Fourth Quarter (comparisons versus prior year
period):
- Net sales of $371.7 million decreased 3.1%
- Net loss of $116.8 million and diluted loss per share of $3.23,
including restructuring charges of $107.5 million; adjusted
earnings of $7.8 million and diluted adjusted earnings per share
(EPS) of $0.21
- Adjusted EBITDA of $61.8 million and adjusted EBITDA margin of
16.6%
- Accelerated the repositioning of the Performance Chemicals
segment including the shutdown of the DeRidder, Louisiana, crude
tall oil (CTO) refinery completed in early February of 2024 with
the remaining assets to be shut down during the first half of the
year
- Implemented significant cost savings actions
Full Year (comparisons versus prior year period):
- Net sales of $1.69 billion increased 1.4%
- Net loss of $5.4 million and diluted loss per share of $0.15,
including restructuring charges of $145.3 million; adjusted
earnings of $144.7 million and diluted adjusted EPS of $3.94
- Adjusted EBITDA of $396.8 million and adjusted EBITDA margin of
23.5%
- Share repurchases of $92.1 million
- Operating cash flow of $205.1 million with free cash flow of
$95.3 million
Guidance:
Company announces full year 2024 guidance for sales between
$1.40 billion and $1.55 billion and adjusted EBITDA between $365
million and $390 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.
Ingevity Corporation (NYSE: NGVT) today reported its financial
results for the fourth quarter and full year 2023.
Fourth quarter (Q4) net sales of $371.7 million were 3% lower
versus the prior year as higher volumes in the Performance
Materials segment and the Road Technologies business line (formerly
known as Pavement Technologies) were more than offset by lower
volumes in the Advanced Polymer Technologies segment (APT) and the
Industrial Specialties business line. Q4 net loss of $116.8 million
includes restructuring charges of $107.5 million primarily
associated with the repositioning of our Performance Chemicals
segment. Adjusted EBITDA of $61.8 million was down 17% reflecting
higher raw material costs, primarily CTO in Performance Chemicals,
and lower volumes attributed to weak industrial demand in the
Industrial Specialties business line and APT. Q4 adjusted EBITDA
margin was 16.6%. Diluted loss per share in Q4 was $3.23 compared
to diluted earnings per share (EPS) of $0.41 in the prior year
quarter. Diluted adjusted EPS in Q4 was $0.21 compared to diluted
adjusted EPS of $0.57 in the prior year quarter.
Full year (FY) net sales of $1.69 billion were up 1% compared to
last year, as higher pricing across all segments, the addition of
the road markings business and higher volumes in Performance
Materials offset decreased volumes in APT and the Industrial
Specialties business line. The company reported a FY net loss of
$5.4 million, reflecting the actions taken during the year to
reposition the Performance Chemicals segment and reduce costs,
resulting in $145.3 million of restructuring charges. FY adjusted
EBITDA was $396.8 million, down 12%, with adjusted EBITDA margin of
23.5%. FY diluted loss per share was $0.15 compared to diluted EPS
of $5.50 in the prior year. FY diluted adjusted EPS was $3.94
compared to diluted adjusted EPS of $6.01 in the prior year. FY
results, when compared to the prior year, were predominately
impacted by significantly higher CTO costs and lower volumes as a
result of the slowdown in global industrial demand.
“2023 was a record year for Performance Materials driven by
increased global auto production and the growing popularity of
hybrid electric vehicles, and the Road Technologies business line
posted another strong year as the team’s strategic focus on
expanding technology adoption keeps driving steady growth,” said
John Fortson, President and CEO. “The global industrial slowdown
negatively impacted volumes in Advanced Polymer Technologies and
the Industrial Specialties business line, which also faced
unprecedented increases in CTO costs. I remain confident that as we
execute the growth strategy we shared last year, the strength we
delivered in Performance Materials and Road Technologies will
continue and our APT segment and Industrial Specialties business
line are positioned for more profitable growth in less cyclical end
markets.”
Performance Materials
Sales in Performance Materials were up 15% for Q4 at $152.8
million due primarily to increased volumes in China and improved
pricing in automotive end markets. Segment EBITDA was $78.1 million
in Q4, up 36% driven by favorable product mix and increased
volumes, resulting in segment EBITDA margin of 51.1%, up 780 basis
points versus prior year. FY sales were up 7% to a record $586.0
million driven by increased pricing and improved global auto
production. FY segment EBITDA was also a record at $286.6 million,
up 14%, with segment EBITDA margin of 48.9% versus 46.0% in 2022.
FY segment EBITDA benefited from the favorable product mix shift to
more profitable automotive end markets, increased price, and lower
SG&A that more than offset higher input costs.
“Performance Materials was firing on all cylinders delivering
record sales and segment EBITDA for the year, reflecting the
staying power of this segment and the rebound of global auto
production from 2020 lows. We are encouraged to see consumer
preferences trending towards hybrid vehicles and the stability of
internal combustion engine demand. Our technology helps enable the
transition to electric vehicles while protecting the environment,
and based on recent comments from OEMs, the transition may take
longer than previously thought, which will benefit Ingevity. We
continue to focus on developing solutions where our activated
carbon will support battery electric vehicles as well,” said
Fortson.
Advanced Polymer Technologies
Sales in the Advanced Polymer Technologies segment were $42.4
million in Q4, down 29% due primarily to volume weakness in many of
the segment’s end markets. Segment EBITDA for the quarter was down
46% to $7.9 million and segment EBITDA margin of 18.6% was lower as
improved input costs were not enough to offset the impact of lower
volume. FY sales were $204.0 million, down 17% for the year,
reflecting global market weakness. Segment EBITDA for the year was
a record $44.5 million, higher by 11%, as lower input costs,
disciplined price management, and cost saving initiatives drove a
550 basis point improvement in segment EBITDA margin to 21.8%.
“The Advanced Polymer Technologies team achieved record segment
EBITDA for the year and significantly improved the segment’s
profitability even as they faced lower demand in end markets such
as footwear and industrial equipment. As we move into 2024, they
will remain focused on increasing the use of our technology in
areas like bioplastics, which continue to see growing adoption in
end markets like apparel, agricultural chemicals, and consumer
packaging, while maintaining the improved margin profile achieved
last year,” said Fortson.
Performance Chemicals
Sales in the Performance Chemicals segment were $176.5 million
in Q4, down 8%. Road Technologies business line sales increased 13%
to $53.4 million due primarily to increased technology adoption,
however, this growth was more than offset by a 15% decline in
Industrial Specialties business line sales to $123.1 million driven
by lower volumes in industrial end markets and pricing actions
taken to manage inventory levels in rosin end markets. Segment
EBITDA was negative $24.2 million due primarily to sharply higher
CTO costs and sluggish demand for rosin-based products. FY sales
were up 3% to $902.1 million. Road Technologies business line sales
increased by 53% to $369.8 million as our legacy business continued
to grow volumes, and benefited from the acquisition of the Ozark
road markings business in late 2022. Industrial Specialties
business line sales were $532.3 million, 16% lower than the prior
year, as lower volumes attributed to reduced end market demand,
primarily in rosin-based markets, more than offset price increases.
FY segment EBITDA was down 59% to $65.7 million due to the higher
CTO costs and weaker volumes.
“2023 was the tale of two business lines for Performance
Chemicals,” said Fortson. “Our Road Technologies business line had
a record year as they integrated road markings into their portfolio
and grew our legacy pavement business. In our Industrial
Specialties business line, the team faced prolonged demand weakness
and saw unprecedented increases in CTO costs but they pushed price
to help offset these increases. We continue to make progress in
using alternative oleo feedstocks to reduce our reliance on CTO and
offer a more diverse product portfolio for use in higher margin,
less cyclical end markets.”
Liquidity/Other
Full year operating cash flow was $205.1 million with free cash
flow of $95.3 million. Share repurchases for the year were $92.1
million, and $353.4 million remains available under the July 2022
$500 million Board authorization. There were no share repurchases
in the quarter. Net debt ratio at the end of the year was 3.3
times, as debt repayments were more than offset by lower adjusted
EBITDA.
Full Year 2024 Guidance
Ingevity announced its 2024 guidance of sales between $1.40
billion and $1.55 billion and adjusted EBITDA between $365 million
and $390 million. The revenue and adjusted EBITDA guidance excludes
the anticipated resales of excess CTO in 2024, which are non-core
to our business, and will be reported in GAAP Other (Income)
Expense, net.
“Our Performance Materials segment and Road Technologies
business line have good momentum from last year and are positioned
for strong growth going into 2024, and we have taken significant
steps to accelerate the repositioning of our Performance Chemicals
segment and reduce costs,” said Fortson. “Uncertainties do remain,
particularly around the global industrial recovery which would
primarily impact APT and Industrial Specialties, but we are
committed to maximizing Ingevity’s profitability. While 2024 will
be a transitional year for Performance Chemicals as we complete the
execution of our repositioning strategy, we will continue to focus
on higher-growth end markets like bioplastics in APT and expect
another year of strong results in Performance Materials,” said John
Fortson.
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 Chemicals, which includes specialty chemicals and road
technologies; Advanced Polymer Technologies, which includes
caprolactone polymers; and Performance Materials, which includes
activated carbon. Our products are used in a variety of demanding
applications, including adhesives, agrochemicals, asphalt paving,
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. Follow Ingevity on LinkedIn.
Additional Information
The company will host a live webcast on Thursday, February 22,
at 9:00 a.m. (Eastern) to discuss fourth-quarter and full year 2023
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 690825. 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 February 22, 2024, through February 21,
2025, at this replay link.
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 presentation.
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 the 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 closure of our DeRidder, Louisiana plant;
losses due to resale of CTO 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,
including the impact of WestRock’s shutdown of its North Charleston
paper mill; 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;
and 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
Condensed Consolidated
Statements of Operations (Unaudited)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions, except per share
data
2023
2022
2023
2022
Net sales
$
371.7
$
383.6
$
1,692.1
$
1,668.3
Cost of sales
312.2
278.2
1,220.2
1,098.2
Gross profit
59.5
105.4
471.9
570.1
Selling, general, and administrative
expenses
43.4
55.9
183.7
198.8
Research and technical expenses
7.2
7.2
31.8
30.3
Restructuring and other (income) charges,
net
120.8
3.2
170.2
13.8
Acquisition-related costs
(0.2
)
3.1
3.6
5.0
Other (income) expense, net
19.6
(0.7
)
5.7
(1.7
)
Interest expense, net
22.7
17.0
87.0
54.3
Income (loss) before income taxes
(154.0
)
19.7
(10.1
)
269.6
Provision (benefit) for income taxes
(37.2
)
4.1
(4.7
)
58.0
Net income (loss)
$
(116.8
)
$
15.6
$
(5.4
)
$
211.6
Per share data
Basic earnings (loss) per share
$
(3.23
)
$
0.42
$
(0.15
)
$
5.54
Diluted earnings (loss) per share
$
(3.23
)
$
0.41
$
(0.15
)
$
5.50
Weighted average shares outstanding
Basic
36.2
37.4
36.5
38.2
Diluted
36.2
37.7
36.5
38.5
INGEVITY CORPORATION
Segment Operating Results
(Unaudited)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Net sales
Performance Materials
$
152.8
$
132.8
$
586.0
$
548.5
Performance Chemicals
176.5
191.2
902.1
875.1
Pavement Technologies product line
53.4
47.3
369.8
241.3
Industrial Specialties product line
123.1
143.9
532.3
633.8
Advanced Polymer Technologies
42.4
59.6
204.0
244.7
Total net sales
$
371.7
$
383.6
$
1,692.1
$
1,668.3
Segment EBITDA (1)
Performance Materials
$
78.1
$
57.5
$
286.6
$
252.2
Performance Chemicals
(24.2
)
2.2
65.7
160.4
Advanced Polymer Technologies
7.9
14.6
44.5
40.0
Total segment EBITDA (1)
$
61.8
$
74.3
$
396.8
$
452.6
Interest expense, net
(22.7
)
(17.0
)
(87.0
)
(54.3
)
(Provision) benefit for income taxes
37.2
(4.1
)
4.7
(58.0
)
Depreciation and amortization -
Performance Materials
(9.6
)
(9.4
)
(38.3
)
(36.1
)
Depreciation and amortization -
Performance Chemicals
(13.2
)
(13.7
)
(53.2
)
(43.1
)
Depreciation and amortization - Advanced
Polymer Technologies
(7.9
)
(7.1
)
(31.3
)
(29.6
)
Restructuring and other income (charges),
net (2)(3)
(140.5
)
(3.2
)
(189.9
)
(13.8
)
Acquisition and other-related costs
(2)(4)
0.1
(4.0
)
(4.5
)
(5.9
)
Loss on CTO resales (2)(5)
(22.0
)
—
(22.0
)
—
Gain on sale of strategic investment
(2)(6)
—
—
19.3
—
Pension and postretirement settlement and
curtailment (charges) income, net (2)(7)
—
(0.2
)
—
(0.2
)
Net income (loss)
$
(116.8
)
$
15.6
$
(5.4
)
$
211.6
_______________
(1)
Segment EBITDA is the primary measure used
by our chief operating decision maker to evaluate the performance
of and allocate resources among our operating segments. Segment
EBITDA is defined as segment net sales less segment operating
expenses (segment operating expenses consist of costs of sales,
selling, general and administrative expenses, research and
technical expenses, other (income) expense, net, excluding
depreciation and amortization). We have excluded the following
items from segment EBITDA: interest expense associated with
corporate debt facilities, interest income, income taxes,
depreciation, amortization, restructuring and other income
(charges), net, including inventory lower of cost or market charges
("LCM") associated with restructuring actions, acquisition and
other-related income (costs), litigation verdict charges, gain on
sale of strategic investments, loss on CTO resales, pension and
postretirement settlement and curtailment income (charges),
net.
(2)
For more information on these charges,
refer to the Reconciliation of Adjusted Earnings table on page
7.
(3)
The table below provides an allocation of
these charges between our three reportable segments to provide
investors, potential investors, securities analysts and others with
the information, should they choose, to apply such (income) charges
to each respective reportable segment for which the charges
relate.
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Performance Materials
$
1.6
$
1.1
$
9.0
$
4.8
Performance Chemicals
124.5
1.6
164.2
7.0
Advanced Polymer Technologies
14.4
0.5
16.7
2.0
Restructuring and other (income) charges,
net
$
140.5
$
3.2
$
189.9
$
13.8
(4)
The table below provides an allocation of
these charges between our three reportable segments to provide
investors, potential investors, securities analysts and others with
the information, should they choose, to apply such (income) charges
to each respective reportable segment for which the charges
relate.
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Performance Materials
$
—
$
0.3
$
—
$
0.3
Performance Chemicals
(0.1
)
3.7
4.5
5.6
Advanced Polymer Technologies
—
—
—
—
Acquisition and other-related (income)
costs
$
(0.1
)
$
4.0
$
4.5
$
5.9
(5)
For three and twelve months ended December
31, 2023, charges relate to the Performance Chemicals reportable
segment.
(6)
For twelve months ended December 31, 2023,
gains relate to the Performance Materials reportable segment.
(7)
For three and twelve months ended December
31, 2022, charges relate to the Performance Materials reportable
segment.
INGEVITY CORPORATION
Condensed Consolidated Balance
Sheets (Unaudited)
December 31,
In millions
2023
2022
Assets
Cash and cash equivalents
$
95.9
$
76.7
Accounts receivable, net
182.0
224.8
Inventories, net
308.8
335.0
Prepaid and other current assets
71.9
46.8
Current assets
658.6
683.3
Property, plant, and equipment, net
762.2
798.6
Goodwill
527.5
518.5
Other intangibles, net
336.1
404.8
Restricted investment
79.1
78.0
Strategic investments
99.2
109.8
Other assets
160.6
143.5
Total Assets
$
2,623.3
$
2,736.5
Liabilities
Accounts payable
$
158.4
$
174.8
Accrued expenses
72.3
54.4
Notes payable and current maturities of
long-term debt
84.4
0.9
Other current liabilities
47.8
73.4
Current liabilities
362.9
303.5
Long-term debt including finance lease
obligations
1,382.8
1,472.5
Deferred income taxes
70.9
106.5
Other liabilities
175.3
155.7
Total Liabilities
1,991.9
2,038.2
Equity
631.4
698.3
Total Liabilities and Equity
$
2,623.3
$
2,736.5
INGEVITY CORPORATION
Condensed Consolidated
Statements of Cash Flows (Unaudited)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Cash provided by (used in) operating
activities:
Net income (loss)
$
(116.8
)
$
15.6
$
(5.4
)
$
211.6
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization
30.7
30.2
122.8
108.8
Gain on sale of strategic investment
—
—
(19.3
)
—
Restructuring and other (income) charges,
net
120.8
3.2
170.2
13.8
Other non-cash items
33.5
21.8
99.5
59.5
Changes in other operating assets and
liabilities, net
(23.6
)
27.7
(162.7
)
(80.3
)
Net cash provided by (used in) operating
activities
$
44.6
$
98.5
$
205.1
$
313.4
Cash provided by (used in) investing
activities:
Capital expenditures
$
(29.2
)
$
(49.2
)
$
(109.8
)
$
(142.5
)
Payments for acquired businesses, net of
cash acquired
—
(344.5
)
—
(344.5
)
Proceeds from sale of strategic
investment
—
—
31.5
—
Net investment hedge settlement
—
—
—
14.7
Purchase of strategic investments
—
(14.6
)
(2.4
)
(77.4
)
Other investing activities, net
8.2
1.1
3.4
(2.2
)
Net cash provided by (used in) investing
activities
$
(21.0
)
$
(407.2
)
$
(77.3
)
$
(551.9
)
Cash provided by (used in) financing
activities:
Proceeds from revolving credit facility
and other borrowings
$
136.8
$
376.7
$
376.3
$
1,164.7
Payments on revolving credit facility
(142.8
)
(57.7
)
(382.9
)
(336.7
)
Payments on long-term borrowings
—
—
—
(628.1
)
Debt issuance costs
(0.4
)
—
(0.4
)
(3.0
)
Debt repayment costs
—
—
—
(3.8
)
Financing lease obligations, net
(0.1
)
(0.5
)
(0.7
)
(0.9
)
Tax payments related to withholdings on
vested equity awards
—
—
(4.8
)
(2.2
)
Proceeds and withholdings from share-based
compensation plans, net
—
1.3
4.7
4.1
Repurchases of common stock under publicly
announced plan
—
(6.0
)
(92.1
)
(145.2
)
Other financing activities, net
—
(0.8
)
—
(0.8
)
Net cash provided by (used in) financing
activities
$
(6.5
)
$
313.0
$
(99.9
)
$
48.1
Increase (decrease) in cash, cash
equivalents, and restricted cash
17.1
4.3
27.9
(190.4
)
Effect of exchange rate changes on
cash
2.7
2.6
(0.3
)
(6.0
)
Change in cash, cash equivalents, and
restricted cash
19.8
6.9
27.6
(196.4
)
Cash, cash equivalents, and restricted
cash at beginning of period
92.1
77.4
84.3
280.7
Cash, cash equivalents, and restricted
cash at end of period (1)
$
111.9
$
84.3
$
111.9
$
84.3
(1) Includes restricted cash of $16.0
million and $7.6 million, and cash and cash equivalents of $95.9
million and $76.7 million, for the years ended December 31, 2023
and 2022, respectively. Restricted cash is included within "Prepaid
and other current assets" and "Restricted investment" within the
condensed consolidated balance sheets.
Supplemental cash flow
information:
Cash paid for interest, net of capitalized
interest
$
24.8
$
18.9
$
82.7
$
54.8
Cash paid for income taxes, net of
refunds
1.8
12.2
29.7
54.8
Purchases of property, plant and equipment
in accounts payable
(3.3
)
(0.2
)
2.8
4.9
Leased assets obtained in exchange for new
finance lease liabilities
—
—
0.2
—
Leased assets obtained in exchange for new
operating lease liabilities
3.1
14.5
29.1
23.7
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, including inventory lower of cost or market charges associated
with restructuring actions, acquisition and other-related (income)
costs, pension and postretirement settlement and curtailment
(income) charges, loss on CTO resales, gain on sale of 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, including
inventory lower of cost or market charges associated with
restructuring actions, 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 on sale of strategic investment 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, including inventory lower of cost or market
charges associated with restructuring actions, acquisition and
other-related (income) costs, litigation verdict charges, gain on
sale of strategic investment, 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)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions, except per share data
(unaudited)
2023
2022
2023
2022
Net income (loss) (GAAP)
$
(116.8
)
$
15.6
$
(5.4
)
$
211.6
Restructuring and other (income) charges,
net (1)
140.5
3.2
189.9
13.8
Acquisition and other-related costs
(2)
(0.1
)
4.0
4.5
5.9
Pension and postretirement settlement and
curtailment (income) charges (3)
—
0.2
—
0.2
Loss on CTO resales (4)
22.0
—
22.0
—
Gain on sale of strategic investment
(5)
—
—
(19.3
)
—
Debt refinancing fees (6)
—
—
—
5.1
Tax effect on items above (7)
(38.3
)
(1.8
)
(46.4
)
(5.9
)
Certain discrete tax provision (benefit)
(8)
0.5
0.3
(0.6
)
0.7
Adjusted earnings (loss)
(Non-GAAP)
$
7.8
$
21.5
$
144.7
$
231.4
Diluted earnings (loss) per common
share (GAAP)
$
(3.23
)
$
0.41
$
(0.15
)
$
5.50
Restructuring and other (income)
charges
3.86
0.08
5.17
0.36
Acquisition and other-related costs
—
0.10
0.12
0.14
Pension and postretirement settlement and
curtailment (income) charges
—
0.01
—
0.01
Loss on CTO resales
0.61
—
0.60
—
Gain on sale of strategic investment
—
—
(0.52
)
—
Debt refinancing fees
—
—
—
0.13
Tax effect on items above
(1.04
)
(0.04
)
(1.26
)
(0.15
)
Certain discrete tax provision
(benefit)
0.01
0.01
(0.02
)
0.02
Diluted adjusted earnings (loss) per
share (Non-GAAP)
$
0.21
$
0.57
$
3.94
$
6.01
Weighted average common shares outstanding
- Diluted (9)
36.4
37.7
36.7
38.5
___________
(1)
We regularly perform strategic reviews and
assess the return on our operations, which sometimes results in a
plan to restructure the business. These costs are excluded from our
reportable segment results; details of which are included in the
table below. For the details of these costs between our reportable
segments, see Segment Operating Results on page 2.
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Work force reductions and other
$
0.9
$
—
$
12.5
$
—
Performance Chemicals' repositioning
113.1
—
113.1
—
Restructuring charges (1)
$
114.0
$
—
$
125.6
$
—
Alternative feedstock transition
3.7
—
22.1
—
North Charleston plant transition
2.1
—
14.8
—
Business transformation costs
1.0
3.2
7.7
13.8
Other (income) charges, net (1)
$
6.8
$
3.2
$
44.6
$
13.8
Performance Chemicals' repositioning
inventory charges (2)
19.7
—
19.7
—
Restructuring and other (income) charges,
net (3)
$
140.5
$
3.2
$
189.9
$
13.8
_________________
(1)
Amounts are recorded within Restructuring
and other (income) charges, net on the condensed consolidated
statement of operations.
(2)
Amounts are recorded within Cost of sales
on the condensed consolidated statement of operations.
(3)
For information on our Workforce
reductions and other, Alternative feedstock transition, North
Charleston plant transition, and the Business transformation costs
please refer to Note 11, Restructuring and Other (Income) Charges,
net, in the Notes to the Condensed Consolidated Financial
Statements included in the Company’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2023. For information regarding
the Performance Chemicals’ repositioning, see below.
Performance Chemicals’ repositioning:
On November 1, 2023, as disclosed in Note 17, Subsequent Events,
in the Notes to the Condensed Consolidated Financial Statements
included in the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2023, we announced a number of
strategic actions designed to further reposition our Performance
Chemicals reportable segment to improve the profitability and
reduce the cyclicality of the Company as a whole. These actions
increase our focus on growing our most profitable Performance
Chemicals' product lines such as road technologies and accelerate
our transition to non-crude tall oil ("CTO") based fatty acids.
This initiative will result in the reduction, and in some cases
exit, of certain historical end-use markets of our industrial
specialties product line such as adhesives, publication inks, and
oilfield, representing approximately $300 million of net sales. The
announced actions include the permanent closure of our Performance
Chemicals' CTO-based manufacturing plant located in DeRidder,
Louisiana (the “DeRidder Plant”) as well as additional corporate
and business cost reduction actions. We expect to close the
DeRidder Plant by the end of the first half of 2024. These actions
are referred to as Performance Chemicals' repositioning.
During the three and twelve months ended December 31, 2023 the
restructuring charges associated with this initiative represent
$103.0 million of asset disposal charges, $8.6 million of severance
and other employee related costs, and $1.5 million of other charges
primarily representing costs associated with contract terminations,
plant and equipment decommissioning charges and other miscellaneous
exit costs.
The Performance Chemicals' repositioning, when combined with
earlier targeted workforce reduction initiatives, during 2023
resulted in the reduction of Ingevity's global workforce by almost
20 percent, one-fourth of these reductions being employees directly
associated with commercial sales activities of the soon-to-be
exited and/or reduced end-use markets of our industrial specialties
product line. Specific to Performance Chemicals, the reduction
represented approximately 30 percent of the reportable segment's
workforce. The collective actions of workforce, operational, and
regional business exits, we believe, will hinder our ability to
dispose of the associated inventory on hand, as of December 31,
2023. As a result, we have recorded non-cash, lower of cost or
market, inventory charges to adjust the carrying value of the
impacted inventory to what we will realize upon disposal, less
disposal costs. Since these inventory charges are directly
attributable to the Performance Chemicals’ repositioning, that is,
they do not represent normal, recurring expenses necessary to
operate our business, we have combined these charges with the
restructuring charges, noted above, for the purposes of calculating
our non-GAAP financial performance measures. The future cash flow
impact of such actions will, however, not be excluded from our
non-GAAP financial liquidity measures. To the extent that we can
dispose of the inventory at a higher value than we currently
estimate, we will record any such benefit through Costs of sales
and exclude it from our non-GAAP financial measures.
(2)
Charges represent (gains) losses incurred
to complete and integrate acquisitions and other strategic
investments. Charges may include the expensing of the inventory
fair value step-up resulting from the application of purchase
accounting for acquisitions and certain legal and professional fees
associated with the completion of acquisitions and strategic
investments. For the details of these costs between our reportable
segments, see Segment Operating Results on page 2.
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions
2023
2022
2023
2022
Legal and professional service fees
$
(0.2
)
$
3.1
$
3.6
$
5.0
Acquisition-related (income) costs
$
(0.2
)
$
3.1
$
3.6
$
5.0
Inventory fair value step-up amortization
(1)
0.1
0.9
0.9
0.9
Acquisition and other-related (income)
charges
$
(0.1
)
$
4.0
$
4.5
$
5.9
_________________
(1) Included in Cost of sales on the
condensed consolidated statement of operations.
(3)
Our pension and postretirement settlement
and curtailment charges (income) are related to the acceleration of
prior service costs, as a result of a reduction in the number of
participants within the Union Hourly defined benefit pension plan.
These are excluded from our segment results because we consider
these costs to be outside our operational performance. We continue
to include the service cost, amortization of prior service cost,
interest costs, expected return on plan assets, and amortized
actual gains and losses in our segment EBITDA.
(4)
Due to the DeRidder Plant closure, as
noted in footnote 1 above, and the corresponding reduced CTO
refining capacity, we may be obligated, under an existing CTO
supply contract, to purchase CTO through 2025 at amounts in excess
of required CTO volumes. We intend to manage our CTO volumes by
reselling excess volumes (herein referred to as "CTO resales") in
the open market, which, based on what we believe to be market rates
today, may result in a loss of $30.0 million to $80.0 million in
2024.
Our Performance Chemicals reportable
segment is in the business of producing, primarily from CTO-based
feedstocks, derivative specialty chemicals for sale to third-party
customers. As a result of the Performance Chemicals’ repositioning,
we are selling excess CTO volumes, which is outside of the ordinary
course of business, that is, not a normal ongoing part of our
operations and not core to our business. The excess CTO volumes,
calculated as the volume directly attributable to reduced CTO
refining capacity as defined under the contractual terms of the CTO
supply contract, on hand at period end will be valued at the lower
of cost or expected selling price, less costs to sell. Volumes on
hand at period end and any pending CTO resale receivables will be
recorded to Other current assets on the condensed consolidated
balance sheet. Any liabilities associated with the purchases of the
excess CTO volumes will be recorded to Accrued expenses on the
condensed consolidated balance sheet. We will recognize the net
gains or losses associated with the CTO resale activities within
Other (income) expenses, net on the condensed consolidated
statement of operations. Since these CTO resale activities are
directly attributable to the Performance Chemicals’ repositioning,
that is, they do not represent normal, recurring expenses necessary
to operate our business, we have excluded the CTO resale (income)
charges for the purposes of calculating our non-GAAP financial
performance measures.
(5)
We exclude gains and losses from sales of
strategic investments from our segment results, as well as our
non-GAAP financial measures, because we do not consider such gains
or losses to be directly associated with the operational
performance of the segment. We believe that the inclusion of such
gains or losses, would impair the factors and trends affecting the
historical financial performance of our reportable segments. We
continue to include undistributed earnings or loss, distributions,
amortization or accretion of basis differences, and
other-than-temporary impairments for equity method investments that
we believe are directly attributable to the operational performance
of such investments, in our reportable segment results.
(6)
Represents the acceleration of deferred
financing fees, debt extinguishment premium paid and other fees
incurred related to our senior note redemption, term loan
repayment, revolving credit facility amendment, and termination of
certain interest rate swaps during the period ended December 31,
2022. We exclude these costs from our segment results, as well as
our non-GAAP financial measures, because we do not consider such
costs to be directly associated with the operational performance of
our segments or the Company as a whole.
(7)
Income tax impact of non-GAAP adjustments
is the summation of the calculated income tax charge related to
each pre-tax non-GAAP adjustment. The non-GAAP adjustments relate
primarily to adjustments in the United States. As such, the income
tax effect is calculated using the statutory tax rates of 21% for
the United States and approximately 2.5% for state and local taxes,
applied to the non-GAAP adjustments.
(8)
Represents certain discrete tax items such
as excess tax benefits on stock compensation and impacts of
legislative tax rate changes.
(9)
The weighted average number of shares
outstanding used in diluted adjusted earnings per share computation
(Non-GAAP) includes 0.2 million diluted shares. This number of
shares differs from the weighted average number of shares
outstanding used in diluted loss per share computations (GAAP) as
we had a net loss for the three and twelve months ended December
31, 2023, respectively.
Reconciliation of Net Income
(Loss) (GAAP) to Adjusted EBITDA (Non-GAAP)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions, except percentages
(unaudited)
2023
2022
2023
2022
Net income (loss) (GAAP)
$
(116.8
)
$
15.6
$
(5.4
)
$
211.6
Interest expense, net
22.7
17.0
87.0
54.3
Provision (benefit) for income taxes
(37.2
)
4.1
(4.7
)
58.0
Depreciation and amortization
30.7
30.2
122.8
108.8
Restructuring and other (income) charges,
net (1)
140.5
3.2
189.9
13.8
Acquisition and other-related (income)
costs (1)
(0.1
)
4.0
4.5
5.9
Loss on CTO resales (1)
22.0
—
22.0
—
Gain on sale of strategic investment
(1)
—
—
(19.3
)
—
Pension and postretirement settlement and
curtailment charges (income) (1)
—
0.2
—
0.2
Adjusted EBITDA (Non-GAAP)
$
61.8
$
74.3
$
396.8
$
452.6
Net sales
$
371.7
$
383.6
$
1,692.1
$
1,668.3
Net income (loss) margin
(31.4
)%
4.1
%
(0.3
)%
12.7
%
Adjusted EBITDA margin
16.6
%
19.4
%
23.5
%
27.1
%
___________
(1)
For more information on these charges,
refer to the Reconciliation of Adjusted Earnings table on page
7.
Calculation of Free Cash Flow
(Non-GAAP)
Three Months Ended December
31,
Twelve Months Ended December
31,
In millions (unaudited)
2023
2022
2023
2022
Net cash provided by (used in) operating
activities
$
44.6
$
98.5
$
205.1
$
313.4
Less: Capital expenditures
29.2
49.2
109.8
142.5
Free Cash Flow (Non-GAAP)
$
15.4
$
49.3
$
95.3
$
170.9
Calculation of Net Debt Ratio
(Non-GAAP)
In millions, except ratios
(unaudited)
December 31, 2023
Notes payable and current maturities of
long-term debt
$
84.4
Long-term debt including finance lease
obligations
1,382.8
Debt issuance costs
5.3
Total Debt
1,472.5
Less:
Cash and cash equivalents (1)
96.1
Restricted investment (2)
79.3
Net Debt
$
1,297.1
Net Debt Ratio (Non-GAAP)
Adjusted EBITDA (Non-GAAP) (3)
Adjusted EBITDA - last twelve months (LTM)
as of December 31, 2023
$
396.8
Net debt ratio (Non-GAAP)
3.3x
_______________
(1)
Includes $0.2 million of Restricted Cash
related to the new market tax credit financing arrangement.
(2)
Our restricted investment is a trust
managed in order to secure repayment of the finance lease
obligation associated with Performance Materials' Wickliffe,
Kentucky, manufacturing site at maturity. The trust, presented as
Restricted investment on our condensed consolidated balance sheets,
originally purchased long-term bonds that mature through 2026. The
principal received at maturity of the bonds, along with interest
income that is reinvested in the trust, are expected to be equal to
or more than the $80.0 million finance lease obligation that is due
in 2027. The restricted investment balance excludes $0.2 million
allowance for credit losses on held-to-maturity debt securities
within the trust.
(3)
Refer to the Reconciliation of Net Income
(GAAP) to Adjusted EBITDA (Non-GAAP) schedule for the
reconciliation to the most comparable GAAP financial measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240221097281/en/
Caroline Monahan 843-740-2068 media@ingevity.com
Investors: John E. Nypaver, Jr. 843-740-2002
investors@ingevity.com
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