3q20 earnings presentation...– materials technologies: demand stronger than expected in...

October 28, 2020

Third Quarter 2020Earnings Presentation

2020 W. R. Grace & Co. | 2

DISCLAIMER

Statement Regarding Safe Harbor For Forward-Looking StatementsThis presentation and the exhibits hereto contain forward-looking statements, that is, information related to future, not past, events. Suchstatements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,”or similar expressions. Forward-looking statements include, without limitation, statements regarding future: financial positions; results ofoperations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; impact of COVID-19 on Grace'sbusiness; competitive positions; growth opportunities for existing products; benefits from new technology; benefits from cost reduction initiatives;succession planning; and markets for securities. For these statements, Grace claims the protections of the safe harbor for forward-lookingstatements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Grace is subject to risks and uncertainties thatcould cause actual results or events to differ materially from its projections or that could cause other forward-looking statements to proveincorrect. Factors that could cause actual results or events to differ materially from those contained in the forward-looking statements include,without limitation: risks related to foreign operations, especially in areas of active conflicts and in emerging regions; the costs and availability ofraw materials, energy and transportation; the effectiveness of Grace’s research and development and growth investments; acquisitions anddivestitures of assets and businesses; developments affecting Grace’s outstanding indebtedness; developments affecting Grace's pensionobligations; legacy matters (including product, environmental, and other legacy liabilities) relating to past activities of Grace; its legal andenvironmental proceedings; environmental compliance costs (including existing and potential laws and regulations pertaining to climatechange); the inability to establish or maintain certain business relationships; the inability to hire or retain key personnel; natural disasters suchas storms and floods; fires and force majeure events; the economics of our customers’ industries, including the petroleum refining,petrochemicals, and plastics industries, and shifting consumer preferences; public health and safety concerns, including pandemics andquarantines; changes in tax laws and regulations; international trade disputes, tariffs, and sanctions; the potential effects of cyberattacks; andthose additional factors set forth in Grace's most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports onForm 8-K, which have been filed with the Securities and Exchange Commission and are readily available on the internet at www.sec.gov.Grace’s reported results should not be considered as an indication of its future performance. Readers are cautioned not to place undue relianceon Grace's projections and forward-looking statements, which speak only as of the dates those projections and statements are made. Graceundertakes no obligation to release publicly any revisions to the projections and forward-looking statements contained in this presentation andthe exhibits thereto, or to update them to reflect events or circumstances occurring after the date of this presentation.

Non-GAAP Financial MeasuresIn this presentation, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S.GAAP), as well as the non-GAAP financial information described in the Appendix. Grace believes that this non-GAAP financialinformation provides useful supplemental information about the performance of its businesses, improves period-to-period comparability,and provides clarity on the information management uses to evaluate the performance of its businesses. In the Appendix, Grace hasprovided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated andpresented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financialmeasures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP andreconciliations from those results should be evaluated carefully.

3Q20 Highlights andBusiness Update

Hudson La ForcePresident and Chief Executive Officer

2020 W. R. Grace & Co. | 4

KEY MESSAGES

Board and Leadership Focused on Creating Value for all Shareholders– Focused on executing growth plan and advancing investments to accelerate growth, improve

competitive advantages, and strengthen our portfolio– Confident growth strategy and capital allocation discipline will create significant long-term value for all

shareholders– Carefully evaluating and thoroughly discussing additional value creation opportunities, consistent with

our longstanding practices and commitment to all shareholders

Strong Focus on Health and Safety of Employees– Strong COVID-19 safety protocols; safe restart after Hurricane Laura

Improving Demand Trends in End Markets– Well-positioned to capture growth as recovery progresses

Solid Financial Results in a Challenging Environment– Adjusted Gross Margin improved 410 bps sequentially– $125 million in 2020 cost and cash flow improvements– $170 million in YTD Adjusted Free Cash Flow

Sustainability and Customer-Driven Innovation Provides Multiple Growth Opportunities – ~44% of our 2019 sales directly contribute to our customers' sustainability objectives– ~65% of R&D projects tied to at least one of four sustainability drivers– Grace well-positioned to drive advanced plastics recycling technology

* Definitions of non-GAAP financial measures and reconciliations to the closest GAAP measure are provided in the Appendix

2020 W. R. Grace & Co. | 5

3Q20 HIGHLIGHTS

Sales in line with 3Q20 planning assumptions despite effects of Hurricane Laura– Improving demand trends across many end markets– Specialty Catalysts: improving trends in all regions and segments– Refining catalysts: market stabilized and improving from 2Q20 bottom; transportation fuels

demand lagging overall economic recovery– Materials Technologies: demand stronger than expected in pharma/consumer and coatings;

sales up 4.2% y/y

Adjusted Gross Margin recovery above planning assumptions - up 410 bps versus 2Q20

Adjusted EBIT - down 36% y/y; up 9% sequentially including costs related to Hurricane Laura – 3Q20 hurricane-related costs of $12M, or $0.13 per share

Exceptional cash flow performance year-to-date– $259M operating cash flow and $170M Adjusted Free Cash Flow– Adjusted Free Cash Flow up 4% on 37% lower Adjusted EBIT

Strong execution of cash and cost management actions in response to pandemic– Full year expected cash flow benefit of $125M– Achieved targets for working capital ($45-$50M) and capital spending ($40M)– On track to deliver operating cost reductions ($35-$40M)

Increased liquidity to over $700M, with no significant debt maturities until 2024

3Q20 Actual (y/y)


Sales

$419Mdown 10.9%

Adj. EBIT

$70Mdown 35.7%

Adj. EPS

$0.56down 42.9%

Year-to-date Adj. FCF

$170Mup $7M

Strong Execution and Solid Financial Results in Challenging Environment

2020 W. R. Grace & Co. | 6

SPECIALTY CATALYSTS

End Market Trends

• Non-durables (hygiene, medical packaging, and foodpackaging) continue to show demand strength

• Durables (automotive and construction) showingsome signs of recovery; may take time to fully returnto 2019 levels

• Improving trends in all regions and segments

• Continued strength of China recovery; Asia recoveryis a key driver of growth globally

Recovery Expectations

Recent Actions Taken

• Introduced 15 new product technologies to meetcustomer needs

• Significant 3Q20 increase in customer trial activitywith high success rate

• 13 long-term contracts with existing and newcustomers

• Awarded 5th UNIPOL® PP Process Technologylicense in 2020; robust pipeline for 4Q20 and 2021

2021 Strategic Initiatives

1. High value-add technology and operating solutions for customers,leveraging our technology, operating know-how, and proprietary insightsdatabase

2. Successful joint development engagements for innovation with high volumecustomers

3. Expanding licensee relationships with Lifetime Plant Performance focus;helping customers manage unit performance, profitability, and risk withchanging business conditions

4. Manufacturing Excellence driving incremental capacity and reduced capitalintensity, including de-bottlenecking productivity and increased overallequipment effectiveness

#1 polyolefin catalyst provider Technology leadership in catalyst solutionsStrong incumbency with high volume producers

Independent process licensingprovides demand insights

• Aggregate market growth rate isflat in 2020; anticipated 4-5% peryear over the next 3 years

• Specialty Catalysts 2021 growthexceeds market forecast

• Recovery in catalysts lagging resinrecovery by about 3 months

• Inventory correction impacting2020 sales

1 Source: IHS Markit, 2020. The use of this content was authorized in advance by IHS Markit. Any further use or redistribution of this content isstrictly prohibited without written permission by IHS Markit. All rights reserved.

2020 W. R. Grace & Co. | 7

REFINING TECHNOLOGIES

End Market Trends

• Demand for transportation fuels has stabilized andstarted to recover from 2Q20 bottom

– Recent increase in COVID-19 cases has not causedwidespread lock downs

– No further material decrease in demand; pace ofrecovery slowing

• Global refinery utilization remains ~10% belownormal levels

• Customers use our products to optimize their FCCand Hydroprocessing unit operations

– Working very closely with customers to meet theirevolving needs regarding product slate optimization



• Developing new offerings focused on petrochemicalfeedstock production, renewables, and digitalizationto align with refining industry priorities

• Technology leadership position and investmentskeep us aligned with evolving customer performanceexpectations and buying behavior

– Maintaining our focus on creating value for ourcustomers

• Optimizing our manufacturing network; drivingproductivity programs and investing in plantcapabilities and flexibility


1. Customer-Driven Innovation and Commercial Excellence investments tomaintain market share and improve profitability

2. Leadership role in growing profitable petrochemical feedstock segment withstrong product portfolio, localized commercial teams, and in-country valueinitiatives

3. Focus on delivering value to customers as mature markets evolve anddemand growth continues shift to Asia Pacific, Middle East, and Africa

4. Driving operating excellence to improve cost position and flexibility in ourmanufacturing networks

Customers require deepapplication knowledge

ART technology improvescompetitiveness of refiners

Robust pipeline of newtechnologies and products

Operating excellence improvesmanufacturing efficiencies

1 Based on analysis of industry reports and Grace management estimates.

2020 W. R. Grace & Co. | 8

MATERIALS TECHNOLOGIES

End Market Trends

• Pharma/Consumer segments have held up wellduring the pandemic:– Grace pharma technologies important in the fight

against COVID-19 including high-value specialtysilicas used in COVID-19 test kits and therapies

– On shoring of drug manufacturing• Rapid recovery underway in Coatings segment

supported by pipeline development activities andnovel products for environmental coatings

• Slower recovery in automotive and aerospacesegments, but expecting notable improvementbeginning in 4Q20



• Accelerating Commercial Excellence strategy

– Focus on high value differentiated segments (e.g.pharma, nutraceutical, environmental coatings)

• Accelerating customer driven innovation

– 90% R&D spend aligned to key growth segments

• Manufacturing agility – pivoting from cash focus inQ2 to growth focus in Q3 to capture marketopportunities as recovery progresses


1. Innovation and Commercial Excellence investments targeting high growthend markets

2. Innovation – accelerating new product development and applicationsexpertise to meet customer and market needs

3. Commercial Excellence – recent investments contributing to strongperformance, MT outperformed many end markets in Q2 and Q3

4. Manufacturing Excellence – leveraging new capacity in colloidal silica,chromatography, and Asia Pacific to accelerate growth

Highly differentiated productsfor niche segments

Leader in technology andcustomer-driven innovation

Commercial excellence

Manufacturing excellence and new capacity

Pharma/Consumer: • Continued strength in end market demand driven by consumers' focus

on health and personal care needsCoatings: • End-market applications demonstrating continued strength in Asia

Pacific as well as ongoing recovery in wood/coil applicationsChemical Process: • Inline with industrial market recoveries; slower pace of recovery due to

significant impact in end market from pandemic

2020 W. R. Grace & Co. | 9

GRACE VALUE MODEL AND SUSTAINABILITY DRIVERS

Environment,Health, and

Safety

Dedicated to Achieving Highest Environment, Health, and Safety Standards• Grace has a codified EHS management system aligned with the highly regarded

Responsible Care® standards of the American Chemistry Council• Safety is a Core Value and a foundation of our corporate culture• Comprehensive Board-level risk management process includes assessment of climate-

related physical and transition risks

• Among top 6% of ranked suppliers in 2019 for CSR performance by EcoVadis• Participant in the CDP assessment on climate change and water security

1 Represents revenues aligned to SASB Chemicals Sustainability Accounting Standards definition of products designed for use-phase resourceefficiency, including improving energy efficiency, eliminating/lowering emissions, reducing raw materials consumption, increasing product longevity,and/or reducing water consumption. 2 Figure includes unconsolidated ART joint venture.

Growth Opportunities Driven by Our Customers’ Sustainability Objectives

Improving Our Customers'... Enabling Our Customers' to...

~$0.1B ~$0.4B ~$0.5B2 ~$0.1B2019sales:

Products1 Processes1 Meet Stricter EnvironmentalStandardsReformulate Their Products to

Meet Customer Demand

High-performing customcatalysts for lightweighting anddown-gauging plastics

Advanced silica gel for filtrationto reduce water use and waste

Additives to reduce SOx andNOx emissions from refineryoperations

Non-phthalate PP catalysts forsafer packaging and householditems

~65% of R&D Projects and ~70% of Related Revenue Growth Tied to at LeastOne of Four Sustainability Drivers

~44% or ~$1.1B2 of our 2019 Sales Directly Contribute to our Customers' Sustainability Objectives

Example:

2020 W. R. Grace & Co. | 10

EMERGING OPPORTUNITIES LINK SUSTAINABILITYAND CUSTOMER-DRIVEN INNOVATION

Well-Positioned to Drive Sustainability Efforts in Significant Global End Markets

ADVANCED PLASTICS RECYCLING at the intersectionof Grace FCC and Polyolefins catalysts technology

Grace supplies technology to the RENEWABLE FUELSvalue chain at multiple points

Developing technologies and business models for advancedrecycling to convert plastic waste:

• Into oil to be co-processed further in a refinery to producefuels and chemical feedstocks, and

• Directly into light olefins and aromatics for use as chemicalfeedstocks

• Partnering with our customers to expand and enable the useof renewable feedstocks using our unique capabilities

• Actively selling commercial products today, and developingnew products to solve new challenges associated withrenewable fuels processing

Currently 35% ofrecycling streams

come frommechanical

recycling; in thefuture we expect

>50% to gothrough

AdvancedRecycling

Currently ~$20million business

for Grace;growing at

double-digits

Financial Review

Bill DockmanSenior Vice President and Chief Financial Officer

2020 W. R. Grace & Co. | 12

CONSOLIDATED PERFORMANCE – 3Q 2020 RESULTS

*Definitions of non-GAAP financial measures and reconciliations to the closest GAAP measure are provided in the Appendix

Sales andAdj. Gross Margin

Adj. EBIT and Adj. EBIT Margin Adj. Free Cash Flow

3Q2019

3Q2020

$108.2

$69.623.0%

16.6%

YTD2019

YTD2020

$163.0 $170.0

Sales down 11.4% onconstant currency Adj. EBIT down 35.7%

Adj. EPS

3Q2019

3Q2020

$0.98

$0.56

Adj. EPS down 42.9%

• Sales down 10.9% asreported

– Improving demand trends inmany end markets, thoughimpacted by ongoing effectsof pandemic

• Adj. Gross Margin down300 bps y/y; up 410 bpssequentially from 2Q20

• Adj. EBIT down 35.7%, or$38.6M

– Lower gross profit partiallyoffset by lower operatingexpense

– Includes $12M impact fromHurricane Laura

• Adj. EBIT Margin down 640bps

• Adj. EPS of $0.56, down$0.42 or 42.9%

– Lower Adj. EBIT

– Includes $0.13 per shareimpact from Hurricane Laura

• AFCF up 4.3%, or $7.0M – Strong cash flow; reflecting

execution of cash and costmanagement actions takenin response to the pandemic

– $60.3M AFCF in 3Q20

• Adj. EBIT ROIC of 15.2%

($M except EPS)

3Q2019

3Q2020

$470.5$419.4

41.2% 38.2%

Strong cash flowdespite lower earnings

2020 W. R. Grace & Co. | 13

Sales & Gross Margin• Specialty Catalysts sales down 5.0%

– Primarily due to continued customer inventory draw downsresulting from the pandemic

• Refining Technologies sales down 24.2%– Global refinery operating rates and demand for transportation

fuels continued to be negatively impacted by the pandemic– Some sales shifted from 3Q20 to 4Q20 as a result of

Hurricane Laura• Gross margin down 280 bps y/y (up 260 bps sequentially)

– Primarily due to lower production volumes, partially offset bylower raw materials and energy costs and cost mitigationactions

CATALYSTS TECHNOLOGIES – 3Q 2020 RESULTS

Operating Income & Operating Margin

Refining TechnologiesSpecialty Catalysts

3Q19 Volume Price Currency 3Q20

$195.9$148.5

$165.5$157.2

Gross Margin

39.2% 42.0%

3Q19 3Q20

$105.1

$67.129.1%

21.9%

$305.7 (0.5)% 0.5% $361.4

Note: 3Q20 CT sales by geography: NA 29%, EMEA 44%, APAC 24%, LA 4% (figures may be off due to rounding)

ê (5.0)%

ê (24.2)%

ê 15.4%

ê 280 bps

ê 36.2%

ê 720 bps

Operating Income & Operating Margin• Operating income down $38.0M, or 36.2%

– Primarily due to lower gross profit and $2.5M lower incomefrom ART joint venture, partially offset by lower operatingexpense

– Includes $12M impact from Hurricane Laura

• Operating margin 21.9%, down 720 bps

Sales & Gross Margin

(15.4%)

2020 W. R. Grace & Co. | 14

Sales & Gross Margin• Sales up 4.2%

– Continued strength in pharma/consumer end-markets– Sales were up 3.6% sequentially reflecting steady

improvement in most end-markets and geographies

• Gross margin down 290 bps y/y (up 880 bps sequentially)– Primarily due to 2Q20 inventory control actions, partially offset

by favorable mix, lower raw materials and energy costs, andcost mitigation actions

MATERIALS TECHNOLOGIES – 3Q 2020 RESULTS

Note: 3Q20 MT sales by geography: NA 27%, EMEA 44%, APAC 21%, LA 8%

Coatings

3Q19 Volume Price Currency 3Q20

$33.7 $35.3

$31.2 $38.6

$39.5$34.5

Gross Margin

35.7% 38.6%

3Q19 3Q20

$26.1$24.3

23.9% 21.4%

Chemical Process

$109.1 $113.73.8% 0.0% 0.4%

ê 12.7%

é 23.7%

é 4.2%

ê 290 bps

é 4.7%

ê 6.9%

ê 250 bps

Operating Income & Operating Margin• Operating income down $1.8M, or 6.9%

– Primarily due to lower gross profit– Sequentially, operating income was up $11.7M or 92.9%

• Operating margin 21.4%, down 250 bps

Operating Income & Operating MarginSales & Gross Margin

Pharma/Consumer

2020 W. R. Grace & Co. | 15

STRONG FINANCIAL POSITION

Cash andLiquidity

StrongBalance

Sheet

Adj. FreeCash Flow

Ample Liquidity– Strong cash flow in 3Q20 led to increase in cash and liquidity;

liquidity up approximately $25M since end of 2Q20

– Over $700M in available liquidity, including $269M of cash-on-hand

– We have not drawn on the $400M revolving credit facility

Targeting Net Leverage of 2.0x-3.0x (post-pandemic)– Proven track record to de-leverage quickly

– Net debt of $1.7B and net leverage of 3.8x

– Minimal pension funding requirements of approximately $17Mper year for the next 3 years

– No significant debt maturities until 2024

Strong Cash Flow– Continued to execute on our proactive actions to mitigate the

impact of the pandemic; full-year expected cash flow benefit fromthese actions of $125M

– Includes lower capital spending (~$40M), improving workingcapital ($45-$50M), and reducing operating costs ($35-$40M)

$269MCash-on-Hand

>$700MLiquidity

2016 2017 2018 2019 3Q20 Post-Pandemic

$250MAcquisition

(3Q16)

$418MAcquisition

(2Q18)

2x - 3xTarget

3.0x 3.0x2.6x3.2x

3.8x

YTD2019

YTD2020

$163M $170M

2020 W. R. Grace & Co. | 16

DISCIPLINED CAPITAL ALLOCATION

Capital Allocation Framework Intact; Near-Term Shift in Priorities

CAPITAL ALLOCATION FRAMEWORK NEAR-TERM SHIFT IN PRIORITIESRESULTING FROM COVID-19 PANDEMIC

Invest in OrganicGrowth

– Lower capital spending of ~$40M in 2020

– Maintaining EHS and R&D investments

– Sustaining targeted strategic growth initiatives toaccelerate long-term growth

• Capex and R&D investments accelerate organicgrowth and extend our competitive advantages

• Strategic growth and productivity investmentstypically generate 20%-30% IRR

Pursue StrategicAcquisitions

– Strategic acquisitions remain part of long-term strategy

– Remain disciplined in our approach

– Will evaluate transactions in context of recovery andability to mitigate business and integration risks

• Bolt-on acquisitions

• Continue to diversify our portfolio towardmarkets with compelling growth, profitability,and cash flow characteristics

Return Cash toShareholders

– Expect to resume share repurchase program in 2021while continuing to prioritize reinvestment and reducingtemporarily higher net leverage

– Fully committed to maintaining quarterly cash dividend

• Dividends and share repurchases

• Dividend growth rate > earnings growth rate

2016 - YTD2020Deployed $2.2B of Capital

Share Repurchases$0.4B

Dividends$0.3B

Acquisitions$0.7B

Capex$0.8B

YTD2020Deployed ~$224M of Capital

Share Repurchases$40M

Dividends$60M

Capex$124M

2020 W. R. Grace & Co. | 17

2019 1Q20 2Q20 3Q20 4Q20E Post-Pandemic

PLANNING ASSUMPTIONS


Adj. Gross Margin4Q20

Sales: Expecting 4Q20 sales to be up sequentially10%-13% over 3Q20 led by solid recovery in refiningcatalysts and improved demand in Specialty Catalystsand Materials Technologies

Gross Margin: Expecting continued sequentialimprovement in gross margin of ~100 bps from 3Q20

– Gross margin improvement to continue as demandimproves and production rates increase

4Q20 Adjusted EPS: Expecting 4Q20 Adj. EPS to be inthe range of $0.84 to $0.88

– Reflects increase of >50% versus 3Q20

Adj. ETR: 26.5%-27.5%; Adj. Cash Tax Rate: 12%-15%

Share Repurchases: Expect to resume share repurchase program in 2021 while continuing to prioritize reinvestment andreducing temporarily higher net leverage

Dividend: Fully committed to maintaining cash dividend

Full-Year 2020

34.1%

41.2% 40%-42%

38.2%38.7% ~39%

Closing Comments

Hudson La ForcePresident and Chief Executive Officer

2020 W. R. Grace & Co. | 19

Invest to accelerate growth and extend

our competitive advantages

1

CONTINUING TO EXECUTE OUR LONG-TERM STRATEGY

Positioning Grace for Success Now, and in the Future

Invest in great peopleto strengthen our

high-performance culture

2

Execute theGrace Value Model

to drive operating excellence

3

Acquire to build ourtechnology and manufacturingcapabilities for our customer

4

2020 W. R. Grace & Co. | 20

UPCOMING INVESTOR RELATIONS EVENTS

NOV 2020 Morgan Stanley Global Chemicals Conference Virtual

NOV 2020 Baird Global Industrial Conference Virtual

Jeremy RohenVP, Investor Relations and

Corporate Development

+1 [email protected]

Appendix

2020 W. R. Grace & Co. | 22

Appendix: Definitions and Reconciliations of Non-GAAPMeasures

Non-GAAP Financial Measures

(A) In the above, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S. GAAP), as well as the non-GAAP financialinformation described below. Grace believes that this non-GAAP financial information provides useful supplemental information about the performance of its businesses,improves period-to-period comparability and provides clarity on the information management uses to evaluate the performance of its businesses. In the above charts,Grace has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance withU.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and thefinancial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully. Grace defines these non-GAAP financialmeasures as follows:

• Adjusted EBIT means net income attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacymatters; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets,and amortization of prior service costs/credits; gains and losses on sales and exits of businesses, product lines, and certain other investments; third-partyacquisition-related costs and the amortization of acquired inventory fair value adjustment; gains and losses on modification or extinguishment of debt; the effectsof these items on equity in earnings of unconsolidated affiliate; and certain other items that are not representative of underlying trends.

• Adjusted EBITDA means Adjusted EBIT adjusted for depreciation and amortization and depreciation and amortization included in equity in earnings ofunconsolidated affiliate (collectively, Adjusted Depreciation and Amortization).

• Adjusted EBIT Return on Invested Capital means Adjusted EBIT (on a trailing four quarters basis) divided by equity adjusted for debt; underfunded and unfundeddefined benefit pension plans; liabilities related to legacy matters; cash, cash equivalents, and restricted cash; net income tax assets; and certain other assetsand liabilities.

• Adjusted Gross Margin means gross margin adjusted for pension-related costs included in cost of goods sold, the amortization of acquired inventory fair valueadjustment, and write-offs of inventory related to exits of businesses and product lines and significant manufacturing process changes.

• Adjusted EPS means diluted EPS adjusted for costs related to legacy matters; restructuring and repositioning expenses and asset impairments; pension costsother than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; gains and losses on sales and exits ofbusinesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment;gains and losses on modification or extinguishment of debt; certain other items that are not representative of underlying trends; and certain discrete tax items andincome tax expense related to historical tax attributes.

• Adjusted Free Cash Flow means net cash provided by or used for operating activities minus capital expenditures plus cash flows related to legacymatters; cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party acquisition-related costs;cash flows related to debt modification; and accelerated payments under defined benefit pension arrangements.

• The change in net sales on a constant currency basis, which we sometimes refer to as "Net Sales, constant currency," means the period-over-period change innet sales calculated using the foreign currency exchange rates that were in effect during the previous comparable period.

• Organic sales growth means the period-over-period change in net sales excluding the sales growth attributable to acquisitions.

“Legacy matters” include legacy (i) product, (ii) environmental, and (iii) other liabilities, relating to past activities of Grace.

In the 2020 first quarter, the definition of Adjusted EBIT was modified to adjust for the effects of interest and taxes on equity in earnings of unconsolidated affiliate. Thedefinition of Adjusted EBITDA was modified to adjust for the effects of depreciation and amortization on equity in earnings of unconsolidated affiliate. Grace made thesechanges to provide clarity about the impacts of these items on Grace's equity in earnings of unconsolidated affiliate and to improve consistency in Grace's application ofnon-GAAP financial measures. Previously reported amounts were revised to conform to the current presentation.

2020 W. R. Grace & Co. | 23

Appendix: Definitions and Reconciliations of Non-GAAPMeasures (continued)


Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constantcurrency, and Organic sales growth do not purport to represent income or liquidity measures as defined under U.S. GAAP, and should not be considered as alternativesto such measures as an indicator of Grace's performance or liquidity.

Grace uses Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. Grace uses Adjusted EBIT asa performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measuresthe ongoing earnings results of its strategic and operating decisions by excluding the earnings effects of legacy matters; restructuring and repositioning activities; certainacquisition-related items; and certain other items that are not representative of underlying trends.

Grace uses Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use thesemeasures in determining certain incentive compensation. Grace uses Adjusted EBIT Return On Invested Capital in making operating and investment decisions and inbalancing the growth and profitability of operations. Grace uses Net Sales, constant currency as a performance measure to compare current period financial performanceto historical financial performance by excluding the impact of foreign currency exchange rate fluctuations that are not representative of underlying business trends and arelargely outside of its control. Grace uses Organic sales growth to measure its businesses' sales performance, excluding the impacts of acquisitions.

Grace uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses,and to provide a return of capital to shareholders. Grace also uses Adjusted Free Cash Flow as a performance measure in determining certain incentive compensation.

Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS, Adjusted Free Cash Flow, Net Sales, constantcurrency, and Organic sales growth do not purport to represent income measures as defined under U.S. GAAP, and should not be used as alternatives to such measuresas an indicator of Grace’s performance. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peercomparability of Grace’s financial results, and to ensure that investors and others understand the information Grace uses to evaluate the performance of its businesses.They distinguish the operating results of Grace's current business base from the costs of Grace's legacy matters; restructuring and repositioning activities; and certainother items. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directlycomparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated inaccordance with U.S. GAAP.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to legacy matters, and may exclude income and expensesfrom restructuring and repositioning activities, which historically have been material components of Grace’s net income. Adjusted EBITDA also has material limitations asan operating performance measure because it excludes the impact of depreciation and amortization expense. Grace’s business is substantially dependent on thesuccessful deployment of capital, and depreciation and amortization expense is a necessary element of our costs. Grace compensates for the limitations of thesemeasurements by using these indicators together with net income as measured under U.S. GAAP to present a complete analysis of our results of operations. AdjustedEBIT and Adjusted EBITDA should be evaluated together with net income and net income attributable to Grace shareholders, measured under U.S. GAAP, for a completeunderstanding of Grace’s results of operations.

Grace is unable without unreasonable efforts to estimate the annual mark-to-market pension adjustment or future net income or diluted EPS. Without the availability ofthis significant information, Grace is unable to provide reconciliations for certain forward-looking information set forth in the Outlook, above.

(B) Grace's segment operating income includes only Grace's share of income from consolidated and unconsolidated joint ventures.

2020 W. R. Grace & Co. | 24

Appendix: Definitions and Reconciliations of Non-GAAPMeasures (continued)


(C) Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of priorservice costs/credits. Catalysts Technologies and Materials Technologies segment operating income and corporate costs do not include any amounts for pensionexpense. Other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from Adjusted EBIT. These amounts arenot used by management to evaluate the performance of Grace's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financialresults. Mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directlyrelated to the operation of Grace's businesses.

(D) Restructuring and repositioning expenses attributable to W. R. Grace & Co. shareholders is net of restructuring expenses attributable to noncontrolling interests.

(E) Inventory write-off in 2020 related to the changes of hydroprocessing catalysts manufacturing operations. Inventory write-off in 2019 related to the idling of Grace’smethanol-to-olefins (“MTO”) manufacturing facility in China.

(F) Grace's historical tax attribute carryforwards (net operating losses and tax credits) unfavorably affected its tax expense with respect to certain provisions of the Tax Cutsand Jobs Act of 2017. To normalize the effective tax rate, an adjustment was made to eliminate the tax expense impact associated with the historical tax attributes.

NM - Not Meaningful

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Appendix: Reconciliation of Non-GAAP FinancialMeasures (continued)

Adjusted EBIT by Operating Segment(A)(B): 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020

Catalysts Technologies segment operating income $ 467.8 $ 101.7 $ 125.8 $ 105.1 $ 135.2 $ 82.0 $ 71.7 $ 67.1Materials Technologies segment operating income $ 97.8 24.0 24.1 26.1 23.6 19.0 12.6 24.3Corporate costs $ (72.7) (16.2) (18.0) (18.5) (20.0) (15.6) (16.7) (18.2)Certain pension costs(C) $ (18.4) (4.8) (4.6) (4.5) (4.5) (3.1) (3.5) (3.6)Adjusted EBIT(A)(B) 474.5 104.7 127.3 108.2 134.3 82.3 64.1 69.6Restructuring and repositioning expenses attributable to

W. R. Grace & Co. shareholders(D) (13.7) (2.3) (6.4) (3.4) (1.6) (2.7) (21.4) (2.4)Inventory write-offs(E) (3.6) — (3.6) — — — (19.7) (0.1)Costs related to legacy matters (103.5) (46.9) (1.5) (3.7) (51.4) (2.7) (2.8) (30.6)Third-party acquisition-related costs (3.6) (0.3) (1.0) (1.4) (0.9) (1.5) (2.0) (0.3)Taxes and interest included in equity in earnings ofunconsolidated affiliate (1.3) (0.3) (0.6) (0.4) — (0.2) (0.4)Benefit plan adjustment (5.0) — — — (5.0) — — —Pension MTM adjustment and other related costs, net (85.9) — — — (85.9) — — —Loss on early extinguishment of debt — — — — — — — (39.4)Interest expense, net (74.8) (19.3) (19.2) (18.3) (18.0) (17.7) (18.9) (19.6)

(Provision for) benefit from income taxes (56.8) (10.9) (18.8) (27.3) 0.2 (15.7) (6.4) 30.2Net income (loss) attributable to W. R. Grace & Co.

shareholders $ 126.3 $ 24.7 $ 76.2 $ 53.7 $ (28.3) $ 42.0 $ (7.3) $ 7.0

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Adjusted Free Cash Flow(A): YTD 3Q 2020 YTD 3Q 2019Net cash provided by (used for) operating activities 259.1 268.4Cash paid for capital expenditures (123.8) (142.6)Free Cash Flow 135.3 125.8Cash paid for legacy matters 17.1 13.8Cash paid for repositioning 8.1 13.3Cash paid for third-party acquisition-related costs 4.7 1.9Cash paid related to modification of debt 2.6 —Cash paid for restructuring 2.2 8.2Accelerated defined benefit pension plan contributions — —Adjusted Free Cash Flow $ 170.0 $ 163.0

Four Quarters Ended September30,

Calculation of Adjusted EBIT Return on Invested Capital (trailing four quarters)(A): 2020 2019Net income (loss) attributable to W. R. Grace & Co. shareholders $ 13.4 $ 223.7Adjusted EBIT 350.3 457.7Reconciliation to Adjusted Invested Capital:Total equity 320.5 451.7

Total debt 2,004.4 1,982.2Underfunded and unfunded defined benefit pension plans 532.5 424.3Liabilities related to legacy matters 225.7 163.2Cash, cash equivalents, and restricted cash (268.9) (218.9)Income taxes, net (541.3) (491.9)Other 25.9 31.0

Adjusted Invested Capital $ 2,298.8 $ 2,341.6

Return on equity 4.2% 49.5%Adjusted EBIT Return on Invested Capital 15.2% 19.5%

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Three Months Ended September 30,2020 2019

(In millions, except per share amounts) Pre-Tax Tax Effect After Tax Per Share Pre-Tax Tax Effect After Tax Per ShareDiluted earnings per share $ 0.11 $ 0.80Loss on early extinguishment of debt 39.4 9.8 29.6 0.45 — — — —Restructuring and repositioning expenses attributable to W. R.

Grace & Co. shareholders(D) $ 2.4 $ 2.4 $ — — $ 3.4 $ 1.1 $ 2.3 0.03Inventory write-offs(E) 0.1 1.3 (1.2) (0.02) — — — —Costs related to legacy matters 30.6 8.3 22.3 0.34 3.7 0.9 2.8 0.04Third-party acquisition-related costs 0.3 0.3 — — 1.4 0.3 1.1 0.02Discrete tax items 21.0 (21.0) (0.32) 1.7 (1.7) (0.03)Income tax expense related to historical tax attributes(F) — — — (7.7) 7.7 0.12Adjusted EPS $ 0.56 $ 0.98

Nine Months Ended September 30,2020 2019

(In millions, except per share amounts) Pre-Tax Tax Effect After-Tax Per Share Pre-Tax Tax Effect After-Tax Per ShareDiluted EPS $ 0.63 $ 2.31Restructuring and repositioning expenses attributable to W. R.

Grace & Co. shareholders(D) 26.5 5.3 21.2 0.32 12.1 2.7 9.4 0.14Inventory write-offs(E) 19.8 5.1 14.7 0.22 3.6 — 3.6 0.05Costs related to legacy matters $ 36.1 $ 9.3 $ 26.8 0.40 $ 52.1 $ 14.1 $ 38.0 0.57Third-party acquisition-related costs 3.8 1.0 2.8 0.04 2.7 0.7 2.0 0.03Loss on early extinguishment of debt 39.4 9.8 29.6 0.45 — — — —Discrete tax items 20.1 (20.1) (0.30) 12.0 (12.0) (0.18)Income tax expense related to historical tax attributes(F) — — (10.0) 10.0 0.15Adjusted EPS $ 1.76 $ 3.07

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3q20 earnings presentation...– materials technologies: demand stronger than expected in...

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