What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 141 added, 185 removed, 162 unchanged (67% of the section changed)

16 unchanged sentences

In addition to any such risks, uncertainties and other factors discussed elsewhere herein, risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to the following:

• adverse effects from the novel coronavirus ("COVID-19") pandemic;

• we may be adversely affected by general global economic, geopolitical and financial conditions beyond our control, including inflation and war in Ukraine;

• we may be adversely affected by general global economic, geopolitical, and financial conditions beyond our control, including inflation and the war in Ukraine;

• we are exposed to risks related to our international sales and operations;

6 unchanged sentences

• lack of access to sufficient CTO and other raw materials upon which we depend would impact our ability to produce our products;

• the inability to make or effectively integrate future acquisitions may negatively affect our results;

• the inability to make or effectively integrate future acquisitions and other investments may negatively affect our results;

• we are dependent upon third parties for the provision of certain critical operating services at several of our facilities;

• adverse effects of the novel coronavirus ("COVID-19") pandemic;

• we may continue to be adversely affected by disruptions in our supply chain;

2 unchanged sentences

• we are dependent on certain large customers;

• from time to time, we may be engaged in legal actions associated with our intellectual property rights;

• from time to time, we are and may be engaged in legal actions associated with our intellectual property rights;

• if we are unable to protect our intellectual property and other proprietary information, we may lose significant competitive advantage;

• information technology security breaches and other disruptions;

• complications with the design or implementation of our new enterprise resource planning system;

• complications with the design or implementation of our new enterprise resource planning system, including higher than anticipated associated costs;

• government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs, and the chemicals industry;

2 unchanged sentences

We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products.

We report in two business segments, Performance Materials and Performance Chemicals .

We report in three reportable segments, Performance Materials, Performance Chemicals, and Advanced Polymer Technologies .

Recent Developments

War in Ukraine

We are monitoring the ongoing war between Russia and Ukraine, including the related sanctions imposed on Russia and Belarus by the U.S.

and other countries.

We have not seen and do not foresee any direct material adverse effects on our business.

However, as a result of the geopolitical disruption, we have experienced volatility in energy prices, specifically natural gas, but the impact has not been and is not expected to be material to our results.

Ozark Materials

On October 3, 2022, we completed our previously announced acquisition of Ozark Materials, LLC (“OM”), and Ozark Logistics, LLC (“OL” and, together with OM, “Ozark Materials”), pursuant to that certain Equity Purchase Agreement (the “Purchase Agreement”), by and among Ingevity, Ozark Materials and Ozark Holdings, Inc.

Refer to Note 17 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q for more information.

Strategic Investment

During the third quarter of 2022, we acquired a strategic investment in a privately-held company for $60.0 million, which is accounted for under the measurement alternative method.

There were no adjustments to the carrying value of the measurement alternative method investment for impairment or observable price changes for the period ended September 30, 2022.

Refer to Note 4 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q for more information.

Net Investment Hedge

During the third quarter of 2022, we terminated our fixed-to-fixed cross currency interest rate swaps, accounted for as net investment hedges, and received proceeds of $14.7 million.

Refer to Note 8 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q for more information.

Segment Change

During the first quarter of 2023, we realigned our segment reporting structure to increase transparency for our investors and better align with how our chief operating decision maker intends to measure segment operating performance and allocate resources across our operating segments.

Effective in the first quarter of 2023, we have separated our engineered polymers product line from the Performance Chemicals reportable segment into its own reportable segment, Advanced Polymer Technologies.

This reportable segment change has also resulted in our Performance Chemicals reporting unit for goodwill being split into two separate reporting units for the purposes of goodwill impairment testing.

This reportable segment change has no impact on our consolidated operating results or the historical operating results of our Performance Materials operating segment.

Equity Method Investment

During the three months ended March 31, 2023, we sold a strategic equity method investment for $31.4 million, resulting in a $19.2 million gain, recorded within "Other (income) expense, net" on the condensed consolidated statement of operations.

Restructuring Charges

During the quarter, we initiated a reorganization to streamline certain functions and reduce ongoing costs.

As a result, we recorded $3.0 million in severance and other employee-related costs for the three months ended March 31, 2023.

Supply Agreements

On March 20, 2023, Ingevity and WestRock Shared Services, LLC and WestRock MWV, LLC, on behalf of the affiliates of WestRock Company (“WestRock”), entered into an amended and restated crude tall oil and black liquor soap skimmings agreement, which amends and restates that certain crude tall oil and black liquor soap skimmings agreement, dated as of January 1, 2016, by and between Ingevity and WestRock, as amended by that Amendment No.1 to Crude Tall Oil And Black Liquor Soap Skimmings Agreement, dated as of March 1, 2017, and Amendment No.2 to Crude Tall Oil And Black Liquor Soap Skimmings Agreement, dated as of November 3, 2020.

On March 21, 2023, Ingevity, Georgia-Pacific LLC, on behalf of itself and its subsidiaries (“Georgia-Pacific”), and GP Pine Chemicals LLC, a direct subsidiary of Georgia-Pacific LLC, entered into a Second Amendment to the Crude Tall Oil Supply Agreement, to amend certain terms of the Crude Tall Oil Supply Agreement, dated as of March 9, 2018, by and between Ingevity and Georgia-Pacific, as amended by that Amendment to the Crude Tall Oil Supply Agreement, dated as of May 1, 2020.

Results of Operations

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2023 2022

11 unchanged sentences

Net income (loss) $ 50.7 $ 60.8

Net sales and Gross profit

The table below shows the 2023 Net sales and variances from 2022:

In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales

Three months ended September 30, 2022 vs.

$ 376.8 26.9 87.6 (9.3) $ 482.0

Nine months ended September 30, 2022 vs.

Three months ended March 31, 2023 vs.

$ 382.8 (44.3) 58.8 (4.7) $ 392.6

Three Months Ended September 30, 2022 vs.

The sales increase of $105.2 million in 2022 was driven by favorable pricing and sales composition (mix) of $87.6 million (23 percent) and favorable volume of $26.9 million (seven percent), partially offset by unfavorable foreign currency exchange of $9.3 million (two percent), driven by the strengthening of the U.S.

dollar against the euro, Chinese renminbi and GBP.

Gross profit increase of $34.5 million was driven by favorable price/mix of $87.2 million, favorable sales volume of $16.2 million and favorable foreign currency exchange of $0.8 million, partially offset by increased manufacturing costs of $69.7 million due to raw material and energy cost inflationary pressures.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments.

Nine Months Ended September 30, 2022 vs.

The sales increase of $229.2 million in 2022 was driven by favorable price/mix of $227.9 million (22 percent) and higher sales volumes of $20.9 million (two percent), partially offset by unfavorable foreign currency exchange of $19.6 million (two percent), driven by the strengthening of the U.S.

dollar against the euro, Chinese renminbi and GBP.

Gross profit increase of $56.9 million was driven by favorable price/mix improvement of $225.6 million and favorable sales volume of $13.2 million, partially offset by increased manufacturing costs of $179.3 million due to raw material and energy cost inflationary pressures and unfavorable foreign currency exchange of $2.6 million.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for both segments.

Three Months Ended March 31, 2023 vs.

The sales increase of $9.8 million in 2023 was driven by favorable pricing and sales composition (mix) of $58.8 million (15 percent), partially offset by unfavorable volume decline in all of our segments, particularly in our industrial

specialties product line within Performance Chemicals, for a combined impact of $44.3 million (12 percent) and unfavorable foreign currency exchange of $4.7 million (one percent).

Gross profit decrease of $7.4 million was driven by increased manufacturing costs of $44.1 million due to raw material and energy cost inflationary pressures primarily experienced in our Performance Chemicals reportable segment, unfavorable sales volume of $20.6 million across all of our reportable segments, and unfavorable foreign currency exchange of $1.4 million, offset by favorable pricing and sales composition (mix) of $58.7 million primarily driven by our Performance Chemicals reportable segment.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for all segments.

Selling, general and administrative expenses

Three Months Ended September 30, 2022 vs.

Selling, general and administrative expenses ("SG&A") were $54.2 million (11.2 percent of Net sales) and $43.5 million (11.5 percent of Net sales) for the three months ended September 30, 2022 and 2021, respectively.

The year over year increase of $10.7 million was primarily driven by increased travel and other miscellaneous costs of $5.8 million and increased employee-related costs of $8.8 million, slightly reduced by lower legal spending of $3.9 million.

The decrease in SG&A as a percentage of Net sales was driven by higher sales.

Nine Months Ended September 30, 2022 vs.

SG&A was $142.9 million (11.1 percent of Net sales) and $131.0 million (12.4 percent of Net sales) for the nine months ended September 30, 2022 and 2021, respectively.

The year over year increase of $11.9 million was driven by increased employee-related costs of $7.6 million and increased travel and other miscellaneous costs of $11.7 million, slightly offset by reduced legal costs of $7.4 million.

The decrease in SG&A as a percentage of Net sales was driven by higher sales.

Three Months Ended March 31, 2023 vs.

Selling, general and administrative expenses ("SG&A") were $48.6 million (12 percent of Net sales) and $40.0 million (10 percent of Net sales) for the three months ended March 31, 2023 and 2022, respectively.

The increase in SG&A as a percentage of Net sales was driven by higher employee-related costs of $5.4 million, increased amortization costs of $2.0 million primarily driven by the Ozark Materials acquisition, and increased travel and other miscellaneous costs of $1.2 million.

Research and technical expenses

Three Months Ended September 30, 2022 vs.

Research and technical expenses as a percentage of Net sales decreased to 1.6 percent from 1.8 percent for the three months ended September 30, 2022 and 2021, respectively.

Nine Months Ended September 30, 2022 vs.

Research and technical expenses as a percentage of Net sales remained consistent period over period, at 1.8 percent and 1.8 percent for the nine months ended September 30, 2022 and 2021, respectively.

Three Months Ended March 31, 2023 vs.

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, increasing to 2.2 percent from 1.9 percent for the three months ended March 31, 2023 and 2022, respectively.

Restructuring and other (income) charges, net

Three and Nine Months Ended September 30, 2022 vs.

Restructuring and other (income) charges, net were $3.3 million and $10.6 million for the three and nine months ended September 30, 2022, respectively, and $4.1 million and $12.3 million for the three and nine months ended September 30, 2021, respectively.

See Note 12 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q for more information.

Three Months Ended March 31, 2023 vs.

Restructuring and other (income) charges, net were $5.6 million and $3.6 million for the three months ended March 31, 2023 and 2022, respectively.

Severance and other employee-related costs increased $3.0 million and other restructuring charges increased $0.1 million, partially offset by a $1.1 million decrease related to our digital transformation initiative.

See Note 11 within the Condensed Consolidated Financial Statements for more information.

Acquisition-related costs

Three and Nine Months Ended September 30, 2022 vs.

Acquisition-related costs were $1.9 million for the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.9 million for the three and nine months ended September 30, 2021, respectively.

For the three and nine months ended September 30, 2022, all charges relate to the integration of the Ozark Materials business into our Performance Chemicals segment.

For the three and nine months ended September 30, 2021, charges of zero and $0.2 million relate to the acquisition of a strategic investment in the Performance Materials segment, respectively, and charges of $0.2 million and $0.7 million relate to the integration of Perstorp Holding AB's caprolactone business into our Performance Chemicals segment, respectively.

Three Months Ended March 31, 2023 vs.

Acquisition-related costs were $1.9 million and zero for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, all charges related to the integration of Ozark Materials into our Performance Chemicals segment.

See Note 16 within the Condensed Consolidated Financial Statements for more information.

Other (income) expense, net

Three and Nine Months Ended September 30, 2022 vs.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31,

In millions 2023 2022

Foreign currency exchange (income) loss $ 0.3 $ 0.3

Litigation verdict charge (1)

— 85.0 — 85.0

Gain on sale of strategic investment (19.2) —

Other (income) expense, net 0.7 (1.7)

Total Other (income) expense, net $ (18.2) $ (1.4)

_______________

(1) Refer to Note 14 within the Condensed Consolidated Financial Statements for more information.

Interest expense, net

Three and Nine Months Ended September 30, 2022 vs.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31, 2023 vs.

Three Months Ended March 31,

In millions 2023 2022

1 unchanged sentence

Revolving credit and term loan facilities (1)

5.4 2.0 11.5 6.2

Senior note (1)

5.6 9.1 27.5 27.5

Senior notes (1)

Other interest (income) expense, net (1.0) (2.2)

3 unchanged sentences

Provision (benefit) for income taxes

Three and Nine Months Ended September 30, 2022 vs.

For the three months ended September 30, 2022 and 2021, our effective tax rate was 21.3 percent and 53.3 percent, respectively.

Excluding discrete items, the effective tax rate was 21.0 percent and 20.4 percent, respectively.

An explanation of the change in the effective tax rate is presented in Note 13 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q.

For the nine months ended September 30, 2022 and 2021, our effective tax rate was 21.6 percent and 29.8 percent, respectively.

Excluding discrete items, the effective rate was 21.1 percent and 20.6 percent, respectively.

An explanation of the change in the effective tax rate is presented in Note 13 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q.

Three Months Ended March 31, 2023 vs.

For the three months ended March 31, 2023 and 2022, our effective tax rate was 20.9 percent and 21.6 percent, respectively.

Excluding discrete items, the effective rate was 22.8 percent compared to 20.7 percent in the three months ended March 31, 2023 and 2022, respectively.

See Note 12 within the Condensed Consolidated Financial Statements for more information.

Segment Operating Results

In addition to the information discussed above, the following sections discuss the results of operations for both of Ingevity's segments.

Our segments are (i) Performance Materials and (ii) Performance Chemicals.

In addition to the information discussed above, the following sections discuss the results of operations for all of Ingevity's segments.

Our segments are (i) Performance Materials, (ii) Performance Chemicals and (iii) Advanced Polymer Technologies.

Segment Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is the primary measure used by the Company's chief operating decision maker to evaluate the performance of and allocate resources among our operating segments.

1 unchanged sentence

We have excluded the following items from segment EBITDA:

interest expense, net associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, and pension and postretirement settlement and curtailment (income) charges.

interest expense, net associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, (losses) and gains from the sale of strategic investments, and pension and postretirement settlement and curtailment (income) charges.

In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in the Annual Consolidated Financial Statements included in our 2022 Annual Report.

Performance Materials

In millions Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Performance Summary

Sales in our Performance Materials segment were lower this year compared to the previous year, mainly due to a slower-than-anticipated recovery in China which also impacted other parts of Asia-Pacific.

This more than offset a strong performance in North America.

The strengthening of the U.S.

dollar against the Chinese renminbi and the euro also contributed to the pressure on first quarter sales when compared to prior year first quarter.

The lower sales translated to a decrease in first quarter segment EBITDA when compared to the prior year period.

As a result of the slower than expected recovery in China, we had unplanned downtime at our China manufacturing facilities which also negatively impacted segment EBITDA.

In millions Three Months Ended March 31,

Total Performance Materials - Net sales $ 141.4 $ 148.4

Segment EBITDA $ 69.8 $ 77.9

Quarterly Performance Summary

Our Performance Materials segment experienced robust automotive volume growth from improved semiconductor chip availability across all regions and China automobile production stimulus.

Additionally, the segment also recognized volume improvement in process purification products and we were able to increase prices to capture more of the value of our highly differentiated carbon.

Slightly offsetting these top line improvements was continued pressure on manufacturing costs from higher raw material input costs and higher logistic costs driven by inflation.

The strengthening of the U.S.

dollar against the Chinese renminbi and the euro created some headwinds when compared to the prior year quarter.

Net Sales Comparison of Three and Nine Months Ended September 30, 2022 and September 30, 2021:

Net Sales Comparison of Three Months Ended March 31, 2023 and March 31, 2022:

Performance Materials (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net sales

Three months ended September 30, 2022 vs.

2021 $ 118.1 27.6 3.6 (4.4) $ 144.9

Nine months ended September 30, 2022 vs.

Three months ended March 31, 2023 vs.

$ 148.4 (12.0) 8.2 (3.2) $ 141.4

Three Months Ended September 30, 2022 vs.

Segment net sales increase of $26.8 million in 2022 was driven by higher sales volumes of $27.6 million (23 percent) and favorable price/mix of $3.6 million (three percent), partially offset by unfavorable foreign currency exchange of $4.4 million (four percent).

Segment EBITDA increased $4.8 million due to higher sales volume of $16.6 million and favorable price/mix of $4.4 million, partially offset by higher manufacturing costs of $11.1 million, unfavorable foreign currency impacts of $2.7 million, and higher spending on SG&A and research and technical expenses of $2.4 million.

Nine Months Ended September 30, 2022 vs.

Segment net sales increase of $30.9 million in 2022 was driven by higher sales volumes of $26.6 million (seven percent) and favorable price/mix of $10.8 million (three percent), partially offset by unfavorable foreign currency exchange of $6.5 million (two percent).

Segment EBITDA increased $3.3 million due to higher sales volumes of $14.4 million, favorable price/mix of $10.3 million, and lowering SG&A and research and technical expenses of $1.2 million, partially offset by higher manufacturing costs of $18.4 million and unfavorable foreign currency impacts of $4.2 million.

Three Months Ended March 31, 2023 vs.

Segment net sales.

The decrease of $7.0 million in 2023 was driven by volume decline of $12.0 million (eight percent) and unfavorable foreign currency exchange of $3.2 million (two percent).

The decrease was partially offset by favorable sales composition (mix) and pricing of $8.2 million (six percent).

Segment EBITDA.

The decrease of $8.1 million in 2023 was driven by the decline in sales as noted above, increased manufacturing costs of $8.9 million, a volume decline of $6.9 million, increased SG&A and research and technical expenses of $0.3 million, and unfavorable foreign currency exchange of $0.2 million.

The decrease was partially offset by favorable sales composition (mix) and pricing of $8.2 million.

Performance Chemicals

Three Months Ended September 30, Nine Months Ended September 30,

Performance Summary

Sales in our Performance Chemicals segment increased compared to the prior year quarter, mainly due to higher pricing across the segment and the addition of the Ozark Materials road markings business.

This was partially offset by lower volume in our industrial specialties product line.

Segment EBITDA was lower primarily due to higher raw material costs, specifically CTO, lower capacity utilization and higher employee-related costs when compared to the prior year quarter.

Pavement technologies sales increased primarily due to the acquisition of Ozark Materials and growth of the legacy business outside of North America as a result of technology adoption.

Industrial specialties sales decrease was driven by volume declines primarily in adhesives, which were partially offset by price improvement across all end markets.

Three Months Ended March 31,

In millions 2023 2022

Total Performance Chemicals - Net sales $ 185.6 $ 172.6

Pavement Technologies product line 45.8 27.9

Industrial Specialties product line 139.8 144.7

Engineered Polymers product line 69.5 52.9 185.1 143.6

Total Performance Chemicals - Net sales $ 337.1 $ 258.7 $ 869.0 $ 670.7

Segment EBITDA $ 20.3 $ 30.8

Quarterly Performance Summary

Our Performance Chemicals segment saw strong revenue growth versus the prior year’s quarter on continued price improvement and favorable mix upgrade to higher margin products.

These price increases were necessary to keep pace with the increases related to energy, raw material, and logistic costs.

The strengthening of the U.S.

dollar against the euro and GBP created some headwinds on top line growth when compared to the prior year quarter.

Our Engineered Polymers business grew 31.4 percent as the business increased pricing to offset inflationary costs for raw materials, logistics, and particularly energy which has continued to rise throughout 2022.

Volume improvement was driven by stronger sales in automotive applications and footwear and apparel, mainly in Asia and Europe.

These positive volume improvements were slightly offset by a decline in the Americas where some polyurethane customers experienced availability issues with key raw materials.

Industrial Specialties sales increased 35.2 percent driven by price improvements with strong performance across all markets, particularly in oilfield and adhesives primary end-use markets.

Price improvements were supplemented by a favorable mix shift to higher-value derivative products as volumes were negatively impacted by raw material availability.

Pavement Technologies sales increased 20.6 percent due primarily to improved volumes and price increases.

Volume growth was driven by technology adoption and highway funding in the United States.

Net Sales Comparison of Three and Nine Months Ended September 30, 2022 and September 30, 2021:

Net Sales Comparison of Three Months Ended March 31, 2023 and March 31, 2022:

Performance Chemicals (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales

Three months ended September 30, 2022 vs.

Three months ended March 31, 2023 vs.

$ 172.6 (25.6) 39.1 (0.5) $ 185.6

Nine months ended September 30, 2022 vs.

Three Months Ended March 31, 2023 vs.

Segment net sales.

The increase of $13.0 million was driven by favorable sales composition (mix) and pricing of $39.1 million (23 percent), driven by increases in industrial specialties ($36.5 million) and pavement technologies ($2.6 million).

This was partially offset by a volume decrease of $25.6 million (fifteen percent) driven primarily by industrial specialties ($41.1 million), and unfavorable foreign currency exchange impacted Net sales by $0.5 million (zero percent).

Segment EBITDA.

The decrease of $10.5 million was driven by higher manufacturing costs of $30.9 million, volume decrease of $11.4 million, higher SG&A expenses of $7.1 million and unfavorable foreign currency exchange of $0.1 million.

The decrease was partially offset by favorable sales composition (mix) and pricing of $39.0 million.

Advanced Polymer Technologies

Performance Summary

Our Advanced Polymer Technologies segment sales were above prior year first quarter due to higher prices across the segment and increased volume in North America, driven by strong automotive and bioplastics demand.

This was partially offset by lower demand in Europe and customer destocking in Asia.

Segment EBITDA growth was driven primarily by the higher sales pricing, partially offset by higher logistics costs.

In millions Three Months Ended March 31,

Total Advanced Polymer Technologies - Net sales $ 65.6 $ 61.8

Segment EBITDA $ 13.8 $ 10.3

Net Sales Comparison of Three Months Ended March 31, 2023 and March 31, 2022:

Advanced Polymer Technologies (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net sales

Three months ended March 31, 2023 vs.

$ 61.8 (6.7) 11.5 (1.0) $ 65.6

Three Months Ended September 30, 2022 vs.

Segment net sales increase of $78.4 million reflects favorable pricing and product mix of $84.0 million (32 percent), driven by increases in Industrial Specialties ($62.9 million), Engineered Polymers ($16.3 million), and Pavement Technologies ($4.8 million).

Unfavorable volume impacted Net sales by $0.7 million (zero percent), reflecting volume decreases in Industrial Specialties ($15.3 million), partially offset by increases in Pavement Technologies ($10.9 million) and Engineered Polymers ($3.7 million).

Unfavorable foreign currency exchange impacted Net sales by $4.9 million (two percent).

Segment EBITDA increased by $13.9 million due to favorable pricing and product mix of $82.8 million and favorable foreign currency exchange of $2.9 million due to foreign currency denominated manufacturing costs, partially offset by higher manufacturing costs of $59.7 million, higher SG&A expenses of $11.7 million and a decrease in volume of $0.4 million.

Nine Months Ended September 30, 2022 vs.

Segment net sales increase of $198.3 million was driven by favorable pricing and product mix of $217.1 million (32 percent), driven by increases in Industrial Specialties ($157.7 million), Engineered Polymers ($46.5 million), and Pavement Technologies ($12.9 million).

Unfavorable volume impacted Net sales by $5.7 million (one percent), reflecting decreases in

Industrial Specialties ($30.2 million), offset partially by increases in Pavement Technologies ($20.2 million) and Engineered Polymers ($4.3 million).

Unfavorable foreign currency exchange impacted Net sales by $13.1 million (two percent).

Segment EBITDA increased by $32.4 million due to favorable pricing and product mix of $215.3 million and favorable foreign currency exchange of $2.6 million, partially offset by higher manufacturing costs of $162.2 million, higher SG&A of $22.1 million and a decrease in volume of $1.2 million.

Three Months Ended March 31, 2023 vs.

Segment net sales.

The increase of $3.8 million in 2023 was driven by favorable sales composition (mix) and pricing of $11.5 million (19 percent), partially offset by volume decline of $6.7 million (11 percent), and unfavorable foreign currency exchange of $1.0 million (two percent).

Segment EBITDA.

The increase of $3.5 million was driven by favorable sales composition (mix) and pricing of $11.5 million, partially offset by higher manufacturing costs of $3.6 million, volume decline of $2.3 million, increased SG&A and research and technical expenses of $1.7 million, and unfavorable foreign currency exchange of $0.4 million.

Use of Non-GAAP Financial Measure - Adjusted EBITDA

4 unchanged sentences

We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities.

Adjusted EBITDA is defined as net income (loss) plus provision (benefit) for income taxes, interest expense, net, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, and pension and postretirement settlement and curtailment (income) charges, net.

Adjusted EBITDA is defined as net income (loss) plus provision (benefit) for income taxes, interest expense, net, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, (losses) and gains from the sale of strategic investments, and pension and postretirement settlement and curtailment (income) charges, net.

This non-GAAP measure is not intended to replace the presentation of financial results in accordance with GAAP and investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

1 unchanged sentence

Reconciliation of Net Income (Loss) to Adjusted EBITDA

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

In millions 2023 2022

5 unchanged sentences

Depreciation and amortization - Performance Chemicals 13.8 10.2

Depreciation and amortization - Advanced Polymer Technologies 7.3 7.9

Restructuring and other (income) charges, net 5.6 3.6

Gain on sale of strategic investment (19.2) —

Acquisition and other-related costs 2.7 —

Litigation verdict charge — 85.0 — 85.0

Adjusted EBITDA (Non-GAAP)

1 unchanged sentence

Adjusted EBITDA

Three and Nine Months Ended September 30, 2022 vs.

Three Months Ended March 31, 2023 vs.

The factors that impacted adjusted EBITDA period to period are the same factors that affected earnings discussed in the Results of Operations and Segment Operating Results sections included within this MD&A.

Current Company Outlook

For Performance Chemicals revenue, we expect to recognize favorable price improvements across the segment as we work to offset inflation in energy, raw material, and logistic costs.

We expect continued volume growth in the Pavement Technologies and Engineered Polymers’ business.

Performance Materials will see moderate growth as we expect to benefit from some recovery of auto production.

Adjusted EBITDA is expected to grow versus 2021 mainly driven by our Performance Chemicals segment, where continued profitable growth in all businesses is expected to be partially offset by inflationary costs of energy, logistics, and primary raw materials.

Additionally, we expect our Performance Materials segment results to be similar to 2021 as U.S., Chinese, Canadian, and European vehicle production continues to be negatively impacted by global supply chain disruption.

These assumptions assume that 2022 will continue to be impacted by global logistical headwinds, geopolitical uncertainty, significant cost inflation, and supply chain disruptions.

Current Full Year Company Outlook

Net sales are expected to be between $1.75 billion and $1.95 billion for the full year 2023.

We expect some improvement in global automobile production, which will support growth in Performance Materials.

Growth drivers in our Performance Chemicals segment include our pavement technologies product line as we continue to drive geographic expansion and municipalities take advantage of increased infrastructure spending.

We anticipate strong performance in our oilfield products within our industrial specialties product line but expect continued volume pressure in our adhesive products.

Our Advanced Polymer Technologies segment is expected to continue increasing its presence in key end markets such as automotive, bioplastics, and footwear and apparel.

Adjusted EBITDA is expected to be between $450 million to $480 million for the full year 2023.

We expect EBITDA growth for our Performance Materials segment as volumes shift throughout 2023 to higher margin automotive carbon and automotive production supply chain dynamics improve.

In Performance Chemicals, we expect a significant increase in the cost of CTO, a primary raw material, partially offset by higher-value end markets in the industrial specialties product line, as well as continued growth in the pavement technologies product line.

In Advanced Polymer Technologies, we anticipate improved margins on a combination of volume growth in our key end markets and lower input costs.

A reconciliation of net income to adjusted EBITDA as projected for 2023 is not provided.

3 unchanged sentences

litigation verdict charges;

(losses) and gains from the sale of strategic investments;

additional pension and postretirement settlement and curtailment (income) charges;

2 unchanged sentences

All of these components could significantly impact such financial measures.

Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA.

Further, in the future, other items with similar characteristics to those currently included within adjusted EBITDA, that have a similar impact on the comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA.

Liquidity and Capital Resources

1 unchanged sentence

We expect our cash flow provided by operations combined with cash on hand and available capacity under our revolving credit facility to be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months.

As of September 30, 2022, our undrawn capacity under our revolving credit facility was $488.7 million.

As of March 31, 2023, our undrawn capacity under our revolving credit facility was $139.7 million.

Over the next twelve months, we expect to fund the following:

1 unchanged sentence

In addition, we may also evaluate and consider strategic acquisitions, joint ventures, or other transactions to create stockholder value and enhance financial performance.

In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing revolving credit, redeem all or part of our outstanding senior note, seek additional debt financing, issue equity securities, or some combination thereof.

Cash and cash equivalents totaled $72.3 million at September 30, 2022.

In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing revolving credit facility, redeem all or part of our outstanding senior notes, seek additional debt financing, issue equity securities, or some combination thereof.

Cash and cash equivalents totaled $77.9 million at March 31, 2023.

We continuously monitor deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of our insurance providers, customers, and key suppliers.

Due to the global nature of our operations, a portion of our cash is held outside the U.S.

The cash and cash equivalents balance at September 30, 2022, included $57.9 million held by our foreign subsidiaries.

The cash and cash equivalents balance at March 31, 2023, included $69.2 million held by our foreign subsidiaries.

Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and their capital expenditures.

1 unchanged sentence

If these earnings were distributed, such amounts would be subject to U.S.

federal and state income tax at the statutory rate less the available foreign tax credits, if any, and would potentially be subject to withholding taxes in the various jurisdictions.

federal income tax at the statutory rate less the available foreign tax credits, if any, and would potentially be subject to withholding taxes in the various jurisdictions.

The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution, therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriated to the U.S.

2 unchanged sentences

Share Repurchases

On July 25, 2022, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock (the "2022 Authorization"), and rescinded the prior outstanding repurchase authorization with respect to the shares that remained unused under the prior authorization.

Shares under the 2022 Authorization may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

During the three and nine months ended September 30, 2022, we repurchased $49.3 million and $139.2 million in common stock, representing 697,523 and 2,027,206 shares of our common stock at a weighted average cost per share of $70.75 and $68.68, respectively.

At September 30, 2022, $450.7 million remained unused under our 2022 Authorization.

During the three and nine months ended September 30, 2021, we repurchased $32.2 million and $100.3 million in common stock, representing 414,501 and 1,298,167 shares of our common stock at a weighted average cost per share of $77.77 and $77.25, respectively.

On July 25, 2022, our Board of Directors authorized the repurchase of up to $500 million of our common stock (the "2022 Authorization") and rescinded the prior outstanding repurchase authorizations with respect to the shares that remained unused under the prior authorization.

Shares under the repurchase authorization may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

During the three months ended March 31, 2023 and 2022, we repurchased $33.4 million, inclusive of $0.2 million in excise tax, and $40.4 million in common stock, representing 449,475 and 610,447 shares of our common stock at a weighted average cost per share of $73.86 and $66.26, respectively.

At March 31, 2023, $411.5 million remained unused under our Board-authorized repurchase program.

Capital Expenditures

Projected 2023 capital expenditures are $120 - $140 million.

We have no material commitments associated with these projected capital expenditures as of September 30, 2022 .

Cash flow comparison of the Nine Months Ended September 30, 2022 and 2021

Nine Months Ended September 30,

We have no material commitments associated with these projected capital expenditures as of March 31, 2023 .

Cash flow comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

In millions 2023 2022

3 unchanged sentences

Cash flows provided by (used in) operating activities

During the nine months ended September 30, 2022, cash flow provided by operations remained relatively consistent when compared to the prior year period.

Although net income increased more than $107 million in 2022 when compared to the prior year period, this increase was offset by an increase in trade working capital, less cash and cash equivalent of almost $102 million.

Below provides a description of the changes to trade working capital during the first nine months of 2022 (i.e.

current assets and current liabilities).

Current Assets and Liabilities

In millions September 30, 2022 December 31, 2021

Cash and cash equivalents $ 72.3 $ 275.4

Accounts receivable, net 248.4 161.7

Inventories, net 281.8 241.2

Prepaid and other current assets 42.6 46.6

Total current assets $ 645.1 $ 724.9

Current assets, less cash and cash equivalents as of September 30, 2022, increased $123.3 million compared to December 31, 2021.

Accounts receivable, net increased $86.7 million due to strong sales and higher selling prices and Inventories, net increased $40.6 million driven by inflationary cost pressures on both input logistic costs as well as higher pricing on raw materials purchases.

In millions September 30, 2022 December 31, 2021

Accounts payable $ 164.6 $ 125.8

Accrued expenses 56.9 51.7

Accrued payroll and employee benefits 44.7 48.2

Current operating lease liabilities 16.4 17.4

Notes payable and current maturities of long-term debt 0.9 19.6

Income taxes payable 6.8 6.2

Total current liabilities $ 290.3 $ 268.9

Current liabilities as of September 30, 2022, increased by $21.4 million compared to December 31, 2021, due to higher Accounts payable of $38.8 million driven primarily from inflationary cost pressures which resulted in higher input costs and therefore large payable balances.

The larger Accounts payable balance was partially offset by decreases in Notes payable and current maturities of long-term debt of $18.7 million and Accrued payroll and employee benefits of $3.5 million.

Cash flows provided by (used in) operating activities, which consists of net income (loss) adjusted for non-cash items including the cash impact from changes in operating assets and liabilities (i.e., working capital), totaled $5.2 million for the three months ended March 31, 2023.

Cash provided by (used in) operating activities for the three months ended March 31, 2023 was driven by decreased cash earnings of $4.6 million, a net increase in overall working capital of $9.0 million despite a decrease in trade working capital (accounts receivable, inventory, and accounts payable) of $5.9 million.

Cash flow from operations was further reduced by an increase in cash interest paid of $4.3 million due to the rising interest rates during 2023 when compared to 2022 as well as $1.2 million of additional tax payments.

Cash flows provided by (used in) investing activities

Cash used by investing activities in the nine months ended September 30, 2022 and September 30, 2021 was $144.7 million and $83.4 million, primarily driven by capital expenditures.

In the nine months ended September 30, 2022 and 2021, we acquired strategic investments in privately-held companies for $62.8 million and $16.5 million, respectively.

Capital expenditure categories Nine Months Ended September 30,

Cash provided by investing activities in the three months ended March 31, 2023 was $1.9 million and was primarily driven by the proceeds from the sale of a strategic investment for $31.4 million, partially offset by capital expenditures of $25.4 million.

In the three months ended March 31, 2023 and 2022, capital spending included the base maintenance capital supporting ongoing operations and growth and cost improvement spending primarily related to our business transformation initiative (see Note 11 within the Condensed Consolidated Financial Statements for more information).

Capital expenditure categories Three Months Ended March 31,

In millions 2023 2022

4 unchanged sentences

Cash flows provided by (used in) financing activities

Cash used in financing activities in the nine months ended September 30, 2022, was $264.9 million.

Utilizing excess cash provided by operations we paid down outstanding debt in the amount of $119.1 million and were opportunistic with our share repurchases during the year repurchasing over 2 million shares for a total of $139.2 million.

Cash used in financing activities in the nine months ended September 30, 2021 was $120.3 million and was primarily driven by the repurchase of common stock of $100.3 million, and payments on long-term borrowings of $18.8 million.

Cash used in financing activities in the three months ended March 31, 2023, was $5.6 million and was primarily driven by borrowings on our revolving credit facility of $90.3 million, partially offset by the repurchase of common stock of $33.4 million, payments on our revolving credit facility of $60.3 million, and tax payments related to withholdings on restricted stock unit vestings of $4.5 million.

Cash used in financing activities in the three months ended March 31, 2022 was $46.3 million and was primarily driven by the repurchase of common stock of $40.4 million, payments on long-term borrowings of $4.7 million, and tax payments related to withholdings on restricted stock unit vestings of $1.8 million.

New Accounting Guidance

Refer to Note 2 to the Condensed Consolidated Financial Statements included within Part I.

Item 1 of this Form 10-Q for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Condensed Consolidated Financial Statements.

Refer to Note 2 to the Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Condensed Consolidated Financial Statements.

Critical Accounting Policies and Estimates

8 unchanged sentences

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