What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-02 · 123 added, 65 removed, 202 unchanged (48% 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 months ended March 31, 2024 and 2023 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 and six months ended June 30, 2024 and 2023 and should be read in conjunction with the information included under Item 1.

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

21 unchanged sentences

Reconciliation of Gross profit per metric ton:

(In millions, except volume and per metric ton data) Three Months Ended March 31,

2024 2023 Delta

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

2024 2023 Delta 2024 2023 Delta

(In millions) % (In millions) %

Net sales $ 477.0 $ 458.8 $ 18.2 4.0 $ 979.9 $ 959.5 $ 20.4 2.1

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Reconciliation of Net income to Adjusted EBITDA:

Three Months Ended March 31,

2024 2023 Delta

(In millions) %

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

2024 2023 Delta 2024 2023 Delta

(In millions) % (In millions) %

Net income $ 20.5 $ 30.1 $ (9.6) (31.9) $ 47.2 $ 72.4 $ (25.2) (34.8)

18 unchanged sentences

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

Three Months Ended March 31, Year-Over Year

Three Months Ended June 30, Year-Over Year

2024 2023 Delta

19 unchanged sentences

Comprehensive income $ 11.1 $ 23.0 $ (11.9) (51.7)

Net sales for the three months ended March 31, 2024 increased by $2.2 million, or 0.4%, to $502.9 million, year over year, primarily driven by higher volume in both segments.

Those were partially offset by the pass-through effect of declining oil prices in both segments and lower cogeneration price due to European electricity prices.

Volume for the three months ended March 31, 2024 increased in aggregate by 14.9 kmt to 248.4 kmt, year over year, primarily due to higher volume in both segments.

Specialty volume recovery was across all regions and end markets.

Volume for the three months ended June 30, 2024 increased in aggregate by 5.8 kmt to 233.1 kmt, year over year, due to higher volume in Specialty Carbon Black segment.

Net sales for the three months ended June 30, 2024 increased by $18.2 million, or 4.0%, to $477.0 million, year over year, primarily driven by higher volume in Specialty Carbon Black segment, the pass-through effect from higher oil prices and improved contractual pricing.

Those were partially offset by unfavorable currency translation.

Cost of sales

Cost of sales for the three months ended March 31, 2024 increased by $16.4 million, or 4.5%, to $380.7 million year over year, primarily due to higher volume in both segments and associated costs.

Those were partially offset by declining oil prices.

Gross profit for the three months ended March 31, 2024 decreased by $14.2 million, or 10.4%, to $122.2 million, year over year.

The decrease was primarily driven by favorable timing items in the prior year, North American rubber volume, higher fixed costs and lower cogeneration pricing in Europe.

Those were partially offset by higher volume in both segments.

Gross profit per metric ton decreased by 15.8% to $491.9, year over year, driven by lower margin in both segments.

Cost of sales for the three months ended June 30, 2024 increased by $25.5 million, or 7.5%, to $367.2 million year over year, primarily due to higher volume in Specialty Black Carbon segment and higher oil prices.

Gross profit for the three months ended June 30, 2024 decreased by $7.3 million, or 6.2%, to $109.8 million, year over year.

The decrease was driven primarily by favorable impact from the pass-through of raw material costs in the prior year, higher fixed costs and lower cogeneration.

Gross profit per metric ton decreased by 8.6% to $471.0, year over year.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2024 increased by $3.8 million , or 6.6% to $61.5 million, year over year, due to higher personnel costs.

Selling, general and administrative expenses for the three months ended June 30, 2024 increased by $5.3 million, or 9.6% to $60.3 million, year over year, driven by higher freight and personnel costs.

Provision for income taxes

For the three months ended March 31, 2024, and 2023 the Company recognized Income before earnings in affiliated companies and income taxes of $40.1 million, compared to $60.5 million, respectively.

The provision for income taxes was an expense of $13.5 million and $18.3 million for the three months ended March 31, 2024 and 2023, respectively.

The effective tax rate for the three months ended March 31, 2024, and 2023 was 33.7% and 30.2%, respectively.

The increase in effective tax rate for three months ended March 31, 2024,

For the three months ended June 30, 2024, and 2023 the Company recognized Income before earnings in affiliated companies and income taxes of $29.4 million, compared to $47.7 million, respectively.

The provision for income taxes was an expense of $9.1 million and $17.8 million for the three months ended June 30, 2024 and 2023, respectively.

The effective tax rate for the three months ended June 30, 2024, and 2023 was 31.0% and 37.3%, respectively.

The decrease in effective tax rate for three months ended June 30, 2024, as compared

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

as compared to the three months ended March 31, 2023, was primarily attributable to changes in projected pre-tax income mix in countries with varying statutory tax rates.

to the three months ended June 30, 2023, was primarily attributable to changes in projected pre-tax income mix in countries with varying statutory tax rates.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA decreased in the first quarter of 2024 by $15.8 million, or 15.6%, to $85.3 million, year over year.

The decrease was driven by favorable timing items in the prior year, North American rubber volume, higher fixed costs and lower cogeneration pricing in Europe.

Adjusted EBITDA decreased in the second quarter of 2024 by $12.2 million, or 14.0%, to $75.1 million, year over year.

The decrease was driven by favorable impact from the pass-through of raw material costs in the prior year, higher fixed costs and lower cogeneration.

Those were partially offset by higher Specialty Carbon Black volume and improved contractual pricing.

Comprehensive Income

Comprehensive income decreased in the first quarter of 2024 by $11.9 million to $19.9 million, year over year.

Comprehensive income decreased in the second quarter of 2024 by $11.9 million to $11.1 million, year over year.

The components of Comprehensive income are discussed below:

Net income decreased by $15.6 million in the first quarter of 2024 compared to the first quarter of 2023.

These were partially offset by,

• $0.9 million of net impacts of unrealized changes in foreign currency translation adjustments.

• $1.3 million of net 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 changes in defined pension and other post-retirement benefits.

Net income decreased by $9.6 million in the second quarter of 2024 compared to the second quarter of 2023.

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

• $3.1 million of net unfavorable impact is related to unrealized loss due to foreign currency translation adjustments, and

• $0.8 million of net unfavorable impact is related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, partially offset by

• $1.6 million of net favorable impact is related to changes in defined pension and other post-retirement benefits.

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

For the six months ended June 30, 2024 compared to six months ended June 30, 2023

Condensed Consolidated Statement of Operations Data Six Months Ended June 30, Year-Over Year

2024 2023 Delta

(In millions) %

Net sales $ 979.9 $ 959.5 $ 20.4 2.1

Cost of sales 747.9 706.0 41.9 5.9

Gross profit 232.0 253.5 (21.5) (8.5)

Selling, general and administrative expenses 121.8 112.7 9.1 8.1

Research and development costs 13.1 12.1 1.0 8.3

Other (income) expenses, net 2.7 (3.7) 6.4 (173.0)

Income from operations 94.4 132.4 (38.0) (28.7)

Interest and other financial expense, net 24.9 28.7 (3.8) (13.2)

Reclassification of actuarial gain from AOCI — (4.5) 4.5 (100.0)

Income before earnings in affiliated companies and income taxes 69.5 108.2 (38.7) (35.8)

Income tax expense 22.6 36.1 (13.5) (37.4)

Earnings in affiliated companies, net of tax 0.3 0.3 — —

Net income 47.2 72.4 (25.2) (34.8)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments (14.7) (12.5) (2.2) 17.6

Net losses on derivatives (1.7) (2.2) 0.5 (22.7)

Defined benefit plans, net 0.2 (2.9) 3.1 (106.9)

Total other comprehensive (loss) income, net of tax (16.2) (17.6) 1.4 (8.0)

Comprehensive income $ 31.0 $ 54.8 $ (23.8) (43.4)

Volume increased by 20.7 kmt to 481.5 kmt compared to the six months ended June 30, 2023, primarily due to higher volume in Specialty Carbon Black segment.

Net sales increased by $20.4 million, or 2.1%, in the six months ended June 30, 2024 to $979.9 million, year over year, primarily driven by higher volume in Specialty Carbon Black segment and improved contractual pricing.

This was partially offset by the pass-through effect of lower raw material costs and lower cogeneration.

Cost of sales

Cost of sales increased by $41.9 million, or 5.9%, to $747.9 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily due to higher Specialty Carbon Black segment volume and associated costs.

Gross profit decreased by $21.5 million, or 8.5%, to $232.0 million, and gross profit per metric ton decreased by 12.4% to $481.8 year over year.

The decrease was primarily driven by higher fixed costs, favorable impact from the pass-through of raw material costs in the prior year and lower cogeneration.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $9.1 million, or 8.1%, to $121.8 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by higher freight and personnel costs.

Provision for income taxes

For the six months ended June 30, 2024, the Company recognized Income before earnings in affiliated companies and income taxes of $69.5 million, compared to $108.2 million in the six months ended June 30, 2023.

The provision for income taxes was an expense of $22.6 million and $36.1 million for the six months ended June 30, 2024 and June 30, 2023, respectively.

The effective tax rate for the six months ended June 30, 2024, was 32.5%, as compared to 33.4% for the six months ended June 30, 2023.

The decrease in our effective tax rate for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily attributable to changes in

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

projected pre-tax income mix in countries with varying statutory tax rates.

Adjusted EBITDA (A Non-GAAP Financial Measure)

Adjusted EBITDA decreased by $28.0 million, or 14.9%, from $188.4 million in the six months ended June 30, 2023 to $160.4 million in the six months ended June 30, 2024.

The decrease was primarily due to favorable impact from the pass-through of raw material costs in the prior year, higher fixed costs and lower cogeneration.

Those were partially offset by higher Specialty Carbon Black volume and improved contractual pricing.

Comprehensive Income

Comprehensive income decreased by $23.8 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Net income decreased by $25.2 million in the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

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

• $2.2 million of net unfavorable impact is related to unrealized loss due to foreign currency translation adjustments.

• $0.5 million of net favorable impacts is related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps, and

• $3.1 million of net favorable changes is related to defined pension and other post-retirement benefits.

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 March 31,

(In millions, except volume and percentage data) 2024 2023 Delta

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

2024 2023 Delta 2024 2023 Delta

(In millions) % (In millions) %

Specialty Carbon Black

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Specialty Carbon Black

Net sales for the three months ended March 31, 2024 increased by $8.9 million, or 5.5%, year over year, to $170.9 million, primarily driven by higher volume, partially offset by pass-through effect of declining oil prices.

Volume for the three months ended March 31, 2024 increased by 10.3 kmt, or 19.4%, year over year, to 63.3 kmt, primarily due to volume recovery across all regions and end markets.

Volume increased by 9.3 kmt, or 17.4%, year over year, to 62.9 kmt and increased by 19.6 kmt, or 18.4% year over year, to 126.2 kmt for the three and six months ended June 30, 2024, respectively, primarily due to volume recovery across all regions and end markets.

Net sales increased by $16.0 million, or 10.7%, year over year, to $165.5 million and increased by $24.9 million, or 8.0%, year over year, to $336.4 million for the three and six months ended June 30, 2024, respectively, primarily due to higher volume across all regions.

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

Gross profit for the three months ended March 31, 2024 decreased by $10.4 million, or 20.0%, year over year, to $41.7 million, primarily driven by lower margin and lower cogeneration pricing in Europe, partially offset by higher volume.

Adjusted EBITDA for the three months ended March 31, 2024 decreased by $9.4 million, or 25.2%, year over year, to $27.9 million, primarily due to lower margin and lower cogeneration pricing in Europe, partially offset by higher volume across all regions and end-markets.

Adjusted EBITDA margin for the three months ended March 31, 2024 decreased by 670 basis points, year over year, to 16.3%.

Gross profit decreased by $3.1 million, or 7.3%, year over year, to $39.5 million and decreased by $13.5 million, or 14.3%, year over year, to $81.2 million for the three and six months ended June 30, 2024, respectively, primarily driven by favorable impact from the pass-through of raw material costs in the prior year and lower cogeneration, partially offset by higher volume.

Adjusted EBITDA for the three months ended June 30, 2024 decreased by $1.9 million, or 6.4%, year over year, to $28.0 million.

The decrease was primarily due to favorable impact from the pass-through of raw material costs in the prior year and lower cogeneration, partially offset by higher volume.

Adjusted EBITDA for the six months ended June 30, 2024 decreased by $11.3 million, or 16.8%, year over year, to $55.9 million.

The decrease was primarily due to favorable impact from the pass-through of raw material costs in the prior year and higher fixed costs, partially offset by higher volume.

Adjusted EBITDA margin decreased by 310 basis points, year over year, to 16.9% and decreased by 500 basis points, year over year, to 16.6%, for the three and six ended June 30, 2024, respectively.

Rubber Carbon Black

Net sales for the three months ended March 31, 2024 decreased by $6.7 million, or 2.0%, year over year, to $332.0 million.

The decrease was primarily due to the pass-through effect of declining oil prices, partially offset by higher volume.

Volume for the three months ended March 31, 2024 increased by 4.6 kmt, or 2.5%, year over year, to 185.1 kmt, due to higher demand in Europe/Middle East/Africa and Asia/Pacific regions.

Gross profit for the three months ended March 31, 2024 decreased by $3.8 million, or 4.5%, year over year, to $80.5 million.

The decrease was primarily due to lower margin and lower cogeneration pricing in Europe, partially offset by and higher volume.

Adjusted EBITDA for the three months ended March 31, 2024 decreased by $6.4 million, or 10.0%, year over year, to $57.4 million.

The decrease was primarily driven by favorable timing items in the prior year, North American Rubber volume and lower cogeneration pricing in Europe, partially offset by higher European and Asian volume.

For the three months ended March 31, 2024, Adjusted EBITDA margin decreased 150 basis points to 17.3%, year over year.

Volume decreased by 3.5 kmt, or 2.0%, year over year, to 170.2 kmt, for the three months ended June 30, 2024, primarily due to lower demand in Americas and Asia.

Volume increased by 1.1 kmt, or 0.3%, year over year, to 355.3 kmt, for the six months ended June 30, 2024.

Net sales for the three months ended June 30, 2024 increased by $2.2 million, or 0.7%, year over year, to $311.5 million.

Net sales decreased by $4.5 million, or 0.7%, year over year, to $643.5 million for the six months ended June 30, 2024, primarily due to the pass-through effect of lower raw material costs, partially offset by improved contractual pricing.

Gross profit for the three and six months ended June 30, 2024 decreased by $4.2 million, or 5.6%, year over year, to $70.3 million and decreased by $8.0 million, or 5.0%, year over year, to $150.8 million, respectively.

The decrease was primarily due to lower volume, partially offset by improved contractual pricing.

Adjusted EBITDA decreased by $10.3 million, or 17.9%, year over year, to $47.1 million for the three months ended June 30, 2024.

The decrease was driven primarily by higher fixed costs, favorable impact from the pass-through of raw material costs in the prior year and lower cogeneration, partially offset by higher volume in Europe and improved contractual pricing.

Adjusted EBITDA decreased by $16.7 million, or 13.8%, to $104.5 million six months ended June 30, 2024.

The decrease was driven primarily by higher fixed costs, favorable impact from the pass-through of raw material costs in the prior year, reduced volume in Americas and lower cogeneration, partially offset by higher volume in Europe and improved contractual pricing.

Adjusted EBITDA margin decreased 350 basis points to 15.1%, year over year and decreased 250 basis points to 16.2%, year over year for the three and six months ended June 30, 2024.

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.

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

2 unchanged sentences

Net cash provided by (used in) financing activities 23.5 (120.7)

Net cash provided by operating activities during the three months ended March 31, 2024 was $32.4 million.

Net cash provided by operating activities during the six months ended June 30, 2024 was $61.7 million.

The cash provided by operating activities primarily reflects changes in working capital.

1 unchanged sentence

Accounts Receivable .

Net cash used in investing activities in the three months ended March 31, 2024 amounted to $33.1 million.

The expenditures were primarily related to safety and maintenance investments.

Net cash provided by financing activities during the three months ended March 31, 2024 amounted to $7.0 million.

Net cash used in investing activities in the six months ended June 30, 2024 amounted to $87.8 million.

The expenditures were primarily

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

related to safety, maintenance and growth investments.

Net cash provided by financing activities during the six months ended June 30, 2024 amounted to $23.5 million.

These inflows primarily consisted of $52.7 million related to other short-term debt borrowings, partially offset by $17.7 million, net related to repayment of our ancillary credit facilities.

Net cash provided by operating activities for the three months ended March 31, 2023, amounted to $108.1 million.

Net cash provided by operating activities for the six months ended June 30, 2023, amounted to $206.2 million.

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

1 unchanged sentence

Accounts Receivable .

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

Net cash used in investing activities for the six months ended June 30, 2023, amounted to $69.1 million.

These expenditures were comprised of a combination of safety, maintenance-related and growth investments, as well as $19.4 million of expenditures associated with our, now completed, installation of emissions reduction technology to meet EPA requirements in the U.S.

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

Net cash used in financing activities for 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 financing activities for the six months ended June 30, 2023, amounted to $120.7 million.

These outflows primarily consisted of $62.8 million related to the reduction of other short-term debt, $49.5 million for repurchase of common stock under the Stock Repurchase Program and $12.0 million, net related to repayment of our ancillary credit facilities.

Sources of Liquidity

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We believe our anticipated future operating cash flows, 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, 2024, the company had total liquidity of $261.7 million, including cash and equivalents of $43.9 million, $192.6 million availability under our revolving credit facility, including ancillary lines, and $25.2 million of capacity under other available credit lines.

As of June 30, 2024, the company had total liquidity of $229.2 million, including cash and equivalents of $34.2 million, $157.4 million availability under our revolving credit facility, including ancillary lines, and $37.6 million of capacity under other available credit lines.

Net debt was $803.5 million, and Net leverage was 2.64x.

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(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.

Our Net working capital increased from $344.4 million as of December 31, 2023, to $363.4 million as of March 31, 2024.

The drivers of the changes in working capital over the periods were:

• Accounts receivable, net —Increase driven by higher sales were partially offset by improved payment terms.

• Inventories, net —The primary driver for inventory decreases were lower oil prices.

Our Net working capital increased from $344.4 million as of December 31, 2023, to $370.5 million as of June 30, 2024.

The primary driver of the changes in working capital over the period was due to an increase in Accounts receivable, net.

This increase was primarily driven by higher sales, partially offset by improved payment terms.

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

Capital expenditures (A Non-GAAP Financial Measure)

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Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements.

As of June 30, 2024, we did not have any off-balance sheet arrangements.

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

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

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

• our ability to realize benefits from planned plant capacity expansions and planned and current site development projects, including our conductive additives facility at La Porte, Texas, and the impacts of potential delays to such expansions and development projects;

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

28 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended March 31, 2024 does not differ materially from “ Item 7A” in our Annual Report in Form 10-K for the year ended December 31, 2023.

Information about market risks for the period ended June 30, 2024 does not differ materially from “ Item 7A” in our Annual Report in Form 10-K for the year ended December 31, 2023.

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