What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-08 · 165 added, 151 removed, 404 unchanged (44% of the section changed)

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(1) Ecoservices and (2) Catalyst Technologies (including our 50% interest in the Zeolyst Joint Venture).

We are a leading provider of sulfuric acid recycling to North American refining industry for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards.

We are a leading provider of sulfuric acid recycling to the North American refining industry for the production of alkylate, an essential gasoline component for lowering vapor pressure and increasing octane to meet stringent gasoline specifications and fuel efficiency standards.

We are also a leading North American producer of on-purpose virgin sulfuric acid for water treatment, mining and industrial applications.

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On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $450 million of the Company’s common stock over the four-year period from the date of approval.

For the six months ended June 30, 2023, in connection with secondary offerings of the Company’s common stock in March and May 2023, the Company repurchased 7,000,000 shares of its common stock sold in the offerings from the underwriters at a weighted average price of $10.48 per shar e concurrently with the closing of the offerings, for a total of $73.4 million, excluding accrued excise tax.

As of June 30, 2023, $239.9 million was available for additional share repurchases under the program.

In addition, during the six months ended June 30, 2022, the Company repurchased 893,123 shares on the open market at an average price of $9.88, for a total of $8.8 million.

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

Additionally, in connection with secondary offerings of the Company’s common stock in March and May 2023, the Company repurchased 7,000,000 shares of its common stock sold in the offerings from the underwriters at a weighted average price of $10.48 per share concurrently with the closing of the offerings, for a total of $73.4 million, excluding accrued excise tax.

As of September 30, 2023, $234.6 million was available for additional share repurchases under the program.

For the nine months ended September 30, 2022, the Company repurchased 1,970,763 shares on the op en market at an average price of $9.82, for a total of $19.4 million, excluding brokerage commissions.

Additionally, in connection with a secondary offering of the Company’s common stock in August 2022, the Company repurchased 6,500,000 shares of its common stock sold in the offering from the underwriters at a price of $8.36 per share concurrently with the closing of the offering, for a total of $54.3 million.

Key Performance Indicators

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In addition, demand for virgin sulfuric acid across a wide range of industrial applications remained favorable.

However, sales in our Ecoservices segment were impacted primarily by unplanned production downtime at one of our sites, which may adversely impact sales and maintenance costs into the third quarter of 2023.

However, sales in our Ecoservices segment were impacted primarily by unplanned production downtime at our sites, which adversely impacted sales and maintenance costs in 2023.

During the second quarter of 2023, we began to see a slowdown in global polyethylene demand impact the sales of our silica-based catalyst, while still seeing increasing demand for renewable fuels and more stringent regulation in traditional fuels, and in emission control applications.

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The primary raw materials for our Ecoservices segment include spent sulfuric acid, sulfur, acids, bases (including sodium hydroxide, or “caustic soda”), and certain metals.

Spent sulfuric acid for our Ecoservices segment is supplied by customers.

The primary raw materials used in the manufacture of products in our Catalyst Technologies segments include sodium silicate and cesium hydroxide.

Spent sulfuric acid for our Ecoservices segment is supplied by customers for a nominal charge as part of their contracts.

The primary raw materials used in the manufacture of products in our Catalyst Technologies segment include sodium silicate and cesium hydroxide.

During the second quarter of 2023, inflationary pressures began to ease, which reduced the cost of goods for sulfur, energy, logistics and other raw materials.

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Over 80% of our Ecoservices segment sales for the year ended December 31, 2022 were under contracts featuring quarterly price adjustments.

adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing.

The price adjustments generally reflect actual costs for producing acid and tend to protect us from volatility in labor, fixed costs and raw material pricing.

The take-or-pay volume protection allows us to cover fixed costs through intermittent, temporary production issues at customer refineries.

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We account for our investments in our equity joint ventures under the equity method.

Our joint venture, the Zeolyst Joint Venture, manufactures high performance, specialty, zeolite-based catalysts, emission control, refining and petrochemical industries and other areas of the broader chemicals industry.

Our joint venture, the Zeolyst Joint Venture, manufactures high-performance, specialty, zeolite-based catalysts, used in emission control, refining and petrochemical industry applications and by the broader chemicals industry.

Demand for the Zeolyst Joint Venture products fluctuates based upon the timing of our customer’s fixed bed catalyst replacements.

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Our regeneration services product group, which is a part of our Ecoservices segment, typically experiences seasonal fluctuations as a result of higher demand for gasoline products in the summer months and lower demand in the winter months.

These demand fluctuations result in higher sales and working capital requirements in the second and third quarter.

These demand fluctuations generally result in higher sales and working capital requirements in the second and third quarter.

Foreign Currency

As a global business, we are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are translated into U.S.

We operate in various geographies with approximately 6% of our sales for the six months ended June 30, 2023 and for the year ended December 31, 2022 in currencies other than the U.S.

We operate in various geographies with approximately 6% of our sales for the nine months ended September 30, 2023 and for the year ended December 31, 2022 in currencies other than the U.S.

Because our consolidated financial results are reported in U.S.

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Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

The following is a summary of our financial performance for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

The following is a summary of our financial performance for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

• Sales decreased $59.2 million to $173.3 million.

The decrease in sales was primarily due to lower sales volumes and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group, offset by higher average selling prices .

• Gro ss profit increased $1.1 million to $61.0 million.

The increase in gross profit was primarily due t o favorable mix and increased pricing, which more than offset higher variable costs and lower sales volume.

The decrease in sales was primarily due to the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group and lower sales volume.

• Gro ss profit decreased $14.5 million to $53.2 million.

The decrease in gross profit was primarily due to lower sales volume and higher manufacturing costs.

Operating Income

• Operating income increased by $5.9 million to $33.3 million.

The increase in operating income was due to an increase in gross profit and lower selling, general and administrative expenses and other operating expenses.

• Operating income decreased by $6.5 million to $32.0 million.

The decrease in operating income was due to a decrease in gross profit, offset by lower selling, general and administrative expenses and other operating expenses.

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the three months ended June 30, 2023 was $11.4 million, compared to $8.5 million for the three months ended June 30, 2022.

The increase of $2.9 million was due to higher earnings generated by the Zeolyst Joint Venture for the three months ended June 30, 2023, driven by higher sales volumes of catalyst used in the production of renewable fuels, emission control and hydrocracking catalysts.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended June 30, 2023 and 2022:

• Equity in net income of affiliated companies for the three months ended September 30, 2023 was $4.7 million, compared to $3.2 million for the three months ended September 30, 2022.

The increase of $1.5 million was due to higher earnings generated by the Zeolyst Joint Venture for the three months ended September 30, 2023, driven by higher sales volume of catalyst used in the production of renewable fuels and hydrocracking catalysts.

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

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Total sales $ 173.3 $ 232.5 $ (59.2) (25.5) %

Sales in Ecoservices for the three months ended June 30, 2023 were $158.1 million, a decrease of $34.9 million, or 18.1%, compared to sales of $193.0 million for the three months ended June 30, 2022.

Sales in Ecoservices for the three months ended September 30, 2023 were $147.6 million, a decrease of $48.1 million, or 24.6%, compared to sales of $195.7 million for the three months ended September 30, 2022.

The decrease in sales was due to lower sales volume of $9.3 million and lower average selling prices of $38.8 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $39 million .

The decrease in sales volume was primarily related to the virgin sulfuric acid product group during the quarter.

Lower average selling prices were primarily a result of the pass-through of lower sulfur costs of approximately $32 million within our virgin sulfuric acid product group, partially offset by higher pricing within our regeneration services product group, including the pass-through of higher freight, labor, and energy indexed costs .

Lower average selling prices were primarily a result of the pass-through of lower sulfur costs of approximately $39 million within our virgin sulfuric acid product group.

The decrease in sales volume was primarily related to the lower end use demand of virgin sulfuric acid, primarily into the production of nylon intermediates during the quarter.

Catalyst Technologies:

Sales in Catalyst Technologies for the three months ended June 30, 2023 were $26.0 million, a decrease of $6.2 million, or 19.3%, compared to sales of $32.2 million for the three months ended June 30, 2022.

Of the decrease in sales, $9.3 million was associated with lower sales volume, which was partially offset by higher average selling prices of $3.1 million.

The decrease in sales volumes was primarily driven by lower polyethylene catalysts sales and the absence of certain niche custom catalyst sales used in the production of methyl methacrylate realized in the second quarter of 2022 that did not occur in the second quarter of 2023.

Higher average selling prices was driven by implemented price increases.

Gross profit for the three months ended June 30, 2023 was $61.0 million, an increase of $1.1 million, or 1.8%, compared to $59.9 million for the three months ended June 30, 2022.

The increase in gross profit was due to higher average selling prices, exclusive of the $32 million negative impact associated with the pass-through of lower sulfur costs, and favorable mix, partially offset by lower sales volume and unfavorable manufacturing costs.

The unfavorable change in volumes was primarily a result of lower sales of virgin sulfuric acid, polyethylene catalysts and niche custom catalysts.

Favorable customer pricing was primarily driven by increased prices to cover rising variable costs.

The increase in manufacturing costs was a result of higher variable costs, maintenance and transportation costs.

Sales in Catalyst Technologies for the three months ended September 30, 2023 were $25.7 million, a decrease of $11.1 million, or 30.2%, compared to sales of $36.8 million for the three months ended September 30, 2022.

Of the decrease in sales, $13.3 million was associated with lower sales volume, which was partially offset by higher average selling prices of $1.5 million and $0.7 million of favorable foreign exchange.

The decrease in sales volume was primarily driven by lower end use demand for polyethylene catalysts associated with destocking and lower customer operating rates and the absence of certain niche custom catalyst sales realized in the third quarter of 2022 that did not occur in the third quarter of 2023.

Higher average selling prices was driven by the implemented price increases.

Gross profit for the three months ended September 30, 2023 was $53.2 million, a decrease of $14.5 million, or 21.4%, compared to $67.7 million for the three months ended September 30, 2022.

The decrease in gross profit was primarily due to unfavorable manufacturing costs, including higher variable and maintenance costs, and lower sales volume of $0.9 million, partially offset by favorable average selling prices of $1.7 million, exclusive of the pass-through of lower sulfur costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2023 were $21.4 million, a decrease of $1.4 million, compared to $22.8 million for the three months ended June 30, 2022.

The decrease in selling, general and administrative expenses was primarily due to a decrease in other compensation-related expenses of $3.4 million, partially offset by an increase in professional fees of $1.4 million.

Selling, general and administrative expenses for the three months ended September 30, 2023 were $16.9 million, a decrease of $4.6 million, compared to $21.5 million for the three months ended September 30, 2022.

The decrease in selling, general and administrative expenses was primarily due to a decrease in other compensation-related expenses of $3.9 million and a decrease in stock compensation of $1.3 million due to fewer overall awards granted and outstanding for the three months ended September 30, 2023 as compared to the prior year period.

This was partly offset by an increase in professional fees of $1.1 million primarily related to consulting and recruiting charges.

Other Operating Expense, Net

Other operating expense, net for the three months ended June 30, 2023 was $6.3 million, a decrease of $3.4 million, compared to $9.7 million for the three months ended June 30, 2022.

The decrease in other operating expense, net was mainly driven by $4.4 million of severance charges incurred in the prior period from contracts associated with former executives.

Other operating expense, net for the three months ended September 30, 2023 was $4.3 million, a decrease of $3.4 million, compared to $7.7 million for the three months ended September 30, 2022.

The decrease in other operating expense, net was primarily due to $2.0 million decrease i n restructuring, integration and business optimization costs, driven by severance charges incurred in the prior period from contracts associated with fo rmer executives and a decrease of $1.6 million in transactions costs, primarily associated with the sale of the Performance Chemicals business in 2021 and costs associated with share repurchases.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated comp anies for the three months ended June 30, 2023 was $11.4 million, compared to $8.5 million for the three months ended June 30, 2022.

The increase was due to $2.9 million of higher earnings from the Zeolyst Joint Venture during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.

The increase in earnings from the Zeolyst Joint Venture was due to higher sales volumes of catalyst used in the production of renewable fuels, emission control and hydrocracking catalysts .

Equity in net income of affiliated comp anies for the three months ended September 30, 2023 was $4.7 million, compared to $3.2 million for the three months ended September 30, 2022.

The increase was due to $1.5 million of higher earnings from the Zeolyst Joint Venture during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

The increase in earnings from the Zeolyst Joint Venture was due to higher sales volume of catalyst used in the production of renewable fuels and hydrocracking catalysts .

Interest Expense, Net

Interest expense, net for the three month s ended June 30, 2023 was $9.2 million, an increase of $0.3 million, as compared to $8.9 million for the three months ended June 30, 2022.

The increase in interest expense, net was primarily due to the year over year increase in variable rates, which was partially offset by lower outstanding debt during the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 and benefits associated with the interest rate caps, which included an adjustment related to prior year interest rate amortization.

Interest expense, net for the three month s ended September 30, 2023 was $11.8 million, an increase of $2.3 million, as compared to $9.5 million for the three months ended September 30, 2022.

The increase in interest expense, net was primarily due to the year over year increase in variable rates, which was partially offset by lower outstanding debt during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022 and benefits associated with the interest rate caps.

Other Expense, Net

Other expense, net for the three months ended June 30, 2023 was $0.6 million, a change of $0.1 million, as compared to $0.5 million for the three months ended June 30, 2022.

The decrease in other expense, net primarily relates to higher pension costs of $0.6 million offset by a foreign exchange benefit of $0.7 million as compared to the prior year period.

Other expense, net for the three months ended September 30, 2023 was $0.4 million, a change of $1.5 million, as compared to $1.9 million for the three months ended September 30, 2022.

The decrease in other expense, net primarily relates to lower foreign currency exchange of $0.4 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

dollar, a lower net periodic benefit for the defined benefit pension and postretirement plans of $0.3 million and $0.4 million in other income.

Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2023 was $8.8 million, compared to a $7.3 million provision for the three months ended June 30, 2022.

The effective income tax rate for the three months ended June 30, 2023 was 25.2%, compared to 27.5% for the three months ended June 30, 2022.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes.

The provision for income taxes for the three months ended September 30, 2023 was $7.9 million, compared to a $9.0 million provision for the three months ended September 30, 2022.

The effective income tax rate for the three months ended September 30, 2023 was 32.3%, compared to 29.6% for the three months ended September 30, 2022.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to the impact of the Section 162m Compensation disallowance on the Company’s annualized effective tax rate, discrete tax benefit related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for the three months ended June 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

For the foregoing reasons, net income was $26.1 million for the three months ended June 30, 2023, compared to $19.2 million for the three months ended June 30, 2022.

federal statutory income tax rate and the Company’s effective income tax rate for the three months ended September 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

For the foregoing reasons, net income was $16.6 million for the three months ended September 30, 2023, compared to $21.3 million for the three months ended September 30, 2022.

