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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-16 · 33 added, 39 removed, 154 unchanged (32% of the section changed)

52 unchanged sentences

Total $ 953,684 $ 922,439 $ 31,245 3.4 %

• The increase in net sales within the Human Nutrition and Health segment for 2023 compared to 2022 was primarily driven by the contribution from recent acquisitions, higher sales within the minerals and nutrients business, and a favorable impact related to changes in foreign currency rates, partially offset by lower sales within food and beverage markets.

Total sales for this segment grew 4.5%, with average selling prices contributing 2.6%, volume and mix contributing 1.6%, and the change in foreign currency exchange rates contributing 0.3%.

• The decrease in net sales within the Animal Nutrition and Health segment for 2023 compared to 2022 was primarily driven by lower sales in both the monogastric and ruminant species markets, partially offset by incremental sales related to the Bergstrom acquisition, and a favorable impact related to changes in foreign currency exchange rates.

Total sales for this segment decreased by 9.1%, with volume and mix contributing -6.3%, average selling prices contributing -3.5%, and the change in foreign currency exchange rates contributing 0.7%.

• The decrease in Specialty Products segment sales for 2023 compared to 2022 was primarily due to lower sales in both the plant nutrition and performance gases businesses, partially offset by a favorable impact related to changes in foreign currency exchange rates.

Total sales for this segment decreased by 4.2%, with volume and mix contributing -9.4%, the change in foreign currency exchange rates contributing 0.7%, and average selling prices contributing 4.5%.

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

• The increase in net sales within the Human Nutrition and Health segment for 2024 compared to 2023 was driven by higher sales within both the nutrients business and the food ingredients and solutions businesses.

Total sales for this segment grew 9.0%, with volume and mix contributing 6.6% and average selling prices contributing 2.4%.

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

Total sales for this segment decreased by 9.9%, with average selling prices contributing -6.1% and volume and mix contributing -3.8%.

• The increase in net sales within the Specialty Products segment for 2024 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 5.4%, with average selling prices contributing 3.9% and volume and mix contributing 1.4%.

• Sales relating to Other decreased from the prior year primarily due to lower average selling prices.

• 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.

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% of net sales 35.3 % 32.7 %

Gross margin dollars increased for 2023 compared to 2022 due to a decrease in cost of goods sold of $41,524.

The 6.3% decrease in cost of goods sold was mainly driven by lower sales and certain lower manufacturing input costs.

Gross margin dollars increased for 2024 compared to 2023 due to higher sales, a favorable mix and a decrease in cost of goods sold of $2,905.

Cost of goods sold decreased by 0.5%, mainly driven by certain lower manufacturing input costs.

Operating Expenses

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% of net sales 16.1 % 15.5 %

The increase in operating expenses was primarily due to restructuring-related impairment and asset disposal charges of $7,764, incremental operating expenses related to the Kappa and Bergstrom acquisitions of $7,699, and higher compensation-related expenses of $2,323, partially offset by favorable adjustments to transaction costs of $10,828.

The increase in operating expenses was primarily due to the impact of favorable adjustments to transaction costs in the prior year of $11,300, an increase in compensation-related expenses of $9,074, higher professional services of $1,950, and the impact of a gain on the sale of fixed assets of $1,338 in the prior year, partially offset by lower amortization expense of $8,867 and a decrease in restructuring-related impairment charges of $7,243.

Earnings From Operations

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% of net sales (operating margin) 19.2 % 17.3 %

• Human Nutrition & Health segment earnings from operations increased $20,294 and the gross margin contribution was $30,144.

This was partially offset by an increase in operating expenses of $9,850, primarily due to the incremental operating expenses related to the Kappa and Bergstrom acquisitions of $7,502, restructuring-related impairment and asset disposal charges of $6,031, and an increase in amortization of $2,435, partially offset by favorable adjustments to transaction costs of $7,855.

• Human Nutrition & Health segment earnings from operations increased $33,538 primarily due to a gross margin contribution of $37,635.

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

• Animal Nutrition & Health segment earnings from operations decreased $13,563.

Gross margin decreased $7,547 primarily due to aforementioned lower sales.

• Specialty Products segment earnings from operations increased $1,790, which was primarily driven by a 410 basis point increase in gross margin as a percent of sales.

The increase in gross margin was due to higher average selling prices and decreases in certain manufacturing input costs.

The increase was partially offset by an increase in operating expenses of $897, primarily driven by higher compensation-related expenses of $1,586.

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

Gross margin decreased $11,198 primarily due to the aforementioned lower sales, partially offset by certain lower manufacturing input costs.

• Specialty Products segment earnings from operations increased $5,327 due to an increase in gross margin of $9,518.

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

This was partially offset by an increase in operating expenses of $4,191, mainly due to higher compensation-related costs.

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

Other Expenses (Income)

2 unchanged sentences

Interest expense, net $ 16,528 $ 22,613 $ (6,085) (26.9) %

Other, net (681) 1,169 (1,850) (158.3) %

Other (income) expense, net (72) (681) 609 89.4 %

$ 16,456 $ 21,932 $ (5,476) (25.0) %

Interest expense for 2024 and 2023 was primarily related to outstanding borrowings under the 2022 Credit Agreement.

The increase in interest expense is due to the additional borrowings in connection with the acquisitions and higher interest rates.

