Ingevity reports first quarter 2019 financial results

  • Net sales of $276.8 million were up 17.7% versus the prior year
    quarter’s sales of $235.2 million
  • Net income of $22.7 million was down 36.6% versus net income in the
    prior year quarter of $35.8 million primarily due to acquisition
    costs; net income as a percentage of sales was 8.2%, compared to 15.2%
    in the prior year quarter; diluted earnings per share were $0.54
    compared to $0.72
  • Adjusted earnings of $41.9 million were up 23.6% versus adjusted
    earnings in the prior year quarter of $33.9 million; diluted adjusted
    earnings per share were $0.99 versus $0.79 in the prior year quarter
  • Adjusted EBITDA of $83.5 million were up 24.4% compared to first
    quarter 2018 adjusted EBITDA of $67.1 million; adjusted EBITDA margin
    of 30.2% increased 170 basis points versus first quarter 2018
  • Company maintains fiscal year 2019 guidance for sales from between
    $1.30 billion and $1.36 billion and adjusted EBITDA from between $390
    million and $410 million

The results and guidance in this release include Non-GAAP financial
measures. Refer to the section entitled “Use of Non-GAAP Financial
Measures” within this release.

NORTH CHARLESTON, S.C.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24NGVT&src=ctag” target=”_blank”gt;$NGVTlt;/agt; lt;a href=”https://twitter.com/hashtag/earnings?src=hash” target=”_blank”gt;#earningslt;/agt;–Ingevity Corporation (NYSE:NGVT) today reported first quarter net sales
of $276.8 million, representing an increase of 17.7% versus $235.2
million in the prior year’s first quarter. Net income of $22.7 million,
decreased 36.6% versus $35.8 million in the previous year’s quarter
primarily due to higher costs related to our acquisition of the CapaTM caprolactone
business from Perstorp Holding AB. Ingevity’s first quarter net income
margin was 8.2% versus 15.2% in the first quarter of 2018. The first
quarter diluted earnings per share were $0.54 compared to $0.72 in the
prior year period.

Adjusted earnings of $41.9 million were up 23.6% versus prior year
quarter of $33.9 million. Diluted adjusted earnings per share were $0.99
excluding certain items of $0.45 per share which are primarily costs
related to the acquisition of the Capa caprolactone business, net of
discrete tax benefits recognized during the quarter. This compares to
adjusted earnings per share of $0.79 in the prior year quarter. Adjusted
earnings before interest, taxes, depreciation and amortization (EBITDA)
of $83.5 million were up 24.4% versus first quarter 2018 adjusted EBITDA
of $67.1 million. Adjusted EBITDA margin of 30.2% was up 170 basis
points from the prior year’s first quarter adjusted EBITDA margin of
28.5%.

Our first quarter performance was in line with our expectations,” said
Michael Wilson, Ingevity’s president and CEO. “We benefitted from
continued strong growth in our Performance Materials segment and from
price and mix improvements in our legacy Performance Chemicals
applications. In addition, our newly acquired engineered polymers
product line contributed significantly to the Performance Chemicals
segment. In terms of our adjusted EBITDA, the positive revenue impacts
were partially offset by higher selling, general and administrative, or
SG&A, costs – including legal expenses – and higher logistics and
transportation costs. Nonetheless, we drove strong revenue drop-through
posting a 24% increase in adjusted EBITDA on an 18% increase in revenues
and achieved an adjusted EBITDA margin of 30%.

We are continuing to execute on our strategy and maintaining our focus
on earnings growth and margin accretion,” Wilson continued. “This
includes intentionally transitioning to higher margin specialty
applications while backing away from volumes that don’t meet our
profitability objectives.”

Performance Chemicals

First quarter 2019 sales in the Performance Chemicals segment were
$167.7 million, up $28.0 million, or 20.0%, versus the first quarter
2018. Segment EBITDA were $32.3 million, up $7.4 million, or 29.7%,
versus the prior year quarter segment EBITDA. Segment EBITDA margin rose
150 basis points to 19.3%.

Increased sales to oilfield applications were driven primarily by
demand for production chemicals as opposed to drilling chemicals,”
Wilson said. “Sales in industrial specialties applications decreased as
we selectively shed sales to low-margin applications and focused on
higher profit opportunities. And, sales to pavement technologies
customers were fundamentally flat versus the prior year’s period in what
is a seasonally slower quarter.”

Wilson said that the largest contributor to the Performance Chemicals
segment’s results was the addition of the engineered polymers product
line, formed through the acquisition of the Capa caprolactone business
which closed mid-quarter. “The engineered polymers team didn’t skip a
beat and delivered results slightly higher than our expectations.”

Performance Materials

First quarter 2019 sales in the Performance Materials segment were
$109.1 million, up $13.6 million, or 14.2%, versus the first quarter
2018. Segment EBITDA were $51.2 million, up $9.0 million, or 21.3%,
versus the prior year segment EBITDA. Segment EBITDA margin rose 270
basis points to 46.9%.

Adoption of Ingevity’s patented U.S. Tier 3 and LEV III gasoline vapor
emission solutions, particularly our ‘honeycomb’ scrubber products, by
automotive customers once again fueled growth in our Performance
Materials segment,” Wilson said. “Our growth in this application enabled
us to achieve a record segment EBITDA for any quarter, despite reduced
North American and Chinese auto production in the period.”

Wilson added that implementation by automakers of the nationwide China 6
gasoline vapor emission control standard is beginning to benefit sales
and product mix in the Performance Materials segment. “During the
quarter, sales volumes of pelletized carbon used in base evaporative
emissions canisters increased dramatically. This trend signals the
impending broad implementation of more stringent standards by OEMs in
China in advance of the nationwide regulation,” he said.

Outlook

Ingevity maintained its fiscal year 2019 guidance for sales from between
$1.30 billion and $1.36 billion and adjusted EBITDA from between $390
million and $410 million.

Despite some moderate macroeconomic headwinds, we’re exactly where we
expected to be at this stage of the year,” Wilson said. “We’re working
to enhance margins and profitability in Performance Chemicals, rapidly
integrate the engineered polymers product line, and deliver on the
growing global demand in Performance Materials. We expect to turn in
another strong performance in 2019.”

Ingevity: Purify, Protect and Enhance

Ingevity provides specialty chemicals, high-performance carbon materials
and engineered polymers that purify, protect, and enhance the world
around us. Through a team of talented and experienced people, Ingevity
develops, manufactures, and brings to market products and processes that
help customers solve complex problems. These products are used in a
variety of demanding applications, including asphalt paving, oil
exploration and production, agrochemicals, adhesives, lubricants,
publication inks, coatings, elastomers, bio-plastics and automotive
components that reduce gasoline vapor emissions. Headquartered in North
Charleston, South Carolina, Ingevity operates from 25 locations around
the world and employs approximately 1,750 people. The company is traded
on the New York Stock Exchange (NYSE: NGVT). For more information visit www.ingevity.com.

Additional Information

The company will host a live webcast on Thursday, May 2, 2019, at 10
a.m. (Eastern Time) to discuss first quarter fiscal results. The webcast
can be accessed through the Investors section of Ingevity’s website at www.ingevity.com,
or via this link: Ingevity
Q1 2019 webcast
. You may also listen to the conference call by
dialing 877-407-2991 (inside the U.S.) or 201-389-0925 (outside the
U.S.), at least 10 minutes prior to the start of the event. Information
on how to access the webcast and conference call, along with a slide
deck containing other relevant financial and statistical information,
will be posted to the Investors section of Ingevity’s website prior to
the call. For those unable to join the live event, a replay of the
webcast will be available beginning at approximately 2 p.m. (Eastern
Time) on May 2, 2019, through June 2, 2019 via this link: Ingevity
Q1 2019 webcast replay
.

Use of Non-GAAP Financial Measures

Ingevity has presented certain financial measures which have not been
prepared in accordance with U.S. generally accepted accounting
principles (GAAP). Definitions of our non-GAAP financial measures and a
reconciliation to the most directly comparable financial measure
calculated in accordance with GAAP are included in the financial
schedules accompanying this news release, under the section entitled
“Non-GAAP Financial Measures.”

A reconciliation of net income to adjusted EBITDA as projected for 2019
is not provided. Ingevity does not forecast net income as it cannot,
without unreasonable effort, estimate or predict with certainty various
components of net income. These components, net of tax, include further
restructuring and other income (charges), net; additional acquisition
and other related costs in connection with the acquisition of
Georgia-Pacific’s pine chemical business and Perstorp Holding AB’s Capa
caprolactone business; additional pension and postretirement settlement
and curtailment (income) charges; and revisions due to future guidance
and assessment of U.S. tax reform. Additionally, discrete tax items
could drive variability in our projected effective tax rate. All of
these components could significantly impact such financial
measures. Further, in the future, other items with similar
characteristics to those currently included in adjusted EBITDA, that
have a similar impact on comparability of periods, and which are not
known at this time, may exist and impact adjusted EBITDA.

Forward-Looking Statements

This press release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements generally include the words “may,” “could,”
“should,” “believes,” “plans,” “intends,” “targets,” “will,” “expects,”
“suggests,” “anticipates,” “outlook,” “continues,” “forecast,”
“prospect,” “potential” or similar expressions. Forward-looking
statements may include, without limitation, expected financial
positions, results of operations and cash flows; financing plans;
business strategies and expectations; operating plans; synergies and the
potential benefits of the acquisition of Georgia-Pacific’s pine
chemicals business and the acquisition of Perstorp Holding AB’s Capa
caprolactone business (the “acquisitions”); capital and other
expenditures; competitive positions; growth opportunities for existing
products; benefits from new technology and cost-reduction initiatives,
plans and objectives; markets for securities and expected future
repurchase of shares, including statements about the manner, amount and
timing of repurchases. Like other businesses, Ingevity is subject to
risks and uncertainties that could cause its actual results to differ
materially from its expectations or that could cause other
forward-looking statements to prove incorrect. Factors that could cause
actual results to materially differ from those contained in the
forward-looking statements, or that could cause other forward-looking
statements to prove incorrect, include, without limitation, risks that
the expected benefits from the acquisitions will not be realized or will
not be realized in the expected time period; the risk that the acquired
businesses will not be integrated successfully; significant transaction
costs; unknown or understated liabilities; general economic and
financial conditions; international sales and operations; currency
exchange rates and currency devaluation; compliance with U.S. and
foreign regulations; competition from infringing intellectual property
activity; attracting and retaining key personnel; the impact of Brexit;
conditions in the automotive market or adoption of alternative
technologies; worldwide air quality standards; a decrease in government
infrastructure spending; declining volumes and downward pricing in the
printing inks market; the limited supply of crude tall oil (“CTO”); lack
of access to sufficient CTO; access to and pricing of raw materials;
competition from producers of alternative products and new technologies,
and new or emerging competitors; a prolonged period of low energy
prices; the provision of services by third parties at several
facilities; natural disasters, such as hurricanes, winter or tropical
storms, earthquakes, floods, fires; other unanticipated problems such as
labor difficulties including renewal of collective bargaining
agreements, equipment failure or unscheduled maintenance and repair;
protection of intellectual property and proprietary information;
information technology security breaches and other disruptions;
government policies and regulations, including, but not limited to,
those affecting the environment, climate change, tax policies, tariffs
and the chemicals industry; and lawsuits arising out of environmental
damage or personal injuries associated with chemical or other
manufacturing processes. These and other important factors that could
cause actual results or events to differ materially from those expressed
in forward-looking statements that may have been made in this document
are and will be more particularly described in our filings with the U.S.
Securities and Exchange Commission, including our Form 10-K for the year
ended December 31, 2018 and our other periodic filings. Readers are
cautioned not to place undue reliance on Ingevity’s projections and
forward-looking statements, which speak only as the date thereof.
Ingevity undertakes no obligation to publicly release any revision to
the projections and forward-looking statements contained in this
announcement, or to update them to reflect events or circumstances
occurring after the date of this announcement.

 

INGEVITY CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)

 
   

Three Months Ended
March 31,

In millions, except per share data 2019     2018
Net sales $ 276.8 $ 235.2
Cost of sales   179.7     150.1  
Gross profit   97.1     85.1  
Selling, general and administrative expenses 39.1 26.5
Research and technical expenses 5.1 5.0
Restructuring and other (income) charges, net (0.6 )
Acquisition-related costs 22.8 3.8
Other (income) expense, net (3.7 ) (1.2 )
Interest expense, net   11.1     6.1  
Income (loss) before income taxes 22.7 45.5
Provision (benefit) for income taxes       9.7  
Net income (loss) 22.7 35.8
Less: Net income (loss) attributable to noncontrolling interests       5.0  
Net income (loss) attributable to Ingevity stockholders $ 22.7   $ 30.8  
 
Earnings (loss) per common share attributable to Ingevity
stockholders
Basic $ 0.54 $ 0.73
Diluted $ 0.54 $ 0.72
Weighted average common shares outstanding
Basic 41.7 42.1
Diluted 42.2 42.6
 
 

INGEVITY CORPORATION

Segment Operating Results (Unaudited)

 
   

Three Months Ended
March 31,

In millions 2019     2018
Net sales
Performance Materials $ 109.1 $ 95.5
Automotive Technologies product line 99.7 85.9
Process Purification product line 9.4 9.6
Performance Chemicals $ 167.7 $ 139.7
Oilfield Technologies product line 29.2 22.4
Pavement Technologies product line 18.5 18.5
Industrial Specialties product line 95.8 98.8
Engineered Polymers product line 24.2
Total net sales $ 276.8 $ 235.2
 
Segment EBITDA (1)
Performance Materials $ 51.2 $ 42.2
Performance Chemicals   32.3     24.9  
Total segment EBITDA (1) $ 83.5   $ 67.1  
 
Restructuring and other income (charges) (2) 0.6
Acquisition and other related costs (3) (31.2 ) (4.6 )
Depreciation and amortization – Performance Materials (5.8 ) (5.3 )
Depreciation and amortization – Performance Chemicals (12.7 ) (6.2 )
Interest expense, net (11.1 ) (6.1 )
(Provision) benefit for income taxes (9.7 )
Net (income) loss attributable to noncontrolling interests       (5.0 )
Net income (loss) attributable to the Ingevity stockholders $ 22.7   $ 30.8  
_________________
(1) Segment EBITDA is defined as segment revenue less segment
operating expenses (segment operating expenses consist of costs of
sales, selling, general and administrative expenses, other (income)
expense, net, excluding depreciation and amortization). We have
excluded the following items from segment EBITDA: interest expense
associated with corporate debt facilities, income taxes,
depreciation and amortization, gains (or losses) on divestitures of
businesses, restructuring and other (income) charges, separation
costs, acquisition and other related costs, pension and
postretirement settlement and curtailment (income) charges, and net
income (loss) attributable to noncontrolling interest.
(2) The restructuring activity relates to Performance Chemicals for
all periods presented.

(3) Charges primarily relate to legal and professional fees,
inventory step-up amortization, and purchase price hedge
adjustments incurred associated with acquisitions in the
Performance Chemicals segment. For the three months ended March
31, 2019, the legal and professional fees of $10.1 million and
purchase price hedge adjustments of $12.7 million are included in
“Acquisition-related costs” and the inventory step-up amortization
of $8.4 million are included in “Cost of sales” on the condensed
statement of operations, respectively. For the three months ended
March 31, 2018, the legal and professional fees of $3.8 million
are included in “Acquisition-related costs” and the inventory
step-up amortization of $0.8 million are included in “Cost of
sales” on the condensed statement of operations, respectively.

 
 

INGEVITY CORPORATION

Condensed Consolidated Balance Sheets

 
In millions     March 31, 2019     December 31, 2018
Assets (Unaudited)
Cash and cash equivalents $ 38.4 $ 77.5
Accounts receivable, net 151.0 118.9
Inventories, net 229.3 191.4
Prepaid and other current assets   36.3   34.9
Current assets 455.0 422.7
Property, plant and equipment, net 628.5 523.8
Goodwill 431.6 130.7
Other intangibles, net 414.9 125.6
Restricted investment 71.7 71.2
Other assets   105.5   41.2
Total assets $ 2,107.2 $ 1,315.2
Liabilities
Accounts payable $ 119.8 $ 92.9
Accrued expenses 26.1 36.7
Other current liabilities   52.4   53.7
Current liabilities 198.3 183.3
Long-term debt including capital lease obligations 1,403.2 741.2
Deferred income taxes 85.6 36.9
Other liabilities   61.4   15.1
Total liabilities 1,748.5 976.5
Equity   358.7   338.7
Total liabilities and equity $ 2,107.2 $ 1,315.2
 
 

INGEVITY CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
    Three Months Ended March 31,
In millions 2019     2018
Cash provided by (used in) operating activities:
Net income (loss) 22.7 $ 35.8
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization 18.5 11.5
Deferred income taxes (0.4 ) 0.6
Share-based compensation 4.1 3.1
Pension and other postretirement (benefit) costs 0.3 0.4
Other non-cash items 0.1 1.5
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable, net (16.1 ) (13.4 )
Inventories, net (15.0 ) (23.1 )
Prepaid and other currents assets 0.6 1.6
Planned major maintenance outage (2.0 ) (0.3 )
Accounts payable 15.4 8.9
Accrued expenses (12.4 ) (1.6 )
Accrued payroll and employee benefit costs (26.6 ) (23.4 )
Income taxes (0.2 ) 8.0
Changes in other operating assets and liabilities, net 3.0     0.1  
Net cash provided by (used in) operating activities (8.0 )   9.7  
Cash provided by (used in) investing activities:
Capital expenditures (28.1 ) (13.3 )
Payments for acquired businesses, net of cash acquired (537.9 ) (315.0 )
Other investing activities, net (3.3 )   0.9  
Net cash provided by (used in) investing activities (569.3 )   (327.4 )
Cash provided by (used in) financing activities:
Proceeds from revolving credit facility 714.2
Proceeds from long-term borrowings 375.0 300.0
Payments on revolving credit facility (421.1 )
Payments on long-term borrowings (113.1 )
Debt issuance costs (1.8 ) (5.7 )
Borrowings (repayments) of notes payable and other short-term
borrowings, net
2.1
Tax payments related to withholdings on vested equity awards (14.3 ) (1.5 )
Proceeds and withholdings from share-based compensation plans, net 1.7 0.5
Repurchases of common stock under publicly announced plan (3.3 ) (3.1 )
Noncontrolling interest distributions     (5.3 )
Net cash provided by (used in) financing activities 539.4     284.9  
Increase (decrease) in cash, cash equivalents and restricted cash (37.9 ) (32.8 )
Effect of exchange rate changes on cash (0.1 ) (0.1 )
Change in cash, cash equivalents, and restricted cash(1) (38.0 ) (32.9 )
Cash, cash equivalents, and restricted cash at beginning of period 77.5     87.9  
Cash, cash equivalents, and restricted cash at end of period (1) $ 39.5   $ 55.0  

(1) Includes restricted cash of $1.1 million and zero
and cash and cash equivalents of $38.4 million and $55.0 million
as of March 31, 2019 and 2018, respectively. Restricted cash is
included within “Prepaid and Other Current Assets” within the
condensed consolidated balance sheets.

Supplemental cash flow information:
Cash paid for interest, net of capitalized interest $ 14.4 $ 6.0
Cash paid for income taxes, net of refunds $ 0.5 $ 0.3
Purchases of property, plant and equipment in accounts payable $ 6.6 $ 3.8
Leased assets obtained in exchange for new finance lease liabilities $ $
Leased assets obtained in exchange for new operating lease
liabilities
$ $
 

Ingevity Corporation

Non-GAAP Financial Measures

Ingevity has presented certain financial measures, defined below, which
have not been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”) and has provided a reconciliation to the
most directly comparable financial measure calculated in accordance with
GAAP. These financial measures are not meant to be considered in
isolation or as a substitute for the most directly comparable financial
measure calculated in accordance with GAAP.

We believe these non-GAAP financial measures provide management as well
as investors, potential investors, securities analysts and others with
useful information to evaluate the performance of the business, because
such measures, when viewed together with our financial results computed
in accordance with GAAP, provide a more complete understanding of the
factors and trends affecting our historical financial performance and
projected future results.

Ingevity uses the following non-GAAP measures:

Adjusted earnings (loss) is defined as net income (loss)
attributable to Ingevity stockholders plus restructuring and other
(income) charges, acquisition and other related costs, pension and
postretirement settlement and curtailment (income) charges and the
income tax expense (benefit) on those items, less the provision
(benefit) from certain discrete tax items.

Diluted adjusted earnings (loss) per share is defined as diluted
earnings (loss) per common share attributable to Ingevity stockholders
plus restructuring and other (income) charges, net per share,
acquisition and other related costs per share, pension and
postretirement settlement and curtailment (income) charges per share and
the income tax expense (benefit) per share on those items, less the per
share tax provision (benefit) from certain discrete tax items.

Contacts

Contact:
Jack Maurer
843-746-8242
jack.maurer@ingevity.com

Investors:
Dan Gallagher
843-740-2126
daniel.gallagher@ingevity.com

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