Aptargroup, Inc.: Form 10-Q for the period ended Sep 30, 2024

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)

RESULTS OF OPERATIONS

(1) Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under “Non-U.S. GAAP Measures.”

NET SALES

We reported net sales of $909.3 million for the quarter ended September 30, 2024, which represents a 2% increase compared to $893.0 million reported during the third quarter of 2023. The U.S. dollar weakened against most European currencies but strengthened against most Latin American currencies, resulting in no significant currency translation impact at the consolidated level. Therefore, core sales, which excludes acquisitions and changes in foreign currency rates, also increased by 2% in the third quarter of 2024 compared to the same period in 2023. Our 2% core sales increase was due to strong volume growth in our prescription, food, active material and personal care applications, which more than compensated for lower volumes in our prestige fragrance applications and lower tooling sales.

Reported net sales for the first nine months of 2024 increased 3% to $2.73 billion compared to $2.65 billion for the first nine months of 2023. Changes in foreign currency exchange rates and our acquisitions of iD SCENT and Gulf Closures did not have a significant impact on our consolidated results during the first nine months of 2024. Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, increased by 3% in the first nine months of 2024 compared to the same period in 2023. Our 3% core sales was again due to strong volume growth for products in our prescription and food applications along with increases in injectable and active material applications, which more than compensated lower tooling sales and pricing adjustments.

(1) Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

The following table sets forth, for the periods indicated, net sales by geographic location based on shipped to locations:

For further discussion on net sales by reporting segment, please refer to the analysis of segment net sales and segment Adjusted EBITDA on the following pages.

COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)

Cost of sales (“COS”) as a percent of net sales decreased to 61.4% in the third quarter of 2024 compared to 63.5% in the third quarter of 2023. Our COS percentage was positively impacted by an improved mix of our higher-margin Pharma services and product sales compared to the same period in 2023. We also benefited from improved operational performance and cost management initiatives, which offset an increase in input costs.

For the first nine months of 2024, COS as a percent of net sales decreased to 62.5% compared to 64.1% in the same period in 2023. This decrease is mainly due to an improved mix of our higher value Pharma services and product sales along with improved operational performance and cost management initiatives as discussed above. During the prior year period, we also incurred approximately $16 million of incremental costs related to our injectables Enterprise Resource Planning (“ERP”) system implementation which did not repeat during 2024.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Selling, research & development and administrative expenses (“SG&A”) increased by approximately $3.5 million to $141.6 million in the third quarter of 2024 compared to $138.1 million during the same period in 2023. Excluding changes in foreign currency rates, SG&A increased by approximately $3.3 million in the quarter. Improvements from our cost management initiatives were more than offset by higher compensation costs, including accruals related to our current short-term incentive compensation and certain equity compensation programs. SG&A as a percentage of net sales increased slightly to 15.6% in the third quarter of 2024 compared to 15.5% in the same period in 2023.

Our selling, research & development and administrative expenses (“SG&A”) increased by $16.2 million to $443.7 million in the first nine months of 2024 compared to $427.5 million during the same period in 2023. Excluding changes in foreign currency rates, SG&A increased by approximately $16.4 million in the first nine months of 2024 compared to the first nine months of 2023. Incremental costs related to our acquisitions of iD SCENT and Gulf Closures were $0.4 million. As discussed above, improvements from our cost management initiatives for the first nine months of 2024 were more than offset by higher compensation costs mentioned above. We also incurred approximately $3.4 million of costs to evaluate potential acquisition targets during the second quarter of 2024. SG&A as a percentage of net sales increased to 16.2% in the first nine months of 2024 compared to 16.1% in the same period in 2023.

DEPRECIATION AND AMORTIZATION

Reported depreciation and amortization expenses increased by approximately $4.3 million to $67.0 million in the third quarter of 2024 compared to $62.7 million during the same period in 2023. Changes in foreign currency rates did not significantly affect depreciation and amortization during the third quarter 2024 compared to the third quarter of 2023. The majority of this increase relates to higher capital spending during the prior years to support our growth strategy, including new manufacturing facilities commencing production during the last year. Depreciation and amortization as a percentage of net sales increased to 7.4% in the third quarter of 2024 compared to 7.0% in the same period of the prior year.

Depreciation and amortization expenses increased by approximately $12.1 million to $196.3 million in the first nine months of 2024 compared to $184.2 million during the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $12.2 million in the first nine months of 2024 compared to the same period a year ago. Incremental depreciation and amortization costs related to our acquisitions of iD SCENT and Gulf Closures were $0.3 million. As discussed above, this increase is due to higher internal capital investments made during the prior years. Depreciation and amortization as a percentage of net sales increased to 7.2% in the first nine months of 2024 compared to 7.0% in the same period of the prior year.

RESTRUCTURING INITIATIVES

As part of our ongoing efforts to better leverage our fixed cost base through growth and cost reduction measures, during the three and nine months ended September 30, 2024, we recognized $3.9 million and $9.7 million of operational restructuring costs related to this initiative, respectively. For the three and nine months ended September 30, 2023, we recognized $6.6 million and $20.1 million of restructuring costs related to this initiative, respectively. The cumulative expense incurred as of September 30, 2024 was $61.3 million.

Restructuring costs for the three and nine months ended September 30, 2024 and 2023 were as follows:

During the three months ended September 30, 2024, pension curtailment accounting was triggered as a result of restructuring in one of our entities in Europe. The remeasurement of the pension obligations resulted in a decrease of $1.9 million. The curtailment gain is included in the line miscellaneous income (expense), net in the Condensed Consolidated Statements of Income.

OPERATING INCOME

Operating income increased approximately $19.0 million to $138.3 million in the third quarter of 2024 compared to $119.3 million in the same period a year ago. Excluding changes in foreign currency rates, operating income increased by approximately $17.7 million in the quarter compared to the same period a year ago mainly due to the strong sales growth in our Pharma segment along with improved operational performance and cost management initiatives. Operating income as a percentage of net sales increased to 15.2% in the third quarter of 2024 compared to 13.3% in the prior year period.

For the first nine months of 2024, operating income increased approximately $56.6 million to $376.4 million compared to $319.8 million in the same period of the prior year. Excluding changes in foreign currency rates, operating income increased by approximately $55.1 million in the first nine months of 2024 compared to the same period a year ago as income from our strong Pharma segment growth and improved operational performance and cost management initiatives drove the increase. Operating income as a percentage of net sales increased to 13.8% in the first nine months of 2024 compared to 12.1% for the same period in the prior year.

INTEREST EXPENSE

Interest expense increased approximately $2.3 million to $12.3 million in the third quarter of 2024 compared to $10.0 million for the same period of the prior year. During 2024, we repaid more than $370 million of private placement debt having interest rates between 1.2% and 3.5% and initiated term loan and revolving credit facility borrowings having current interest rates between 4.5% and 6.0%.

Interest expense increased $2.6 million to $32.5 million in the first nine months of 2024 compared to the same period in 2023. As discussed above, this increase is mainly related to higher rates on our current term loan and revolving credit facility borrowings. See Note 6 - Debt to the Condensed Consolidated Financial Statements for further details.

NET OTHER INCOME (EXPENSE)

Net other income increased $4.4 million to $5.1 million of income in the third quarter of 2024 from $0.7 million of income in the same period of the prior year. Interest income increased by $2.1 million due to increased cash flow generated from operations and therefore higher interest earned on higher cash deposits over the past year. We also recorded an increase in the value of our PureCycle investment of $2.3 million over the prior year period. This investment is recorded at fair value based on observable market prices for identical assets with the change in fair value being recorded as a net investment gain or loss in the Condensed Consolidated Statements of Income. During the third quarter of 2024, we also reported a $1.9 million gain on pension curtailment for a facility closure in France, which more than compensated for lower contributions from our equity results from affiliates.

Net other income increased $5.6 million to $9.8 million of income for the nine months ended September 30, 2024 from $4.3 million of income in the same period of the prior year. Interest income increased by approximately $6.8 million. This increase, along with the pension curtailment gain discussed above, more than compensated for the lower contributions from our equity results from affiliates and the change in the fair value of our PureCycle investment which resulted in $0.3 million less income during the first nine months of 2024 compared to the prior year period.

PROVISION FOR INCOME TAXES

The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full year-taxes, adjusted for the impact of discrete quarterly items.

The effective tax rate for the three months ended September 30, 2024 and 2023, respectively, was 23.8% and 23.4%. The effective tax rate for the three months ended September 30, 2024 was slightly higher than the same period of 2023 primarily due to an unfavorable mix of earnings forecasted in the second half of 2024

The effective tax rate for the nine months ended September 30, 2024 and 2023, respectively, was 22.7% and 24.6%. On a nine-month basis, the effective tax rate was lower than the same period of 2023 primarily due to increased tax benefits from share-based compensation and tax incentives in certain non-U.S. jurisdictions for intellectual property development activities.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income attributable to AptarGroup, Inc. of $100.0 million and $273.6 million in the three and nine months ended September 30, 2024, respectively, compared to $84.3 million and $222.1 million for the same periods in the prior year.

APTAR PHARMA SEGMENT

Operations that sell proprietary dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, active material science solutions and digital health markets form our Aptar Pharma segment.

(1) Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under “Non-U.S. GAAP Measures.”

Net sales for the Aptar Pharma segment increased 8% in the third quarter of 2024 to $420.6 million compared to $389.2 million in the third quarter of 2023. Changes in currencies positively affected net sales by 1%. Therefore, core sales increased by 7% in the third quarter of 2024 compared to the third quarter of 2023. The majority of the sales growth is due to higher volumes in our prescription drug and active material science solutions divisions. Core sales of our products to the prescription drug market increased 20% on strong demand for our products used on emergency medicines, central nervous system and allergic rhinitis applications along with higher customer royalties. The 6% core sales decline in the consumer health care market was driven by a non-product service payment in 2023 that didn't repeat. Sales of our products and services to the injectables market decreased 12%. While product sales were off slightly, the injectables division faced a difficult comparison over the prior year period due to service revenue for a customer's product launch that did not repeat. Active material science solutions increased 10% mainly on strong growth in our probiotic applications. Digital Health currently does not represent a significant percentage of the total Pharma sales.

Net sales for the first nine months of 2024 increased by 9% to $1.24 billion compared to $1.14 billion in the first nine months of 2023. Changes in currency rates did not impact net sales during the first nine months of 2024. Therefore, core sales also increased by 9% in the first nine months of 2024 compared to the same period in the prior year. Core sales of products included in our prescription drug division increased 16% on continued strong demand for our allergic rhinitis, central nervous system and emergency medicine systems and higher customer royalties. Core sales in the consumer health care market were flat as higher demand for our nasal decongestant and eye care solutions was offset by lower sales of dermal and cough and cold products. Core sales of our products to the injectables market improved by 5% due primarily to the prior year shutdown of operations for the implementation of our new ERP system, which more than compensated for service revenue that did not repeat. Core sales of our active material science solutions increased 6% mainly on growth in our probiotics, diabetes and oral solid dose applications after a period of destocking.

(1) Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA in the third quarter of 2024 increased 11% to $151.6 million compared to $136.3 million in the same period of the prior year. This increase was mainly due to the profitability on strong prescription drug division and active material science solutions sales growth along with higher customer royalties discussed above. Our Adjusted EBITDA margin improved to 36.0% in the third quarter of 2024 from 35.0% in the third quarter of 2023 mainly on the strength of our higher value proprietary dispensing device sales and higher customer royalties.

Adjusted EBITDA in the first nine months of 2024 increased 14% to $425.3 million compared to $371.5 million in the same period of the prior year. This positive impact was mainly due to the profitability on strong core sales growth in prescription, injectables and active material solutions. During the prior year, we also incurred additional expenses related to our injectables ERP system implementation which did not repeat. Overall, our Adjusted EBITDA margin improved to 34.2% in the first nine months of 2024 compared to 32.7% in the first nine months of 2023.

APTAR BEAUTY SEGMENT

Operations that sell dispensing systems and sealing solutions to the beauty, personal care and home care markets form our Aptar Beauty segment.

(1) Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under “Non-U.S. GAAP Measures.”

Reported net sales for the quarter ended September 30, 2024 decreased 7% to $302.9 million compared to $324.0 million in the third quarter of the prior year. Changes in currency rates negatively impacted net sales by 1% in the third quarter of 2024. Therefore, core sales decreased 6% in the third quarter of 2024 compared to the same quarter of the prior year. Lower tooling sales negatively impacted overall third quarter 2024 Beauty net sales by 4%, while product sales decreased by the remaining 2%. Regionally, improving results in North America were offset in Europe by difficult comparisons to the prior year period. Core sales of our products to the beauty market decreased 14% due to lower sales in prestige fragrance after a high demand of new product launches during the same period in 2023. Personal care improved by 5% on strong sales of our hair care and body and skin care applications, while home care core sales increased 18% on higher demand for our air care and automotive, industrial and paint products, mainly in North America.

For the first nine months of 2024, reported net sales of $951.7 million decreased 3% compared to $980.0 million reported in the first nine months of the prior year. Changes in currency rates and our acquisition of iD SCENT did not have an impact on segment sales. Therefore, core sales also decreased 3% in the first nine months of 2024 compared to the same period in the prior year. Core sales of our products to the beauty market during the first nine months of 2024 decreased 7% due to the lower tooling sales and difficult European comparisons to prior year mentioned above. Personal care core sales improved 1% over the prior year as higher sales of our body and skin care products more than compensated for lower sales of our sun care and personal cleansing applications. Core sales of our home care market products improved 10% on higher demand from our customers selling air care and automotive products.

(1) Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA in the third quarter of 2024 decreased 2% to $40.2 million compared to $41.1 million in the same period in the prior year. This is primarily attributable to the lower tooling sales and difficult comparisons to prior year prestige fragrance sales discussed above along with rising input costs, which more than offset our improved operational performance and benefits realized from our cost management initiatives during the third quarter of 2024. However, these operational improvements lead to our Adjusted EBITDA margin increasing from 12.7% in the third quarter of 2023 to 13.3% during the third quarter of 2024.

Adjusted EBITDA in the first nine months of 2024 increased 4% to $126.0 million compared to $121.4 million reported in the same period in the prior year. This increase was mainly due to improved operational performance along with benefits realized from our cost management initiatives, which more than compensated for rising input costs. Therefore, our Adjusted EBITDA margin improved from 12.4% in the first nine months of 2023 to 13.2% during the first nine months of 2024.

APTAR CLOSURES SEGMENT

Operations that sell dispensing closures, sealing solutions and food service trays to the food, beverage, personal care, home care, beauty and healthcare markets form our Aptar Closures segment. Aptar's food protection business and elastomeric flow-control technology business continue to report through the Aptar Closures segment.

(1) Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under “Non-U.S. GAAP Measures.”

Reported sales for the quarter ended September 30, 2024 increased approximately 3% to $185.8 million compared to $179.8 million in the third quarter of the prior year. Changes in currency rates negatively impacted net sales by 1%. Therefore, core sales for the third quarter of 2024 increased approximately 4% from the same quarter of the prior year. The majority of the increase during the current quarter is due to higher product sales. Sales to the food market increased 10% on higher sales of our dispensing closures used on sauces and condiments, spreads, jellies and honey and dairy products. The 1% increase in beverage market sales was mainly due to higher sales of our closures on functional drink products. Personal care sales declined 3% mainly due to lower demand for our skin care and hair care closures. Other sales decreased 3% on lower sales of our dish care products as we realized strong demand from a new product launch during the third quarter of 2023.

Net sales for the first nine months of 2024 increased approximately 1% to $540.7 million compared to $533.1 million in the first nine months of 2023. Changes in currency rates negatively impacted net sales by 1% while our acquisition of Gulf Closures had no significant impact on net sales. Therefore, core sales increased approximately 2% in the first nine months of 2024 compared to the same period in the prior year. Core sales to the food market improved 3% compared to prior year on strong sales of our closures on sauces and condiments, dry spices and seasonings products. Core sales to our beverage customers increased 1% in the first nine months of 2024 compared to the same period of the prior year on improving bottled water and functional drink sales. Personal care declined slightly on lower sales of our hair care solutions, while other sales were consistent with prior year as strong sales of our laundry care products offset slightly lower sales of our dish care applications after the 2023 product launch mentioned above.

(1) Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

(2) Other includes beauty, home care and healthcare markets.

Adjusted EBITDA in the third quarter of 2024 increased 16% to $32.0 million compared to $27.6 million reported in the same period of the prior year. Sales growth, operational improvements and cost containment initiatives more than compensated for a $0.6 million negative resin impact due to timing of cost pass-throughs to our customers. Therefore, our Adjusted EBITDA margin improved from 15.4% in the third quarter of 2023 to 17.2% during the third quarter of 2024.

Adjusted EBITDA in the first nine months of 2024 increased 6% to $86.3 million compared to $81.4 million reported in the same period of the prior year. Our profitability was positively impacted by the higher sales along with operational improvements and containing costs discussed above. These improvements more than compensate for a negative resin pass-through impact of $2.5 million. This led to our Adjusted EBITDA margin improving from 15.3% in the first nine months of 2023 to 16.0% during the first nine months of 2024.

CORPORATE & OTHER

In addition to our three reporting segments, we assign certain costs to “Corporate & Other,” which is presented separately in Note 16 – Segment Information of the Notes to the Condensed Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items) primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our reporting segments.

For the quarter ended September 30, 2024, Corporate & Other Adjusted EBITDA increased to $15.4 million of expense from $11.7 million of expense in the third quarter of 2023. During the prior year period, we recognized approximately $4.2 million of realized gains on the sale of shares related to our investment in PureCycle which drove the majority of the year over year change.

Corporate & Other Adjusted EBITDA in the first nine months of 2024 increased to $57.5 million of expense compared to $46.0 million of expense reported in the same period of the prior year. As mentioned above, we realized a $4.2 million gain on sales of PureCycle shares last year. During 2024, we recognized approximately $3.4 million of costs to evaluate potential acquisition targets. We also incurred higher incentive compensation costs, including accruals related to our current short-term and equity compensation programs during the current year period.

NON-U.S. GAAP MEASURES

In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S. GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect our core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated Statements of Income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measures to arrive at these non-U.S. GAAP financial measures.

In our Management’s Discussion and Analysis, we exclude the impact of foreign currency translation when presenting net sales and other information, which we define as “constant currency.” Core sales, which excludes the impact of foreign currency translation is a non-U.S. GAAP financial measure. Core sales growth is calculated as current period core sales less prior period core sales divided by prior period core sales multiplied by a hundred. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We believe it is important to exclude the impact of acquisitions on period over period results in order to evaluate performance on a more comparable basis.

We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude restructuring initiatives, acquisition-related costs, purchase accounting adjustments related to acquisitions and investments and net unrealized investment gains and losses related to observable market price changes on equity securities. Our Outlook is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as exchange rates and changes in the fair value of equity investments, or reliably predicted because they are not part of our routine activities, such as restructuring initiatives and acquisition-related costs.

We provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. “Net Debt” is calculated as interest-bearing debt less cash and equivalents and short-term investments while “Net Capital” is calculated as stockholders’ equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage, which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.

Finally, we provide a reconciliation of free cash flow as a non-U.S. GAAP measure. Free cash flow is calculated as cash provided by operating activities less capital expenditures plus proceeds from government grants related to capital expenditures. We use free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. We believe that it is meaningful to investors in evaluating our financial performance and measuring our ability to generate cash internally to fund our initiatives.

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FOREIGN CURRENCY

Because of our international presence, movements in exchange rates may have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A weakening U.S. dollar has an additive effect. Conversely, a strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales could materially impact our results of operations. During the third quarter ended September 30, 2024, the U.S. dollar was weaker compared to most European currencies and the Chinese yuan while strengthening against most Latin American currencies, except for the Brazilian real. During the nine months ended September 30, 2024, the U.S. dollar was stronger compared to all currencies except the Colombian and Mexican pesos, Swiss franc and the British pound. This resulted in a neutral impact on our translated results during the third quarter and year-to-date period of 2024 when compared to the third quarter and year-to-date period of 2023.

QUARTERLY TRENDS

Our results of operations in the fourth quarter of the year are typically negatively impacted by customer plant shutdowns in December. Several of the markets we serve are impacted by the seasonality of underlying consumer products. This, in turn, may have an impact on our net sales and results of operations for those markets. The diversification of our product portfolio minimizes fluctuations in our overall quarterly financial statements and results in an immaterial seasonality impact on our Condensed Consolidated Financial Statements when viewed quarter over quarter.

Generally, we have incurred higher stock-based compensation expense in the first quarter compared with the rest of the fiscal year due to the timing and recognition of stock-based expense from substantive vesting for retirement eligible employees. As of September 30, 2024, our estimated stock-based compensation expense on a pre-tax basis for the year 2024 compared to 2023 is as follows:

LIQUIDITY AND CAPITAL RESOURCES

Given our current level of leverage and our ability to generate cash flow from operations, we believe we are in a strong financial position to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving and other credit facilities, proceeds from stock options and debt, as needed, as our primary sources of liquidity. Our primary uses of cash are to invest in equipment and working capital for the continued growth of our business, including facilities that are necessary to support our growth, pay quarterly dividends to stockholders, to make acquisitions and repurchase shares of our common stock that will contribute to the achievement of our strategic objectives. Due to uncertain macroeconomic conditions, including rising interest rates and the inflationary environment, in the event that customer demand decreases significantly for a prolonged period of time and adversely impacts our cash flows from operations, we would have the ability to restrict and significantly reduce capital expenditure levels and share repurchases, as well as reevaluate our acquisition strategy. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.

Cash and equivalents and restricted cash increased to $325.5 million at September 30, 2024 from $223.6 million at December 31, 2023. Total short and long-term interest-bearing debt decreased from $1.14 billion at December 31, 2023 to $1.08 billion at September 30, 2024. The ratio of our Net Debt (interest-bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 22.7% at September 30, 2024 from 28.3% at December 31, 2023. See the reconciliation under “Non-U.S. GAAP Measures.”

In the first nine months of 2024, our operations provided approximately $465.2 million in net cash flow compared to $355.6 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization and better working capital management.

We used $225.7 million in cash for investing activities during the first nine months of 2024 compared to $239.3 million during the same period a year ago. Our investment in capital projects decreased $20.8 million during the first nine months of 2024 compared to the first nine months of 2023 as we completed larger projects that had significant spend in the prior year. The capital expenditures accrued within accounts payable, accrued and other liabilities was $21.3 million as of September 30, 2024 compared to $20.1 million as of September 30, 2023.

Financing activities used $137.7 million in cash during the first nine months of 2024 compared to $94.0 million in cash used by financing activities during the same period a year ago. The increased use of cash in the first nine months of 2024 is primarily related to the debt refinancing of $100.0 million of Senior Unsecured Notes in the first quarter of 2024, €200 million of Senior Unsecured Notes in the second quarter of 2024 and $50.0 million of Senior Unsecured Notes in the third quarter of 2024. This was partially offset by the new term loan of $166.0 million and increased borrowings on our amended revolving credit facility of $14.5 million.

In October 2020, we entered into an unsecured money market borrowing arrangement to provide short-term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no balance was utilized under this arrangement as of September 30, 2024.

Aptar has a revolving credit facility (the “revolving credit facility”) with a syndicate of banks which provides us with unsecured financing of up to $600 million, which may be increased by up to $300 million subject to certain conditions. The revolving credit facility is available in the U.S. and to our wholly-owned UK subsidiary and can be drawn in various currencies including USD, EUR, GBP, and CHF. The revolving credit facility was set to mature in June 2026, but on July 2, 2024, we entered into a new amended and restated agreement (the “amended revolving credit facility”) that extended the maturity date to July 2029, subject to a maximum of two one-year extensions in certain circumstances, As of December 31, 2023, Aptar had utilized $36.5 million and €40.0 million ($44.2 million) under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary. As of September 30, 2024, Aptar had utilized €200 million ($222.7 million) under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary.

On July 2, 2024, we entered into a term loan with a syndicate of banks (the “Term Loan”). The Term Loan matures in July 2027 and enabled drawings on the loan until September 30, 2024 and provided for unsecured financing of up to $330 million available in the U.S. Funds are to be used to refinance near-term maturities and for general corporate purposes. As of September 30, 2024, $166 million was utilized under the Term Loan facility and the unused portion expired.

There are no compensating balance requirements associated with our amended revolving credit facility. Each borrowing under the revolving credit facility will bear interest at rates based on SOFR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The amended revolving credit facility also provides mechanics relating to a transition away from designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the amended revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the amended revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. Credit facility balances are included in revolving credit facility and overdrafts on the Condensed Consolidated Balance Sheets.

Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:

(1) Definitions of ratios are included as part of the amended revolving credit facility agreement and private placement agreements.

Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.7 billion before the 3.50 to 1.00 maximum ratio requirement would be exceeded.

On July 6, 2022, we entered into an agreement to swap approximately $200 million of our fixed USD debt to fixed EUR debt which would generate interest savings of approximately $0.5 million per quarter based upon exchange rates as of the transaction date.

On October 10, 2024, the Board of Directors declared a quarterly cash dividend of $0.45 per share payable on November 14, 2024 to stockholders of record as of October 24, 2024.

Our foreign operations have historically met cash requirements with the use of internally generated cash or uncommitted short-term borrowings. We also have committed financing arrangements in both the U.S. and the UK as detailed above. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.

CONTINGENCIES

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Please refer to Note 12 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements for a discussion of contingencies affecting our business.

RECENTLY ISSUED ACCOUNTING STANDARDS

We have reviewed the recently issued ASUs to the FASB’s Accounting Standards Codification that have future effective dates. Standards that have been adopted during 2024 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.

OUTLOOK

We expect earnings per share for the fourth quarter of 2024, excluding any restructuring expenses, changes in the fair value of equity investments and acquisition costs, to be in the range of $1.22 to $1.30 and this guidance is based on an effective tax rate range of 20% to 22%. Our total 2024 estimated cash outlays for capital expenditures net of government grant proceeds are expected to be approximately $280 million to $300 million.

FORWARD-LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Significant Developments, Restructuring Initiatives, Quarterly Trends, Liquidity and Capital Resources, Contingencies and Outlook sections of this Form 10-Q. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future,” “potential”, “are optimistic” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment including, but not limited to:

• geopolitical conflicts worldwide including the invasion of Ukraine by the Russian military and the recent events in the Middle East and the resulting indirect impact on demand from our customers selling their products into these countries, as well as rising input costs and certain supply chain disruptions;
• the availability of raw materials and components (particularly from sole sourced suppliers for some of our Pharma solutions) as well as the financial viability of these suppliers;
• lower demand and asset utilization due to an economic recession either globally or in key markets we operate within;
• economic conditions worldwide, including inflationary conditions and potential deflationary conditions in other regions we rely on for growth;
• the execution of our fixed cost reduction initiatives, including our optimization initiative;
• cybersecurity threats against our systems and/or service providers that could impact our networks and reporting systems;
• our ability to successfully implement facility expansions and new facility projects;
• fluctuations in the cost of materials, components, transportation cost as a result of supply chain disruptions and labor shortages, and other input costs (particularly resin, metal, anodization costs and energy costs);
• significant fluctuations in foreign currency exchange rates or our effective tax rate;
• the impact of tax reform legislation, changes in tax rates and other tax-related events or transactions that could impact our effective tax rate and cash flow;
• financial conditions of customers and suppliers;
• consolidations within our customer or supplier bases;
• changes in customer and/or consumer spending levels;
• loss of one or more key accounts;
• our ability to offset inflationary impacts with cost containment, productivity initiatives and price increases;
• changes in capital availability or cost, including rising interest rates;
• volatility of global credit markets;
• our ability to identify potential new acquisitions and to successfully acquire and integrate such operations, including the successful integration of the businesses we have acquired;
• our ability to build out acquired businesses and integrate the product/service offerings of the acquired entities into our existing product/service portfolio;
• direct or indirect consequences of acts of war, terrorism or social unrest;
• the impact of natural disasters and other weather-related occurrences;
• fiscal and monetary policies and other regulations;
• changes, difficulties or failures in complying with government regulation, including FDA or similar foreign governmental authorities;
• changing regulations or market conditions regarding environmental sustainability;
• work stoppages due to labor disputes;
• competition, including technological advances;
• our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
• the outcome of any legal proceeding that has been or may be instituted against us and others;
• our ability to meet future cash flow estimates to support our goodwill impairment testing;
• the demand for existing and new products;
• the success of our customers’ products, particularly in the pharmaceutical industry;
• our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;
• difficulties in product development and uncertainties related to the timing or outcome of product development;
• significant product liability claims; and
• other risks associated with our operations.

Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A (Risk Factors) of Part I included in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional risks and uncertainties that may cause our actual results or other events to differ materially from those expressed or implied in such forward-looking statements.

A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Argentine peso, Mexican peso, Swiss franc and other Asian, European and Latin American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.

The table below provides information as of September 30, 2024 about our forward currency exchange contracts. The majority of the contracts expire before the end of the fourth quarter of 2024.

As of September 30, 2024, we have recorded the fair value of foreign currency forward exchange contracts of $0.1 million in prepaid and other and $1.1 million in accounts payable, accrued and other liabilities on the Condensed Consolidated Balance Sheets. On July 6, 2022, we entered into a seven year USD/EUR fixed-to-fixed cross currency interest rate swap to effectively hedge the interest rate exposure relating to $203 million of the $400 million 3.60% Senior Notes due March 2032 which were issued by AptarGroup, Inc. on March 7, 2022. This USD/EUR swap agreement exchanged $203 million of fixed-rate 3.60% USD debt to €200 million of fixed-rate 2.5224% EUR debt. The fair value of this net investment hedge is $22.5 million reported in accounts payable, accrued and other liabilities on the Condensed Consolidated Balance Sheets.

DISCLOSURE CONTROLS AND PROCEDURES

Management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2024. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal quarter ended September 30, 2024, we implemented ERP systems at two operating units. Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP systems. Except for the foregoing, no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during our fiscal quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.