The decrease in net interest expense is mainly due to lower outstanding borrowings.

Income Tax Expense

3 unchanged sentences

Effective tax rate 22.8 % 20.9 %

The decrease in the effective tax rate was primarily due to an increase in certain tax credits.

The increase in the effective tax rate was primarily due to an increase in certain foreign taxes.

Liquidity and Capital Resources

4 unchanged sentences

For debt obligations, see Note 8, Revolving Loan , and for operating and finance lease obligations, see Note 19, Leases .

We know of no current or pending demands on, or commitments for, our liquid assets that will materially affect our liquidity.

There were no material changes during the year ended December 31, 2023 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, 2022 other than the reduction of the contingent consideration liabilities to $100.

We are not aware of any current or pending demands on, or commitments for, our liquid assets that will materially affect our liquidity.

There were no material changes during the year ended December 31, 2024 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.

8 unchanged sentences

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

Due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, we remitted approximately $18,000 from our Belgium subsidiary to pay down U.S.

In 2023, due to prevailing economic conditions of increased interest rates and subsequent borrowing costs, we remitted approximately $18,000 from our Belgium subsidiary to pay down U.S.

debt, resulting in income tax expense of $20.

The remittance was used to pay down U.S.

Working capital was $156,085 at December 31, 2024 as compared to $165,751 at December 31, 2023, a decrease of $9,666.

Significant cash payments during the year included net payments on the revolving loan of $131,000, capital expenditures and intangible assets acquired of $37,892, and the payment of the 2022 declared dividend in 2023 of $22,872.

Significant cash payments during the year included net payments on the revolving loan of $119,569, income taxes paid of $42,643, capital expenditures and intangible assets acquired of $35,661, the payment of the 2023 declared dividend in 2024 of $25,576, and cash paid for an acquisition of $24,164.

(in thousands) 2024 2023 Increase

2 unchanged sentences

Cash flows used in investing activities (59,736) (34,813) (24,923) (71.6) %

Cash flows (used in) provided by financing activities (153,321) 246,679 (400,000) (162.2) %

Cash flows used in financing activities (133,815) (153,321) 19,506 12.7 %

Operating Activities

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

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

Investing Activities

4 unchanged sentences

These capital expenditures are part of our continuous efforts to support our growing businesses.

In 2022, we completed the acquisitions of Kappa and Bergstrom.

Cash paid for these acquisitions, net of cash acquired, amounted to $1,252 and $365,780, for years ended December 31, 2023 and 2022, respectively.

Cash paid to acquire an existing toll manufacturer to add capacity amounted to $24,164 for the year ended December 31, 2024, net of cash acquired.

Cash paid for acquisitions, net of cash acquired, amounted to $1,252 for year ended December 31, 2023.

Financing Activities

In 2023, we borrowed $18,000 to fund the payment of the 2022 dividend and made total loan payments of $149,000, resulting in $240,431 available under the 2022 Credit Agreement (see Note 8, Revolving Loan ) as of December 31, 2023.

In 2024, we borrowed $26,000 to fund the payment of the 2023 dividend and made total loan repayments of $145,569, resulting in $360,000 available under the 2022 Credit Agreement (see Note 8, Revolving Loan ) as of December 31, 2024.

We have an approved stock repurchase program.

19 unchanged sentences

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

The deferred compensation liability as of December 31, 2023 and December 31, 2022 was $10,188 and $8,543, respectively, and is included in "Other long-term obligations" on the consolidated balance sheets.

The related rabbi trust assets

were $10,188 and $8,547 as of December 31, 2023 and December 31, 2022, respectively, and were included in "Other non-current assets" on the consolidated balance sheets.

The deferred compensation liability was $11,470 as of December 31, 2024, of which $11,449 was included in "Other long-term obligations" and $21 was included in "Accrued compensation and other benefits" on our condensed consolidated

balance sheets.

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

The related rabbi trust assets were $11,465 and $10,188 as of December 31, 2024 and 2023, respectively, and were included in "Other non-current assets" on the Company's consolidated balance sheets.

Related Party Transactions

15 unchanged sentences

Changes in market conditions, laws and regulations, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could result in the recognition of an impairment charge, and in turn could have a material impact on our financial condition or results of operations in subsequent periods.

Contingent Consideration Liabilities

In connection with recent acquisitions (see Note 2, Significant Acquisitions ), the sellers of each of the acquired entities had an opportunity to receive an additional payment if certain financial performance targets and other metrics were met, thereby requiring us to record contingent consideration liabilities on our balance sheet.

The valuation methods and assumptions used in assessing the contingent consideration liabilities involve a significant level of estimation uncertainty, however, as of December 31, 2023, the earn-out periods concluded and the Company recorded a contingent consideration liability of $100.

The valuation methods and assumptions used in calculating income taxes, deferred tax assets and liabilities, and valuation allowances involve a significant level of estimation uncertainty.

Refer to the Income Taxes in Note 1, Business Description and Summary of Significant Accounting Policies , for details.

Changes in the assumptions such as our forecast of future market growth, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies could result in income taxes adjustments, and in turn could have a material impact on our financial condition or results of operations in subsequent periods.

Significant Accounting Policies and Recent Accounting Pronouncements

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis