What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-02 · 156 added, 155 removed, 396 unchanged (44% of the section changed)

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We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements to actual results or to changes in our expectations.

We are a leading integrated and innovative global provider of specialty catalysts and services.

We are a leading integrated and innovative global provider of advanced materials, specialty catalysts and services.

We believe that our products and services contribute to improving the sustainability of the environment.

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On April 27, 2022, the Board approved a stock repurchase program that authorized the Company to purchase up to $450.0 million of the Company’s common stock over the four-year period from the date of approval.

For the six months ended June 30, 2024, the Company repurchased 552,081 shares on the open market at an average price of $9.05 per share, for a total of $5.0 million excluding brokerage commissions and accrued excise tax.

As of June 30, 2024, $229.6 million was available for share repurchases under the program.

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

For the nine months ended September 30, 2024, the Company repurchased 552,081 shares on the open market at an average price of $9.05 per share, for a total of $5.0 million excluding brokerage commissions and accrued excise tax.

As of September 30, 2024, $229.6 million was available for share repurchases under the program.

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 by an equity sponsor in March and May 2023, the Company repurchased 7,000,000 shares of its common stock in the offerings from underwriters at a weighted average price of $10.48 per share concurrently with the close of the offerings, for a total of $73.4 million, excluding accrued excise tax.

Key Performance Indicators

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Sales in our Ecoservices and Advanced Materials & Catalysts segments are made on both a purchase order basis and pursuant to long-term contracts.

Our Advanced Materials & Catalysts segment may also experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements.

Overall, our Ecoservices and Advanced Materials & Catalysts segments continued to benefit from positive demand trends for our products and services in the industries we serve.

Within the Zeolyst Joint Venture, included in our Advanced Materials & Catalysts segment, we may also experience demand fluctuations based upon the timing of some of our customer’s fixed bed catalyst replacements or the timing of sales of catalysts used in the production of sustainable fuels.

Our Ecoservices and Advanced Materials & Catalysts segments continued to benefit from positive demand trends for our products and services in the majority of end uses we serve.

For Ecoservices, strong domestic and export demand for refined products continued to support high refinery utilization rates, while more stringent gasoline standards and growing demand for premium gasoline to power higher-compression and turbo-charged engines continued to drive demand for alkylate and for our regeneration services.

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

For our Advanced Materials & Catalysts segment, global polyethylene demand remained positive, supporting our sales of polyethylene catalysts.

Hydrocracking catalyst sales experienced demand fluctuations driven by customer order timing associated by the timing of fixed bed catalyst replacement cycles.

In addition, we expect variability in specialty and niche-custom catalyst sales, which tend to be event driven.

With a current imbalance between the production of renewable diesel and current demand, we expect demand may decrease in the near to mid-term for catalyst sales into sustainable fuels.

Similarly, given various macro-economic conditions which have adversely impacted sales of heavy-duty diesel vehicles, we have reduced our expectations for sales of emission control catalysts.

For our Advanced Materials & Catalysts segment, global polyethylene demand remained positive, supporting our sales of polyethylene catalysts and catalysts supports.

Within the Zeolyst Joint Venture, hydrocracking catalyst sales continued to reflect demand fluctuations driven by customer order timing associated by the timing of fixed bed catalyst replacement cycles and sales of niche-custom catalysts, which tend to be event driven, continued to reflect variability in customer order patterns.

With a current imbalance between the production capacity for renewable diesel and current demand, we continue to expect lower demand in the near to mid-term for catalyst sales into the production of renewable diesel.

In addition, given various macro-economic conditions which have adversely impacted sales of heavy-duty diesel vehicles, we reduced our expectations for sales of emission control catalysts.

Cost of Goods Sold

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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 5% of our sales for the six months ended June 30, 2024 and approximately 6% for the year ended December 31, 2023 in currencies other than the U.S.

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

We operate in various geographies with approximately 5% of our sales for the nine months ended September 30, 2024 and approximately 6% for the year ended December 31, 2023 were in currencies other than the U.S.

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

dollars, sales or earnings generated in currencies other than the U.S.

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Results of Operations

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

The following is a summary of our financial performance for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

• Sales decreased $1.3 million to $182.8 million.

The decrease in sales was primarily due to the result of lower average selling prices due to the pass-through of lower costs in Ecoservices, partially offset by higher sales volume in regeneration services, virgin sulfuric acid and advanced silicas.

• Gro ss profit decreased $7.3 million to $53.7 million.

The decrease in gross profit was primarily due to lower average selling pricing, partially offset by higher volume and favorable variable costs.

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

The following is a summary of our financial performance for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

• Sales increased $5.9 million to $179.2 million.

The increase in sales was primarily due to the result of higher average selling prices for regeneration services and higher sales volume of virgin sulfuric acid.

• Gro ss profit increased $1.5 million to $54.7 million.

The increase in gross profit was primarily due to higher average selling pricing and higher sales volume, partially offset by unfavorable manufacturing costs.

Operating Income

• Operating income decreased by $0.4 million to $31.6 million.

The decrease in operating income was due to a decrease in gross profit and other operating expenses, net.

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

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the three months ended June 30, 2024 was $1.4 million, compared to $11.4 million for the three months ended June 30, 2023.

The decrease of $10.0 million was due to lower earnings generated by the Zeolyst Joint Venture for the three months ended June 30, 2024, driven by lower sales volume.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended June 30, 2024 and 2023:

• Equity in net income of affiliated companies for the three months ended September 30, 2024 was a net loss of $0.9 million, compared to net income of $4.7 million for the three months ended September 30, 2023.

The decrease of $5.6 million was due to lower earnings generated by the Zeolyst Joint Venture for the three months ended September 30, 2024, driven by lower sales volume.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the three months ended September 30, 2024 and 2023:

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Interest expense, net 11.3 11.8 (0.5) (4.2) %

Debt extinguishment costs 4.6 — 4.6 NM

Other expense, net 0.6 0.4 0.2 50.0 %

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Total sales $ 179.2 $ 173.3 $ 5.9 3.4 %

Sales in Ecoservices for the three months ended June 30, 2024 were $153.9 million, a decrease of $4.2 million, or 2.7%, compared to sales of $158.1 million for the three months ended June 30, 2023.

The decrease in sales was due to lower average selling prices of $17.0 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $3 million, partially offset by higher sales volume of $12.8 million.

Average selling price was lower primarily due to the pass-through of lower costs, including sulfur, natural gas, freight and other variable costs.

The increase in sales volume was primarily related to increased demand for regeneration services and virgin sulfuric acid.

Sales in Ecoservices for the three months ended September 30, 2024 were $153.9 million, an increase of $6.3 million, or 4.3%, compared to sales of $147.6 million for the three months ended September 30, 2023.

The increase in sales was due to higher average selling prices of $3.0 million and higher sales volume of $3.3 million.

The impact associated with the pass-through of lower sulfur costs was immaterial for the three months ended September 30, 2024.

Average selling prices were higher primarily due to favorable contractual pricing in regeneration services.

The increase in sales volume was primarily related to the increased demand for virgin sulfuric acid.

Advanced Materials & Catalysts:

Sales in Advanced Materials & Catalysts for the three months ended June 30, 2024 were $28.9 million, an increase of $2.9 million, or 11.2%, compared to sales of $26.0 million for the three months ended June 30, 2023.

Of the increase in sales, $2.7 million was associated with higher sales volume and $0.2 million associated with higher average selling prices.

The increase in sales volume was primarily driven by higher end use demand for niche custom catalysts.

Gross profit for the three months ended June 30, 2024 was $53.7 million, a decrease of $7.3 million, or 12.0%, compared to $61.0 million for the three months ended June 30, 2023.

The decrease in gross profit was primarily due to lower average selling prices of $13.5 million, exclusive of the pass-through of lower sulfur costs, partially offset by favorable variable costs of $1.6 million along with higher sales volume of $7.7 million.

Average selling prices were lower primarily due to the pass-through of lower costs, including sulfur, natural gas, electricity, and other variable costs.

The increase in sales volume was primarily related to higher demand for regeneration services and virgin sulfuric acid.

Sales in Advanced Materials & Catalysts for the three months ended September 30, 2024 were $25.3 million, a decrease of $0.4 million, or 1.6%, compared to sales of $25.7 million for the three months ended September 30, 2023.

The decrease of $0.4 million was primarily due to the timing of niche custom catalysts sales, partially offset by higher advanced silicas used for the production of polyethylene.

Gross profit for the three months ended September 30, 2024 was $54.7 million, an increase of $1.5 million, or 2.8%, compared to $53.2 million for the three months ended September 30, 2023.

The increase in gross profit was primarily due to higher average selling prices of $3.0 million, higher sales volume and mix of $3.3 million, partially offset by unfavorable manufacturing costs of $4.8 million.

Average selling prices were higher primarily due to the favorable contractual pricing in regeneration services.

The increase in sales volume was primarily related to higher demand for virgin sulfuric acid and higher advanced silicas used for the production of polyethylene.

Higher manufacturing costs were driven by general inflation, higher planned maintenance costs and costs associated with our manufacturing plant reliability improvement program in Ecoservices.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2024 were $22.7 million, an increase of $1.3 million, compared to $21.4 million for the three months ended June 30, 2023.

The increase in selling, general and administrative expenses was primarily due to an increase in other compensation-related expenses of $4.0 million, offset by a decrease $1.2 million in stock compensation due to fewer overall awards granted and outstanding for the three months ended June 30, 2024 as compared to the prior year period and decrease of $1.3 million in other expenses.

Selling, general and administrative expenses for the three months ended September 30, 2024 were $20.0 million, an increase of $3.1 million, compared to $16.9 million for the three months ended September 30, 2023.

The increase in selling, general and administrative expenses was primarily due to an increase in other compensation-related expenses of $3.7 million, offset by a decrease of $0.5 million in stock compensation due to fewer overall awards granted and outstanding for the three months ended September 30, 2024.

Other Operating Expense, Net

Other operating expense, net for the three months ended June 30, 2024 was $3.1 million, a decrease of $3.2 million, compared to $6.3 million for the three months ended June 30, 2023.

The decrease in other operating expense, net was primarily due to a decrease in net loss from asset disposals of $1.2 million, a decrease of $0.9 million in restructuring, integration and business optimization costs and a decrease of $1.1 million in transactions costs.

The decrease i n restructuring, integration and business optimization costs was primarily driven by lower business optimization costs and t he decrease in transactions costs was primarily driven by lower costs associated with share repurchases.

Other operating ex pense, net for the three months ended September 30, 2024 was $3.1 million, a decrease of $1.2 million, compared to $4.3 million for the three months ended September 30, 2023.

The decrease in other operating expense, net was primarily due to a decrease in net loss from asset disposals of $0.8 million compared to the prior year.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated comp anies for the three months ended June 30, 2024 was $1.4 million, compared to $11.4 million for the three months ended June 30, 2023.

The decrease was due to $10.0 million of lower earnings from the Zeolyst Joint Venture during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The decrease in earnings from the Zeolyst Joint Venture was due to lower sales volume of catalyst used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts.

Equity in net income of affiliated comp anies for the three months ended September 30, 2024 was a net loss of $0.9 million, compared to net income of $4.7 million for the three months ended September 30, 2023.

The decrease was due to $5.6 million of lower earnings from the Zeolyst Joint Venture during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

The decrease in earnings from the Zeolyst Joint Venture was due to lower sales volume of catalysts used in the production of sustainable fuels and emission control applications, partially offset by higher sales of hydrocracking catalysts and custom catalysts.

Interest Expense, Net

Interest expense, net for the three month s ended June 30, 2024 was $12.9 million, an increase of $3.7 million, as compared to $9.2 million for the three months ended June 30, 2023.

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, 2024, as compared to the three months ended June 30, 2023 and benefits associated with the interest rate caps.

Debt Extinguishment Costs

Debt extinguishment costs for the three months ended June 30, 2024 were $4.6 million.

On June 12, 2024, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to June 2031.

The Company evaluated the terms of the amendment in accordance with ASC 470-50 Debt - Modification and Extinguishment and determined that the amendment was primarily a modification of debt.

As a result, we recorded $4.5 million of third-party financing fees as debt extinguishment costs in the condensed consolidated income statement during the three months ended June 30, 2024.

In addition, previously unamortized deferred financing costs and original issue discount of $0.1 million associated with the existing senior secured term loan facility were written off as debt extinguishment costs for the three months ended June 30, 2024 .

Interest expense, net for the three month s ended September 30, 2024 was $11.3 million, a decrease of $0.5 million, as compared to $11.8 million for the three months ended September 30, 2023.

The decrease in interest expense, net was primarily due to the period over period decrease in the interest rate spread on the term loan during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

Other Expense, Net

Other expense, net for the three months ended June 30, 2024 was $0.4 million, a decrease of $0.2 million, as compared to $0.6 million for the three months ended June 30, 2023.

The decrease in other expense, net primarily relates to a decrease of $0.3 million in other taxes.

Other expense, net for the three months ended September 30, 2024 was $0.6 million, an increase of $0.2 million, as compared to $0.4 million for the three months ended September 30, 2023.

The increase in other expense, net primarily relates to lower other income of $0.4 million during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, partially offset by a decrease in foreign currency exchange of $0.2 million mainly related to the remeasurement effects of monetary assets and liabilities, denominated in foreign currency.

Provision for Income Taxes

The provision for income taxes for the three months ended June 30, 2024 was $3.1 million, compared to $8.8 million for the three months ended June 30, 2023.

The effective income tax rate for the three months ended June 30, 2024 was 27.1%, compared to 25.2% for the three months ended June 30, 2023.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to an increased discrete tax impact relative to pre-tax book income 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, 2024 was $4.5 million, compared to $7.9 million for the three months ended September 30, 2023.

The effective income tax rate for the three months ended September 30, 2024 was 24.0%, compared to 32.3% for the three months ended September 30, 2023.

The Company’s quarter over quarter effective income tax rate has fluctuated primarily due to a reduced discrete tax impact relative to pre-tax book income.

The discrete tax items relate to a stock compensation shortfall, tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions and a tax benefit related to state tax refunds associated with prior tax years recorded during the current quarter.

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, 2024 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions.

For the foregoing reasons, net income was $8.3 million for the three months ended June 30, 2024, compared to $26.1 million for the three months ended June 30, 2023.

federal statutory income tax rate and the Company’s effective income tax rate for the three months ended September 30, 2024 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest associated with historical uncertain tax positions.

During the fourth quarter of 2024, the Company expects to recognize $8,023 of previously net unrecognized tax benefits, excluding interest and penalties, primarily due to the expiration of statutes of limitations during October 2024.

For the foregoing reasons, net income was $14.3 million for the three months ended September 30, 2024, compared to $16.6 million for the three months ended September 30, 2023.

Adjusted EBITDA

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(2) The Adjusted EBITDA for the Advanced Materials & Catalysts segment includes our 50% portion of the Adjusted EBITDA from the Zeolyst Joint Venture.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $5.6 million for the three months ended June 30, 2024, which includes $1.4 million of equity in net income, excluding $0.9 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 Advanced Materials & Catalysts 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.

Adjusted EBITDA for the three months ended June 30, 2024 was $49.7 million, a decrease of $10.4 million, or 17.3%, compared to $60.1 million for the three months ended June 30, 2023.

The decrease in Adjusted EBITDA was a result of unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs, including energy and other indexed costs and an increase in turnaround and maintenance costs, partially offset by higher sales volume in both regeneration services and virgin sulfuric acid.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $3.3 million for the three months ended September 30, 2024, which includes $0.9 million of equity in net loss, excluding $0.6 million of amortization of investment in affiliate step-up plus $3.6 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts 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.

Adjusted EBITDA for the three months ended September 30, 2024 was $55.1 million, an increase of $0.4 million, or 0.7%, compared to $54.7 million for the three months ended September 30, 2023.

The increase in Adjusted EBITDA was a result of favorable contractual pricing for regeneration services and higher sales volume of virgin sulfuric acid, partially offset by higher manufacturing costs associated with inflation, increased planned maintenance costs and costs associated with the manufacturing plant reliability improvement program.

Advanced Materials & Catalysts:

Adjusted EBITDA for the three months ended June 30, 2024 was $14.7 million, a decrease of $10.7 million, or 42.1%, compared to $25.4 million for the three months ended June 30, 2023.

The decrease in Adjusted EBITDA was primarily a result of lower sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts, partially offset by higher sales in Advanced Silicas.

Adjusted EBITDA for the three months ended September 30, 2024 was $10.9 million, a decrease of $5.5 million, or 33.5%, compared to $16.4 million for the three months ended September 30, 2023.

The decrease in Adjusted EBITDA was primarily a result of lower sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels and emission control applications, partially offset by higher sales of hydrocracking catalysts and custom catalysts.

In Advanced Silicas, favorable mix and increased sales of advanced silicas used for the production of polyethylene helped drive higher Adjusted EBITDA.

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

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Amortization of investment in affiliate step-up (b)

Debt extinguishment costs 4.6 —

Net loss on asset disposals (c)

Foreign currency exchange gain (d)

LIFO (benefit) expense (e)

Foreign currency exchange loss (d)

LIFO benefit (e)

Transaction and other related costs (f)

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(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.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income related to the non-permanent intercompany debt denominated in local currency translated to U.S.

(d) Reflects the exclusion of the foreign currency transaction gains and losses in the statements of income related to the remeasurement effects of monetary assets and liabilities, including non-permanent intercompany debt, denominated in foreign currency.

(e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S.

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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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0.6 0.1 0.5 1.6 0.5 1.1

Debt extinguishment costs 4.6 1.2 3.4 — — —

Net loss on asset disposals (c)

0.2 0.1 0.1 1.0 0.3 0.7

Foreign currency exchange gain (d)

Foreign currency exchange loss (d)

— — — 0.8 0.2 0.6

LIFO (benefit) expense (e)

LIFO benefit (e)

(0.6) (0.2) (0.4) — — —

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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, 2024 and June 30, 2023, except for 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, 2024 and September 30, 2023, except for 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, 2024 Compared to the Six Months Ended June 30, 2023

The following is a summary of our financial performance for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

• Sales decreased $1.6 million to $343.4 million.

The decrease in sales was primarily due to lower average selling price as a result of the pass-through of lower costs, partially offset by higher sales volume.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

The following is a summary of our financial performance for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

• Sales increased $4.2 million to $522.5 million.

The increase in sales was primarily due to higher sales volume of regeneration services and virgin sulfuric acid, partially offset by lower average selling price as a result of the pass-through of lower costs in Ecoservices and lower sales volume of advanced silicas.

• Gross profit decreased $3.0 million to $147.6 million.

The decrease in gross profit was primarily due to lower average selling price, partially offset by favorable variable costs.

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

Operating Income

• Operating income decreased by $0.5 million to $73.4 million.

The decrease in operating income was due to a decrease in gross profit and other operating expenses, net.

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

Equity in Net Income of Affiliated Companies

• Equity in net income of affiliated companies for the six months ended June 30, 2024 was $3.5 million, compared to $11.6 million for the six months ended June 30, 2023.

The decrease of $8.1 million was due to lower earnings from the Zeolyst Joint Ventur e during the six months ended June 30, 2024, driven by lower sales volume.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the six months ended June 30, 2024 and 2023:

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• Equity in net income of affiliated companies for the nine months ended September 30, 2024 was $2.5 million, compared to $16.3 million for the nine months ended September 30, 2023.

The decrease of $13.8 million was due to lower earnings from the Zeolyst Joint Ventur e during the nine months ended September 30, 2024, driven by lower sales volume.

The following is our unaudited condensed consolidated statements of income and a summary of financial results for the nine months ended September 30, 2024 and 2023:

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Net income $ 23.8 $ 41.2 $ (17.4) (42.2) %

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Ecoservices :

Sales in Ecoservices for the six months ended June 30, 2024 were $295.6 million, a decrease of $0.2 million, or 0.1%, compared to sales of $295.8 million for the six months ended June 30, 2023.

The change in sales reflects higher sales volume of $33.1 million, offset by lower average selling pricing of $33.3 million, before adjusting for the impact of the pass-through of lower sulfur costs of approximately $8 million.

Sales volume was higher primarily due to increased virgin sulfuric acid and regeneration services sales for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 which had the adverse impact of Winter Storm Elliott and extended maintenance turnaround activity at our facilities in 2023, as well as strong demand for regeneration services in the gulf coast in 2024.

Average selling price was lower primarily due to the pass-through of lower costs, including sulfur, natural gas, freight and other variable costs.

Sales in Ecoservices for the nine months ended September 30, 2024 were $449.4 million, an increase of $6.0 million, or 1.4%, compared to sales of $443.4 million for the nine months ended September 30, 2023.

The change in sales reflects higher sales volume of $36.4 million, offset by lower average selling prices of $30.4 million, inclusive of the negative impact associated with the pass-through of lower sulfur costs of approximately $7 million.

Sales volume was higher primarily due to increased virgin sulfuric acid and regeneration services sales for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, which had the adverse impact of Winter Storm Elliott and extended maintenance turnaround activity at our facilities in 2023, as well as strong demand for regeneration services in the gulf coast in 2024.

Average selling prices were lower primarily due to the pass-through of lower costs, including sulfur, natural gas, freight and other variable costs.

Advanced Materials & Catalysts:

Sales in Advanced Materials & Catalysts for the six months ended June 30, 2024 were $47.8 million, a decrease of $1.4 million, or 2.8%, compared to sales of $49.2 million for the six months ended June 30, 2023.

The decrease in sales was primarily due to lower sales volume of advanced silicas used for the production of polyethylene compared to the six months ended June 30, 2023.

Gross profit for the six months ended June 30, 2024 was $92.9 million, a decrease of $4.6 million, or 4.7%, compared to $97.5 million for the six months ended June 30, 2023.

The decrease in gross profit was primarily driven by lower average selling prices of $25.3 million, exclusive of the approximately $8 million of pass-through of sulfur costs, partially offset by favorable variable costs along with higher sales volume of $11.1 million and unfavorable manufacturing costs of $9.6 million.

Sales in Advanced Materials & Catalysts for the nine months ended September 30, 2024 were $73.1 million, a decrease of $1.8 million, or 2.4%, compared to sales of $74.9 million for the nine months ended September 30, 2023.

The decrease in sales was primarily due to lower sales volume of advanced silicas used for the production of polyethylene compared to the nine months ended September 30, 2023.

Gross profit for the nine months ended September 30, 2024 was $147.6 million, a decrease of $3.0 million, or 2.0%, compared to $150.6 million for the nine months ended September 30, 2023.

The decrease in gross profit was primarily driven by lower average selling prices of $23.0 million, exclusive of the approximately $7 million of pass-through of sulfur costs and unfavorable manufacturing costs, partially offset by favorable variable costs and higher sales volume of $14.3 million.

Average selling prices were lower primarily due to the pass-through of lower costs, including sulfur, natural gas, electricity and other variable costs.

The higher manufacturing costs were primarily driven by planned maintenance turnaround.

The increase in sales volume was primarily related to higher demand for regeneration services and virgin sulfuric acid.

The higher manufacturing costs were primarily driven by planned maintenance turnaround costs, general inflation and costs associated with the manufacturing plant reliability improvement program in Ecoservices.

The increase in sales volume was primarily related to higher demand for both regeneration services and virgin sulfuric acid.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2024 were $44.3 million, an increase of $1.8 million, as compared to $42.5 million for the six months ended June 30, 2023.

Selling, general and administrative expenses for the nine months ended September 30, 2024 were $64.3 million, an increase of $4.8 million, as compared to $59.5 million for the nine months ended September 30, 2023.

The increase in selling, general and administrative expenses was mainly due to an increase in other compensation-related expenses of $9.7 million, partially offset by a decrease in stock compensation of $2.1 million, professional fees of $0.5 million and other expenses of $2.0 million.

Other Operating Expense, Net

Other operating expense, net for the six months e nded June 30, 2024 was $6.8 million, a decrease of $6.2 million, compared to $13.0 million for the six months ended June 30, 2023.

Other operating expense, net for the nine months e nded September 30, 2024 was $9.9 million, a decrease of $7.3 million, compared to $17.2 million for the nine months ended September 30, 2023.

The decrease in other operating expense, net was mainly driven by a decrease of $2.6 million in transaction costs, a decrease of $1.7 million in restructuring, integration and business optimization costs and a decrease in net losses on asset disposals of $2.5 million.

The decrease i n restructuring, integration and business optimization costs was primarily driven by lower business optimization costs and t he decrease in transactions costs was 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 companies for the six months ended June 30, 2024 was $3.5 million, compared to $11.6 million for the six months ended June 30, 2023.

The decrease in earnings from the Zeolyst Joint Venture was due to lower sales of catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts.

Equity in net income of affiliated companies for the nine months ended September 30, 2024 was $2.5 million, compared to $16.3 million for the nine months ended September 30, 2023.

The decrease in earnings from the Zeolyst Joint Venture was driven by lower sales of catalysts used in the production of sustainable fuels and emission control applications, partially offset by higher hydrocracking catalyst sales during the nine months ended September 30, 2024 compared to the prior year.

Interest Expense, Net

Interest expense, net for the six months ended June 30, 2024 was $26.3 million, an increase of $7.3 million, as compared to $19.0 million for the six months ended June 30, 2023.

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, 2024, as compared to the six months ended June 30, 2023.

This was offset by the benefits associated with our interest rate caps.

Interest expense, net for the nine months ended September 30, 2024 was $37.6 million, an increase of $6.8 million, as compared to $30.8 million for the nine months ended September 30, 2023.

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 nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 and the benefits associated with our interest rate caps.

Debt Extinguishment Costs

Debt extinguishment costs for the six months ended June 30, 2024 were $4.6 million .

Debt extinguishment costs for the nine months ended September 30, 2024 were $4.6 million .

On June 12, 2024, we amended our existing senior secured term loan facility to reduce the applicable interest rates and extend the maturity of the facility to June 2031.

The Company evaluated the terms of the amendment in accordance with ASC 470-50 Debt - Modification and Extinguishment and determined that the amendment was primarily a modification of debt.

As a result, we recorded $4.5 million of third-party financing fees as debt extinguishment costs in the condensed consolidated income statement during the six months ended June 30, 2024.

As a result, we recorded $4.5 million of third-party financing fees as debt extinguishment costs in the condensed consolidated income statement during the nine months ended September 30, 2024.

Other Expense, Net

Other expense, net for the six months ended June 30, 2024 was $0.6 million, an increase of $0.4 million, as compared to $0.2 million for the six months ended June 30, 2023.

The increase in other expense, net primarily consisted of an increase in foreign currency exchange of $0.8 million mainly related to the non-permanent intercompany debt denominated in local currency and translated to the U.S.

dollar, offset by a decrease in pension costs of $0.1 million.

Other expense, net for the nine months ended September 30, 2024 was $1.1 million, an increase of $0.5 million, as compared to $0.6 million for the nine months ended September 30, 2023.

The increase in other expense, net primarily consisted of an increase in foreign currency exchange of $0.6 million mainly related to the remeasurement effects of monetary assets and liabilities, denominated in foreign currency .

Provision for Income Taxes

The provision for income taxes for the six months ended June 30, 2024 was $4.3 million, compared to $9.7 million for the six months ended June 30, 2023.

The effective income tax rate for the six months ended June 30, 2024 was 30.9%, compared to 28.3% for the six months ended June 30, 2023.

The Company’s effective income tax rate for the six months ended June 30, 2024 was different from the effective tax rate for the six months ended June 30, 2023 primarily due to an increased discrete tax impact relative to pre-tax book income related to stock compensation shortfall recognized discretely in the respective quarters and a discrete tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions.

The provision for income taxes for the nine months ended September 30, 2024 was $8.8 million, compared to $17.6 million for the nine months ended September 30, 2023.

The effective income tax rate for the nine months ended September 30, 2024 was 26.9%, compared to 29.9% for the nine months ended September 30, 2023.

The Company’s effective income tax rate for the nine months ended September 30, 2024 was different from the effective tax rate for the nine months ended September 30, 2023 primarily due to a reduced discrete tax impact relative to pre-tax book income.

The discrete tax items relate to a stock compensation shortfall recognized discretely in the respective quarters, tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions and a tax benefit related to state tax refunds associated with prior tax years recorded during the current quarter.

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, 2024 was mainly due to state and local taxes, a discrete shortfall tax expense related to stock compensation and a discrete tax expense associated with the recording of accrued penalties and interest on historical uncertain tax positions.

For the foregoing reasons, n et income was $9.5 million for the six months ended June 30, 2024, compared to $24.7 million for the six months ended June 30, 2023.

federal statutory income tax rate and the Company’s effective income tax rate for the nine months ended September 30, 2024 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 on historical uncertain tax positions and recording a tax benefit related to tax refunds associated with prior years.

For the foregoing reasons, n et income was $23.8 million for the nine months ended September 30, 2024, compared to $41.2 million for the nine months ended September 30, 2023.

Adjusted EBITDA

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

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2024 2023 $ %

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(2) The Adjusted EBITDA for the Advanced Materials & Catalysts segment includes our 50% portion of the Adjusted EBITDA from the Zeolyst Joint Venture.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $12.5 million for the six months ended June 30, 2024, which includes $3.5 million of equity in net income, excluding $2.5 million of amortization of investment in affiliate step-up plus $6.5 million of joint venture depreciation, amortization and interest.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $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.

Adjusted EBITDA for the six months ended June 30, 2024 was $91.2 million, a decrease of $5.7 million, or 5.9%, compared to $96.9 million for the six mo nths ended June 30, 2023.

The decrease in Adjusted EBITDA was primarily a result of higher turnaround and maintenance costs and unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs including energy and other indexed costs.

This was partially offset by higher sales volume for both virgin sulfuric acid and regeneration services.

The Adjusted EBITDA from the Zeolyst Joint Venture included in the Advanced Materials & Catalysts segment was $15.8 million for the nine months ended September 30, 2024, which includes $2.5 million of equity in net income, excluding $3.2 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 Advanced Materials & Catalysts segment was $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.

Adjusted EBITDA for the nine months ended September 30, 2024 was $146.3 million, a decrease of $5.3 million, or 3.5%, compared to $151.6 million for the nine mo nths ended September 30, 2023.

The decrease in Adjusted EBITDA was primarily a result of higher turnaround and planned maintenance costs and unfavorable net pricing, reflecting the timing and contractual pass-through of certain costs including energy and other indexed costs.

This was partially offset by higher sales volume of both virgin sulfuric acid and regeneration services.

Advanced Materials & Catalysts:

Adjusted EBITDA for the six months ended June 30, 2024 was $25.8 million, a decrease of $12.6 million or 32.8%, compared to $38.4 million for the six mo nths ended June 30, 2023 .

The decrease in Adjusted EBITDA was primarily a result of lower pricing on sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels, emission control catalysts and timing of niche custom catalysts.

Adjusted EBITDA for the nine months ended September 30, 2024 was $36.8 million, a decrease of $17.9 million or 32.7%, compared to $54.7 million for the nine mo nths ended September 30, 2023 .

The decrease in Adjusted EBITDA was primarily a result of lower sales volume within the Zeolyst Joint Venture associated with catalysts used in the production of sustainable fuels and emission control applications, partially offset by higher hydrocracking catalyst sales through the nine months ended September 30, 2024 compared to prior year.

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

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(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.

(e) Represents non-cash adjustments to the Company’s LIFO reserves for certain inventories in the U.S.

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Summarized Adjusted Net Income information is shown below in the following table:

Six months ended June 30,

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 25.1% and 26.2% for the six months ended June 30, 2024 and 2023, respectively, except equity-based compensation.

The adjustments to net income are shown net of applicable tax rates of 25.1% and 27.4% for the nine months ended September 30, 2024 and 2023, respectively, except for 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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We may, from time to time, increase borrowings under our ABL Facility to meet our future cash needs.

As of June 30, 2024, we had cash and cash equivalents of $83.3 million and availability of $72.3 million under our ABL Facility, after giving effect to $3.3 million of outstanding letters of credit, for a total available liquidity of $155.6 million.

We did not have any revolving credit facility borrowings as of June 30, 2024.

As of June 30, 2024, we were in compliance with all covenants under our debt agreements.

As of September 30, 2024, we had cash and cash equivalents of $123.5 million and availability of $64.5 million under our ABL Facility, after giving effect to $3.3 million of outstanding letters of credit, for a total available liquidity of $188.0 million.

We did not have any revolving credit facility borrowings as of September 30, 2024.

As of September 30, 2024, 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, 2024, we were in compliance with the financial covenant under the ABL Facility.

As of September 30, 2024, we were in compliance with the financial covenant under the ABL Facility.

The 2024 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 2024 Term Loan Facility and the ABL Facility as of June 30, 2024.

Included in our cash and cash equivalents balance as of June 30, 2024 was $14.0 million of cash and cash equivalents in foreign jurisdictions.

The Company was in compliance with all debt covenants under the 2024 Term Loan Facility and the ABL Facility as of September 30, 2024.

Included in our cash and cash equivalents balance as of September 30, 2024 was $18.2 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, 2024 and 2023 was approximately $33.2 million and $19.4 million, respectively.

As reported, our cash interest paid for the nine months ended September 30, 2024 and 2023 was approximately $37.0 million and $28.5 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 $8.7 million on interest expense.

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Off-Balance Sheet Arrangements

The Company’s off-balance sheet arrangements include $3.3 million of outstanding letters of credit on our ABL Facility as of June 30, 2024.

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The Company’s off-balance sheet arrangements include $3.3 million of outstanding letters of credit on our ABL Facility as of September 30, 2024.

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(in millions)

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Cash and cash equivalents at end of period $ 123.5 $ 38.3

Net cash provided by operating activities was $46.4 million for the six months ended June 30, 2024, compared to $41.1 million for the six months ended June 30, 2023.

Cash generated by operating activities, other than changes in working capital, was higher by $9.1 million during the six months ended June 30, 2024, as compared to the same period in the prior year primarily due to dividends received from the Zeolyst Joint Venture offset by debt extinguishment costs.

The decrease in cash from working capital during the six months ended June 30, 2024 of $3.8 million was unfavorable compared to the six months ended June 30, 2023 primarily due to unfavorable changes in receivables, inventories and accounts payable, offset by favorable changes in prepaids and other current assets and accrued liabilities.

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

Net cash provided by operating activities was $106.4 million for the nine months ended September 30, 2024, compared to $73.4 million for the nine months ended September 30, 2023.

Cash generated by operating activities, other than changes in working capital, was higher by $13.5 million during the nine months ended September 30, 2024, as compared to the same period in the prior year primarily due to dividends received from the Zeolyst Joint Venture.

The increase in cash from working capital during the nine months ended September 30, 2024 of $19.5 million was favorable compared to the nine months ended September 30, 2023 primarily due to favorable changes in receivables and accrued liabilities, partially offset by unfavorable changes in inventories, prepaids and other current assets and accounts payable.

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

The favorable change in accrued liabilities mainly relates to the timing of payments for variable employee compensation liabilities and non-trade payables from related parties.

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

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

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

The favorable change in accrued liabilities mainly relates to lower payments for variable employee compensation liabilities partially offset by higher payments for taxes in the current period.

Net cash used in investing activities was $36.8 million for the six months ended June 30, 2024, compared to $39.2 million during the same period in 2023.

Net cash used in investing activities consisted of $36.6 million and $39.2 million to fund capital expenditures during the six months ended June 30, 2024 and 2023, respectively.

Net cash used in financing activities was $14.4 million for the six months ended June 30, 2024, compared to $79.9 million during the same period in 2023.

Net cash used in financing activities was primarily driven by the lower repurchases of the Company’s common stock of $68.4 million during the six months ended June 30, 2023.

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

Net cash used in investing activities was $56.2 million for the nine months ended September 30, 2024, compared to $53.6 million during the same period in 2023.

Net cash used in investing activities consisted of $51.7 million and $53.6 million to fund capital expenditures during the nine months ended September 30, 2024 and 2023, respectively.

The Company paid $4.5 million to complete a minority equity investment in Pajarito during the nine months ended September 30, 2024.

Net cash used in financing activities was $15.1 million for the nine months ended September 30, 2024, compared to $90.5 million during the same period in 2023.

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

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2024 December 31,

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Total long-term debt, excluding current portion $ 854.0 $ 858.9

As of June 30, 2024, our total debt was $873.0 million, excluding the original issue discount of $7.6 million and deferred financing costs of $3.0 million for our senior secured credit facilities.

Our net debt as of June 30, 2024 was $789.7 million, including cash and cash equivalents of $83.3 million.

As of September 30, 2024, our total debt was $873.0 million, excluding the original issue discount of $7.4 million and deferred financing costs of $2.9 million for our senior secured credit facilities.

Our net debt as of September 30, 2024 was $749.5 million, including cash and cash equivalents of $123.5 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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(in millions)

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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 lower in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 due to extended turnaround activities and additional expenditures incurred related to Winter Storm Elliott impacting our manufacturing facilities in 2023.

Growth capital expenditures were higher in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 primarily due to the planned expansion of the Kansas City, Kansas silica catalyst production facility.

Critical Accounting Policies and Estimates

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As of October 1, 2023, the date of the Company’s most recent quantitative assessments, the fair values of each of the Company’s reporting units and the fair values of the Company’s indefinite-lived trade names and trademarks exceeded their respective carrying values.

During the six months ended June 30, 2024, the Company did not identify any events or circumstances that would more likely than not reduce the fair value of the Company’s reporting units or intangible assets below their respective carrying values.

Although the estimated fair value of the Advanced Materials & Catalysts reporting unit exceeded its carrying value on October 1, 2023 by over 30%, the Company has experienced unfavorable effects on current operations resulting from certain macroeconomic and industry factors in specific end uses during the six months ended June 30, 2024.

During the nine months ended September 30, 2024, the Company did not identify any events or circumstances that would more likely than not reduce the fair value of the Company’s reporting units or intangible assets below their respective carrying values.

Prolonged unfavorable effects could adversely impact the estimated fair value of the Advanced Materials & Catalysts reporting unit in future periods and may result in impairment charges.

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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