Adjusted EBITDA

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

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

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Segment Adjusted EBITDA:

Adjusted EBITDA:

Ecoservices $ 54.7 $ 64.1 $ (9.4) (14.7) %

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Unallocated corporate expenses (3.2) (8.0) 4.8 (60.0) %

Total Adjusted EBITDA $ 79.3 $ 72.9 $ 6.4 8.8 %

(1) We define Segment Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Segment Adjusted EBITDA.

Segment Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Segment Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $16.2 million for the three months ended June 30, 2023, which includes $11.4 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $3.2 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment was $14.1 million for the three months ended June 30, 2022, which includes $8.5 million of equity in net income, excluding $1.6 million of amortization of investment in affiliate step-up plus $4.0 million of joint venture depreciation, amortization and interest.

Adjusted EBITDA for the three months ended June 30, 2023 was $60.1 million, an increase of $0.1 million, or 0.2%, compared to $60.0 million for the three months ended June 30, 2022.

The increase in Adjusted EBITDA was a result of favorable pricing for regeneration services, partially offset by lower virgin sulfuric acid sales volume and higher unplanned repair and maintenance costs.

Total $ 67.9 $ 75.4 $ (7.5) (9.9) %

(1) We define Adjusted EBITDA as EBITDA adjusted for certain items as noted in the reconciliation below.

Our management evaluates the performance of our segments and allocates resources based primarily on Adjusted EBITDA.

Adjusted EBITDA does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flows as a source of liquidity.

Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

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

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

Adjusted EBITDA for the three months ended September 30, 2023 was $54.7 million, a decrease of $9.4 million, or 14.7%, compared to $64.1 million for the three months ended September 30, 2022.

The decrease in Adjusted EBITDA was a result of lower virgin sulfuric acid sales volume and higher costs associated with increased maintenance and networking costs arising from production downtime in July at our Dominguez site.

Catalyst Technologies:

Adjusted EBITDA for the three months ended June 30, 2023 was $25.4 million, an increase of $4.0 million, or 18.7%, compared to $21.4 million for the three months ended June 30, 2022.

The increase in Adjusted EBITDA was primarily a result of continued strong pricing, favorable product mix and lower production costs.

Adjusted EBITDA for the three months ended September 30, 2023 was $16.4 million, a decrease of $2.9 million, or 15.0%, compared to $19.3 million for the three months ended September 30, 2022.

The decrease in Adjusted EBITDA was primarily a result of lower sales of silica-based catalysts, partially offset by the impact of higher sales in the Zeolyst Joint Venture and higher pricing.

A reconciliation of net income to Adjusted EBITDA is as follows:

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Net loss on asset disposals (c)

Foreign currency exchange (gain) loss (d)

LIFO expense (e)

Foreign currency exchange loss (d)

LIFO benefit (e)

Transaction and other related costs (f)

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We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture.

Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how.

Amortization is primarily related to the fair value adjustments associated with intangible assets, including customer relationships and technical know-how.

(c) When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

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

Three months ended June 30,

Three months ended September 30,

Pre-tax Tax expense (benefit) After-tax Pre-tax Tax expense (benefit) After-tax

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1.0 0.3 0.7 0.5 0.2 0.3

Foreign currency exchange (gain) loss (d)

Foreign currency exchange loss (d)

0.8 0.2 0.6 1.0 0.2 0.8

LIFO expense (e)

LIFO benefit (e)

— — — (0.4) (0.1) (0.3)

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

The adjustments to net income are shown net of applicable tax rates as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended June 30, 2023 and June 30, 2022, except for the foreign currency exchange (gain) loss and equity-based compensation.

The adjustments to net income are shown net of applicable tax rates as determined by the calculation of our quarterly tax provision under interim financial reporting for the three months ended September 30, 2023 and September 30, 2022, except for the foreign currency exchange (gain) loss and equity-based compensation.

The tax effect on equity-based compensation is derived by removing the tax effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec.

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Results of Operations

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

The following is a summary of our financial performance for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

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

• Sales decreased $119.1 million to $518.3 million.

The decrease in sales was primarily due to lower sales volume and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group, partially offset by favorable average selling prices.

The decrease in sales was primarily due to lower sales volume and the result of the pass-through of lower sulfur costs within our virgin sulfuric acid product group.

• Gross profit decreased $24.7 million to $150.6 million.

The decrease in gross profit was primarily due to higher manufacturing costs and lower sales volume, partially offset by higher average selling prices.

The decrease in gross profit was primarily due to higher manufacturing costs and lower sales volume.

Operating Income

• Operating income decreased by $8.5 million to $73.9 million.

The decrease in operating income was due to a decrease in gross profit .

The decrease in operating income was due to a decrease in gross profit, offset by lower selling, general and administrative expenses and other operating expenses.

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the six months ended June 30, 2023 was $11.6 million, compared to $14.3 million for the six months ended June 30, 2022.

The decrease of $2.7 million was due to lower sales volume driven by timing of customer orders from the Zeolyst Joint Ventur e during the six months ended June 30, 2023.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the six months ended June 30, 2023 and 2022:

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• Equity in net income of affiliated companies for the nine months ended September 30, 2023 was $16.3 million, compared to $17.4 million for the nine months ended September 30, 2022.

The decrease of $1.1 million was due to lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2023.

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

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Net income $ 41.2 $ 48.4 $ (7.2) (14.9) %

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Ecoservices :

Sales in Ecoservices for the six months ended June 30, 2023 were $295.8 million, a decrease of $51.2 million, or 14.8%, compared to sales of $347.0 million for the six months ended June 30, 2022.

The decrease in sales reflects lower sales volume of $51.0 million and lower average selling pricing of $0.2 million, inclusive of the negative impact associated with the pass-through of sulfur costs of approximately $37 million.

Sales volume was lower primarily due to lower virgin sulfuric acid sales associated with the adverse impact of Winter Storm Elliott earlier in the year and extended maintenance turnaround activity at our facilities, limit our ability to produce inventory in advance of significant planned turnaround activity to meet customer demand during the six months ended June 30, 2023.

Sales in Ecoservices for the nine months ended September 30, 2023 were $443.4 million, a decrease of $99.3 million, or 18.3%, compared to sales of $542.7 million for the nine months ended September 30, 2022.

The decrease in sales reflects lower sales volume of $60.3 million and the negative impact associated with the pass-through of sulfur costs of approximately $75 million, offset by higher average selling pricing of $39.0 million, after adjusting for the impact of the pass-through of sulfur costs.

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

Catalyst Technologies:

Sales in Catalyst Technologies for the six months ended June 30, 2023 were $49.2 million, a decrease of $8.7 million, or 15.0%, compared to sales of $57.9 million for the six months ended June 30, 2022.

The decrease in sales was due to lower sales volume of $12.8 million and the unfavorable effects of foreign currency of $0.8 million, partially offset by higher average selling prices of $4.9 million.

The decrease in sales volume was primarily driven by lower polyethylene catalysts sales during the six months ended June 30, 2023 and the timing of customer orders for catalyst used in the production of methyl methacrylate for the six months ended June 30, 2022.

Higher average selling prices during the six months ended June 30, 2023 was driven by implemented price increases.

Gross profit for the six months ended June 30, 2023 was $97.5 million, a decrease of $10.1 million, or 9.4%, compared to $107.6 million for the six months ended June 30, 2022.

The decrease in gross profit reflects lower sales volume of $23.8 million and higher manufacturing costs, exclusive of the $37 million impact associated with lower sulfur costs that are passed through in price, partially offset by higher average selling prices and favorable mix.

The higher manufacturing costs was primarily driven by higher variable costs, transportation costs and costs related to the extended maintenance turnaround.

Sales in Catalyst Technologies for the nine months ended September 30, 2023 were $74.9 million, a decrease of $19.8 million, or 20.9%, compared to sales of $94.7 million for the nine months ended September 30, 2022.

The decrease in sales was due to lower sales volume of $26.0 million, lower average selling prices of $6.4 million and the unfavorable effects of foreign currency of $0.2 million.

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

The lower average selling prices were driven by customer mix.

Gross profit for the nine months ended September 30, 2023 was $150.6 million, a decrease of $24.7 million, or 14.1%, compared to $175.3 million for the nine months ended September 30, 2022.

The decrease in gross profit is primarily driven by lower sales volume of $23.6 million as well as unfavorable manufacturing costs of $43.5 million, partially offset by favorable average selling prices of $42.4 million, exclusive of the pass-through of sulfur costs.

Sales volume was lower primarily due to lower virgin sulfuric acid sales and lower polyethylene catalysts sales.

The unfavorable manufacturing costs was primarily driven by costs related to the extended maintenance turnaround activity, planned turnaround activity, and higher unplanned repair and maintenance costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2023 was $42.5 million, a decrease of $3.8 million, as compared to $46.3 million for the six months ended June 30, 2022.

The decrease in selling, general and administrative expenses was mainly due to a decrease in other compensation-related expenses of $3.4 million and a decrease in stock-based compensation expense of $3.6 million due to fewer overall awards granted and outstanding for the six months ended June 30, 2023 as compared to the prior year period.

This was partly offset by an increase in professional fees of $2.5 million.

Selling, general and administrative expenses for the nine months ended September 30, 2023 was $59.5 million, a decrease of $8.3 million, as compared to $67.8 million for the nine months ended September 30, 2022.

The decrease in selling, general and administrative expenses was mainly due to a decrease in other compensation-related expenses of $7.3 million and a decrease in stock-based compensation expense of $4.9 million due to fewer overall awards granted and outstanding for the nine months ended September 30, 2023 as compared to the prior year period.

This was partly offset by an increase in professional fees of $3.6 million primarily related to consulting and recruiting charges.

Other Operating Expense, Net

Other operating expense, net for the six months e nded June 30, 2023 was $13.0 million, a decrease of $4.4 million, compared to $17.4 million for the six months ended June 30, 2022.

The decrease in other operating expense, net was mainly driven by a decrease of $2.4 million in transactions costs, primarily associated with the sale of the Performance Chemicals business in 2021 and a decrease i n restructuring, integration and business optimization costs driven by severance charges incurred in the prior period from contracts associated with fo rmer executives for $4.4 million, offset by an increase of $1.3 million in business optimization costs.

This was also offset by an increase in net losses on asset disposals of $1.6 million, primarily associated with costs associated with Winter Storm Elliott.

Other operating expense, net for the nine months e nded September 30, 2023 was $17.2 million, a decrease of $7.9 million, compared to $25.1 million for the nine months ended September 30, 2022.

The decrease in other operating expense, net was mainly driven by a decrease of $4.0 million in transactions costs, primarily associated with the sale of the Performance Chemicals business and a decrease of $5.4 million i n restructuring, integration and business optimization costs driven by severance charges incurred in the prior period from contracts associated with fo rmer executives.

This was also offset by an increase in net losses on asset disposals of $2.2 million, primarily associated with costs related to Winter Storm Elliott.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies for the six months ended June 30, 2023 was $11.6 million, compared to $14.3 million for the six months ended June 30, 2022.

The decrease was due to lower earnings from the Zeolyst Joint Ventur e largely due to the comparative timing of customer orders for hydrocracking and lower specialty catalysts sales during the six months ended June 30, 2023 .

Equity in net income of affiliated companies for the nine months ended September 30, 2023 was $16.3 million, compared to $17.4 million for the nine months ended September 30, 2022.

The decrease was due to lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2023 .

Interest Expense, Net

Interest expense, net for the six months ended June 30, 2023 was $19.0 million, an increase of $1.7 million, as compared to $17.3 million for the six months ended June 30, 2022.

The increase in interest expense, net was primarily due to year over year increase in variable rates, which was partially offset by lower outstanding debt during the six months ended June 30, 2023, as compared to the six months ended June 30, 2022 and the benefits associated with our interest rate caps, which included an adjustment related to prior year interest rate amortization.

Interest expense, net for the nine months ended September 30, 2023 was $30.8 million, an increase of $3.9 million, as compared to $26.9 million for the nine months ended September 30, 2022.

The increase in interest expense, net was primarily due to year over year increase in variable rates, which was partially offset by lower outstanding debt during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022 and the benefits associated with our interest rate caps, which included an adjustment related to prior year interest rate amortization.

Other Expense, Net

Other expense, net for the six months ended June 30, 2023 was $0.2 million, a decrease of $0.6 million, as compared to $0.8 million for the six months ended June 30, 2022.

Other expense, net for the nine months ended September 30, 2023 was $0.6 million, a decrease of $1.9 million, as compared to $2.5 million for the nine months ended September 30, 2022.

The decrease in other expense, net primarily consisted of favorable foreign currency exchange of $2.2 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

dollar, which was partially offset by higher pension costs of $1.1 million.

Provision for Income Taxes

The provision for income taxes for the six months ended June 30, 2023 was $9.7 million, compared to a $13.0 million for the six months ended June 30, 2022.

The effective income tax rate for the six months ended June 30, 2023 was 28.3%, compared to 32.4% for the six months ended June 30, 2022.

The provision for income taxes for the nine months ended September 30, 2023 was $17.6 million, compared to a $22.0 million for the nine months ended September 30, 2022.

The effective income tax rate for the nine months ended September 30, 2023 was 29.9%, compared to 31.2% for the nine months ended September 30, 2022.

The Company’s effective income tax rate fluctuated primarily due to a reduced discrete tax impact related to a stock compensation shortfall and a discrete tax benefit associated with state and local tax law changes.

The difference between the U.S.

federal statutory income tax rate and the Company’s effective income tax rate for the six months ended June 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

For the foregoing reasons, n et income was $24.7 million for the six months ended June 30, 2023, compared to $27.1 million for the six months ended June 30, 2022.

federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2023 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation, a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions, and a discrete tax benefit connected to state and local tax law changes.

For the foregoing reasons, n et income was $41.2 million for the nine months ended September 30, 2023, compared to $48.4 million for the nine months ended September 30, 2022.

Adjusted EBITDA

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

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2023 2022 $ %

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Adjusted EBITDA may not be comparable with EBITDA or Adjusted EBITDA as defined by other companies.

(2) The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $21.6 million for the six months ended June 30, 2023, which includes $11.6 million of equity in net income, excluding $3.2 million of amortization of investment in affiliate step-up plus $6.8 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Catalyst Technologies segment is $25.6 million for the six months ended June 30, 2022, which includes $14.3 million of equity in net income, excluding $3.2 million of amortization of investment in affiliate step-up plus $8.1 million of joint venture depreciation, amortization and interest.

Adjusted EBITDA for the six months ended June 30, 2023 was $96.9 million, a decrease of $12.4 million, or 11.3%, compared to $109.3 million for the six mo nths ended June 30, 2022.

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

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

Adjusted EBITDA for the nine months ended September 30, 2023 was $151.6 million, a decrease of $21.8 million, or 12.6%, compared to $173.4 million for the nine mo nths ended September 30, 2022.

The decrease in Adjusted EBITDA was primarily a result of lower virgin sulfuric acid sales volume related to Winter Storm Elliott and the extended maintenance turnaround activity, higher unplanned repair and maintenance costs and costs associated with planned turnaround activity, partially offset by higher pricing for regeneration services.

Catalyst Technologies:

Adjusted EBITDA for the six months ended June 30, 2023 was $38.4 million, in line with the prior year period as continued strong pricing and favorable product mix offset a decrease in sales volume.

Adjusted EBITDA for the nine months ended September 30, 2023 was $54.7 million, a decrease of $3.0 million or 5.2%, compared to $57.7 million for the nine mo nths ended September 30, 2022 .

The decrease was primarily a result of a decrease in sales volume offset by continued strong pricing.

A reconciliation of net income to Adjusted EBITDA is as follows:

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We determined the fair value of the equity affiliate investment and the fair value step-up was then attributed to the underlying assets of the Zeolyst Joint Venture.

Amortization is primarily related to the fair value adjustments associated with fixed assets and intangible assets, including customer relationships and technical know-how.

Amortization is primarily related to the fair value adjustments associated with intangible assets, including customer relationships and technical know-how.

(c) When asset disposals occur, we remove the impact of net gain/loss of the disposed asset because such impact primarily reflects the non-cash write-off of long-lived assets no longer in use.

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

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Nine months ended September 30,

Pre-tax amount Tax expense (benefit) After-tax amount Pre-tax amount Tax expense (benefit) After-tax amount

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

The adjustments to net income are shown net of applicable tax rates of 26.2% and 26.0% for the six months ended June 30, 2023 and 2022, respectively, except for the foreign currency exchange (gain) loss and equity-based compensation.

The adjustments to net income are shown net of applicable tax rates of 27.4% and 27.7% for the nine months ended September 30, 2023 and 2022, respectively, except for the foreign currency exchange (gain) loss and equity-based compensation.

The tax effect on equity-based compensation is derived by removing the tax effect of any equity-based compensation expense disallowed as a result of its inclusion within IRC Sec.

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Our capital expenditures include both maintenance of business, which include spending on maintenance and health, safety and environmental initiatives as well as growth, which includes spending to drive organic sales growth and cost savings initiatives.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our asset based lending revolving credit facility, will be sufficient to meet our presently anticipated future cash needs for at least the next twelve months.

We may also pursue strategic acquisition or divestiture opportunities, wh ich may impact our future cash requirements.

We may, from time to time, increase borrowings under our asset based lending revolving credit facility to meet our future cash needs.

As of June 30, 2023, we had cash and cash equivalents of $29.2 million and availability of $70.0 million under our asset based lending revolving credit facility, after giving effect to $4.0 million of outstanding letters of credit, for a total available liquidity of $99.2 million.

We did not have any revolving credit facility borrowings as of June 30, 2023.

As of June 30, 2023, we were in comp liance with all covenants under our debt agreements.

We believe that our existing cash, cash equivalents and cash flows from operations, combined with availability under our ABL Facility, will be sufficient to meet our presently anticipated future cash needs for at least the next twelve months.

We may also pursue strategic acquisition or divestiture opportunities, which may impact our future cash requirements.

We may, from time to time, increase borrowings under our ABL Facility to meet our future cash needs.

As of September 30, 2023, we had cash and cash equivalents of $38.3 million and availability of $70.8 million under our ABL Facility, after giving effect to $4.0 million of outstanding letters of credit, for a total available liquidity of $109.1 million.

We did not have any revolving credit facility borrowings as of September 30, 2023.

As of September 30, 2023, we were in compliance with all covenants under our debt agreements.

Our ABL Facility has one financial covenant with two ratios to maintain.

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revolving credit facility against a $15.0 million threshold.

As of June 30, 2023 , we were in compliance with the financial covenant under the ABL Facility.

As of September 30, 2023, we were in compliance with the financial covenant under the ABL Facility.

The 2021 Term Loan Facility and the ABL Facility contain various restrictive covenants.

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During such time, the Company is required to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0.

The Company was in compliance with all debt covenants under the 2021 Term Loan Facility and the ABL Facility as of June 30, 2023 .

Included in our cash and cash equivalents balance as of June 30, 2023 was $12.0 million of cash and cash equivalents in foreign jurisdictions.

The Company was in compliance with all debt covenants under the 2021 Term Loan Facility and the ABL Facility as of September 30, 2023.

Included in our cash and cash equivalents balance as of September 30, 2023 was $8.5 million of cash and cash equivalents in foreign jurisdictions.

Depending on foreign cash balances, we have certain flexibility to repatriate funds should the need arise.

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Our liquidity requirements include interest payments related to our debt structure.

As reported, our cash interest paid for the six months ended June 30, 2023 and 2022 wa s approximately $19.4 million and $15.8 million, respectively.

As reported, our cash interest paid for the nine months ended September 30, 2023 and 2022 was approximately $28.5 million and $24.4 million, respectively.

Before any impact of hedges, a one percent change in assumed interest rates for our variable interest credit facilities would have an annual impact of approximately $8.8 million on interest expense.

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For more information about our interest rate cap agreements, refer to Note 12 — Financial Instrument of our condensed consolidated financials statements included in Part 1, Item 1 — Financial Statements (Unaudited).

The Company’s off-balance sheet arrangements include $4.0 million of outstanding letters of credit on our ABL Facility as of June 30, 2023.

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The Company’s off-balance sheet arrangements include $4.0 million of outstanding letters of credit on our ABL Facility as of September 30, 2023.

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Cash and cash equivalents at end of period $ 38.3 $ 121.4

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

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$ (35.0) $ (42.5)

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Payments for business divestiture, net of cash — (3.7)

Business combinations, net of cash acquired — (0.5)

Other, net — 0.1

Net cash used in investing activities $ (53.6) $ (43.6)

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Net cash used in financing activities $ (90.5) $ (82.6)

Net cash provided by operating activities was $41.1 million for the six months ended June 30, 2023, compared to $52.8 million for the six months ended June 30, 2022.

Cash generated by operating activities, other than changes in working capital was lower by $21.0 million during the six months ended June 30, 2023, as compared to the same period in the prior year primarily due to a decrease in dividends received from affiliated companies.

The increase in cash from working capital during the six months ended June 30, 2023 of $9.3 million was favorable, compared to the six months ended June 30, 2022 primarily due to favorable changes in receivables, which was offset by unfavorable changes in prepaids and other current assets, accounts payable and accrued liabilities.

Net cash provided by operating activities was $73.4 million for the nine months ended September 30, 2023, compared to $109.3 million for the nine months ended September 30, 2022.

Cash generated by operating activities, other than changes in working capital was lower by $43.4 million during the nine months ended September 30, 2023, as compared to the same period in the prior year primarily due to a decrease in dividends received from affiliated companies and deferred income tax provision.

The increase in cash from working capital during the nine months ended September 30, 2023 of $7.5 million was favorable, compared to the nine months ended September 30, 2022 primarily due to favorable changes in receivables and prepaids and other current assets, offset by unfavorable changes in inventories, accounts payable and accrued liabilities.

The favorable change in receivables was driven by the collection of sales.

The favorable change in prepaid and other current assets primarily relates to the timing of non-trade receivables from related parties and the interest rate cap agreements.

The unfavorable change in accrued liabilities mainly relates to payments for other compensation-related liabilities in the current period offset by higher income tax payments in the prior period.

The unfavorable change in prepaid and other current assets primarily relates to the timing of non-trade receivables from related parties and an increase in miscellaneous receivables.

The unfavorable change in accounts payable is due to the timing of vendor payments and professional fees.

Net cash used in investing activities was $39.2 million for the six months ended June 30, 2023, compared to $29.5 million during the same period in 2022.

Cash used in investing activities consisted of $39.2 million and $25.8 million to fund capital expenditures during the six months ended June 30, 2023 and 2022, respectively.

During the six months ended June 30, 2022, we made an additional payment of $3.7 million related to our divestiture of our Performance Chemicals business representing the final adjustments to the sale price.

Net cash used in financing activities was $79.9 million for the six months ended June 30, 2023, compared to $11.9 million during the same period in 2022.

Net cash used in financing activities was primarily driven by the Company repurchases of common stock of $73.4 million during the six months ended June 30, 2023, compared to $7.1 million during the six months ended June 30, 2022.

The unfavorable change in accounts payable is due to the timing of vendor payments.

The unfavorable change in inventory was primarily due to the timing of sales orders and inventory build.

Net cash used in investing activities was $53.6 million for the nine months ended September 30, 2023, compared to $43.6 million during the same period in 2022.

Cash used in investing activities consisted of $53.6 million and $39.5 million to fund capital expenditures during the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2022, we made an additional payment of $3.7 million related to our divestiture of our Performance Chemicals business representing the final adjustments to the sale price.

Net cash used in financing activities was $90.5 million for the nine months ended September 30, 2023, compared to $82.6 million during the same period in 2022.

Net cash used in financing activities was primarily driven by the Company repurchases of common stock of $78.7 million during the nine months ended September 30, 2023, compared to $73.7 million during the nine months ended September 30, 2022.

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2023 December 31,

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Total long-term debt, excluding current portion $ 860.7 $ 865.9

As of June 30, 2023, our total debt was $882.0 million, excluding the original issue discount of $6.8 million and deferred financing costs of $3.8 million for our senior secured credit facilities.

Our net debt as of June 30, 2023 was $852.8 million, including cash and cash equivalents of $29.2 million.

As of September 30, 2023, our total debt was $879.8 million, excluding the original issue discount of $6.5 million and deferred financing costs of $3.6 million for our senior secured credit facilities.

Our net debt as of September 30, 2023 was $841.5 million, including cash and cash equivalents of $38.3 million.

We may seek, subject to market conditions and other factors, opportunities to repurchase, refinance or otherwise reprice our debt.

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These capital expenditures represent our “book” capital expenditures for which the company has recorded, but not necessarily paid for the capital expenditures.

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

Maintenance capital expenditures were higher in the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to higher turnaround expenditures and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities.

Growth capital expenditures were slightly lower in the six months ended June 30, 2023, compared to the six months ended June 30, 2022 due to the completion of several expansion projects in 2022.

Maintenance capital expenditures were higher in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to extended turnaround activities and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities.

Growth capital expenditures were slightly lower in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 due to the completion of several expansion projects in 2022.

Critical Accounting Policies and Estimates

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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