release publicly any revisions to the projections and forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this announcement.
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Operations (unaudited)
W. R. Grace & Co. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
W. R. Grace & Co. and Subsidiaries
Consolidated Balance Sheets (unaudited)
W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
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W. R. Grace & Co. and Subsidiaries
Analysis of Operations (unaudited)
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Notes to the Financial Information“Legacy matters” include legacy (i) product, (ii) environmental, and (iii) other liabilities, relating to past activities of Grace.In the 2020 first quarter, the definition of Adjusted EBIT was modified to adjust for the effects of interest and taxes on equity in earnings of unconsolidated affiliate. The definition of Adjusted EBITDA was modified to adjust for the effects of depreciation and amortization on equity in earnings of unconsolidated affiliate. Grace made these changes to provide clarity about the impacts of these items on Grace’s equity in earnings of unconsolidated affiliate and to improve consistency in Grace’s application of non-GAAP financial measures. Previously reported amounts were revised to conform to the current presentation.Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constant currency, and Organic sales growth do not purport to represent income or liquidity measures as defined under U.S. GAAP, and should not be considered as alternatives to such measures as an indicator of Grace’s performance or liquidity.Grace uses Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. Grace uses Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of its strategic and operating decisions by excluding the earnings effects of legacy matters; restructuring and repositioning activities; certain acquisition-related items; and certain other items that are not representative of underlying trends.Grace uses Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. Grace uses Adjusted EBIT Return On Invested Capital in making operating and investment decisions and in balancing the growth and profitability of operations. Grace uses Net Sales, constant currency as a performance measure to compare current period financial performance to historical financial performance by excluding the impact of foreign currency exchange rate fluctuations that are not representative of underlying business trends and are largely outside of its control. Grace uses Organic sales growth to measure its businesses’ sales performance, excluding the impacts of acquisitions.Grace uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, and to provide a return of capital to shareholders. Grace also uses Adjusted Free Cash Flow as a performance measure in determining certain incentive compensation.Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constant currency, and Organic sales growth do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measures as an indicator of Grace’s performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of Grace’s financial results, and to ensure that investors and others understand the information Grace uses to evaluate the performance of its businesses. They distinguish the operating results of Grace’s current business base from the costs of Grace’s legacy matters; restructuring and repositioning activities; and certain other items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP.Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy matters, and may exclude income and expenses from restructuring and repositioning activities, which historically have been material components of Grace’s net income. Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. Grace’s business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. Grace compensates for the limitations of these measurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income and net income attributable to Grace shareholders, measured under U.S. GAAP, for a complete understanding of Grace’s results of operations.Grace is unable without unreasonable efforts to estimate the annual mark-to-market pension adjustment or future net income or diluted EPS. Without the availability of this significant information, Grace is unable to provide reconciliations for certain forward-looking information set forth in the Outlook, above.NM – Not Meaningful

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