Ingevity Corp 10-Q for FY2020 Q1

Ingevity Corp (NGVT)

10-Q 2020-04-30 For: 2020-03-31

Added on April 12, 2026

About this 10-Q

Ingevity Corp filed this 10-Q on April 30, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $288.2M; up 4.1% from $276.8M a year earlier
Net income: $45.3M; up 99.6% from net income of $22.7M a year earlier
Diluted EPS: $1.08; up 100.0% from $0.54 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.01 par value)	NGVT	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


			Page No.
PART I - FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			44
PART II - OTHER INFORMATION			46
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. Mine Safety Disclosures			47
Item 5. Other Information			47
Item 6. Exhibits			48
SIGNATURES			49


	Three Months Ended March 31,
In millions, except per share data	2020		2019
Net sales	$	288.2	$	276.8
Cost of sales	173.6		179.7
Gross profit	114.6		97.1
Selling, general and administrative expenses	38.5		39.1
Research and technical expenses	6.2		5.1
Restructuring and other (income) charges, net	0.5		—
Acquisition-related costs	1.3		22.8
Other (income) expense, net	2.0		(3.7)
Interest expense, net	10.9		11.1
Income (loss) before income taxes	55.2		22.7
Provision (benefit) for income taxes	9.9		—
Net income (loss)	$	45.3	$	22.7



Per share data
Basic earnings (loss) per share	$	1.09	$	0.54
Diluted earnings (loss) per share	1.08		0.54


	Three Months Ended March 31,
In millions	2020		2019
Net income (loss)	$	45.3	$	22.7
Other comprehensive income (loss), net of tax:
Foreign currency adjustments:
Foreign currency translation adjustment	(40.1)		9.4
Unrealized gain (loss) on net investment hedges, net of tax provision (benefit) of $1.7 and zero	5.7		—
Total foreign currency adjustments, net of tax provision (benefit) of $1.7 and zero	(34.4)		9.4
Derivative instruments:
Unrealized gain (loss), net of tax provision (benefit) of $(1.4) and zero	(4.8)		0.1
Reclassifications of deferred derivative instruments (gain) loss, included in net income (loss), net of tax (provision) benefit of zero and $(0.1)	0.1		(0.4)
Total derivative instruments, net of tax provision (benefit) of $(1.4) and $(0.1)	(4.7)		(0.3)





Other comprehensive income (loss), net of tax provision (benefit) of $0.3 and $(0.1)	(39.1)		9.1
Comprehensive income (loss)	$	6.2	$	31.8


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


In millions, except share and par value data	March 31, 2020		December 31, 2019
Assets	(Unaudited)
Cash and cash equivalents	$	302.7	$	56.5
Accounts receivable, net of allowance for credit losses of $0.5 million - 2020 and $0.5 million - 2019	140.8		150.0
Inventories, net	236.2		212.5
Prepaid and other current assets	44.8		44.2
Current assets	724.5		463.2
Property, plant and equipment, net	659.7		664.7
Operating lease assets, net	52.2		53.4
Goodwill	416.8		436.4
Other intangibles, net	370.3		396.2
Deferred income taxes	5.0		5.0
Restricted investment, net of allowance for credit losses of $0.9 million - 2020	72.2		72.6
Other assets	52.6		50.2
Total Assets	$	2,353.3	$	2,141.7
Liabilities
Accounts payable	$	105.0	$	99.1
Accrued expenses	30.1		33.3
Accrued payroll and employee benefits	15.6		28.2
Current operating lease liabilities	16.9		17.1
Notes payable and current maturities of long-term debt	21.6		22.5
Income taxes payable	18.5		15.3
Current liabilities	207.7		215.5
Long-term debt including finance lease obligations	1,467.8		1,228.4
Noncurrent operating lease liabilities	35.7		36.7
Deferred income taxes	104.3		100.3
Other liabilities	35.7		30.0
Total Liabilities	1,851.2		1,610.9
Commitments and contingencies (Note 16)
Equity
Preferred stock (par value $0.01 per share; 50,000,000 shares authorized; zero issued and outstanding - 2020 and 2019)	—		—
Common stock (par value $0.01 per share; 300,000,000 shares authorized; issued: 42,836,074 - 2020 and 42,675,171 - 2019; outstanding: 41,176,953 - 2020 and 41,826,136 - 2019)	0.4		0.4
Additional paid-in capital	113.6		112.8
Retained earnings	541.9		497.2
Accumulated other comprehensive income (loss)	(44.1)		(5.0)
Treasury stock, common stock, at cost (1,659,121 shares - 2020; 849,035 shares - 2019)	(109.7)		(74.6)


Total Equity	502.1		530.8
Total Liabilities and Equity	$	2,353.3	$	2,141.7


(in millions)	Balance at December 31, 2019 ⁽¹⁾		Impact from Adoption of ASC 326	Balance at January 1, 2020	Current Period Provision	Balance at March 31, 2020 ⁽²⁾
Allowance for credit losses	$	0.5	0.6	1.1	0.3	$	1.4


Purchase Price Allocation
In millions	Weighted Average Amortization Period	Fair Value
Cash and cash equivalents		$	0.7
Accounts receivable		15.7
Inventories ⁽¹⁾		21.7
Prepaid and other current assets		1.9
Property, plant and equipment		86.3
Operating lease assets, net		1.8
Intangible assets ⁽²⁾
Customer relationships	17 years	159.0
Developed technology	12 years	64.8
Brands	17 years	67.0
Non-compete agreement	3 years	0.5
Goodwill		295.1
Other assets		1.3
Total fair value of assets acquired		$	715.8
Accounts payable		13.6
Accrued expenses		2.3
Long-term debt		113.1
Operating lease liabilities		1.7
Deferred income taxes		45.7
Total fair value of liabilities assumed		$	176.4
Cash and restricted cash acquired ⁽³⁾				1.5
Total cash paid, less cash and restricted cash acquired				$	537.9


	Three Months Ended
In millions	March 31, 2019
Net sales	$	294.5
Income (loss) before income taxes	53.5
Diluted earnings (loss) per share	$	1.14


	Contract Asset⁽¹⁾
In millions	March 31, 2020		March 31, 2019
Beginning balance	$	6.2	$	5.1
Contract asset additions	4.6		4.7
Reclassification to accounts receivable, billed to customers	(3.9)		(4.5)
Ending balance	$	6.9	$	5.3


In millions	Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Total
March 31, 2020
Assets:
Equity securities ⁽⁴⁾	$	0.1	$	—	$	—	$	0.1
Deferred compensation plan investments ⁽⁵⁾	1.5		—		—		1.5
Total assets	$	1.6	$	—	$	—	$	1.6
Liabilities:
Deferred compensation arrangement ⁽⁵⁾	$	9.9	$	—	$	—	$	9.9

Total liabilities	$	9.9	$	—	$	—	$	9.9
December 31, 2019
Assets:
Equity securities ⁽⁴⁾	$	0.4	$	—	$	—	$	0.4
Deferred compensation plan investments ⁽⁵⁾	1.4		—		—		1.4
Total assets	$	1.8	$	—	$	—	$	1.8
Liabilities:
Deferred compensation arrangement ⁽⁵⁾	$	10.0	$	—	$	—	$	10.0
Separation-related reimbursement awards ⁽⁶⁾	0.1		—		—		0.1
Total liabilities	$	10.1	$	—	$	—	$	10.1


	March 31, 2020
(in millions)	AA+		AA	A	A-	BBB+	Total
Level 1 Securities	$	13.5	10.7	24.2	13.4	10.5	$	72.3


	Operating Segments
In millions	Performance Chemicals		Performance Materials		Total
December 31, 2019	$	432.1	$	4.3	$	436.4

Foreign currency translation	(19.6)		—		(19.6)
March 31, 2020	$	412.5	$	4.3	$	416.8


	Three Months Ended March 31,
In millions		2020		2019
Cash provided by (used in) operating activities:
Net income (loss)		$	45.3	$	22.7
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization		24.3		18.5
Deferred income taxes		6.5		(0.4)


Share-based compensation		0.8		4.1
Pension and other postretirement benefit costs		0.4		0.3
Other non-cash items		5.0		0.1
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		7.7		(16.1)
Inventories, net		(25.9)		(15.0)
Prepaid and other current assets		(0.2)		0.6
Planned major maintenance outage		(0.8)		(2.0)
Accounts payable		9.4		15.4
Accrued expenses		(3.2)		(12.4)
Accrued payroll and employee benefits		(12.4)		(26.6)
Income taxes		2.0		(0.2)


Changes in other operating assets and liabilities, net		1.3		3.0
Net cash provided by (used in) operating activities		$	60.2	$	(8.0)
Cash provided by (used in) investing activities:
Capital expenditures		$	(19.5)	$	(28.1)
Payments for acquired businesses, net of cash acquired		—		(537.9)




Other investing activities, net		(0.7)		(3.3)
Net cash provided by (used in) investing activities		$	(20.2)	$	(569.3)
Cash provided by (used in) financing activities:
Proceeds from revolving credit facility		$	346.1	$	714.2
Proceeds from long-term borrowings		—		375.0
Payments on revolving credit facility		(102.3)		(421.1)
Payments on long-term borrowings		(4.7)		(113.1)


	Three Months Ended March 31,
In millions	2020		2019
Automotive Technologies product line	$	112.9	$	99.7
Process Purification product line	8.2		9.4
Performance Materials segment	$	121.1	$	109.1
Oilfield Technologies product line	30.2		29.2
Pavement Technologies product line	20.7		18.5
Industrial Specialties product line	79.9		95.8
Engineered Polymers product line⁽¹⁾	36.3		24.2
Performance Chemicals segment	$	167.1	$	167.7
Net sales	$	288.2	$	276.8


	Three Months Ended March 31,
In millions	2020		2019
North America	$	171.1	$	171.7
Asia Pacific	67.9		49.1
Europe, Middle East and Africa	43.4		51.2
South America	5.8		4.8
Net sales	$	288.2	$	276.8


In millions	March 31, 2020		December 31, 2019
Raw materials	$	44.2	$	42.6
Production materials, stores and supplies	23.0		22.3
Finished and in-process goods	182.3		158.0
Subtotal	249.5		222.9
Less: adjustment of inventories to LIFO basis	(13.3)		(10.4)
Inventories, net	$	236.2	$	212.5


In millions	Amount of Gain (Loss) Recognized in AOCI						Amount of Gain (Loss) Reclassified from AOCI into Net income			Location of Gain (Loss) Reclassified from AOCI in Net income
	Three Months Ended March 31,
	2020		2019		2020		2019
Cash flow hedging derivatives
Currency exchange contracts	$	0.3	$	—	$	—	$	—	Net sales
Natural gas contracts	(0.4)		0.1		(0.1)		0.5		Cost of sales
Interest rate swap contracts	(6.1)		—		—		—		Interest expense, net
Total	$	(6.2)	$	0.1	$	(0.1)	$	0.5

	Amount of Gain (Loss) Recognized in AOCI						Amount of Gain (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)			Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
	Three Months Ended March 31,
	2020		2019		2020		2019
Net investment hedging derivative
Currency exchange contracts⁽¹⁾	$	7.4	$	—	$	0.8	$	—	Interest expense, net
Total	$	7.4	$	—	$	0.8	$	—


	March 31, 2020
In millions, except percentages	Interest rate	Maturity date	March 31, 2020		December 31, 2019

Revolving Credit Facility ⁽¹⁾	2.36%	2023	$	375.0	$	131.3
Term Loans	2.62%	2022-2023	735.9		740.6
Senior Notes	4.50%	2026	300.0		300.0
Finance lease obligations	7.67%	2027	80.0		80.0
Other	4.95%	2020-2021	5.0		5.9
Total debt including finance lease obligations			1,495.9		1,257.8
Less: debt issuance costs			6.5		6.9
Total debt including finance lease obligations, net of debt issuance costs			1,489.4		1,250.9
Less: debt maturing within one year ⁽²⁾			21.6		22.5
Long-term debt including finance lease obligations			$	1,467.8	$	1,228.4



	Common Stock
In millions, except per share data in thousands	Shares	Amount		Additional paid in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total Equity
Balance at December 31, 2019	42,675	$	0.4	$	112.8	$	497.2	$	(5.0)	$	(74.6)	$	530.8
Net income (loss)	—	—		—		45.3		—		—		45.3
Other comprehensive income (loss)	—	—		—		—		(39.1)		—		(39.1)
Common stock issued	161	—		—		—		—		—		—
Exercise of stock options, net	—	—		—		—		—		—		—
Tax payments related to vested restricted stock units	—	—		—		—		—		(3.1)		(3.1)
Share repurchase program	—	—		—		—		—		(32.4)		(32.4)

Share-based compensation plans	—	—		0.8		—		—		0.4		1.2
Adoption of accounting standard	—	—		—		(0.6)		—		—		(0.6)
Balance at March 31, 2020	42,836	$	0.4	$	113.6	$	541.9	$	(44.1)	$	(109.7)	$	502.1


	Three Months Ended March 31,
	Pensions						Other Benefits
In millions	2020		2019		2020		2019
Components of net periodic benefit cost (income):
Service cost ⁽¹⁾	$	0.4	$	0.3	$	—	$	—
Interest cost ⁽²⁾	0.3		0.3		—		—
Expected return on plan assets ⁽²⁾	(0.3)		(0.3)		—		—

Amortization of net actuarial and other (gain) loss ⁽²⁾	—		—		—		—
Net periodic benefit cost (income)	$	0.4	$	0.3	$	—	$	—


	Three Months Ended March 31,
In millions, except share and per share data	2020		2019
Net income (loss)	$	45.3	$	22.7

Basic and Diluted earnings (loss) per share
Basic earnings (loss) per share	$	1.09	$	0.54
Diluted earnings (loss) per share	1.08		0.54

Shares (in thousands)
Weighted average number of common shares outstanding - Basic	41,692		41,695
Weighted average additional shares assuming conversion of potential common shares	270		542
Shares - diluted basis	41,962		42,237


