Nov 01, 2017

Ingevity reports third quarter 2017 financial results

PRESS RELEASE

• Net sales of $264.1 million were up 4.6 percent versus the prior year quarter’s sales of $252.4 million
• Net income of $38.4 million resulted in net income as a percentage of sales of 14.5 percent, compared to net loss of $4.9 million including restructuring costs related to the closure of the Brazil refinery, which resulted in net loss as a percentage of sales of 1.9 percent in the prior year quarter
• Diluted earnings per share were $0.79; diluted adjusted earnings per share were $0.86
• Adjusted EBITDA of $72.7 million were up 22 percent compared to third quarter 2016 adjusted EBITDA of $59.6 million
• Adjusted EBITDA margin of 27.5 percent increased 390 basis points versus third quarter 2016
• Company narrows fiscal year 2017 sales guidance to between $945 million and $955 million and narrows and raises adjusted EBITDA guidance to between $227 million and $232 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. Additionally, this release includes revisions to prior year periods’ financial results. Refer to the section entitled “Correction to Previously Issued Financial Statements.”

NORTH CHARLESTON, S.C., Nov. 1, 2017 – Ingevity Corporation (NYSE:NGVT) today reported third quarter net sales of $264.1 million and net income of $38.4 million, representing 14.5 percent of sales. Sales increased 4.6 percent versus $252.4 million in the prior year’s third quarter and net income increased $43.3 million versus a net loss of $4.9 million last year. Prior year net loss of $4.9 million was primarily driven by a third quarter after-tax restructuring charge of $32.2 million, or $0.76 per share, related to the closure of the Brazil refinery. The third quarter diluted earnings per share were $0.79. Diluted adjusted earnings per share were $0.86 excluding certain items of $0.07 per share. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $72.7 million were up 22 percent versus third quarter 2016 adjusted EBITDA of $59.6 million. Ingevity’s third quarter adjusted EBITDA margin of 27.5 percent was up 390 basis points from the prior year’s third quarter adjusted EBITDA margin of 23.6 percent.

“We posted an outstanding third quarter,” said Michael Wilson, Ingevity’s president and CEO. “Our strategic focus on high value-added product lines and our disciplined execution drove the year-over-year increase in revenues and earnings. We achieved a 22 percent increase in adjusted EBITDA versus the previous year’s quarter. And, as a result, we saw a sharp increase in our adjusted EBITDA margin to 27.5 percent, making this our most profitable quarter since our spinoff in May of last year.”

Performance Chemicals

Third quarter 2017 sales in the Performance Chemicals segment were $178.7 million, up $5.7 million, or 3.3 percent, versus the third quarter 2016. Segment operating profit was $33.4 million, up $11.7 million, or 53.9 percent, versus the prior year quarter segment operating profit. This translated into a segment operating margin of 18.7 percent versus 12.5 percent in the prior year. Segment EBITDA were $38.5 million, up $11.4 million, or 42 percent, versus the prior year quarter segment EBITDA. Segment EBITDA margin was 21.5 percent, up 580 basis points versus the prior year quarter.

“The continued rebound in U.S. drilling pushed sales to oilfield customers higher by 31 percent, and a later start to the paving season resulted in a 19 percent increase in sales to pavement applications versus the prior year’s quarter,” said Wilson. “Revenues in industrial specialties applications were 9 percent lower, as product availability to these markets was constrained to meet growing needs in higher value-added oilfield and pavement technologies applications.

“Despite modest revenue growth,” Wilson continued, “we achieved significantly higher segment EBITDA and segment EBITDA margin in Performance Chemicals. In addition to higher volumes, earnings were further augmented by improved pricing, higher plant productivity, lower raw materials costs and savings stemming from strategic initiatives we took last year to lower our cost structure.” 

Performance Materials

Third quarter 2017 sales in the Performance Materials segment were $85.4 million, up $6 million, or 7.6 percent, versus the third quarter 2016. Segment operating profit was $29.3 million, up $1.5 million, or 5.4 percent, versus the prior year quarter segment operating profit. This translated to a segment operating margin of 34.3 percent versus 35.0 percent in the prior year period. Segment EBITDA were $34.2 million, up $1.7 million, or 5.2 percent, versus the prior year segment EBITDA. Segment EBITDA margin was 40 percent, down 90 basis points versus the prior year quarter.

“Sales of Ingevity’s ‘honeycomb’ scrubbers, used by the automotive industry to comply with U. S. Environmental Protection Agency (EPA) Tier 3 and California LEV III standards for gasoline vapor emission control, continued to show robust growth,” said Wilson. “This growth was partially offset by lower sales of pelletized activated carbon due to lower North American light vehicle production as the industry worked down inventory.”

Wilson said that despite the third quarter’s 11 percent decline in North American vehicle production (according to WardsAuto) the company’s Performance Materials segment grew revenue in that same period by about 8 percent based on the strength of continued adoption of more stringent gasoline vapor emission control regulations. The segment’s earnings growth in the third quarter was tempered by higher expansion costs at the Waynesboro, Ga., plant and higher export costs for products from the Zhuhai, China, facility.

Outlook

Ingevity narrowed its fiscal year 2017 guidance for sales from between $940 million and $955 million to $945 million and $955 million. The company also narrowed and raised its guidance for adjusted EBITDA from between $220 million and $230 million to between $227 million and $232 million.

“While the fourth quarter is typically slower due to the seasonality of some of our end-markets, we are confident that we’ll turn in a strong 2017 performance,” said Wilson. “At the mid-point of our guidance, year-over-year EBITDA growth would be 13.4 percent, and the EBITDA margin would accrete by almost 200 basis points.”

Ingevity: Purify, Protect and Enhance

Ingevity provides specialty chemicals and high-performance carbon materials and technologies 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, printing inks and automotive components that reduce gasoline vapor emissions. Through a team of talented and experienced people, Ingevity develops, manufactures and brings to market products and processes that purify, protect and enhance the world around us. Headquartered in North Charleston, S.C., Ingevity operates from 25 locations around the world and employs approximately 1,500 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 conference call on Thursday, Nov. 2, 2017, at 10 a.m. (Eastern Time) to discuss third quarter fiscal results. Those who wish to participate in this event should dial 800-230-1092 (inside the U.S.) or 612-332-0335 (outside the U.S.), at least 15 minutes prior to the start of the call. In addition, a slide deck for use during the conference call will be posted on the Investors section of Ingevity’s website shortly before the call begins. Replays will be available through Dec. 2, 2017, and can be accessed at 800-475-6701 (inside the U.S.) or 320-365-3844 (outside the U.S.), with access code 431407.

Correction to Previously Issued Financial Statements

During the quarters and year ended December 31, 2016, Ingevity identified various errors related to its previously issued annual and interim Consolidated Financial Statements. The impact of the revision to the previously issued financial statements for the three and nine months ended September 30, 2016 is reflected in the schedules to this press release.

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 2017 is not provided. Ingevity does not forecast net income as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components include additional costs associated with the separation from WestRock, further restructuring and other income or charges, and acquisition related charges in connection with the planned acquisition of Georgia Pacific’s pine chemicals business as well as the related tax impacts of these items. 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 (the “acquisition”); the anticipated timing of the closing of the acquisition; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost-reduction initiatives, plans and objectives; and markets for securities. 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 related to the satisfaction of the conditions to closing the acquisition (including the failure to obtain necessary regulatory approvals) in the anticipated timeframe or at all, risks that the expected benefits from the proposed acquisition will not be realized or will not be realized in the expected time period; the risk that the 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; attracting and retaining key personnel; conditions in the automotive market or adoption of alternative technologies; worldwide air quality standards; government infrastructure spending; declining volumes 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 substitute products and new technologies; 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 risks; government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies 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, 2016 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)

INGEVITY CORPORATION

Segment Operating Results

(Unaudited)

INGEVITY CORPORATION

Condensed Consolidated Balance Sheets

INGEVITY CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Correction to Previously Issued Financial Statements

During 2016, Ingevity identified various errors related to its previously issued annual and interim Combined Financial Statements. Specifically, in the first quarter of 2016, the Company determined that $3.3 million of cumulative intercompany profit in inventory had not been eliminated in prior years. During the fourth quarter, the company also identified errors related to a $1.8 million understatement of accruals for services rendered in prior years, as well as errors related to the timing for which revenue has been previously recognized.

The cumulative impact of the errors identified in 2016 had resulted in the overstatement of pre-tax and net income of $1.6 million and $1.0 million in 2015 and $0.9 million and $0.6 million in 2014, and a cumulative impact to net parent investment of $2.5 million as of January 1, 2014. In addition, such errors resulted in the $9.4 million and $5.5 million overstatement of revenue in 2015 and 2014, respectively. Although Ingevity’s management has determined that the impact of such errors is immaterial to all previously issued financial statements, we revised the previously issued financial statements for the periods ended December 31, 2015 and 2014, as shown in our 2016 Annual Report, and those corrections are also reflected for the three and nine months ended September 30, 2016 in the tables below.

Impact of Corrections to the Condensed Consolidated Statements of Operations

Impact of Corrections to the Segment Operating Results

Impact of Corrections to the Condensed Consolidated Statements of Cash Flows

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. The company believes these non-GAAP measures provide 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, separation costs, acquisition costs and the income tax expense (benefit) on those 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 per share, separation costs per share, acquisition costs per share and the income tax expense (benefit) per share on those items.

Adjusted EBITDA is defined as net income (loss) plus provision for income taxes, interest expense, depreciation and amortization, restructuring and other (income) charges, separation costs and acquisition costs.

Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Net Sales

Segment EBITDA is defined as segment operating profit plus depreciation and amortization.

Segment EBITDA Margin is defined as Segment EBITDA divided by Net Sales.

The Company also uses the above financial measures as the primary measures of profitability used by managers of the business and its segments. In addition, the Company believes Adjusted EBITDA, Adjusted EBITDA Margin, Segment EBITDA and Segment EBITDA Margin are useful measures because they exclude the effects of financing and investment activities as well as non-operating activities. These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with GAAP and investors should consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another. Reconciliations of these non-GAAP financial measures are set forth within the following pages.

A reconciliation of net income to adjusted EBITDA as projected for 2017 is not provided. Ingevity does not forecast net income as we cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components include additional costs associated with the separation from WestRock, further restructuring and other income or charges, and acquisition related charges in connection with the planned acquisition of Georgia Pacific’s pine chemical business as well as the related tax impacts of these items. 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.

Reconciliation of Net Income (Loss) (GAAP) to Adjusted Earnings (Loss) (Non-GAAP)

Reconciliation of Net Income (GAAP) to Adjusted EBITDA (Non-GAAP)

 Reconciliation of Segment Operating Profit (GAAP) to Segment EBITDA (Non-GAAP)

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