Forward-looking statements in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are not guarantees of future performance and involve risks and uncertainties that could cause actual results to materially differ from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Part I, Item IA - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of these risks and uncertainties.

OVERVIEW AND OUTLOOK

Business

Lydall, Inc. and its subsidiaries (collectively, "Lydall", "the Company", "we", and "our") design, manufacture, and market specialty filtration and advanced materials solutions that contribute to a cleaner, quieter, and safer world. The Company operates in a variety of attractive end markets supported by global megatrends such as the demand for indoor air quality and lower emissions, near sourcing of supply chains, and vehicle electrification redefining safety and sound. Lydall solves our customers' problems culminating in demanding applications, including: high performance air and liquid specialty filtration, molecular filtration, engineered fiber based sealing solutions, specialty insulation including high temperature and ultra-low temperature (cryogenic) insulation, needle punch nonwoven materials for industrial, geosynthetic, medical and other specialty applications; and thermal management and acoustical products and solutions to assist in the reduction of noise, vibration, and harshness. The Company principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.

The Performance Materials segment is a worldwide leader in delivering innovative specialty filtration, sealing and advanced materials solutions for demanding applications. Specifically, the segment's offerings include: (1) specialty filtration media solutions for a variety of applications in the global air and liquid filtration market such as personal protective equipment ("PPE"), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture and construction end markets; and, (3) advanced materials that include highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.

The Technical Nonwovens segment is a global leader in engineered nonwoven materials for industrial filtration applications and advanced materials products. The primary industrial filtration markets include air pollution and emissions control, power generation, and liquid filtration solutions. Advanced materials products include geotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications, and highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel. Specifically, the segment's offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier 1 and Tier 2 suppliers as well as the Company's Thermal Acoustical Solutions segment.

The Thermal Acoustical Solutions segment offers a full range of innovative engineered products tailored for the transportation and industrial sectors to shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise, vibration, and harshness (NVH).

Recent Developments

In early 2020, the World Health Organization ("WHO") characterized COVID-19 as a pandemic. In an effort to contain COVID-19 and slow its spread, governments throughout the world, including global and regional markets served by the Company, enacted various measures, including orders to close "non-essential" businesses, isolate residents in their places of residence, and practice social distancing. These actions and the global health crisis caused by COVID-19 has, and may continue to, adversely impact global business activity and our financial performance. Despite the recent administration of vaccines, the outbreak continues to have an adverse impact on parts of our business including cases of absenteeism and certain supply chain challenges. The Company has implemented changes to help ensure the safety and health of all its employees and continues to assess and update its business continuity plans in the context of this pandemic. The Company will continue its efforts to maintain a safe and healthy work environment, including and continuing to allow remote working arrangements where it is appropriate.

Stronger demand in the auto and industrial markets is causing higher commodity prices for aluminum, aluminized steel, polypropylene, and microfiber glass. Supply chain issues, including transportation and logistics problems, are causing periodic


                                       22
--------------------------------------------------------------------------------

supply chain disruptions, and in selected cases, material shortages in various markets served by the Company. Although the Company does not foresee a material adverse impact on the Company's financial performance for the remainder of 2021, given the dynamic nature of this situation, we cannot estimate with certainty the future impacts from higher commodity prices and the COVID-19 pandemic on our financial condition, results of operations or cash flows.

Performance Materials Developments

COVID-19

The Performance Materials segment did not experience significant business disruption as a result of the COVID-19 pandemic during the first quarter of 2021. The segment's facilities remain open in all regions in which the segment operates.

Market Trends

Demand for the Performance Materials segment's filtration and sealing and advance solutions products continue to be strong, however, the segment is experiencing supply chain challenges for key raw materials, primarily impacting sealings products. In addition, the segment is seeing significant commodity price increases for polypropylene and other fibers used in its filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass through most of the higher costs in customer pricing.

Other

As previously disclosed, the Performance Materials segment undertook actions to exit underperforming facilities in Europe. In March 2021, the Company entered into an agreement to sell its German facility. The sale was completed in March 2021 and, as a result, the Company recorded a loss in the amount of $0.7 million. See Note 11, "Restructuring," in the Notes to Condensed Consolidated Financial Statements for additional information.

Technical Nonwovens Developments

COVID-19

The Technical Nonwovens segment did not experience significant business disruptions as a result of the COVID-19 pandemic during the first quarter of 2021. The segment's facilities remain open in all regions in which the segment operates. A small number of suppliers have issued force majeure notifications, however, the impact on the segment's financial results have not been material.

Market Trends

Demand for the Technical Nonwovens segment's geosynthetic, medical and filtration products are strong. The segment has experienced lower demand in North America for nonwoven products used in automotive applications as global semiconductor chip shortages impact the automotive industry's customers. However, the Company does not expect these issues to have a material adverse impact on the Company's financial performance in 2021. In addition, the segment is seeing significant commodity price increases for polypropylene used in geosynthetic and filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass through the higher costs in customer pricing.

Thermal Acoustical Solutions Developments

COVID-19

As previously disclosed, the Thermal Acoustical Solutions segment's North Carolina facility experienced labor shortages and operational inefficiencies directly related to COVID-19 in 2020. The segment has seen a decline in COVID-19 related illnesses during the first quarter of 2021 and, as a result, labor and overtime costs have begun to decline compared to the higher costs incurred in 2020. The segment's facilities remain open in all regions in which the segment operates.

Market Trends

Customer demand continues to be strong for the Thermal Acoustical Solutions segment, however, customer orders from month to month have been volatile as certain automotive OEM customers temporarily slow or halt production of certain vehicle


                                       23
--------------------------------------------------------------------------------

models due to material supply shortages. Consistent with the Company's other segments, the Thermal Acoustical Solutions segment is experiencing higher commodity pricing, specifically for aluminum, aluminized steel, and polyester fiber. The segment is able to pass through the higher commodity costs for certain customers; however, commodity price increases could have a moderate adverse impact on the segment's financial performance in 2021 to the extent these costs cannot be passed on to customers.

FIRST QUARTER 2021 HIGHLIGHTS

Below are financial performance highlights for the three-month period ended March 31, 2021 compared to the three-month period ended March 31, 2020:

The chart below reflects the change in consolidated net sales by segment:


                     [[Image Removed: ldl-20210331_g1.jpg]]

Consolidated net sales were $227.1 million in the first quarter of 2021, compared to $200.5 million in the first quarter of 2020, an increase of $26.6 million, or 13.3%, driven by $14.1 million in higher sales in the Company's Performance Materials segment, resulting from higher demand in filtration products for face mask media in response to the COVID-19 pandemic combined with strong demand in sealing markets. In addition, the Thermal Acoustical Solutions segment saw continued strength in the automotive market led by higher parts sales of $9.2 million, partially offset by lower tooling sales, and the Technical Nonwovens segment experienced an increase in sales driven by higher demand in industrial filtration markets. The change in consolidated net sales is summarized in the following chart:


                                       24
--------------------------------------------------------------------------------


                     [[Image Removed: ldl-20210331_g2.jpg]]

(1)Parts volume and pricing change includes a $0.6 million decrease in net sales from the German facility sold on March 11, 2021 between comparable periods in the first quarters of 2021 and 2020.

Consolidated operating income was $12.1 million for the three-month period ended March 31, 2021 compared to an operating loss of $(55.6) million in the corresponding period in 2020. Operating income for the three-month period ended March 31, 2020 was adversely impacted by goodwill and other long-lived asset impairment charges in the Performance Materials segment of $61.1 million. After adjusting for the impairment charges, operating income increased $6.6 million primarily due to an increase in operating income of $11.1 million in the Performance Materials segment, driven by favorable product mix from continued demand for face mask media and stronger demand in the sealing and cryogenics markets. Operating income for the Technical Nonwovens segment increased $1.3 million primarily due to the absence of a $0.9 million inventory charge included in the first quarter of 2020 related to a flood in one of its European facilities. Offsetting these increases was a $4.0 million decrease in operating income in the Thermal Acoustical Solutions segment primarily due to higher labor and outsourcing costs as a result of workforce shortages related to COVID-19.

The chart below reflects the change in consolidated operating income by segment:

[[Image Removed: ldl-20210331_g3.jpg]] Consolidated net income was $5.1 million, or $0.28 per diluted share, for the three-month period ended March 31, 2021 compared to a net loss of $(56.4) million, or $(3.25) per diluted share, in the corresponding period in 2020.


                                       25

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses