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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 147 added, 128 removed, 226 unchanged (55% of the section changed)

7 unchanged sentences

Cautionary Statements About Forward-Looking Statements

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Private Securities Litigation Reform Act of 1995 that reflect our current expectations, beliefs, plans or forecasts with respect to, among other things, future events and financial performance.

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements, within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that reflect our current expectations, beliefs, plans or forecasts with respect to, among other things, future events and financial performance.

Forward-looking statements are often characterized by words or phrases such as “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “outlook,” “project,” “intend,” “plan,” “believe,” “target,” “prospects,” “potential” and “forecast,” and other words, terms and phrases of similar meaning.

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In addition to any such risks, uncertainties and other factors discussed elsewhere herein, risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied by the forward-looking statements include, but are not limited to the following:

• we may be adversely affected by general global economic, geopolitical, and financial conditions beyond our control, including inflation and the war in Ukraine;

• the anticipated timing, charges and costs of the closure of our DeRidder, Louisiana plant may differ materially from our estimates due to events that may occur as a result of, or in connection with, the plant closure;

• we may be adversely affected by general global economic, geopolitical, and financial conditions beyond our control, including inflation and the Russia-Ukraine war and the Israel-Gaza war;

• we are exposed to risks related to our international sales and operations;

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• we may be adversely affected by a decrease in government infrastructure spending;

• adverse conditions in cyclical end markets may adversely affect demand for our products;

• our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply and subject to price increases that we may be unable to pass through;

• lack of access to sufficient CTO and other raw materials upon which we depend would impact our ability to produce our products;

• adverse conditions in cyclical end markets may continue to adversely affect demand for our products;

• our Performance Chemicals segment is highly dependent on crude tall oil ("CTO") which is limited in supply and subject to price increases that have negatively impacted the business and will continue to do so if our ability to pass through such price increases remains limited;

• lack of access to raw materials upon which we depend would impact our ability to produce our products;

• the inability to make or effectively integrate future acquisitions and other investments may negatively affect our results;

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Recent Developments

Restructuring Charges

In the first quarter of 2023, we initiated several measures to pursue greater cost efficiency which included a reorganization to streamline certain functions and reduce ongoing costs.

During the second quarter, we took further actions to reorganize our operations.

The combined restructuring program is expected to cost approximately $12-14 million and is expected to be completed over the remainder of 2023.

During the three and six months ended June 30, 2023, we recorded $4.4 million and $7.4 million in severance and other employee-related costs and $2.6 million and $2.7 million in other restructuring charges, including asset write-offs associated with our reorganization.

Alternative Fatty Acid Transition

In April 2023, we began the feedstock transition of our Crossett, Arkansas manufacturing plant.

During the three and six months ended June 30, 2023, we incurred $6.6 million in costs.

We expect to incur approximately $20-25 million of expense in 2023, representing non-capital retooling and stranded costs, with modest levels of capital expenditure.

North Charleston Plant Transition

In May 2023, WestRock announced that it will permanently cease operating its North Charleston paper mill by August 31, 2023 and notified us that it is terminating the shared services in accordance with our operating agreement.

We expect to incur approximately $15-20 million of non-capital transition costs in 2023 as we continue to transition those shared services and minimize disruption to our operations and are continuing to evaluate the future impact.

During the three and six months ended June 30, 2023, we incurred $2.9 million in costs.

Performance Chemicals Repositioning

On November 1, 2023, we announced a number of strategic actions designed to further reposition our Performance Chemicals segment to improve the profitability and reduce the cyclicality of the Performance Chemicals business and the Company as a whole.

These actions increase our focus on growing our most profitable Performance Chemicals businesses such as Pavement Technologies and accelerate our transition to non-CTO-based fatty acids.

The announced actions include the permanent closure of our Performance Chemicals manufacturing plant located in DeRidder, Louisiana (the “DeRidder Plant”) as well as additional corporate and business cost reduction actions.

We expect to close the DeRidder Plant by the end of the first half of 2024.

We expect to incur aggregate charges of approximately $280.0 million associated with these actions, consisting of approximately $180.0 million in asset-related charges, approximately $15.0 million in severance and other employee-related costs, and approximately $85.0 million in other restructuring costs including decommissioning, dismantling and removal charges, and contract termination costs.

We expect approximately $180.0 million of the total charges to be non-cash.

The majority of non-cash charges and 50-60 percent of cash charges are expected to be recognized by the end of the first half of 2024.

The charges we currently expect to incur in connection with these actions are subject to a number of assumptions and risks, and actual results may differ materially.

We may also incur other material charges not currently contemplated due to events that may occur as a result of, or in connection with, these actions.

Supply Agreements

On November 1, 2023, Ingevity Corporation (the “Company”), and WestRock Shared Services, LLC and WestRock MWV, LLC, on behalf of the affiliates of WestRock Company (“WestRock”), entered into Amendment No.1 (the “Amendment”) to that certain Amended and Restated Crude Tall Oil and Black Liquor Soap Skimmings Agreement, dated as of March 20, 2023, by and between the Company and WestRock.

Performance Chemicals Reporting Unit

During the third quarter of 2023, continued reduction in demand in industrial end markets has negatively impacted our ability to offset elevated crude tall oil (“CTO”) costs through pricing actions within our Performance Chemicals’ reportable segment, particularly in our industrial specialties product line.

CTO is essential to our industrial specialties and some of our pavement technologies product lines within our Performance Chemicals reportable segment.

As a result, we concluded that a triggering event occurred for our Performance Chemicals’ reporting unit, and we performed an analysis of the reporting unit’s goodwill, intangibles and long-lived assets as of September 1, 2023.

Our analysis included significant assumptions such as:

revenue growth rate, Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") margin, and discount rate which are judgmental and variations in any assumptions could result in materially different calculations of fair value.

Based on our analysis, the headroom associated with our Performance Chemicals’ reporting unit, which is defined as the percentage difference between the fair value of a reporting unit and its carrying value, is currently 19 percent.

Consequently, we concluded that there was no impairment for the quarter ended September 30, 2023.

Performance Chemicals Reporting Unit - Headroom Sensitivity Analysis

Reporting Unit Fair Value Revenue Growth Rate Declines by 100 Bps EBITDA Margin Declines by 100 Bps Discount Rate increases by 100 Bps

Headroom 19% 14% 14% 7%

Results of Operations

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2023 2022 2023 2022

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In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales

Three months ended June 30, 2023 vs.

Three months ended September 30, 2023 vs.

$ 482.0 (72.1) 38.3 (2.2) $ 446.0

Six months ended June 30, 2023 vs.

Nine months ended September 30, 2023 vs.

$ 1,284.7 (97.1) 142.4 (9.6) $ 1,320.4

Three Months Ended June 30, 2023 vs.

The sales increase of $61.9 million in 2023 was driven by favorable mix of $45.4 million (11 percent) across all segments, favorable volume improvement of $19.3 million (five percent) supported by Performance Materials and the Performance Chemicals' pavement technologies business line, including Ozark Materials, LLC and Ozark Logistics, LLC (collectively, “Ozark Materials”) acquisition completed in the fourth quarter of 2022, more than offset weaker volumes in Performance Chemicals' industrial specialties business line and Advanced Polymer Technologies.

These favorable impacts to Net sales were partially offset by unfavorable foreign currency exchange of $2.8 million (one percent).

Six Months Ended June 30, 2023 vs.

The sales increase of $71.7 million in 2023 was driven by favorable mix of $104.1 million (13 percent) across all segments, partially offset by unfavorable volume decline, particularly in our Performance Chemicals' Industrial Specialties business line, for a combined impact of $25.0 million (three percent), and unfavorable foreign currency exchange of $7.4 million (one percent).

Three Months Ended June 30, 2023 vs.

Gross profit increase of $2.4 million was driven by favorable pricing and product mix of $41.9 million, favorable sales volume of $12.8 million, primarily driven by our Performance Materials and Advanced Polymer Technologies reportable segments and favorable foreign currency exchange of $1.1 million, offset by increased manufacturing costs of $53.4 million due to raw material inflationary pressures, primarily CTO within our industrial specialties product line.

Three Months Ended September 30, 2023 vs.

The sales decrease of $36.0 million in 2023 was driven by unfavorable volume decline of $72.1 million (15 percent) primarily within our Performance Chemicals and Advanced Polymers Technologies reportable segments and unfavorable foreign currency exchange of $2.2 million (zero percent).

These unfavorable impacts to Net sales were partially offset by favorable price/mix of $38.3 million (eight percent) across all segments.

Nine Months Ended September 30, 2023 vs.

The sales increase of $35.7 million in 2023 was driven by favorable price/mix of $142.4 million (11 percent) across all segments, partially offset by unfavorable volume decline, particularly in our Performance Chemicals' Industrial Specialties product line and Advanced Polymer Technologies, for a combined impact of $97.1 million (eight percent), and unfavorable foreign currency exchange of $9.6 million (one percent).

Three Months Ended September 30, 2023 vs.

Gross profit decrease of $47.3 million was driven by increased manufacturing costs of $42.6 million due to raw material inflationary pressures, primarily CTO within our industrial specialties product line, and unfavorable sales volume of $36.7 million, primarily driven by our Performance Chemicals and Advanced Polymer Technologies reportable segments.

The decrease was partially offset by favorable pricing and product mix of $26.9 million, and favorable foreign currency exchange of $5.1 million.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for all segments.

Six Months Ended June 30, 2023 vs.

Gross profit decrease of $5.0 million was driven by increased manufacturing costs of $97.4 million due to raw material inflationary pressures, primarily CTO within our industrial specialties product line in our Performance Chemicals reportable segment, unfavorable sales volume of $7.8 million, and unfavorable foreign currency exchange of $0.3 million, offset by pricing improvements and favorable mix of $100.5 million primarily driven by our industrial specialties product line.

Nine Months Ended September 30, 2023 vs.

Gross profit decrease of $52.3 million was driven by increased manufacturing costs of $140.2 million due to raw material inflationary pressures, primarily CTO within our industrial specialties product line in our Performance Chemicals reportable segment, and unfavorable sales volume of $44.3 million.

The decrease was partially offset by pricing improvements and favorable mix of $127.4 million primarily driven by our industrial specialties product line, and favorable foreign currency exchange of $4.8 million.

Refer to the Segment Operating Results section included within this MD&A for more information on the drivers to the changes in gross profit period over period for all segments.

Selling, general and administrative expenses

Three Months Ended June 30, 2023 vs.

Selling, general and administrative expenses ("SG&A") were $51.7 million (11 percent of Net sales) and $48.7 million (12 percent of Net sales) for the three months ended June 30, 2023 and 2022, respectively.

The decrease in SG&A as a percentage of Net sales was driven by higher sales, lower employee-related costs of $0.4 million, and decreased travel and other miscellaneous costs of $0.9 million, partially offset by increased amortization expense of $4.3 million primarily driven by the Ozark Materials acquisition.

Six Months Ended June 30, 2023 vs.

Selling, general and administrative expenses ("SG&A") were $100.3 million (11 percent of Net sales) and $88.7 million (11 percent of Net sales) for the six months ended June 30, 2023 and 2022, respectively.

SG&A as a percentage of Net sales was unchanged as the impact of increased amortization costs of $6.3 million, primarily driven by the Ozark Materials acquisition, higher employee-related costs of $5.0 million, and increased travel and other miscellaneous costs of $0.3 million were offset by higher sales.

Three Months Ended September 30, 2023 vs.

Selling, general and administrative expenses ("SG&A") were $40.0 million (nine percent of Net sales) and $54.2 million (11 percent of Net sales) for the three months ended September 30, 2023 and 2022, respectively.

The decrease in SG&A as a percentage of Net sales was driven by lower employee-related costs of $12.0 million, and decreased travel and other miscellaneous costs of $5.1 million, partially offset by increased amortization expense of $2.9 million primarily driven by the Ozark Materials, LLC and Ozark Logistics, LLC (collectively, "Ozark Materials") acquisition.

Nine Months Ended September 30, 2023 vs.

Selling, general and administrative expenses ("SG&A") were $140.3 million (11 percent of Net sales) and $142.9 million (11 percent of Net sales) for the nine months ended September 30, 2023 and 2022, respectively.

SG&A as a percentage of Net sales was unchanged as the impact of increased amortization costs of $9.2 million, primarily driven by the Ozark Materials acquisition, was offset by decreased employee-related costs of $7.0 million, and decreased travel and other miscellaneous costs of $4.8 million.

Research and technical expenses

Three Months Ended June 30, 2023 vs.

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, decreasing to 1.7 percent from 2.0 percent for the three months ended June 30, 2023 and 2022, respectively.

Six Months Ended June 30, 2023 vs.

Research and technical expenses as a percentage of Net sales remained consistent period over period, at 1.9 percent and 1.9 percent for the six months ended June 30, 2023 and 2022, respectively.

Three Months Ended September 30, 2023 vs.

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, increasing to 1.7 percent from 1.6 percent for the three months ended September 30, 2023 and 2022, respectively.

Nine Months Ended September 30, 2023 vs.

Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, increasing to 1.9 percent from 1.8 percent for the nine months ended September 30, 2023 and 2022, respectively.

Restructuring and other (income) charges, net

Three and Six Months Ended June 30, 2023 vs.

Restructuring and other (income) charges, net were $19.2 million and $24.8 million for the three and six months ended June 30, 2023, respectively, and $3.7 million and $7.3 million for the three and six months ended June 30, 2022, respectively.

Severance and other employee-related costs increased $4.4 million and $7.4 million, and other restructuring charges increased $2.6 million and $2.7 million.

Additionally, alternative fatty acid transition costs increased $6.6 million, and costs associated with the North Charleston plant transition increased $2.9 million, both for the three and six months ended June 30, 2023, respectively.

The increase was partially offset by a $1.0 million and $2.1 million decrease related to our digital transformation initiative for the three and six months ended June 30, 2023, respectively.

Three and Nine Months Ended September 30, 2023 vs.

Restructuring and other (income) charges, net were $24.6 million and $49.4 million for the three and nine months ended September 30, 2023, respectively, and $3.3 million and $10.6 million for the three and nine months ended September 30, 2022, respectively.

Severance and other employee-related costs increased $1.5 million and $8.9 million, and other restructuring charges increased zero and $2.7 million, respectively.

Additionally, alternative fatty acid transition costs increased $11.8 million and $18.4 million, and costs associated with the North Charleston plant transition increased $9.8 million and $12.7 million, both for the three and nine months ended September 30, 2023, respectively.

The increase was partially offset by a $1.8 million and $3.9 million decrease related to our business transformation initiative for the three and nine months ended September 30, 2023, respectively.

See Note 11 within the Condensed Consolidated Financial Statements for more information.

Acquisition-related costs

Three and Six Months Ended June 30, 2023 vs.

Acquisition-related costs were $1.8 million and $3.7 million for the three and six months ended June 30, 2023, respectively, and zero for the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2023, all charges related to the integration of Ozark Materials into our Performance Chemicals segment.

Three and Nine Months Ended September 30, 2023 vs.

Acquisition-related costs were $0.1 million and $3.8 million for the three and nine months ended September 30, 2023, respectively, and $1.9 million for the three and nine months ended September 30, 2022, respectively.

All charges relate to the integration of Ozark Materials into our Performance Chemicals segment.

See Note 16 within the Condensed Consolidated Financial Statements for more information.

Other (income) expense, net

Three and Six Months Ended June 30, 2023 vs.

Three Months Ended June 30, Six Months Ended June 30,

Three and Nine Months Ended September 30, 2023 vs.

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2023 2022 2023 2022

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Interest expense, net

Three and Six Months Ended June 30, 2023 vs.

Three Months Ended June 30, Six Months Ended June 30,

Three and Nine Months Ended September 30, 2023 vs.

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2023 2022 2023 2022

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Provision (benefit) for income taxes

Three and Six Months Ended June 30, 2023 vs.

For the three months ended June 30, 2023 and 2022, our effective tax rate was 25.6 percent and 21.8 percent, respectively.

Excluding discrete items, the effective rate was 23.8 percent compared to 21.7 percent in the three months ended June 30, 2023 and 2022, respectively.

Three and Nine Months Ended September 30, 2023 vs.

For the three months ended September 30, 2023 and 2022, our effective tax rate was 21.5 percent and 21.3 percent, respectively.

Excluding discrete items, the effective rate was 28.7 percent compared to 21.0 percent in the three months ended September 30, 2023 and 2022, respectively.

See Note 12 within the Condensed Consolidated Financial Statements for more information.

For the six months ended June 30, 2023 and 2022, our effective tax rate was 22.9 percent and 21.7 percent, respectively.

Excluding discrete items, the effective rate was 23.3 percent compared to 21.2 percent in the six months ended June 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023 and 2022, our effective tax rate was 22.6 percent and 21.6 percent, respectively.

Excluding discrete items, the effective rate was 24.6 percent compared to 21.1 percent in the nine months ended September 30, 2023 and 2022, respectively.

See Note 12 within the Condensed Consolidated Financial Statements for more information.

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Performance Summary

Sales in our Performance Materials segment increased compared to the prior year quarter, mainly due to improved automotive carbon volumes in the North America auto market and some improvement in China.

Segment EBITDA growth was driven primarily by the higher sales volume and price, partially offset by lower capacity utilization in an effort to reduce inventory levels.

In millions Three Months Ended June 30, Six Months Ended June 30,

Sales in our Performance Materials segment increased compared to the prior year quarter, mainly due to increased sales of automotive carbon in North America and Asia Pacific.

Segment EBITDA growth was driven primarily by product mix and lower SG&A.

In millions Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

1 unchanged sentence

Segment EBITDA $ 74.5 $ 61.2 $ 208.5 $ 194.7

Net Sales Comparison of Three and Six Months Ended June 30, 2023 and June 30, 2022:

Net Sales Comparison of Three and Nine Months Ended September 30, 2023 and September 30, 2022:

Performance Materials (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net sales

Three months ended June 30, 2023 vs.

Three months ended September 30, 2023 vs.

$ 144.9 (2.4) 8.0 (3.3) $ 147.2

Six months ended June 30, 2023 vs.

Nine months ended September 30, 2023 vs.

$ 415.7 3.4 23.4 (9.3) $ 433.2

Three Months Ended June 30, 2023 vs.

Three Months Ended September 30, 2023 vs.

Segment net sales.

The increase of $22.2 million in 2023 was driven by a volume increase of $17.8 million (15 percent) and favorable mix of $7.2 million (six percent), partially offset by unfavorable foreign currency exchange of $2.8 million (two percent).

The increase of $2.3 million in 2023 was driven by favorable mix of $8.0 million (six percent), partially offset by unfavorable foreign currency exchange of $3.3 million (two percent) and a volume decrease of $2.4 million (two percent).

Segment EBITDA.

The increase of $8.6 million in 2023 was driven by the increase in sales as noted above, a volume increase of $10.8 million, favorable mix of $4.8 million, and decreased SG&A and research and technical expenses of $1.2 million.

The increase was partially offset by increased manufacturing costs of $5.5 million, and unfavorable foreign currency exchange of $2.7 million.

Six Months Ended June 30, 2023 vs.

The increase of $13.3 million in 2023 was driven by the increase in sales as noted above, decreased SG&A and research and technical expenses of $6.8 million, favorable mix of $3.4 million, decreased manufacturing costs of $2.8 million, and favorable foreign currency exchange of $1.7 million.

The increase was partially offset by a volume decrease of $1.4 million.

Nine Months Ended September 30, 2023 vs.

Segment net sales.

The increase of $15.2 million in 2023 was driven by favorable mix of $15.4 million (six percent) and a volume increase of $5.8 million (two percent).

This was partially offset by unfavorable foreign currency exchange of $6.0 million (two percent).

The increase of $17.5 million in 2023 was driven by favorable mix of $23.4 million (six percent) and a volume increase of $3.4 million (one percent).

The increase was partially offset by unfavorable foreign currency exchange of $9.3 million (two percent).

Segment EBITDA.

The increase of $0.5 million in 2023 was driven by the increase in sales as noted above, favorable mix of $12.9 million, a volume increase of $3.9 million, and decreased SG&A and research and technical expenses of $0.9

The increase of $13.8 million in 2023 was driven by the increase in sales as noted above, favorable mix of $16.3 million, decreased SG&A and research and technical expenses of $7.7 million, and a volume increase of

$2.7 million.

The increase was partially offset by increased manufacturing costs of $11.7 million, and unfavorable foreign currency exchange of $1.2 million.

1 unchanged sentence

Performance Summary

Sales in our Performance Chemicals segment increased compared to the prior year quarter, primarily due to higher pricing across the segment and the addition of the Ozark Materials road markings business, partially offset by lower volume in our industrial specialties product line.

Segment EBITDA was lower primarily due to higher raw material costs, specifically CTO, lower capacity utilization and higher employee-related costs.

Pavement technologies sales increased due to continued growth of the legacy business as a result of technology adoption as well as the acquisition of Ozark Materials.

Industrial specialties sales decrease was driven by volume declines primarily in adhesives, partially offset by price improvement across all end markets.

Three Months Ended June 30, Six Months Ended June 30,

Sales in our Performance Chemicals segment decreased compared to the prior year quarter, primarily due to lower volume in our industrial specialties product line.

The segment EBITDA decline is primarily due to higher raw material costs, specifically CTO.

Pavement technologies sales increased as a result of higher pricing in legacy pavement applications as well as the acquisition of Ozark Materials.

Industrial specialties sales decrease was driven by volume declines attributed primarily to weak demand across end markets, particularly adhesives and printing inks.

In addition, we began to see weakness in oilfield with lower drilling activity during the quarter.

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2023 2022 2023 2022

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Segment EBITDA $ 24.7 $ 65.7 $ 89.9 $ 158.2

Net Sales Comparison of Three and Six Months Ended June 30, 2023 and June 30, 2022:

Net Sales Comparison of Three and Nine Months Ended September 30, 2023 and September 30, 2022:

Performance Chemicals (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales

Three months ended June 30, 2023 vs.

Three months ended September 30, 2023 vs.

$ 267.6 (38.7) 27.0 0.1 $ 256.0

Six months ended June 30, 2023 vs.

Nine months ended September 30, 2023 vs.

$ 683.9 (55.0) 97.4 (0.7) $ 725.6

Three Months Ended June 30, 2023 vs.

Three Months Ended September 30, 2023 vs.

Segment net sales.

The increase of $40.3 million was driven by favorable mix of $31.3 million (13 percent), driven by increases in industrial specialties ($21.9 million) and pavement technologies ($9.4 million), and a volume increase of $9.3 million (four percent), driven by an increase in pavement technologies ($53.8 million), primarily due to Ozark Materials, offset by a decrease in industrial specialties ($44.5 million).

Unfavorable foreign currency exchange also negatively impacted net sales by $0.3 million (zero percent).

The decrease of $11.6 million was driven by a volume decrease of $38.7 million (14 percent), primarily in industrial specialties ($65.1 million), partially offset by an increase in pavement technologies ($26.4 million), primarily due to Ozark Materials.

This decrease was partially offset by favorable mix of $27.0 million (10 percent), driven by increases in industrial specialties ($11.9 million) and pavement technologies ($15.1 million), and favorable foreign currency exchange of $0.1 million.

Segment EBITDA.

The decrease of $16.8 million was driven by higher manufacturing costs of $50.8 million, and higher SG&A expenses of $1.1 million.

The decrease was partially offset by favorable mix of $30.2 million, a volume increase of $4.7 million, and favorable foreign currency exchange of $0.2 million.

Six Months Ended June 30, 2023 vs.

The decrease of $41.0 million was driven by higher manufacturing costs of $47.3 million, primarily due to CTO, and a volume decrease of $22.0 million.

The decrease was partially offset by favorable mix of $20.2 million, and lower SG&A of $8.1 million.

Nine Months Ended September 30, 2023 vs.

Segment net sales.

The increase of $53.3 million was driven by favorable mix of $70.4 million (17 percent), driven by increases in industrial specialties ($58.4 million) and pavement technologies ($12.0 million).

This was partially offset by a volume decrease of $16.3 million (four percent), driven by a decrease in industrial specialties ($85.7 million), partially offset by an increase in pavement technologies ($69.4 million), and unfavorable foreign currency exchange of $0.8 million (zero percent).

The increase of $41.7 million was driven by favorable mix of $97.4 million (14 percent), attributed to increases in industrial specialties ($70.3 million) and pavement technologies ($27.1 million).

This was partially offset by a volume decrease of $55.0 million (eight percent), driven by a decrease in industrial specialties ($150.7 million), partially offset by an increase in pavement technologies ($95.7 million).

Segment EBITDA.

The decrease of $27.3 million was driven by higher manufacturing costs of $81.7 million, higher SG&A expenses of $8.2 million, and volume decrease of $6.7 million.

The decrease was partially offset by favorable mix of $69.2 million and favorable foreign currency exchange of $0.1 million.

The decrease of $68.3 million was driven by higher manufacturing costs of $129.0 million, primarily due to CTO, a volume decrease of $28.7 million, and higher SG&A of $0.1 million.

The decrease was partially offset by favorable mix of $89.4 million.

Advanced Polymer Technologies

Performance Summary

Our Advanced Polymer Technologies segment sales were flat compared to the prior year quarter due to market weakness in footwear and industrials, largely offset by volume improvement in automotive and bioplastics and higher prices across the segment.

Segment EBITDA growth was driven primarily by profit recovery initiatives, including pricing actions and product mix management, and lower input costs.

In millions Three Months Ended June 30, Six Months Ended June 30,

Our Advanced Polymer Technologies segment sales decreased compared to the prior year quarter due to market weakness across the segment's end markets in all regions, partially offset by higher prices.

Segment EBITDA was flat, as lower raw material and energy costs offset decreased volume.

In millions Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

1 unchanged sentence

Segment EBITDA $ 11.2 $ 11.3 $ 36.6 $ 25.4

Net Sales Comparison of Three and Six Months Ended June 30, 2023 and June 30, 2022:

Net Sales Comparison of Three and Nine Months Ended September 30, 2023 and September 30, 2022:

Advanced Polymer Technologies (In millions)

Prior year Net sales Volume Price/Mix Currency effect Current year Net sales

Three months ended June 30, 2023 vs.

Three months ended September 30, 2023 vs.

$ 69.5 (31.0) 3.3 1.0 $ 42.8

Six months ended June 30, 2023 vs.

Nine months ended September 30, 2023 vs.

$ 185.1 (45.5) 21.6 0.4 $ 161.6

Three Months Ended June 30, 2023 vs.

Three Months Ended September 30, 2023 vs.

Segment net sales.

The slight decrease of $0.6 million in 2023 was driven by a volume decline of $7.8 million (14 percent), partially offset by favorable mix of $6.9 million (13 percent), and favorable foreign currency exchange of $0.3 million (one percent).

The decrease of $26.7 million in 2023 was driven by a volume decline of $31.0 million (45 percent), partially offset by favorable mix of $3.3 million (five percent), and favorable foreign currency exchange of $1.0 million (one percent).

Segment EBITDA.

The increase of $7.8 million was driven by favorable pricing and mix of $6.9 million, decreased manufacturing costs, primarily energy costs, of $4.6 million, decreased SG&A and research and technical expenses of $1.0 million, partially offset by volume decline of $2.7 million, and unfavorable foreign currency exchange of $2.0 million.

Six Months Ended June 30, 2023 vs.

The slight decrease of $0.1 million was driven by a volume decline of $13.3 million, and unfavorable foreign currency exchange of $1.0 million, mostly offset by decreased manufacturing costs, primarily energy costs, of $7.3 million, decreased SG&A and research and technical expenses of $3.6 million, and favorable mix of $3.3 million.

Nine Months Ended September 30, 2023 vs.

Segment net sales.

The increase of $3.2 million in 2023 was driven by favorable mix of $18.3 million (16 percent), partially offset by volume decline of $14.5 million (13 percent), and unfavorable foreign currency exchange of $0.6 million (one percent).

The decrease of $23.5 million in 2023 was driven by a volume decline of $45.5 million (25 percent), partially offset by favorable mix of $21.6 million (12 percent), and favorable foreign currency exchange of $0.4 million (zero percent).

Segment EBITDA.

The increase of $11.3 million was driven by favorable mix of $18.4 million, and decreased manufacturing costs of $1.0 million, partially offset by volume decline of $5.0 million, unfavorable foreign currency exchange of $2.4 million, and increased SG&A and research and technical expenses of $0.7 million.

The increase of $11.2 million was driven by favorable mix of $21.7 million, decreased manufacturing costs of $8.3 million, and decreased SG&A and research and technical expenses of $2.9 million, partially offset by a volume decline of $18.3 million and unfavorable foreign currency exchange of $3.4 million.

Use of Non-GAAP Financial Measure - Adjusted EBITDA

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We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities.

charges, (losses) and gains from the sale of strategic investments, and pension and postretirement settlement and curtailment (income) charges, net.

Adjusted EBITDA is defined as net income (loss) plus provision (benefit) for income taxes, interest expense, net, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, (losses) and gains from the sale of strategic investments, and pension and postretirement settlement and curtailment (income) charges, net.

This non-GAAP measure is 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.

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Reconciliation of Net Income (Loss) to Adjusted EBITDA

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

In millions 2023 2022 2023 2022

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_______________

(1) Excludes $1.0 million of Depreciation and amortization for the three and six months ended June 30, 2023, relating to the alternative feedstock transition within our Performance Chemicals reportable segment.

(1) Excludes $4.6 million and $5.6 million of Depreciation and amortization for the three and nine months ended September 30, 2023, relating to the alternative feedstock transition and North Charleston plant transition within our Performance Chemicals reportable segment.

Refer to Note 11 for more information.

Adjusted EBITDA

Three and Six Months Ended June 30, 2023 vs.

Three and Nine Months Ended September 30, 2023 vs.

The factors that impacted adjusted EBITDA period to period are the same factors that affected earnings discussed in the Results of Operations and Segment Operating Results sections included within this MD&A.

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We expect improvement in global automobile production over prior year, which will support growth in our Performance Materials reportable segment.

In our Performance Chemicals reportable segment we expect growth from the pavement technologies product line as we continue to drive geographic expansion and municipalities take advantage of increased infrastructure spending, partially offset by volume pressure within the industrial specialties product line, primarily in rosin-based products, as well as other industrial end markets.

Our Advanced Polymer Technologies reportable segment is expected to see growth in key end markets such as automotive and bioplastics however we expect pressure in other end markets such as footwear.

In our Performance Chemicals reportable segment we expect growth from the pavement technologies product line with the inclusion of our Ozark Materials acquisition and continued geographic expansion in our legacy business, partially offset by volume pressure within the industrial specialties product line, primarily in rosin-based products, as well as other industrial end markets.

Our Advanced Polymer Technologies reportable segment is expected to see growth in the automotive end market, however, we expect pressure in all other end markets.

Adjusted EBITDA is expected to be between $375 million to $390 million for the full year 2023.

We expect EBITDA growth for our Performance Materials segment as volumes shift to higher margin automotive carbon due to improved global automotive production.

For Advanced Polymer Technologies, we anticipate improved margins on a combination of pricing and lower input costs.

In Performance Chemicals, we expect a significant increase in the cost of CTO, a primary raw material, partially offset by continued growth in the pavement technologies product line.

In Advanced Polymer Technologies, we anticipate improved margins on a combination of volume growth in strategic end markets and lower input costs.

A reconciliation of net income to adjusted EBITDA as projected for 2023 is not provided.

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We expect our cash flow provided by operations combined with cash on hand and available capacity under our revolving credit facility to be sufficient to fund our planned operations and meet our interest and other contractual obligations for at least the next twelve months.

As of June 30, 2023, our undrawn capacity under our revolving credit facility was $116.7 million.

As of September 30, 2023, our undrawn capacity under our revolving credit facility was $172.7 million.

Over the next twelve months, we expect to fund the following:

interest payments, capital expenditures, expenditures related to our business transformation initiative, debt principal repayments, purchases pursuant to our stock repurchase program (and related excise tax payments), income tax payments, and restructuring activities such as our alternative feedstock transition and North Charleston plant transition.

interest payments, capital expenditures, expenditures related to our business transformation initiative, purchases pursuant to our stock repurchase program (and related excise tax payments), income tax payments, and restructuring activities such as our alternative feedstock transition, North Charleston plant transition, and the actions announced in the fourth quarter of 2023 as further described Note 17 within the condensed consolidated financial statements.

In addition, we may also evaluate and consider strategic acquisitions, joint ventures, or other transactions to create stockholder value and enhance financial performance.

In connection with such transactions, or to fund other anticipated uses of cash, we may modify our existing revolving credit facility, redeem all or part of our outstanding senior notes, seek additional debt financing, issue equity securities, or some combination thereof.

Cash and cash equivalents totaled $68.0 million at June 30, 2023.

Cash and cash equivalents totaled $84.5 million at September 30, 2023.

We continuously monitor deposit concentrations and the credit quality of the financial institutions that hold our cash and cash equivalents, as well as the credit quality of our insurance providers, customers, and key suppliers.

Due to the global nature of our operations, a portion of our cash is held outside the U.S.

The cash and cash equivalents balance at June 30, 2023, included $58.4 million held by our foreign subsidiaries.

The cash and cash equivalents balance at September 30, 2023, included $74.3 million held by our foreign subsidiaries.

Cash and earnings of our foreign subsidiaries are generally used to finance our foreign operations and their capital expenditures.

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Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S.

Accounts Receivable Securitization

On October 2, 2023, we entered into a $100.0 million accounts receivable securitization program with a global financial institution.

The program requires that we establish a bankruptcy-remote special purpose entity (“SPE”), wholly owned and fully consolidated by Ingevity Corporation.

Trade receivables will be sold to this SPE and held as secured collateral for the borrowings under the program.

The borrowings will be presented on our balance sheet as short-term debt, and cash flows will be presented as financing on our cash flow statement.

Other Potential Liquidity Needs

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Shares may be purchased through open market or privately negotiated transactions at the discretion of management based on its evaluation of market prevailing conditions and other factors, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

During the three and six months ended June 30, 2023, we repurchased $58.7 million, inclusive of $0.6 million in excise tax, and $92.1 million, inclusive of $0.8 million in excise tax, in common stock, representing 819,898 and 1,269,373 shares of our common stock at a weighted average cost per share of $70.87 and $71.93, respectively.

At June 30, 2023, $353.4 million remained unused under our Board-authorized repurchase program.

