What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-03 · 152 added, 218 removed, 131 unchanged (74% 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 nine months ended September 30, 2022 and 2021 and should be read in conjunction with the information included under Item 1.

The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three months ended March 31, 2023 and 2022 and should be read in conjunction with the information included under Item 1.

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

2 unchanged sentences

Non-GAAP Financial Measures

We present certain financial measures that are not prepared in accordance with GAAP or the accounting standards of any other jurisdiction and which 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.

These non-GAAP measures 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).

We define Contribution margin per metric ton as Contribution margin divided by volume measured in metric tons.

We define Adjusted EBITDA as Income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlement, and includes equity earnings (loss) in affiliated companies, net of tax.

Adjusted EBITDA is used by our management to evaluate our operating performance and make decisions regarding allocation of capital, because it excludes the effects of items that have less bearing on the performance of our underlying core business.

We define Net working capital as inventories plus current trade receivables minus trade payables.

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

We also use Segment Adjusted EBITDA margin, which we define as Adjusted EBITDA for the relevant segment divided by the revenue for that segment.

We use Adjusted EBITDA as an internal measure of performance to benchmark and compare performance among our own operations.

We use these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of our business.

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, Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated.

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

By deducting variable costs (such as raw materials, packaging, utilities and distribution costs) from revenue, we believe that Contribution margins can provide a useful basis for comparing the current performance of the underlying operations being evaluated by indicating the portion of revenue that is not consumed by these variable costs and therefore contributes to the coverage of all costs and profits.

Different companies and analysts may calculate measures based on EBITDA, Contribution margins and working capital differently, so making comparisons among companies on this basis should be done carefully.

Adjusted EBITDA, Contribution margins and Net working capital are not measures of performance under GAAP and should not be considered in isolation or construed as substitutes for revenue, consolidated Net income for the period, Income from operations, Gross profit or other GAAP measures as an indicator of our operations in accordance with GAAP.

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 their nearest comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below.

These non-GAAP measures include, but are not limited to, Gross profit per metric ton, Adjusted EBITDA, Net Working Capital, Capital Expenditures and Segment Adjusted EBITDA Margin (in percentage).

• Gross profit per metric ton —Gross profit divided by volume measured in metric tons.

• Adjusted EBITDA —Income from operations before depreciation and amortization, share-based compensation, and non-recurring items (such as, restructuring expenses, consulting fees related to Company strategy, legal settlement gain, etc.) plus Earnings in affiliated companies, net of tax.

• Net Working Capital —Inventories, net, plus Accounts receivable, net, minus Accounts payable.

• Capital Expenditures —Cash paid for the acquisition of property, plant and equipment.

• Segment Adjusted EBITDA Margin (in percentage )—Segment Adjusted EBITDA divided by segment revenue.

Adjusted EBITDA is used by our chief operating decision maker (“CODM”) to evaluate our operating performance and to make decisions regarding allocation of capital, because it excludes the effects of items that have less bearing on the performance of our underlying core business.

We use this measure, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing our business.

We believe these measures are useful measures of financial performance in addition to Net income, Income from operations and other profitability measures under GAAP, because they facilitate operating performance comparisons from period to period.

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

In addition, we believe these non-GAAP measures aid investors by providing additional insight into our operational performance and help clarify trends affecting our business.

However, other companies and analysts may calculate non-GAAP financial measures differently, so making comparisons among companies on this basis should be done carefully.

Non-GAAP measures are not performance measures under GAAP and should not be considered in isolation or construed as substitutes for Net sales, Net income, Income from operations, Gross profit and other GAAP measures as an indicator of our operations in accordance with GAAP.

Orion Engineered Carbons S.A.

1 unchanged sentence

Reconciliation of Non-GAAP Financial Measures

Contribution margin and Contribution margin per metric ton (Non-GAAP Financial Measures)

Reconciliation of Contribution margin and Contribution margin per metric ton to Gross profit is as follows:

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

$ 543.1 $ 393.0 $ 150.1 38.2 $ 1,568.8 $ 1,154.1 $ 414.7 35.9

Variable costs

382.3 252.5 129.8 51.4 1,069.8 712.9 356.9 50.1

Contribution margin 160.8 140.5 20.3 14.4 499.0 441.2 57.8 13.1

Freight 24.4 23.3 1.1 4.7 77.6 69.8 7.8 11.2

(70.8) (65.1) (5.7) 8.8 (224.5) (199.7) (24.8) 12.4

The following tables present a reconciliation of each Non-GAAP measure to the most directly comparable GAAP measure:

Reconciliation of Gross profit per metric ton:

Three Months Ended March 31,

2023 2022 Delta

(In millions) %

Net sales $ 500.7 $ 484.5 $ 16.2 3.3

Cost of sales (364.3) (366.6) 2.3 (0.6)

Gross profit $ 136.4 $ 117.9 $ 18.5 15.7

Volume (in kmt) 233.5 253.2 (19.7) (7.8)

Contribution margin per metric ton $ 660.9 $ 593.1 $ 67.8 11.4 $ 667.2 $ 595.3 $ 71.9 12.1

Gross profit per metric ton $ 584.2 $ 465.6 $ 118.6 25.5

Adjusted EBITDA (A Non-GAAP Financial Measure)

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

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

Reconciliation of Net income to Adjusted EBITDA:

Three Months Ended March 31,

2023 2022 Delta

(In millions) %

Net income $ 42.3 $ 32.5 $ 9.8 30.2

3 unchanged sentences

Add back Interest and other financial expense, net 15.2 8.4 6.8 81.0

Add back Reclassification of actuarial losses from AOCI — 1.2 (1.2) (100.0) — 3.6 (3.6) (100.0)

Add back Reclassification of actuarial gain from AOCI (2.2) — (2.2) —

Income from operations 73.5 54.6 18.9 34.6

Add back depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment 25.2 23.8 1.4 5.9 79.9 74.6 5.3 7.1

Add back Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 25.7 27.3 (1.6) (5.9)

EBITDA 99.2 81.9 17.3 21.1

Equity in earnings of affiliated companies, net of tax 0.1 0.1 — —

Evonik legal settlement — — — — — (82.9) 82.9 (100.0)

Long term incentive plan 2.1 1.5 0.6 40.0

8 unchanged sentences

Operating Results

For the three months ended September 30, 2022 compared to three months ended September 30, 2021

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

Condensed Consolidated Statement of Operations Data Three Months Ended September 30, Year-Over Year

Three Months Ended March 31, Year-Over Year

2023 2022 Delta

8 unchanged sentences

Interest and other financial expense, net 15.2 8.4 6.8 81.0

Reclassification of actuarial losses from AOCI — 1.2 (1.2) (100.0)

Reclassification of actuarial gain from AOCI (2.2) — (2.2) N/A

Income before earnings in affiliated companies and income taxes 60.5 46.2 14.3 31.0

2 unchanged sentences

Net income 42.3 32.5 9.8 30.2

Net sales increased by $150.1 million, or 38.2%, in the third quarter of 2022 to $543.1 million, compared to the third quarter of 2021, primarily driven by passing through higher feedstock costs, pricing, favorable product mix in both segments and higher volume in Rubber Carbon Black segment, partially offset by the impact of unfavorable foreign currency translation and lower volume in Specialty Carbon Black segment.

Volume increased by 6.4 kmt in the third quarter of 2022 to 243.3 kmt, compared to the third quarter of 2021, primarily due to higher demand in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment.

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments (7.3) 11.8 (19.1) (161.9)

Net gains (losses) on derivatives (1.8) 13.0 (14.8) (113.8)

Defined benefit plans, net (1.4) 0.1 (1.5) (1,500.0)

Total other comprehensive (loss) income, net of tax (10.5) 24.9 (35.4) (142.2)

Comprehensive income $ 31.8 $ 57.4 $ (25.6) (44.6)

Net sales increased by $16.2 million, or 3.3%, in the first quarter of 2023 to $500.7 million, compared to the first quarter of 2022, primarily driven by strong improvements in 2023 negotiated Rubber carbon black price.

Specialty carbon black product mix was favorable.

Those gains were partially offset by lower volume.

Volume in both segments decreased in aggregate by 19.7 kmt in the first quarter of 2023 to 233.5 kmt, compared to the first quarter of 2022.

The decrease in Specialty carbon black was due to the economic slowdown in our lower profitability end markets, while a smaller reduction in Rubber carbon black volume was due to short-term demand and customer turnarounds.

Cost of sales

Cost of sales increased by $134.4 million, or 45.7%, to $428.7 million in the third quarter of 2022, compared to the third quarter of 2021, primarily due to higher raw material and production-associated costs.

Gross profit increased by $15.7 million, or 15.9%, to $114.4 million, year over year, primarily due to pricing and favorable product mix.

Cost of sales decreased by $2.3 million, or 0.6%, to $364.3 million in the first quarter of 2023, compared to the first quarter of 2022, primarily due to lower volume and production-associated costs.

Gross profit increased by $18.5 million, or 15.7%, to $136.4 million and gross profit per metric ton increased by 25.5% to $584.2, year over year.

The increase was primarily driven by improved contractual Rubber carbon black price and favorable Specialty carbon black mix and timing benefits.

Those were partially offset by lower volume in both segments.

Higher margins per ton resulted from price increases in Rubber carbon black to recover environmental and reliability-related capital expenditures and an improved mix in Specialty carbon black.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $3.1 million, or 5.9%, to $56.0 million in the third quarter of 2022, compared to the third quarter of 2021.

The increase was primarily driven by higher freight and personal costs, partially offset by the impact of unfavorable foreign currency translation.

Selling, general and administrative expenses remained flat in the first quarter of 2023 compared to the first quarter of 2022.

Provision for income taxes

For the three months ended September 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $43.4 million, compared to $27.6 million in the three months ended September 30, 2021.

The provision for income taxes was an expense of $11.7 million and $6.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

The effective tax rate for the three months ended September 30, 2022, was 27%, as compared to 24% for the three months ended September 30, 2021.

The increase in our effective tax rate for the three months ended September 30, 2022, relative to the three months ended September 30, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction compared to the prior period.

Contribution margin and Contribution margin per metric ton (Non-GAAP Financial Measures)

Contribution margin increased in the third quarter of 2022 by $20.3 million, or 14.4%, to $160.8 million, year over year.

Orion Engineered Carbons S.A.

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

margin per metric ton increased by 11.4% to $660.9 per metric ton in the three months ended September 30, 2022.

The increase was primarily driven by pricing measures, favorable product mix in both segments and higher volume in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment and higher selling, general and administrative costs.

Higher margins per ton resulted from price increases to recover environmental and reliability-related capital expenditures.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA increased in the third quarter of 2022 by $14.1 million, or 21.2%, to $80.5 million, year over year.

The increase was driven by pricing, favorable product mix and higher volume in Rubber Carbon Black segment, partially offset by lower volume in the Specialty Carbon Black segment and higher selling, general and administrative costs.

For the nine months ended September 30, 2022 compared to nine months ended September 30, 2021

Condensed Consolidated Statement of Operations Data Nine Months Ended September 30, Year-Over Year

2022 2021 Delta

(In millions) %

Net sales $ 1,568.8 $ 1,154.1 $ 414.7 35.9

Cost of sales 1,216.7 842.8 373.9 44.4

Gross profit 352.1 311.3 40.8 13.1

Selling, general and administrative expenses 173.2 160.3 12.9 8.0

Research and development costs 15.9 16.4 (0.5) (3.0)

Gain related to litigation settlement — (82.9) 82.9 (100.0)

Other (income) expenses, net 1.9 1.9 — —

Income from operations 161.1 215.6 (54.5) (25.3)

Interest and other financial expense, net 29.1 30.4 (1.3) (4.3)

Reclassification of actuarial losses from AOCI — 3.6 (3.6) (100.0)

Income before earnings in affiliated companies and income taxes 132.0 181.6 (49.6) (27.3)

Income tax expense 38.3 48.5 (10.2) (21.0)

Earnings in affiliated companies, net of tax 0.3 0.5 (0.2) (40.0)

Net income $ 94.0 $ 133.6 $ (39.6) (29.6)

Net sales increased by $414.7 million, or 35.9%, in the nine months ended September 30, 2022 to $1,568.8 million, year over year, driven primarily by passing through higher feedstock costs, pricing, favorable product mix, and higher volume in Rubber Carbon Black segment, partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Volume increased by 6.7 kmt to 747.9 kmt compared to the nine months ended September 30, 2021, primarily due to higher demand in Rubber Carbon Black segment, partially offset by lower demand in the Specialty Carbon Black segment.

Cost of sales

Cost of sales increased by $373.9 million, or 44.4%, to $1,216.7 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to higher raw material costs and production-associated costs.

Gross profit increased by $40.8 million, or 13.1%, to $352.1 million, year over year, primarily due to pricing and favorable product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $12.9 million, or 8.0%, to $173.2 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, driven primarily by higher freight and personal costs and higher personnel, partially offset by the impact of unfavorable foreign currency translation.

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 a dispute 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

For the three months ended March 31, 2023, the Company recognized Income before earnings in affiliated companies and income taxes of $60.5 million, compared to $46.2 million in the three months ended March 31, 2022.

The provision for income taxes was an expense of $18.3 million and $13.8 million for the three months ended March 31, 2023 and 2022, respectively.

The effective tax rate for the three months ended March 31, 2023, was flat, as compared to the three months ended March 31, 2022.

Orion Engineered Carbons S.A.

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

connection with U.S.

Clean Air Act violations that occurred prior to the closing of the 2011 acquisition (i.e., under Evonik’s control).

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

This was not repeated in 2022.

Provision for income taxes

For the nine months ended September 30, 2022, the Company recognized Income before earnings in affiliated companies and income taxes of $132.0 million, compared to $181.6 million in the nine months ended September 30, 2021.

The provision for income taxes was an expense of $38.3 million for the nine months ended September 30, 2022, and $48.5 million for the nine months ended September 30, 2021.

The effective tax rate for the nine months ended September 30, 2022, was 29%, as compared to 27% for the nine months ended September 30, 2021.

The increase in our effective tax rate for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily attributable to the projected earnings mix by geography and tax jurisdiction as compared to the prior period.

Contribution margin and Contribution margin per metric ton (Non-GAAP Financial Measures)

Contribution margin increased by $57.8 million, or 13.1%, to $499.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

The increase was primarily due to pricing measures, favorable product mix and higher volume in Rubber Carbon Black segment, partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Contribution margin per metric ton increased by 12.1%, to $667.2 per metric ton in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Higher margins per ton resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA increased by $31.0 million, or 14.3%, from $216.1 million in the nine months ended September 30, 2021 to $247.1 million in the nine months ended September 30, 2022.

The increase was primarily due to higher margins, favorable product mix and higher volume in Rubber Carbon Black segment, partially offset by unfavorable impact of foreign currency translation and lower volume in the Specialty Carbon Black segment.

Adjusted EBITDA increased in the first quarter of 2023 by $17.9 million, or 21.5%, to $101.1 million, year over year.

The increase was driven by improved Rubber carbon black price and favorable Specialty carbon black product mix, partially offset by lower volume in both segments.

Comprehensive Income

Comprehensive income decreased by $25.6 million in the first quarter of 2023 compared to the first quarter of 2022.

The activities from the components of Comprehensive income are discussed below:

• $19.1 million of net unfavorable impacts of unrealized changes in foreign currency translation adjustments primarily due to the weakening of the U.S.

dollar relative to the euro.

• $14.8 million of net unfavorable impacts related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, and

• $1.5 million of net unfavorable changes in defined pension and other post-retirement benefits.

These decreases were partially offset by $9.8 million of higher net income in the first quarter of 2023 compared to the first quarter of 2022.

Segment Discussion

2 unchanged sentences

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

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

2022 2021 Delta 2022 2021 Delta

(In millions) % (In millions) %

Three Months Ended March 31,

2023 2022 Delta

(In millions) %

Specialty carbon black

13 unchanged sentences

Specialty Carbon Black

Net sales increased by $19.4 million, or 12.9%, year over year, to $169.6 million and increased by $78.5 million, or 17.4%, year over year, to $529.1 million for the three and nine months ended September 30, 2022, respectively.

The net sales increase in both comparative period

Net sales decreased by $15.6 million, or 8.8%, year over year, to $162.0 million for the three months ended March 31, 2023.

The net sales decrease was primarily driven by reduced sales volume in low end markets, partially offset by favorable product mix.

Volume decreased by 12.6 kmt, or 19.2%, year over year, to 53.0 kmt for the three months ended March 31, 2023.

Volumes were lower primarily due to the economic slowdown in all major ends markets and price competition.

Gross profit, for the three months ended March 31, 2023, decreased by $5.5 million, or 9.5%, year over year, to $52.1 million, primarily due to improved price, favorable timing benefits and product mix, partially offset by lower sales volume.

Year over year, Adjusted EBITDA for the three months ended March 31, 2023 decreased by $5.2 million, or 12.2%, to $37.3 million, primarily driven by volume reduction, partially offset by improved gross profit margins.

Orion Engineered Carbons S.A.

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

was primarily driven by pricing and favorable product mix, partially offset by lower sales volume and impact of unfavorable foreign currency translation.

Volumes decreased by 11.6 kmt, or 18.2%, year over year, to 52.3 kmt and decreased by 25.8 kmt, or 12.7% year over year, to 177.6 kmt for the three and nine months ended September 30, 2022, respectively.

The volumes were lower primarily due to lower demand and price competition in lower-end markets in both comparative periods.

Gross profit segment, for the three months ended September 30, 2022, decreased by $6.8 million, or 13.2%, year over year, to $44.8 million, primarily due to lower demand and price competition in lower-end markets.

Gross profit segment, for the nine months ended September 30, 2022, increased by $5.0 million, or 3.2%, year over year, to $163.0 million, primarily driven by higher margins and favorable product mix.

Year over year, adjusted EBITDA for the three months ended September 30, 2022 decreased by $7.9 million, or 20.3%, to $31.1 million, primarily driven by lower sales volume, partially offset by higher margins and favorable product mix.

Year over year, adjusted EBITDA for the nine months ended September 30, 2022 increased by $0.9 million, or 0.8%, to $119.0 million, primarily driven by higher margins and favorable product mix, partially offset by lower volume.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA margin decreased by 770 basis points, year over year, to 18.3%, and decreased by 370 basis points, year over year, to 22.5% for the three and nine months ended September 30, 2022, respectively.

The decrease in both comparative periods was primarily due to lower demand, higher fixed costs and price competition in lower-end markets, partially offset by higher margins and favorable product mix.

For the three months ended March 31, 2023, Adjusted EBITDA margin decreased by 90 basis points, year over year, to 23.0%.

Rubber Carbon Black

Net sales increased by $130.7 million, or 53.8%, year over year, to $373.5 million, and increased by $336.2 million, or 47.8%, year over year, to $1,039.7 million for the three and nine months ended September 30, 2022, respectively.

The increase in both comparative periods was primarily due to pricing, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation.

Volumes increased by 18.0 kmt, or 10.4%, year over year, to 191.0 kmt, and increased by 32.5 kmt, or 6.0%, year over year, to 570.3 kmt, for the three and nine months ended September 30, 2022, respectively.

The increase in both comparative periods reflects higher demand in Americas and Europe/Middle East/Africa.

Gross profit increased by $22.5 million, or 47.8%, year over year, to $69.6 million, and increased by $35.8 million, or 23.4%, to $189.1 million, for the three and nine months ended September 30, 2022, respectively.

The increase in both periods was primarily driven by higher margins, higher volume and favorable product mix, partially offset by the impact of unfavorable foreign currency translation in both periods.

Net sales increased by $31.8 million, or 10.4%, year over year, to $338.7 million for the three months ended March 31, 2023.

The increase was primarily due to contractual price increases, partially offset by the lower volume.

Volume decreased by 7.1 kmt, or 3.8%, year over year, to 180.5 kmt for the three months ended March 31, 2023 due to timing of customer shutdowns.

Gross profit increased by $24.0 million, or 39.8%, year over year, to $84.3 million for the three months ended March 31, 2023.

The increase was primarily driven by improved contractual price and favorable product mix, partially offset by lower volume.

Higher margins resulted from price increases to recover environmental and reliability-related Capital expenditures.

Adjusted EBITDA increased by $22.0 million, or 80.3%, year over year, to $49.4 million, and increased by $30.1 million, or 30.7%, to $128.1 million for the three and nine months ended September 30, 2022, respectively.

The increase was primarily due to higher volume, pricing and product mix, partially offset by impact of unfavorable foreign currency translation and higher selling, general and administrative costs in both comparative periods.

For the three months ended September 30, 2022, adjusted EBITDA margin rose 190 basis points to 13.2%, year over year.

For the nine months ended September 30, 2022, adjusted EBITDA margin decreased 160 basis points, year over year, to 12.3%, primarily due to the revenue impact from higher feedstock prices.

Orion Engineered Carbons S.A.

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

Adjusted EBITDA increased by $23.1 million, or 56.8%, year over year, to $63.8 million for the three months ended March 31, 2023.

The increase was primarily due to contractual price improvement, which resulted in improved gross profit margins, partially offset by lower volume.

For the three months ended March 31, 2023, Adjusted EBITDA margin rose 550 basis points to 18.8%, year over year.

Liquidity and Capital Resources

1 unchanged sentence

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

Net cash (used in)/provided by operating activities $ (16.7) $ 121.3

Net cash provided by (used in) operating activities $ 108.1 $ (27.8)

Net cash used in investing activities (30.5) (48.8)

Net cash provided by (used in) financing activities (62.5) 51.4

Net cash used in operating activities during the nine months ended September 30, 2022, was $16.7 million.

The cash used in operating activities primarily reflects changes in working capital and lower Net income.

2021 operating activities included $82.9 million related to Evonik legal settlement gain not repeated in 2022

Net cash used in investing activities in the nine months ended September 30, 2022, amounted to $167.1 million.

These expenditures were composed of a combination of safety, maintenance-related 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 provided by financing activities during the nine months ended September 30, 2022, amounted to $167.4 million.

Cash inflows during the nine months of $139.9 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), $35.3 million borrowings to partially finance our Huaibei facility in China from Bank of China and $7.0 million of short-term working capital borrowings in Korea, partially offset by scheduled debt repayments.

Net cash provided by operating activities for the nine months ended September 30, 2021, amounted to $121.3 million.

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

Net income includes $82.9 million related to Evonik legal settlement gain.

See “ Note Q.

Commitments and Contingencies ” included in the Annual Report in Form 10-K for the year ended December 31, 2021 for further discussion on Evonik legal settlement.

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

These expenditures were composed 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 in financing activities for 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 RCF repayments.

2021 financing activities included refinancing of our Term-loan and associated costs.

Debt and Other Obligations included in the Annual Report in Form 10-K for the year ended December 31, 2021 for further discussion on our Term-loan refinancing.

Sources of Liquidity

Our principal sources of liquidity are (i) cash on hand, (ii) net cash generated from operating activities, primarily driven by our operating results and changes in working capital requirements, and (iii) cash available from financing activities, primarily driven by borrowing amounts available under our committed multicurrency, senior secured RCF and related ancillary facilities, various uncommitted local credit lines, and, from time to time, term loan borrowings.

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

As of September 30, 2022, the company had total liquidity of $203.3 million, including cash and equivalents of $43.1 million, $130.3 million availability under our revolving credit facility, including ancillary lines and $29.9 million of capacity under other available credit lines.

Net debt was $840.4 million, and net leverage was 2.81x.

Net cash provided by operating activities during the three months ended March 31, 2023 was $108.1 million.

The cash provided by operating activities primarily reflects changes in working capital and higher Net income.

Change in working capital includes $68.9 million sale of certain accounts receivables, discussed in Note D.

Debt and Other Obligations.

Net cash used in investing activities in the three months ended March 31, 2023 amounted to $30.5 million.

These expenditures were composed of a combination of safety, maintenance-related and growth investments, as well as $8.4 million of expenditures associated with our ongoing efforts to install emissions reduction technology to meet EPA requirements in the U.S.

Net cash used in financing activities during the three months ended March 31, 2023 amounted to $62.5 million.

These outflows primarily consisted of $32.9 million related to repayment of our ancillary credit facilities and $29.3 million for repurchase of common stock under the Stock Repurchase Program.

Net cash used in operating activities for the three months ended March 31, 2022, amounted to $27.8 million.

The cash used in operating activities primarily reflects changes in working capital, partially offset by higher net income.

Net cash used in investing activities for the three months ended March 31, 2022, amounted to $48.8 million.

These expenditures were comprised of a combination of safety, maintenance-related, 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 provided by financing activities for the three months ended March 31, 2022, amounted to $51.4 million.

Cash inflows during the three months of $52.5 million were primarily related to net drawings under our senior secured revolving credit facilities (“RCF”), partially offset by scheduled debt repayments.

Orion Engineered Carbons S.A.

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

Sources of Liquidity

Our principal sources of liquidity are the net cash generated (i) from operating activities, primarily driven by our operating results and changes in working capital requirements and (ii) from financing activities, primarily driven by borrowing amounts available under our committed multicurrency, senior secured RCF and related ancillary facilities, various uncommitted local credit lines, and, from time to time, term loan borrowings and Accounts receivable factoring.

We believe our anticipated future operating cash flow, the capacity under our existing credit facilities and uncommitted bilateral lines of credit, along with access to surety bonds, will be sufficient to finance our planned capital expenditures, settle our commitments and contingencies, and address our normal anticipated working capital needs for the foreseeable future.

As of March 31, 2023, the company had total liquidity of $344.0 million, including cash and equivalents of $76.8 million, $196.8 million availability under our revolving credit facility, including ancillary lines, $23.2 million undrawn on the Term-loan for Huaibei, China, and $47.2 million of capacity under other available credit lines.

Net debt was $822.3 million, and net leverage was 2.49x.

Net working capital (A Non-GAAP Financial Measure)

We define Net working capital as the sum total of current trade receivables and inventories less trade payables.

We define Net working capital as the sum total of current Accounts receivable, net and Inventories, net less Accounts payable.

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 table sets forth the principal components of our Net working capital as of the dates indicated.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(In millions)

Trade receivables $ 403.7 $ 288.9

Inventories 266.7 229.8

Trade payables (178.1) (195.1)

Accounts receivable, net $ 335.2 $ 367.8

Inventories, net 271.0 277.9

Accounts payable (184.4) (184.1)

Net working capital $ 421.8 $ 461.6

4 unchanged sentences

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

Our Net working capital increased from $323.6 million as of December 31, 2021, to $492.3 million as of September 30, 2022.

Our Net working capital decreased from $461.6 million as of December 31, 2022, to $421.8 million as of March 31, 2023.

The components of working capital were:

• Inventories —higher oil prices and an increase in production to meet forecasted demand resulted in increases in raw material and finished goods inventory;

• Trade receivables —increase was driven by pricing, timing of payments and higher sales due to higher product demand timing.

Trade receivables include a long-term steam supply contract between one of our wholly-owned subsidiaries and the city of Hürth, Germany (Stadtwerke Hürth/Hürth municipal utilities).

The municipality financed certain turbines and infrastructure which are operated by us under a finance lease agreement.

In addition, the city of Hürth entered into a long-term supply agreement for heat delivered to the city.

Since the fourth quarter of 2020, the city of Hürth has not fully honored the contractually-stipulated calculation for heat deliveries, amongst other stipulations.

As a result, as of September 30, 2022, Orion has open receivables from the city of Hürth totaling $7.7 million, while the city of Hürth argues open claims of approximately $5.5 million related to lease payments.

Orion is in negotiations with the city but is prepared to pursue its rights vigorously through legal enforcement if necessary.

Those increases were partially offset by:

• Accounts payable —decrease was driven by timing of capital expenditures.

• Accounts receivable, net —Improved payment terms and accounts receivables factoring of certain customers.

Debt and Other Obligations to the accompanying Condensed Consolidated Financial Statements for further information related to the Company’s factoring agreements.

• Inventories, net —Lower oil prices and decrease in production to due to lower demand.

• Accounts payable —Remained flat.

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.

We plan to finance our Capital expenditures with cash generated by our operating activities.

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 J.

Commitments and Contingencies.

Capital expenditures during the nine months ended September 30, 2022 amounted to $167.1 million and 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, 2021 amounted to $113.7 million and were mainly comprised of preservation and overhaul projects and expenditures related to investments required to address the EPA requirements in the U.S.

We define Capital expenditures as cash paid for the Acquisition of property, plant and equipment.

We plan to finance our capital expenditures with cash generated by our operating activities and/or utilizing existing debt capacity.

We currently do not have any material commitments to make capital expenditures and do not plan to make capital expenditures outside the ordinary course of our business.

Off-Balance Sheet Arrangements

As of September 30, 2022, we did not have any off-balance sheet arrangements.

As of March 31, 2023, 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

Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

5 unchanged sentences

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

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

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

• cash flow projections;

• the installation and operation of pollution control technology in our United States (“U.S.”) manufacturing facilities pursuant to the EPA consent decree described herein;

• our strategies for (i) strengthening our position in Specialty carbon black or Rubber carbon black, (ii) increasing our Specialty or Rubber carbon black margins and (iii) strengthening the competitiveness of our operations;

• our cash flow projections;

• the installation and operation of pollution control technology in our United States (“U.S.”) manufacturing facilities pursuant to the U.S.

Environmental Protection Agency (“EPA”) consent decree;

• the outcome of any in-progress, pending or possible litigation or regulatory proceedings;

• our expectations regarding environmental-related costs and liabilities;

• expectations regarding the performance of our industry and the global economy, including with respect to foreign currency rates;

• the expectations regarding environmental-related costs and liabilities;

• the expectations regarding the performance of our industry and the global economy, including with respect to foreign currency rates;

• the sufficiency of our cash on hand and cash provided by operating activities and borrowings to pay our operating expenses, satisfy our debt obligations and fund capital expenditures;

• mitigating the impacts of the global outbreak of COVID-19 and variances thereof;

• anticipated spending on, and the timely completion and anticipated impacts of, capital projects including growth projects and the construction of new plants;

• the ability to pay dividends;

• the ability to have access to new debt providers;

• our anticipated spending on, and the timely completion and anticipated impacts of, capital projects including growth projects, emission reduction projects and the construction of new plants;

• our projections and expectations for pricing, financial results and performance in 2023 and beyond;

1 unchanged sentence

• the implementation of our natural gas and other raw material consumption reduction contingency plan;

• demand for our specialty products;

• the demand for our specialty products;

• our expectation that the markets we serve will continue to remain stable or grow;

• our ability to mitigate the impacts of the outbreak of COVID-19 and variances thereof.

All these forward-looking statements are based on estimates and assumptions that, although believed to be reasonable, are inherently uncertain.

2 unchanged sentences

These factors include, among others:

• the effects of the COVID-19 pandemic on our business and results of operations;

• negative or uncertain worldwide economic conditions;

• volatility and cyclicality in the industries in which we operate;

• operational risks inherent in chemicals manufacturing, including disruptions due to technical facilities, severe weather conditions or natural disasters;

• the negative or uncertain worldwide economic conditions and developments;

• the volatility and cyclicality of the industries in which we operate;

• the operational risks inherent in chemicals manufacturing, including disruptions due to technical facilities, severe weather conditions or natural disasters;

• our dependence on major customers and suppliers;

• unanticipated fluctuations in demand for our specialty products, including due to factors beyond our control;

• the unanticipated fluctuations in demand for our specialty products, including due to factors beyond our control;

• our ability to compete in the industries and markets in which we operate;

4 unchanged sentences

• our ability to realize benefits from investments, joint ventures, acquisitions or alliances;

• our ability to negotiate with counterparties on terms satisfactory to us and the satisfactory performance by such counterparties of their obligations to us;

• our ability to negotiate with counterparties on terms satisfactory to us, the satisfactory performance by such counterparties of their obligations to us, as well as our ability to meet our performance obligations towards such counterparties;

Orion Engineered Carbons S.A.

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

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

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

• our 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;

2 unchanged sentences

• any and all impacts from the Russian war against Ukraine and/or any escalation thereof as well as related energy shortages or other economic or physical impairments or disruptions;

• geopolitical events in the European Union (“EU”), relations amongst the EU member states as well as future relations between the EU and other countries and organizations;

• 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, supranational agencies or other organizations;

• the geopolitical events in the European Union (“EU”), relations amongst the EU member states as well as future relations between the EU and other countries and organizations;

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

• the possible future investigations and enforcement actions by governmental, supranational agencies or other organizations;

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

• market and regulatory changes that may affect our ability to sell or otherwise benefit from co-generated energy;

• litigation or legal proceedings, including product liability and environmental claims;

• the market and regulatory changes that may affect our ability to sell or otherwise benefit from co-generated energy;

• any litigation or legal proceedings, including product liability, environmental or asbestos related claims;

• our ability to protect our intellectual property rights and know-how;

• our ability to generate the funds required to service our debt and finance our operations;

• fluctuations in foreign currency exchange and interest rates;

• any fluctuations in foreign currency exchange and interest rates;

• the availability and efficiency of hedging;

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

• potential impairments or write-offs of certain assets;

• required increases in our pension fund contributions;

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

• the effects of the COVID-19 pandemic on our business and results of operations;

• the potential impairments or write-offs of certain assets;

• any required increases in our pension fund contributions;

• the adequacy of our insurance coverage;

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

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

• potential difficulty in obtaining or enforcing judgments or bringing legal actions against Orion Engineered Carbons SA (a Luxembourg incorporated entity) in the 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, 2021 and in “ Note Q.

Commitments and Contingencies” to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation in the same Form 10-K, , and in our quarterly reports on Form 10-Q and the unaudited Consolidated Financial Statements contained therein.

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

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

• the potential difficulty in obtaining or enforcing judgments or bringing legal actions against Orion Engineered Carbons S.A.

(a Luxembourg incorporated entity) in the U.S.

or elsewhere outside Luxembourg;

• any current or future changes to disclosure requirements and obligations, related audit requirements and our ability to comply with such obligations and requirements.

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 “Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995” and “Risk Factors” and in “ Note Q.

Commitments and Contingencies” to our audited Consolidated Financial Statements regarding contingent liabilities, including litigation in our Annual Report in Form 10-K for the year ended December 31, 2022 and in our quarterly reports in Form 10-Q and the unaudited Condensed Consolidated Financial Statements contained therein.

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 Note K.

Financial Information by Segment above - as a result of new information, future events or other information, other than as required by applicable law.

We undertake no obligation to publicly update or revise any forward-looking statement, 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 September 30, 2022 does not differ materially from that discussed under “ Item 7A” in our 2021 Form 10-K.

Information about market risks for the period ended March 31, 2023 does not differ materially from that discussed under “ Item 7A” in our 2022 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