Ingevity reports third quarter 2022 financial results

Ingevity Corporation (NYSE: NGVT) today reported its financial results for the third quarter 2022.

Record net sales of $482.0 million in the third quarter rose 27.9% versus the prior year quarter, reflecting strong demand and increased prices which offset higher input costs. Third quarter net income was $75.4 million compared to a loss of $4.2 million the prior year quarter, which included an $85.0 million pre-tax litigation expense.

Diluted earnings per share (EPS) in the current quarter was $1.98 compared to diluted loss per share of $0.11 in the prior year quarter. Adjusted earnings of $79.4 million increased 23.3% versus the prior year quarter and diluted adjusted EPS was a record $2.09, which excludes $0.11 of certain items, net of tax, primarily costs related to restructuring and other charges, net recognized during the quarter. This compares to diluted adjusted EPS of $1.62 in the prior year quarter.

Third quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $138.2 million was a record, up 15.6% versus prior year with adjusted EBITDA margin of 28.7%. Third quarter operating cash flow was $100.1 million and free cash flow was $64.0 million.

"Our team delivered record sales and adjusted EBITDA in the third quarter, as we saw strong demand across all the businesses, and we maintained the price discipline necessary to address inflation. We generated $64.0 million of free cash flow, allowing us to continue returning cash to shareholders as we repurchased $49.3 million of shares during the quarter," said John Fortson, president and CEO. Commenting on the business segments, Fortson said "In Performance Chemicals, all three businesses posted record sales, as demand was strong for our high-value, derivatized products that deliver the unique performance characteristics required by our customers. In Performance Materials, increased global auto production drove sales up 22.7% compared to the prior year."

Performance Chemicals

Sales in the Performance Chemicals segment were a record $337.1 million, up 30.3% from prior year.

Industrial Specialties and Pavement Technologies both had record quarters with sales up 35.2% and 20.6%, respectively, versus the prior year quarter. Industrial Specialties growth was driven by continued strength in the oilfield, adhesives, and agricultural chemicals markets, while Pavement Technologies growth was driven primarily by higher volume as a result of increased technology adoption and a strong paving season. Engineered Polymers sales were also a record, rising 31.4% driven by higher prices which offset elevated energy and raw material costs. Volumes improved primarily in strategic growth markets such as automotive, where customers are increasingly using Engineered Polymers' caprolactone products in paint protection films and specialty materials for electrical vehicle batteries, and footwear & apparel.

"Sales across our Performance Chemicals segment produced another record quarter," said Fortson. "We saw better than 20% growth in all three businesses as we continue to shift the mix to high performance, derivatized products that bring greater value to our customers. In addition, we closed on the purchase of Ozark Materials in early October. Ozark will be reported in our Pavement Technologies business and we are excited about the opportunities to expand our presence in the road construction end market."

Third quarter segment EBITDA was a record $77.0 million, up 22.0% versus the prior year quarter. Segment EBITDA margin was 22.8%, down from 24.4% compared to last year, primarily due to investment in growth initiatives and increased labor-related costs.

Performance Materials

Third quarter sales in Performance Materials were $144.9 million, up 22.7% compared to the prior year quarter. Segment EBITDA of $61.2 million was up 8.5% versus the prior year period. Segment EBITDA margin was 42.2% versus 47.8% as increased input costs outpaced prices during the quarter.

"In the third quarter, improved auto component supplies in all regions and China government automotive incentives drove stronger global auto production resulting in higher sales of our activated carbon products to the automotive sector, and we continued to experience high demand for our carbon in non-automotive applications, allowing us to increase prices," said Fortson. "Margins in Performance Materials were lower compared to the prior year due to significant increases in input costs such as a key raw material that increased over 60% during the year and began impacting margins noticeably in Q3. In contrast to the process purification markets, pricing for the auto market is typically set annually, early in the year."

Liquidity/Other

The closing of Ozark Materials on October 3^rd was funded using a combination of revolver borrowings and cash on hand, which will be reflected in Q4. Share repurchases for the quarter were $49.3 million and $139.2 million year to date, and $450.7 million remains available under the July 2022 $500 million Board authorization.

Full-Year 2022 Guidance

"As we approach the end of the year, we expect to deliver strong full year performance and are therefore raising our 2022 guidance to sales between $1.65 billion and $1.70 billion, and adjusted EBITDA between $460 million and $475 million," said 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 two reporting segments: Performance Chemicals, which includes specialty chemicals and engineered polymers, and Performance Materials, which includes high-performance activated carbon. These products are used in a variety of demanding applications, including adhesives, agrochemicals, asphalt paving, bioplastics, coatings, elastomers, lubricants, pavement markings, publication inks, oil exploration and production and automotive components that reduce gasoline vapor emissions. Headquartered in North Charleston, South Carolina, Ingevity operates from 31 locations around the world and employs approximately 2,050 people. The company's common stock is traded on the New York Stock Exchange (NYSE:NGVT). For more information visit www.ingevity.com.

Additional Information

The company will host a live webcast on Thursday, November 3, 2022, at 10:00 a.m. (Eastern) to discuss third quarter 2022 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 844-200-6205 (inside the U.S.) or 929-526-1599 (outside the U.S.) and entering access code 110669. Information on how to access the webcast and conference call, along with a slide deck containing other relevant financial and statistical information, will be posted to Ingevity's investor site prior to the call. A replay will be available beginning at approximately 2:00 p.m. (Eastern) on November 3, 2022, through November 3, 2023, 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," "believes," "anticipates" or similar expressions. Forward-looking statements may include, without limitation, the potential benefits of any acquisition or investment transaction, the anticipated timing of the closing of any announced acquisition, expected financial positions, guidance, results of operations and cash flows; financing plans; business strategies and expectations; operating plans; impact of COVID-19; 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; markets for securities and expected future repurchases of shares, including statements about the manner, amount and timing of repurchases. 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, adverse effects from the COVID-19 pandemic; adverse effects from general global economic, geopolitical and financial conditions beyond our control, including inflation and war in Ukraine; 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 crude tall oil and other raw materials; integration of future acquisitions; the provision of services by third parties at several facilities; supply chain disruptions; natural disasters and extreme weather events; or other unanticipated problems such as labor difficulties (including work stoppages), equipment failure or unscheduled maintenance and repair; attracting and retaining key personnel; dependence on certain large customers; legal actions associated with our intellectual property rights; protection of our intellectual property and other proprietary information; information technology security breaches and other disruptions; complications with designing or implementing our new enterprise resource planning system; government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs and the chemicals industry; 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 SEC, including those described in Part I, Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K as well as in our other filings with the SEC. These forward-looking statements speak only to management's beliefs as of the date of this press release. Ingevity assumes no obligation to provide any revisions to, or update, any projections and forward-looking statements contained in this press release.

Ingevity Corporation
Non-GAAP Financial Measures

Ingevity has presented certain financial measures, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP on the following pages. These financial measures are not meant to be considered in isolation or 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 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, acquisition and other-related costs, debt refinancing fees, litigation verdict charges, pension and postretirement settlement and curtailment (income) 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 net income (loss) per diluted share plus restructuring and other (income) charges, net, acquisition and other related costs, debt refinancing fees, litigation verdict charges, pension and postretirement settlement and curtailment (income) charges and the income tax expense (benefit) on those items, less the tax provision (benefit) from certain discrete tax items, in each case on a per share basis.

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, acquisition and other-related costs, litigation verdict charges, 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 net cash provided by 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 less the sum of cash and cash equivalents, restricted cash associated with our New Market Tax Credit financing arrangement, and restricted investment.

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

Ingevity also uses the above financial measures as the primary measures of profitability used by managers 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 2022 Adjusted EBITDA Guidance

A reconciliation of net income to adjusted EBITDA as projected for 2022 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 costs; litigation verdict charges; debt refinancing fees; 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 comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA.