Ingevity Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Ingevity operates Performance Materials, Performance Chemicals, and Advanced Polymer Technologies (APT). Amounts are in millions of dollars, except per-share data.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $340.1 | $392.6 |
| Gross profit | $99.7 | $130.4 |
| Operating cash flow | $(12.1) | $5.3 |
| Net income (loss) | $(56.0) | $50.7 |
| Diluted EPS | $(1.54) | $1.35 |
| Adjusted EBITDA (non-GAAP) | $76.9 | $103.9 |
- Sales declined $52.5 (13%), mainly from lower Performance Chemicals industrial specialties sales following repositioning-related market exits, and continued weakness in China and industrial end markets affecting APT. The filing attributes the sales decline to volume (down $45.0), price/mix (down $4.0), and currency (down $3.5).
- Gross profit fell $30.7. Drivers included lower volume, manufacturing cost increases—particularly elevated crude tall oil (CTO) costs—unfavorable price/mix, and $2.5 of repositioning-related inventory charges. Gross margin was approximately 29.3%, versus 33.2% in Q1 2023.
- GAAP net loss reflects $62.8 of restructuring and other charges, $32.2 of other expense (including $26.5 of CTO resale losses and a $4.8 strategic-investment impairment), and the absence of the prior-year $19.2 gain on a strategic investment. Adjusted EBITDA is a non-GAAP measure and excludes specified items.
- Segment results: Performance Materials sales were $145.1 and Segment EBITDA $78.0, up from $141.4 and $69.8. Performance Chemicals sales were $147.0 and Segment EBITDA $(10.6), versus $185.6 and $20.3. APT sales were $48.0 and Segment EBITDA $9.5, versus $65.6 and $13.8.
- Interest expense, net, rose to $22.3 from $19.6. The effective tax rate was 22.1%, compared with 20.9%.
Cash, debt, and liquidity
- Cash and cash equivalents were $88.5 at March 31, 2024, down from $95.9 at December 31, 2023. Cash, cash equivalents, and restricted cash totaled $105.1.
- Operating cash use was $12.1; investing cash use was $16.3, primarily capital expenditures of $16.6; financing provided $23.4. Capital expenditures were $16.6 versus $25.4 in Q1 2023.
- Total debt, including finance lease obligations and before debt issuance costs, was $1,498.4, compared with $1,472.5 at year-end. This included $847.6 of variable-rate debt and $550.0 of 3.88% senior notes due 2028. Revolver availability was $233.5.
- The company reported compliance with debt covenants. Credit-agreement net leverage was 2.8 versus a maximum of 4.0 (potentially 4.5 in certain circumstances); interest coverage was 5.6 versus a minimum of 3.0.
- Management expects operating cash flow, cash on hand, and revolver availability to fund planned operations and obligations for at least the next 12 months. Projected 2024 capital expenditures are $90–$110.
Material changes, outlook, and key risks
- Performance Chemicals repositioning: The company has ceased production at its DeRidder, Louisiana plant and shuttered its CTO refinery and related production assets. The initiative exits or reduces certain industrial specialties markets representing approximately 45% of that product line’s historical annualized sales. By March 31, it had incurred $197.6 of estimated repositioning charges; total charges are expected to be approximately $280, including about $185 non-cash and $95 cash. Management expects annualized cash savings of $65–$75 beginning in 2024 and reported approximately $20 of savings in Q1.
- CTO resales: Excess purchases under an existing supply contract may need to be resold through 2025. The company estimates incremental 2024 losses of $50–$80, excluding the $280 repositioning estimate; it incurred $26.5 in Q1. CTO raw-material spend increased to approximately $74 from $41 year over year, and management cited elevated costs as a material pressure on Performance Chemicals.
- 2024 outlook: Net sales of $1.40–$1.55 billion and Adjusted EBITDA of $365–$390. Management expects Performance Materials growth, continued road technologies growth but repositioning-related revenue reductions in Performance Chemicals, and an APT demand rebound in industrial markets in the second half. CTO costs are expected to trend lower in the second half. The filing does not provide a projected GAAP net income reconciliation for Adjusted EBITDA.
- Litigation: In the BASF antitrust case, an approximately $85.0 trebled jury verdict is accrued in other liabilities, with post-judgment interest also accruing. Ingevity appealed in March 2024; BASF may seek attorneys’ fees and costs, and final resolution could take up to 18 months. The ultimate liability could differ from the accrued amount.
- Other exposures include weak cyclical and industrial demand, automotive-market conditions, foreign exchange, variable interest rates, CTO availability and pricing, supply-chain disruptions, and the execution and cost of restructuring. A hypothetical 100-basis-point increase in variable rates would raise annual interest expense by about $8.5; a 10% CTO price increase would have raised Q1 spend by about $7.4 before hedging or customer pass-through.
Important facts for investors to verify
- Whether repositioning charges, remaining cash payments, and the projected $65–$75 annualized savings track management’s estimates.
- How CTO resale losses develop against the $50–$80 2024 estimate, and whether CTO input costs ease as expected in the second half.
- Whether demand improves in APT and industrial markets and whether 2024 sales and Adjusted EBITDA guidance remains achievable.
- Developments in the BASF appeal, potential additional interest or fee exposure, and the adequacy of the recorded liability.
- Cash conversion, working-capital needs, variable-rate borrowing costs, and covenant headroom given the company’s debt and liquidity position.