ALBANY INTERNATIONAL CORP /DE/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes. Forward-looking statements This quarterly report and the documents incorporated or deemed to be incorporated by reference in this quarterly report contain statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” ”look for,” “will,” “should,” “guidance,” “guide” and similar expressions identify forward-looking statements, which generally are not historical in nature. Because forward-looking statements are subject to certain risks and uncertainties, (including, without limitation, those set forth in the Company’s most recent Annual Report on Form 10-K or prior Quarterly Reports on Form 10-Q) actual results may differ materially from those expressed or implied by such forward-looking statements. There are a number of risks, uncertainties, and other important factors that could cause actual results to differ materially from the forward-looking statements, including, but not limited to: • Conditions in the industries in which our Machine Clothing and Albany Engineered Composites segments compete, along with the general risks associated with macroeconomic conditions, including continuation of COVID-19 pandemic effects for an extended period of time; • Across the entire Company, increasing labor, raw material, energy, and logistic costs due to supply chain constraints and inflationary pressures; challenges that have only increased as a result of the ongoing Russia-Ukraine war; • In the Machine Clothing segment, greater than anticipated declines in the demand for publication grades of paper, or lower than anticipated growth in other paper grades; • In the Albany Engineered Composites segment, longer-than-expected timeframe for the aerospace industry to utilize existing inventories, and unanticipated reductions in demand, delays, technical difficulties or cancellations in aerospace programs that are expected to generate revenue and drive long-term growth; • Failure to achieve or maintain anticipated profitable growth in our Albany Engineered Composites segment; and • Other risks and uncertainties detailed in this report and other periodic reports. Further information concerning important factors that could cause actual events or results to be materially different from the forward-looking statements can be found in “Business Environment Overview and Trends” sections of this quarterly report, as well as in Item 1A-“Risk Factors” section of our most recent Annual Report on Form 10-K. Although we believe the expectations reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements included or incorporated by reference in this report are made on the basis of our assumptions and analyses, as of the time the statements are made, in light of our experience and perception of historical conditions, expected future developments, and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained or incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. 18 Business Environment Overview and Trends Our reportable segments, Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”) draw on the same advanced textiles and materials processing capabilities, and compete on the basis of product-based advantage that is grounded in those core capabilities. The MC segment is the Company’s long-established core business and primary generator of cash. While it has been negatively impacted by well-documented declines in publication grades in the Company’s traditional markets, there has been some offsetting effect due to growth in demand for packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South America. We feel we are well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Some of the markets in which our products are sold are expected to have low levels of growth and we face pricing pressures in all markets. Despite these market pressures on revenue, the MC business retains the potential for maintaining stable earnings in the future. MC has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality. The AEC segment provides significant longer term growth potential for the Company. Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group ("SAFRAN") and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 16 percent of the Company’s consolidated Net sales in 2022. AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine. AEC’s current portfolio of non-3D programs includes components for the CH-53K helicopter, components for the F-35, missile bodies for Lockheed Martin’s JASSM air-to-surface missiles, fuselage components for the Boeing 787, and vacuum waste tanks for Boeing 7-Series aircraft. AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets. In 2022, approximately 46 percent of AEC sales were related to U.S. government contracts or programs. 19 Consolidated Results of Operations Net sales The following table summarizes our Net sales by business segment: Three months ended March 31, (in thousands, except percentages) 2023 2022 % Change Machine Clothing $153,222 $154,062 -0.5 % Albany Engineered Composites 115,874 90,107 28.6 % Total $269,096 $244,169 10.2 % The following tables provide a comparison of 2023 Net sales, excluding currency translation effects, to 2022 Net sales: (in thousands, except percentages) Net sales as reported, Q1 2023 Decrease due to changes in currency translation rates Q1 2023 sales on same basis as Q1 2022 currency translation rates Net sales as reported, Q1 2022 % Change compared to Q1 2022, excluding currency rate effects Machine Clothing $ 153,222 $ (3,468) $ 156,690 $ 154,062 1.7 % Albany Engineered Composites 115,874 (1,496) 117,370 90,107 30.3 % Total $ 269,096 $ (4,964) $ 274,060 $ 244,169 12.2 % Changes in currency translation rates had the effect of decreasing Net sales by $5.0 million, driven by the weaker Euro and Renminbi, as compared to 2022. Excluding the effect of changes in currency translation rates, consolidated Net sales increased 12.2%. Net sales at MC increased 1.7%, driven by higher net sales in packaging and publication grades, and AEC Net sales increased 30.3%, primarily driven by growth in CH-53K and LEAP programs. Gross Profit The following table summarizes Gross profit by business segment: Three months ended March 31, (in thousands, except percentages) 2023 2022 Machine Clothing $ 77,855 $ 79,345 Albany Engineered Composites 21,463 12,259 Total $ 99,318 $ 91,604 % of Net sales 36.9 % 37.5 % The increase in 2023 Gross profit, as compared to the same period last year, was due to increased Net sales at AEC. Gross profit as a percentage of sales: • At MC, decreased from 51.5% in 2022 to 50.8% in 2023, due to an increase in input costs, mainly due to the inflationary environment. • At AEC, increased from 13.6% in 2022 to 18.5% in 2023, driven by improved absorption and the absence of a raw material reserve recorded in the prior year, offset by losses on a new program. 20 Selling, Technical, General, and Research ("STG&R") The following table summarizes STG&R expenses by business segment: Three months ended March 31, (in thousands, except percentages) 2023 2022 Machine Clothing $ 28,871 $ 29,477 Albany Engineered Composites 12,045 11,064 Corporate expenses 17,840 12,055 Total $ 58,756 $ 52,596 % of Net sales 21.8 % 21.5 % Consolidated STG&R expenses increased 11.7% as compared to 2022, but represented a fairly consistent percentage of Net Sales. • MC STG&R expenses remained largely in line with the prior year and improved $0.7 million as a result of changes in currency translation rates, notably the weaker Euro and Renminbi • AEC Research expense increased related to investments in new technologies and enhanced capabilities, driving higher STG&R as compared to the prior year • Corporate STG&R expenses increased principally due to higher personnel-related costs and professional fees Restructuring Expense, net In addition to the items discussed above affecting Gross profit and STG&R expenses, Operating income was affected by restructuring expense, net, which was insignificant in both the current and prior year, and was related primarily to the winding down of restructuring actions taken in prior periods. Operating Income The following table summarizes operating income/(loss) by business segment: Three months ended March 31, (in thousands) 2023 2022 Machine Clothing $ 48,964 $ 49,644 Albany Engineered Composites 9,418 1,195 Corporate expenses (17,840) (12,085) Total $ 40,542 $ 38,754 Other Earnings Items Three months ended March 31, (in thousands) 2023 2022 Interest expense, net $ 3,290 $ 3,609 Other (income)/expense, net (455) (3,928) Income tax expense 10,621 10,998 Net income attributable to the noncontrolling interest 197 338 Interest Expense, net Interest expense, net, decreased over the prior year as a result of higher interest earned on Cash and cash equivalents, in addition to decreased interest expense on Finance leases. See the Working Capital, Liquidity and Capital Structure section for further discussion of borrowings and interest rates. 21 Other (income)/expense, net Other (income)/expense, net includes losses related to the revaluation of nonfunctional-currency balances of $0.1 million, as compared to gains of $3.7 million during 2022, driven by changes in exchange rates. Income Tax expense/(benefit) The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21 percent during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and non-U.S. jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The Company’s effective tax rate for the first quarter of 2023 was 28.2%, compared to 28.1% for the same period in 2022. The effective tax rate for the first quarter of 2023 includes the impact of certain tax planning initiatives related to future repatriation of additional earnings to the U.S. and managing overall cash tax exposure. For more information on income tax, see Note 5 to the Consolidated Financial Statements. 22 Segment Results of Operations Machine Clothing Segment Machine Clothing is our primary business segment and accounted for 57% of our consolidated revenues during the first three months of 2023. MC products are purchased primarily by manufacturers of paper and paperboard. We feel we are well-positioned in these markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand. Additionally, we face pricing pressures in all of our markets. The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology, and to maintain our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement. Review of Operations Three months ended March 31, (in thousands, except percentages) 2023 2022 Net sales $ 153,222 $ 154,062 Gross profit 77,855 79,345 % of Net sales 50.8 % 51.5 % STG&R expenses 28,871 29,477 Operating income 48,964 49,644 Net Sales Changes in currency translation rates, driven by a weaker Euro and Renminbi, decreased 2023 net sales by $3.5 million compared to 2022. Excluding the effect of changes in currency translation rates, Net sales in MC increased 1.7% compared to 2022, driven by higher net sales in packaging and publication grades. Gross Profit The decrease in MC Gross profit was driven by higher input costs. This had the effect of decreasing Gross margin from 51.5% in 2022 to 50.8% in 2023. Operating Income The decrease in Operating income was principally due to the decrease in Gross profit noted above, offset partially by lower STG&R expenses, reflecting the benefit from changes in currency translation rates. Albany Engineered Composites ("AEC") Segment The AEC segment provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer, SAFRAN Group, owns a 10 percent noncontrolling interest. AEC, through ASC, is the exclusive supplier to the LEAP program of advanced composite fan blades and fan cases under a long-term supply contract. The LEAP engine is used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft. Other significant programs by AEC include the Sikorsky CH-53K, F-35, JASSM, and Boeing 787 programs. AEC also supplies vacuum waste tanks for the Boeing 7-Series programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. 23 Review of Operations Three months ended March 31, (in thousands, except percentages) 2023 2022 Net sales $ 115,874 $ 90,107 Gross profit 21,463 12,259 % of Net sales 18.5 % 13.6 % STG&R expenses 12,045 11,064 Operating income 9,418 1,195 Net Sales Net sales increased 28.6% compared to prior year, driven by growth in CH-53K and LEAP programs. Excluding the effect of changes in currency translation rates, the increase in Net sales was 30.3%. AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus-fee agreement. Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for the first three months of 2023 and 2022. In addition, AEC has long-term contracts in which the selling price is fixed. In accounting for those contracts, we estimate the profit margin expected at the completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach. Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue and gross profit in any reporting period. For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as period expenses. Expected losses on projects include losses on contract options that are probable of exercise, excluding profitable options that often follow. Gross Profit The increase in Gross profit was primarily due to increased Net Sales, driven by growth on CH-53K and LEAP programs. Gross profit as a percentage of sales increased from 13.6% in 2022 to 18.5% in 2023, driven by improved absorption and the absence of a raw material reserve recorded in the prior year, offset by losses on a new program. Operating Income Operating income increased year over year, principally due to higher Net sales and Gross profit, as described above, partially offset by an increase in Research expenses related to investments in new technologies and enhanced capabilities. 24 Working Capital, Liquidity and Capital Structure Cash Flow Summary Three months ended March 31, (in thousands) 2023 2022 Net income $ 27,086 $ 28,075 Depreciation and amortization 17,367 17,762 Changes in working capital (a) (48,388) (42,676) Changes in other noncurrent liabilities and deferred taxes (880) (122) Other operating items (11,578) (8,430) Net cash used in operating activities (16,393) (5,391) Net cash used in investing activities (16,275) (15,754) Net cash provided by financing activities 41,086 26,875 Effect of exchange rate changes on cash and cash equivalents 4,064 (351) Increase in cash and cash equivalents 12,482 5,379 Cash and cash equivalents at beginning of year 291,776 302,036 Cash and cash equivalents at end of period $ 304,258 $ 307,415 (a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable, and Accrued liabilities. Net cash used in operating activities was $16.4 million in 2023, compared to $5.4 million in the same period last year. Such increase was primarily due to AEC's investment in working capital, as we continue to execute on the expanded CH-53K scope of work and build-up inventory to position ourselves for ongoing demand on the LEAP program. We deploy our cash with a focus on investing in our business and new technologies to provide our customers with enhanced capabilities, increase shareholder value, and position ourselves to take advantage of new business opportunities as they arise. Based on such strategy, we have continued to invest in our business and technologies through capital expenditures, research and development, and when appropriate, selective business acquisitions. Our