This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is based on financial data derived from the financial
statements prepared in accordance with US GAAP and certain other financial data
that is prepared using non-GAAP financial measures. For a reconciliation of each
non-GAAP financial measure to its most comparable GAAP measure, see "Analysis of
Segment Results" within this Item and "Note 14: Segments" to our condensed
consolidated financial statements in Item 1 of this Quarterly Report on Form
10-Q. Refer to "Non-GAAP Financial Measures" within this Item for more
information about our use of non-GAAP financial measures.
Our MD&A is provided in addition to the accompanying condensed consolidated
financial statements and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. The MD&A should be read in
conjunction with both the unaudited consolidated financial information and
related notes included in this Form 10-Q and the MD&A included in our Annual
Report on Form 10-K for the year ended December 31, 2022 .
Overview
Univar Solutions Inc. is a leading global solutions provider to users of specialty ingredients and chemicals and provider of value-added services to customers across a wide range of diverse industries. We purchase chemicals and ingredients from thousands of producers worldwide and warehouse, repackage, blend, dilute, transport, and sell them to nearly 100,000 customer locations across approximately 120 countries. Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. These segments areUSA , EMEA,Canada , and LATAM, which includes developing businesses inLatin America and theAsia-Pacific region .
Proposed merger
OnMarch 13, 2023 , we entered into the Merger Agreement with Parent and Merger Sub. See "Note 1: Basis of presentation" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Factors affecting the comparability of results
acquisitions
Turned on
Turned on
See “Note 2: Business Combinations” in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the above-mentioned acquisitions.
Constant currency
We believe providing information on a non-GAAP constant currency basis offers valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. Currency impacts on consolidated and segment results have been derived by translating current period financial results in local currency using the average exchange rate for the prior period to which the financial information is being compared.
Inflation reduction law
OnAugust 16, 2022 , the Inflation Reduction Act ("IRA") was enacted into US law. Effective for tax years beginning afterDecember 31, 2022 , the IRA imposes a 15% corporate minimum tax, a 1% excise tax on share repurchases, and creates and extends certain tax-related energy incentives. The tax-related provisions of the IRA do not have a material impact on the Company's consolidated financial statements.
Market conditions
We market and sell commodity and specialty chemicals and ingredients that are
used in manufacturing processes and as components in the production of other
products. Our sales are correlated with and affected by seasonal fluctuations
and cycles in the levels of industrial production, manufacturing output, and
general economic activity. The current business environment in the markets in
which we operate consists of complex dynamics that can change rapidly. Over the
last several years, a combination of factors has impacted and disrupted global
trade flows, which has resulted in dynamic and inflationary pricing conditions,
in various end markets and geographies.
Starting in late 2022, we began to see an abatement of significant disruption
within supply chains, as well as monetary policy changes designed to increase
the cost of capital and rein in inflation. These changes have put downward
pressure on demand as customers throughout the value chain reduce inventory
positions in favor of larger cash positions. Despite the downward
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Index of demand pressure, we continue to see strength in one of our core value propositions, which is to de-risk our customers’ and suppliers’ supply chains.
In such a dynamic environment, we are focused on connectivity with our customers and supply base to better understand demand and supply impacts on their operations. We believe our value as a distributor has grown over the past several years as we have demonstrated reliability, consistency, and security of supply. We work to meet demand requirements through our extensive network, installed asset base, transportation and digital assets, and supplier partnerships, supported by our network of Solution Centers and technically-trained professionals with deep industry knowledge.
A summary of our sales channel and underlying end market performance from
Chemicals and Services (67%) - Within our Chemicals and Services sales channel, we continue to see resilient growth in inorganic chemistries as well as ourEnergy and Mining markets. We have a focus on expanding our role in Municipal and Industrial Water treatment, with a wide array of chemistries and services designed to help manage and purify water. In our core chemical distribution, we are seeing lower demand in product sales; however, cost and pricing remains higher as the prior period inflation is entrenched in the supply chain. We are seeing pockets of increased demand in select end markets tied to electric vehicle and green energy production. Ingredients and Specialties (33%) - Our Ingredients and Specialties sales channel has experienced the impacts of a decline in consumer demand, particularly within Coatings, Adhesives, Sealants, and Elastomers and Personal Care, as customers react to lower demand, a need to destock existing inventories, and some deflationary pressures. We are encouraged by our Pharma and Lubricants businesses as we drive ongoing business activity with the support of our formulations lab and technically focused sales strategy. In Food, we are seeing the benefits of our specialty ingredients focus, despite the volatility in certain pricing categories. In Household and Industrial Cleaning, we are beginning to see the return of the automotive care industry as pricing normalization returns. 22
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Results of Operations
Three months ended March 31, Favorable
(in millions) 2023 2022 (unfavorable) % Change
Net sales $ 2,684.9 $ 2,882.6 $ (197.7) (6.9) %
Cost of goods sold (exclusive of depreciation) 2,045.6 2,153.1 107.5 (5.0) %
Operating expenses:
Outbound freight and handling 117.4 115.9 (1.5) 1.3 %
Warehousing, selling, and administrative 306.5 294.3 (12.2) 4.1 %
Other operating expenses, net 25.4 15.7 (9.7) 61.8 %
Depreciation 32.4 32.9 0.5 (1.5) %
Amortization 11.2 11.8 0.6 (5.1) %
Impairment charges 0.2 - (0.2) N/M
Total operating expenses 493.1 470.6 (22.5) 4.8 %
Operating income 146.2 258.9 (112.7) (43.5) %
Other expense:
Interest income 1.8 1.1 0.7 63.6 %
Interest expense (33.2) (22.2) (11.0) 49.5 %
Other (expense) income, net (6.4) 7.7 (14.1) (183.1) %
Total other expense (37.8) (13.4) (24.4) 182.1 %
Income before income taxes 108.4 245.5 (137.1) (55.8) %
Income tax expense 25.3 64.7 39.4 (60.9) %
Net income $ 83.1 $ 180.8 $ (97.7) (54.0) %
Three months ended March
31, Favorable
(in millions) 2023 (unfavorable) % Change 2022
Gross profit (exclusive of depreciation):
Net sales $ 2,684.9 $ 2,882.6 $ (197.7) (6.9) %
Cost of goods sold (exclusive of
depreciation) 2,045.6 2,153.1 107.5 (5.0) %
Gross profit (exclusive of depreciation) $ 639.3 $ 729.5 $ (90.2) (12.4) %
Net sales
Net sales decreased
Gross profit (excluding depreciation)
Gross profit (exclusive of depreciation) decreased$90.2 million , or 12.4%, to$639.3 million for the three months endedMarch 31, 2023 . On a constant currency basis, gross profit (exclusive of depreciation) decreased$81.3 million , or 11.1%. The decrease in gross profit (exclusive of depreciation) was primarily attributable to lower demand and higher input cost inflation, partially offset by pricing discipline. Refer to the "Analysis of Segment Results" and "Non-GAAP Financial Measures" for additional information.
Operating expenses
Output loading and handling
Outbound loading and handling charges increased
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Storage, sale and administration
Warehousing, selling, and administrative expenses ("WS&A") increased $12.2
million , or 4.1%, for the three months ended March 31, 2023 . On a constant
currency basis, WS&A increased $15.6 million , or 5.3%, primarily attributable to
an environmental remediation recovery in the prior year and higher operating
costs, partially offset by lower variable compensation. Refer to the "Analysis
of Segment Results" for additional information.
Other operating expenses, net
Other operating expenses, net increased$9.7 million for the three months endedMarch 31, 2023 . Refer to "Note 5: Supplemental financial information" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Depreciation and amortization
Depreciation expense decreased$0.5 million , or 1.5%, for the three months endedMarch 31, 2023 . On a constant currency basis, depreciation expense decreased$0.1 million , or 0.3%. Amortization expense decreased$0.6 million , or 5.1%, for the three months endedMarch 31, 2023 , primarily due to certain intangible assets reaching the end of their amortizable lives. Other expense Interest expense Interest expense increased$11.0 million , or 49.5%, for the three months endedMarch 31, 2023 , primarily due to higher average interest rates on floating rate debt. Refer to "Note 7: Debt" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Other income (expenses), net
Other (expense) income, net changed$14.1 million , or 183.1%, from income of$7.7 million for the three months endedMarch 31, 2022 to expense of$6.4 million for the three months endedMarch 31, 2023 . Refer to "Note 5: Supplemental financial information" in Item 1 of this Quarterly Report on Form 10-Q for additional information.
Income tax expense
Income tax expense was$25.3 million for the three months endedMarch 31, 2023 , resulting in an effective income tax rate of 23.3%. Income tax expense was$64.7 million for the three months endedMarch 31, 2022 , resulting in an effective income tax rate of 26.4%. Our 2023 and 2022 effective income tax rates were higher than the US federal statutory rate of 21.0%, primarily due to higher rates on foreign earnings, US tax on foreign earnings, US state income taxes, and non-deductible employee costs. 24
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Results of reportable business segments
Our operations are structured into four reportable segments that represent the geographic areas under which we operate and manage our business. These segments areUSA , EMEA,Canada , and LATAM, which includes developing businesses inLatin America and theAsia-Pacific region . Management believes Adjusted EBITDA is an important measure of operating performance, which is used as the primary basis for the chief operating decision maker to evaluate the performance of each of our reportable segments. We believe certain other financial measures that are not calculated in accordance with US GAAP provide relevant and meaningful information concerning our ongoing operating results. These financial measures include gross profit (exclusive of depreciation), gross margin, and Adjusted EBITDA margin. Such non-GAAP financial measures are referred to from time to time in this report, but should not be viewed as a substitute for GAAP measures of performance and should be considered along with the comparable US GAAP measures. See "Note 14: Segments" in Item 1 of this Quarterly Report on Form 10-Q, "Analysis of Segment Results" within this Item, and "Non-GAAP Financial Measures" within this Item for additional information. Analysis of Segment ResultsUSA Three months ended March 31, Favorable (in millions) 2023 2022 (unfavorable) % Change Net sales: External customers$ 1,729.2 $ 1,843.2 $ (114.0) (6.2) % Inter-segment 26.5 28.5 (2.0) (7.0) % Total net sales 1,755.7 1,871.7 (116.0) (6.2) % Cost of goods sold (exclusive of depreciation) 1,332.6 1,398.8 66.2 (4.7) % Outbound freight and handling 87.9 85.8 (2.1) 2.4 % Warehousing, selling, and administrative 189.4 177.9 (11.5) 6.5 % Adjusted EBITDA $ 145.8$ 209.2 $ (63.4) (30.3) % Three months ended March 31, Favorable (in millions) 2023 2022 (unfavorable) % Change Gross profit (exclusive of depreciation): Net sales$ 1,755.7 $ 1,871.7 $ (116.0) (6.2) % Cost of goods sold (exclusive of depreciation) 1,332.6 1,398.8 66.2 (4.7) %
Gross profit (excluding depreciation) $423.1
(10.5) %
External sales decreased
Gross profit (exclusive of depreciation) decreased$49.8 million , or 10.5%, for the three months endedMarch 31, 2023 , primarily attributable to lower demand and higher input cost inflation, partially offset by pricing discipline. Gross margin decreased from 25.7% for the three months endedMarch 31, 2022 to 24.5% for the three months endedMarch 31, 2023 , primarily impacted by input cost inflation, partially offset by pricing discipline. Outbound freight and handling expenses increased$2.1 million , or 2.4%, for the three months endedMarch 31, 2023 , primarily due to higher delivery costs caused by inflation, partially offset by lower volume. WS&A increased$11.5 million , or 6.5%, for the three months endedMarch 31, 2023 , primarily attributable to an environmental remediation recovery in the prior year and higher operating costs, partially offset by lower variable compensation. As a percentage of external sales, WS&A increased from 9.7% for the three months endedMarch 31, 2022 to 11.0% for the three months endedMarch 31, 2023 primarily due to the decrease in sales and an environmental remediation recovery in the prior year. Adjusted EBITDA decreased$63.4 million , or 30.3%, for the three months endedMarch 31, 2023 , primarily driven by lower gross profit (exclusive of depreciation) and higher WS&A. Adjusted EBITDA margin decreased from 11.3% in the three months endedMarch 31, 2022 to 8.4% for the three months endedMarch 31, 2023 , primarily due to lower gross margin. 25
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EMEA
Three months ended March 31, Favorable
(in millions) 2023 2022 (unfavorable) % Change
Net sales:
External customers $ 514.1 $ 562.2 $ (48.1) (8.6) %
Inter-segment 0.6 0.7 (0.1) (14.3) %
Total net sales 514.7 562.9 (48.2) (8.6) %
Cost of goods sold (exclusive of depreciation) 396.1 421.3 25.2 (6.0) %
Outbound freight and handling 16.6 17.0 0.4 (2.4) %
Warehousing, selling, and administrative 57.7 60.8 3.1 (5.1) %
Adjusted EBITDA $ 44.3 $ 63.8 $ (19.5) (30.6) %
Three months ended March 31, Favorable
(in millions) 2023 2022 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 514.7 $ 562.9 $ (48.2) (8.6) %
Cost of goods sold (exclusive of depreciation) 396.1 421.3 25.2 (6.0) %
Gross profit (excluding depreciation)
$ (23.0) (16.2) % External sales decreased$48.1 million , or 8.6%, for the three months endedMarch 31, 2023 . On a constant currency basis, external sales decreased$17.6 million , or 3.1%, primarily due to lower demand, partially offset by pricing discipline. Gross profit (exclusive of depreciation) decreased$23.0 million , or 16.2%, for the three months endedMarch 31, 2023 . On a constant currency basis, gross profit (exclusive of depreciation) decreased$16.5 million , or 11.7%, primarily due to lower demand and higher input cost inflation. Gross margin decreased from 25.2% for the three months endedMarch 31, 2022 to 23.1% for the three months endedMarch 31, 2023 , primarily impacted by input cost inflation, partially offset by pricing discipline. Outbound freight and handling expenses decreased$0.4 million , or 2.4%, for the three months endedMarch 31, 2023 . On a constant currency basis, outbound freight and handling expenses increased$0.4 million , or 2.4%, primarily due to higher delivery costs caused by inflation. WS&A decreased$3.1 million , or 5.1%, for the three months endedMarch 31, 2023 . On a constant currency basis, WS&A decreased$0.5 million , or 0.8%, primarily due to lower variable compensation, partially offset by higher operating expenses. As a percentage of external sales, WS&A increased from 10.8% for the three months endedMarch 31, 2022 to 11.2% for the three months endedMarch 31, 2023 primarily due to the decrease in sales. Adjusted EBITDA decreased$19.5 million , or 30.6%, for the three months endedMarch 31, 2023 . On a constant currency basis, Adjusted EBITDA decreased$16.4 million , or 25.7%, primarily due to lower gross profit (exclusive of depreciation). Adjusted EBITDA margin decreased from 11.3% for the three months endedMarch 31, 2022 to 8.6% for the three months endedMarch 31, 2023 , primarily due to lower gross margin. 26
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Table of ContentsCanada Three months ended March 31, Favorable (in millions) 2023 2022 (unfavorable) % Change Net sales: External customers$ 274.2 $ 293.4 $ (19.2) (6.5) % Inter-segment 1.6 1.8 (0.2) (11.1) % Total net sales 275.8 295.2 (19.4) (6.6) % Cost of goods sold (exclusive of depreciation) 212.3 220.7 8.4 (3.8) % Outbound freight and handling 9.7 9.9 0.2 (2.0) % Warehousing, selling, and administrative 28.4 27.9 (0.5) 1.8 % Adjusted EBITDA$ 25.4 $ 36.7 $ (11.3) (30.8) % Three months ended March 31, Favorable (in millions) 2023 2022 (unfavorable) % Change Gross profit (exclusive of depreciation): Net sales$ 275.8 $ 295.2 $ (19.4) (6.6) % Cost of goods sold (exclusive of depreciation) 212.3 220.7 8.4 (3.8) %
Gross profit (excluding depreciation)
$ (11.0) (14.8) %
External sales decreased
Gross profit (exclusive of depreciation) decreased$11.0 million , or 14.8%, for the three months endedMarch 31, 2023 . On a constant currency basis, gross profit (exclusive of depreciation) decreased$6.7 million , or 9.0%, primarily attributable to lower demand and higher input cost inflation, partially offset by pricing discipline. Gross margin decreased from 25.4% for the three months endedMarch 31, 2022 to 23.2% for the three months endedMarch 31, 2023 , primarily impacted by input cost inflation, partially offset by pricing discipline. Outbound freight and handling expenses decreased$0.2 million , or 2.0%, for the three months endedMarch 31, 2023 . On a constant currency basis, outbound freight and handling expenses increased$0.4 million , or 4.0%, primarily due to higher delivery costs caused by inflation. WS&A increased$0.5 million , or 1.8%, for the three months endedMarch 31, 2023 . On a constant currency basis, WS&A increased by$2.4 million , or 8.6%, primarily due to higher operating costs, partially offset by lower variable compensation. As a percentage of external sales, WS&A increased from 9.5% for the three months endedMarch 31, 2022 to 10.4% for the three months endedMarch 31, 2023 , primarily due to the decrease in sales. Adjusted EBITDA decreased$11.3 million , or 30.8%, for the three months endedMarch 31, 2023 . On a constant currency basis, Adjusted EBITDA decreased$9.5 million , or 25.9%, primarily due to lower gross profit (exclusive of depreciation) and increased WS&A. Adjusted EBITDA margin decreased from 12.5% for the three months endedMarch 31, 2022 to 9.3% for the three months endedMarch 31, 2023 , primarily due to lower gross margin. 27
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LATAM
Three months ended March 31, Favorable
(in millions) 2023 2022 (unfavorable) % Change
Net sales:
External customers $ 167.4 $ 183.8 $ (16.4) (8.9) %
Total net sales 167.4 183.8 (16.4) (8.9) %
Cost of goods sold (exclusive of depreciation) 133.3 143.3 10.0 (7.0) %
Outbound freight and handling 3.2 3.2 - - %
Warehousing, selling, and administrative 21.0 21.1 0.1 (0.5) %
Adjusted EBITDA $ 9.9 $ 16.2 $ (6.3) (38.9) %
Three months ended March 31, Favorable
(in millions) 2023 2022 (unfavorable) % Change
Gross profit (exclusive of depreciation):
Net sales $ 167.4 $ 183.8 $ (16.4) (8.9) %
Cost of goods sold (exclusive of depreciation) 133.3 143.3 10.0 (7.0) %
Gross profit (excluding depreciation)
$ (6.4) (15.8) % External sales decreased$16.4 million , or 8.9%, for the three months endedMarch 31, 2023 . On a constant currency basis, external net sales decreased$26.0 million , or 14.1%, primarily due to lower demand, partially offset by pricing discipline. Gross profit (exclusive of depreciation) decreased$6.4 million , or 15.8%, for the three months endedMarch 31, 2023 . On a constant currency basis, gross profit (exclusive of depreciation) decreased$8.3 million , or 20.5%, primarily due to lower demand and input cost inflation, partially offset by pricing discipline. Gross margin decreased from 22.0% for the three months endedMarch 31, 2022 to 20.4% for the three months endedMarch 31, 2023 , primarily impacted by input cost inflation, partially offset by pricing discipline.
Outbound transportation and handling expenses remained stable for the three months ended
WS&A decreased$0.1 million , or 0.5%, for the three months endedMarch 31, 2023 . On a constant currency basis, WS&A decreased$1.2 million , or 5.7%, primarily due to corporate allocations and operating costs, partially offset by higher compensation costs. As a percentage of external sales, WS&A increased from 11.5% for the three months endedMarch 31, 2022 to 12.5% for the three months endedMarch 31, 2023 , primarily due to the decrease in sales. Adjusted EBITDA decreased$6.3 million , or 38.9%, for the three months endedMarch 31, 2023 . On a constant currency basis, Adjusted EBITDA decreased$6.9 million , or 42.6%, primarily due to lower gross profit (exclusive of depreciation). Adjusted EBITDA margin decreased from 8.8% for the three months endedMarch 31, 2022 to 5.9% for the three months endedMarch 31, 2023 , primarily due to lower gross margin. 28
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Liquidity and capital resources
The Company's primary sources of liquidity are cash generated from operations and borrowings under its committed Senior ABL Credit Facility. As ofMarch 31, 2023 , liquidity for the Company was$1,147.6 million , comprised of$377.7 million of cash and cash equivalents and$769.9 million of available borrowings under our credit facility. The credit facility is guaranteed by certain significant subsidiaries and secured by such parties' eligible accounts receivable, inventory, and cash with a maximum borrowing capacity of$1.6 billion . Significant reductions in our accounts receivable, inventory, and cash would reduce our availability to access liquidity under the credit facility. We have no active financial maintenance covenants in our credit agreements; however, there is a springing fixed charge coverage ratio ("FCCR") under the revolving credit facility of 1.0x, applicable only if availability is less than or equal to 10% of the borrowing capacity. If the FCCR was applicable, the calculation would have been 5.0x as ofMarch 31, 2023 . Our primary short-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, other liabilities including environmental remediation and interest, possible business acquisitions, share repurchases, and general corporate purposes. The majority of our debt obligations mature in 2026 and beyond. To the extent that our cash balances from time to time exceed amounts that are needed to fund our immediate liquidity requirements, we will consider alternative uses of some or all of such excess cash. Such alternatives may include, among others, the redemption or repurchase of debt securities or other borrowings through open market purchases, privately negotiated transactions, or otherwise. Refer to "Note 7: Debt" in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our debt obligations. Management continues to balance its focus on sales and earnings growth with continuing efforts in cost control and working capital management. Access to debt capital markets has historically provided the Company with sources of liquidity beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future with our history of favorable results in the debt capital markets and strong relationships with global financial institutions. However, our ability to continue to access the debt capital markets with favorable interest rates and other terms will depend, to a significant degree, on maintaining our current ratings assigned by the credit rating agencies. We may from time to time refinance or take steps to reduce debt or interest costs. The amount of debt, if any, that may be reduced or refinanced will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations. We expect our 2023 capital expenditures to be approximately$155 million to$165 million for maintenance and growth, including safety, cost improvements, and ESG investments. Interest payments for 2023 are expected to be approximately$120 million to$130 million . We expect to fund our capital expenditures and interest payments with cash from operations or cash on hand. We believe funds provided by our primary sources of liquidity will be adequate to meet our liquidity, debt repayment obligation, and capital resource needs for at least the next 12 months under current operating conditions.
Cash flows
The following table presents a summary of our cash flows:
Three months ended March 31 ,
(in millions) 2023
2022
Net cash used by operating activities$ (2.9) $ (134.4) Net cash used by investing activities (51.4)
(34.5)
Net cash provided by financing activities 38.9 170.8 Operating Activities Cash used by operating activities decreased$131.5 million for the three months endedMarch 31, 2023 . The decrease was primarily due to the timing of changes in trade working capital, partially offset by lower net income, exclusive of non-cash items, and the other, net cash flow item. Cash used by trade working capital, which includes trade accounts receivable, net, inventories, and trade accounts payable, decreased$263.5 million for the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 . The year-over-year decrease in cash used by trade working capital was due to a favorable change in trade accounts receivable, net related to the timing of sales and cash collections and a favorable change in inventories related to the timing of purchases, partially offset by an increase in cash used by trade accounts payable primarily attributable to the timing of payments. 29
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The change in net income, exclusive of non-cash items, decreased$121.4 million from$261.6 million for the three months endedMarch 31, 2022 to$140.2 million for the three months endedMarch 31, 2023 . Cash used by other, net increased$48.8 million for the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 , primarily attributable to accrued compensation and timing differences related to other assets and liabilities.
Investment activities
Investing cash flows for the three months endedMarch 31, 2023 included capital expenditures of$39.1 million , cash paid for theChemSol Group acquisition of$18.0 million , and proceeds of$5.8 million from the sale of property, plant, and equipment. Investing cash flows for the three months endedMarch 31, 2022 included capital expenditures of$32.5 million , cash paid for acquisitions of$3.8 million , and proceeds of$1.8 million from the sale of property, plant, and equipment. Financing Activities Financing cash flows for the three months endedMarch 31, 2023 included net proceeds under revolving credit facilities of$57.0 million and long-term debt repayments of$10.5 million . Financing cash flows for the three months endedMarch 31, 2022 included net proceeds under revolving credit facilities of$197.1 million , long-term debt repayments of$12.0 million , and share repurchases of$24.0 million .
Contractual obligations and commitments
There were no material changes in the Company's contractual obligations and commitments since the filing of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 , other than as disclosed in "Note 7: Debt" to the interim condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as the "Liquidity and Capital Resources" included in Item 2 of this Quarterly Report on Form 10-Q.
Critical accounting estimates
There were no material changes in the Company's critical accounting estimates since the filing of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2022 .
Recently issued accounting statements
See “Note 1: Basis of Presentation” to the condensed interim consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Forward-looking statements and information
Certain parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally accompanied by words such as "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates," "anticipates" or other comparable terms. All forward-looking statements made in this Quarterly Report on Form 10-Q are qualified by these cautionary statements. Any forward-looking statements represent our views only as of the date of this report and should not be relied upon as representing our views as of any subsequent date, and we undertake no obligation, other than as may be required by law, to update any forward-looking statement. We caution you that forward-looking statements are not guarantees of future performance and that our actual performance may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Forward -looking statements include, but are not limited to, statements about: •the expected timing of the completion of the Merger and the ability of the parties to consummate the Merger; •demand for products, systems, and services that meet growing customer sustainability standards, expectations, and preferences and our ability to provide such products, systems, and services to maintain our competitive position; •our ability to solve customer technical challenges and accelerate product development cycles; •our ability to sell specialty products at higher profit; •our liquidity outlook and the funding thereof, and cash requirements and adequacy of resources to fund them; •the impact of ongoing tax guidance and interpretations; •the impact of public-health emergencies, weather events, and economic conditions on our end markets, operations, financial condition, and operating results; •our expense control and cost reduction plans and other strategic plans and initiatives; •our human capital management strategies; •significant factors that may adversely affect us and our industry; •the outcome and effect of ongoing and future legal proceedings; •market conditions and outlook; •return of capital to stockholders; 30 -------------------------------------------------------------------------------- Table of Contents •future contributions to, and withdrawal liability in connection with, our pension plans and cash payments for postretirement benefits; and •future capital expenditures and investments.
Potential factors that could affect these forward-looking statements include, but are not limited to:
•that a condition to the closing of the Merger may not be satisfied;
•the occurrence of any event that can give rise to termination of the Merger;
•the failure to obtain approval of the Merger by the Company's stockholders;
•the failure to obtain certain required regulatory approvals or the failure to
satisfy any of the other closing conditions to the completion of the Merger
within the expected timeframes or at all;
•management's time and attention being diverted to issues related to the Merger;
•the Company's ability to meet expectations regarding the timing and completion
of the Merger;
•disruption from the Merger making it more difficult to maintain business,
contractual, and operational relationships;
•the institution of legal proceedings against the Company, Parent, Merger Sub,
and certain of their affiliates related to the Merger;
•the Company becoming unable to retain or hire key personnel due to the Merger;
•the announcement of the Merger having a negative effect on the market price of
the Company's common stock or operating results;
•certain restrictions during the pendency of the proposed Merger that may impact
the Company's ability to pursue certain business opportunities or strategic
transactions;
•the Company's ability to meet expectations regarding the accounting and tax
treatments of the proposed Merger;
•economic conditions, particularly fluctuations in industrial production and
consumption and the timing and extent of economic downturns;
•significant changes in the business strategies of producers or in the
operations of our customers;
•delivery failures or hazards and risks related to our operations and the
hazardous materials we handle;
•potential inability to obtain adequate insurance coverage;
•increased competitive pressures, including as a result of competitor
consolidation;
•potential supply chain disruptions;
•significant changes in the pricing, demand, and availability of chemicals;
•potential cybersecurity incidents, including security breaches;
•our indebtedness, the restrictions imposed by, and costs associated with, our
debt instruments, and our ability to obtain additional financing;
•the broad spectrum of laws and regulations that we are subject to, including
extensive environmental, health, and safety laws and regulations and changes in
tax laws;
•an inability to generate sufficient working capital;
•transportation related challenges, including increases in transportation and
fuel costs, changes in our relationship with third party transportation
providers, and ability to attract and retain qualified drivers;
•accidents, safety failures, environmental damage, and product quality issues;
•ongoing litigation, potential product liability claims and recalls, and other
environmental, legal, and regulatory risks;
•challenges associated with international operations;
•exposure to interest rate and currency fluctuations;
•an inability to integrate the business and systems of companies we acquire,
including failure to realize the anticipated benefits of such acquisitions;
•possible impairment of goodwill and intangible assets;
•our ability to attract or retain a qualified and diverse workforce;
•negative developments affecting our pension plans and multi-employer pensions;
•labor disruptions associated with the unionized portion of our workforce;
•our ability to execute on our initiatives and goals related to environmental,
social, and governance ("ESG") matters and the increasing legal and regulatory
focus on ESG;
•the impacts resulting from the conflict in Ukraine or related geopolitical
tensions;
•the ability of the Company to successfully recover from a disaster or other
business continuity problem due to a hurricane, flood, earthquake, terrorist
attack, war, conflict, pandemic, security breach, cyber-attack, power loss,
telecommunications failure, or other natural or man-made event, including the
ability to function remotely during long-term disruptions such as the COVID-19
pandemic;
•the impact of public health crises, such as pandemics (including the COVID-19
pandemic) and epidemics and any related Company or governmental policies and
actions to protect the health and safety of individuals or governmental policies
or actions to maintain the functioning of national or global economies and
markets,
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including any quarantine, "shelter in place," "stay at home," workforce
reduction, social distancing, shut down, or similar actions and policies;
•actions by third parties, including government agencies; and
•the other factors described in the Company's filings with the Securities and
Exchange Commission .
The Quarterly Report on Form 10-Q, including the uncertainties and factors
discussed under "Risk Factors" in our Annual Report on Form 10-K for the year
ended December 31, 2022 should be read in full and with the understanding that
actual future results may be materially different from expectations expressed or
implied by any forward-looking statement. All forward-looking statements made in
this Quarterly Report on Form 10-Q are qualified by these cautionary statements.
These forward-looking statements are made only as of the date of this Quarterly
Report on Form 10-Q and we do not undertake any obligation, other than as may be
required by law, to update or revise any forward-looking or cautionary
statements to reflect changes in assumptions, the occurrence of events,
unanticipated or otherwise and changes in future operating results over time or
otherwise.
Comparisons of results between current and prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should be considered as historical data only.
Non-GAAP financial measures
We monitor the results of our reportable segments separately for the purposes of making decisions about resource allocation and performance assessment, and evaluate performance using Adjusted EBITDA. Additionally, the Company uses Adjusted EBITDA in setting performance incentive targets to align management compensation measurement with operational performance. We define Adjusted EBITDA as the sum of consolidated net income; depreciation; amortization; net interest expense; income tax expense; impairment charges; (gain) loss on sale of business; other operating expenses, net and other (expense) income, net (for both, see "Note 5: Supplemental financial information" in Item 1 of this Quarterly Report on Form 10-Q for additional information). For a reconciliation of net income to Adjusted EBITDA, the most comparable measure calculated in accordance with GAAP, see "Note 14: Segments" to our condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.
We believe that other non-US GAAP financial measures, as defined below, provide relevant and meaningful information about the Company’s ongoing operating results.
•Gross profit (exclusive of depreciation): net sales less cost of goods sold (exclusive of depreciation); •Gross margin: gross profit (exclusive of depreciation) divided by external sales on a segment level and by net sales on a consolidated level; and •Adjusted EBITDA margin: Adjusted EBITDA divided by external sales on a segment level and by net sales on a consolidated level. We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation is a non-GAAP financial measure, which excludes the impact of fluctuations in foreign currency exchange rates. We believe providing information on a constant currency basis provides valuable supplemental information regarding our results of operations, consistent with how we evaluate our performance. We calculate constant currency percentages and other information by converting our financial results in local currency for a period using the average exchange rate for the prior period to which we are comparing. The non-GAAP financial measures noted above are not calculated in accordance with GAAP and should not be considered a substitute for net income or any other measure of financial performance presented in accordance with GAAP. They are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors' ability to analyze underlying trends in the Company's business, evaluate its performance relative to other companies in its industry, and provide useful information to both management and investors by excluding certain items that may not be indicative of the Company's core operating results. Additionally, other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
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