Ingevity(NGVT) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited Condensed Consolidated Financial Statements for Ingevity Corporation for the quarterly period ended March 31, 2022 Condensed Consolidated Statements of Operations For Q1 2022, Ingevity reported a 19.5% year-over-year increase in net sales to $382.8 million and a rise in net income to $60.8 million Condensed Consolidated Statements of Operations (Unaudited) | In millions, except per share data | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net sales | $382.8 | $320.3 | | Gross profit | $137.8 | $126.2 | | Income before income taxes | $77.6 | $61.8 | | Net income | $60.8 | $48.7 | | Basic earnings per share | $1.56 | $1.21 | | Diluted earnings per share | $1.55 | $1.20 | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for Q1 2022 was $50.7 million, a decrease from the prior year, primarily due to a foreign currency adjustment loss Comprehensive Income (Loss) Summary (Unaudited) | In millions | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net income (loss) | $60.8 | $48.7 | | Other comprehensive income (loss), net of tax | $(10.1) | $8.5 | | Comprehensive income (loss) | $50.7 | $57.2 | Condensed Consolidated Balance Sheets As of March 31, 2022, total assets were $2.46 billion, with a notable reclassification of $300.0 million of long-term debt to current Balance Sheet Summary | In millions | March 31, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $732.8 | $724.9 | | Total Assets | $2,455.8 | $2,469.0 | | Total Current Liabilities | $551.7 | $268.9 | | Total Liabilities | $1,769.7 | $1,795.2 | | Total Equity | $686.1 | $673.8 | - Notes payable and current maturities of long-term debt increased significantly from $19.6 million to $319.6 million, primarily due to the reclassification of the 4.50% Senior Notes due 2026 ahead of their redemption[16][118] Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $24.3 million in Q1 2022, a decrease from the prior year due to working capital changes Cash Flow Summary (Unaudited) | In millions | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $24.3 | $51.1 | | Net cash provided by (used in) investing activities | $(30.2) | $(17.3) | | Net cash provided by (used in) financing activities | $(46.3) | $(52.1) | | Change in cash, cash equivalents, and restricted cash | $(52.9) | $(20.0) | Notes to the Condensed Consolidated Financial Statements The notes detail revenue disaggregation, debt covenant compliance, an accrued legal liability, and a subsequent debt redemption event - The company operates in two segments: Performance Materials (activated carbon products for automotive and purification) and Performance Chemicals (pavement technologies, industrial specialties, engineered polymers)[21][22][23] Net Sales by Segment (in millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Performance Materials | $148.4 | $140.7 | | Performance Chemicals | $234.4 | $179.6 | | Total Net Sales | $382.8 | $320.3 | - The company was in compliance with all debt covenants as of March 31, 2022; the total net leverage ratio was 2.2 against a maximum of 4.0, and the interest coverage ratio was 9.9 against a minimum of 3.0[77] - An $85.0 million liability related to the BASF litigation verdict is accrued in Other liabilities on the balance sheet as of March 31, 2022; the company disagrees with the verdict and intends to appeal[106][108] - Subsequent to the quarter end, on April 27, 2022, the company redeemed its $300.0 million 4.50% Senior Notes due 2026, funded primarily by its revolving credit facility[118] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 19.5% net sales increase in Q1 2022, an updated full-year guidance, and the company's strong liquidity position Results of Operations Q1 2022 net sales rose by $62.5 million, driven by favorable pricing that offset increased manufacturing costs from inflation Net Sales Variance Analysis (Q1 2022 vs Q1 2021) | In millions | Amount | | :--- | :--- | | Prior year Net sales (Q1 2021) | $320.3 | | Volume | $6.6 | | Price/Mix | $58.7 | | Currency effect | $(2.8) | | Current year Net Sales (Q1 2022) | $382.8 | - Gross profit increased by $11.6 million, as favorable pricing of $58.3 million and volume of $2.7 million were partially offset by $47.9 million in higher manufacturing costs due to inflation[131] Segment Operating Results Both the Performance Materials and Performance Chemicals segments reported increased sales and EBITDA, driven by pricing and volume - Performance Materials: Net sales increased 5.5% to $148.4 million, and Segment EBITDA increased 5.7% to $77.9 million, driven by process purification products[140][141][142][143] - Performance Chemicals: Net sales grew 30.5% to $234.4 million, and Segment EBITDA increased 29.6% to $41.1 million, driven by strong pricing and solid demand[144][145][146][150] Current Company Outlook Ingevity raised its full-year 2022 guidance for sales to $1.525-$1.65 billion and adjusted EBITDA to $430-$470 million 2022 Full-Year Guidance | Metric | Guidance (in millions) | | :--- | :--- | | Net sales | $1,525 - $1,650 | | Adjusted EBITDA | $430 - $470 | | Operating Cash Flow | $305 - $325 | | Capital Expenditures | $155 - $175 | - The guidance assumes continued impacts from global logistical headwinds, geopolitical uncertainty, significant cost inflation, and the microchip shortage affecting the automotive supply chain[160] Liquidity and Capital Resources The company maintains strong liquidity through cash from operations and its revolving credit facility, with $40.4 million in share repurchases in Q1 - Primary liquidity sources are cash flow from operations, cash on hand ($222.6 million at quarter-end), and an available revolving credit facility of $497.5 million[163][164] - In Q1 2022, the company repurchased 610,447 shares of its common stock for $40.4 million, with $262.2 million remaining available under the share repurchase authorization[167][86] - Projected capital expenditures for 2022 are between $155 million and $175 million[168] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to foreign currency and interest rate risks, which are partially mitigated through derivatives - A hypothetical 10% adverse change in the average Chinese renminbi and euro to U.S. dollar exchange rates would have decreased net sales by approximately $5.1 million (1%) for Q1 2022[181] - A hypothetical 100 basis point increase in the variable interest rate on $323 million of borrowings would increase annual interest expense by about $3.2 million[182][183] Controls and Procedures Management concluded that disclosure controls were effective as of March 31, 2022, amid an ongoing global ERP system implementation - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[186] - The company is implementing a new global ERP system, with the pilot deployment occurring in Q1 2022; changes to internal controls will be considered as the implementation progresses[188] PART II - OTHER INFORMATION Legal Proceedings Details on legal proceedings, primarily the BASF litigation, are referenced in Note 14 of the financial statements - Information regarding legal proceedings is detailed in Note 14 – Commitments and Contingencies within the Condensed Consolidated Financial Statements[191] Risk Factors No material changes to the company's risk factors were reported for the quarter ended March 31, 2022 - No material changes in Ingevity's risk factors were reported for the quarter ended March 31, 2022, from those disclosed in the 2021 Annual Report[192] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 610,447 shares for $40.4 million, with $262.2 million remaining under its repurchase authorization Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2022 | 248,510 | $72.20 | | February 2022 | 31,937 | $64.44 | | March 2022 | 330,000 | $61.96 | | Total | 610,447 | - | - As of March 31, 2022, approximately $262.2 million remained available for purchase under the company's stock repurchase program[194] Exhibits This section lists filed exhibits, including management contracts, certifications, and Inline XBRL documents - Exhibits filed include management contracts, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and XBRL data files[198]