ORION S.A. The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three months endedMarch 31, 2021 and 2020 and should be read in conjunction with the information included under Item 1. Financial Statements and Supplementary Data (Unaudited) included elsewhere in this report. We prepare our financial statements in accordance with accounting principles generally accepted inthe United States . PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION Non-GAAP Financial Measures In this report, we present certain financial measures that are not recognized by the accounting principles generally accepted inthe United States ("GAAP"). The non-GAAP financial measures contained in this report are unaudited and have not been prepared in accordance with GAAP and 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 below. The non-GAAP financial measures used in this report are 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, adjusted for acquisition related expenses, restructuring expenses, consulting fees related to Company strategy, share of profit or loss of joint venture and certain other items. Adjusted EBITDA is defined similarly in the Credit Agreement. 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,Contribution Margins and Net Working Capital , as well as Adjusted EBITDA by segment and Segment Adjusted EBITDA Margin, as internal measures 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, we believe Adjusted EBITDA provides a useful additional basis for comparing the current performance of the underlying operations being evaluated. For these reasons, we believe 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 and other GAAP measures as an indicator of our operations in accordance with GAAP. [[Image Removed: oec-20210331_g1.jpg]] 17 --------------------------------------------------------------------------------Orion Engineered Carbons S.A.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
Reconciliation of Non-GAAP Financial Measures
Contribution Margin and Contribution Margin per Metric Ton (Non-GAAP Financial
Measures)
The following table reconciles Contribution Margin and Contribution Margin per
Metric Ton to gross profit:
Three Months Ended March 31,
2021 2020
(In millions, unless otherwise indicated)
Revenue $ 360.1 $ 336.0
Variable costs(1) (213.0) (204.1)
Contribution margin 147.1 131.9
Freight 22.5 19.2
Fixed Costs(2) (67.1) (60.8)
Gross profit $ 102.5 $ 90.2
Volume (in kmt) 254.1 235.1
Contribution margin per metric ton $ 578.9 $ 560.8
Gross profit per metric ton $ 403.5 $ 383.6
1.Includes costs such as raw materials, packaging, utilities and distribution.
2.Includes costs such as depreciation, amortization and impairment of intangible
assets, right of use assets, and property, plant and equipment, personnel and
other production related costs.
Adjusted EBITDA (Non-GAAP Financial Measure)
The following table presents a reconciliation of Adjusted EBITDA to consolidated
net income for each of the periods indicated:
Three Months Ended
2021 2020
(In millions)
Net income $ 23.5 $ 18.0
Add back income tax expense 8.3 7.6
Add back equity in earnings of affiliated companies, net of tax
(0.1) (0.1)
Pre-tax income before equity in earnings of affiliated companies
31.7 25.5
Add back interest and other financial expense, net 10.0 9.6
Add back reclassification of actuarial losses from AOCI 1.2 2.4
Income from operations 42.9 37.5
Add back depreciation, amortization and impairment of intangible assets, right of use assets, and property, plant and equipment
25.6 23.8
EBITDA 68.5 61.4
Equity in earnings of affiliated companies, net of tax 0.1 0.1
Long term incentive plan 1.1 (1.1)
EPA-related expenses 1.7 2.6
Other adjustments (0.6) 0.9
Adjusted EBITDA $ 70.9 $ 63.8
Thereof Adjusted EBITDA Specialty Carbon Black $ 39.7 $ 28.1
Thereof Adjusted EBITDA Rubber Carbon Black $
31.2
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