capital expenditures totaled $16.3 million and $15.8 million for the first three months of 2023 and 2022, respectively, comprised of both sustaining and return seeking projects. In the recent past, a portion of our capital expenditures consisted of investments to improve operational productivity, in addition to producing a meaningful impact on energy and resource efficiency. Net cash provided by financing activities during 2023 was $41.1 million compared to $26.9 million in 2022, driven by the absence of Treasury share purchases in the current year, which resulted in lower borrowings from the revolving credit facility, as compared to the prior year. Liquidity and Capital Structure We finance our business activities principally with cash generated from operations and borrowings, largely through our revolving credit agreement as discussed below. Our subsidiaries outside of the United States may also maintain working capital lines with local banks, but borrowings under such local facilities tend to be insignificant. Under our $700 million unsecured Credit Agreement, $491.0 million of borrowings were outstanding as of March 31, 2023. As of March 31, 2023, we had cash and cash equivalents of $304 million and availability under our Credit Agreement of $209 million, for a total liquidity of approximately $513 million. We believe cash flows from operations and the availability of funds under our Credit Agreement will be adequate to cover our operations and business needs over the next twelve months. For more information on the revolving credit agreement, see Note 13 to the Consolidated Financial Statements. As of March 31, 2023, $273 million of our total cash and cash equivalents was held by non-U.S. subsidiaries. The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were in excess of $201 m illion at March 31, 2023, and are intended to remain indefinitely invested in foreign operations. Our cash planning strategy includes repatriating current earnings in excess of working capital requirements from certain countries in which our subsidiaries operate. While we have been successful in such endeavor to date, there 25 can be no assurance that we will be able to cost effectively repatriate funds in the future. Repatriating such cash from certain jurisdictions may also result in additional withholding taxes. We have also returned cash to shareholders through dividends and share repurchases. During the first three months of 2023, we paid $7.8 million in dividends. Off-Balance Sheet Arrangements As of March 31, 2023, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K. Non-GAAP Measures This Form 10-Q contains certain non-GAAP measures that should not be considered in isolation or as a substitute for the related GAAP measures. Such non-GAAP measures include net sales and percent change in net sales, excluding the impact of currency translation effects; EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin; Net debt; Net leverage ratio; and Adjusted earnings per share (or Adjusted EPS). Management believes that these non-GAAP measures provide additional useful information to investors regarding the Company’s operational performance. Presenting Net sales and change in Net sales, after currency effects are excluded, provides management and investors insight into underlying sales trends. Net sales, or percent changes in net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts are then compared to the U.S. dollar amount as reported in the current period. EBITDA (calculated as net income excluding interest, income taxes, depreciation and amortization), Adjusted EBITDA, and Adjusted EPS are performance measures that relate to the Company’s continuing operations. The Company defines Adjusted EBITDA as EBITDA excluding costs or benefits that are not reflective of the Company’s ongoing or expected future operational performance. Such excluded costs or benefits do not consist of normal, recurring cash items necessary to generate revenues or operate our business. Adjusted EBITDA margin represents Adjusted EBITDA expressed as a percentage of net sales. The Company defines Adjusted EPS as basic earnings per share (GAAP), adjusted by the after tax per share amount of costs or benefits not reflective of the Company’s ongoing or expected future operational performance. The income tax effects are calculated using the applicable statutory income tax rate of the jurisdictions where such costs or benefits were incurred or the effective tax rate applicable to total company results. The Company’s Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted EPS may not be comparable to similarly titled measures of other companies. Net debt aids investors in understanding the Company’s debt position if all available cash were applied to pay down indebtedness. Net leverage ratio informs the investors of the Company's financial leverage at the end of the reporting period, providing an indicator of the Company's ability to repay its debt. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. 26 The following tables show the calculation of EBITDA and Adjusted EBITDA: Three months ended March 31, 2023 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Net income/(loss) (GAAP) $ 48,964 $ 9,418 $ (31,296) $ 27,086 Interest expense, net — — 3,290 3,290 Income tax expense — — 10,621 10,621 Depreciation and amortization expense 4,775 11,664 928 17,367 EBITDA (non-GAAP) 53,739 21,082 (16,457) 58,364 Restructuring expenses, net 20 — — 20 Foreign currency revaluation (gains)/losses (a) 1,960 (133) 60 1,887 Acquisition/integration costs — 269 — 269 Pre-tax (income) attributable to noncontrolling interest — (189) — (189) Adjusted EBITDA (non-GAAP) $ 55,719 $ 21,029 $ (16,397) $ 60,351 Three months ended March 31, 2022 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Net income/(loss) (GAAP) $ 49,644 $ 1,195 $ (22,764) $ 28,075 Interest expense, net — — 3,609 3,609 Income tax expense — — 10,998 10,998 Depreciation and amortization expense 4,923 12,039 800 17,762 EBITDA (non-GAAP) 54,567 13,234 (7,357) 60,444 Restructuring expenses, net 243 — 11 254 Foreign currency revaluation (gains)/losses (a) 1,057 423 (3,740) (2,260) Dissolution of business relationships in Russia 1,787 — 781 2,568 Acquisition/integration costs — 282 — 282 Pre-tax (income) attributable to noncontrolling interest — (252) — (252) Adjusted EBITDA (non-GAAP) $ 57,654 $ 13,687 $ (10,305) $ 61,036 The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insights into the underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on either the tax rates in specific countries or the estimated tax rate applied to total company results. The after-tax amount is then divided by the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period. The following tables show the earnings per share effect of certain income and expense items: Three months ended March 31, 2023 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 20 $ 4 $ 16 $ 0.00 Foreign currency revaluation (gains)/losses (a) 1,887 553 1,334 0.04 Acquisition/integration costs 269 77 192 0.01 27 Three months ended March 31, 2022 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 254 $ 73 $ 181 $ 0.01 Foreign currency revaluation (gains)/losses (a) (2,260) (653) (1,607) (0.05) Dissolution of business relationships in Russia 2,568 332 2,236 0.07 Acquisition/integration costs 282 84 198 0.01 The following table contains the calculation of Adjusted EPS: Three months ended March 31, Per share amounts (Basic) 2023 2022 Earnings per share (GAAP) $ 0.86 $ 0.87 Adjustments, after tax: Restructuring expenses, net — 0.01 Foreign currency revaluation (gains)/losses (a) 0.04 (0.05) Dissolution of business relationships in Russia — 0.07 Acquisition/ integration costs 0.01 0.01 Adjusted Earnings per share (non-GAAP) $ 0.91 $ 0.91 (a) Foreign currency revaluation (gains)/losses represent unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies on the balance sheet date. Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any. The following table contains the calculation of net debt: (in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Current maturities of long-term debt $ — $ — $ — Long-term debt 491,000 439,000 427,000 Total debt 491,000 439,000 427,000 Cash and cash equivalents 304,258 291,776 307,415 Net debt (non GAAP) $ 186,742 $ 147,224 $ 119,585 Net leverage ratio informs the investors of the Company's financial leverage at the end of the reporting period, providing an indicator of the Company's ability to repay its debt. The Company calculates net leverage ratio by subtracting cash and cash equivalents from total debt, and then dividing by trailing twelve months Adjusted EBITDA. 28 The calculation of net leverage ratio as of March 31, 2023 is as follows: Total Company Twelve months ended Three months ended Trailing twelve months ended (in thousands) December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2023 (non-GAAP) (b) Net income/(loss) (GAAP) $ 96,508 $ 28,075 $ 27,086 $ 95,519 Interest expense, net 14,000 3,609 3,290 13,681 Income tax expense 35,472 10,998 10,621 35,095 Depreciation and amortization expense 69,049 17,762 17,367 68,654 EBITDA (non-GAAP) 215,029 60,444 58,364 212,949 Restructuring expenses, net 106 254 20 (128) Foreign currency revaluation (gains)/losses (a) (9,829) (2,260) 1,887 (5,682) Dissolution of business relationships in Russia 2,275 2,568 — (293) Pension settlement expense 49,128 — — 49,128 IP address sales (3,420) — — (3,420) Acquisition/integration costs 1,057 282 269 1,044 Pre-tax (income) attributable to noncontrolling interest (817) (252) (189) (754) Adjusted EBITDA (non-GAAP) $ 253,529 $ 61,036 $ 60,351 $ 252,844 (in thousands, except for net leverage ratio) March 31, 2023 Net debt (non-GAAP) 186,742 Trailing twelve months Adjusted EBITDA (non-GAAP) 252,844 Net leverage ratio (non-GAAP) 0.74 (b) Calculated as amounts incurred during the twelve months ended December 31, 2022, less those incurred during the three months ended March 31, 2022, plus those incurred during the three months ended March 31, 2023. Item 3. Quantitative and Qualitative Disclosures about Market Risk For discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures about Market Risk”, which is included as an exhibit to this Form 10-Q.