	Three Months Ended March 31,
In thousands	2020	2019
Average number of potential common shares - antidilutive	210	52


			Percentage change vs. prior year
In millions, except percentages	Net sales		Total change	Currency effect	Price/Mix	Volume
Three months ended March 31, 2020	$	288.2	4%	(1)%	2%	3%


	Percentage change vs. prior year
Performance Materials (In millions, except percentages)	Net sales		Total change		Currency effect		Price/Mix		Volume
Three months ended March 31, 2020	$	121.1	11	%	—	%	5	%	6	%


	Percentage change vs. prior year
Performance Chemicals (In millions, except percentages)	Net sales		Total change		Currency effect		Price/Mix		Volume
Three months ended March 31, 2020	$	167.1	—	%	(1)	%	—	%	1	%


Performance Chemicals Pro Forma Financial Results
	Three Months Ended March 31,
In millions	2020		2019
Net sales
Performance Chemicals, as reported ⁽¹⁾	$	167.1	$	167.7
Caprolactone Business, pro forma ⁽²⁾	—		17.7
Pro Forma Combined Net Sales ⁽³⁾	$	167.1	$	185.4

Segment EBITDA
Performance Chemicals, as reported ⁽¹⁾	$	31.0	$	32.3
Caprolactone Business, pro forma ⁽²⁾	—		5.5
Pro Forma Combined Segment EBITDA⁽³⁾	$	31.0	$	37.8


	Percentage change vs. prior year
Performance Chemicals (In millions, except percentages)	Pro Forma Combined Net sales		Total change		Currency effect		Price/Mix		Volume
Three months ended March 31, 2020	$	167.1	(10)	%	(1)	%	—	%	(9)	%


Reconciliation of Net Income (Loss) to Adjusted EBITDA
	Three Months Ended March 31,
In millions	2020		2019
Net income (loss) (GAAP)	$	45.3	$	22.7
Interest expense, net	10.9		11.1
(Provision) benefit for income taxes	9.9		—
Depreciation and amortization - Performance Materials	7.2		5.8
Depreciation and amortization - Performance Chemicals	17.1		12.7

Restructuring and other (income) charges, net	0.5		—
Acquisition and other-related costs (1)	1.3		31.2
Adjusted EBITDA (Non-GAAP)	$	92.2	$	83.5


In millions			FY2020 Guidance
Net sales			$1,100 - $1,200
Adjusted EBITDA			$310 - $350
Capital Expenditures			~$85
Operating Cash Flow			$215 - $255


Capital expenditure categories	Three Months Ended March 31,
In millions	2020		2019
Maintenance	$	12.9	$	7.4
Safety, health and environment	2.7		2.1
Growth and cost improvement	3.9		18.6
Total capital expenditures	$	19.5	$	28.1


	ISSUER PURCHASES OF EQUITY SECURITIES
				Publicly Announced Program
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Cumulative Number of Shares Purchased	Total Dollar Amount Purchased		Maximum Dollar Value of Shares that May Yet be Purchased
January 1-31, 2020	—	$	—	—	$	—	$	389,537,445
February 1-29, 2020	—	—		—	—		500,000,000
March 1-31, 2020	750,000	43.18		750,000	32,384,190		467,615,810
Total	750,000	$	43.18	750,000	$	32,384,190	$	467,615,810


Exhibit No.			Description of Exhibit
3.1*			Second Amended and Restated Certificate of Incorporation of Ingevity Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K (File No. 001-37586) filed April 25, 2019).

3.2*			Amended and Restated Bylaws of Ingevity Corporation (incorporated by reference to Exhibit 3.2 to Form 8-K (File No. 001-37856) filed April 25, 2019).



10.1+			Separation and Release Agreement, between Ingevity Corporation and D. Michael Wilson, dated as of February 20, 2020 (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019).





31.1			Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Executive Officer.

31.2			Rule 13a-14(a)/15d-14(a) Certification of the Company’s Principal Financial Officer.

32.1			Section 1350 Certification of the Company’s Principal Executive Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended.

32.2			Section 1350 Certification of the Company’s Principal Financial Officer. The information contained in this Exhibit shall not be deemed filed with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the registrant under the Securities Act of 1933, as amended.

101			Inline XBRL Instance Document and Related Items - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

104			The cover page from the Company’s Quarterly Report on Form 10-Q formatted in Inline XBRL (included in Exhibit 101).


INGEVITY CORPORATION
(Registrant)

By:			/S/ JOHN C. FORTSON
			John C. Fortson
			Executive Vice President, Chief Financial Officer & Treasurer
			(Principal Financial Officer and Duly Authorized Officer)


Date:			April 30, 2020


By:			/S/ RICHARD B. KELSON
			Richard B. Kelson
			Chairman of the Board, and Interim President and Chief Executive Officer