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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 122 added, 123 removed, 199 unchanged (55% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and six months ended June 30, 2021 and 2020 and should be read in conjunction with the information included under Item 1.

Financial Statements and Supplementary Data (Unaudited) included elsewhere in this report.

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three and nine months ended September 30, 2021 and 2020 and should be read in conjunction with the information included under Item 1.

Financial Statements and Supplementary Data (Unaudited) elsewhere in this report.

We prepare our financial statements in accordance with accounting principles generally accepted in the United States (‘GAAP”).

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Non-GAAP Financial Measures

In this report, we present certain financial measures that are not recognized by GAAP.

The non-GAAP financial measures contained in this report are unaudited and have not been prepared in accordance with GAAP and may not be comparable to other similarly titled measures of other companies.

We present certain financial measures that are not prepared in accordance with GAAP or the accounting standards of any other jurisdiction and may not be comparable to other similarly titled measures of other companies.

For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below.

The non-GAAP financial measures used in this report are Contribution Margin, Contribution Margin per Metric Ton (collectively, “Contribution Margins”), Adjusted EBITDA, Net Working Capital and Capital Expenditures.

These non-GAAP measure are — but are not limited to — Contribution Margin, Contribution Margin per metric ton (collectively, “Contribution Margins”), Adjusted EBITDA, Net Working Capital and Capital Expenditures.

We define Contribution Margin as revenue less variable costs (such as raw materials, packaging, utilities and distribution costs).

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We believe these measures are useful measures of financial performance in addition to consolidated net income for the period, income from operations and other profitability measures under GAAP because they facilitate operating performance comparisons from period to period and company to company and, with respect to Contribution Margin, eliminate volatility in feedstock prices.

By eliminating potential differences in results of operations between periods or companies caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, we believe Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated.

By eliminating potential differences in results of operations between periods or companies caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, we believe that Adjusted EBITDA can provide a useful additional basis for comparing the current performance of the underlying operations being evaluated.

For these reasons, we believe EBITDA-based measures are often used by the investment community as a means of comparison of companies in our industry.

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Reconciliation of Non-GAAP Financial Measures

Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)

Contribution Margin and Contribution Margin per Metric Ton (A Non-GAAP Financial Measures)

Reconciliation of Contribution Margin and Contribution Margin per Metric Ton to gross profit is as follows:

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

10 unchanged sentences

Gross profit per metric ton $ 416.8 $ 334.1 $ 420.0 $ 323.2

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA (A Non-GAAP Financial Measure)

Reconciliation of Adjusted EBITDA to consolidated net income is as follows:

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

(In millions)

Net income (loss) $ 89.1 $ (17.8) $ 112.6 $ 0.3

Net income $ 21.0 $ 9.0 $ 133.6 $ 9.3

Add back income tax expense 6.7 2.2 48.5 3.9

Add back equity in earnings of affiliated companies, net of tax (0.1) (0.1) (0.5) (0.4)

Pre-tax income (loss) before earnings in affiliated companies and income taxes 122.3 (23.8) 154.0 1.7

Income before earnings in affiliated companies and income taxes 27.6 11.1 181.6 12.8

Add back interest and other financial expense, net 11.5 10.7 30.4 28.7

Add back reclassification of actuarial losses from AOCI 1.2 2.3 3.6 7.3

Income (loss) from operations 132.5 (12.9) 175.3 24.7

Income from operations 40.3 24.1 215.6 48.8

Add back depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 23.8 24.0 74.6 69.7

8 unchanged sentences

Other adjustments 1.0 3.3 2.6 5.4

2.2 1.1 1.6 2.0

Adjusted EBITDA $ 66.4 $ 55.0 $ 216.1 $ 134.1

6 unchanged sentences

Operating Results

For the three and six months ended June 30, 2021 compared to three and six months ended June 30, 2020

For the three and nine months ended September 30, 2021 compared to three and nine months ended September 30, 2020

The table below presents our historical results derived from our Condensed Consolidated Financial Statements for the periods indicated.

Statement of Operations Data Three Months Ended June 30, Six Months Ended June 30,

Condensed Consolidated Statement of Operations Data Three Months Ended September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

Gain related to litigation settlement — — (82.9) —

Other expenses (income),net (0.5) 3.9 2.1 6.9

Income (loss) from operations 132.5 (12.9) 175.3 24.7

Other (income) expenses, net (0.2) 4.5 1.9 11.5

Income from operations 40.3 24.1 215.6 48.8

Interest and other financial expense, net 11.5 10.7 30.4 28.7

Reclassification of actuarial losses from AOCI 1.2 2.3 3.6 7.3

Pre-tax income (loss) before earnings in affiliated companies and income taxes 122.3 (23.8) 154.0 1.7

Income tax expense (benefit) 33.4 (5.8) 41.8 1.7

Income before earnings in affiliated companies and income taxes 27.6 11.1 181.6 12.8

Income tax expense 6.7 2.2 48.5 3.9

Equity in earnings of affiliated companies, net of tax 0.1 0.1 0.5 0.4

Net income (loss) $ 89.1 $ (17.8) $ 112.6 $ 0.3

Net sales increased by $198.4 million, or 97.9%, in the second quarter of 2021 to $401.0 million compared to the second quarter of 2020, driven primarily by higher sales volume, favorable product mix and the impact of passing through higher feedstock costs.

Volume increased by 93.4 kmt or 59.5%, in the second quarter of 2021 to 250.3 kmt compared to the second quarter of 2020, with higher demand in both segments, across all applications and geographies, primarily driven by a sharp global recovery from the COVID-19 induced economic downturn.

Net sales increased by $222.4 million, or 41.3%, in the six months ended June 30, 2021 to $761.1 million compared to the six months ended June 30, 2020, driven primarily by higher sales volume, favorable product mix and the impact of passing through higher feed stock costs.

Volume increased by 112.4 kmt, or 28.7%, to 504.4 kmt compared to the six months ended June 30, 2020, with higher demand in both segments, across all application and geographies, driven by a sharp global economic recovery from COVID-19 induced economic downturn.

Net income $ 21.0 $ 9.0 $ 133.6 $ 9.3

Net sales increased by $111.1 million, or 39.4%, in the third quarter of 2021 to $393.1 million compared to the third quarter of 2020 primarily driven by passing through of higher feedstock costs, favorable product mix, and higher volume due to global recovery from COVID-19 across all regions in our Specialty Carbon Black segment.

Volume decreased by 0.1 kmt, in the third quarter of 2021 to 236.9 kmt compared to the third quarter of 2020, primarily due to lower volume in the Rubber Carbon Black segment, partially offset by with higher demand in our Specialty Carbon Black segment.

Net sales increased by $333.4 million, or 40.6%, in the nine months ended September 30, 2021 to $1,154.1 million, year over year, driven primarily by higher sales volume across all regions and segments, impact of passing through of higher feedstock costs, favorable impact of foreign currency translation, and favorable product mix.

Volume increased by 112.2 kmt, or 17.8%, to 741.2 kmt compared to the nine months ended September 30, 2020, with higher demand in both segments, across all application and geographies, driven by a sharp global economic recovery from the COVID-19 induced economic downturn.

Cost of sales

Cost of sales increased by $122.2 million, or 72.4%, to $290.9 million in the second quarter of 2021 compared to second quarter of 2020, mainly as a result of higher production and associated costs.

Cost of sales increased by $133.9 million, or 32.3%, to $548.5 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to higher production and associated costs.

Cost of sales increased by $91.6 million, or 45.1%, to $294.4 million in the third quarter of 2021 compared to the third quarter of 2020.

Cost of sales increased by $225.4 million, or 36.5%, to $842.8 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in both comparative periods were primarily due to higher production and associated costs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $16.6 million, or 43.1%, to $55.1 million in the second quarter of 2021 compared to the six months ended June 30, 2020, driven primarily by higher freight costs due to increase in sales volumes and higher incentive compensation.

Selling, general and administrative expenses increased by $24.3 million, or 29.2%, to $107.4 million in the second quarter of 2021 compared to the six months ended June 30, 2020, driven primarily by higher freight costs due to increase in sales volumes and higher

Selling, general and administrative expenses increased by $9.7 million, or 22.5%, to $52.9 million in the third quarter of 2021 compared to the third quarter of 2020.

Selling, general and administrative expenses increased by $34.1 million, or 27.0%, to $160.3 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in both comparative periods were primarily driven by higher freight costs due to increase in sales volumes and higher incentive compensation.

Gain related to litigation settlement

During the second quarter of 2021, Evonik agreed to make a one-time cash payment of €66.55 million ($79.5 million) to settle dispute

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

incentive compensation.

Gain related to litigation settlement

During the second quarter of 2021, Evonik agreed to make a one-time cash payment of €66.55 million ($79.5 million) to settle dispute which originated from the acquisition of the carbon black business by Rhône Capital and Triton in 2011.

which originated from the acquisition of the carbon black business by Rhône Capital and Triton Partners in 2011.

The 2011 acquisition agreement provided for a partial indemnity from Evonik against various exposures, including capital investments, fines and costs arising in connection with U.S.

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In addition, we released $3.4 million of legal reserves, net, related to this dispute.

Income (loss) from operations

Income from operations in the second quarter of 2021 increased to $132.5 million compared to the second quarter 2020 loss from operations of $12.9 million, an increase of $145.4 million.

The increase was primarily driven by favorable operating leverage associated with substantially higher sales volume, favorable product mix and the Evonik legal settlement related gain, partially offset by higher selling, general and administrative costs.

Income from operations increased by $150.6 million to $175.3 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase was primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs.

Income from operations

Income from operations increased by $16.2 million to $40.3 million in the third quarter of 2021, year over year, driven primarily by passing through higher feedstock costs, favorable product mix, and favorable operating leverage associated with higher sales volume in our Specialty Carbon Black segment, partially offset by higher selling, general and administrative costs.

Income from operations increased by $166.8 million to $215.6 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase was primarily driven by higher sales due to sharp global recovery from COVID-19 across all regions, passing through of higher feedstock costs, favorable product mix, and the Evonik legal settlement related gain, partially offset by higher, selling and general and administrative costs.

Reclassification of actuarial losses from AOCI

The actuarial losses associated with our pension obligations recorded in prior years in accumulated other comprehensive income exceeding 10% of the defined benefit obligation are recorded ratably in the Condensed Consolidated Statements of Operations.

Pre-tax income (loss) before earnings in affiliated companies and income taxes

Income from operations before income taxes and equity in earnings of affiliated companies in the second quarter of 2021 increased by $146.1 million, year over year, primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs.

Income from operations before income tax expense and equity in earnings of affiliated companies increased by $152.3 million from $1.7 million in the six months ended June 30, 2020 to $154.0 million in the six months ended June 30, 2021, primarily driven by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs, and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs, net.

Income before earnings in affiliated companies and income taxes

Income from operations before income taxes and equity in earnings of affiliated companies in the third quarter of 2021 increased by $16.5 million, year over year, driven primarily by favorable operating leverage associated with higher sales volume in our Specialty Carbon Black segment, favorable product mix and the impact of passing through higher feedstock costs, partially offset by higher selling, general and administrative costs.

Income from operations before income tax expense and equity in earnings of affiliated companies increased by $168.8 million from $12.8 million in the nine months ended September 30, 2020 to $181.6 million in the nine months ended September 30, 2021, primarily driven by higher sales due to sharp global recovery from COVID-19 across all regions, passing through of higher feedstock costs, impact of favorable product mix, and the Evonik legal settlement related gain, partially offset by higher, selling and general and administrative costs.

Provision for income taxes

For the three months ended June 30, 2021, the Company recognized income before provision for income taxes of $122.3 million, compared to loss before provision for income taxes of $23.8 million in the three months ended June 30, 2020.

The provision for income taxes was an expense of $33.4 million for the three months ended June 30, 2021 and a benefit of $5.8 million for the three months ended June 30, 2020.

The effective tax rate for the three months ended June 30, 2021 was 27%, as compared to 25% for the three months ended June 30, 2020.

The increase in our effective tax rate for the three-month period ended June 30, 2021 is primarily attributable to the reassessment of the recoverability of deferred tax assets and the projected earnings mix by geography and tax jurisdiction.

For the six months ended June 30, 2021 the Company recognized income before provision for income taxes of $154.0 million, compared to $1.7 million in the six months ended June 30, 2020.

The provision for income taxes was $41.8 million for the six months ended June 30, 2021 and $1.7 million for the six months ended the six months ended June 30, 2020.

The effective tax rate for the six months ended June 30, 2021 was 27%, as compared to 87% for the six months ended June 30, 2020.

The decrease in our effective tax rate for the six-month period ended June 30, 2021 was primarily attributable to the impact of a discrete deferred tax gain of $1.4 million on the revaluation of realizability of certain deferred tax assets and the projected earnings mix by geography and tax jurisdiction.

Net income (loss)

Net income, in the second quarter of 2021, increased by $106.9 million, year over year, primarily due to higher sales volume driven by the global economic recovery, favorable product mix, the impact of passing-through higher feedstock costs and gain on legal settlement and release of tax reserve discussed above, partially offset by higher selling and administrative costs and income tax expense.

Our net income in the six months ended June 30, 2021 amounted to $112.6 million, an increase of $112.3 million, primarily due by favorable operating leverage associated with substantially higher sales volumes, the impact of passing-through higher feedstock costs, and the Evonik legal settlement related gain, partially offset by higher selling and administrative costs and income tax expense.

For the three months ended September 30, 2021, the Company recognized income before provision for income taxes of $27.7 million, compared to $11.2 million in the three months ended September 30, 2020.

The provision for income taxes was an expense of $6.7 million for the three months ended September 30, 2021, and $2.2 million for the three months ended September 30, 2020.

The effective tax rate for the three months ended September 30, 2021, was 24%, as compared to 20% for the three months ended September 30, 2020.

The increase in our effective tax rate for the three months ended September 30, 2021 as compared to the three-months ended September 30, 2020, was primarily attributable to the reassessment of the recoverability of deferred tax assets and its projected earnings mix by geography and tax jurisdiction as compared to the prior period.

For the nine months ended September 30, 2021, the Company recognized income before provision for income taxes of $182.1 million, compared to $13.2 million in the nine months ended September 30, 2020.

The provision for income taxes was an expense of $48.5 million for the nine months ended September 30, 2021, and $3.9 million for the nine months ended September 30, 2020.

The effective tax rate for the nine months ended September 30, 2021, was 27%, as compared to 30% for the nine months ended September 30, 2020.

The decrease in our effective tax rate for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, was primarily attributable to the impact of a discrete deferred tax gain impacting the valuation allowance on deferred tax assets.

Net income, in the third quarter of 2021, increased by $12.0 million, year over year, primarily driven by passing through of higher feedstock costs, favorable product mix, and higher sales in our Specialty Carbon Black segment, partially offset by higher, selling and general and administrative costs and income tax expense.

Our net income in the nine months ended September 30, 2021 amounted to $133.6 million, an increase of $124.3 million, primarily due to higher sales due to sharp global recovery from COVID-19 across all regions, passing through of higher feedstock costs, favorable product mix, and the Evonik legal settlement related gain, partially offset by higher, selling and general and administrative costs and income tax expense.

Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)

Contribution margin increased in the third quarter of 2021 by $22.3 million, or 18.9%, to $140.5 million, year over year.

Contribution margin per metric ton increased by 19.0%, to $593.1 per metric ton in the three months ended September 30, 2021

Contribution Margin increased by $116.9 million, or 36.0%, to $441.2 million in the nine months ended September 30, 2021 compared to

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)

Contribution margin increased in the second quarter of 2021 by $79.3 million, or 106.7%, to $153.6 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume.

Contribution Margin increased by $94.5 million, or 45.8%, to $300.7 million in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase is primarily due to favorable operating leverage associated with substantially higher sales volumes and the impact of passing-through higher feedstock costs.

Contribution margin per metric ton increased by 13.4%, to $596.2 per metric ton in the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA increased in the second quarter of 2021 by $63.6 million, or 418.4%, to $78.8 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Adjusted EBITDA increased by $70.6 million, or 89.3%, from $79.1 million in the six months ended June 30, 2020 to $149.7 million in the six months ended June 30, 2021, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

the nine months ended September 30, 2020.

Contribution margin per metric ton increased by 15.4%, to $595.3 per metric ton in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in both comparative periods was primarily driven by higher sales due to sharp global recovery from COVID-19 across all regions and segments, passing through of higher feedstock costs, and impact of favorable product mix, partially offset by higher, selling and general and administrative costs.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA increased in the third quarter of 2021 by $11.4 million, or 20.8%, to $66.4 million, year over year.

Adjusted EBITDA increased by $82.0 million, or 61.2%, from $134.1 million in the nine months ended September 30, 2020 to $216.1 million in the nine months ended September 30, 2021.

The increase in both comparative periods was primarily driven by higher sales due to sharp global recovery from COVID-19 across all regions, passing through of higher feedstock costs, and impact of favorable product mix, partially offset by higher, selling and general and administrative costs.

Segment Discussion

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The table below presents our segment results derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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Specialty Carbon Black

2021 Compared to 2020

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Net sales of the Specialty Carbon Black segment increased by $61.9 million, or 65.6% to $156.3 million, year over year, primarily driven by a 18.6 kmt, or 37.6% , to 68.1 , volume increase, favorable product mix, and passing through higher feedstock costs.

Volume gains across all regions reflected a broad-based demand increase across all applications reflecting a sharp global recovery from the COVID-19 induced economic downturn.

Gross profit of the Specialty Carbon Black segment increased by $28.8 million, or 119.0%, to $53.0 million, year over year, as a result of higher volumes and the impact of passing-through higher feedstock costs.

Volume gains across all regions reflected a broad-based demand increase across nearly all applications reflecting a sharp global recovery from the COVID-19 induced economic downturn.

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Net sales of the Specialty Carbon Black segment increased by $46.6 million, or 45.0% to $150.2 million, year over year, primarily driven by passing through of higher feedstock costs, favorable product mix, and higher sales due to global recovery from COVID-19 induced economic downturn reflecting a broad-based demand increase across nearly all applications.

Specialty Carbon Black segment volumes increased by 5.1 kmt, or 8.7%, to 63.9 kmt, year over year.

Gross profit of the Specialty Carbon Black segment increased by $14.5 million, or 39.0%, to $51.6 million, year over year, primarily driven by passing through of higher feedstock costs, favorable product mix, and higher sales due to global recovery from COVID-19 induced economic downturn reflecting a broad-based demand increase across nearly all applications.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $12.5 million, or 47.4% to $39.0 million, year over year, primarily driven by passing through of higher feedstock costs, favorable product mix, and higher sales due to global recovery from COVID-19 induced economic downturn reflecting a broad-based demand increase across nearly all applications, partially offset by higher, selling and

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Adjusted EBITDA of the Specialty Carbon Black segment increased by $22.8 million, or 138.2% to $39.3 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume, and favorable product mix.

general and administrative costs.

Year over year, Adjusted EBITDA margin rose 50 basis points to 26.0%.

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Net sales of the Specialty Carbon Black segment increased by $86.2 million, or 40.2% to $300.4 million, year over year, a 29.4% volume increase, primarily reflecting favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Volume gains were in all regions and reflected a broad-based demand increase across nearly all applications.

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

Net sales of the Specialty Carbon Black segment increased by $132.8 million, or 41.8% to $450.6 million, year over year, primarily driven by higher sales due to sharp global recovery from COVID-19 induced economic downturn reflecting a broad-based demand increase across nearly all applications, passing through of higher feedstock costs, favorable product mix, and favorable impact of foreign currency translation.

Specialty Carbon Black segment volumes increased by 36.8 kmt, or 22.1%, to 203.4 kmt, year over year.

Gross profit of the Specialty Carbon Black segment increased by $42.5 million, or 66.5%, to $106.4 million, year over year, as a result of favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $34.5 million, or 77.5% to $79.0 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and the impact of passing-through higher feedstock costs.

Year over year, Adjusted EBITDA margin rose 550 basis points to 26.3%.

Gross profit of the Specialty Carbon Black segment increased by $56.9 million, or 56.4%, to $158.0 million, year over year, primarily driven by favorable operating leverage associated with higher sales due to sharp global recovery from the COVID-19 induced economic downturn, impact of favorable price, and impact of favorable product mix.

Adjusted EBITDA of the Specialty Carbon Black segment increased by $47.1 million, or 66.2% to $118.1 million, year over year, primarily driven by favorable operating leverage associated with higher sales due to sharp global recovery from the COVID-19 induced economic downturn, impact of favorable price, and impact of favorable product mix.

Year over year, Adjusted EBITDA margin increased 390 basis points to 26.2%.

Rubber Carbon Black

2021 Compared to 2020

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Net sales increased by $136.5 million, or 126.2% to $244.7 million, year over year, primarily reflecting higher sales volume, favorable product mix, and passing through higher feedstock costs.

Rubber Carbon Black segment volumes increased by 74.8 kmt, or 69.6%, to 182.2 kmt, year over year.

reflecting the broader global economic recovery across all regions.

Gross profit of the Rubber Carbon Black segment increased by $47.4 million, or 488.7% to $57.1 million, year over year, primarily reflecting higher sales volume, and pass through of higher feedstock costs.

Rubber Adjusted EBITDA increased by $40.8 million, to $39.5 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume and favorable product mix.

Adjusted EBITDA margin rose 1,720 basis points to 16.1%, year over year.

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Net sales increased by $136.2 million, or 42.0% to $460.7 million, year over year, primarily reflecting higher sales volume, favorable product mix, and passing through higher feedstock costs.

Rubber Carbon Black segment volumes increased by 80.7 kmt, or 28.4%, to 364.9 kmt, year over year.

reflecting the broader global economic recovery across all regions.

Gross profit of the Rubber Carbon Black segment increased by $46.0 million, or 76.4% to $106.2 million, year over year, primarily reflecting higher sales volume, and pass through of higher feedstock costs.

Rubber Adjusted EBITDA increased by $36.1 million, or 104.3%, to $70.7 million, year over year, primarily due to favorable operating leverage associated with substantially higher sales volume, and the impact of passing-through higher feedstock costs, partially offset by the increase in general and administrative expenses and one-time impact related to Winter Storm Uri.

Adjusted EBITDA margin rose 470 basis points to 15.3%, year over year.

Three months ended September 30, 2021 compared to three months ended September 30, 2020

Net sales increased by $64.5 million, or 36.1% to $242.9 million, year over year, primarily due to passing through of higher feedstock costs, and impact of favorable product mix.

Rubber Carbon Black segment volumes decreased by 5.2 kmt, or (3.0)%, to 173.0 kmt, year over year.

Gross profit of the Rubber Carbon Black segment increased by $5.0 million, or 12.0% to $47.1 million, year over year, primarily driven by passing through of higher feedstock costs, partially offset by lower volume.

Rubber Adjusted EBITDA increased by $1.1 million, to $27.4 million, year over year, primarily due to passing through higher feedstock costs, partially offset by lower volume and higher selling, general and administrative costs.

Adjusted EBITDA margin decreased (470) basis points to 11.3%, year over year.

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Nine months ended September 30, 2021 compared to nine months ended September 30, 2020

Net sales increased by $200.6 million, or 39.9% to $703.5 million, year over year, primarily driven by passing through of higher feedstock costs, higher sales due to sharp global recovery from COVID-19 induced economic downturn, favorable impact of foreign currency translation, and impact of favorable product mix.

Rubber Carbon Black segment volumes increased by 75.3 kmt, or 16.3%, to 537.8 kmt, year over year.

reflecting higher demand.

Gross profit of the Rubber Carbon Black segment increased by $51.1 million, or 49.9% to $153.3 million, year over year, primarily reflecting higher sales volume, the pass through of higher feedstock costs and favorable product mix.

Rubber Adjusted EBITDA increased by $34.9 million, or 55.4%, to $98.0 million, year over year, primarily due to passing-through higher feedstock costs, favorable operating leverage associated with substantially higher sales volume, and favorable product mix, partially offset by higher general and administrative expenses and the one-time impact related to Winter Storm Uri.

Adjusted EBITDA margin increased 140 basis points to 13.9%, year over year.

Liquidity and Capital Resources

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The tables below present our historical cash flows derived from our unaudited Condensed Consolidated Financial Statements for the periods indicated.

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

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Net cash provided by (used in) financing activities (7.6) 60.9

Net cash provided by operating activities during the six months ended June 30, 2021 was $85.1 million.

Net cash provided by operating activities during the nine months ended September 30, 2021, was $121.3 million.

The cash provided by operating activities primarily reflected our net income, adjusted for non-cash items and changes in working capital and $82.9 million related to Evonik legal settlement gain.

Commitments and Contingencies for further discussion on Evonik legal settlement.

Net cash used by investing activities in the six months ended June 30, 2021 amounted to $58.3 million, net.

Net cash used in investing activities in the nine months ended September 30, 2021, amounted to $113.7 million, net.

These expenditures were comprised of a combination of safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Net cash used by financing activities during the six months ended June 30, 2021 amounted to $16.6 million.

Cash outflows during the six months of $12.4 million were primarily related to repayments under our senior secured revolving credit facilities (“RCF”), and scheduled debt repayments of $4.2 million, partially offset by drawings under our local bank loan facilities.

Net cash provided by operating activities for the six months ended June 30, 2020 amounted to $90.6 million.

Net cash used in financing activities during the nine months ended September 30, 2021, amounted to $7.6 million.

Cash outflows during the nine months of $6.0 million were primarily related to repayments under our senior secured revolving credit facilities (“RCF”).

Our financing activity included refinancing of our Term-loan and associated costs.

Debt and Other Obligations for further discussion on Term-loan refinancing.

Net cash provided by operating activities for the nine months ended September 30, 2020, amounted to $92.4 million.

The cash provided by operating activities primarily reflected our net income, adjusted for non-cash items and changes in the components of our working capital.

Net cash used by investing activities for the six months ended June 30, 2020 amounted to 89.4 million.

Net cash used in investing activities for the nine months ended September 30, 2020, amounted to 120.3 million.

Net cash provided by financing activities for the six months ended June 30, 2020 amounted to $81.7 million, primarily reflecting the company drawing under its revolver to bolster its cash position and enhance financial flexibility to successfully manage through the pandemic.

Net cash provided by financing activities for the nine months ended September 30, 2020, amounted to $60.9 million, primarily reflecting the company drawing under its revolver to bolster its cash position and enhance financial flexibility to successfully manage through the pandemic.

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Sources of Liquidity

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We expect cash on hand and cash provided by operating activities and borrowings will be sufficient to pay our operating expenses, satisfy debt service obligations and fund capital expenditures for the foreseeable future.

As of June 30, 2021, the company had total liquidity of $364.0 million, including cash and equivalents of $74.1 million, $252.2 million under our revolving credit facility capacity, including ancillary lines, and $37.7 million of capacity under other available credit lines.

As of September 30, 2021, the company had total liquidity of $337.0 million, including cash and equivalents of $62.3 million, $238.8 million under our revolving credit facility capacity, including ancillary lines, and $35.9 million of capacity under other available credit lines.

Net debt was $653.5 million and net leverage was 2.32x.

Net Working Capital (Non-GAAP Financial Measure)

Net Working Capital (A Non-GAAP Financial Measure)

We define Net Working Capital as the total of inventories and current trade receivables, less trade payables.

Net Working Capital is a non-GAAP financial measure, and other companies may use a similarly titled financial measure that is calculated differently from the way we calculate Net Working Capital.

The following tables set forth the principal components of our Net Working Capital as of the dates

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

June 30, 2021 December 31, 2020

The following tables set forth the principal components of our Net Working Capital as of the dates indicated.

September 30, 2021 December 31, 2020

(In millions)

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Conversely, decreases in the cost of raw materials lead to a decrease in our Net Working Capital requirements over the same period of time.

Based on expected 2021 Net Working Capital requirements and normalized business activities, we estimate that a $10 per barrel movement in the Brent crude oil price correlates to a movement in our Net Working Capital of approximately $27 million to $30 million within about a two to three-month period.

Our Net Working Capital increased from $245.0 million as of December 31, 2020 to $337.7 million as of June 30, 2021.

Our Net Working Capital increased from $245.0 million as of December 31, 2020, to $343.4 million as of September 30, 2021.

The components of working capital that used or provided cash were:

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• Accounts payable—higher production and higher oil prices resulted in increased accounts payable.

Capital Expenditures (Non-GAAP Financial Measure)

Capital Expenditures (A Non-GAAP Financial Measure)

We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the unaudited Condensed Consolidated Financial Statements.

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With the exception of required expenditures in association with our settlement with the EPA we currently do not have any material obligatory commitments to make Capital Expenditures outside the ordinary course of our business.

For further discussion on EPA settlement, see “ Note M.

For further discussion on EPA settlement, see “ Note L.

Commitments and Contingencies ”.

Capital Expenditures during the six months ended June 30, 2021 amounted to $58.3 million were primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital Expenditures in the six months ended June 30, 2020 amounted to $89.4 million and were mainly comprised of preservation and overhaul projects and in expenditures related to investments required to address the EPA requirements in the United States.

Capital Expenditures during the nine months ended September 30, 2021, amounted to $113.7 million were primarily associated with safety, sustainability and growth investments as well as expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Capital Expenditures in the nine months ended September 30, 2020 amounted to $120.3 million and were mainly comprised of preservation and overhaul projects and in expenditures related to investments required to address the EPA requirements in the United States.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Note Regarding Forward-Looking Statements

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These forward-looking statements include, without limitation, statements about the following matters:

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

• our strategies for (i) mitigating the impacts of the global outbreak of the coronavirus, (ii) strengthening our position in specialty carbon blacks and rubber carbon blacks, (ii) strengthening our position in specialty carbon blacks and rubber carbon blacks, (iii) increasing our rubber carbon black margins and (iv) strengthening the competitiveness of our operations;

• our strategies for (i) mitigating the impacts of the global outbreak of the Coronavirus, (ii) strengthening our position in specialty carbon blacks and rubber carbon blacks, (iii) increasing our rubber carbon black margins and (iv) strengthening the competitiveness of our operations;

• the ability to pay dividends at historical dividend levels or at all;

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• our ability to implement our business strategies;

• volatility in the costs and availability of raw materials (including but not limited to any and all effects from restrictions imposed by the MARPOL convention and respective International Maritime Organization (IMO) regulations in particular to reduce sulfur oxides (SOx) emissions from ships) and energy;

• volatility in the costs and availability of raw materials and energy;

• our ability to respond to changes in feedstock prices and quality;

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• our ability to realize benefits from planned plant capacity expansions and site development projects and the potential delays to such expansions and projects;

• information technology system failures, network disruptions and breaches of data security;

• information technology systems failures, network disruptions and breaches of data security;

• our relationships with our workforce, including negotiations with labor unions, strikes and work stoppages;

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• our exposure to political or country risks inherent in doing business in some countries;

• geopolitical events in the European Union, and in particular the ultimate future relations between the European Union and the United Kingdom resulting from “Brexit” which may impact the Euro;

• geopolitical events in the European Union (“EU”), and in particular the ultimate future relations between the EU and the United Kingdom;

• environmental, health and safety regulations, including nanomaterial and greenhouse gas emissions regulations, and the related costs of maintaining compliance and addressing liabilities;

• possible future investigations and enforcement actions by governmental or supranational agencies;

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

• our operations as a company in the chemical sector, including the related risks of leaks, fires and toxic releases;

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• the availability and efficiency of hedging;

Orion Engineered Carbons S.A.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

• changes in international and local economic conditions, including with regard to the Euro, dislocations in credit and capital markets and inflation or deflation;

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• changes in our jurisdictional earnings mix or in the tax laws or accepted interpretations of tax laws in those jurisdictions;

• our indemnities to and from Evonik (as defined below);

• challenges to our decisions and assumptions in assessing and complying with our tax obligations;

• potential difficulty in obtaining or enforcing judgments or bringing actions against us in the United States.

In light of these risks, our results could differ materially from the forward-looking statements contained in this report and no undue reliance should be placed on those forward-looking statements.

For further information regarding factors that could affect our business and financial results and the related forward-looking statements, see “ Item 1A.

Risk Factors .”

• potential difficulty in obtaining or enforcing judgments or bringing legal actions against Orion Engineered Carbons SA (a Luxembourg incorporated entity) in the United States (“U.S.”).

Factors that could cause our actual results to differ materially from those expressed or implied in such forward-looking statements include those factors detailed under the captions “Note Regarding Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in Note S, Commitments and Contingencies .

to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation.

It is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statement - including those in the “2021 Outlook” and “Quarterly Business Segment Results” sections above - as a result of new information, future events or other information, other than as required by applicable law.

Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended June 30, 2021 does not differ materially from that discussed under Item 7A of our 2020 Form 10-K.

Information about market risks for the period ended September 30, 2021 does not differ materially from that discussed under Item 7A in our 2020 Form 10-K.

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