Financial Performance - Q4 2023 net sales were $371.7 million, a decrease of 3% year-over-year, with a net loss of $116.8 million including restructuring charges of $107.5 million [3]. - Full year 2023 net sales reached $1.69 billion, up 1% compared to the previous year, with a net loss of $5.4 million and restructuring charges totaling $145.3 million [4]. - Adjusted EBITDA for Q4 was $61.8 million, down 17%, resulting in an adjusted EBITDA margin of 16.6% [3]. - Full year adjusted EBITDA was $396.8 million, a decrease of 12%, with an adjusted EBITDA margin of 23.5% [4]. - Net loss for Q4 2023 was $116.8 million, compared to a net income of $15.6 million in Q4 2022 [24]. - Net income for Q4 2023 was $(116.8) million, compared to a profit of $15.6 million in Q4 2022, resulting in a full-year net loss of $(5.4) million versus a profit of $211.6 million in 2022 [36]. - Adjusted earnings for Q4 2023 were $7.8 million, down from $21.5 million in Q4 2022, with full-year adjusted earnings at $144.7 million compared to $231.4 million in 2022 [51]. - The diluted adjusted earnings per share for Q4 2023 was $0.21, down from $0.57 in Q4 2022, with full-year diluted adjusted earnings per share at $3.94 compared to $6.01 in 2022 [51]. Segment Performance - Performance Materials segment sales increased by 15% in Q4 to $152.8 million, with segment EBITDA of $78.1 million, up 36% [8]. - Advanced Polymer Technologies segment sales fell by 29% in Q4 to $42.4 million, with segment EBITDA down 46% to $7.9 million [10]. - Performance Chemicals segment sales in Q4 were $176.5 million, down 8%, with a negative segment EBITDA of $24.2 million due to high CTO costs [12]. - Performance Materials segment net sales increased to $152.8 million in Q4 2023, up 15.0% from $132.8 million in Q4 2022 [26]. - Performance Chemicals segment net sales decreased to $176.5 million in Q4 2023, down 7.3% from $191.2 million in Q4 2022 [26]. Cash Flow and Debt - Operating cash flow for the full year was $205.1 million, with free cash flow of $95.3 million and share repurchases totaling $92.1 million [14]. - The company reported cash provided by operating activities of $44.6 million in Q4 2023, a decrease from $98.5 million in Q4 2022, with full-year cash flow at $205.1 million compared to $313.4 million in 2022 [36]. - Capital expenditures for Q4 2023 were $(29.2) million, down from $(49.2) million in Q4 2022, with full-year capital expenditures totaling $(109.8) million compared to $(142.5) million in 2022 [36]. - The company experienced a net cash outflow from investing activities of $(21.0) million in Q4 2023, significantly improved from $(407.2) million in Q4 2022, with full-year outflow at $(77.3) million compared to $(551.9) million in 2022 [36]. - Financing activities resulted in a net cash outflow of $(6.5) million in Q4 2023, contrasting with an inflow of $313.0 million in Q4 2022, with full-year financing activities showing an outflow of $(99.9) million compared to an inflow of $48.1 million in 2022 [36]. - The total debt as of December 31, 2023, was $1,472.5 million, with cash and cash equivalents of $96.1 million [74]. - The net debt ratio as of December 31, 2023, was 3.3x, calculated using a net debt of $1,297.1 million and adjusted EBITDA of $396.8 million [74]. Restructuring and Workforce - The company is focusing on repositioning its Performance Chemicals segment and expanding into higher-growth markets like bioplastics [16]. - The Performance Chemicals repositioning initiative is expected to result in the permanent closure of the DeRidder Plant by the end of the first half of 2024, impacting approximately $300 million of net sales [57]. - The global workforce was reduced by almost 20% in 2023, with approximately 30% of the Performance Chemicals segment's workforce affected [59]. - The company reported restructuring and other charges of $140.5 million in Q4 2023, significantly higher than $3.2 million in Q4 2022, with full-year charges at $189.9 million compared to $13.8 million in 2022 [51]. - Restructuring and other income charges for the three months ended December 31, 2023, amounted to $140.5 million, significantly higher than $3.2 million in the same period of 2022 [67]. Guidance and Future Outlook - The company announced 2024 guidance for sales between $1.40 billion and $1.55 billion and adjusted EBITDA between $365 million and $390 million [15]. - The company recorded $22.0 million in losses on CTO resales during the twelve months ended December 31, 2023 [67].

Financial Performance - Net sales decreased by 7.5% to $446.0 million in Q3 2023 compared to $482.0 million in Q3 2022 [31] - Adjusted EBITDA decreased by 20.1% to $110.4 million with a margin of 24.8% in Q3 2023, compared to $138.2 million with a margin of 28.7% in Q3 2022 [31] - Diluted adjusted EPS decreased by 42.1% to $1.21 in Q3 2023, compared to $2.09 in Q3 2022 [31] - Performance Chemicals segment EBITDA decreased by 62% due to higher CTO costs and weak demand, reaching $24.7 million with a margin of 9.6% [4, 53, 59] Segment Performance - Performance Materials net sales increased by 1.6% to $147.2 million, with segment EBITDA up by 21.7% to $74.5 million and a margin of 50.6% [45] - Industrial Specialties sales decreased by 30% due to lower volumes, with segment EBITDA flat at $11.2 million and a margin of 26.2% [14, 42] - Pavement Technologies sales increased by 47% due to pricing gains and the Ozark acquisition [61] - Advanced Polymer Technologies (APT) sales decreased by 4% to $256.0 million due to lower volumes, with segment EBITDA margin improving to 26.2% [13, 14] Strategic Initiatives and Outlook - The company is repositioning its Performance Chemicals business to focus on higher margin specialty products, expecting EBITDA margins to improve from mid-single digits to 15-20% [30, 50] - The company expects approximately $180 million of non-cash charges and $100 million in cash charges related to the repositioning, with the majority of non-cash and 50-60% of cash charges recognized by the end of the first half of 2024 [8, 70] - The company anticipates ~$25 million in combined savings from Q2 actions and the repositioning announcement [48] - The company reduced total global headcount by approximately 20% [17] - The company expects revenue between $1.6 and $1.7 billion, adjusted EBITDA between $375 and $390 million, capital expenditures between $95 and $105 million, and free cash flow between $75 and $85 million for the full year [47]

PART I - FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Ingevity Corporation's unaudited Condensed Consolidated Financial Statements for the period ended September 30, 2023, including key notes on segment reporting changes and the planned DeRidder plant closure Condensed Consolidated Statements of Operations (Unaudited) | In millions, except per share data | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $446.0 | $482.0 | $1,320.4 | $1,284.7 | | **Gross profit** | $129.0 | $176.3 | $412.4 | $464.7 | | **Income (loss) before income taxes** | $32.1 | $95.8 | $143.9 | $249.9 | | **Net income (loss)** | $25.2 | $75.4 | $111.4 | $196.0 | | **Diluted earnings (loss) per share** | $0.69 | $1.98 | $3.03 | $5.06 | Condensed Consolidated Balance Sheets (Unaudited) | In millions | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Current assets** | $734.5 | $679.0 | | **Total Assets** | $2,766.8 | $2,736.5 | | **Total Current liabilities** | $305.1 | $303.5 | | **Total Liabilities** | $2,048.1 | $2,038.2 | | **Total Equity** | $718.7 | $698.3 | Condensed Consolidated Statements of Cash Flows (Unaudited) | In millions | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $160.5 | $214.9 | | **Net cash provided by (used in) investing activities** | $(56.3) | $(144.7) | | **Net cash provided by (used in) financing activities** | $(93.4) | $(264.9) | - In Q1 2023, the company realigned its segment reporting, creating the Advanced Polymer Technologies segment from Performance Chemicals and splitting the Performance Chemicals goodwill reporting unit[19](index=19&type=chunk) - On November 1, 2023, the company announced the permanent closure of its DeRidder, Louisiana manufacturing plant by H1 2024, anticipating approximately **$280.0 million** in aggregate charges, with about **$180.0 million** being non-cash[138](index=138&type=chunk)[139](index=139&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 and nine-month 2023 financial results, highlighting a 7.5% Q3 net sales decrease, gross profit impact from CTO inflation, Performance Chemicals repositioning, and full-year 2023 guidance of **$1.6-$1.7 billion** sales and **$375-$390 million** Adjusted EBITDA [Overview and Recent Developments](index=30&type=section&id=Overview%20and%20Recent%20Developments) The company announced strategic actions to reposition its Performance Chemicals segment, including the DeRidder plant closure with **$280 million** in expected charges, and a goodwill impairment test that concluded no impairment with a **19%** headroom - On November 1, 2023, Ingevity announced strategic actions to reposition its Performance Chemicals segment, including the permanent closure of its DeRidder, Louisiana plant by the end of H1 2024[147](index=147&type=chunk) - The company expects to incur approximately **$280.0 million** in aggregate charges related to these actions, with about **$180.0 million** being non-cash asset-related charges[148](index=148&type=chunk) - A goodwill impairment test for the Performance Chemicals reporting unit concluded no impairment, with the fair value exceeding the carrying value by **19%**[152](index=152&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Q3 2023 net sales decreased by **$36.0 million** (7.5%) due to volume declines, while nine-month net sales increased by **$35.7 million** (2.8%) due to price/mix improvements, with gross profit negatively impacted by CTO inflation in both periods Net Sales Variance Analysis (vs. Prior Year) | In millions | Prior Year Net Sales | Volume | Price/Mix | Currency Effect | Current Year Net Sales | | :--- | :--- | :--- | :--- | :--- | :--- | | **Q3 2023 vs 2022** | $482.0 | $(72.1) | $38.3 | $(2.2) | $446.0 | | **9M 2023 vs 2022** | $1,284.7 | $(97.1) | $142.4 | $(9.6) | $1,320.4 | - Q3 gross profit decreased by **$47.3 million**, primarily due to **$42.6 million** in increased manufacturing costs from CTO inflation and a **$36.7 million** negative impact from lower sales volume[160](index=160&type=chunk) - Restructuring and other charges increased to **$24.6 million** in Q3 2023 from **$3.3 million** in Q3 2022, mainly due to costs from the alternative fatty acid transition at the Crossett plant and the North Charleston plant transition[167](index=167&type=chunk) [Segment Operating Results](index=36&type=section&id=Segment%20Operating%20Results) In Q3 2023, Performance Materials saw sales and EBITDA growth, while Performance Chemicals experienced significant declines due to lower volumes and high CTO costs, and Advanced Polymer Technologies' sales fell but EBITDA remained flat Performance Materials Segment Results (Q3 2023 vs Q3 2022) | In millions | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $147.2 | $144.9 | +1.6% | | **Segment EBITDA** | $74.5 | $61.2 | +21.7% | Performance Chemicals Segment Results (Q3 2023 vs Q3 2022) | In millions | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $256.0 | $267.6 | -4.3% | | **Segment EBITDA** | $24.7 | $65.7 | -62.4% | Advanced Polymer Technologies Segment Results (Q3 2023 vs Q3 2022) | In millions | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $42.8 | $69.5 | -38.4% | | **Segment EBITDA** | $11.2 | $11.3 | -0.9% | [Current Full Year Company Outlook](index=39&type=section&id=Current%20Full%20Year%20Company%20Outlook) For full-year 2023, Ingevity projects net sales between **$1.6 billion** and **$1.7 billion**, with Adjusted EBITDA between **$375 million** and **$390 million**, reflecting segment-specific trends and CTO cost pressures - Full-year 2023 net sales are expected to be between **$1.6 billion** and **$1.7 billion**[205](index=205&type=chunk) - Full-year 2023 Adjusted EBITDA is expected to be between **$375 million** and **$390 million**[206](index=206&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through operating cash flow, a new **$100.0 million** accounts receivable securitization program, and available credit, with projected 2023 capital expenditures of **$95-$105 million** and **$353.4 million** remaining for share repurchases - On October 2, 2023, the company entered into a **$100.0 million** accounts receivable securitization program to provide additional liquidity[211](index=211&type=chunk) - During the first nine months of 2023, the company repurchased **$92.1 million** of its common stock, with **$353.4 million** remaining available under the share repurchase program as of September 30, 2023[213](index=213&type=chunk) - Projected capital expenditures for the full year 2023 are between **$95 million** and **$105 million**[215](index=215&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations, interest rate changes on variable-rate debt, and commodity price volatility, with Crude Tall Oil (CTO) representing approximately **25%** of consolidated cost of sales in the first nine months of 2023 - A hypothetical **10%** adverse change in euro and Chinese renminbi exchange rates would have decreased net sales by approximately **$13.2 million** for the nine months ended September 30, 2023[225](index=225&type=chunk) - A hypothetical **100 basis point** increase in variable interest rates would have increased annual interest expense by approximately **$8.3 million** based on debt levels for the nine months ended September 30, 2023[226](index=226&type=chunk) - Crude Tall Oil (CTO) represented about **25%** of consolidated cost of sales for the first nine months of 2023, and a hypothetical **10%** increase in its market price would have increased cost of sales by approximately **$22 million**[228](index=228&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, following the completion of a new global ERP system implementation in early 2023 that updated processes and internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023[231](index=231&type=chunk) - The company completed the final phase of its new global ERP system implementation in early 2023, leading to changes in processes and internal controls over financial reporting[232](index=232&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing litigation with BASF, where a jury awarded approximately **$85.0 million** (trebled under antitrust law), which Ingevity has accrued but intends to appeal - In the legal proceeding with BASF, a jury awarded damages of approximately **$28.3 million**, trebled to approximately **$85.0 million** under U.S. antitrust law[116](index=116&type=chunk) - The company has accrued the full **$85.0 million** verdict in 'Other liabilities' but disagrees with the outcome and is actively seeking to have it set aside or overturned on appeal[117](index=117&type=chunk)[118](index=118&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) This section introduces new material risk factors, primarily concerning the planned closure of the DeRidder, Louisiana plant and the cessation of critical services from WestRock's North Charleston paper mill, both posing potential operational and financial impacts - A new risk factor is the closure of the DeRidder, Louisiana plant, with potential negative impacts including costs exceeding estimates, adverse legal actions, and financial losses from excess CTO inventory[237](index=237&type=chunk) - A new risk factor stems from the closure of WestRock's North Charleston paper mill, which provided critical services to Ingevity's plant, potentially causing operational interruptions and significant capital expenditure to replace them[238](index=238&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase activity, noting no repurchases during Q3 2023, with approximately **$353.4 million** remaining available under the board-authorized program as of September 30, 2023 Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan | | :--- | :--- | :--- | :--- | | July 2023 | — | $ — | $353,384,633 | | August 2023 | — | $ — | $353,384,633 | | September 2023 | — | $ — | $353,384,633 | | **Total** | **—** | **$ —** | **$353,384,633** | [Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section is not applicable [Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable [Other Information](index=46&type=section&id=Item%205.%20Other%20Information) This section contains no additional information [Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and the Inline XBRL instance document

Free cash flow impacted by expected cash spend related to WestRock plant closure and cost reduction actions totaling approximately $30 million (1) Please see appendix for Ingevity's use of non-GAAP financial measures, definitions of those financial measures and reconciliations to the nearest GAAP financial measures. 10 FOR MORE INFORMATION Media Caroline Monahan (843) 740 - 2068 11 Investors John E. Nypaver, Jr. (843) 740 - 2002 Thank you for your interest in Ingevity. APPENDIX 『ingevity 12 Ingevity has pre ...

Financial Data and Key Metrics Changes - The company reported a nearly 15% increase in sales driven by stronger pricing across all segments and higher volumes in Performance Materials and Pavement Technologies [29] - Adjusted EBITDA for the quarter was $120.7 million, flat compared to the previous year, with an adjusted EBITDA margin of 25.1% [31] - Diluted adjusted EPS was $1.41, lower than the prior year due to higher interest expenses and depreciation related to the Ozark acquisition [31] - Free cash flow for the quarter was $27 million, lower than usual due to significant working capital increases, particularly in inventory [32] Business Line Data and Key Metrics Changes - Performance Materials experienced double-digit growth year-over-year and sequentially [8] - The Pavement Technologies business had a record quarter, with strong demand leading to higher sales in Europe and South America [13] - The Industrial Specialties segment faced challenges, with volume declines attributed to macroeconomic trends and customer destocking [53][61] - Advanced Polymer Technologies saw flat sales year-over-year but improved profitability, with an EBITDA margin of 21.8% [55] Market Data and Key Metrics Changes - North America was the strongest region for the company, while Asia and Europe showed sluggish recovery [58][121] - The U.K. is rapidly adopting warm mix technology, which is expected to reduce energy use and emissions [21] - Demand for rosin-based products weakened, particularly in Asia and Europe, impacting overall volumes [41][61] Company Strategy and Development Direction - The company is focusing on transitioning to alternative fatty acids (AFA) to mitigate reliance on crude tall oil (CTO) and reduce cost exposure [49][112] - The strategy includes expanding production capabilities and entering new markets, particularly in bioplastics and automotive applications [42][112] - The company is also investing in talent to support the AFA transition and enhance its market position [26][112] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns over the sluggish recovery in China and ongoing industrial slowdowns in Europe, which have affected demand [61][121] - The company anticipates that CTO prices will remain elevated until 2024, impacting profitability [61] - Management remains optimistic about the long-term potential of the AFA transition and expects to see improvements as market conditions stabilize [112][156] Other Important Information - The company initiated significant cost reduction actions, expecting annualized savings of approximately $35 million, with $20 million expected to be realized in 2023 [36] - The transition costs associated with the WestRock closure are expected to be between $15 million and $20 million, primarily in the second half of the year [35] Q&A Session Summary Question: What is the disconnect in CTO pricing? - Management acknowledged the inefficiency in the CTO market and indicated that pricing tends to lag market changes, complicating recovery efforts [51][66] Question: How much of the guidance reduction is due to WestRock transition costs? - The WestRock impact is primarily cash costs, while the EBITDA decline is more related to CTO costs and general economic slowdown [80][81] Question: What is the expected contribution from PM and APT businesses? - The contribution from PM and APT is expected to be lower than initially thought due to the lack of recovery in China and Europe [102] Question: How is the AFA transition progressing? - The AFA transition is on track, with expectations to produce volumes equivalent to traditional CTO volumes by next year [112][130] Question: How will the company recover the $100 million gap from CTO costs next year? - Recovery will depend on improved market conditions, pricing adjustments, and continued growth in other business segments [141][156]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents Ingevity Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Ingevity Corporation's unaudited condensed consolidated financial statements for periods ended June 30, 2023, and December 31, 2022, including statements of operations, comprehensive income, balance sheets, cash flows, and detailed notes [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details Ingevity's financial performance, including net sales, gross profit, and net income, for the three and six months ended June 30, 2023 and 2022 Three Months Ended June 30, 2023 vs. 2022 (in millions) | Metric | 2023 | 2022 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Net sales | $481.8 | $419.9 | $61.9 | 14.7% | | Gross profit | $153.0 | $150.6 | $2.4 | 1.6% | | Income (loss) before income taxes | $47.7 | $76.5 | $(28.8) | -37.6% | | Net income (loss) | $35.5 | $59.8 | $(24.3) | -40.6% | | Basic earnings (loss) per share | $0.98 | $1.55 | $(0.57) | -36.8% | | Diluted earnings (loss) per share | $0.97 | $1.54 | $(0.57) | -37.0% | Six Months Ended June 30, 2023 vs. 2022 (in millions) | Metric | 2023 | 2022 | Change | % Change | | :-------------------------------- | :----- | :----- | :----- | :------- | | Net sales | $874.4 | $802.7 | $71.7 | 8.9% | | Gross profit | $283.4 | $288.4 | $(5.0) | -1.7% | | Income (loss) before income taxes | $111.8 | $154.1 | $(42.3) | -27.4% | | Net income (loss) | $86.2 | $120.6 | $(34.4) | -28.5% | | Basic earnings (loss) per share | $2.34 | $3.11 | $(0.77) | -24.8% | | Diluted earnings (loss) per share | $2.33 | $3.09 | $(0.76) | -24.6% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents Ingevity's net income and other comprehensive income components for the three and six months ended June 30, 2023 and 2022 Three Months Ended June 30, 2023 vs. 2022 (in millions) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net income (loss) | $35.5 | $59.8 | $(24.3) | | Other comprehensive income (loss), net of tax | $5.3 | $(46.7) | $52.0 | | Comprehensive income (loss) | $40.8 | $13.1 | $27.7 | Six Months Ended June 30, 2023 vs. 2022 (in millions) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net income (loss) | $86.2 | $120.6 | $(34.4) | | Other comprehensive income (loss), net of tax | $13.3 | $(56.8) | $70.1 | | Comprehensive income (loss) | $99.5 | $63.8 | $35.7 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of Ingevity's assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 As of June 30, 2023 vs. December 31, 2022 (in millions) | Metric | June 30, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :------------ | :----------- | :----- | | Total Assets | $2,828.3 | $2,736.5 | $91.8 | | Current assets | $764.4 | $679.0 | $85.4 | | Total Liabilities | $2,114.2 | $2,038.2 | $76.0 | | Current liabilities | $311.1 | $303.5 | $7.6 | | Total Equity | $714.1 | $698.3 | $15.8 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes Ingevity's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Six Months Ended June 30, 2023 vs. 2022 (in millions) | Metric | 2023 | 2022 | Change | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by (used in) operating activities | $53.6 | $114.8 | $(61.2) | | Net cash provided by (used in) investing activities | $(21.5) | $(58.6) | $37.1 | | Net cash provided by (used in) financing activities | $(40.1) | $(193.3) | $153.2 | | Increase (decrease) in cash, cash equivalents, and restricted cash | $(8.0) | $(137.1) | $129.1 | | Cash, cash equivalents, and restricted cash at end of period | $68.6 | $131.8 | $(63.2) | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1: Background](index=7&type=section&id=Note%201:%20Background) This note outlines Ingevity's business, product offerings, and the realignment of its segment reporting structure in Q1 2023 - Ingevity Corporation provides products and technologies for purification, protection, and enhancement, focusing on sustainability[18](index=18&type=chunk) - Effective Q1 2023, the company realigned its segment reporting structure, separating the engineered polymers product line from Performance Chemicals into a new segment: Advanced Polymer Technologies[18](index=18&type=chunk) - The company now operates in three reportable segments: Performance Chemicals (specialty chemicals, pavement technologies), Advanced Polymer Technologies (biodegradable plastics, polyurethane materials), and Performance Materials (activated carbon)[19](index=19&type=chunk) [Note 2: New Accounting Guidance](index=7&type=section&id=Note%202:%20New%20Accounting%20Guidance) This note discusses the company's assessment of new accounting standards and their expected impact on financial statements - The company assesses the applicability and impact of all FASB Accounting Standards Updates (ASUs), determining that recently issued ASUs not listed in this 10-Q are either not applicable or not expected to materially impact the consolidated financial statements[23](index=23&type=chunk) [Note 3: Revenues](index=8&type=section&id=Note%203:%20Revenues) This note disaggregates Ingevity's net sales by reportable segment and geography, and details contract assets and liabilities Net Sales by Reportable Segment (in millions) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Performance Materials | $144.6 | $122.4 | $286.0 | $270.8 | | Performance Chemicals | $284.0 | $243.7 | $469.6 | $416.3 | | Advanced Polymer Technologies | $53.2 | $53.8 | $118.8 | $115.6 | | **Total Net Sales** | **$481.8** | **$419.9** | **$874.4** | **$802.7** | Net Sales by Geography (in millions) | Geography | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $327.2 | $255.2 | $561.9 | $467.8 | | Asia Pacific | $86.2 | $86.1 | $171.9 | $183.7 | | Europe, Middle East, and Africa | $56.3 | $68.7 | $119.0 | $131.4 | | South America | $12.1 | $9.9 | $21.6 | $19.8 | | **Total Net Sales** | **$481.8** | **$419.9** | **$874.4** | **$802.7** | - Contract assets, primarily related to unbilled consideration for products, increased to **$7.3 million** at June 30, 2023, from **$6.6 million** at June 30, 2022[28](index=28&type=chunk)[29](index=29&type=chunk) - The company had no contract liabilities for all periods presented[29](index=29&type=chunk) [Note 4: Fair Value Measurements](index=8&type=section&id=Note%204:%20Fair%20Value%20Measurements) This note provides information on recurring fair value measurements and changes in strategic equity method investments Recurring Fair Value Measurements (in millions) | Item | June 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :------------ | :----------- | | Deferred compensation plan investments (Level 1) | $1.8 | $1.1 | | Deferred compensation arrangement (Level 1) | $15.4 | $12.5 | | Company-owned life insurance (COLI) (cash surrender value) | $14.3 | $13.3 | - The aggregate carrying value of strategic equity method investments decreased to **$16.2 million** at June 30, 2023, from **$28.2 million** at December 31, 2022[36](index=36&type=chunk) - This change was primarily due to the sale of a strategic equity method investment for **$31.4 million** in Q1 2023, resulting in a **$19.2 million** gain[36](index=36&type=chunk) - The carrying value of restricted investment (held-to-maturity) increased to **$79.5 million** at June 30, 2023, from **$78.0 million** at December 31, 2022[39](index=39&type=chunk) - Its fair value was **$76.1 million** and **$74.7 million**, respectively, based on Level 1 inputs[39](index=39&type=chunk) [Note 5: Inventories, net](index=10&type=section&id=Note%205:%20Inventories,%20net) This note details the composition of Ingevity's inventories and explains changes in inventory values Inventories, net (in millions) | Category | June 30, 2023 | Dec 31, 2022 | | :-------------------------- | :------------ | :----------- | | Raw materials | $146.3 | $106.7 | | Production materials, stores, and supplies | $29.5 | $27.9 | | Finished and in-process goods | $279.8 | $228.2 | | Subtotal | $455.6 | $362.8 | | Less: LIFO reserve | $(68.5) | $(27.8) | | **Inventories, net** | **$387.1** | **$335.0** | - Net inventories increased by **$52.1 million** from December 31, 2022, to June 30, 2023, primarily due to increases in raw materials and finished/in-process goods, and a significant increase in the LIFO reserve[45](index=45&type=chunk) [Note 6: Property, Plant, and Equipment, net](index=10&type=section&id=Note%206:%20Property,%20Plant,%20and%20Equipment,%20net) This note presents the breakdown of Ingevity's property, plant, and equipment, net of accumulated depreciation Property, Plant, and Equipment, net (in millions) | Category | June 30, 2023 | Dec 31, 2022 | | :-------------------------- | :------------ | :----------- | | Machinery and equipment | $1,218.3 | $1,162.7 | | Buildings and leasehold improvements | $210.7 | $200.9 | | Land and land improvements | $26.1 | $24.9 | | Construction in progress | $92.9 | $120.9 | | Total cost | $1,548.0 | $1,509.4 | | Less: accumulated depreciation | $(747.4) | $(710.8) | | **Property, plant, and equipment, net** | **$800.6** | **$798.6** | - Net property, plant, and equipment remained relatively stable, increasing slightly by **$2.0 million** from December 31, 2022, to June 30, 2023[46](index=46&type=chunk) - Construction in progress decreased by **$28.0 million**, while machinery and equipment increased by **$55.6 million**[46](index=46&type=chunk) [Note 7: Goodwill and Other Intangible Assets, net](index=11&type=section&id=Note%207:%20Goodwill%20and%20Other%20Intangible%20Assets,%20net) This note details goodwill reallocation due to segment reorganization and the composition of other intangible assets - In Q1 2023, Ingevity reorganized its segment reporting structure, reallocating goodwill as of January 1, 2023, to align with the new Performance Chemicals and Advanced Polymer Technologies reporting units[48](index=48&type=chunk)[49](index=49&type=chunk) - No impairment was identified[49](index=49&type=chunk) Goodwill by Reporting Unit (in millions) | Reporting Unit | Dec 31, 2022 | Segment Change Reallocation | Foreign Currency Translation | June 30, 2023 | | :-------------------------- | :----------- | :-------------------------- | :--------------------------- | :------------ | | Performance Materials | $4.3 | $0.0 | $0.0 | $4.3 | | Performance Chemicals | $514.2 | $(165.0) | $0.1 | $349.3 | | Advanced Polymer Technologies | $0.0 | $165.0 | $8.5 | $173.5 | | **Total** | **$518.5** | **$0.0** | **$8.6** | **$527.1** | Other Intangibles, net (in millions) | Category | June 30, 2023 | Dec 31, 2022 | | :-------------------------- | :------------ | :----------- | | Customer contracts and relationships | $267.2 | $274.7 | | Brands | $65.0 | $65.3 | | Developed Technology | $62.0 | $64.8 | | **Total Other Intangibles, net** | **$394.2** | **$404.8** | - Amortization expense for intangible assets was **$10.5 million** for Q2 2023 (up from **$7.8 million** in Q2 2022) and **$20.9 million** for the six months ended June 30, 2023 (up from **$15.9 million** in the prior year period)[54](index=54&type=chunk) [Note 8: Financial Instruments and Risk Management](index=12&type=section&id=Note%208:%20Financial%20Instruments%20and%20Risk%20Management) This note describes Ingevity's financial instruments, including derivative contracts, and risk management strategies - The company terminated its fixed-to-fixed cross-currency interest rate swaps (net investment hedges) in Q3 2022, resulting in **zero net interest income** from these instruments in 2023, compared to **$2.5 million** in Q2 2022 and **$2.7 million** in H1 2022[56](index=56&type=chunk) - As of June 30, 2023, the company had **$11.7 million** in open foreign currency derivative contracts with a net asset (liability) fair value of **$(0.3) million**[57](index=57&type=chunk) - Natural gas commodity swap and zero cost collar option contracts hedging forecasted transactions until March 2024 had a net asset (liability) fair value of **$(1.4) million**[58](index=58&type=chunk) - Within the next twelve months, Ingevity expects to reclassify **$3.4 million** of net gains from Accumulated Other Comprehensive Income (AOCI) to income, before taxes[63](index=63&type=chunk) [Note 9: Debt, including Finance Lease Obligations](index=15&type=section&id=Note%209:%20Debt,%20including%20Finance%20Lease%20Obligations) This note provides a breakdown of Ingevity's debt, including finance lease obligations, and compliance with covenants Debt, including Finance Lease Obligations (in millions) | Category | June 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :------------ | :----------- | | Revolving Credit Facility and other lines of credit | $881.0 | $828.0 | | 3.88% Senior Notes due 2028 | $550.0 | $550.0 | | Finance lease obligations | $101.4 | $101.9 | | Total debt including finance lease obligations | $1,532.4 | $1,479.9 | | Less: debt issuance costs | $6.0 | $6.5 | | Total debt, including finance lease obligations, net of debt issuance costs | $1,526.4 | $1,473.4 | | Less: debt maturing within one year | $0.9 | $0.9 | | **Long-term debt including finance lease obligations** | **$1,525.5** | **$1,472.5** | - The company was in compliance with all covenants under its Senior Notes indenture and revolving credit facility at June 30, 2023[72](index=72&type=chunk) - The net leverage ratio was **2.6** (vs. max 4.0) and interest coverage ratio was **8.1** (vs. min 3.0)[73](index=73&type=chunk) - Available funds under the revolving credit facility decreased to **$116.7 million** at June 30, 2023, from **$169.7 million** at December 31, 2022[70](index=70&type=chunk) [Note 10: Equity](index=16&type=section&id=Note%2010:%20Equity) This note details changes in Ingevity's equity, including net income, other comprehensive income, and share repurchase activities Equity Roll Forward (in millions) | Metric | Dec 31, 2022 | March 31, 2023 | June 30, 2023 | | :-------------------------------- | :----------- | :------------- | :------------ | | Total Equity | $698.3 | $725.7 | $714.1 | | Net income (loss) | $1,007.7 (Retained Earnings) | $50.7 (Retained Earnings) | $35.5 (Retained Earnings) | | Other comprehensive income (loss) | $(46.8) (AOCI) | $8.0 (AOCI) | $5.3 (AOCI) | | Share repurchase program | $(416.0) (Treasury Stock) | $(33.4) (Treasury Stock) | $(58.7) (Treasury Stock) | - The company repurchased **$58.7 million** (819,898 shares) of common stock in Q2 2023 and **$92.1 million** (1,269,373 shares) in H1 2023, at weighted average costs of **$70.87** and **$71.93** per share, respectively[86](index=86&type=chunk) - **$353.4 million** remained unused under the repurchase program at June 30, 2023[86](index=86&type=chunk) [Note 11: Restructuring and Other (Income) Charges, net](index=20&type=section&id=Note%2011:%20Restructuring%20and%20Other%20(Income)%20Charges,%20net) This note outlines charges related to Ingevity's restructuring program, feedstock transition, and plant closure impacts Restructuring and Other (Income) Charges, net (in millions) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Severance and other employee-related costs | $4.4 | $0.0 | $7.4 | $0.0 | | Other restructuring charges | $2.6 | $0.0 | $2.7 | $0.0 | | Alternative Feedstock Transition | $6.6 | $0.0 | $6.6 | $0.0 | | North Charleston Plant Transition | $2.9 | $0.0 | $2.9 | $0.0 | | Business transformation costs | $2.7 | $3.7 | $5.2 | $7.3 | | **Total** | **$19.2** | **$3.7** | **$24.8** | **$7.3** | - The company initiated a restructuring program in Q1 2023 to streamline functions and reduce costs, expected to cost **$12-14 million** and be completed by year-end 2023[93](index=93&type=chunk) - **$7.0 million** in restructuring charges were recorded in Q2 2023 and **$10.1 million** in H1 2023[93](index=93&type=chunk) - In April 2023, the Crossett plant began a feedstock transition, incurring **$6.6 million** in costs in H1 2023, with an expected total of **$20-25 million** in non-capital retooling and stranded costs for 2023[95](index=95&type=chunk)[96](index=96&type=chunk) - WestRock's North Charleston paper mill closure by August 31, 2023, will terminate shared services, leading to an expected **$15-20 million** in non-capital transition costs for Ingevity in 2023[97](index=97&type=chunk)[99](index=99&type=chunk) - **$2.9 million** was incurred in H1 2023[99](index=99&type=chunk) [Note 12: Income Taxes](index=21&type=section&id=Note%2012:%20Income%20Taxes) This note presents Ingevity's effective tax rates and discusses factors influencing income tax provisions Effective Tax Rates | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 25.6% | 21.8% | | Six Months Ended June 30 | 22.9% | 21.7% | - The increase in the Estimated Annual Effective Tax Rate (EAETR) for H1 2023 (**23.3%** vs. **21.2%** in H1 2022) is due to a change in the mix of forecasted earnings across tax jurisdictions, an increase in foreign earnings deemed taxable in the U.S., and the UK corporate tax rate increasing from **19% to 25%** on April 1, 2023[106](index=106&type=chunk) - The company maintains a valuation allowance against deferred tax assets from Brazilian and Chinese net operating losses and U.S. state tax credits, as their realization is not yet objectively asserted as more likely than not[107](index=107&type=chunk) - In Q2 2023, the company determined that current year's earnings of its China subsidiaries are no longer permanently reinvested, though no deferred tax liability was recorded as impacts will be captured upon distribution[109](index=109&type=chunk) [Note 13: Commitments and Contingencies](index=23&type=section&id=Note%2013:%20Commitments%20and%20Contingencies) This note details Ingevity's legal commitments and contingencies, including a significant antitrust judgment - On May 18, 2023, a judgment was entered in the Delaware Proceeding, affirming a jury verdict against Ingevity in favor of BASF for approximately **$85.0 million** (trebled damages) related to antitrust counterclaims[111](index=111&type=chunk)[112](index=112&type=chunk) - Ingevity disagrees with the verdict and intends to pursue all legal relief, including appeal[112](index=112&type=chunk) - The full **$85.0 million** verdict is accrued in Other liabilities on the condensed consolidated balance sheet as of June 30, 2023, and post-judgment interest has begun accruing[113](index=113&type=chunk) [Note 14: Segment Information](index=23&type=section&id=Note%2014:%20Segment%20Information) This note provides financial information by Ingevity's reportable segments, including net sales and EBITDA - Effective Q1 2023, Ingevity separated its engineered polymers product line into a new reportable segment, Advanced Polymer Technologies, from the Performance Chemicals segment[114](index=114&type=chunk) Segment EBITDA (in millions) | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Performance Materials | $64.2 | $55.6 | $134.0 | $133.5 | | Performance Chemicals | $44.9 | $61.7 | $65.2 | $92.5 | | Advanced Polymer Technologies | $11.6 | $3.8 | $25.4 | $14.1 | | **Total Segment EBITDA** | **$120.7** | **$121.1** | **$224.6** | **$240.1** | [Note 15: Earnings (Loss) per Share](index=25&type=section&id=Note%2015:%20Earnings%20(Loss)%20per%20Share) This note details the calculation of Ingevity's basic and diluted earnings per share Earnings (Loss) per Share | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) (in millions) | $35.5 | $59.8 | $86.2 | $120.6 | | Basic earnings (loss) per share | $0.98 | $1.55 | $2.34 | $3.11 | | Diluted earnings (loss) per share | $0.97 | $1.54 | $2.33 | $3.09 | | Weighted average common shares outstanding - Basic (in thousands) | 36,373 | 38,515 | 36,768 | 38,762 | | Shares - diluted basis (in thousands) | 36,598 | 38,748 | 37,071 | 39,012 | - The average number of potential common shares that were antidilutive and excluded from diluted EPS calculation increased to **473 thousand** for Q2 2023 (from **217 thousand** in Q2 2022) and to **346 thousand** for H1 2023 (from **201 thousand** in H1 2022)[124](index=124&type=chunk) [Note 16: Acquisitions](index=25&type=section&id=Note%2016:%20Acquisitions) This note provides details on Ingevity's acquisition of Ozark Materials, including purchase price allocation and related costs - Ingevity completed the acquisition of Ozark Materials (OM and OL) on October 3, 2022, for **$325.0 million**[125](index=125&type=chunk) - The acquisition is being integrated into the Performance Chemicals segment, specifically the pavement technologies product line[125](index=125&type=chunk) - The acquisition is not considered significant enough to require proforma results of operations for the three and six months ended June 30, 2023[126](index=126&type=chunk) Preliminary Purchase Price Allocation for Ozark Materials (in millions) | Category | Fair Value | | :-------------------------- | :--------- | | Cash and cash equivalents | $8.0 | | Accounts receivable | $28.7 | | Inventories | $48.4 | | Property, plant and equipment | $43.1 | | Intangible assets (Brands, Customer relationships, Developed technology) | $127.1 | | Goodwill | $109.8 | | Total fair value of assets acquired | $367.2 | | Total fair value of liabilities assumed | $16.5 | | **Total cash paid, less cash and restricted cash acquired** | **$344.5** | - Acquisition-related costs, including legal and professional service fees, were **$1.8 million** for Q2 2023 and **$3.7 million** for H1 2023[137](index=137&type=chunk) - Inventory fair value step-up amortization was **$0.8 million** for H1 2023[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Ingevity's financial condition and operational results, covering recent developments, detailed analysis of performance, and liquidity [Introduction](index=28&type=section&id=Introduction) This introduction outlines the purpose and scope of management's discussion and analysis of financial results - Management's Discussion and Analysis (MD&A) supplements the Condensed Consolidated Financial Statements, providing insights into Ingevity's financial condition and results of operations[140](index=140&type=chunk) [Cautionary Statements About Forward-Looking Statements](index=28&type=section&id=Cautionary%20Statements%20About%20Forward-Looking%20Statements) This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements subject to risks and uncertainties, including global economic conditions, international sales, automotive market demand, competition, government regulations, raw material supply (especially CTO), supply chain disruptions, natural disasters, key personnel retention, customer dependence, intellectual property disputes, IT security, ERP system implementation, and environmental lawsuits[142](index=142&type=chunk)[143](index=143&type=chunk) [Overview](index=29&type=section&id=Overview) This overview describes Ingevity's business as a global manufacturer of specialty chemicals and activated carbon materials - Ingevity is a global manufacturer of specialty chemicals and high-performance activated carbon materials, operating in three segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies[144](index=144&type=chunk) [Recent Developments](index=29&type=section&id=Recent%20Developments) This section summarizes key recent events impacting Ingevity, including restructuring, feedstock transition, and plant closure - In Q1 2023, Ingevity initiated a restructuring program to enhance cost efficiency, incurring **$7.0 million** in Q2 2023 and **$10.1 million** in H1 2023, with an expected total cost of **$12-14 million** for 2023[145](index=145&type=chunk) - The Crossett, Arkansas plant began an alternative fatty acid feedstock transition in April 2023, incurring **$6.6 million** in costs in H1 2023, with an estimated **$20-25 million** in non-capital expenses for 2023[146](index=146&type=chunk) - WestRock's North Charleston paper mill closure by August 31, 2023, will terminate shared services, leading to an estimated **$15-20 million** in non-capital transition costs for Ingevity in 2023, with **$2.9 million** incurred in H1 2023[147](index=147&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes Ingevity's financial performance, including net sales, gross profit, and various expenses, for the periods presented Net Sales Variance (in millions) | Period | Prior Year Net Sales | Volume | Price/Mix | Currency Effect | Current Year Net Sales | | :-------------------------------- | :------------------- | :----- | :-------- | :-------------- | :--------------------- | | Three months ended June 30, 2023 vs. 2022 | $419.9 | $19.3 | $45.4 | $(2.8) | $481.8 | | Six months ended June 30, 2023 vs. 2022 | $802.7 | $(25.0) | $104.1 | $(7.4) | $874.4 | - Q2 2023 net sales increased by **$61.9 million (14.7%)** YoY, driven by favorable mix (**$45.4 million**) and volume improvement (**$19.3 million**), partially offset by unfavorable foreign currency (**$2.8 million**)[150](index=150&type=chunk) - Volume growth was supported by Performance Materials and Performance Chemicals' pavement technologies (including Ozark Materials acquisition), offsetting weaker volumes in industrial specialties and Advanced Polymer Technologies[150](index=150&type=chunk) - H1 2023 net sales increased by **$71.7 million (8.9%)** YoY, primarily due to favorable mix (**$104.1 million**), partially offset by unfavorable volume decline (**$25.0 million**) in Performance Chemicals' Industrial Specialties and unfavorable foreign currency (**$7.4 million**)[151](index=151&type=chunk) - Q2 2023 gross profit increased by **$2.4 million**, driven by favorable pricing/mix (**$41.9 million**), sales volume (**$12.8 million**), and foreign currency (**$1.1 million**), but significantly offset by increased manufacturing costs (**$53.4 million**) due to raw material inflation (primarily CTO)[153](index=153&type=chunk) - H1 2023 gross profit decreased by **$5.0 million**, primarily due to increased manufacturing costs (**$97.4 million**) from raw material inflation (CTO) and unfavorable sales volume (**$7.8 million**), partially offset by pricing improvements and favorable mix (**$100.5 million**)[154](index=154&type=chunk) - Selling, general, and administrative (SG&A) expenses increased by **$3.0 million** in Q2 2023 and **$11.6 million** in H1 2023, primarily due to increased amortization expense from the Ozark Materials acquisition and higher employee-related costs[155](index=155&type=chunk)[156](index=156&type=chunk) - Restructuring and other (income) charges, net, significantly increased to **$19.2 million** in Q2 2023 and **$24.8 million** in H1 2023, driven by severance, other restructuring charges, alternative fatty acid transition costs, and North Charleston plant transition costs[160](index=160&type=chunk) - Acquisition-related costs were **$1.8 million** in Q2 2023 and **$3.7 million** in H1 2023, entirely related to the integration of Ozark Materials[161](index=161&type=chunk) Interest Expense, Net (in millions) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revolving credit and term loan facilities | $15.0 | $4.2 | $28.2 | $6.1 | | Senior notes | $5.6 | $12.7 | $11.2 | $21.9 | | Litigation related interest expense | $0.4 | $0.0 | $0.4 | $0.0 | | **Total Interest expense, net** | **$21.6** | **$15.1** | **$41.2** | **$25.8** | [Segment Operating Results](index=34&type=section&id=Segment%20Operating%20Results) This section details the financial performance of Ingevity's individual operating segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies - Segment EBITDA is the primary measure used by the chief operating decision maker to evaluate performance and allocate resources[168](index=168&type=chunk) [Performance Materials](index=34&type=section&id=Performance%20Materials) This section analyzes the net sales and EBITDA performance of Ingevity's Performance Materials segment - Q2 2023 net sales increased by **$22.2 million (18.1%)** YoY, driven by a **15% volume increase** (improved automotive carbon in North America and China) and **6% favorable mix**, partially offset by **2% unfavorable foreign currency**[172](index=172&type=chunk) - Q2 2023 Segment EBITDA increased by **$8.6 million**, driven by higher sales volume and favorable mix, partially offset by increased manufacturing costs and unfavorable foreign currency exchange[173](index=173&type=chunk) - H1 2023 net sales increased by **$15.2 million (5.6%)** YoY, driven by **6% favorable mix** and **2% volume increase**, partially offset by **2% unfavorable foreign currency**[174](index=174&type=chunk) - H1 2023 Segment EBITDA increased by **$0.5 million**, driven by favorable mix and volume, partially offset by increased manufacturing costs and unfavorable foreign currency exchange[175](index=175&type=chunk)[176](index=176&type=chunk) [Performance Chemicals](index=35&type=section&id=Performance%20Chemicals) This section analyzes the net sales and EBITDA performance of Ingevity's Performance Chemicals segment - Q2 2023 net sales increased by **$40.3 million (16.5%)** YoY, driven by **13% favorable mix** (industrial specialties and pavement technologies) and **4% volume increase** (pavement technologies, including Ozark Materials, offsetting industrial specialties decline)[180](index=180&type=chunk) - Q2 2023 Segment EBITDA decreased by **$16.8 million**, primarily due to higher manufacturing costs (**$50.8 million**), especially from crude tall oil (CTO) inflation, and higher SG&A, partially offset by favorable mix and volume[177](index=177&type=chunk)[181](index=181&type=chunk) - H1 2023 net sales increased by **$53.3 million (12.8%)** YoY, driven by **17% favorable mix** (industrial specialties and pavement technologies), partially offset by **4% volume decrease** (industrial specialties, partially offset by pavement technologies)[182](index=182&type=chunk) - H1 2023 Segment EBITDA decreased by **$27.3 million**, primarily due to higher manufacturing costs (**$81.7 million**) from CTO inflation, higher SG&A, and volume decrease, partially offset by favorable mix[183](index=183&type=chunk) [Advanced Polymer Technologies](index=36&type=section&id=Advanced%20Polymer%20Technologies) This section analyzes the net sales and EBITDA performance of Ingevity's Advanced Polymer Technologies segment - Q2 2023 net sales were flat YoY, with a slight decrease of **$0.6 million**, driven by a **14% volume decline** (market weakness in footwear and industrials) largely offset by **13% favorable mix** and volume improvement in automotive and bioplastics[184](index=184&type=chunk)[187](index=187&type=chunk) - Q2 2023 Segment EBITDA increased by **$7.8 million**, driven by profit recovery initiatives including pricing actions, product mix management, and lower input costs (primarily energy costs), partially offset by volume decline and unfavorable foreign currency[184](index=184&type=chunk)[188](index=188&type=chunk) - H1 2023 net sales increased by **$3.2 million (2.8%)** YoY, driven by **16% favorable mix**, partially offset by **13% volume decline** and **1% unfavorable foreign currency**[189](index=189&type=chunk) - H1 2023 Segment EBITDA increased by **$11.3 million**, driven by favorable mix and decreased manufacturing costs, partially offset by volume decline, unfavorable foreign currency, and increased SG&A and research and technical expenses[190](index=190&type=chunk) [Use of Non-GAAP Financial Measure - Adjusted EBITDA](index=36&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measure%20-%20Adjusted%20EBITDA) This section explains the use of Adjusted EBITDA as a non-GAAP financial measure and provides its reconciliation - Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate business profitability, excluding financing, investment, and non-operating activities[191](index=191&type=chunk)[192](index=192&type=chunk) Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) (GAAP) | $35.5 | $59.8 | $86.2 | $120.6 | | Interest expense, net | $21.6 | $15.1 | $41.2 | $25.8 | | Provision (benefit) for income taxes | $12.2 | $16.7 | $25.6 | $33.5 | | Depreciation and amortization | $31.4 | $25.8 | $62.5 | $52.9 | | Restructuring and other (income) charges, net | $18.2 | $3.7 | $23.8 | $7.3 | | Gain on sale of strategic investment | $0.0 | $0.0 | $(19.2) | $0.0 | | Acquisition and other-related costs | $1.8 | $0.0 | $4.5 | $0.0 | | **Adjusted EBITDA (Non-GAAP)** | **$120.7** | **$121.1** | **$224.6** | **$240.1** | [Current Full Year Company Outlook vs. Prior Year](index=37&type=section&id=Current%20Full%20Year%20Company%20Outlook%20vs.%20Prior%20Year) This section provides Ingevity's full-year 2023 outlook for net sales and Adjusted EBITDA, along with key drivers - Full-year 2023 net sales are expected to be between **$1.6 billion** and **$1.7 billion**, driven by improved global automobile production (Performance Materials), growth in pavement technologies (Performance Chemicals), and growth in automotive and bioplastics (Advanced Polymer Technologies), partially offset by volume pressure in industrial specialties and footwear[199](index=199&type=chunk) - Full-year 2023 Adjusted EBITDA is projected to be between **$390 million** and **$420 million**[200](index=200&type=chunk) - This includes expected EBITDA growth for Performance Materials (higher margin automotive carbon), a significant increase in CTO costs for Performance Chemicals (partially offset by pavement technologies growth), and improved margins for Advanced Polymer Technologies (volume growth and lower input costs)[200](index=200&type=chunk) - A reconciliation of net income to adjusted EBITDA for 2023 is not provided due to the inability to estimate or predict certain components of net income without unreasonable effort[201](index=201&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Ingevity's sources and uses of liquidity, capital expenditures, and cash flow activities - The company's primary liquidity sources are cash flow from operations, cash on hand (**$68.0 million** at June 30, 2023), and available capacity under its revolving credit facility (**$116.7 million** at June 30, 2023)[203](index=203&type=chunk)[204](index=204&type=chunk) - These are expected to fund operations and contractual obligations for at least the next twelve months[204](index=204&type=chunk) - Planned uses of cash for the next twelve months include interest payments, capital expenditures, business transformation initiatives, debt principal repayments, stock repurchases, income tax payments, and restructuring activities[203](index=203&type=chunk) - Foreign subsidiaries held **$58.4 million** in cash and cash equivalents at June 30, 2023, generally used to finance foreign operations and capital expenditures[205](index=205&type=chunk) - Management does not currently expect to repatriate these earnings to fund U.S. operations[205](index=205&type=chunk) - Projected 2023 capital expenditures are **$100 - $120 million**, with no material commitments as of June 30, 2023[209](index=209&type=chunk) Cash Flow Summary (in millions) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by (used in) operating activities | $53.6 | $114.8 | | Net cash provided by (used in) investing activities | $(21.5) | $(58.6) | | Net cash provided by (used in) financing activities | $(40.1) | $(193.3) | - Cash flows from operating activities decreased to **$53.6 million** in H1 2023 (from **$114.8 million** in H1 2022), primarily due to a **$56.3 million** net increase in overall working capital, including a **$34.9 million** increase in trade working capital, and an **$11.3 million** increase in cash interest paid[211](index=211&type=chunk)[212](index=212&type=chunk) - Cash used in investing activities decreased to **$21.5 million** in H1 2023 (from **$58.6 million** in H1 2022), driven by capital expenditures of **$47.1 million**, partially offset by **$31.4 million** from the sale of a strategic investment[213](index=213&type=chunk) - Cash used in financing activities decreased to **$40.1 million** in H1 2023 (from **$193.3 million** in H1 2022), primarily due to lower net payments on revolving credit facilities and no long-term debt payments, partially offset by common stock repurchases[215](index=215&type=chunk) [New Accounting Guidance](index=40&type=section&id=New%20Accounting%20Guidance) This section reiterates the company's assessment of new accounting standards and their expected impact - The company assesses new ASUs and has determined that those not listed in this 10-Q are either not applicable or not expected to have a material impact on the consolidated financial statements[216](index=216&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms that Ingevity's critical accounting policies and estimates remain consistent with prior disclosures - Ingevity's critical accounting policies and estimates, which involve management judgments and estimates, have not substantially changed from those described in the 2022 Annual Report[217](index=217&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines Ingevity's exposure to various market risks, including foreign currency, interest rate, and commodity price risks, quantifying potential impacts - Foreign currency exchange rate risk: A hypothetical **10% adverse change** in the average Chinese renminbi and euro to U.S. dollar exchange rates for H1 2023 would have decreased net sales by approximately **$7.9 million (2%)** and income before income taxes by **$2.1 million (3%)**[218](index=218&type=chunk) - Interest rate risk: Approximately **$881.0 million** of borrowings had a variable interest rate component as of June 30, 2023[219](index=219&type=chunk) - A hypothetical **100 basis point increase** in this rate for H1 2023 would have increased annual interest expense by approximately **$8.8 million (10%)**[219](index=219&type=chunk) - Commodity price risk: Crude tall oil (CTO) represented approximately **23%** of consolidated cost of sales for H1 2023[220](index=220&type=chunk)[221](index=221&type=chunk) - Increases in CTO cost could adversely affect gross profit and margins if not passed on to customers[221](index=221&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of Ingevity's disclosure controls and procedures, confirming their effectiveness and noting ERP system changes - As of June 30, 2023, the CEO and CFO concluded that Ingevity's disclosure controls and procedures are effective at a reasonable assurance level[224](index=224&type=chunk) - The company implemented a new global enterprise resource planning (ERP) system in multiple phases, concluding in Q1 2023, which led to updates and changes in processes and related control activities[225](index=225&type=chunk) [PART II - OTHER INFORMATION](index=43&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information beyond the financial statements, including legal proceedings, risk factors, and equity sales [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the legal proceedings detailed in Note 13 of the financial statements, specifically regarding the ongoing litigation with BASF Corporation - Information on legal proceedings is detailed in Note 13, which includes the **$85.0 million** jury verdict against Ingevity in the BASF antitrust counterclaim[229](index=229&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, highlighting a new material risk related to the permanent closure of WestRock's North Charleston paper mill - No material changes to risk factors were disclosed, except for a new risk related to WestRock's permanent closure of its North Charleston paper mill by August 31, 2023[230](index=230&type=chunk)[231](index=231&type=chunk) - The WestRock closure terminates critical operating services (steam, water, wastewater, brine disposal) provided to Ingevity, potentially requiring significant capital expenditure to replace these services and causing operational disruptions[231](index=231&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section summarizes the company's common stock repurchase activities during the three months ended June 30, 2023, detailing shares purchased and remaining authorization Issuer Purchases of Equity Securities (Three Months Ended June 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | | :----------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | April 1-30, 2023 | 667,440 | $71.07 | 667,440 | $364,052,723 | | May 1-31, 2023 | 152,458 | $69.97 | 152,458 | $353,384,633 | | June 1-30, 2023 | — | — | — | $353,384,633 | | **Total** | **819,898** | | **819,898** | | - The Board authorized a **$500.0 million** common stock repurchase program on July 25, 2022[233](index=233&type=chunk) - As of June 30, 2023, **$353.4 million** remained unused under this program[233](index=233&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no defaults upon senior securities to report [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various agreements, certifications, and XBRL-related documents - Exhibits include a Performance Chemicals Transformation Restricted Stock Unit Award, an Amended and Restated 2017 Employee Stock Purchase Plan, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[238](index=238&type=chunk) [SIGNATURES](index=46&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the report - The report was signed on behalf of Ingevity Corporation by Mary Dean Hall, Executive Vice President and Chief Financial Officer, on August 3, 2023[243](index=243&type=chunk)

Provision (benefit) for Income Taxes on Adjusted earnings (loss) is defined as provision for income taxes plus the tax expense (benefit) on restructuring and other (income) charges, net, acquisition and otherrelated costs, debt refinancing fees, litigation verdict charges, (losses) and gains from the sale of strategic investments, pension and postretirement settlement and curtailment (income) charges, less the provision (benefit) from certain discrete tax items. Net Debt Ratio is defined as Net Debt divided ...

Ingevity Corporation (NYSE:NGVT) Q1 2023 Earnings Conference Call May 4, 2023 10:00 AM ET Company Participants John Nypaver - VP, IR & Treasurer John Fortson - President, CEO & Director Mary Hall - EVP & CFO Richard White - SVP & President, Performance Chemicals Steve Hulme - SVP & President, Advanced Polymer Technologies Stuart Woodcock - EVP & President, Performance Materials Conference Call Participants Vincent Anderson - Stifel, Nicolaus & Company Jonathan Tanwanteng - CJS Securities Christopher Kapsch ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Ingevity Corporation's unaudited condensed consolidated financial statements for the three months ended March 31, 2023, including statements of operations, comprehensive income (loss), balance sheets, cash flows, and detailed notes. Key financial metrics show a decrease in net income and operating cash flow, alongside a slight increase in net sales and total assets [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $392.6 | $382.8 | | Cost of sales | $262.2 | $245.0 | | Gross profit | $130.4 | $137.8 | | Selling, general, and administrative expenses | $48.6 | $40.0 | | Research and technical expenses | $8.8 | $7.3 | | Restructuring and other (income) charges, net | $5.6 | $3.6 | | Acquisition-related costs | $1.9 | — | | Other (income) expense, net | $(18.2) | $(1.4) | | Interest expense, net | $19.6 | $10.7 | | Income (loss) before income taxes | $64.1 | $77.6 | | Provision (benefit) for income taxes | $13.4 | $16.8 | | Net income (loss) | $50.7 | $60.8 | | Basic earnings (loss) per share | $1.36 | $1.56 | | Diluted earnings (loss) per share | $1.35 | $1.55 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net income (loss) | $50.7 | $60.8 | | Foreign currency translation adjustment | $10.5 | $(16.6) | | Unrealized gain (loss) on net investment hedges, net of tax | — | $1.3 | | Total foreign currency adjustments, net of tax | $10.5 | $(15.3) | | Unrealized gain (loss) on derivative instruments, net of tax | $(2.3) | $6.3 | | Reclassifications of deferred derivative instruments (gain) loss, net of tax | $(0.2) | $(1.1) | | Total derivative instruments, net of tax | $(2.5) | $5.2 | | Other comprehensive income (loss), net of tax | $8.0 | $(10.1) | | Comprehensive income (loss) | $58.7 | $50.7 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :------------------------------------------ | :-------------------------- | :--------------------------- | | Cash and cash equivalents | $77.9 | $76.7 | | Accounts receivable, net | $240.4 | $224.8 | | Inventories, net | $361.4 | $335.0 | | Current assets | $716.3 | $679.0 | | Property, plant, and equipment, net | $804.6 | $798.6 | | Goodwill | $522.0 | $518.5 | | Other intangibles, net | $398.7 | $404.8 | | Total Assets | $2,772.2 | $2,736.5 | | Accounts payable | $173.9 | $174.8 | | Current liabilities | $278.8 | $303.5 | | Long-term debt including finance lease obligations | $1,502.5 | $1,472.5 | | Total Liabilities | $2,046.5 | $2,038.2 | | Total Equity | $725.7 | $698.3 | | Total Liabilities and Equity | $2,772.2 | $2,736.5 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net income (loss) | $50.7 | $60.8 | | Depreciation and amortization | $31.1 | $27.1 | | Gain on sale of strategic investment | $(19.2) | — | | Net cash provided by (used in) operating activities | $5.2 | $24.3 | | Capital expenditures | $(25.4) | $(27.6) | | Proceeds from sale of strategic investment | $31.4 | — | | Net cash provided by (used in) investing activities | $1.9 | $(30.2) | | Proceeds from revolving credit facility | $90.3 | — | | Payments on revolving credit facility | $(60.3) | — | | Repurchases of common stock under publicly announced plan | $(33.4) | $(40.4) | | Net cash provided by (used in) financing activities | $(5.6) | $(46.3) | | Increase (decrease) in cash, cash equivalents, and restricted cash | $1.5 | $(52.2) | | Cash, cash equivalents, and restricted cash at end of period | $78.4 | $223.2 | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) [Note 1: Background](index=7&type=section&id=Note%201%3A%20Background) - In Q1 2023, Ingevity realigned its segment reporting structure, separating engineered polymers from the **Performance Chemicals segment** into a new **Advanced Polymer Technologies segment** to enhance transparency and align with operational decision-making[21](index=21&type=chunk) - The company operates in three reportable segments: **Performance Chemicals** (specialty chemicals, pavement technologies), **Advanced Polymer Technologies** (biodegradable plastics, polyurethane materials), and **Performance Materials** (activated carbon)[22](index=22&type=chunk) [Note 2: New Accounting Guidance](index=7&type=section&id=Note%202%3A%20New%20Accounting%20Guidance) - The company assessed all Accounting Standards Updates (ASUs) and determined that those not listed are either not applicable or are not expected to have a material impact on the consolidated financial statements[26](index=26&type=chunk) [Note 3: Revenues](index=8&type=section&id=Note%203%3A%20Revenues) | Segment | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Performance Materials | $141.4 | $148.4 | | Performance Chemicals | $185.6 | $172.6 | | Advanced Polymer Technologies | $65.6 | $61.8 | | **Net sales** | **$392.6** | **$382.8** | | Geography | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------ | :------------------------------------------- | :------------------------------------------- | | North America | $234.7 | $212.6 | | Asia Pacific | $85.7 | $97.6 | | Europe, Middle East, and Africa | $62.7 | $62.7 | | South America | $9.5 | $9.9 | | **Net sales** | **$392.6** | **$382.8** | [Note 4: Fair Value Measurements](index=8&type=section&id=Note%204%3A%20Fair%20Value%20Measurements) - During the three months ended March 31, 2023, Ingevity sold a strategic equity method investment for **$31.4 million**, resulting in a **$19.2 million gain** recorded in 'Other (income) expense, net'[39](index=39&type=chunk) | Item | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Deferred compensation plan investments (Level 1 Assets) | $1.5 | $1.1 | | Deferred compensation arrangement (Level 1 Liabilities) | $14.6 | $12.5 | [Note 5: Inventories, net](index=10&type=section&id=Note%205%3A%20Inventories%2C%20net) | Category | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Raw materials | $111.8 | $106.7 | | Production materials, stores, and supplies | $28.9 | $27.9 | | Finished and in-process goods | $270.8 | $228.2 | | Subtotal | $411.5 | $362.8 | | Less: LIFO reserve | $(50.1) | $(27.8) | | **Inventories, net** | **$361.4** | **$335.0** | [Note 6: Property, Plant, and Equipment, net](index=10&type=section&id=Note%206%3A%20Property%2C%20Plant%2C%20and%20Equipment%2C%20net) | Category | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Machinery and equipment | $1,177.9 | $1,162.7 | | Buildings and leasehold improvements | $204.2 | $200.9 | | Land and land improvements | $25.2 | $24.9 | | Construction in progress | $127.7 | $120.9 | | Total cost | $1,535.0 | $1,509.4 | | Less: accumulated depreciation | $(730.4) | $(710.8) | | **Property, plant, and equipment, net** | **$804.6** | **$798.6** | [Note 7: Goodwill and Other Intangible Assets, net](index=11&type=section&id=Note%207%3A%20Goodwill%20and%20Other%20Intangible%20Assets%2C%20net) | Reporting Unit | December 31, 2022 (Millions) | Segment Change Reallocation (Millions) | Foreign Currency Translation (Millions) | March 31, 2023 (Millions) | | :-------------------------- | :--------------------------- | :------------------------------------- | :-------------------------------------- | :-------------------------- | | Performance Materials | $4.3 | — | — | $4.3 | | Performance Chemicals | $514.2 | $(165.0) | — | $349.2 | | Advanced Polymer Technologies | — | $165.0 | $3.5 | $168.5 | | **Total Goodwill** | **$518.5** | **—** | **$3.5** | **$522.0** | | Category | December 31, 2022 (Millions) | Foreign Currency Translation (Millions) | Amortization (Millions) | March 31, 2023 (Millions) | | :-------------------------- | :--------------------------- | :-------------------------------------- | :---------------------- | :-------------------------- | | Gross Asset Value | $566.2 | $5.7 | — | $571.9 | | Accumulated Amortization | $(161.4) | $(1.5) | $(10.3) | $(173.2) | | **Other intangibles, net** | **$404.8** | **$4.2** | **$(10.3)** | **$398.7** | - Amortization expense related to intangible assets was **$10.3 million** for the three months ended March 31, 2023, up from **$8.1 million** in the prior year period[55](index=55&type=chunk) [Note 8: Financial Instruments and Risk Management](index=12&type=section&id=Note%208%3A%20Financial%20Instruments%20and%20Risk%20Management) - The company terminated its fixed-to-fixed cross-currency interest rate swaps, accounted for as net investment hedges, in the **third quarter of 2022**[58](index=58&type=chunk) - As of March 31, 2023, there were **$14.1 million** in open foreign currency derivative contracts and **1.6 million mm BTUs** of outstanding natural gas commodity swap contracts designated as cash flow hedges[59](index=59&type=chunk)[60](index=60&type=chunk) - The company expects to reclassify **$5.0 million** of net gains from Accumulated Other Comprehensive Income (AOCI) to income, before taxes, within the next **twelve months**[65](index=65&type=chunk) [Note 9: Debt, including Finance Lease Obligations](index=15&type=section&id=Note%209%3A%20Debt%2C%20including%20Finance%20Lease%20Obligations) | Category | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :------------------------------------------ | :-------------------------- | :--------------------------- | | Revolving Credit Facility and other lines of credit | $858.0 | $828.0 | | 3.88% Senior Notes due 2028 | $550.0 | $550.0 | | Finance lease obligations | $101.6 | $101.9 | | **Total debt including finance lease obligations** | **$1,509.6** | **$1,479.9** | | Less: debt issuance costs | $6.2 | $6.5 | | **Total debt, including finance lease obligations, net of debt issuance costs** | **$1,503.4** | **$1,473.4** | - As of March 31, 2023, available funds under the revolving credit facility were **$139.7 million**[72](index=72&type=chunk) - The company was in compliance with all debt covenants at March 31, 2023, with a net leverage ratio of **2.6** (maximum **4.0 to 1.0**) and an interest coverage ratio of **8.9** (minimum **3.0 to 1.0**)[75](index=75&type=chunk) [Note 10: Equity](index=16&type=section&id=Note%2010%3A%20Equity) | Metric | December 31, 2022 (Millions) | March 31, 2023 (Millions) | | :------------------------------------------ | :--------------------------- | :-------------------------- | | Total Equity (Balance) | $698.3 | $725.7 | | Net income (loss) | $1,007.7 (Retained Earnings) | $1,058.4 (Retained Earnings) | | Other comprehensive income (loss) | $(46.8) (Accumulated) | $(38.8) (Accumulated) | | Share repurchase program | $(416.0) (Treasury Stock) | $(453.2) (Treasury Stock) | - During Q1 2023, the company repurchased **$33.4 million** of common stock (**449,475 shares**) at a weighted average cost of **$73.86 per share**. **$411.5 million** remained unused under the Board-authorized repurchase program as of March 31, 2023[86](index=86&type=chunk) [Note 11: Restructuring and Other (Income) Charges, net](index=18&type=section&id=Note%2011%3A%20Restructuring%20and%20Other%20%28Income%29%20Charges%2C%20net) | Category | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Severance and other employee-related costs | $3.0 | — | | Other restructuring charges | $0.1 | — | | Business transformation costs | $2.5 | $3.6 | | **Total restructuring and other (income) charges, net** | **$5.6** | **$3.6** | - The company initiated a reorganization in Q1 2023, resulting in **$3.0 million** in severance and other employee-related costs[90](index=90&type=chunk) - The business transformation initiative, including an ERP system upgrade, is expected to be completed in **2023**, with total costs of **$90-95 million**, including **$45-50 million** of non-capitalizable costs[94](index=94&type=chunk) [Note 12: Income Taxes](index=19&type=section&id=Note%2012%3A%20Income%20Taxes) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | 20.9% | 21.6% | | Effective tax rate (before discrete items) | 22.8% | 20.7% | - The increase in the Estimated Annual Effective Tax Rate (EAETR) for Q1 2023 compared to Q1 2022 is attributed to a change in the mix of forecasted earnings across tax jurisdictions, an increase in foreign earnings deemed taxable in the U.S., and the UK corporate tax rate increasing from **19% to 25%** on **April 1, 2023**[100](index=100&type=chunk) [Note 13: Commitments and Contingencies](index=20&type=section&id=Note%2013%3A%20Commitments%20and%20Contingencies) - A jury in the Delaware Proceeding issued a verdict in favor of BASF Corporation on antitrust counterclaims, awarding **$28.3 million** in damages, which trebled under U.S. antitrust law to approximately **$85.0 million**[103](index=103&type=chunk) - The full trebled jury's verdict of **$85.0 million** is accrued in 'Other liabilities' on the condensed consolidated balance sheet as of March 31, 2023. Ingevity intends to challenge the verdict and the dismissal of its patent infringement claims[105](index=105&type=chunk)[106](index=106&type=chunk) [Note 14: Segment Information](index=22&type=section&id=Note%2014%3A%20Segment%20Information) | Segment | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Performance Materials Net sales | $141.4 | $148.4 | | Performance Chemicals Net sales | $185.6 | $172.6 | | Advanced Polymer Technologies Net sales | $65.6 | $61.8 | | **Total net sales** | **$392.6** | **$382.8** | | Performance Materials Segment EBITDA | $69.8 | $77.9 | | Performance Chemicals Segment EBITDA | $20.3 | $30.8 | | Advanced Polymer Technologies Segment EBITDA | $13.8 | $10.3 | | **Total Segment EBITDA** | **$103.9** | **$119.0** | [Note 15: Earnings (Loss) per Share](index=23&type=section&id=Note%2015%3A%20Earnings%20%28Loss%29%20per%20Share) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) | $50.7 | $60.8 | | Basic earnings (loss) per share | $1.36 | $1.56 | | Diluted earnings (loss) per share | $1.35 | $1.55 | | Weighted average number of common shares outstanding - Basic (thousands) | 37,169 | 39,010 | | Weighted average additional shares assuming conversion of potential common shares (thousands) | 377 | 254 | | Shares - diluted basis (thousands) | 37,546 | 39,264 | [Note 16: Acquisitions](index=23&type=section&id=Note%2016%3A%20Acquisitions) - Ingevity completed the acquisition of Ozark Materials, LLC for **$325.0 million** on **October 3, 2022**, integrating it into the Performance Chemicals segment's pavement technologies product line[117](index=117&type=chunk) - The preliminary purchase price allocation for Ozark Materials included **$109.8 million** in goodwill, which is expected to be fully deductible for income tax purposes[124](index=124&type=chunk)[126](index=126&type=chunk) - Acquisition-related costs, primarily legal and professional service fees, totaled **$1.9 million** for the three months ended March 31, 2023, related to the integration of Ozark Materials[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Ingevity's financial performance and condition for Q1 2023. It highlights a slight increase in net sales driven by pricing, offset by volume declines and increased costs, leading to lower net income and Adjusted EBITDA. The discussion also covers recent developments, segment-specific results, the full-year outlook, and liquidity, emphasizing the impact of segment realignment and strategic investments [Introduction](index=25&type=section&id=Introduction) - The Management's Discussion and Analysis (MD&A) supplements the Condensed Consolidated Financial Statements, providing insights into Ingevity's financial condition and results of operations[129](index=129&type=chunk) - Investors are cautioned that forward-looking statements in this report involve risks and uncertainties, and actual results could differ materially from expectations[130](index=130&type=chunk)[131](index=131&type=chunk) [Cautionary Statements About Forward-Looking Statements](index=25&type=section&id=Cautionary%20Statements%20About%20Forward-Looking%20Statements) - Key risks and uncertainties include adverse global economic conditions (e.g., inflation, war in Ukraine), international sales and operations, automotive market demand, competition, government policies, supply chain disruptions, and legal actions[131](index=131&type=chunk)[132](index=132&type=chunk)[136](index=136&type=chunk) - Other factors that could cause actual results to differ include the inability to integrate acquisitions, dependence on third-party services, natural disasters, labor difficulties, retention of key personnel, reliance on large customers, intellectual property disputes, IT security breaches, and complications with the new ERP system[136](index=136&type=chunk) [Overview](index=26&type=section&id=Overview) - Ingevity is a leading global manufacturer of specialty chemicals and high-performance activated carbon materials, offering innovative solutions to customers[133](index=133&type=chunk) - The company reports in three segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies[133](index=133&type=chunk) [Recent Developments](index=26&type=section&id=Recent%20Developments) - In Q1 2023, Ingevity realigned its segment reporting structure, creating the **Advanced Polymer Technologies segment** from engineered polymers previously in Performance Chemicals[134](index=134&type=chunk) - The company sold a strategic equity method investment for **$31.4 million**, realizing a **$19.2 million gain** in Q1 2023[135](index=135&type=chunk) - Restructuring charges of **$3.0 million** were recorded in Q1 2023 due to a reorganization aimed at streamlining functions and reducing costs[137](index=137&type=chunk) - In March 2023, Ingevity amended crude tall oil supply agreements with WestRock and Georgia-Pacific[138](index=138&type=chunk)[139](index=139&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net sales | $392.6 | $382.8 | | Cost of sales | $262.2 | $245.0 | | Gross profit | $130.4 | $137.8 | | Selling, general, and administrative expenses | $48.6 | $40.0 | | Research and technical expenses | $8.8 | $7.3 | | Restructuring and other (income) charges, net | $5.6 | $3.6 | | Acquisition-related costs | $1.9 | — | | Other (income) expense, net | $(18.2) | $(1.4) | | Interest expense, net | $19.6 | $10.7 | | Income (loss) before income taxes | $64.1 | $77.6 | | Provision (benefit) for income taxes | $13.4 | $16.8 | | Net income (loss) | $50.7 | $60.8 | **Net Sales Variance (Q1 2023 vs. Q1 2022):** | Factor | Change (Millions) | Percentage | | :-------- | :---------------- | :--------- | | Volume | $(44.3) | (12%) | | Price/Mix | $58.8 | 15% | | Currency | $(4.7) | (1%) | | **Total** | **$9.8** | **2.6%** | - Gross profit decreased by **$7.4 million**, primarily due to increased manufacturing costs (**$44.1 million**) and unfavorable sales volume (**$20.6 million**), partially offset by favorable pricing and sales composition (**$58.7 million**)[144](index=144&type=chunk) - Selling, general and administrative expenses increased by **$8.6 million**, driven by higher employee-related costs (**$5.4 million**) and increased amortization costs (**$2.0 million**) from the Ozark Materials acquisition[145](index=145&type=chunk) - Interest expense, net, increased by **$8.9 million**, primarily due to higher costs from revolving credit and term loan facilities (**$13.2 million** in 2023 vs. **$1.9 million** in 2022)[151](index=151&type=chunk) [Segment Operating Results](index=30&type=section&id=Segment%20Operating%20Results) [Performance Materials](index=30&type=section&id=Performance%20Materials) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $141.4 | $148.4 | | Segment EBITDA | $69.8 | $77.9 | - Net sales decreased by **$7.0 million** (**8% volume decline**, **2% unfavorable foreign currency**), partially offset by favorable price/mix (**6%**)[160](index=160&type=chunk) - Segment EBITDA decreased by **$8.1 million** due to lower sales, increased manufacturing costs (**$8.9 million**), and volume decline (**$6.9 million**), partially offset by favorable price/mix (**$8.2 million**)[161](index=161&type=chunk) [Performance Chemicals](index=31&type=section&id=Performance%20Chemicals) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $185.6 | $172.6 | | Pavement Technologies product line | $45.8 | $27.9 | | Industrial Specialties product line | $139.8 | $144.7 | | Segment EBITDA | $20.3 | $30.8 | - Net sales increased by **$13.0 million**, driven by favorable price/mix (**$39.1 million**) and the Ozark Materials acquisition, partially offset by a volume decrease (**$25.6 million**) primarily in industrial specialties[166](index=166&type=chunk) - Segment EBITDA decreased by **$10.5 million** due to higher manufacturing costs (**$30.9 million**), volume decrease (**$11.4 million**), and higher SG&A expenses (**$7.1 million**), partially offset by favorable price/mix (**$39.0 million**)[167](index=167&type=chunk) [Advanced Polymer Technologies](index=32&type=section&id=Advanced%20Polymer%20Technologies) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $65.6 | $61.8 | | Segment EBITDA | $13.8 | $10.3 | - Net sales increased by **$3.8 million**, driven by favorable price/mix (**$11.5 million**) and increased volume in North America, partially offset by volume decline (**$6.7 million**) in Europe and Asia[171](index=171&type=chunk) - Segment EBITDA increased by **$3.5 million**, primarily due to favorable price/mix (**$11.5 million**), partially offset by higher manufacturing costs (**$3.6 million**) and increased SG&A/R&T expenses (**$1.7 million**)[172](index=172&type=chunk) [Use of Non-GAAP Financial Measure - Adjusted EBITDA](index=32&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measure%20-%20Adjusted%20EBITDA) - Adjusted EBITDA is a non-GAAP financial measure used by management to evaluate business profitability, excluding financing, investment, and non-operating activities[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :-------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income (loss) (GAAP) | $50.7 | $60.8 | | Interest expense, net | $19.6 | $10.7 | | Provision (benefit) for income taxes | $13.4 | $16.8 | | Depreciation and amortization | $31.1 | $27.1 | | Restructuring and other (income) charges, net | $5.6 | $3.6 | | Gain on sale of strategic investment | $(19.2) | — | | Acquisition and other-related costs | $2.7 | — | | **Adjusted EBITDA (Non-GAAP)** | **$103.9** | **$119.0** | [Current Full Year Company Outlook](index=33&type=section&id=Current%20Full%20Year%20Company%20Outlook) - For the full year 2023, Ingevity expects net sales to be between **$1.75 billion** and **$1.95 billion**[180](index=180&type=chunk) - Full year 2023 Adjusted EBITDA is projected to be between **$450 million** and **$480 million**[181](index=181&type=chunk) - Growth drivers include improved global automobile production (Performance Materials), geographic expansion in pavement technologies, and increased presence in key end markets (Advanced Polymer Technologies). Challenges include significant increases in crude tall oil costs (Performance Chemicals)[180](index=180&type=chunk)[181](index=181&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) - The primary source of liquidity is cash flow from operating activities, supplemented by cash on hand (**$77.9 million** at March 31, 2023) and **$139.7 million** in undrawn capacity under the revolving credit facility[183](index=183&type=chunk)[184](index=184&type=chunk) | Cash Flow Activity | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Net cash provided by (used in) operating activities | $5.2 | $24.3 | | Net cash provided by (used in) investing activities | $1.9 | $(30.2) | | Net cash provided by (used in) financing activities | $(5.6) | $(46.3) | - Cash provided by investing activities turned positive in Q1 2023 due to **$31.4 million** in proceeds from the sale of a strategic investment, offsetting capital expenditures of **$25.4 million**[193](index=193&type=chunk) - Cash used in financing activities decreased, primarily driven by **$90.3 million** in revolving credit facility proceeds, partially offset by **$33.4 million** in common stock repurchases and **$60.3 million** in revolving credit facility payments[195](index=195&type=chunk) - Projected capital expenditures for 2023 are **$120 million to $140 million**[188](index=188&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company's financial statements are prepared in conformity with GAAP, requiring management to make estimates and judgments[197](index=197&type=chunk) - Critical accounting policies and estimates have not substantially changed from those described in the 2022 Annual Report[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Ingevity is exposed to foreign currency exchange rate risk, primarily from operations in Europe, South America, and Asia, and interest rate risk due to variable-rate debt. A hypothetical 10% adverse change in key foreign currencies would decrease Q1 2023 net sales by approximately $3.8 million and income before taxes by $1.1 million. A 100 basis point increase in variable interest rates would increase annual interest expense by approximately $8.6 million - Foreign-based operations accounted for approximately **24%** of net sales in the first three months of 2023, with primary currency exposures to the U.S. dollar versus the euro, Japanese yen, pound sterling, and Chinese renminbi[198](index=198&type=chunk) - A hypothetical **10% adverse change** in the average Chinese renminbi and euro to U.S. dollar exchange rates during Q1 2023 would have decreased net sales by approximately **$3.8 million** (**1%**) and income before income taxes by approximately **$1.1 million** (**2%**)[198](index=198&type=chunk) - Approximately **$858.0 million** of the company's borrowings had a variable interest rate component as of March 31, 2023[199](index=199&type=chunk) - A hypothetical **100 basis point increase** in the variable interest rate component of borrowings for Q1 2023 would have increased annual interest expense by approximately **$8.6 million** (**11%**)[199](index=199&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Ingevity's CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023. The implementation of a new global ERP system led to updates in processes and control activities, but no other material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that Ingevity's disclosure controls and procedures were effective at a reasonable assurance level as of **March 31, 2023**[202](index=202&type=chunk) - The company implemented a new global enterprise resource planning (ERP) system, which resulted in updates and changes to processes and related control activities[203](index=203&type=chunk) - Except for the ERP implementation, there were no other material changes in internal control over financial reporting during the quarter ended **March 31, 2023**[204](index=204&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 13 of the Condensed Consolidated Financial Statements for detailed information regarding the company's legal proceedings, specifically the ongoing litigation with BASF Corporation - Information regarding legal proceedings is detailed in **Note 13 – Commitments and Contingencies** within the Condensed Consolidated Financial Statements[207](index=207&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section highlights a new material risk factor related to the potential negative impact of WestRock's paper mill closure in North Charleston on Ingevity's operations, due to the termination of a reciprocal plant operating agreement. Other risk factors remain consistent with the 2022 Annual Report - A new material risk factor is the potential negative impact of **WestRock Company's paper mill closure** in North Charleston, South Carolina, and the termination of the Reciprocal Plant Operating Agreement (RPOA), which could require significant capital expenditure to replace critical operating services[209](index=209&type=chunk) - Except for the WestRock closure, there have been no other material changes in Ingevity's risk factors disclosed in the **2022 Annual Report**[210](index=210&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the first quarter of 2023, Ingevity repurchased 449,475 shares of common stock for $33.4 million under its Board-authorized program. As of March 31, 2023, $411.5 million remained available for repurchases under the $500 million authorization | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | | January 1-31, 2023 | 179,828 | $76.79 | 179,828 | | February 1-28, 2023 | 17,500 | $79.68 | 17,500 | | March 1-31, 2023 | 252,147 | $71.36 | 252,147 | | **Total** | **449,475** | | **449,475** | - As of March 31, 2023, approximately **$411.5 million** remained unused under the **$500.0 million** common stock repurchase authorization approved on **July 25, 2022**[212](index=212&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to Ingevity Corporation for the reporting period - Not applicable[213](index=213&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Ingevity Corporation for the reporting period - Not applicable[214](index=214&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item for the current period - None[215](index=215&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various agreements such as a separation and severance agreement, amended crude tall oil supply agreements, and required certifications from the Principal Executive Officer and Principal Financial Officer - Exhibits include a Separation and Severance Agreement, Amended and Restated Crude Tall Oil and Black Liquor Soap Skimmings Agreement, Second Amendment to Crude Tall Oil Supply Agreement, and Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications[217](index=217&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) - The report was signed on behalf of Ingevity Corporation by Mary Dean Hall, Executive Vice President and Chief Financial Officer, on **May 4, 2023**[222](index=222&type=chunk)

Financial Performance - Ingevity Corporation reported net sales of $1,668.3 million for the year ended December 31, 2022, an increase of 19.9% from $1,391.5 million in 2021[163]. - The gross profit for 2022 was $570.1 million, up from $512.8 million in 2021, driven by favorable pricing and sales composition[168]. - Net income for 2022 was $211.6 million, an increase from $118.1 million in 2021 and $181.4 million in 2020[206]. - Adjusted EBITDA for 2022 reached $452.6 million, up from $422.2 million in 2021 and $397.9 million in 2020[206]. - The effective tax rate improved to 21.5% in 2022 from 27.5% in 2021, reflecting changes in tax regulations and company performance[179]. - The company expects 2023 net sales to be between $1.9 billion and $2.1 billion[210]. - Adjusted EBITDA guidance for 2023 is projected to be between $495 million and $515 million[211]. - Operating cash flow for 2023 is anticipated to be between $300 million and $320 million[210]. - Capital expenditures for 2023 are expected to range from $140 million to $160 million[210]. - Free cash flow for 2023 is estimated to be approximately $160 million[210]. Segment Performance - Performance Materials segment generated $548.5 million in revenue for fiscal year 2022, while Performance Chemicals segment generated $1,119.8 million[15]. - Performance Materials segment net sales for 2022 were $548.5 million, an increase from $516.8 million in 2021 and $510.0 million in 2020, reflecting a growth trend[40]. - Performance Chemicals segment net sales for 2022 reached $1,119.8 million, up from $874.7 million in 2021 and $706.1 million in 2020, indicating strong performance[45]. - The Performance Chemicals segment saw a sales increase of $279.3 million, contributing significantly to the overall sales growth[166]. - Segment EBITDA for Performance Chemicals increased by $27.6 million in 2022, mainly due to favorable pricing and sales composition, despite higher manufacturing costs of $218.1 million[198]. Customer Concentration - In 2022, the top ten customers in the Performance Chemicals segment accounted for approximately 23% of segment revenue, while the next 100 customers contributed about 49%[45]. - Approximately 89% of automotive technologies sales in 2022 came from the company's ten largest customers, highlighting a concentrated customer base[43]. - Sales to Ingevity's ten largest customers accounted for 30 percent of total sales for 2022, with no single customer exceeding 10 percent[100]. - The company sells engineered polymer chemicals to over 300 customers globally, with the top ten customers accounting for approximately 45% of sales in 2022[78]. - In 2022, the company's ten largest customers in the industrial specialties segment accounted for 36% of sales, indicating a strong reliance on key accounts[69]. Supply Chain and Raw Materials - CTO accounted for approximately 14% of the consolidated cost of sales and 22% of total raw materials purchases in 2022[115]. - The global supply of CTO has been constrained by geopolitical factors, including sanctions on Russia, which have reduced supply by approximately 10%[112]. - The company sources over 80 percent of its CTO needs through long-term supply contracts, primarily with WestRock and Georgia-Pacific[110]. - The company has invested in alternative fatty acids (AFA) production capacity to diversify its raw material stream and mitigate CTO supply pressures[52]. - Disruptions in the supply chain have negatively impacted production and financial results, with transportation costs affected by external factors such as fuel prices and weather events[108]. - Regulatory pressures may incentivize suppliers to divert CTO to alternative fuel markets, further constraining supply[113]. Market and Economic Conditions - The automotive market's demand for activated carbon products is closely tied to global internal-combustion-engine and hybrid electric vehicle production levels, which have been negatively impacted by macroeconomic factors[82]. - The company anticipates a reduction in negative impacts from the automotive market during 2023[82]. - The company is affected by general global economic conditions, including inflation and rising energy costs, which may impact its results of operations[135]. - Challenges in the commercial and credit environment may adversely affect the company's future access to capital[136]. Legal and Regulatory Matters - In 2022, BASF was awarded approximately $28.3 million in damages, which will be trebled to approximately $85.0 million under U.S. antitrust law[20]. - The company has accrued a total of $85.0 million related to the jury's verdict in the Delaware Proceeding, which includes treble damages awarded to BASF Corporation[123]. - The jury awarded BASF approximately $28.3 million in damages, which will be trebled under U.S. antitrust law[122]. - The company is involved in several legal actions regarding the intellectual property associated with the 844 Patent, which expired in March 2022[122]. - The final resolution of the Delaware Proceeding could take up to eighteen months, with no assurance of a favorable outcome for the company[123]. - The company may incur additional fees, costs, and expenses related to ongoing post-trial motions and possible appeals[123]. - The company faces risks associated with environmental regulations that could significantly impact its operations and costs[130]. - Changes in environmental laws and regulations could lead to increased capital expenditures and operating expenses in future years[132]. Operational Challenges - The company has a strong safety culture, focusing on personal, process, and public safety as core values[36]. - The COVID-19 pandemic has disrupted operations and financial results, affecting the company's ability to maintain operations and meet customer demand[91]. - Disruptions at manufacturing facilities due to natural disasters or labor issues could materially impact the company's financial condition and operational results[93]. - The company is dependent on third parties for critical operating services, and any disruption in these services could adversely affect its financial condition[95]. - The implementation of a new ERP system is a complex, multi-year project that may face challenges, potentially impacting financial reporting and operations[106]. Strategic Initiatives - The acquisition of Ozark Materials has expanded the company's pavement technologies portfolio, adding road striping technologies[55]. - The company completed the acquisition of Ozark Materials on October 3, 2022, enhancing its market position[159]. - In 2022, Ingevity made strategic investments totaling $77.4 million in four privately-held companies[160]. - Growth in the Performance Chemicals segment is driven by increased infrastructure spending and adoption of new technologies[210]. - The engineered polymers product line is expected to grow in key markets such as automotive and consumer packaging[210]. - The company anticipates improved global automobile production, supporting growth in the Performance Materials segment[211]. Diversity and Workforce - The company employs approximately 2,050 employees, with 77 percent based in the U.S.[30]. - Ingevity's board of directors is 30 percent women and 20 percent racially and ethnically diverse, reflecting a commitment to diversity[34]. - The company is dependent on attracting and retaining key personnel, which is critical for operational success[101].