Ingevity Corporation (NGVT) is a specialty chemicals and materials company that has been on a transformative journey to enhance its profitability and resilience. With a diverse product portfolio spanning performance materials, performance chemicals, and advanced polymer technologies, Ingevity has established itself as a leading player in a wide range of industries, including automotive, adhesives, agrochemicals, and more.
Company Background
Ingevity Corporation was formed in 2016 when it was spun off from parent company WestRock Company. The company develops, manufactures, and brings to market products and technologies that purify, protect, and enhance the world around us. Ingevity operates in three reportable segments - Performance Materials, Performance Chemicals, and Advanced Polymer Technologies.
In its early years as an independent public company, Ingevity faced some challenges as it worked to establish itself and its operations separately from WestRock. This included transitioning shared services previously provided by WestRock, as well as investing in its own enterprise resource planning system and other infrastructure.
Over time, Ingevity built out its business and product portfolio, expanding through strategic acquisitions like the 2022 acquisition of Ozark Materials. This helped the company grow its offerings and reach new markets and customers. Ingevity's products found use in a variety of demanding applications, including adhesives, agrochemicals, asphalt paving, bioplastics, coatings, elastomers, lubricants, pavement markings, oil production, and automotive components.
Through the 2010s, Ingevity delivered strong financial performance, with growing revenue, earnings, and cash flow. However, the company also faced some headwinds, such as volatility in raw material costs, particularly for crude tall oil, which impacted profitability at times. Ingevity worked to navigate these challenges through actions like supply chain optimization and strategic pricing with customers.
Financial Snapshot
As of the latest fiscal year ended December 31, 2023, Ingevity reported annual revenue of $1.69 billion and a net loss of $5.4 million. The company's operating cash flow stood at $205.1 million, while free cash flow reached $95.3 million. Ingevity's balance sheet remained relatively strong, with a current ratio of 1.81 and a debt-to-equity ratio of 2.42, indicating a moderately leveraged capital structure.
In the most recent quarter (Q3 2024), Ingevity reported revenue of $376.9 million, representing a 16% decrease compared to the same period in the previous year. The company recorded a net loss of $107.2 million for the quarter, primarily due to $86.9 million in restructuring charges and $100 million in contract termination fees. Operating cash flow for Q3 2024 was $46.5 million, with free cash flow of $28.5 million, both showing year-over-year decreases.
As of the latest reported quarter, Ingevity's liquidity position included $135.5 million in cash and cash equivalents, with an additional $244.4 million available under its revolving credit facility. The company's debt-to-equity ratio stood at 6.985, while its current ratio was 1.63 and its quick ratio was 0.90.
Segmental Performance
Ingevity operates through three primary business segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies. In 2023, the Performance Materials segment accounted for 26.6% of total revenue, the Performance Chemicals segment contributed 57.2%, and the Advanced Polymer Technologies segment made up the remaining 16.2%.
The Performance Materials segment focuses on purification and protection applications, with two main product lines: Road Technologies and Industrial Specialties. This segment has consistently delivered strong financial results, with segment EBITDA margins averaging around 50% in recent years. In the first nine months of 2024, the Performance Materials segment reported net sales of $453.40 million, up 4.6% from the prior year period. Segment EBITDA was $240.80 million, an increase of 15.5% year-over-year, driven by improved operational efficiency and lower input costs.
The Performance Chemicals segment produces specialty chemicals and materials for various consumer and industrial markets. This segment has faced more challenges in recent years, with fluctuating crude tall oil (CTO) prices and increasing competition in certain end markets. In the first nine months of 2024, the Performance Chemicals segment reported net sales of $509.50 million, down 29.8% from the prior year period. Segment EBITDA was $18.50 million, a decrease of 79.4% year-over-year, due to higher CTO costs and weaker demand in certain industrial end markets.
The Advanced Polymer Technologies segment specializes in engineered polymers and materials for automotive and industrial applications. This segment has shown steady growth historically, with segment EBITDA margins typically in the mid-to-high teens. However, in the first nine months of 2024, the Advanced Polymer Technologies segment reported net sales of $144.70 million, down 10.5% from the prior year period. Segment EBITDA was $29.10 million, a decrease of 20.5% year-over-year, due to unfavorable pricing and sales mix, as well as higher foreign currency exchange impacts.
Overall, Ingevity's consolidated net sales in the first nine months of 2024 were $1.11 billion, down 16.1% from the prior year period. The company's Adjusted EBITDA, a non-GAAP financial measure, was $282.10 million, a decrease of 15.8% year-over-year.
Transformation and Repositioning Efforts
In late 2023 and July 2024, Ingevity announced a series of strategic actions designed to reposition its Performance Chemicals segment and improve the company's overall profitability and resilience. These initiatives included the permanent closure of the company's CTO refinery and the shutdown of two manufacturing plants, including the one in DeRidder, Louisiana, which produced lower-margin industrial specialty products.
Additionally, Ingevity has been working to reduce its exposure to highly cyclical end markets, such as adhesives and oilfield services, and instead focus on growing its higher-margin road technologies and advanced polymer technologies product lines. The company estimates that these actions will generate annualized cash savings of $95 million to $110 million, with the majority of these savings expected to be realized in 2024.
Ingevity's transformation efforts have not been without challenges, as the company has incurred significant restructuring and other non-recurring charges, which have impacted its reported financial results. However, the company's management team remains committed to executing its strategic plan and positioning Ingevity for long-term success.
Guidance and Outlook
For the full year 2024, Ingevity expects to generate revenue in the range of $1.4 billion to $1.5 billion, with adjusted EBITDA between $350 million and $360 million. The company anticipates delivering towards the lower end of this guidance range in Q4 2024. This guidance reflects the ongoing impact of the company's repositioning efforts, as well as the continued uncertainty in certain end markets.
Looking ahead to 2025, while it is too early to provide full-year guidance, Ingevity's new interim CEO, Luis Fernandez-Moreno, has set an ambitious target of approaching $400 million in adjusted EBITDA. The company also aims to return its leverage to around 3x by the end of 2025. Fernandez-Moreno has emphasized the importance of improved execution, a fresh look at Ingevity's portfolio and corporate strategy, and continued debt reduction as key priorities for the company.
Geographic Markets and Global Presence
While Ingevity does not provide a detailed breakdown of sales by geographic region, it is noted that the company has global operations. Approximately 23% of net sales were derived from foreign markets in the first 9 months of 2024, highlighting the company's international presence and diverse customer base.
Risks and Challenges
As with any company, Ingevity faces a range of risks and challenges that could impact its future performance. These include:
1. Fluctuations in raw material prices, particularly crude tall oil, which can significantly affect the company's profitability in the Performance Chemicals segment.
2. Ongoing weakness in certain industrial end markets, such as adhesives and oilfield services, which could limit the success of Ingevity's repositioning efforts.
3. Potential delays or complications in the execution of the company's restructuring and transformation initiatives, which could result in higher-than-expected costs and timeline overruns.
4. Increased competition from substitute products and new technologies, which could put pressure on Ingevity's market share and pricing power.
5. Potential regulatory changes, particularly related to environmental and sustainability concerns, which could impact the company's product portfolio and customer demand.
6. Foreign currency exchange rate fluctuations, which have impacted the Advanced Polymer Technologies segment's performance.
Despite these challenges, Ingevity's management team remains committed to navigating the company through this transformative period and positioning it for long-term success. The company's diversified product offering, strong customer relationships, and focus on innovation continue to be key competitive advantages in a rapidly evolving industry landscape.
Conclusion
Ingevity's pursuit of profitability and strategic transformation is a testament to the company's resilience and adaptability. By repositioning its Performance Chemicals segment, diversifying its raw material sourcing, and targeting higher-margin growth opportunities, Ingevity is laying the foundation for a more profitable and sustainable future. The company's performance in recent quarters reflects the ongoing impact of these transformation efforts, with decreased revenue and profitability in the short term as it implements significant changes to its business model.
While the road ahead may not be without its challenges, the company's new leadership team and its commitment to execution provide reason for cautious optimism among investors and industry observers alike. The ambitious targets set for 2025, including approaching $400 million in adjusted EBITDA and reducing leverage to around 3x, demonstrate Ingevity's confidence in its strategic direction and ability to deliver long-term value.
As Ingevity continues to navigate through this period of transformation, investors and stakeholders will be closely watching the company's progress in executing its strategic initiatives, managing costs, and capitalizing on growth opportunities in its target markets. The success of these efforts will be crucial in determining Ingevity's ability to achieve its financial goals and solidify its position as a leading player in the specialty chemicals and materials industry.