What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-26 compared with 2024-05-03 · 123 added, 49 removed, 140 unchanged (55% of the section changed)

36 unchanged sentences

and (27) ability of our customers to use the ethylene oxide process to sterilize medical devices.

We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, pharmaceutical, animal health, medical device sterilization, plant nutrition and industrial markets.

We develop, manufacture, distribute and market specialty performance ingredients and products for the nutritional, food, pharmaceutical, animal health, performance gases, plant nutrition and industrial markets.

Our three reportable segments are strategic businesses that offer products and services to different markets:

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We are very proud of our significant progress relating to the Company's corporate social responsibilities and will continue to foster these fundamental principles broadly along our entire value chain, develop new ideas and technologies that help us work smarter, and help build a world that is a better place to live.

As of March 31, 2024, we employed approximately 1,301 ful l time employees worldwide.

As of June 30, 2024, we employed approximately 1,290 ful l time employees worldwide.

We are seeing some modest improvement in most relevant labor markets and we believe that we have been successful in attracting skilled and experienced personnel in a competitive environment and that our human capital resources are adequate to perform all business functions.

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We sell products for all three segments through our own sales force, independent distributors, and sales agents.

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three months ended March 31, 2024 and 2023:

Business Segment Net Sales Three Months Ended March 31,

The following tables summarize consolidated net sales by segment and business segment earnings from operations for the three and six months ended June 30, 2024 and 2023:

Business Segment Net Sales Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Human Nutrition & Health $ 147,928 $ 135,669 $ 300,672 $ 268,322

2 unchanged sentences

Other and Unallocated (1)

1,502 1,528 2,883 4,295

Total $ 234,081 $ 231,252 $ 473,740 $ 463,792

Business Segment Earnings From Operations Three Months Ended March 31,

Business Segment Earnings From Operations Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Human Nutrition & Health $ 33,367 $ 27,499 $ 66,624 $ 45,934

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Unallocated corporate expenses consist of:

(i) Transaction and integration costs of $440 and $565 for the three months ended March 31, 2024 and 2023, respectively, and (ii) Unallocated amortization expense of $0 and $312 for the three months ended March 31, 2024 and 2023, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Results of Operations - Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31, Increase

(i) Transaction and integration costs of $132 and $572 for the three and six months ended June 30, 2024, respectively, and $651 and $1,216 for the three and six months ended June 30, 2023, respectively, and (ii) Unallocated amortization expense of $0 and $0 for the three and six months ended June 30, 2024, respectively, and $0 and $312 for the three and six months ended June 30, 2023, respectively, related to an intangible asset in connection with a company-wide ERP system implementation.

Results of Operations - Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

6 unchanged sentences

Net earnings $ 32,069 $ 30,110 $ 1,959 6.5 %

Three Months Ended March 31, Increase

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

4 unchanged sentences

Total $ 234,081 $ 231,252 $ 2,829 1.2 %

• The increase in net sales within the Human Nutrition & Health segment for the first quarter of 2024 as compared to the first quarter of 2023 was primarily driven by higher sales within the minerals and nutrients business.

• The increase in net sales within the Human Nutrition & Health segment for the second quarter of 2024 as compared to the second quarter of 2023 was primarily driven by higher sales within the minerals and nutrients business.

Total sales for this segment grew 9.0%, with volume and mix contributing 7.6%, average selling prices contributing 1.5%, and the change in foreign currency exchange rates contributing -0.1%.

• The decrease in net sales within the Animal Nutrition & Health segment for the first quarter of 2024 compared to the first quarter of 2023 was driven by lower sales in both the monogastric and ruminant species markets.

Total sales for this segment decreased by 16.9%, with average selling prices contributing -9.2%, volume and mix contributing -7.8%, and the change in foreign currency exchange rates contributing 0.1%.

• The decrease in net sales within the Specialty Products segment for the first quarter of 2024 compared to the first quarter of 2023 was due to lower sales in the plant nutrition business, partially offset by higher sales in the performance gases business.

Total sales for this segment decreased by 1.9%, with volume and mix contributing -5.9%, the change in foreign currency exchange rates contributing 0.1%, and average selling prices contributing 3.8%.

• Sales relating to Other decreased from the prior year due to lower demand.

• The decrease in net sales within the Animal Nutrition & Health segment for the second quarter of 2024 compared to the second quarter of 2023 was driven by lower sales in both the monogastric and ruminant species markets.

Total sales for this segment decreased by 19.2%, with volume and mix contributing -11.7%, average selling prices contributing -7.2%, and the change in foreign currency exchange rates contributing -0.3%.

• The increase in net sales within the Specialty Products segment for the second quarter of 2024 compared to the second quarter of 2023 was primarily due to higher sales in the performance gases business.

Total sales for this segment increased by 7.2%, with volume and mix contributing 4.2%, average selling prices contributing 3.4%, and the change in foreign currency exchange rates contributing -0.4%.

• Sales relating to Other decreased slightly from the prior year primarily due to lower average selling prices, partially offset by higher volumes.

• Sales may fluctuate in future periods based on macroeconomic conditions, competitive dynamics, changes in customer preferences, and our ability to successfully introduce new products to the market.

Three Months Ended March 31, Increase

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

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% of net sales 35.5 % 33.4 %

Gross margin dollars increased in the first quarter of 2024 compared to the first quarter of 2023 due to higher sales and a decrease in cost of goods sold of $1,225.

Gross margin dollars increased in the second quarter of 2024 compared to the second quarter of 2023 due to higher sales and a decrease in cost of goods sold of $2,816.

The 1.8% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Operating Expenses

Three Months Ended March 31, Increase

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

1 unchanged sentence

% of net sales 15.9 % 14.9 %

The increase in operating expenses in the first quarter of 2024 compared to the first quarter of 2023 was primarily due to higher compensation-related expenses of $2,263 and the impact of a gain on sale of fixed assets recognized in the prior year of $818, partially offset by lower transaction and integration-related expenses of $1,725.

The increase in operating expenses in the second quarter of 2024 compared to the second quarter of 2023 was primarily due to the impact of favorable adjustments to transaction costs in the prior year of $8,000 and higher charges related to outside services of $1,494, partially offset by the impact of restructuring-related impairment charges and disposals of assets in the prior year of $6,146.

Earnings from Operations

Three Months Ended March 31, Increase

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

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• Human Nutrition & Health segment earnings from operations increased $5,868 primarily due to the gross margin contribution of $8,163.

The increased gross margin was primarily due to the aforementioned higher sales and lower manufacturing input costs.

• Animal Nutrition & Health segment earnings from operations decreased $7,438 primarily due to the gross margin reduction of $7,527.

The decreased gross margin was primarily due to the aforementioned lower sales, partially offset by lower manufacturing input costs.

The increase in gross margin was primarily due to the aforementioned higher sales, a favorable mix, and certain lower manufacturing input costs.

This was partially offset by an increase in operating expenses of $2,295 due to the impact of favorable adjustments to transaction costs in the prior year of $6,328, partially offset by the impact of restructuring-related impairment charges in the prior year of $4,549.

• Animal Nutrition & Health segment earnings from operations decreased $4,969 primarily due to a decrease in gross margin of $4,453.

The decrease in gross margin was primarily due to the aforementioned lower sales, partially offset by certain lower manufacturing input costs.

• Specialty Products segment earnings from operations increased $1,930 primarily due to the gross margin contribution of $2,507.

The increase in gross margin was primarily due to the aforementioned higher sales and certain lower manufacturing input costs.

• The increase in Other and unallocated was primarily driven by a decrease in unallocated corporate expenses, partially offset by a decrease in gross margin.

Other Expenses (Income)

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Interest expense, net $ 4,240 $ 5,163 $ (923) (17.9) %

Other expense (income), net 331 (727) 1,058 (145.5) %

$ 4,571 $ 4,436 $ 135 3.0 %

Interest expense for the three months ended June 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

The decrease in interest expense is due to lower outstanding borrowings, partially offset by higher interest rates.

Income Tax Expense

Three Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Income tax expense $ 9,157 $ 8,290 $ 867 10.5 %

Effective tax rate 22.2 % 21.6 %

The higher effective tax rate was primarily due to lower tax benefits from stock-based compensation and certain higher state taxes, partially offset by certain lower foreign taxes.

Results of Operations - Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Net sales $ 473,740 $ 463,792 $ 9,948 2.1 %

Gross margin 164,508 150,519 13,989 9.3 %

Operating expenses 77,035 73,275 3,760 5.1 %

Earnings from operations 87,473 77,244 10,229 13.2 %

Interest and other expenses 9,397 9,725 (328) (3.4) %

Income tax expense 17,021 14,699 2,322 15.8 %

Net earnings $ 61,055 $ 52,820 $ 8,235 15.6 %

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Human Nutrition & Health $ 300,672 $ 268,322 $ 32,350 12.1 %

Animal Nutrition & Health 103,478 126,218 (22,740) (18.0) %

Specialty Products 66,707 64,957 1,750 2.7 %

Other 2,883 4,295 (1,412) (32.9) %

Total $ 473,740 $ 463,792 $ 9,948 2.1 %

• The increase in net sales within the Human Nutrition & Health segment for the six months ended June 30, 2024 as compared to 2023 was primarily driven by higher sales within the minerals and nutrients business.

Total sales for this segment grew 12.1%, with volume and mix contributing 10.6% and average selling prices contributing 1.5%.

• The decrease in net sales within the Animal Nutrition & Health segment for the six months ended June 30, 2024 as compared to 2023 was driven by lower sales in both the monogastric and ruminant species markets.

Total sales for this segment decreased by 18.0%, with volume and mix contributing -9.7%, average selling prices contributing -8.2%, and the change in foreign currency exchange rates contributing -0.1%.

• The increase in net sales within the Specialty Products segment for the six months ended June 30, 2024 as compared to 2023 was due to higher sales in the performance gases market, partially offset by lower sales in the plant nutrition business.

Total sales for this segment increased by 2.7%, with average selling prices contributing 3.6%, the change in foreign currency exchange rates contributing -0.1%, and volume and mix contributing -0.8%.

• Sales relating to Other decreased from the prior year due to lower demand.

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Gross margin $ 164,508 $ 150,519 $ 13,989 9.3 %

% of net sales 34.7 % 32.5 %

Gross margin dollars increased in the six months ended June 30, 2024 as compared to 2023 due to higher sales and a decrease in cost of goods sold of $4,041.

The 1.3% decrease in cost of goods sold was mainly driven by certain lower manufacturing input costs.

Operating Expenses

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Operating expenses $ 77,035 $ 73,275 $ 3,760 5.1 %

% of net sales 16.3 % 15.8 %

The increase in operating expenses in the six months ended June 30, 2024 as compared to 2023 was primarily due the impact of favorable adjustments to transaction costs in the prior year of $6,400 and an increase in compensation-related costs of $3,426, partially offset by the impact of restructuring-related impairment charges in the prior year of $6,146.

Earnings from Operations

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Human Nutrition & Health $ 66,624 $ 45,934 $ 20,690 45.0 %

Animal Nutrition & Health 4,753 17,160 (12,407) (72.3) %

Specialty Products 19,427 17,244 2,183 12.7 %

Other and unallocated (3,331) (3,094) (237) (7.7) %

Earnings from operations $ 87,473 $ 77,244 $ 10,229 13.2 %

% of net sales (operating margin) 18.5 % 16.7 %

• Human Nutrition & Health segment earnings from operations increased $20,690 primarily due to an increase in gross margin of $23,526.

The increase in gross margin was primarily due to the aforementioned higher sales and certain lower manufacturing input costs.

• Animal Nutrition & Health segment earnings from operations decreased $12,407 primarily due to a decrease in gross margin of $11,981.

The decrease in gross margin was primarily due to the aforementioned lower sales, partially offset by certain lower manufacturing input costs.

• Specialty Products segment earnings from operations increased $2,183.

Gross margin increased $1,186 primarily due to lower manufacturing input costs, and was partially offset by an increase in operating expenses.

Gross margin increased $3,692 primarily due to certain lower manufacturing input costs, and was partially offset by an increase in operating expenses.

• The decrease in Other and unallocated was primarily driven by the aforementioned lower sales, partially offset by lower unallocated corporate expenses.

Other Expenses (Income)

Three Months Ended March 31, Increase

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

Interest expense $ 5,398 $ 5,565 $ (167) (3.0) %

Other (income) expense, net (572) (276) (296) 107.2 %

Interest expense, net $ 9,638 $ 10,728 $ (1,090) (10.2) %

Other (income), net (241) (1,003) 762 (76.0) %

$ 9,397 $ 9,725 $ (328) (3.4) %

Interest expense for the three months ended March 31, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

Interest expense for the six months ended June 30, 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

The decrease in interest expense is due to lower outstanding borrowings, partially offset by higher interest rates.

Income Tax Expense

Three Months Ended March 31, Increase

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

1 unchanged sentence

Effective tax rate 21.8 % 21.8 %

The lower effective tax rate was primarily due to higher tax benefits from stock-based compensation and certain lower foreign taxes.

The effective tax rate was 21.8% for each of the six months ended June 30, 2024 and 2023.

Certain lower foreign taxes in 2024 were offset by certain higher state taxes.

Liquidity and Capital Resources

During the three months ended March 31, 2024, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

During the six months ended June 30, 2024, there were no material changes outside the ordinary course of business in the specified contractual obligations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023.

We expect our operations to continue generating sufficient cash flow to fund working capital requirements and necessary capital investments.

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We could seek additional bank loans or access to financial markets to fund such acquisitions, our operations, working capital, necessary capital investments or other cash requirements should we deem it necessary to do so.

Cash and cash equivalents decreased to $60,349 at March 31, 2024 from $64,447 at December 31, 2023.

At March 31, 2024, the Company had $52,908 of cash and cash equivalents held by foreign subsidiaries.

Cash and cash equivalents decreased to $63,738 at June 30, 2024 from $64,447 at December 31, 2023.

At June 30, 2024, the Company had $58,382 of cash and cash equivalents held by foreign subsidiaries.

We presently intend to permanently reinvest these funds in foreign operations by continuing to make additional plant related investments, and potentially invest in partnerships or acquisitions;

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operations, we could be required to pay additional withholding taxes to repatriate these funds.

Working capital was $200,434 at March 31, 2024 as compared to $165,751 at December 31, 2023, an increase of $34,683.

Significant cash payments during the first quarter of 2024 included payment of the 2023 declared dividend in 2024 of $25,555, net repayments on the revolving loan of $8,000, and capital expenditures and intangible assets acquired of $6,910.

Three Months Ended March 31, Increase

Working capital was $206,834 at June 30, 2024 as compared to $165,751 at December 31, 2023, an increase of $41,083.

Significant cash payments during the first half of 2024 included net repayments on the revolving loan of $43,000, the payment of the 2023 declared dividend in 2024 of $25,568, income taxes paid of $19,140, and capital expenditures and intangible assets acquired of $13,788.

Six Months Ended June 30, Increase

(in thousands) 2024 2023 % Change

3 unchanged sentences

Operating Activities

The decrease in cash flows from operating activities was primarily driven by the impact from changes in working capital.

The increase in cash flows from operating activities was primarily driven by the increase in net earnings.

Investing Activities

We continue to invest in corporate projects, improvements across all production facilities, and intangible assets.

Total investments in property, plant and equipment and intangible assets were $6,910 and $9,664 for the three months ended March 31, 2024 and 2023, respectively.

Total investments in property, plant and equipment and intangible assets were $13,788 and $17,880 for the six months ended June 30, 2024 and 2023, respectively.

Financing Activities

During the first quarter of 2024, we borrowed $26,000 to fund the payment of the 2023 dividend and made total loan payments of $34,000, resulting in $248,431 available under the 2022 Credit Agreement (see Note 7, Revolving Loan ) as of March 31, 2024.

During 2024, we borrowed $26,000 under the 2022 Credit Agreement and made total loan payments of $69,000, resulting in $283,431 available under the 2022 Credit Agreement (see Note 7, Revolving Loan ) as of June 30, 2024.

We have an approved stock repurchase program.

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Share repurchases are funded with existing cash on hand.

Proceeds from stock options exercised were $8,791 and $2,453 for the three months ended March 31, 2024 and 2023, respectively.

Dividend payments were $25,555 and $22,867 for the three months ended March 31, 2024 and 2023, respectively.

Proceeds from stock options exercised were $9,682 and $3,826 for the six months ended June 30, 2024 and 2023, respectively.

Dividend payments were $25,568 and $22,869 for the six months ended June 30, 2024 and 2023, respectively.

Other Matters Impacting Liquidity

As of March 31, 2024 and December 31, 2023, w e have a liability of $4,708 and $4,650, respectively, for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.

As of June 30, 2024 and December 31, 2023, w e have a liability of $4,766 and $4,650, respectively, for uncertain tax positions, including the related interest and penalties, recorded in accordance with ASC 740-10, for which we are unable to reasonably estimate the timing of settlement, if any.

We currently provide postretirement benefits in the form of two retirement medical plans, as discussed in Note 14, Employee Benefit Plans .

The liability recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023 was $1,298 and $1,395, respectively, and the plans are not funded.

The liability recorded in "Other long-term liabilities" on the condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023 were $1,336 and $1,395, respectively, and the plans are not funded.

Historical cash payments made under these plans have typically been less than $200 per year.

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The plan provides for the payment of a lump sum at retirement or payments in case of death of the covered employees.

The amount recorded for these obligations on our balance sheets as of March 31, 2024 and December 31, 2023 were $400 and $420, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets.

The amounts recorded for these obligations on our balance sheets as of June 30, 2024 and December 31, 2023 were $393 and $420, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets.

We provide an unfunded, nonqualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees.

Assets of the plan are held in a rabbi trust, which are included in "Non-current assets" on the Company's condensed consolidated balance sheet.

Assets of the plan are held in a rabbi trust, which were included in "Non-current assets" on the Company's condensed consolidated balance sheet.

They are subject to additional risk of loss in the event of bankruptcy or insolvency of the Company.

The deferred compensation liability as of March 31, 2024 and December 31, 2023 was $10,782 and $10,188, respectively, and is included in "Other long-term obligations" on the condensed consolidated balance sheets.

The related rabbi trust assets were $10,789 and $10,188 as of March 31, 2024 and December 31, 2023, respectively, and were included in "Other non-current assets" on the condensed consolidated balance sheets.

The deferred compensation liability as of June 30, 2024 and December 31, 2023 were $10,965 and $10,188, respectively, and were included in "Other long-term obligations" on the condensed consolidated balance sheets.

The related rabbi trust assets were $10,962 and $10,188 as of June 30, 2024 and December 31, 2023, respectively, and were included in "Other non-current assets" on the condensed consolidated balance sheets.

Significant Accounting Policies

There were no changes to our Significant Accounting Policies, as described in our December 31, 2023 Annual Report on Form 10 - K, during the three months ended March 31, 2024.

There were no changes to our Significant Accounting Policies, as described in our December 31, 2023 Annual Report on Form 10 - K, during the six months ended June 30, 2024.

Related Party Transactions

We were engaged in related party transactions with St.

Gabriel CC Company, LLC during the three months ended March 31, 2024.

Gabriel CC Company, LLC during the three and six months ended June 30, 2024.

Refer to Note 17, Related Party Transactions .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis