Ingevity(NGVT) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents Ingevity Corporation's unaudited condensed consolidated financial statements, including statements of operations, comprehensive income (loss), balance sheets, and cash flows, along with detailed notes Condensed Consolidated Statements of Operations This section details Ingevity Corporation's operating performance, including net sales, gross profit, and net income (loss) for the specified periods Financial Performance (Three Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :----- | :---------------- | :---------------- | :--------- | :--------- | | Net Sales | 376.9 | 446.0 | (69.1) | (15.5%) | | Gross Profit | 129.9 | 129.0 | 0.9 | 0.7% | | Restructuring & Other Charges, net | 86.9 | 24.6 | 62.3 | 253.3% | | Other (income) expense, net | 111.8 | 1.3 | 110.5 | 8500% | | Income (loss) before income taxes | (137.9) | 32.1 | (170.0) | (529.6%) | | Net income (loss) | (107.2) | 25.2 | (132.4) | (525.4%) | | Basic EPS | (2.95) | 0.70 | (3.65) | (521.4%) | | Diluted EPS | (2.95) | 0.69 | (3.64) | (527.5%) | Financial Performance (Nine Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :----- | :---------------- | :---------------- | :--------- | :--------- | | Net Sales | 1,107.6 | 1,320.4 | (212.8) | (16.1%) | | Cost of Sales | 754.8 | 908.0 | (153.2) | (16.9%) | | Gross Profit | 352.8 | 412.4 | (59.6) | (14.5%) | | Restructuring & Other Charges, net | 162.8 | 49.4 | 113.4 | 229.6% | | Goodwill impairment charge | 349.1 | — | 349.1 | N/A | | Other (income) expense, net | 167.9 | (13.9) | 181.8 | (1307.9%) | | Income (loss) before income taxes | (544.4) | 143.9 | (688.3) | (478.3%) | | Net income (loss) | (446.9) | 111.4 | (558.3) | (501.2%) | | Basic EPS | (12.31) | 3.05 | (15.36) | (503.6%) | | Diluted EPS | (12.31) | 3.03 | (15.34) | (506.3%) | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents Ingevity Corporation's comprehensive income (loss), including net income (loss) and other comprehensive income (loss) components Comprehensive Income (Loss) (Three Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :----- | :---------------- | :---------------- | :--------- | :--------- | | Net income (loss) | (107.2) | 25.2 | (132.4) | (525.4%) | | Other comprehensive income (loss), net of tax | 34.0 | (20.4) | 54.4 | (266.7%) | | Comprehensive income (loss) | (73.2) | 4.8 | (78.0) | (1625.0%) | Comprehensive Income (Loss) (Nine Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :----- | :---------------- | :---------------- | :--------- | :--------- | | Net income (loss) | (446.9) | 111.4 | (558.3) | (501.2%) | | Other comprehensive income (loss), net of tax | 23.2 | (7.1) | 30.3 | (426.8%) | | Comprehensive income (loss) | (423.7) | 104.3 | (528.0) | (506.2%) | - Foreign currency translation adjustment significantly improved, moving from a loss of $21.4 million in Q3 2023 to a gain of $34.8 million in Q3 2024[6] Condensed Consolidated Balance Sheets This section provides a snapshot of Ingevity Corporation's financial position, detailing assets, liabilities, and equity at specific dates Balance Sheet Highlights (September 30, 2024 vs. December 31, 2023) | Metric | Sep 30, 2024 (Millions $) | Dec 31, 2023 (Millions $) | Change ($) | Change (%) | | :----- | :------------------------ | :------------------------ | :--------- | :--------- | | Total Assets | 2,211.6 | 2,623.3 | (411.7) | (15.7%) | | Current Assets | 636.8 | 658.6 | (21.8) | (3.3%) | | Goodwill | 186.9 | 527.5 | (340.6) | (64.6%) | | Total Liabilities | 1,997.1 | 1,991.9 | 5.2 | 0.3% | | Total Equity | 214.5 | 631.4 | (416.9) | (66.0%) | - Goodwill decreased significantly by $340.6 million, primarily due to an impairment charge[9] - Retained earnings decreased by $446.9 million, reflecting the net loss for the period[9] Condensed Consolidated Statements of Cash Flows This section outlines Ingevity Corporation's cash inflows and outflows from operating, investing, and financing activities Cash Flow Highlights (Nine Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :----- | :---------------- | :---------------- | :--------- | :--------- | | Net cash provided by (used in) operating activities | 64.1 | 158.9 | (94.8) | (59.7%) | | Net cash provided by (used in) investing activities | (51.5) | (52.6) | 1.1 | (2.1%) | | Net cash provided by (used in) financing activities | 27.4 | (93.4) | 120.8 | (129.3%) | | Change in cash, cash equivalents, and restricted cash | 41.6 | 9.9 | 31.7 | 320.2% | - Operating cash flow decreased significantly due to reduced cash earnings, CTO supply contract termination payments, and CTO resale cash outflows[10] - Financing activities shifted from a net cash outflow of $93.4 million in 2023 to a net cash inflow of $27.4 million in 2024, primarily due to increased borrowings and reduced share repurchases[10] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1: Background This note provides an overview of Ingevity Corporation's business, products, and reportable segments - Ingevity Corporation provides products and technologies that purify, protect, and enhance the world, largely renewably sourced[11] - Products are used in diverse applications including adhesives, asphalt paving, bioplastics, and automotive components[11] - The company operates in three reportable segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies[11] Note 2: New Accounting Guidance This note discusses recently issued accounting standards and their potential impact on Ingevity Corporation's financial statements - FASB issued ASU 2023-07, "Segment Reporting: Improvements to Reportable Segment Disclosures," effective for the 2024 fiscal year Form 10-K, requiring enhanced disclosures about significant segment expenses, with the company evaluating its impact[14] - FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures," effective for the 2025 fiscal year Form 10-K, aiming to enhance income tax disclosures regarding rate reconciliation and taxes paid, with the company evaluating its impact[15] Note 3: Net Sales This note details Ingevity Corporation's net sales breakdown by segment and geographical region Net Sales by Segment (Three Months Ended Sep 30) | Segment | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Performance Materials | 151.1 | 147.2 | 3.9 | 2.6% | | Performance Chemicals | 177.0 | 256.0 | (79.0) | (30.9%) | | Advanced Polymer Technologies | 48.8 | 42.8 | 6.0 | 14.0% | | Total Net Sales | 376.9 | 446.0 | (69.1) | (15.5%) | Net Sales by Segment (Nine Months Ended Sep 30) | Segment | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Performance Materials | 453.4 | 433.2 | 20.2 | 4.7% | | Performance Chemicals | 509.5 | 725.6 | (216.1) | (29.8%) | | Advanced Polymer Technologies | 144.7 | 161.6 | (16.9) | (10.5%) | | Total Net Sales | 1,107.6 | 1,320.4 | (212.8) | (16.1%) | Net Sales by Geography (Nine Months Ended Sep 30) | Geography | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :-------- | :---------------- | :---------------- | :--------- | :--------- | | North America | 666.3 | 854.3 | (188.0) | (22.0%) | | Asia Pacific | 251.6 | 264.3 | (12.7) | (4.8%) | | Europe, Middle East, and Africa | 149.0 | 167.6 | (18.6) | (11.1%) | | South America | 40.7 | 34.2 | 6.5 | 19.0% | | Total Net Sales | 1,107.6 | 1,320.4 | (212.8) | (16.1%) | Note 4: Fair Value Measurements This note describes Ingevity Corporation's fair value measurements for financial instruments and strategic investments - Deferred compensation plan investments and arrangements are recorded at fair value, primarily using Level 1 inputs (quoted prices in active markets)[21][22] - Strategic equity method investments totaled $15.4 million at September 30, 2024, with no impairment adjustments, following a $31.5 million sale in Q1 2023 that resulted in a $19.3 million gain, and an additional $0.1 million gain in Q2 2024[24] - Measurement alternative investments, where fair value is not readily determinable, totaled $71.9 million at September 30, 2024, with impairment charges of $6.7 million (Q3 2024) and $11.5 million (YTD 2024) recognized due to triggering events[25] Note 5: Inventories, net This note provides a breakdown of Ingevity Corporation's inventory components and changes over the period Inventories, net (September 30, 2024 vs. December 31, 2023) | Category | Sep 30, 2024 (Millions $) | Dec 31, 2023 (Millions $) | Change ($) | Change (%) | | :------- | :------------------------ | :------------------------ | :--------- | :--------- | | Raw materials | 106.8 | 128.3 | (21.5) | (16.8%) | | Finished and in-process goods | 217.5 | 255.2 | (37.7) | (14.8%) | | LIFO reserve | (88.4) | (100.7) | 12.3 | (12.2%) | | Inventories, net | 261.0 | 308.8 | (47.8) | (15.5%) | - Total inventories, net, decreased by $47.8 million, or 15.5%, from December 31, 2023, primarily due to reductions in raw materials and finished/in-process goods[30] Note 6: Property, Plant, and Equipment, net This note details Ingevity Corporation's property, plant, and equipment, net of accumulated depreciation Property, Plant, and Equipment, net (September 30, 2024 vs. December 31, 2023) | Category | Sep 30, 2024 (Millions $) | Dec 31, 2023 (Millions $) | Change ($) | Change (%) | | :------- | :------------------------ | :------------------------ | :--------- | :--------- | | Total cost | 1,619.1 | 1,581.1 | 38.0 | 2.4% | | Less: accumulated depreciation | (947.8) | (818.9) | (128.9) | 15.7% | | Property, plant, and equipment, net | 671.3 | 762.2 | (90.9) | (11.9%) | - Net property, plant, and equipment decreased by $90.9 million, or 11.9%, primarily due to increased accumulated depreciation[31] Note 7: Goodwill and Other Intangible Assets, net This note outlines Ingevity Corporation's goodwill and other intangible assets, including impairment charges Goodwill by Reporting Unit (September 30, 2024 vs. December 31, 2023) | Reporting Unit | Dec 31, 2023 (Millions $) | Goodwill Impairment Charge (Millions $) | Sep 30, 2024 (Millions $) | | :------------- | :------------------------ | :-------------------------------------- | :------------------------ | | Performance Materials | 4.3 | — | 4.3 | | Performance Chemicals | 349.4 | (349.1) | — | | Advanced Polymer Technologies | 173.8 | — | 182.6 | | Total | 527.5 | (349.1) | 186.9 | - A non-cash goodwill impairment charge of $349.1 million was recorded for the Performance Chemicals reporting unit during the second quarter of 2024, representing a full impairment of its goodwill[35] - The annual goodwill impairment test for the APT reporting unit as of October 1st, 2024, indicated no impairment, with headroom between 10% and 15%[34] Other Intangibles, net (September 30, 2024 vs. December 31, 2023) | Category | Dec 31, 2023 (Millions $) | Sep 30, 2024 (Millions $) | Change ($) | Change (%) | | :------- | :------------------------ | :------------------------ | :--------- | :--------- | | Gross Asset Value | 580.8 | 464.4 | (116.4) | (20.0%) | | Accumulated Amortization | (244.7) | (165.8) | 78.9 | (32.2%) | | Other intangibles, net | 336.1 | 298.6 | (37.5) | (11.2%) | - The Performance Chemicals' repositioning led to the retirement of certain customer contracts and relationships, and developed technology finite-lived intangible assets, and accelerated amortization of certain intangible assets, resulting in $22.1 million of additional expense for the nine months ended September 30, 2024[36][37] Note 8: Financial Instruments and Risk Management This note describes Ingevity Corporation's use of financial instruments to manage market risks - The company uses foreign currency derivative contracts to hedge foreign currency exchange risk, with $2.9 million open contracts as of September 30, 2024[40] - Natural gas commodity swap and zero cost collar option contracts are used to hedge commodity price risk, with 1.6 million and 0.4 million mm BTUs outstanding, respectively, hedging transactions until December 2025[41] - A floating-to-fixed interest rate swap with a notional amount of $200.0 million was entered into during Q3 2024 to manage interest rate variability, fixing the rate at 3.84% until August 2026[42] Note 9: Debt, including Finance Lease Obligations This note provides a summary of Ingevity Corporation's outstanding debt and finance lease obligations Total Debt, including Finance Lease Obligations (September 30, 2024 vs. December 31, 2023) | Category | Sep 30, 2024 (Millions $) | Dec 31, 2023 (Millions $) | Change ($) | Change (%) | | :------- | :------------------------ | :------------------------ | :--------- | :--------- | | Revolving Credit Facility and other lines of credit | 752.9 | 738.0 | 14.9 | 2.0% | | 3.88% Senior Notes due 2028 | 550.0 | 550.0 | — | 0.0% | | Finance lease obligations | 100.3 | 101.1 | (0.8) | (0.8%) | | Accounts receivable securitization | 97.5 | 81.3 | 16.2 | 19.9% | | Total debt including finance lease obligations | 1,502.8 | 1,472.5 | 30.3 | 2.1% | - The company was in compliance with all debt covenants as of September 30, 2024, with a net leverage ratio of 3.0 (max 4.0) and an interest coverage ratio of 5.0 (min 3.0)[50] - $80.0 million of the finance lease obligation will be settled using liquid assets in a restricted trust[49] Note 10: Equity This note details the components of Ingevity Corporation's total equity, including common stock and retained earnings Total Equity (September 30, 2024 vs. December 31, 2023) | Metric | Sep 30, 2024 (Millions $) | Dec 31, 2023 (Millions $) | Change ($) | Change (%) | | :----- | :------------------------ | :------------------------ | :--------- | :--------- | | Common stock | 0.4 | 0.4 | — | 0.0% | | Additional paid-in capital | 174.7 | 164.9 | 9.8 | 5.9% | | Retained earnings | 555.4 | 1,002.3 | (446.9) | (44.6%) | | Accumulated other comprehensive income (loss) | (3.5) | (26.7) | 23.2 | (86.9%) | | Treasury stock, common stock, at cost | (512.5) | (509.5) | (3.0) | 0.6% | | Total Equity | 214.5 | 631.4 | (416.9) | (66.0%) | - Retained earnings decreased by $446.9 million due to the net loss for the nine months ended September 30, 2024[52] - Accumulated other comprehensive income (loss) improved from $(26.7) million to $(3.5) million, primarily due to foreign currency translation adjustments[52][56] - No common stock was repurchased during the three and nine months ended September 30, 2024, with $353.4 million remaining unused under the 2022 Authorization[59] Note 11: Restructuring and Other (Income) Charges, net This note explains Ingevity Corporation's restructuring activities and associated charges, primarily from Performance Chemicals' repositioning Restructuring and Other (Income) Charges, net (Nine Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :------- | :---------------- | :---------------- | :--------- | :--------- | | Restructuring charges | 157.9 | 11.6 | 146.3 | 1261.2% | | Other (income) charges, net | 4.9 | 37.8 | (32.9) | (87.0%) | | Total | 162.8 | 49.4 | 113.4 | 229.6% | - The Performance Chemicals' repositioning initiative, announced in November 2023 and expanded in July 2024, aims to improve profitability by reducing exposure to lower-margin industrial specialties product lines (approx. 45% of historical annualized net sales), including the permanent closure of the Performance Chemicals' CTO refinery, the DeRidder, Louisiana plant (ceased production Q1 2024), and the Crossett, Arkansas facility (ceased production Q3 2024)[64] - Total expected charges for the repositioning increased by $100 million to approximately $350 million, consisting of $250 million in asset-related charges, $25 million in severance, and $75 million in other restructuring costs (including CTO supply contract termination), with $297.0 million incurred through September 30, 2024 ($250.8 million non-cash, $46.2 million cash-settled)[65][66] - CTO resale losses of $0.8 million (Q3 2024) and $50.8 million (YTD 2024) were incurred due to excess CTO volumes from reduced refining capacity, and the CTO supply contract was terminated on July 1, 2024, with a total charge of $100.0 million[68] Note 12: Income Taxes This note presents Ingevity Corporation's income tax provision (benefit) and effective tax rates Effective Tax Rates (Three Months Ended Sep 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Effective tax rate (including discrete items) | 22.3% | 21.5% | | EAETR (excluding discrete items) | 2.6% | 28.7% | Effective Tax Rates (Nine Months Ended Sep 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Effective tax rate (including discrete items) | 17.9% | 22.6% | | EAETR (excluding discrete items) | (33.0%) | 24.6% | - The decrease in EAETR for Q3 2024 and YTD 2024 is due to an overall change in the mix of forecasted earnings in various tax jurisdictions, with tax impacts from profitable foreign operations exceeding the overall tax benefit incurred in the U.S., resulting in a negative EAETR for the nine months[75][76] Note 13: Commitments and Contingencies This note outlines Ingevity Corporation's significant commitments and contingent liabilities, including legal proceedings - Ingevity is appealing a jury verdict from September 2021 in the Delaware Proceeding, which awarded BASF approximately $28.3 million (trebled to $85.0 million) for antitrust and tortious interference counterclaims[78] - The full trebled jury verdict of $85.0 million is accrued in "Other liabilities" on the balance sheet as of September 30, 2024, and post-judgment interest is being accrued since May 18, 2023[78] Note 14: Segment Information This note provides financial information by Ingevity Corporation's reportable segments, including net sales and EBITDA Segment EBITDA (Three Months Ended Sep 30) | Segment | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Performance Materials | 80.6 | 74.5 | 6.1 | 8.2% | | Performance Chemicals | 19.8 | 24.7 | (4.9) | (19.8%) | | Advanced Polymer Technologies | 9.8 | 11.2 | (1.4) | (12.5%) | | Total Segment EBITDA | 110.2 | 110.4 | (0.2) | (0.2%) | Segment EBITDA (Nine Months Ended Sep 30) | Segment | 2024 (Millions $) | 2023 (Millions $) | Change ($) | Change (%) | | :------ | :---------------- | :---------------- | :--------- | :--------- | | Performance Materials | 240.8 | 208.5 | 32.3 | 15.5% | | Performance Chemicals | 18.5 | 89.9 | (71.4) | (79.4%) | | Advanced Polymer Technologies | 29.1 | 36.6 | (7.5) | (20.5%) | | Total Segment EBITDA | 288.4 | 335.0 | (46.6) | (13.9%) | - Performance Chemicals segment EBITDA decreased significantly by 79.4% for the nine months, primarily due to higher CTO costs, lower volumes, and repositioning actions[80] Note 15: Earnings (Loss) per Share This note details the calculation of Ingevity Corporation's basic and diluted earnings (loss) per share Earnings (Loss) per Share (Three Months Ended Sep 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic EPS | $(2.95) | $0.70 | | Diluted EPS | $(2.95) | $0.69 | Earnings (Loss) per Share (Nine Months Ended Sep 30) | Metric | 2024 | 2023 | | :----- | :--- | :--- | | Basic EPS | $(12.31) | $3.05 | | Diluted EPS | $(12.31) | $3.03 | - All potentially dilutive common shares were excluded from diluted EPS calculation for the three and nine months ended September 30, 2024, due to a net loss for the period[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ingevity's financial condition and operational results, highlighting key drivers behind the reported performance Introduction This section introduces management's discussion and analysis of Ingevity Corporation's financial condition and results of operations - This MD&A supplements the Condensed Consolidated Financial Statements, providing insights into Ingevity's financial condition and results of operations[88] - It should be read in conjunction with the 2023 Annual Report on Form 10-K[88] Cautionary Statements Regarding Forward-Looking Statements This section highlights the inherent risks and uncertainties associated with Ingevity Corporation's forward-looking statements - The report contains forward-looking statements subject to risks and uncertainties, including those related to the Performance Chemicals manufacturing consolidation, plant closures, and CTO resales[89] - Other risks include global economic conditions (inflation, geopolitical conflicts), international sales, automotive market demand, competition, government spending, raw material access (CTO supply and price), acquisitions, supply chain disruptions, natural disasters, key personnel retention, large customer dependence, intellectual property litigation, IT security breaches, ERP system implementation, and regulatory changes[89][90] Overview This section provides a general description of Ingevity Corporation's business, products, and operating segments - Ingevity Corporation provides renewably sourced products and technologies for purification, protection, and enhancement across various applications[91] - The company operates in three reportable segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies[91] Recent Developments and Updates This section details significant recent events and strategic updates impacting Ingevity Corporation's operations and financial position Interest Rate Risk Management This section describes Ingevity Corporation's strategies for managing interest rate variability on its debt - In Q3 2024, Ingevity entered a $200.0 million floating-to-fixed interest rate swap to manage SOFR-based debt variability, fixing the rate at 3.84% until August 2026[92] Measurement Alternative Investments This section discusses impairment charges recognized for Ingevity Corporation's measurement alternative investments - Impairment charges of $6.7 million (Q3 2024) and $11.5 million (YTD 2024) were recognized for measurement alternative investments due to triggering events[93] Annual Goodwill Test This section reports the results of Ingevity Corporation's annual goodwill impairment test for reporting units - A full impairment of Performance Chemicals reporting unit goodwill was recorded in Q2 2024[94] - Preliminary results for the annual October 1st goodwill impairment test show APT reporting unit headroom between 10% and 15%, indicating no impairment[94] Headroom Sensitivity Analysis for APT Reporting Unit | Scenario | Preliminary Headroom | | :------- | :------------------- | | Revenue Growth Rate declines by 100 Bps | 3 - 8% | | EBITDA Margin declines by 100 Bps | 3 - 8% | | Discount Rate increases by 100 Bps | (3) - 2% | Performance Chemicals' Repositioning This section outlines the strategic actions taken to reposition Ingevity Corporation's Performance Chemicals segment - Strategic actions initiated in November 2023 and July 2024 to reposition Performance Chemicals, focusing on higher-margin product lines and transitioning to non-CTO based fatty acids[96] - This involves reducing exposure to lower-margin industrial specialties (approx. 45% of historical annualized net sales) and closing the CTO refinery, DeRidder, LA plant (Q1 2024), and Crossett, AR facility (Q3 2024)[96] - Global workforce reduced by 23%, with Performance Chemicals seeing a 40% reduction[96] Expected Charges This section details the anticipated and incurred charges related to Ingevity Corporation's Performance Chemicals' repositioning initiative - Total expected charges for Performance Chemicals' repositioning increased by $100 million to approximately $350 million (up due to Crossett Facility closure)[97] - Charges breakdown: $250 million asset-related, $25 million severance, $75 million other restructuring costs (including CTO supply contract termination)[97] - As of September 30, 2024, $297.0 million incurred ($250.8 million non-cash, $46.2 million cash-settled), with expected cash charges of $10-$15 million in Q4 2024 and $20-$25 million in 2025[98] Inventory Charges This section discusses non-cash inventory charges recorded due to Ingevity Corporation's business exits - Non-cash inventory charges of $3.8 million (Q3 2024) and $6.3 million (YTD 2024) were recorded in Cost of sales due to the inability to dispose of inventory from business exits[99] CTO Resale Activity This section describes Ingevity Corporation's crude tall oil resale activities and associated losses - CTO resale losses of $0.8 million (Q3 2024) and $50.8 million (YTD 2024) were incurred due to excess CTO volumes from reduced refining capacity[100] - The CTO supply contract was terminated on July 1, 2024, with a total charge of $100.0 million recorded in Other (income) expense, net[100] - CTO resale activity is expected to end by Q4 2024, with no more than $5.0 million in additional costs for liquidating remaining excess CTO[100] Expected Savings and Impact This section outlines the anticipated financial savings and operational impacts from Ingevity Corporation's repositioning efforts - Annualized net sales are expected to decrease due to reduced exposure to lower-margin industrial specialties[101] - Expected annualized cash savings: $95 million to $110 million, with $65 million to $75 million in 2024, from headcount reductions, plant efficiencies, and reduced supply chain costs[101] - Annualized depreciation and intangible amortization expense will decline by approximately $15 million and $17 million, respectively, with $10 million and $12 million expected in 2024[101] Results of Operations This section analyzes Ingevity Corporation's financial performance, detailing key revenue and expense drivers Net sales This section analyzes the factors influencing Ingevity Corporation's net sales performance, including volume, price/mix, and currency effects Net Sales Variance (Three Months Ended Sep 30, 2024 vs. 2023) | Factor | Change (Millions $) | | :----- | :------------------ | | Prior year Net sales | 446.0 | | Volume | (68.7) | | Price/Mix | 0.4 | | Currency effect | (0.8) | | Current year Net Sales | 376.9 | Net Sales Variance (Nine Months Ended Sep 30, 2024 vs. 2023) | Factor | Change (Millions $) | | :----- | :------------------ | | Prior year Net sales | 1,320.4 | | Volume | (199.9) | | Price/Mix | (5.2) | | Currency effect | (7.7) | | Current year Net Sales | 1,107.6 | - Q3 2024 net sales decrease primarily driven by $51 million reduction in Performance Chemicals' industrial specialties due to repositioning, unfavorable weather in North American road technologies, and continued weakness in industrial end markets[105] Gross Profit This section examines the changes in Ingevity Corporation's gross profit, driven by manufacturing costs and sales volumes - Q3 2024 gross profit increased by $0.9 million, driven by decreased manufacturing costs ($2.8 million) from lower input costs in Performance Materials and higher throughput in APT, partially offset by higher CTO costs in Performance Chemicals[108] - YTD 2024 gross profit decreased by $59.6 million, primarily due to unfavorable sales volume ($27.7 million) in Performance Chemicals industrial specialties and increased manufacturing costs ($22.5 million) from higher CTO costs[109] - Gross profit for both periods included realized savings from Performance Chemicals repositioning actions ($14.0 million in Q3 2024, $46.0 million YTD 2024)[108][109] Selling, general and administrative expenses This section details the changes in Ingevity Corporation's selling, general, and administrative expenses - Q3 2024 SG&A decreased by $1.3 million (3%) to $38.7 million, benefiting from $3.5 million non-cash intangible amortization reduction and $3.0 million cash savings from Performance Chemicals' repositioning[110] - YTD 2024 SG&A decreased by $13.0 million (9%) to $127.3 million, driven by $8.6 million non-cash intangible amortization reduction and $11.0 million cash savings from repositioning actions[111] Research and technical expenses This section analyzes Ingevity Corporation's research and technical expenses, including impacts from repositioning actions - Q3 2024 research and technical expenses decreased by $1.1 million, including approximately $1.0 million realized from Performance Chemicals repositioning actions[112] - YTD 2024 research and technical expenses decreased by $3.8 million, including approximately $3.0 million realized from Performance Chemicals repositioning actions[113] Restructuring and other (income) charges, net This section details Ingevity Corporation's restructuring and other charges, primarily related to the Performance Chemicals' repositioning Restructuring and Other (Income) Charges, net (Three Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Performance Chemicals' repositioning | 85.6 | — | | Other (income) charges, net | 1.3 | 23.1 | | Total | 86.9 | 24.6 | Restructuring and Other (Income) Charges, net (Nine Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Performance Chemicals' repositioning | 157.9 | — | | Other (income) charges, net | 4.9 | 37.8 | | Total | 162.8 | 49.4 | - The significant increase in restructuring charges for 2024 is primarily due to the Performance Chemicals' repositioning[114] Goodwill impairment charge This section discusses the significant goodwill impairment charge recorded for Ingevity Corporation's Performance Chemicals reporting unit - A goodwill impairment charge of $349.1 million was recorded for the nine months ended September 30, 2024, related to the Performance Chemicals reporting unit[115] Acquisition-related costs This section details Ingevity Corporation's acquisition-related costs, primarily for the integration of Ozark Materials - Acquisition-related (income) costs were $(0.1) million for Q3 2024 and zero for YTD 2024, compared to $0.1 million and $3.8 million for the respective periods in 2023[115] - All charges relate to the integration of Ozark Materials into the Performance Chemicals segment[115] Other (income) expense, net This section analyzes Ingevity Corporation's other income and expense items, including CTO-related charges Other (income) expense, net (Three Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Foreign currency transaction (gain) loss | 1.0 | 1.7 | | Loss on CTO resales | 0.8 | — | | CTO supply contract termination charges | 100.0 | — | | (Gain) loss on strategic investments | 6.7 | (0.1) | | CEO severance charges | 4.8 | — | | Other (income) expense, net | (1.5) | (0.3) | | Total | 111.8 | 1.3 | Other (income) expense, net (Nine Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Foreign currency transaction (gain) loss | 3.1 | 4.4 | | Loss on CTO resales | 50.8 | — | | CTO supply contract termination charges | 100.0 | — | | (Gain) loss on strategic investments | 11.4 | (19.3) | | CEO severance charges | 4.8 | — | | Other (income) expense, net | (2.2) | 1.0 | | Total | 167.9 | (13.9) | - Significant increase in 2024 primarily due to CTO supply contract termination charges ($100.0 million) and loss on CTO resales ($50.8 million YTD)[116] Interest expense, net This section details Ingevity Corporation's net interest expense, including components like securitization and litigation interest Interest Expense, net (Three Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Accounts receivable securitization | 1.7 | — | | Finance lease obligations | 1.8 | 1.9 | | Interest rate swap | (0.4) | — | | Litigation related interest expense | 1.3 | 1.3 | | Revolving Credit Facility and other lines of credit | 14.5 | 15.0 | | Senior notes | 5.6 | 5.6 | | Other interest (income) expense, net | (0.7) | (0.7) | | Total | 23.8 | 23.1 | Interest Expense, net (Nine Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Accounts receivable securitization | 4.5 | — | | Finance lease obligations | 5.4 | 5.5 | | Interest rate swap | (0.4) | — | | Litigation related interest expense | 3.9 | 1.7 | | Revolving Credit Facility and other lines of credit | 41.7 | 43.2 | | Senior notes | 16.8 | 16.8 | | Other interest (income) expense, net | (2.6) | (2.9) | | Total | 69.3 | 64.3 | - Total interest expense, net, increased by $5.0 million for the nine months ended September 30, 2024, primarily due to accounts receivable securitization and litigation-related interest expense[118] Provision (benefit) for income taxes This section discusses Ingevity Corporation's income tax provision (benefit) and effective tax rates - Effective tax rate for Q3 2024 was 22.3% (2.6% excluding discrete items), compared to 21.5% (28.7% excluding discrete items) in Q3 2023[119] - Effective tax rate for YTD 2024 was 17.9% ((33.0%) excluding discrete items), compared to 22.6% (24.6% excluding discrete items) in YTD 2023[119] Segment Operating Results This section provides an analysis of Ingevity Corporation's financial performance by its reportable segments - Segment EBITDA is the primary measure used by management to evaluate business performance and allocate resources[120] - Segment EBITDA excludes interest, income taxes, depreciation, amortization, restructuring charges, goodwill impairment, acquisition costs, litigation charges, strategic investment gains/losses, CTO resale losses, and CTO supply contract termination charges[120] Performance Materials This section details the net sales and EBITDA performance of Ingevity Corporation's Performance Materials segment - Q3 2024 net sales increased 3% to $151.1 million, driven by increased pricing on select products[121][124] - Q3 2024 Segment EBITDA increased 8% to $80.6 million, primarily due to improved operational efficiencies and lower input costs[121][125] - YTD 2024 net sales increased 4.7% to $453.4 million, driven by favorable pricing/mix ($14.1 million) and volume increase ($10.2 million)[123][126] - YTD 2024 Segment EBITDA increased 15.5% to $240.8 million, driven by increased sales, decreased manufacturing costs ($21.8 million), and favorable pricing/mix ($11.7 million)[122][127] Performance Chemicals This section analyzes the net sales and EBITDA performance of Ingevity Corporation's Performance Chemicals segment, impacted by repositioning - Q3 2024 net sales decreased 31% to $177.0 million, primarily due to repositioning actions exiting lower-margin industrial specialties ($51 million reduction) and unfavorable weather impacting road technologies[129][132] - Q3 2024 Segment EBITDA decreased 19.8% to $19.8 million, impacted by higher CTO costs, unfavorable plant throughput, and adverse weather, partially offset by repositioning cost savings[129][132] - YTD 2024 net sales decreased 29% to $509.5 million, driven by volume decreases in industrial specialties ($185.9 million) and road technologies ($26.7 million)[131][133] - YTD 2024 Segment EBITDA decreased 79.4% to $18.5 million, primarily due to higher manufacturing costs ($47.5 million) from CTO, volume decrease ($34.3 million), and unfavorable pricing/mix[130][134] Advanced Polymer Technologies This section details the net sales and EBITDA performance of Ingevity Corporation's Advanced Polymer Technologies segment - Q3 2024 net sales increased 14% to $48.8 million, driven by a volume increase of $11.8 million (28%)[135][139] - Q3 2024 Segment EBITDA decreased 12.5% to $9.8 million, as pricing pressure, unfavorable product mix, and adverse foreign currency impacts offset higher sales volumes and improved plant utilization[135][139] - YTD 2024 net sales decreased 10.5% to $144.7 million, primarily due to unfavorable pricing/mix ($16.7 million) and foreign currency ($2.7 million), partially offset by a volume increase ($2.5 million)[138][140] - YTD 2024 Segment EBITDA decreased 20.5% to $29.1 million, driven by unfavorable pricing/mix ($17.0 million) and foreign currency, partially offset by decreased manufacturing costs ($10.1 million)[136][140] Use of Non-GAAP Financial Measure - Adjusted EBITDA This section explains the definition and reconciliation of Ingevity Corporation's Adjusted EBITDA, a non-GAAP financial measure - Adjusted EBITDA is a non-GAAP measure used by management to evaluate business performance, excluding financing, investment, and non-operating activities[142] - 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, (loss) gain on strategic investments, loss on CTO resales, CTO supply contract termination charges, and pension and postretirement settlement and curtailment (income) charges, net[142] Reconciliation of Net Income (Loss) to Adjusted EBITDA This section provides a detailed reconciliation of Ingevity Corporation's GAAP net income (loss) to Adjusted EBITDA Adjusted EBITDA Reconciliation (Three Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | | :----- | :---------------- | :---------------- | | Net income (loss) (GAAP) | (107.2) | 25.2 | | Interest expense, net | 23.8 | 23.1 | | Provision (benefit) for income taxes | (30.7) | 6.9 | | Depreciation and amortization | 26.2 | 30.6 | | Restructuring and other (income) charges, net | 86.9 | 24.6 | | Loss on CTO resales | 0.8 | — | | CTO supply contract termination charges | 100.0 | — | | (Gain) loss on strategic investments | 6.7 | (0.1) | | Adjusted EBITDA (Non-GAAP) | 106.4 | 110.4 | Adjusted EBITDA Reconciliation (Nine Months Ended Sep 30) | Metric | 2024 (Millions $) | 2023 (Millions $) | | :----- | :---------------- | :---------------- | | Net income (loss) (GAAP) | (446.9) | 111.4 | | Interest expense, net | 69.3 | 64.3 | | Provision (benefit) for income taxes | (97.5) | 32.5 | | Depreciation and amortization | 83.1 | 92.1 | | Restructuring and other (income) charges, net | 162.8 | 49.4 | | Goodwill impairment charge | 349.1 | — | | Loss on CTO resales | 50.8 | — | | CTO supply contract termination charges | 100.0 | — | | (Gain) loss on strategic investments | 11.4 | (19.3) | | Adjusted EBITDA (Non-GAAP) | 282.1 | 335.0 | Current Full Year Company Outlook vs. Prior Year This section presents Ingevity Corporation's updated full-year outlook for net sales and Adjusted EBITDA - Net sales for 2024 are expected to be between $1.40 billion and $1.50 billion[146] - Performance Materials segment expects growth due to increased pricing and improved global hybrid automotive production; Performance Chemicals segment revenue will reflect the impact of repositioning and continued weak industrial demand, with road technologies revenue expected to decline due to unfavorable weather; Advanced Polymer Technologies segment anticipates flat revenues, with European market improvements offset by a challenging China economy and weak industrial demand[146] - Adjusted EBITDA for 2024 is expected to be between $350 million and $360 million; Performance Materials segment EBITDA is expected to grow due to improved operational efficiency; Performance Chemicals will continue to be impacted by elevated CTO costs and slow industrial market recovery; Advanced Polymer Technologies segment EBITDA is expected to be down due to pricing strategy, unfavorable mix, and adverse foreign currency impacts, despite volume growth[146] Liquidity and Capital Resources This section discusses Ingevity Corporation's sources and uses of cash, debt obligations, and capital expenditures - Primary liquidity source is cash flow from operating activities, expected to be sufficient for planned operations and obligations for the next 12 months[148] - Undrawn capacity under the revolving credit facility was $244.4 million at September 30, 2024[148] - Cash and cash equivalents totaled $135.5 million at September 30, 2024, with $128.5 million held by foreign subsidiaries, not expected to materially impact U.S. liquidity[148] Debt and Finance Lease Obligations This section refers to the detailed summary of Ingevity Corporation's outstanding debt and finance lease obligations - Refer to Note 9 for a summary of outstanding debt obligations and revolving credit facility[149] Other Potential Liquidity Needs This section outlines Ingevity Corporation's other potential liquidity requirements, including capital expenditures and stock repurchases - No common stock repurchases were made in Q3 or YTD 2024, and $353.4 million remained unused under the 2022 Authorization[149] - Projected 2024 capital expenditures are $90-$100 million, with no material commitments as of September 30, 2024[149] Cash flows provided by (used in) operating activities This section analyzes Ingevity Corporation's cash flows from operating activities and the factors influencing them - Net cash provided by operating activities for YTD 2024 was $64.1 million, a decrease of $94.8 million compared to YTD 2023 ($158.9 million)[150][151] - Decrease driven by reduced cash earnings ($123.8 million), CTO supply contract termination payment ($50.0 million), CTO resale cash outflows ($45.0 million), and higher cash interest paid ($3.1 million)[151] - Partially offset by a net reduction in trade working capital ($79.8 million), reduced employee compensation payments ($40.6 million), and reduced tax payments ($3.9 million)[151] Cash flows provided by (used in) investing activities This section details Ingevity Corporation's cash flows from investing activities, primarily capital expenditures - Net cash used in investing activities for YTD 2024 was $51.5 million, primarily due to capital expenditures of $52.7 million[150][152] Capital Expenditures (Nine Months Ended Sep 30) | Category | 2024 (Millions $) | 2023 (Millions $) | | :------- | :---------------- | :---------------- | | Maintenance | 33.8 | 44.7 | | Safety, health and environment | 2.4 | 9.4 | | Growth and cost improvement | 16.5 | 26.5 | | Total capital expenditures | 52.7 | 80.6 | - The decrease in net cash used in investing activities compared to YTD 2023 was due to a $31.5 million cash inflow from a strategic investment sale in Q1 2023, offset by reduced capital expenditures of $27.9 million[152] Cash flows provided by (used in) financing activities This section analyzes Ingevity Corporation's cash flows from financing activities, including borrowings and payments - Net cash provided by financing activities for YTD 2024 was $27.4 million, driven by $150.5 million in borrowings on the revolving credit facility, partially offset by $119.3 million in payments[150][154] - Net cash used in financing activities for YTD 2023 was $93.4 million, driven by $240.1 million in payments on revolving credit facility and $92.1 million in common stock repurchases, partially offset by $239.5 million in borrowings[154] New Accounting Guidance This section refers to the detailed description of recent accounting pronouncements and their expected effects - Refers to Note 2 for a full description of recent accounting pronouncements, including adoption dates and expected effects on financial statements[155] Critical Accounting Policies and Estimates This section confirms that Ingevity Corporation's critical accounting policies and estimates remain consistent with prior reports - The company's critical accounting policies and estimates have not substantially changed from those described in the 2023 Annual Report[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Ingevity's exposure to various market risks, including foreign currency exchange rates, interest rates, and commodity prices, particularly crude tall oil (CTO) Foreign currency exchange rate risk This section details Ingevity's exposure to foreign currency exchange rate fluctuations and their potential impact - Approximately 23% of net sales in the first nine months of 2024 came from foreign operations (Europe, South America, Asia)[157] - Primary currency exposures are USD versus Euro, Japanese Yen, Pound Sterling, and Chinese Renminbi[157] - A hypothetical 10% adverse change in Chinese Renminbi and Euro exchange rates would have decreased YTD 2024 net sales by approximately $12.1 million (1%) and income before income taxes by $4.5 million (1%)[157] Interest rate risk This section describes Ingevity's exposure to interest rate fluctuations and its strategies for managing this risk - In Q3 2024, a $200.0 million floating-to-fixed interest rate swap was entered into to manage SOFR-based interest payments, fixing the rate at 3.84% until August 2026[157] - Approximately $651.6 million of borrowings had a variable interest rate component as of September 30, 2024 (adjusted for the swap)[157] - A hypothetical 100 basis point increase in variable interest rates would have increased YTD 2024 annual interest expense by approximately $6.5 million (8%)[157] Commodity price risk This section discusses Ingevity's exposure to fluctuating commodity raw material prices and their impact on manufacturing costs - Manufacturing costs are affected by fluctuating commodity raw material prices, leading to potential fluctuations in product margins and profitability[158] Crude tall oil price risk This section details Ingevity's exposure to crude tall oil (CTO) price fluctuations and their financial implications - CTO represented 13% of condensed consolidated cost of sales for the nine months ended September 30, 2024 (down from 24% in 2023)[159] - Raw material CTO spend was approximately $12 million (Q3 2024) and $123 million (YTD 2024), excluding CTO resales[159] - A hypothetical unhedged 10% increase in CTO market price would have increased YTD 2024 spend by approximately $12.3 million[159] Other market risks This section confirms that other market risks remain consistent with previous disclosures - Other market risks for the period ended September 30, 2024, do not materially differ from those discussed in the 2023 Annual Report[160] Item 4. Controls and Procedures This section confirms the effectiveness of Ingevity's disclosure controls and procedures as of September 30, 2024, based on evaluations by the CEO and CFO Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of Ingevity's disclosure controls and procedures - As of September 30, 2024, the CEO and CFO, with management, concluded that Ingevity's disclosure controls and procedures are effective at a reasonable assurance level[161] Changes in Internal Control over Financial Reporting This section reports on any material changes in Ingevity's internal control over financial reporting - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, Ingevity's internal control over financial reporting[161] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 13 for details on legal proceedings, specifically the ongoing appeal of the BASF antitrust and tortious interference verdict, where Ingevity was ordered to pay $85.0 million Item 1A. Risk Factors This section updates the risk factors, emphasizing the negative impacts of the Performance Chemicals business repositioning, including plant closures and associated charges, on net sales, financial condition, and results of operations - The repositioning of the Performance Chemicals business is expected to negatively impact net sales and may adversely affect financial condition and results of operations during the transition period[164] - Expected aggregate charges of approximately $350 million are associated with the Performance Chemicals' repositioning, including asset-related charges, severance, and other restructuring costs[164] - Risks include potential adverse legal or regulatory actions, personnel unavailability, or other unforeseen factors related to the closure of the Crossett Facility[165] - Adverse weather conditions can impact demand for road technologies products, potentially affecting sales due to a shortened paving season[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that Ingevity did not repurchase any common stock during the three months ended September 30, 2024, and $353.4 million remained available under the 2022 stock repurchase authorization - No common stock was repurchased during the three months ended September 30, 2024[167] - $353.4 million remained unused under the 2022 stock repurchase authorization as of September 30, 2024[167] Item 3. Defaults Upon Senior Securities This item is marked as "Not applicable," indicating no defaults upon senior securities Item 4. Mine Safety Disclosures This item is marked as "Not applicable," indicating no mine safety disclosures Item 5. Other Information On October 2, 2024, the Board of Directors decreased its size from nine to eight members following the resignation of John C. Fortson - On October 2, 2024, the Board of Directors decreased its size from nine to eight members following the resignation of John C. Fortson[170] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate bylaws, performance-based restricted stock unit awards, a severance agreement, certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include Ingevity Corporation Fourth Amended and Restated Bylaws, Form of 2024 Performance-Based Restricted Stock Unit Award for U.S. and U.K. Employees, Amended and Restated Severance and Change of Control Agreement with John C. Fortson, Rule 13a-14(a)/15d-14(a) Certifications of the Company's Principal Executive Officer and Principal Financial Officer, Section 1350 Certifications, and Inline XBRL Instance Document and Related Items[172] SIGNATURES