Ingevity reports second quarter 2024 financial results

HIGHLIGHTS:

• Net sales of $390.6 million, down 19% compared to prior year
• Net loss of $283.7 million and diluted loss per share of $7.81 primarily due to a Performance Chemicals non-cash goodwill impairment charge; adjusted earnings of $36.8 million and diluted adjusted earnings per share (EPS) of $1.01
• Adjusted EBITDA of $101.3 million and adjusted EBITDA margin of 25.9%
• Operating cash flow of $29.7 million with free cash flow of $11.6 million
• In July, the company took further actions to reposition its Performance Chemicals segment, including the termination of a long-term crude tall oil supply contract, the announced closure of its Crossett, Arkansas, facility, to consolidate its manufacturing footprint, and certain corporate cost savings actions
• Revising full year guidance of sales between $1.40 billion and $1.50 billion and adjusted EBITDA between $350 million and $360 million

The results and guidance in this release include non-GAAP financial measures. Refer to the section entitled “Use of non-GAAP financial measures” within this release. All comparisons are made versus the same period in 2023 unless otherwise stated.

Ingevity Corporation (NYSE: NGVT) today reported its financial results for the second quarter 2024.

Second quarter net sales of $390.6 million declined 19% primarily due to the repositioning of the Performance Chemicals segment which included reducing exposure to certain markets in the Industrial Specialties product line. The decline was partially offset by higher sales in Performance Materials due to improved pricing and strong automotive carbon volumes.

The net loss of $283.7 million and diluted loss per share of $7.81 is primarily due to a Performance Chemicals non-cash goodwill impairment charge of $349.1 million. The impairment charge was the result of internal analysis that reassessed expected cash flows of the segment in light of current performance and expected lack of near-term recovery in our Industrial Specialties product line, resulting in lower volumes and profitability expectations. Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) was $101.3 million, down 16% with adjusted EBITDA margin of 25.9%.

“As we move forward with transforming Performance Chemicals into a more profitable and stable segment, we continue to see Performance Materials deliver best-in-class results,” said John Fortson, president and CEO. “The Advanced Polymer Technologies segment experienced another quarter of volume growth and maintained its strong margins. I am proud of the hard work our employees have demonstrated as we navigate the uncertain pace of an industrial recovery while we continue to reposition Performance Chemicals. The effort and focus of our business leads and their teams delivered an EBITDA margin of 26% for the quarter.”

Performance Materials

Sales in Performance Materials were $157.2 million in the quarter, up 9% due to higher volumes in automotive end markets and increased pricing. Segment EBITDA was $82.2 million, up 28%, primarily reflecting lower input costs and improved operational efficiency which drove lower energy usage, resulting in segment EBITDA margins of 52.3%.

“Performance Materials results reflect our team's dedication and commitment to increasing operational efficiency at the plants and our commercial success in capturing value from our market-leading gasoline vapor capture technology. We are encouraged to see continued consumer demand for hybrid vehicles and view this as a tailwind for the segment,” said Fortson.

Advanced Polymer Technologies

Sales in Advanced Polymer Technologies (APT) were down 10% to $47.9 million as higher volumes were more than offset by lower pricing. Segment EBITDA was $9.8 million, down 16% due to lower pricing primarily in Asia, partially offset by lower input costs. Segment EBITDA margin was 20.5%.

“We are seeing encouraging signs in APT as volumes were up both year-over-year, and for the third consecutive quarter,” said Fortson. “APT is geographically diverse. Europe is seeing a strong rebound from last year’s lows with volumes approaching two-year highs, while China demand continues to be relatively weak. The team is also strategically pricing products to maintain volume in key end markets. In addition, input costs have improved, and the team continues to demonstrate good cost discipline, enabling the segment to maintain 20% EBITDA margins.”

Performance Chemicals

Sales in Performance Chemicals were $185.5 million, down 35%.

Road Technologies product line sales of $129.1 million were down 8% from the record quarter last year primarily as a result of unfavorable weather conditions in North America. Industrial Specialties product line sales of $56.4 million were down 61% due to the impact of the segment’s repositioning efforts which are focused on reducing exposure to lower margin end markets, as well as continued weakness in industrial demand.

Segment EBITDA was $9.3 million, reflecting the impact of sharply higher crude tail oil (CTO) costs and low plant utilization rates attributed to weak industrial demand, partially offset by the impact of cost savings initiatives. Segment EBITDA margin was 5.0%.

“We are taking decisive actions in our repositioning efforts for this segment to improve profitability by focusing on higher margin end markets,” said Fortson. “We exited long-term supply agreements for crude tall oil to provide the flexibility to respond to changing market dynamics, diversify our raw materials and suppliers, and optimize costs. And, we have rightsized our physical footprint to meet the needs of the markets we serve. Higher cost CTO will continue to impact the segment’s results this year and into first quarter next year as we work through existing inventory, but the segment is expected to have improved profitability beginning in second quarter 2025 with more stable and predictable growth.”

Liquidity/Other

Second quarter operating cash flow was $29.7 million with free cash flow of $11.6 million, which includes the cash impact of $25.5 million in losses on CTO resales and $12.9 million of cash restructuring charges. There were no share repurchases for the quarter and $353.4 million remains available under the current $500 million Board authorization. Net leverage was 4.0 times as a result of lower earnings, and also reflects a revision to previously reported adjusted EBITDA to no longer exclude certain inventory charges related to the Performance Chemicals repositioning efforts per guidance from the Securities and Exchange Commission. As a result, our March 31, 2024, first quarter adjusted EBITDA is lower by $2.5 million to $74.4 million and our December 31, 2023, fourth quarter adjusted EBITDA is lower by $19.7 million to $42.1 million. For more details, please refer to the included financial schedules.

Full Year 2024 Guidance

“We have taken additional actions to advance the repositioning of the Performance Chemicals segment with a focus on sustained profitability. Segment results this year will be challenged as a result of high-cost CTO inventory, which we expect to work through by the end of Q1 2025, and the lack of a rebound in industrial demand, primarily impacting the Industrial Specialties product line. In addition, weather conditions to date have been unfavorable in North America and our guidance reflects some uncertainty regarding the recovery of Road Technologies volumes in the second half. The continued strength of Performance Materials and the stability of APT will help offset the headwinds we face in Performance Chemicals. We are revising our guidance of sales between $1.40 billion and $1.50 billion, and our full year adjusted EBITDA to between $350 million and $360 million,” said Fortson.

Additional Information

The company will host a live webcast on Thursday, August 1, at 11:00 a.m. (Eastern) to discuss second-quarter 2024 fiscal results. The webcast can be accessed here or on the investors section of Ingevity’s website. You may also listen to the conference call by dialing 833 470 1428 (inside the U.S.) and entering access code 153840. Callers outside the U.S. can find global dial-in numbers here. For those unable to join the live event, a recording will be available beginning at approximately 2:00 p.m. (Eastern) on August 1, 2024, through July 31, 2025, at this replay link.

Ingevity: Purify, Protect and Enhance

Ingevity provides products and technologies that purify, protect and enhance the world around us. Through a team of talented and experienced people, we develop, manufacture and bring to market solutions that help customers solve complex problems and make the world more sustainable. We operate in three reporting segments: Performance Materials, which includes activated carbon; Advanced Polymer Technologies, which includes caprolactone polymers; and Performance Chemicals, which includes specialty chemicals and road technologies. Our products are used in a variety of demanding applications, including adhesives, agrochemicals, asphalt paving, certified biodegradable bioplastics, coatings, elastomers, lubricants, pavement markings, oil exploration and production and automotive components. Headquartered in North Charleston, South Carolina, Ingevity operates from 31 countries around the world and employs approximately 1,700 people. The company’s common stock is traded on the New York Stock Exchange (NYSE:NGVT). For more information, visit ingevity.com.

Use of non-GAAP financial measures: This press release includes certain non‐GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided within the Appendix to this press release. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. The company does not attempt to provide reconciliations of forward-looking non-GAAP guidance to the comparable GAAP measure because the impact and timing of the factors underlying the guidance assumptions are inherently uncertain and difficult to predict and are unavailable without unreasonable efforts. In addition, Ingevity believes such reconciliations would imply a degree of certainty that could be confusing to investors.

Forward-Looking Statements

This press release contains “forward‑looking statements” within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements generally include the words “will,” “plans,” “intends,” “targets,” “expects,” “outlook,” “guidance,” “believes,” “anticipates” or similar expressions. Forward-looking statements may include, without limitation, anticipated timing, charges and costs of any current or future repositioning of our Performance Chemicals segment, including the oleo-based product refining transition, Crossett, Arkansas plant closure, and the previously announced closure of our DeRidder, Louisiana plant; the potential benefits of any acquisition or investment transaction, expected financial positions, guidance, results of operations and cash flows; financing plans; business strategies and expectations; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost-reduction initiatives, plans and objectives; litigation-related strategies and outcomes; and markets for securities. Actual results could differ materially from the views expressed. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, charges, costs or actions, including adverse legal or regulatory actions, resulting from, or in connection with, the current or future repositioning of our Performance Chemicals segment, including the oleo-based product refining transition, Crossett, Arkansas plant closure, and the previously announced closure of our DeRidder, Louisiana plant; losses due to resale of crude tall oil at less than we paid for it; adverse effects from general global economic, geopolitical and financial conditions beyond our control, including inflation and the Russia-Ukraine war and Israel-Gaza war; risks related to our international sales and operations; adverse conditions in the automotive market; competition from substitute products, new technologies and new or emerging competitors; worldwide air quality standards; a decrease in government infrastructure spending; adverse conditions in cyclical end markets; the limited supply of or lack of access to sufficient raw materials, or any material increase in the cost to acquire such raw materials; issues with or integration of future acquisitions and other investments; the provision of services by third parties at several facilities; supply chain disruptions; natural disasters and extreme weather events; or other unanticipated problems such as labor difficulties (including work stoppages), equipment failure or unscheduled maintenance and repair; attracting and retaining key personnel; dependence on certain large customers; legal actions associated with our intellectual property rights; protection of our intellectual property and other proprietary information; information technology security breaches and other disruptions; complications with designing or implementing our new enterprise resource planning system; government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs and the chemicals industry; losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes; and the other factors detailed from time to time in the reports we file with the Securities and Exchange Commission (the “SEC”), including those described in Part I, Item 1A. Risk Factors in our most recent Annual Report on Form 10‑K as well as in our other filings with the SEC. These forward-looking statements speak only to management’s beliefs as of the date of this press release. Ingevity assumes no obligation to provide any revisions to, or update, any projections and forward-looking statements contained in this press release.

Ingevity Corporation

Non-GAAP Financial Measures

Ingevity has presented certain financial measures, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP on the following pages. These financial measures are not meant to be considered in isolation nor as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. Investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

We believe these non-GAAP financial measures provide management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance, liquidity measures, and projected future results.

Ingevity uses the following non-GAAP measures:

Adjusted earnings (loss) is defined as net income (loss) plus restructuring and other (income) charges, net, goodwill impairment charge, acquisition and other-related (income) costs, pension and postretirement settlement and curtailment (income) charges, loss on CTO resales, (gain) loss on strategic investments, debt refinancing fees, litigation verdict charges, and the income tax expense (benefit) on those items, less the provision (benefit) from certain discrete tax items.

Diluted adjusted earnings (loss) per share is defined as diluted earnings (loss) per common share plus restructuring and other (income) charges, net, per share, goodwill impairment charge per share, acquisition and other-related (income) costs per share, pension and postretirement settlement and curtailment (income) charges per share, loss on CTO resales per share, (gain) loss on strategic investments per share, debt refinancing fees per share, litigation verdict charge per share, and the income tax expense (benefit) per share on those items, less the provision (benefit) from certain discrete tax items per share.

Adjusted EBITDA is defined as net income (loss) plus interest expense, net, provision (benefit) for income taxes, depreciation, amortization, restructuring and other (income) charges, net, goodwill impairment charge, acquisition and other-related (income) costs, litigation verdict charges, (gain) loss on strategic investments, loss on CTO resales, and pension and postretirement settlement and curtailment (income) charges, net.

Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Net sales.

Free Cash Flow is defined as the sum of net cash provided by (used in) the following items: operating activities less capital expenditures.

Net Debt is defined as the sum of notes payable, short-term debt, current maturities of long-term debt and long-term debt including finance lease obligations less the sum of cash and cash equivalents, restricted cash associated with our new market tax credit financing arrangement, and restricted investment associated with certain finance lease obligations, excluding the allowance for credit losses on held-to-maturity debt securities held within the restricted investment.

Net Debt Ratio is defined as Net Debt divided by the last twelve months Adjusted EBITDA, inclusive of acquisition-related pro forma adjustments.

Ingevity's management also uses the above financial measures as the primary measures of profitability and liquidity of the business. In addition, Ingevity believes Adjusted EBITDA and Adjusted EBITDA Margin are useful measures because they exclude the effects of financing and investment activities as well as non-operating activities.

GAAP Reconciliation of 2024 Adjusted EBITDA Guidance

A reconciliation of net income to adjusted EBITDA as projected for 2024 is not provided. Ingevity does not forecast net income as it cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components, net of tax, include further restructuring and other income (charges), net; additional acquisition and other-related (income) costs; litigation verdict charges; additional pension and postretirement settlement and curtailment (income) charges; and revisions due to legislative tax rate changes. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on the comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA.

INGEVITY CORPORATION

Reconciliation of Non-GAAP Financial Measures

Reconciliation of Net Income (Loss) (GAAP) to Adjusted Earnings (Loss) (Non-GAAP) and Reconciliation of Diluted Earnings (Loss) per Common Share (GAAP) to Diluted Adjusted Earnings per Share (Non-GAAP)

We revised our March 31, 2024 non-GAAP Adjusted earnings (loss) calculation to remove previous adjustments of $2.5 million related to inventory lower of cost or market charges associated with the Company's Performance Chemicals' repositioning. This change was made to address a request from the Securities and Exchange Commission to revise future filings to no longer exclude these adjustments from non-GAAP performance measures. The following table presents the three months ended March 31, 2024 as previously reported and as revised.

Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA (Non-GAAP)

We revised our March 31, 2024 non-GAAP Adjusted EBITDA calculation to remove previous adjustments of $2.5 million related to inventory lower of cost or market charges associated with the Company's Performance Chemicals' repositioning. This change was made to address a request from the Securities and Exchange Commission to revise future filings to no longer exclude these adjustments from non-GAAP performance measures. The following table presents the three months ended March 31, 2024 as previously reported and as revised.

Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA (Non-GAAP)

We revised our December 31, 2023 non-GAAP Adjusted EBITDA calculation to remove previous adjustments of $19.7 million related to inventory lower of cost or market charges associated with the Company's Performance Chemicals' repositioning. This change was made to address a request from the Securities and Exchange Commission to revise future filings to no longer exclude these adjustments from non-GAAP performance measures. The following table presents the three and twelve months ended December 31, 2023 as previously reported and as revised.

Calculation of Net Debt Ratio (Non-GAAP)

We revised our March 31, 2024 non-GAAP Net debt ratio calculation to remove the previous adjustments of $2.5 million from the three months ended March 31, 2024 and $19.7 million from the three months ended December 31, 2023, from the last twelve months Adjusted EBITDA related to inventory lower of cost or market charges associated with the Company's Performance Chemicals' repositioning. This change was made to address a request from the Securities and Exchange Commission to revise future filings to no longer exclude these adjustments from non-GAAP performance measures. The following table presents the period ended March 31, 2024 as previously reported and as revised.

Calculation of Net Debt Ratio (Non-GAAP)

We revised our December 31, 2023 non-GAAP Net debt ratio calculation to remove the previous adjustment of $19.7 million from the three months ended December 31, 2023, from the last twelve months Adjusted EBITDA related to inventory lower of cost or market charges associated with the Company's Performance Chemicals' repositioning. This change was made to address a request from the Securities and Exchange Commission to revise future filings to no longer exclude these adjustments from non-GAAP performance measures. The following table presents the period ended December 31, 2023 as previously reported and as revised.

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