Ingevity Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management’s discussion and analysis of Ingevity Corporation's ( “ Ingevity, ” “ the company, ” “ we, ” “ us, ” or “ our ” ) financial condition and results of operations (“MD&A”) is provided as a supplement to the Condensed Consolidated Financial Statements and related notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The following discussion should be read in conjunction with Ingevity’s consolidated financial statements as of and for the year ended December 31, 2022 filed on February 28, 2023 with the Securities and Exchange Commission ("SEC") as part of the Company's Annual Reporting on Form 10-K ("2022 Annual Report") and the unaudited interim Condensed Consolidated Financial Statements and notes to the unaudited interim Condensed Consolidated Financial Statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Investors are cautioned that the forward-looking statements contained in this section and other parts of this Quarterly Report on Form 10-Q involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Cautionary Statements About Forward-Looking Statements" below and at the beginning of our 2022 Annual Report. Cautionary Statements About Forward-Looking Statements This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995 that reflect our current expectations, beliefs, plans or forecasts with respect to, among other things, future events and financial performance. Forward-looking statements are often characterized by words or phrases such as “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “outlook,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “potential” and “forecast,” and other words, terms and phrases of similar meaning. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. We caution readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such risks and uncertainties include, among others, those discussed in Part I, Item 1A. Risk Factors of our 2022 Annual Report, as well as in our unaudited Condensed Consolidated Financial Statements, related notes, and the other information appearing elsewhere in this report and our other filings with the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 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: • 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; • adverse conditions in the automotive market have and may continue to negatively impact demand for our automotive carbon products; • we face competition from substitute products, new technologies, and new or emerging competitors; • if more stringent air quality standards worldwide are not adopted, our growth could be impacted; • we may be adversely affected by a decrease in government infrastructure spending; • adverse conditions in cyclical end markets may adversely affect demand for our products; • our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply and subject to price increases that we may be unable to pass through; • lack of access to sufficient CTO and other raw materials upon which we depend would impact our ability to produce our products; 25 • 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; • the occurrence of natural disasters and extreme weather or other unanticipated problem such as labor difficulties (including work stoppages), equipment failure, or unscheduled maintenance and repair, which could result in operational disruptions of varied duration; • we are dependent upon attracting and retaining key personnel; • we are dependent on certain large customers; • 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, 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; and • losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes. Overview Ingevity is a leading global manufacturer of specialty chemicals and high performance activated carbon materials. We provide innovative solutions to meet our customers’ unique and demanding requirements through proprietary formulated products. We report in three reportable segments, Performance Materials, Performance Chemicals, and Advanced Polymer Technologies . Recent Developments 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. 26 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 March 31, In millions 2023 2022 Net sales $ 392.6 $ 382.8 Cost of sales 262.2 245.0 Gross profit 130.4 137.8 Selling, general, and administrative expenses 48.6 40.0 Research and technical expenses 8.8 7.3 Restructuring and other (income) charges, net 5.6 3.6 Acquisition-related costs 1.9 — Other (income) expense, net (18.2) (1.4) Interest expense, net 19.6 10.7 Income (loss) before income taxes 64.1 77.6 Provision (benefit) for income taxes 13.4 16.8 Net income (loss) $ 50.7 $ 60.8 Net sales The table below shows the 2023 Net sales and variances from 2022: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2023 vs. 2022 $ 382.8 (44.3) 58.8 (4.7) $ 392.6 Three Months Ended March 31, 2023 vs. 2022 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 27 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 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 March 31, 2023 vs. 2022 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 March 31, 2023 vs. 2022 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 Months Ended March 31, 2023 vs. 2022 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 Months Ended March 31, 2023 vs. 2022 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. 28 Other (income) expense, net Three Months Ended March 31, 2023 vs. 2022 Three Months Ended March 31, In millions 2023 2022 Foreign currency exchange (income) loss $ 0.3 $ 0.3 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) Interest expense, net Three Months Ended March 31, 2023 vs. 2022 Three Months Ended March 31, In millions 2023 2022 Finance lease obligations $ 1.8 $ 1.8 Revolving credit and term loan facilities (1) 13.2 1.9 Senior notes (1) 5.6 9.2 Other interest (income) expense, net (1.0) (2.2) Total Interest expense, net $ 19.6 $ 10.7 _______________ (1) See Note 9 within the Condensed Consolidated Financial Statements for more information. Provision (benefit) for income taxes Three Months Ended March 31, 2023 vs. 2022 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. 29 Segment Operating Results 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. Segment EBITDA is defined as segment revenue less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, research and technical expenses, other (income) expense, net, excluding depreciation and amortization). 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, (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 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, 2023 2022 Total Performance Materials - Net sales $ 141.4 $ 148.4 Segment EBITDA $ 69.8 $ 77.9 Net Sales Comparison of Three Months Ended March 31, 2023 and March 31, 2022: Change vs. prior year Performance Materials (In millions) Prior year Net sales Volume Price/Mix Currency effect Current year Net sales Three months ended March 31, 2023 vs. 2022 $ 148.4 (12.0) 8.2 (3.2) $ 141.4 Three Months Ended March 31, 2023 vs. 2022 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. 30 Performance Chemicals 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 Segment EBITDA $ 20.3 $ 30.8 Net Sales Comparison of Three Months Ended March 31, 2023 and March 31, 2022: Change vs. prior year Performance Chemicals (In millions) Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2023 vs. 2022 $ 172.6 (25.6) 39.1 (0.5) $ 185.6 Three Months Ended March 31, 2023 vs. 2022 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. 31 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, 2023 2022 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: Change vs. prior year 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. 2022 $ 61.8 (6.7) 11.5 (1.0) $ 65.6 Three Months Ended March 31, 2023 vs. 2022 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 Ingevity has presented the financial measure, Adjusted EBITDA, defined below, which has not been prepared in accordance with GAAP and has provided a reconciliation to net income, the most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is not meant to be considered in isolation nor as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is utilized by management as a measure of profitability. We believe this non-GAAP financial measure provides management as well as investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. 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, (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. A reconciliation of Adjusted EBITDA to net income is set forth within this section. 32 Reconciliation of Net Income (Loss) to Adjusted EBITDA Three Months Ended March 31, In millions 2023 2022 Net income (loss) (GAAP) $ 50.7 $ 60.8 Interest expense, net 19.6 10.7 Provision (benefit) for income taxes 13.4 16.8 Depreciation and amortization - Performance Materials 10.0 9.0 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 — Adjusted EBITDA (Non-GAAP) $ 103.9 $ 119.0 Adjusted EBITDA Three Months Ended March 31, 2023 vs. 2022 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 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. Ingevity does not forecast net income as it cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components, net of tax, include further restructuring and other income (charges), net; additional acquisition and other-related costs; litigation verdict charges; (losses) and gains from the sale of strategic investments; additional pension and postretirement settlement and curtailment (income) charges; and revisions due to legislative tax rate changes. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. 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. 33 Liquidity and Capital Resources The primary source of liquidity for our business is the cash flow provided by operating activities. 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 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: interest payments, capital expenditures, expenditures related to our business transformation initiative, debt principal repayments, purchases pursuant to our stock repurchase program, income tax payments, and to incur additional spending associated with our Performance Materials' intellectual property litigation. 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 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 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. We believe that our foreign holdings of cash will not have a material adverse impact on our U.S. liquidity. If these earnings were distributed, such amounts would be subject to U.S. 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. Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S. operations. Other Potential Liquidity Needs Share Repurchases 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 March 31, 2023 . 34 Cash flow comparison of the Three Months Ended March 31, 2023 and 2022 Three Months Ended March 31, In millions 2023 2022 Net cash provided by (used in) operating activities $ 5.2 $ 24.3 Net cash provided by (used in) investing activities 1.9 (30.2) Net cash provided by (used in) financing activities (5.6) (46.3) Cash flows provided by (used in) operating activities 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 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 Maintenance $ 10.8 $ 12.4 Safety, health and environment 2.6 3.6 Growth and cost improvement 12.0 11.6 Total capital expenditures $ 25.4 $ 27.6 Cash flows provided by (used in) financing activities 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 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Condensed Consolidated Financial Statements. 35 Critical Accounting Policies and Estimates Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 2 to our consolidated financial statements included in our 2022 Annual Report. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our financial statements. Critical accounting policies are central to our presentation of results of operations and financial condition and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our 2022 Annual Report. Our critical accounting policies have not substantially changed from those described in the 2022 Annual Report.