ORION S.A. Item 2. 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 endedMarch 31, 2022 and 2021 and should be read in conjunction with the information included under Item 1. Financial Statements and Supplementary Data (Unaudited) elsewhere in this report. We prepare our financial statements in accordance with accounting principles generally accepted inthe United States ('GAAP").
PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION
Non-GAAP Financial Measures
We present certain financial measures that are not prepared in accordance with GAAP or the accounting standards of any other jurisdiction and which may not be comparable to other similarly titled measures of other companies. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see section Reconciliation of Non-GAAP Financial Measures below. These non-GAAP measures are, but are not limited to, Contribution Margin, Contribution Margin per metric ton (collectively, "Contribution Margins"), Adjusted EBITDA,Net Working Capital and Capital Expenditures. We define Contribution Margin as revenue less variable costs (such as raw materials, packaging, utilities and distribution costs). We define Contribution Margin per Metric Ton as Contribution Margin divided by volume measured in metric tons. We define Adjusted EBITDA as income from operations before depreciation and amortization, restructuring expenses, consulting fees related to Company strategy, gain related to legal settlement, and includes equity earnings (loss) in affiliated companies, net of tax. Adjusted EBITDA is used by our management to evaluate our operating performance and make decisions regarding allocation of capital, because it excludes the effects of items that have less bearing on the performance of our underlying core business. We defineNet Working Capital as inventories plus current trade receivables minus trade payables. We define Capital Expenditures as cash paid for the acquisition of intangible assets and property, plant and equipment as shown in the Condensed Consolidated Financial Statements.
We also use Segment Adjusted EBITDA Margin, which we define as Adjusted EBITDA for the relevant segment divided by the revenue for that segment.
We use Adjusted EBITDA as an internal measure of performance to benchmark and compare performance among our own operations. We use these measures, together with other measures of performance under GAAP, to compare the relative performance of operations in planning, budgeting and reviewing the performance of our business. We believe these measures are useful measures of financial performance, in addition to consolidated net income for the period, income from operations and other profitability measures under GAAP, because they facilitate operating performance comparisons from period to period and company to company and, with respect to Contribution Margin, eliminate volatility in feedstock prices. By eliminating potential differences in results of operations between periods or companies caused by factors such as depreciation and amortization methods, historic cost and age of assets, financing and capital structures and taxation positions or regimes, Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated. For these reasons, EBITDA-based measures are often used by the investment community as a means of comparison of companies in our industry. By deducting variable costs (such as raw materials, packaging, utilities and distribution costs) from revenue, we believe that Contribution Margins can provide a useful basis for comparing the current performance of the underlying operations being evaluated by indicating the portion of revenue that is not consumed by these variable costs and therefore contributes to the coverage of all costs and profits. Different companies and analysts may calculate measures based on EBITDA, contribution margins and working capital differently, so making comparisons among companies on this basis should be done carefully. Adjusted EBITDA,Contribution Margins and Net Working Capital are not measures of performance under GAAP and should not be considered in isolation or construed as substitutes for revenue, consolidated net income for the period, income from operations, gross profit or other GAAP measures as an indicator of our operations in accordance with GAAP. [[Image Removed: oec-20220331_g1.jpg]] 15 --------------------------------------------------------------------------------Orion Engineered Carbons S.A.
Management's Discussion and Analysis of Financial Condition and Results of
OperationReconciliation of Non-GAAP Financial Measures
Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial Measures)
Reconciliation of Contribution margin and Contribution margin per metric ton to
Gross profit is as follows:
Three Months Ended March 31,
2022 2021
(In millions, unless otherwise indicated)
Revenue $ 484.5 $ 360.1
Variable costs 317.2 213.0
Contribution margin 167.3 147.1
Freight 27.4 22.5
Fixed costs (76.8) (67.1)
Gross profit $ 117.9 $ 102.5
Volume (in kmt) 253.2 254.1
Contribution margin per metric ton $ 660.7 $ 578.9
Gross profit per metric ton $ 465.6 $ 403.5 Adjusted EBITDA (A Non-GAAP Financial Measure)
Reconciliation of Adjusted EBITDA to consolidated Net income is as follows:
Three Months Ended March 31,
2022 2021
(In millions)
Net income $ 32.5 $ 23.5
Add back income tax expense 13.8 8.3
Add back equity in earnings of affiliated companies, net of tax (0.1) (0.1)
Income before earnings in affiliated companies and income taxes 46.2 31.7
Add back interest and other financial expense, net 8.4 10.0
Add back reclassification of actuarial losses from AOCI - 1.2
Income from operations 54.6 42.9
Add back depreciation and amortization of intangible assets, right of use assets, and property, plant and equipment
27.3 25.6
EBITDA 81.9 68.5
Equity in earnings of affiliated companies, net of tax 0.1 0.1
Long term incentive plan 1.5 1.0
EPA-related expenses - 1.7
Other adjustments (0.3) (0.4)
Adjusted EBITDA $ 83.2 $ 70.9
Adjusted EBITDA Specialty Carbon Black $ 42.5 $ 39.7
Adjusted EBITDA Rubber Carbon Black
$ 40.7
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