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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-01 · 150 added, 161 removed, 164 unchanged (65% 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, 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 nine months ended September 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.

4 unchanged sentences

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, stock-based compensation, and non-recurring items (such as, restructuring expenses, legal settlement gain, etc.) plus Earnings in affiliated companies, net of tax.

These non-GAAP measures include, but are not limited to, Adjusted EBITDA, Net Working Capital and Capital Expenditures.

• Adjusted EBITDA —Income from operations before depreciation and amortization, stock-based compensation, and non-recurring items (such as, restructuring expenses, legal settlement gain, net loss due to assets misappropriation, 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.

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

Reconciliation of Non-GAAP Financial Measures

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 June 30, Six Months Ended June 30,

Operating Results

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

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

2024 2023 Delta 2024 2023 Delta

(In millions) % (In millions) %

(In millions, except volume) % (In millions, except volume) %

Volume (in kmt) 225.2 245.2 (20.0) (8.2) 706.7 706.0 0.7 0.1

Net sales $ 463.4 $ 466.2 $ (2.8) (0.6) $ 1,443.3 $ 1,425.7 $ 17.6 1.2

1 unchanged sentence

Gross profit 107.5 110.2 (2.7) (2.5) 339.5 363.7 (24.2) (6.7)

Volume (in kmt) 233.1 227.3 5.8 2.6 481.5 460.8 20.7 4.5

Gross profit per metric ton $ 471.0 $ 515.2 $ (44.2) (8.6) $ 481.8 $ 550.1 $ (68.3) (12.4)

Reconciliation of Net income to Adjusted EBITDA:

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

Selling, general and administrative expenses 57.9 55.6 2.3 4.1 179.7 168.3 11.4 6.8

Research and development costs 7.0 6.2 0.8 12.9 20.1 18.3 1.8 9.8

Loss due to misappropriation of assets, net 60.7 — 60.7 N/A 60.7 — 60.7 N/A

Other income, net (2.8) 2.7 (5.5) (203.7) (0.1) (1.0) 0.9 (90.0)

Income (loss) from operations (15.3) 45.7 (61.0) (133.5) 79.1 178.1 (99.0) (55.6)

Interest and other financial expense, net 15.9 12.9 3.0 23.3 40.8 41.6 (0.8) (1.9)

Reclassification of actuarial gain from AOCI — (2.2) 2.2 (100.0) — (6.7) 6.7 (100.0)

Income (loss) before earnings in affiliated companies and income taxes (31.2) 35.0 (66.2) (189.1) 38.3 143.2 (104.9) (73.3)

Income tax expense (benefit) (10.8) 8.9 (19.7) (221.3) 11.8 45.0 (33.2) (73.8)

Earnings in affiliated companies, net of tax 0.2 0.1 0.1 100.0 0.5 0.4 0.1 25.0

Net income (loss) (20.2) 26.2 (46.4) (177.1) 27.0 98.6 (71.6) (72.6)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments 3.3 0.3 3.0 1,000.0 (11.4) (12.2) 0.8 (6.6)

Net gains (losses) on derivatives (3.2) 0.9 (4.1) (455.6) (4.9) (1.3) (3.6) 276.9

Defined benefit plans, net — (1.7) 1.7 (100.0) 0.2 (4.6) 4.8 (104.3)

Total other comprehensive (loss) income, net of tax 0.1 (0.5) 0.6 (120.0) (16.1) (18.1) 2.0 (11.0)

Comprehensive income (loss) $ (20.1) $ 25.7 $ (45.8) (178.2) $ 10.9 $ 80.5 $ (69.6) (86.5)

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

Reconciliation of Non-GAAP Financial Measures

The following table presents reconciliation of Net income (loss) to Adjusted EBITDA :

Three Months Ended September 30, Nine Months Ended September 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)

Add back Income tax expense 9.1 17.8 (8.7) (48.9) 22.6 36.1 (13.5) (37.4)

Net income (loss) $ (20.2) $ 26.2 $ (46.4) (177.1) $ 27.0 $ 98.6 $ (71.6) (72.6)

Add back Income tax (benefit) expense (10.8) 8.9 (19.7) (221.3) 11.8 45.0 (33.2) (73.8)

Add back Equity in earnings of affiliated companies, net of tax (0.2) (0.1) (0.1) 100.0 (0.5) (0.4) (0.1) 25.0

Income before earnings in affiliated companies and income taxes 29.4 47.7 (18.3) (38.4) 69.5 108.2 (38.7) (35.8)

Income (loss) before earnings in affiliated companies and income taxes (31.2) 35.0 (66.2) (189.1) 38.3 143.2 (104.9) (73.3)

Add back Interest and other financial expense, net 15.9 12.9 3.0 23.3 40.8 41.6 (0.8) (1.9)

Add back Reclassification of actuarial gain from AOCI — (2.2) 2.2 (100.0) — (6.7) 6.7 (100.0)

Income from operations 41.6 58.9 (17.3) (29.4) 94.4 132.4 (38.0) (28.7)

Income (loss) from operations (15.3) 45.7 (61.0) (133.5) 79.1 178.1 (99.0) (55.6)

Add back Depreciation of property, plant and equipment and amortization of intangible assets and right of use assets 30.8 27.9 2.9 10.4 90.0 80.8 9.2 11.4

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Equity in earnings of affiliated companies, net of tax 0.2 0.1 0.1 100.0 0.5 0.4 0.1 25.0

Loss due to misappropriation of assets, net:

Misappropriation of assets, net 59.2 — 59.2 — 59.2 — 59.2 —

Professional fees related to misappropriation of assets 1.5 — 1.5 — 1.5 — 1.5 —

Long term incentive plan 4.8 3.6 1.2 33.3 11.3 8.3 3.0 36.1

5 unchanged sentences

$ 52.9 $ 51.2 $ 1.7 3.3 $ 157.4 $ 172.4 $ (15.0) (8.7)

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

Operating Results

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

Three Months Ended June 30, Year-Over Year

2024 2023 Delta

(In millions) %

Net sales $ 477.0 $ 458.8 $ 18.2 4.0

Cost of sales 367.2 341.7 25.5 7.5

Gross profit 109.8 117.1 (7.3) (6.2)

Selling, general and administrative expenses 60.3 55.0 5.3 9.6

Research and development costs 6.5 5.9 0.6 10.2

Other (income) expenses, net 1.4 (2.7) 4.1 (151.9)

Income from operations 41.6 58.9 (17.3) (29.4)

Interest and other financial expense, net 12.2 13.5 (1.3) (9.6)

Reclassification of actuarial gain from AOCI — (2.3) 2.3 (100.0)

Income before earnings in affiliated companies and income taxes 29.4 47.7 (18.3) (38.4)

Income tax expense 9.1 17.8 (8.7) (48.9)

Earnings in affiliated companies, net of tax 0.2 0.2 — —

Net income 20.5 30.1 (9.6) (31.9)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments (8.3) (5.2) (3.1) 59.6

Net losses on derivatives (1.2) (0.4) (0.8) 200.0

Defined benefit plans, net 0.1 (1.5) 1.6 (106.7)

Total other comprehensive (loss) income, net of tax (9.4) (7.1) (2.3) 32.4

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

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.

Operating Results Discussion

For the three months ended September 30, 2024 compared to three months ended September 30, 2023

Volume for the three months ended September 30, 2024 decreased in aggregate by 20.0 kmt to 225.2 kmt, year over year, due to lower volume in the Americas and Asia Pacific (“APAC”) regions, those were partially offset by higher volumes in Europe, the Middle East, and African region.

Net sales for the three months ended September 30, 2024 decreased by $2.8 million, or 0.6%, to $463.4 million, year over year, primarily driven by lower volume, partially offset by the favorable pass-through effect of oil prices.

Cost of sales

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.

Cost of sales for the three months ended September 30, 2024 decreased by $0.1 million year over year.

Gross profit for the three months ended September 30, 2024 decreased by $2.7 million, or 2.5%, to $107.5 million, year over year.

The decrease was driven primarily by higher fixed costs.

Selling, general and administrative expenses

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 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

Selling, general and administrative expenses for the three months ended September 30, 2024 increased by $2.3 million, or 4.1% to $57.9 million, year over year, driven by higher personnel costs.

Loss due to misappropriation of assets, net

During the third quarter of 2024, we were the target of a criminal scheme that resulted in multiple fraudulently induced outbound wire transfers to accounts controlled by unknown third parties aggregating to $59.2 million.

In addition, we incurred $1.5 million of professional

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

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.

fees in connection with our investigations.

For more information, refer to Note J.

Commitments and Contingencies to the Condensed Consolidated Financial Statements.

Provision for income taxes

For the three months ended September 30, 2024, the Company recognized Loss before earnings in affiliated companies and income taxes of $31.2 million, compared to Income before earnings in affiliated companies and income taxes of $35.0 million for the three months ended September 30, 2023.

The income tax benefit for the three months ended September 30, 2024 was $10.8 million compared to income tax expense of $8.9 million for the three months ended September 30, 2023.

The effective tax rate for the three months ended September 30, 2024, and 2023 was 34.6% and 25.4%, respectively.

The increase in effective tax rate for three months ended September 30, 2024, as compared to the three months ended September 30, 2023, was primarily attributable to changes in projected pre-tax income mix in countries with varying statutory tax rates.

The 2024 effective tax rate was impacted by $18.2 million of tax benefit related to Loss due to misappropriation of assets, net.

For further discussion refer to Note J.

Commitments and Contingencies to the Condensed Consolidated Financial Statements.

Adjusted EBITDA (A Non-GAAP Financial Measure)

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.

Adjusted EBITDA increased in the third quarter of 2024 by $2.8 million, or 3.6%, to $80.1 million, year over year.

The increase was driven by favorable pricing, partially offset by higher fixed costs and lower cogeneration.

Comprehensive Income

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 $9.6 million in the second quarter of 2024 compared to the second quarter of 2023.

Comprehensive income (loss) decreased in the third quarter of 2024 by $45.8 million to $20.1 million, year over year.

The components of Comprehensive income (loss) are discussed below:

Net income (loss) decreased by $46.4 million in the third quarter of 2024 compared to the third 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.

• $3.0 million of net favorable impact due to change in foreign currency translation adjustments and

• $1.7 million of net favorable impact related to changes in defined pension and other post-retirement benefits, partially offset by,

• $4.1 million of net unfavorable impact related to financial derivative instruments primarily driven by net periodic changes in cross currency swaps.

For the nine months ended September 30, 2024 compared to nine months ended September 30, 2023

Volume increased marginally by 0.7 kmt to 706.7 kmt compared to the nine months ended September 30, 2023, primarily due to higher Specialty Carbon Black segment volume, partially offset by lower Rubber Carbon Black segment volume.

Net sales increased by $17.6 million, or 1.2%, in the nine months ended September 30, 2024 to $1,443.3 million, year over year, primarily driven by broad-based recovery in Specialty Carbon Black segment across all regions and Rubber Carbon Black price improvements, partially offset by unfavorable foreign currency translation impact and lower Rubber Carbon Black segment volume.

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.

Cost of sales increased by $41.8 million, or 3.9%, to $1,103.8 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to higher Specialty Carbon Black segment volume, its associated costs and higher fixed costs.

Gross profit decreased by $24.2 million, or 6.7%, to $339.5 million, year over year.

The decrease was primarily driven by higher fixed costs, unfavorable impact from pass-through of raw material costs 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

Selling, general and administrative expenses increased by $11.4 million, or 6.8%, to $179.7 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by higher freight and personnel costs.

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

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

Loss due to misappropriation of assets, net

In addition, we incurred $1.5 million of professional fees in connection with our investigations.

For more information, refer to Note J.

Commitments and Contingencies to the Condensed Consolidated Financial Statements.

Provision for income taxes

For the nine months ended September 30, 2024, the Company recognized Income before earnings in affiliated companies and income taxes of $38.3 million, compared to $143.2 million in the nine months ended September 30, 2023.

The provision for income taxes was an expense of $11.8 million and $45.0 million for the nine months ended September 30, 2024 and September 30, 2023, respectively.

The effective tax rate for the nine months ended September 30, 2024, was 30.8%, as compared to 31.4% for the nine months ended September 30, 2023.

The decrease in our effective tax rate for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily attributable to changes in projected pre-tax income mix in countries with varying statutory tax rates.

The 2024 effective tax rate was impacted by $18.2 million of tax benefit related to Loss due to misappropriation of assets, net.

For further discussion refer to Note J.

Commitments and Contingencies to the Condensed Consolidated Financial Statements.

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.

Adjusted EBITDA decreased by $25.2 million, or 9.5%, from $265.7 million in the nine months ended September 30, 2023 to $240.5 million in the nine months ended September 30, 2024.

The decrease was primarily due to higher fixed costs, lower Rubber Carbon Black segment volume and lower cogeneration.

Those were partially offset by higher volume in Specialty Carbon Black segment.

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.

Comprehensive income decreased by $69.6 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Net income decreased by $71.6 million in the nine months ended September 30, 2024 compared to the nine months ended September 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.

• $0.8 million of net favorable impact due to foreign currency translation adjustments and

• $4.8 million of net favorable changes related to defined pension and other post-retirement benefits, partially offset by

• $3.6 million of net unfavorable impacts related to financial derivative instruments primarily driven by net periodic changes in cross currency and interest rate swaps.

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

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 June 30, Six Months Ended June 30,

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

2024 2023 Delta 2024 2023 Delta

(In millions) % (In millions) %

% (In millions, except volume) %

Specialty Carbon Black

4 unchanged sentences

Adjusted EBITDA $ 27.2 $ 26.1 $ 1.1 4.2 $ 83.1 $ 93.3 $ (10.2) (10.9)

Adjusted EBITDA margin (%) 16.9 20.0 (3.1) (15.5) 16.6 21.6 (5.0) (23.1)

Rubber Carbon Black

4 unchanged sentences

Adjusted EBITDA $ 52.9 $ 51.2 $ 1.7 3.3 $ 157.4 $ 172.4 $ (15.0) (8.7)

Adjusted EBITDA margin (%) 15.1 18.6 (3.5) (18.8) 16.2 18.7 (2.5) (13.4)

Specialty Carbon Black

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 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.

Volume decreased marginally by 0.2 kmt, or 0.3%, year over year, to 59.7 kmt for the three months ended September 30, 2024.

Volume increased by 19.4 kmt, or 11.7% year over year, to 185.9 kmt for the nine months ended September 30, 2024, primarily due to demand recovery across all regions and end markets.

Net sales increased by $12.1 million, or 8.0%, year over year, to $162.5 million for the three months ended September 30, 2024, primarily due to improved product mix in key applications, partially offset by lower volume.

Net sales increased by $37.0 million, or 8.0%, year over year, to $498.9 million for the nine months ended September 30, 2024, primarily due to higher volume across all regions.

Gross profit decreased by $2.0 million, or 5.2%, year over year, to $36.6 million for the three months ended September 30, 2024, primarily driven by lower cogeneration and higher fixed costs.

Gross profit decreased by $15.5 million, or 11.6%, year over year, to $117.8 million for the nine months ended September 30, 2024, primarily driven by higher fixed costs and lower cogeneration, partially offset by higher volume.

Adjusted EBITDA for the three months ended September 30, 2024 increased by $1.1 million, or 4.2%, year over year, to $27.2 million.

The increase was primarily due to improved product mix in key applications, partially offset by higher fixed cost and lower cogeneration.

Adjusted EBITDA for the nine months ended September 30, 2024 decreased by $10.2 million, or 10.9%, year over year, to $83.1 million.

The decrease was primarily due to higher fixed costs and lower cogeneration.

Those were partially offset by higher volume.

Rubber Carbon Black

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.

Volume decreased by 19.8 kmt, or 10.7%, year over year, to 165.5 kmt, and decreased by 18.7 kmt, or 3.5%, year over year, to 520.8 kmt, for the three and nine months ended September 30, 2024, respectively, primarily due to lower demand in the Americas and APAC regions.

Net sales decreased by $14.9 million, or 4.7%, year over year, to $300.9 million, and decreased by $19.4 million, or 2.0%, year over year, to $944.4 million for the three and nine months ended September 30, 2024, respectively, primarily due to lower volume, partially offset by favorable price.

Gross profit for the three and nine months ended September 30, 2024 decreased by $0.7 million, or 1.0%, year over year, to $70.9 million and decreased by $8.7 million, or 3.8%, year over year, to $221.7 million, respectively.

The decrease was primarily due to lower volume and cogeneration, partially offset by favorable price.

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

Adjusted EBITDA increased by $1.7 million, or 3.3%, year over year, to $52.9 million for the three months ended September 30, 2024, driven primarily by favorable price, partially offset by lower volume.

Adjusted EBITDA decreased by $15.0 million, or 8.7%, to $157.4 million and nine months ended September 30, 2024 driven primarily by lower demand in Americas and APAC regions, lower cogeneration and higher fixed costs.

Those were partially offset by favorable price.

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,

(In millions)

Nine Months Ended September 30,

(In millions, except volume)

Net cash provided by operating activities $ 30.8 $ 273.7

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Net cash provided by (used in) financing activities 119.3 (164.9)

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.

Net cash provided by operating activities during the nine months ended September 30, 2024 was $30.8 million.

The cash provided by operating activities primarily reflects changes in working capital, $59.2 million Loss due to misappropriation of assets, net and professional fees of $1.5 million.

Change in working capital includes $323.1 million sale of certain accounts receivables, discussed in Note B.

Accounts Receivable .

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 six months ended June 30, 2023, amounted to $206.2 million.

Accounts Receivable to the Condensed Consolidated Financial Statements.

Net cash used in investing activities in the nine months ended September 30, 2024 amounted to $135.7 million.

The expenditures were primarily related to safety, maintenance and growth investments.

Net cash provided by financing activities during the nine months ended September 30, 2024 amounted to $119.3 million.

These inflows primarily consisted of $68.7 million related to other short-term debt borrowings and $75.1 million, net borrowings under our ancillary credit facilities.

Those were partially offset by scheduled debt repayments, dividend distributions and stock buybacks.

Net cash provided by operating activities for the nine months ended September 30, 2023, amounted to $273.7 million.

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

Change in working capital includes $300.4 million sale of certain accounts receivables, discussed in Note B.

Accounts Receivable .

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.

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

Accounts Receivable to the Condensed Consolidated Financial Statements.

Net cash used in investing activities for the nine months ended September 30, 2023, amounted to $111.0 million.

These expenditures were composed of a combination of safety, maintenance-related and growth investments, as well as $26.5 million of expenditures associated with our, now completed, installation of emissions reduction technology to meet EPA requirements in the U.S.

Net cash used in financing activities for the nine months ended September 30, 2023, amounted to $164.9 million.

These outflows primarily consisted of $88.7 million related to the reduction of other short-term debt, $58.9 million for repurchase of common stock under the Stock Repurchase Program and $23.7 million, net related to repayment of our ancillary credit facilities.

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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 revolving credit facility (the “RCF”) and related ancillary facilities, various uncommitted local credit lines, and, from time to time, term loan borrowings and Accounts receivable factoring.

During the third quarter of 2024, we were target of a criminal scheme that resulted in multiple fraudulently induced outbound wire transfers to accounts controlled by unknown third parties aggregating to $59.2 million.

The business and operations of the Company were not affected.

However, our Net leverage was negatively impacted.

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 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.

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

As of September 30, 2024, the company had total liquidity of $209.4 million, including cash and equivalents of $53.2 million, $116.6 million availability under our revolving credit facility, including ancillary lines, and $39.6 million of capacity under other available credit lines.

Net working capital (A Non-GAAP Financial Measure)

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

June 30, 2024 December 31, 2023

(In millions)

September 30, 2024 December 31, 2023

(In millions, except volume)

Accounts receivable, net $ 267.9 $ 241.0

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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 $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

Our Net working capital increased from $344.4 million as of December 31, 2023, to $399.9 million as of September 30, 2024.

The primary working capital change drivers, year over year, were as follows:

• Inventories, net —Increase in production to meet forecasted demand resulted in increased raw material and finished goods inventory;

• Accounts receivable, net —This increase was primarily driven by higher sales, partially offset by factoring of certain accounts receivables.

Refer Note B.

Accounts Receivable for discussion.

Those increases were partially offset by:

• Accounts payable —Decrease in accounts payable was primarily due to timing of payments, partially offset by higher production.

Capital expenditures (A Non-GAAP Financial Measure)

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Off-Balance Sheet Arrangements

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

As of September 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 expectation that the markets we serve will continue to demand our products;

• our internal controls over financial reporting, including the remediation of a material weakness;

• loss due to misappropriation of assets and potential recoveries of such loss.

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

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Quantitative and Qualitative Disclosures About Market Risk

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.

Information about market risks for the period ended September 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