During the three and six months ended June 30, 2022, we repurchased $49.5 million and $89.9 million in common stock, representing 719,236 and 1,329,683 shares of our common stock at a weighted average cost per share of $68.72 and $67.59, respectively.

During the three and nine months ended September 30, 2023, we repurchased zero and $92.1 million, inclusive of $0.8 million in excise tax, in common stock, representing zero and 1,269,373 shares of our common stock at a weighted average cost per share of zero and $71.93, respectively.

At September 30, 2023, $353.4 million remained unused under our Board-authorized repurchase program.

During the three and nine months ended September 30, 2022, we repurchased $49.3 million and $139.2 million in common stock, representing 697,523 and 2,027,206 shares of our common stock at a weighted average cost per share of $70.75 and $68.68, respectively.

Capital Expenditures

Projected 2023 capital expenditures are $95-$105 million.

We have no material commitments associated with these projected capital expenditures as of June 30, 2023 .

Cash flow comparison of the Six Months Ended June 30, 2023 and 2022

Six Months Ended June 30,

We have no material commitments associated with these projected capital expenditures as of September 30, 2023 .

Cash flow comparison of the Nine Months Ended September 30, 2023 and 2022

Nine Months Ended September 30,

In millions 2023 2022

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Cash flows provided by (used in) operating activities

Cash flows provided by (used in) operating activities, which consists of net income (loss) adjusted for non-cash items including the cash impact from changes in operating assets and liabilities (i.e., working capital), totaled $53.6 million for the six months ended June 30, 2023.

Cash provided by (used in) operating activities for the six months ended June 30, 2023 was driven by a net increase in overall working capital of $56.3 million including an increase in trade working capital (accounts receivable, inventory, and accounts payable) of $34.9 million.

Cash flow from operations was reduced by an increase in cash interest paid of $11.3 million due to the rising interest rates during 2023 when compared to 2022.

This was partially offset by a reduction in tax payments of $3.3 million and increased cash earnings of $3.1 million.

Cash flows provided by (used in) operating activities, which consists of net income (loss) adjusted for non-cash items including the cash impact from changes in operating assets and liabilities (i.e., working capital), totaled $160.5 million for the nine months ended September 30, 2023.

Cash provided by (used in) operating activities for the nine months ended September 30, 2023 was driven by a net increase in overall working capital of $29.5 million, despite a decrease in trade working capital (accounts receivable, inventory, and accounts payable) of $22.1 million.

Cash flow from operations was reduced by an increase in cash interest paid of $22.0 million due to rising interest rates and outstanding borrowings during 2023 when compared to 2022, and decreased cash earnings of $17.6 million.

This was partially offset by a reduction in tax payments of $14.7 million.

Cash flows provided by (used in) investing activities

Cash used in investing activities in the six months ended June 30, 2023 was $21.5 million and was primarily driven by capital expenditures of $47.1 million, partially offset by the proceeds from the sale of a strategic investment for $31.4 million.

In the six months ended June 30, 2023 and 2022, capital spending included the base maintenance capital supporting ongoing operations and growth and cost improvement spending primarily related to our business transformation initiative (see Note 11 within the Condensed Consolidated Financial Statements for more information).

Capital expenditure categories Six Months Ended June 30,

Cash used in investing activities in the nine months ended September 30, 2023 was $56.3 million and was primarily driven by capital expenditures of $80.6 million, partially offset by the proceeds from the sale of a strategic investment for $31.5 million.

In the nine months ended September 30, 2023 and 2022, capital spending included the base maintenance capital supporting ongoing operations and growth and cost improvement spending, primarily related to our business transformation initiative (see Note 11 within the Condensed Consolidated Financial Statements for more information).

Capital expenditure categories Nine Months Ended September 30,

In millions 2023 2022

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Cash flows provided by (used in) financing activities

Cash used in financing activities in the six months ended June 30, 2023, was $40.1 million and was primarily driven by payments on our revolving credit facility of $144.8 million, the repurchase of common stock of $92.1 million, and tax payments related to withholdings on restricted stock unit vestings of $4.5 million, partially offset by borrowings on our revolving credit facility of $197.8 million.

Cash used in financing activities in the six months ended June 30, 2022 was $193.3 million and was primarily driven by payments on long-term borrowings of $628.1 million, payments on revolving credit facility of $256.0 million, the repurchase of common stock of $89.9 million, and tax payments related to withholdings on restricted stock unit vestings of $2.0 million, partially offset by borrowings on our revolving credit facility of $788.0 million.

Cash used in financing activities in the nine months ended September 30, 2023, was $93.4 million and was primarily driven by payments on our revolving credit facility of $240.1 million, and the repurchase of common stock of $92.1 million, partially offset by borrowings on our revolving credit facility of $237.1 million.

Cash used in financing activities in the nine months ended September 30, 2022 was $264.9 million and was primarily driven by payments on long-term borrowings of $628.1 million, payments on revolving credit facility of $279.0 million, and the repurchase of common stock of $139.2 million, partially offset by borrowings on our revolving credit facility of $788.0 million.

New Accounting Guidance

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis