Financial Data and Key Metrics Changes - The company reported adjusted net income of $12.1 million for Q2 2023, a significant decline from $53 million in the prior year, primarily due to a 19% decrease in sales volume [3][23][84] - Adjusted EBITDA for the quarter was $45.8 million, down from $96.7 million in the prior year, reflecting the decline in sales volume [22] - The effective tax rate decreased to 20% in the first half of 2023 from 25% in the first half of 2022, attributed to more favorable tax benefits [4] Business Line Data and Key Metrics Changes - Polymers segment net sales were $164.5 million, a 31% decrease year-over-year, with a 29% decline in volume primarily due to lower demand and inventory destocking [5][82] - Surfactants segment net sales were $392 million, a 19% decrease compared to the prior year, with a 15% decline in volume and a 5% decrease in selling prices [87] - Specialty Products segment net sales were $23.8 million, a 14% decrease year-over-year, with a 16% decline in volume [88] Market Data and Key Metrics Changes - The company experienced lower demand across most markets, with significant inventory destocking impacting sales [3][5] - The Asia region showed some improvement in demand following the reopening of China, partially offsetting declines in North America and Europe [5] Company Strategy and Development Direction - The company plans to reduce capital spending by $70 million to $80 million in the second half of the year and aims to decrease inventories by $40 million [7][8] - The company is focusing on long-term strategic growth and innovation initiatives, despite disappointing first-half financial results [8] - The construction of a new alkoxylation production facility in Pasadena, Texas is approximately 35% complete, with an expected startup in mid-2024 [90] Management's Comments on Operating Environment and Future Outlook - Management believes that the second half of 2023 will see incremental improvements in volume and margins, driven by a gradual recovery in demand and lower raw material costs [8][32] - The company anticipates that destocking activities are predominantly behind them, with expectations for a normal demand pattern in the second half of the year [56] Other Important Information - The company paid $8.2 million in dividends during the second quarter and has a remaining $125 million under its share repurchase program [84] - The company is implementing cost control measures, including a voluntary early retirement program, to improve earnings in 2024 [26][91] Q&A Session Summary Question: Volume trends in Surfactants and Polymers - Management indicated that they believe volumes have stabilized in both segments, with expectations for incremental growth in the second half of the year [11][12] Question: Import pressures in Latin America - Management noted that competitive pricing pressures and imports have impacted the Mexico business, while Brazil has experienced less pressure [47] Question: Customer acquisition environment - The company reported a higher level of churn in the Surfactant business but noted successful new customer acquisitions [51] Question: Nature of customer destocking activity - Management characterized destocking as predominantly in the agricultural segment, with expectations for a return to normal inventory levels by the end of Q3 [56] Question: Timeline for Pasadena expansion - Delays in construction have pushed the expected startup to mid-2024, but demand for the product line remains strong [59][60]

Part I [Item 1 - Financial Statements](index=2&type=section&id=Item%201%20-%20Financial%20Statements) Unaudited condensed consolidated financial statements for Q1 2023 and 2022 are presented, covering income, balance sheets, cash flows, and notes [Condensed Consolidated Statements of Income](index=2&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Q1 2023 financial performance declined significantly, with net sales decreasing and gross profit, operating income, and net income falling sharply Q1 2023 vs Q1 2022 Income Statement Highlights (in thousands, except per share amounts) | Financial Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Sales | $651,436 | $675,276 | | Gross Profit | $73,560 | $109,219 | | Operating Income | $21,057 | $63,346 | | Net Income | $16,142 | $44,809 | | Diluted EPS | $0.70 | $1.93 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of March 31, 2023, total assets slightly increased to **$2.45 billion**, total liabilities saw a minor rise, and total equity grew to **$1.19 billion** Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,006,524 | $1,044,802 | | Total assets | $2,445,937 | $2,433,172 | | Total current liabilities | $662,744 | $670,649 | | Total liabilities | $1,256,024 | $1,267,107 | | Total equity | $1,189,913 | $1,166,065 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Q1 2023 saw significantly higher cash usage in operations and investing, with financing providing less cash, resulting in a **$46.8 million** decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($72,058) | ($20,930) | | Net Cash Used In Investing Activities | ($90,341) | ($57,132) | | Net Cash Provided By Financing Activities | $113,536 | $154,833 | | Net (Decrease) Increase in Cash | ($46,794) | $76,855 | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Notes detail segment performance, debt, and legal contingencies, highlighting Surfactants as the largest segment, increased total debt, and **$29.2 million** accrued for environmental and legal matters - The company accrued **$29.15 million** for potential environmental and legal losses, estimated to range up to **$52.95 million** as of March 31, 2023[36](index=36&type=chunk) Segment Net Sales and Operating Income (Q1 2023, in thousands) | Segment | Net Sales | Operating Income | | :--- | :--- | :--- | | Surfactants | $467,828 | $27,056 | | Polymers | $161,127 | $10,004 | | Specialty Products | $22,481 | $2,530 | - Total debt increased from **$587.1 million** at year-end 2022 to **$711.0 million** at March 31, 2023, primarily due to increased revolving credit facility borrowings[62](index=62&type=chunk)[119](index=119&type=chunk) [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202%20-%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **64%** Q1 2023 net income decrease, attributing it to a **14%** sales volume decline from lower demand and inventory destocking - Net income for Q1 2023 decreased **64%** to **$16.1 million** ($0.70 per diluted share) from **$44.8 million** ($1.93 per diluted share) in Q1 2022[79](index=79&type=chunk) - The decline was primarily driven by a **14%** drop in consolidated sales volume due to lower market demand and ongoing customer inventory destocking[80](index=80&type=chunk) - Management anticipates depressed Q2 2023 sales volume, with year-over-year growth expected to return in the second half of the year[129](index=129&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Q1 2023 operating income fell **67%** to **$21.1 million**, with all segments experiencing significant declines due to volume drops and lower margins Segment Operating Income Change (Q1 2023 vs Q1 2022, in thousands) | Segment | Q1 2023 Operating Income | Q1 2022 Operating Income | % Change | | :--- | :--- | :--- | :--- | | Surfactants | $27,056 | $53,769 | -50% | | Polymers | $10,004 | $14,129 | -29% | | Specialty Products | $2,530 | $3,695 | -32% | - North American Surfactant sales volume fell **18%** due to lower commodity laundry demand, 1,4 dioxane transition delays, and customer backward integration[88](index=88&type=chunk) - North American Polymer sales volume decreased **25%**, with polyols for rigid foam applications dropping **30%** due to customer inventory destocking and reduced construction activity[98](index=98&type=chunk)[99](index=99&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Q1 2023 liquidity was impacted by **$72.1 million** cash used in operations, with total debt increasing to **$711.0 million** and 2023 capital expenditures projected at **$220-240 million** - Net cash used in operating activities was **$72.1 million** for Q1 2023, a significant increase from **$20.9 million** in Q1 2022[110](index=110&type=chunk) - Capital expenditures are estimated to be in the range of **$220.0 million** to **$240.0 million** for the full year 2023[116](index=116&type=chunk) - Net debt increased by **$170.7 million** during the quarter to **$584.0 million** as of March 31, 2023[119](index=119&type=chunk) [Non-GAAP Reconciliations](index=29&type=section&id=NON-GAAP%20RECONCILIATIONS) This section reconciles non-GAAP financial measures, showing adjusted net income of **$16.4 million** for Q1 2023, down from **$40.7 million** in Q1 2022, and an increased net debt to equity ratio Reconciliation of Non-GAAP Adjusted Net Income (in millions, except per share) | | Q1 2023 Net Income | Q1 2023 Diluted EPS | Q1 2022 Net Income | Q1 2022 Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | As Reported (GAAP) | **$16.1** | **$0.70** | **$44.8** | **$1.93** | | Adjustments | **$0.3** | **$0.01** | **$(4.1)** | **$(0.17)** | | Adjusted (Non-GAAP) | **$16.4** | **$0.71** | **$40.7** | **$1.76** | Net Debt Calculation (in millions) | | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Debt | **$711.0** | **$587.1** | | Less: Cash | **($127.0)** | **($173.8)** | | Net Debt | **$584.0** | **$413.3** | [Item 3 – Quantitative and Qualitative Disclosures about Market Risk](index=30&type=section&id=Item%203%20%E2%80%93%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes to market risks previously disclosed in the Company's 2022 Annual Report on Form 10-K - There have been no material changes to the market risks described in the Company's 2022 Annual Report on Form 10-K[136](index=136&type=chunk) [Item 4 – Controls and Procedures](index=30&type=section&id=Item%204%20%E2%80%93%20Controls%20and%20Procedures) As of March 31, 2023, the CEO and CFO concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[137](index=137&type=chunk) - No changes occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[137](index=137&type=chunk) Part II [Item 1 – Legal Proceedings](index=30&type=section&id=Item%201%20%E2%80%93%20Legal%20Proceedings) No new environmental proceedings meeting the **$1.0 million** disclosure threshold were reported, and no material changes occurred to previously disclosed legal proceedings - There are no new environmental proceedings to disclose for the period, based on the company's adopted disclosure threshold of **$1.0 million** for monetary sanctions in governmental proceedings[138](index=138&type=chunk) - There have been no material changes to the legal proceedings disclosed in the Company's 2022 Annual Report on Form 10-K[139](index=139&type=chunk) [Item 1A – Risk Factors](index=30&type=section&id=Item%201A%20%E2%80%93%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Company's 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the Company's 2022 Annual Report on Form 10-K[140](index=140&type=chunk) [Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202%20%E2%80%93%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2023, the company did not repurchase shares via its public program but acquired **40,401** shares from employees for tax withholding, with **$125.1 million** remaining for future repurchases - The company did not purchase any shares of its common stock on the open market during Q1 2023[118](index=118&type=chunk) - A total of **40,401** shares were acquired from employees to settle statutory withholding taxes related to equity compensation distributions and exercises[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk) - As of the end of the quarter, approximately **$125.1 million** remained available for repurchase under the Board of Directors' authorized program[142](index=142&type=chunk)

Financial Data and Key Metrics Changes - Adjusted net income for Q1 2023 was $16.4 million or $0.71 per diluted share, down from $40.7 million or $1.76 per diluted share in the prior year, reflecting a significant decline [8][20] - Adjusted EBITDA was $48.7 million, down $31 million compared to Q1 2022, primarily due to a decline in sales volume [21] - The effective tax rate decreased to 19% in Q1 2023 from 24.6% in Q1 2022, attributed to more favorable tax benefits [11] Business Line Data and Key Metrics Changes - Surfactants operating income decreased to $27.1 million from $53.8 million in the prior year, driven by a 13% decline in global sales volume [5][53] - Polymers operating income was $10 million, a decrease of 28% year-over-year, primarily due to an 18% decline in global sales volume [6][54] - Specialty Products net sales were $23 million, a 13% increase year-over-year, although operating income decreased due to lower volumes and margins [30][112] Market Data and Key Metrics Changes - Global sales volume for Surfactants declined by 13%, with lower demand in commodity laundry and personal care markets [20][28] - Polymers experienced an 18% decline in global volume, with significant impacts from customer destocking and lower construction-related activities [6][29] - Higher global demand in the agricultural end market partially offset declines in other areas [22][28] Company Strategy and Development Direction - The company aims to diversify its customer base by expanding its global reach to tier 2 and tier 3 customers [16] - Focus on developing next-generation rigid polyol technologies to enhance energy efficiency in insulation products [34] - Continued investment in alkoxylation production capacity in Pasadena, Texas, expected to support long-term growth in specialty alkoxylate markets [38][64] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing inflationary pressures and high cash expenses related to new investments, but maintained that cash expenses remained consistent year-over-year [4][60] - The company expects gradual improvements in margins in Q2 and more significant recovery in the second half of the year as destocking ends and new contracted volumes come online [70][100] - Management expressed confidence in the strength and diversity of the business, emphasizing the ability to generate cash for investments and shareholder returns [24][41] Other Important Information - The company declared a quarterly cash dividend of $0.365 per share, continuing a 55-year history of increasing dividends [23][37] - Capital expenditures for Q1 2023 were $92 million, including investments in the 1,4 dioxane project and Pasadena facility [31][61] - The company has $125 million remaining under its share repurchase program [7] Q&A Session Summary Question: Discussion on raw material and inflationary pressures - Management indicated that Q1 inflation was related to depleting high-cost inventory and expected to continue through Q2 [68] Question: Margin improvement expectations - Gradual margin improvements are anticipated in Q2, with more significant gains expected in the second half due to raw material depletion and improved product mix [70] Question: Customer inventory liquidation trends - Management noted that customer destocking would likely extend through Q2, with expectations for recovery in the second half driven by new contracted volumes [100] Question: Currency translation impacts - Management acknowledged minor impacts from currency translation, with some benefits from a stronger euro but challenges from volatility in Latin American currencies [102] Question: Demand outlook for Polymers - Underlying demand appears healthy, but destocking is expected to continue into Q2, with a rebound anticipated in the second half [105]

Earnings Call Presentation Cautionary Statement Certain information in this presentation consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements about Stepan Company's plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 1-4462 STEPAN COMPANY (Exact name of registrant as specified in its charter) | Delaware 36-1823834 | | --- | | (State or other jurisdicti ...

Financial Data and Key Metrics Changes - Adjusted net income for Q4 2022 was $13.5 million or $0.59 per diluted share, down from $22.5 million or $0.97 per diluted share in Q4 2021 [23][32] - For the full year 2022, adjusted net income reached a record $153.5 million or $6.65 per diluted share, a 7% increase from $143.5 million or $6.16 per diluted share in 2021 [32][34] - The effective tax rate for 2022 was 22%, up from 20% in 2021, primarily due to non-recurring favorable tax benefits recognized in 2021 [35] Business Line Data and Key Metrics Changes - Surfactant segment net sales were $455 million for Q4 2022, an 8% increase year-over-year, with selling prices up 26% due to higher raw material and logistic costs [17][27] - Polymer segment net sales were $148 million for Q4 2022, a 15% increase year-over-year, with selling prices increasing by 14% [28] - Specialty Products operating income reached a record $30 million in 2022, compared to $14 million in the prior year, driven by improved margins and customer mix [21][34] Market Data and Key Metrics Changes - Global volume declined by 15% year-over-year, primarily due to lower demand in commodity laundry and personal care markets [26] - Foreign currency translation negatively impacted net sales by 3% in Q4 2022 and by $5.6 million or $0.24 per diluted share for the full year [26][34] - North America and Europe experienced lower volumes across all polymer segments, while Asia saw improvements due to increased demand following the easing of COVID restrictions [31] Company Strategy and Development Direction - The company aims to invest in current business operations, pursue strategic M&A opportunities, and return cash to shareholders [22] - Significant investments are being made in the new alkoxylation production facility in Pasadena, Texas, expected to be operational by mid-2024 [40] - The company is focused on transitioning to low 1,4-dioxane products to meet new regulatory requirements, with completion expected in the first half of 2023 [127] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength and diversity of the business despite challenges from inflation and supply chain issues [12][22] - The macro environment is expected to negatively impact consumer demand and construction-related activity in 2023, affecting both surfactant and polymer businesses [65] - Management noted that destocking activities are expected to continue, particularly in the polymer segment, but signs of normalization in order patterns are anticipated [47][68] Other Important Information - The company paid $30.6 million in dividends and repurchased $25 million of its stock in 2022, with $125 million remaining under the share repurchase program [5] - The company achieved a gold rating from EcoVadis, placing it in the 96th percentile within the specialty chemical sector for ESG efforts [61] Q&A Session Summary Question: Factors driving the 17% volume decline in Q4 - Management identified three main factors: demand decline, customer destocking, and the transition to low 1,4-dioxane products, with each contributing approximately one-third to the decline [68] Question: Signs of order pattern normalization - Management indicated that while some uptick in demand is expected, destocking activities are still ongoing, particularly in the polymer segment [47][69] Question: Impact of Pasadena startup process on P&L - Management noted that there will be additional costs associated with the startup of the Pasadena facility, estimated at around $10 million [50] Question: Regional outlook for 2023 - Management highlighted that Europe is ahead in demand recovery compared to North America, with concerns about prolonged inflation impacting Latin America [107][108] Question: New product development and sales performance - Management emphasized a focus on agricultural chemicals and specialty alkoxylates, with ongoing investments in R&D to support growth in these areas [86][110]

Fourth Quarter 2022 Cautionary Statement There are a number of risks, uncertainties and other important factors, many of which are beyond Stepan Company's control, that could cause actual results to differ materially from the forward-looking statements contained in this presentation. Such risks, uncertainties and other important factors include, among other factors, the risks, uncertainties and factors described in Stepan Company's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports, and ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 1-4462 STEPAN COMPANY (Exact name of registrant as specified in its charter) Delaware 36-1823834 (State or other jurisdiction of in ...

Financial Data and Key Metrics Changes - Reported net income reached a record $39.4 million or $1.71 per diluted share, while adjusted net income was a record of $46.3 million or $2.01 per diluted share, compared to $36.4 million or $1.57 per diluted share for the same quarter last year [7][11] - Surfactant operating income was $39.0 million, up from $34.5 million in the prior year quarter, driven by a better product and customer mix despite an 8% decline in global volume [7][14] - Polymer segment operating income reached a record $31.9 million, a 61% increase from $19.8 million in the prior year, driven by margin recovery and improved mix [8][15] - Specialty Products segment also had a record quarter with operating income growing to $9.7 million, a $7.3 million increase over the prior year [8][16] Business Line Data and Key Metrics Changes - Surfactant net sales were $475 million, a 22% increase year-over-year, with selling prices increasing by 35% due to higher raw material and logistics costs [14] - Polymer net sales were $215 million, an 8% increase from the same quarter last year, with selling prices up 26% [15] - Specialty Products segment saw a favorable customer mix and improved margins, contributing to record operating income [16] Market Data and Key Metrics Changes - Global agricultural volumes increased double digits in Q3 2022, driven by high agricultural commodity prices and increased planted acreage [20] - Oilfield volumes also increased despite raw material availability constraints, with robust demand as crude oil prices remained elevated around $90 per barrel [20] Company Strategy and Development Direction - The company continues to advance its strategic priorities, focusing on diversification into functional products, including agricultural and oilfield chemicals [19] - Investments are being made to improve productivity and reliability at the Millsdale plant, with expectations of benefits starting next year [21] - A new alkoxylation production facility in Pasadena, Texas, is expected to be operational by early 2024, supporting long-term specialty alkoxylate growth [22] Management's Comments on Operating Environment and Future Outlook - The operational environment remains challenging due to raw material constraints, energy crisis in Europe, cost inflation, and global macroeconomic uncertainties [7] - Despite these challenges, the company is confident in delivering another record year, with expectations for growth in all segments [26] - Management anticipates that the company will face slowing global economic growth and weakening consumer demand, particularly in Europe and emerging markets [27] Other Important Information - The company declared a quarterly cash dividend of $0.365 per share, representing a 9% increase, and has paid and increased its dividend for 55 consecutive years [8] - The company has $127.7 million remaining under its share repurchase program [9] Q&A Session Summary Question: Price cost dynamics in Surfactants and Polymers - Management indicated that while raw materials are somewhat moderating, they remain volatile, and inflationary costs continue to be a challenge across both segments [34][35] Question: Energy availability situation in Europe - Management does not foresee disruptions in European operations and plans to continue running all plants through winter, having contingency plans in place [36] Question: Impact of lower commodity laundry volume on fixed cost absorption - Lower volumes do impact fixed costs, but management remains confident in margins due to a focus on high-margin businesses [38] Question: Demand trends in the construction-related portions of polymers - Management noted a slowdown in construction markets in Europe, with expectations of a recovery in the second half of next year [80] Question: Interest expense trends - Management expects interest expenses to rise due to new debt but believes they are in a good position with fixed interest rates below 3% [62] Question: Impact of Mississippi water levels on logistics - Management confirmed that they have robust contingency plans in place and have not experienced major impacts from the water level disruptions [64][68]

Delivering Our Future Now August 2022 Investor Presentation Cautionary Statement Certain information in this presentation consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements include statements about Stepan Company's plans, objectives, strategies, financial performance and outlook, trends, ...