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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-28 · 112 added, 141 removed, 179 unchanged (59% of the section changed)

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or results of operations.

In such a case, the trading price of our Common Stock could decline.

Operational and Market Risks

Adverse conditions in the automotive market have and may continue to negatively impact demand for our automotive carbon products.

In such case, the trading price of our Common Stock could decline.

Operational Risks

There may be negative impacts to our business arising out of the closure of our plant in DeRidder, Louisiana.

On November 1, 2023, we announced our plan to close our plant in DeRidder, Louisiana (the “DeRidder Plant”).

The anticipated timing, charges, and costs of the closure of the DeRidder Plant could materially differ from our estimates if the plant closure results in adverse legal or regulatory actions, if personnel required to effect the shutdown become unavailable, or we are affected by other factors not currently contemplated.

As a result of the Deridder Plant closing and reduced CTO refining capacity, we may be obligated, under an existing CTO supply contract, to purchase CTO volumes through 2025 at amounts in excess of needed CTO volumes.

We intend to manage our CTO inventories by reselling excess volumes in the open market.

Depending on the then current market price for CTO at the time of such sales, we may have to sell the CTO at a loss when our contracted price exceeds market, which may adversely affect our financial condition and results of operations.

We are dependent upon third parties for the provision of certain critical operating services at several of our facilities.

We are dependent upon third parties for the provision of certain critical operating services, primarily utilities and related services (depending on the site, e.g., steam, compressed air, energy, water, wastewater treatment, hydrogen peroxide), at our Covington, Virginia Performance Materials facility, at our Warrington, United Kingdom Advanced Polymer Technologies facility, and at the following Performance Chemicals facilities:

Crossett, Arkansas and North Charleston, South Carolina.

The third party providers of critical and non-critical services at our location in North Charleston, South Carolina have announced the cessation of these services.

The services in North Charleston are currently being wound down, with only certain water supply and treatment services to be transitioned in 2024.

We have incurred and expect to incur significant costs to provide these services ourselves or obtain these services from other third parties.

While we are executing our plans to minimize disruption to our business, there is no guarantee that we will be able to replace these services on a timely and cost-effective basis.

The costs associated with replacing these services may be significant and any delay in our ability to replace these services could result in interruptions to our operations, both of which could adversely affect our financial condition and results of operations.

For the third-party services that remain, any such services would be at risk if any of the counterparties were to idle or permanently shut down the associated mill or plant, or if operations at the associated mill or plant were disrupted due to natural or other disaster, or by reason of strikes or other labor disruptions, or if there were a significant contractual dispute between the parties.

In the event that the applicable counterparty were to fail to provide the contracted services, we would be required to obtain these services from other third parties, most likely at an increased cost, or to expend capital to provide these services ourselves.

The expenses associated with obtaining or providing these services, as well as any interruption in our operations as a result of the failure of the counterparty to provide these services, may be significant and may adversely affect our financial condition and results of operations.

Furthermore, in the event that WestRock’s Covington, VA paper mill’s wastewater treatment operations do not comply with permits or applicable law and WestRock is unable to determine the cause of such non-compliance, then we will be responsible for between 10 percent and 50 percent of the costs and expenses of such noncompliance (increasing in 10 percent increments per violation during each twelve-month period) despite representing less than 3 percent of the total wastewater volume.

These costs and expenses may be significant and may adversely impact our financial condition and results of operations.

Additionally, several of our manufacturing facilities are leased.

In the event we were to have a dispute with the landlord regarding the terms of the relevant lease agreements, or we were otherwise unable to fully access or utilize the leased property, the associated business disruption may be significant and may adversely affect our financial condition and results of operations.

Disruptions at any of our facilities could negatively impact our production, financial condition and results of operations.

Disruptions to any of our manufacturing operations or other facilities, due to natural disasters and extreme weather, such as a hurricane, tropical storm, earthquake, tornado, severe weather, flood, fire or other unanticipated problems such as labor difficulties, pandemics, equipment failure, cyberattacks or other cybersecurity incidents, capacity expansion difficulties or unscheduled maintenance, could cause operational disruptions of varied duration.

Also, many of our production employees are governed by collective bargaining agreements (“CBAs”).

The CBA at our Warrington, United Kingdom Advanced Polymer Technologies manufacturing facility with GMB Union expired on January 15, 2024.

The parties began contract renewal negotiations during the first quarter of 2024 and continue to operate under the expired CBA while negotiations are pending.

Further, the CBA at our Crossett, Arkansas Performance Chemicals' manufacturing facility with the International Association of Machinists and Aerospace Workers Union ("IAM") expires on March 1, 2024.

The parties began contract renewal negotiations during the first quarter of 2024.

While the Company has generally positive relations with its labor unions, there is no guarantee the Company will be able to successfully negotiate new union contracts without work stoppages, labor difficulties or unfavorable terms.

In addition, existing CBAs may not prevent a strike or work stoppage at the applicable plant.

These types of disruptions could materially adversely affect our financial condition and results of operations to varying degrees depending upon the facility, the duration of the disruption, and our ability to shift business to another facility or find alternative sources of manufacturing capacity.

Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.

In certain cases, we have products, such as our extruded honeycomb and caprolactone products, that are only made at one facility.

While we have some redundancies within the facilities that are the sole manufacturer of certain products, we have limited ability to make these products at other facilities .

Supply Chain Risks

Our Performance Chemicals segment is highly dependent on CTO as a raw material, which is in limited supply, and has been and may continue to be subject to significant price increases resulting in costs that we may not be able to pass through to customers.

CTO is a key raw material in our industrial specialties and some of our road technologies product lines within our Performance Chemicals segment.

Availability of CTO is directly linked to (as it is a co-product of) the production output of kraft paper mills using softwood, primarily pine trees, as their feedstock, (i.e., pulp).

Softwood pulp is the predominant fiber source for packaging grades of paper as well as fluff pulp for personal care products.

As a result, there is a finite global supply of CTO, with global demand for softwood pulp driving the global supply of CTO.

Further, some pulp or paper mills may choose to consume their production of CTO to meet their energy needs or reduce their carbon footprint rather than sell the CTO to third parties, further constraining the availability of CTO and increasing inflationary pricing pressure as a result.

Weather conditions have in the past and may in the future affect the availability and quality of pine trees used in the kraft pulping process and, therefore, the availability of CTO that meets Ingevity’s quality standards.

Geopolitical risk factors could constrain C TO availability.

For example, sanctions imposed on Russia in 2022 have constrained the global CTO supply by approximately 10 perc ent.

CTO-based biofuel has been deemed to meet the EU’s Renewable Energy Directive, second phase (“RED II”) biofuel sustainability criteria.

As a consequence of RED II and related government incentives, there has been a significant increase in demand for CTO and its derivatives resulting in exponential price increases for CTO and its derivatives.

Pricing for CTO (which accounted for approximately 26 percent of all of our cost of sales and 51 percent of our raw materials purchases for 2023) is subject to pricing pressures due to limited supply elasticity of the product and competing demands for its use.

The impacts of RED II coupled with a reduction in demand in industrial end markets have negatively impacted our ability to pass through any increases in our cost of CTO to our customers, with a resulting negative impact on our results of operations.

If we remain unable to pass through the increased CTO costs to our customers or transition to lower cost raw materials on a timely and cost-effective basis, our results of operations could continue to be negatively impacted and we may be placed at a competitive disadvantage relative to certain competitors who rely on different primary raw materials or who have more favorable terms with their CTO suppliers.

We typically source our CTO needs through supply contracts.

Some of our CTO supply contracts permit periodic adjustment or negotiation of pricing and other terms that may result in an unfavorable impact on our financial results.

There can be no guarantee that pricing, CTO volume, and other terms will not be materially impacted as a result of these adjustments or negotiations.

If any of our suppliers fail to meet their respective obligations under our supply agreements or we are otherwise unable to procure an adequate supply of CTO, or are unable to pass through significant cost increases to customers, our current level of production could be constrained and our results of operations could be materially and adversely affected.

We purchase a variety of other raw materials, which are also subject to pricing pressures and limited availability;

inability to procure these raw materials or to pass on price increases could negatively impact our operations or financial results.

The Company purchases a variety of other raw materials from third parties for its manufacturing operations, including, but not limited to, hardwood sawdust, phosphoric acid, ethylene amines, black liquor, maleic/fumaric acid, hydrogen peroxide, cyclohexanone, and ethoxylates.

Each raw material is subject to its own supply and demand dynamics which may, at times, limit availability and/or cause price volatility.

The Company may be unable to procure the quantities of raw materials it needs which could negatively impact our operations or we may be unable to pass through price increases to our customers which could negatively impact our financial results.

For example, our Performance Chemicals segment produces many products derived from lignin, which, like CTO, is a co-product of the kraft pulping process.

Lignin is in limited supply and if we are unable to secure a sufficient amount of lignin on a cost-effective basis we could suffer disruption to our road technologies business, which could negatively impact our financial results and our results of operations.

Disruptions within our supply chain have negatively impacted, and could continue to negatively impact, our production, financial condition and results of operations.

We have been, and could continue to be, adversely affected by disruptions within our supply chain and transportation network.

Our products are transported by truck, rail, barge or ship primarily by third-party providers.

The costs of transporting our products could be negatively affected by factors outside of our control, including rail service interruptions or rate increases, extreme weather events, tariffs, rising fuel costs, and capacity constraints.

Recently, the Panama Canal drought and Suez Canal attacks have, and could continue to, adversely impact the reliability and cost of our export shipments to customers.

Significant delays or increased costs relating to transportation could materially affect our financial condition and results of operations.

Disruptions at our suppliers could lead to volatility or increases in raw material or energy costs and/or reduced availability of materials or energy, potentially affecting our financial condition and results of operations .

Adverse conditions in the automotive market may negatively impact demand for our automotive carbon products.

Sales of our automotive activated carbon products are tied to global internal-combustion-engine (“ICE”) and hybrid electric vehicle automobile (“HEV”) production levels.

ICE and HEV automotive production in the markets we serve can be affected by macro-economic factors such as interest rates, fuel prices, shifts in vehicle mix (including shifts toward alternative energy vehicles), consumer confidence, employment trends, regulatory and legislative oversight requirements, and trade agreements.

For example, during the first half of 2020, the COVID-19 pandemic led to a significant reduction in vehicle production, and vehicle sales were negatively impacted by government shutdown orders and stay-at-home directives.

Additionally, vehicle production inputs, such as the microchip shortages during 2021 and 2022, were further impacted by the complexity of the global automotive supply chain and have resulted in reduced vehicle production and, as a result, vehicle sales, and our operating results have been negatively impacted.

We currently anticipate this negative impact to lessen during 2023.

The Company’s pavement technologies product line is heavily dependent on government infrastructure spending.

A significant portion of our customers’ and our revenues in our pavement technologies business is derived from contracts with various foreign and U.S.

The Company’s road technologies product line is heavily dependent on government infrastructure spending.

A significant portion of our customers’ revenues in our road technologies business is derived from contracts with various foreign and U.S.

governmental agencies, and therefore, when government spending is reduced, our customers’ demand for our products is similarly reduced.

Our customers provide paving services to, for example, the governments of various jurisdictions within North America, South America, Europe, China, Brazil, and India, and we sell pavement marking materials to the governments of various jurisdictions within North America, and revenue either directly or indirectly attributable to such government spending continues to remain a significant portion of our revenues.

While we do not do business directly with governmental agencies, our customers provide paving services to, for example, the governments of various jurisdictions within North America, South America, Europe, China, Brazil and India, and revenue either directly or indirectly attributable to such government spending continues to remain a significant portion of our revenues.

Government business is, in general, subject to special risks and challenges, including:

delays in funding and uncertainty regarding the allocation of funds to federal, state and local agencies;

delays in spending or reductions in other state and local funding dedicated to transportation projects;

delays in spending or reductions in other state and local funding dedicated for transportation projects;

other government budgetary constraints, cutbacks, delays or reallocation of government funding;

long purchase cycles or approval processes;

our customers’ and government agencies’ competitive bidding and qualification requirements;

our customers’ competitive bidding and qualification requirements;

changes in government policies and political agendas;

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Certain of our products are sold into end-markets that are cyclical and subject to frequent and rapid technology changes, changes in consumer preferences, evolving standards, and changes in product supply and demand.

For example, demand for our engineered polymers products in the automotive market, where our products are formulated into automotive resins and coatings and various components, may be affected by technological advances, changing automotive original equipment manufacturer ("OEM") specifications, and global automobile production levels.

Demand for our engineered

polymers products, where our products are sold into footwear adhesives and structural support, may be affected by consumer discretionary spending and changes in consumer preferences.

For example, demand for our Advanced Polymer Technologies products in the automotive market, where our products are formulated into automotive resins and coatings and various components, may be affected by technological advances, changing automotive original equipment manufacturer ("OEM") specifications, and global automobile production levels.

Demand for our Advanced Polymer Technologies products which are sold into footwear adhesives and structural support, may be affected by consumer discretionary spending and changes in consumer preferences.

Additionally, sales of our industrial specialties products may be negatively impacted due to reduced global industrial demand.

The impact of these changes may lead to increased competition from competing and substitute products and downward pricing pressures on our customers, and therefore, our engineered polymers and industrial specialties product offerings.

The impact of these changes may lead to increased competition from competing and substitute products and downward pricing pressures on our customers, and therefore, our Advanced Polymer Technologies and industrial specialties product offerings.

We face competition from new technologies and new or emerging competitors.

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and other parts of the world.

Consumer demand for these alternative-fueled vehicles is expected to continue to increase significantly in future years as certain states and international governments implement limits on the sale of vehicles with ICE with targets to completely phase out sales of such vehicles by as early as 2030.

Consumer demand for these alternative-fueled vehicles is expected to continue to increase significantly in future years as certain states and international governments implement limits on the sale of vehicles with ICE with various time lines to phase out sales of ICE vehicles.

A reduction in the sales of vehicles with internal combustion engines would reduce demand for our activated carbon automotive products.

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Certain of our products face competition from substitute products where the costs of different raw material inputs can impact the price competitiveness of our products and negatively impact our sales and/or profits as we respond to substitute product competition.

Gum rosin-based products and hydrocarbon resins compete with our TOR-based resins in the adhesives and printing ink markets.

Gum rosin-based products and hydrocarbon resins compete with our TOR-based resins in the adhesives market.

The price of gum rosin has a significant impact on the market price for TOR and rosin derivatives and is driven by labor rates for harvesting, land leasing costs, and various other factors that are not within our control.

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Availability and pricing are determined by the supply/demand dynamics for synthetic rubber as well as the price of crude oil as the feedstock for isoprene and various other factors that are not within our control.

Animal and vegetable-based fatty acids compete with TOFA products in lubricant and industrial specialties.

The market price for TOFA products is impacted by the prices of other fats and oils, and the prices for other fats and oils are driven by actual and expected harvest rates, petroleum oil prices, and the biofuel market.

Animal and plant based fatty acids compete with TOFA products in lubricant and industrial specialties.

The market price for our TOFA and oleochemical products are impacted by the prices of other fats and

oils, and the prices for other fats and oils are driven by actual and expected harvest rates, petroleum oil prices, and the biofuel market.

Other monomers, thermoplastics, and polyols compete with our caprolactone-based products.

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Additionally, the price of energy may directly or indirectly impact demand, pricing or profitability for certain of our products.

As petroleum oil prices can change rapidly, Ingevity products may be disadvantaged because CTO and BLSS are thinly traded commodities with pricing commonly established for periods ranging from one quarter to one-year periods.

As petroleum oil prices can change rapidly, Ingevity products may be disadvantaged due to the fact that CTO is a thinly traded commodity with pricing commonly established for periods ranging from one quarter to one-year periods of time.

Due to this, alternative technologies which compete with product offerings provided by Ingevity may be advantaged from time to time in the marketplace.

Protracted periods of high volatility or sustained oversupply of petroleum oil may also translate into increased competition from petroleum-based alternatives.

In addition, pricing for competing naturally derived oils such as palm or soybean is likely to put further pressure on the pricing of the Company’s products during periods of depressed petroleum prices.

The COVID-19 pandemic has had and may continue to have, a negative impact on our business, financial condition, results of operations, and cash flows.

The COVID-19 pandemic continues to impact our operations and financial results.

Our facilities, as well as the operations of our suppliers, customers, and third-party sales representatives and distributors, have been, and continue to be, disrupted by governmental and private sector responses to the COVID-19 pandemic, including, without limitation, government shutdown requirements, business shutdowns, work-from-home orders and social distancing protocols, travel or health-related restrictions, quarantines, self-isolations, and disruptions to transportation channels.

These types of disruptions, or an outbreak among the employees in any of our facilities, could cause significant interruptions to, or temporary closures of, our operations and could materially adversely affect our ability to adequately staff and maintain our operations.

Working remotely may eventually lead to inefficiencies, as well as technology and security risks.

Additionally, we are uncertain if the extended period during which our employees are unable to travel to our facilities or those of our customers and suppliers may negatively impact our business.

Disruptions to the operations of our suppliers have at times, and may again, negatively impact our ability to purchase goods and services for our business at efficient prices and in sufficient amounts.

Additionally, the operations of our customers have been and could be further, disrupted, which can result in customers attempting to delay or cancel orders, reduce future orders or seek extended payment terms.

Furthermore, the negative impact of the COVID-19 pandemic on the global economy, adverse changes in the industries that our products serve or adverse changes in the financial condition of our customers could further adversely impact demand for our products, particularly in the automotive industry and industrial and consumer applications.

The extent of the impact that the COVID-19 pandemic will continue to have on our business and financial results will depend on various uncertainties and future developments, including the ultimate duration, severity, and spread of the virus and any new variants in the countries where we operate and transact business, subsequent government actions, and the resulting economic impacts.

Disruptions at any of our facilities could negatively impact our production, financial condition, and results of operations.

Disruptions to any of our manufacturing operations or other facilities, due to natural disasters and extreme weather, such as a hurricane, tropical storm, earthquake, tornado, severe weather, flood, fire, or other unanticipated problems such as labor difficulties, pandemics (including the COVID-19 pandemic), equipment failure, cyberattacks or other cybersecurity incidents, capacity expansion difficulties or unscheduled maintenance, could cause operational disruptions of varied duration.

Also, many of our production employees are governed by CBAs.

The CBA at our North Charleston, South Carolina Performance Chemicals facility with the IBEW Local Union No.

1753 expired on June 30, 2022.

The parties began contract negotiations in December 2022.

In addition, the CBA at our Wickliffe, Kentucky Performance Materials facility with the USW, on behalf of its affiliated Local Union 0775, expired on February 1, 2023.

The parties began contract renewal negotiations in January 2023.

At both facilities, the parties continue to operate under the applicable expired CBA while negotiations are pending.

In addition, existing CBAs may not prevent a strike or work stoppage at the applicable plant.

Any losses due to these events may not be covered by our existing insurance policies or may be subject to certain deductibles.

In certain cases, we have products, such as our extruded honeycomb and caprolactone products, that are only made at one facility.

While we have some redundancies within the facilities that are the sole manufacturer of certain products, we have limited ability to make these products at other facilities.

We are dependent upon third parties for the provision of certain critical operating services at several of our facilities.

We are dependent upon third parties for the provision of certain critical operating services, primarily utilities and related services (e.g., steam, compressed air, energy, water, wastewater treatment) at our Covington, Virginia Performance Materials facility and the following Performance Chemicals facilities:

Crossett, Arkansas;

North Charleston, South Carolina;

and Warrington, UK.

We have existing long-term contractual arrangements covering these services.

The provision of these services would be at risk if any of the counterparties were to idle or permanently shut down their plant, or if operations were disrupted due to natural or other disaster, or by reason of strikes or other labor disruptions, or if there were a significant contractual dispute between the parties.

In the event that the applicable counterparty was to fail to provide the contracted services, we would be required to obtain these services from other third parties, most likely at an increased cost, or to expend capital to provide these services ourselves.

Furthermore, in the event that WestRock’s Covington, VA paper mill’s wastewater treatment operations do not comply with permits or applicable law and WestRock is unable to determine the cause of such non-compliance, then we will be responsible for up to 50 percent of the costs and expenses of such noncompliance (increasing in 10 percent increments per violation during each twelve month period) despite representing less than 3 percent of the total wastewater volume.

These costs and expenses may be significant and may adversely impact our financial condition and results of operations.

Additionally, several of our manufacturing facilities are leased.

We are also dependent on third parties for the disposal of brine, which results from our own conversion of BLSS into CTO.

If these service providers do not perform under their contracts, the costs of disposing of brine ourselves, including, for example, the transportation costs, could be significant.

In addition, pricing for competing oleochemicals such as palm or soybean is likely to put further pressure on pricing of the Company’s products during periods of depressed petroleum prices.

We are diversifying our raw materials to include oleochemical based products, however, there can be no guarantee that we will be able to produce and commercialize oleochemical based products on an efficient and profitable basis in the near term.

We are dependent on certain large customers.

We have certain large customers in particular businesses, the loss of which could have a material adverse effect on the applicable segment’s sales and, depending on the significance of the loss, our results of operations, financial condition or cash flows.

Sales to Ingevity’s ten largest customers (across both segments) accounted for 30 percent of total sales for 2022.

Sales to the Company’s ten largest customers (across all three segments) accounted for 31 percent of total sales for 2023.

No customer accounted for more than 10 percent of total sales for 2023.

With some exceptions, our business with those large customers is based primarily upon individual purchase orders.

Wi th some exceptions, our business with those large customers is based primarily upon individual purchase orders.

As such, our customers could cease buying our products from us at any time, for any reason, with little or no recourse.

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Our failure to attract and retain individuals making significant contributions to our business could adversely affect our financial condition and results of operations .

The inability to make or effectively integrate future acquisitions and other investments may negatively affect our results.

The inability to make or effectively integrate future acquisitions may negatively affect our results.

As part of our growth strategy, we may pursue acquisitions of businesses and product lines or invest in joint ventures.

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Complications with the design or implementation of our new enterprise resource planning (“ERP”) system could adversely impact our business and operations.

We are in the process of a complex, multi-year implementation of a new ERP system that is necessary due to the finite life of the existing operating system.

The ERP system implementation requires the integration of the new ERP system with multiple new and existing information systems and business processes in order to maintain the accuracy of our books and records and to provide our management team with information important to the operation of our business.

Such an initiative is a major financial undertaking and requires substantial time and attention from management and key employees.

The implementation of the ERP system may prove to be more difficult, costly, or time-consuming than expected, and it is possible that the system will not yield the benefits anticipated.

Failure to successfully design and implement the new ERP system as planned could harm our business, financial condition, and operating results.

Additionally, if we do not effectively implement the ERP system as planned or the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be negatively impacted.

Supply Chain Risks

Disruptions within our supply chain have negatively impacted and could continue to negatively impact, our production, financial condition, and results of operations.

We have been, and could continue to be, adversely affected by disruptions within our supply chain and transportation network.

Our products are transported by truck, rail, barge or ship primarily by third-party providers.

Recently, the unprecedented congestion in ocean shipping has, and could continue to, adversely impact the reliability of our export shipments to customers and imports of raw materials, and transport driver shortages experienced as a result of the COVID-19 pandemic have caused extended lead times for domestic shipments.

Significant delays or increased costs relating to transportation could materially affect our financial condition and results of operations.

Our Performance Chemicals segment is highly dependent on CTO as a raw material, which is limited in supply, and may be subject to price increases;

changing supply and demand economics for CTO could limit access to sufficient supply and/or cause price increases that we may be unable to pass through to customers.

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

Availability of CTO is directly linked to (as it is a co-product of) the production output of kraft mills using softwood, primarily pine trees, as their feedstock, (i.e., pulp).

Softwood pulp is the predominant fiber source for packaging grades of paper as well as fluff pulp for personal care products.

As a result, there is a finite global supply of CTO, with global demand for softwood pulp driving the global supply of CTO, rather than demand for CTO itself.

Most of the CTO made available for sale by its producers in North America, where our manufacturing assets are located, is covered by long-term supply agreements, further constraining availability.

We typically source over 80 percent of our CTO needs through long-term supply contracts.

The remainder of our CTO needs is sourced through short-term contracts and spot purchases in the open market.

Most of our long-term contracted volumes are sourced through two primary parties:

WestRock and Georgia-Pacific.

During 2022, we sourced approximately 75 percent of our CTO and CTO equivalent volumes of BLSS, the precursor to CTO, from WestRock and Georgia-Pacific combined.

These long-term CTO supply contracts permit periodic adjustment or negotiation of pricing and other terms.

There can be no guarantee that pricing, CTO volume, and other terms will not be materially impacted as a result of these adjustments or negotiations.

For example, effective January 1, 2022, WestRock removed a mill that had provided approximately 28,500 tons of CTO per year from our long-term supply agreement.

If any of our suppliers fail to meet their respective obligations under our supply agreements or we are otherwise unable to procure an adequate supply of CTO, we would be unable to maintain our current level of production and our results of operations could be materially and adversely affected.

There are other pressures on the availability of CTO.

Some pulp or paper mills may choose to consume their production of CTO to meet their energy needs or reduce their carbon footprint, rather than sell the CTO to third parties.

Geopolitical risk factors could constrain CTO availability.

For example, sanctions imposed on Russia in 2022 have constrained the global CTO supply by approximately 10 percent.

Also, there are regulatory pressures that may incentivize suppliers of CTO to sell CTO into alternative fuel markets (i.e., biofuels) rather than to historical end users such as Ingevity.

CTO-based biofuel has been deemed to meet the EU’s Renewable Energy Directive, second phase (“RED II”) biofuel sustainability criteria.

As a consequence of RED II, there has been a significant increase in demand for CTO and its derivatives, resulting in significantly increasing prices.

In addition to these developments in the EU, various pieces of legislation regarding the use of alternative fuels have been introduced in the U.S.

at both the federal and state level.

Currently, none of the U.S.

legislation mandates or provides incentives for the use of CTO or its derivatives as a biofuel.

Future legislation in the U.S.

and elsewhere may promote the use of CTO or its derivatives as a feedstock for the production of biofuels, further constraining supply.

Because the supply of CTO is inherently constrained by the volume of kraft pulp processing as discussed above, as well as the recent diversion of CTO for the production of alternative fuels, the availability of CTO supply as a raw material for the pine-based chemicals industry is under pressure.

This pressure has and we expect will continue to drive the cost of CTO to unprecedented levels.

CTO accounted for approximately 14 percent of our consolidated cost of sales and 22 percent of our full company raw materials purchases in 2022.

The inability to pass through any increases in our cost of CTO to our customers in the form of price increases or other adjustments will result in a negative impact on our results of operations.

Additionally, we may be placed at a competitive disadvantage relative to certain competitors who rely on different primary raw materials or who have more favorable terms with their suppliers.

We purchase a variety of other raw materials, which are also subject to pricing pressures;

inability to procure these raw materials or to pass on price increases could negatively impact our operations or financial results.

We purchase a variety of other raw materials from third parties for our manufacturing operations, including, but not limited to, hardwood sawdust, phosphoric acid, ethylene amines, black liquor, maleic/fumaric acid, hydrogen peroxide, cyclohexanone, pentaerythritol, calcium carbonates, pigments, glass beads, acrylic emulsions, and resins.

Each raw material is subject to its own supply and demand dynamics which may, at times, limit availability and/or cause price volatility.

For example, at times we have been unable to obtain our full requirements of hydrogen peroxide for our Warrington UK facility and we have limited ability to store quantities onsite.

we may be unable to procure the quantities of raw materials we need which could negatively impact our operations or we may be unable to pass through price increases to our customers which could negatively impact our financial results.

We have recently completed a complex, multi-year implementation of a new ERP system that was necessary due to the finite life of the existing operating system.

The ERP system implementation required the integration of the new ERP system with multiple new and existing information systems and business processes in order to maintain the accuracy of our books and records and to provide our management team with information important to the operation of our business.

If the ERP system does not operate as intended, the effectiveness of our internal control over financial reporting could be negatively impacted .

International Operations Risks

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In 2023, sales to customers outside of the U.S.

made up approximately 47 percent of our total sales, and we sell our products to customers in approximately 80 countries.

made up approximately 37 percent of our total sales, and we sell our products to customers in approximately 75 c ountries.

We have exposure to risks of operating outside the U.S., including:

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earnings and cash flows that may be subject to tax withholding requirements or the imposition of tariffs, exchange controls or other restrictions;

geopolitical and economic instability;

geopolitical and economic instability, including the wars in Ukraine and the Gaza region;

general country strikes or work stoppages;

unforeseen public health crises, such as pandemic and epidemic diseases (including the COVID-19 pandemic);

unforeseen public health crises, such as pandemic and epidemic diseases;

import and export restrictions, tariffs, and other trade barriers or retaliatory actions;

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operations, which could reduce demand for our products.

As our international operations and activities expand, we inevitably have greater exposure to the risks associated with operating in many foreign countries.

Our engineered polymers product line may be adversely affected by the United Kingdom's withdrawal from the European Union.

Effective January 1, 2021, the European Union ("EU") and the UK formed two separate markets and two distinct regulatory and legal environments, creating new barriers to trade in goods and services and to cross-border mobility and exchanges.

Even though the UK reached an agreement with the EU on the terms of their future cooperation, as reflected in the EU-UK Trade and Cooperation Agreement and related arrangements, the regulatory frameworks of the UK and the EU may subsequently change and potentially divergent laws and regulations may develop, including those relating to UK and EU

This may have adverse practical and/or operational implications for our engineered polymers product line, including potential disruption to supply chains, additional compliance and operational costs, required product modifications, and necessary operational changes.

international operations and activities expand, we inevitably have greater exposure to the risks associated with operating in many foreign countries .

Legal and Regulatory Risks

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We are currently involved in several legal actions relative to the intellectual property associated with the 844 Patent.

On September 15, 2021, a jury in the lawsuit filed by the Company against BASF Corporation for patent infringement in the United States District Court for the District of Delaware (the “Delaware Proceeding”) issued a verdict in favor of BASF on certain counterclaims filed by BASF in the Delaware Proceeding.

On September 15, 2021, a jury in the lawsuit filed by the Company against BASF Corporation for patent infringement in the U.S.

District Court for the District of Delaware (the “Delaware Proceeding”) issued a verdict in favor of BASF on certain counterclaims filed by BASF in the Delaware Proceeding.

The jury awarded BASF damages of approximately $28.3 million, which will be trebled under U.S.

antitrust law to approximately $85.0 million when the court enters judgment.

In addition, BASF may seek pre- and post-judgment interest and attorneys’ fees and costs in amounts that they will have to prove at a future date.

On May 18, 2023, the court in the Delaware Proceeding entered judgment on the jury’s verdict, which commenced the post-trial briefing stage.

On February 13, 2024, the court in the Delaware Proceeding denied BASF’s motion for pre-judgment interest on its tortious interference claim as well as and our motion seeking judgment as a matter of law, or a new trial in the alternative.

In addition, BASF may seek post-judgment interest and attorneys’ fees and costs in amounts that they will have to prove at a future date.

Earlier in the Delaware Proceeding, the U.S.

District Court dismissed the Company’s patent infringement claims against BASF alleging BASF infringed the 844 Patent and invalidated some, but not all, of the claims in our 844 patent, which expired in March 2022 .

The Company disagrees with the verdict, including the court’s application of the law, and it intends to seek judgment as a matter of law in the Delaware Proceeding post-trial briefing stage and on appeal, if necessary.

The Company disagrees with the verdict, including the court’s application of the law and entry of judgment, and intends to appeal.

The Company also intends to challenge the U.S.

District Court’s previous dismissal of the Company’s patent infringement claims against BASF in the Delaware Proceedings.

The final resolution of these matters could take up to eighteen months and there can be no assurance that the Company will prevail in its attempts to challenge the verdict.

The final resolution of these matters could take up to twenty-four months and there can be no assurance that the Company will prevail in its attempts to challenge the verdict.

Because the outcome of the Company’s post-trial motions and possible appeal is difficult to predict, as of December 31, 2023, the Company has accrued a total of $85.0 million , the full amount of the jury’s verdict (including treble damages).

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We also rely heavily upon unpatented proprietary technology, know-how, and other trade secrets to maintain our competitive position.

While we maintain policies to enter into confidentiality agreements with our employees and third parties to protect our proprietary expertise and other trade secrets, these agreements may not be enforceable or, even if legally enforceable, we may not have adequate remedies for breaches of such agreements.

We also may not be able to readily detect

breaches of such agreements.

enforceable, we may not have adequate remedies for breaches of such agreements.

We also may not be able to readily detect breaches of such agreements.

For instance, we manufacture some of our products in China where we may be at a greater risk of a third party misappropriating our intellectual property despite the foregoing policies, procedures and agreements.

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However, regulators may react to a variety of considerations, including economic and political, that may result in any such more stringent regulations being delayed or shelved entirely, in one or more countries or regions.

As the adoption of more stringent regulations governing gasoline vapor emissions is expected to drive significant growth in our automotive carbon applications, the failure to enact such regulations will have a significant impact on the growth prospects for these products.

As the adoption of more stringent regulations governing gasoline vapor emissions is expected to drive significant growth in our automotive carbon applications, the failure to enact such regulations will have an impact on the growth prospects for these products .

Our business involves hazards associated with chemical manufacturing, storage, transportation and disposal;

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Certain regulations applicable to our operations, including the OSHA and the TSCA in the U.S.

and the REACH directive in Europe, the UK and other countries, prescribe limits restricting exposure to several chemicals used in our operations, including certain forms of formaldehyde, a raw material used in the manufacture of phenolic modified rosin-based ink resins and some lignin-based dispersants.

Future studies on the health effects of chemicals used in our operations, including alkylphenols, such as bisphenol A, which are used in our TOR-based ink resins, may result in additional regulation or new requirements, which might further restrict or prohibit the use of, and exposure to, these chemicals.

Additional regulation of or requirements for these or other chemicals could require us to change our operations, and these changes could affect the quality or types of products we manufacture and/or materially increase our costs.

and the REACH directive in Europe, the United Kingdom and other countries, prescribe limits restricting exposure to several chemicals used in our operations, including certain forms of formaldehyde, a raw material used in the manufacture of some lignin-based dispersants.

Future studies on the health effects of chemicals used in our operations may result in additional regulation or new requirements, which might further restrict or prohibit the use of, and exposure to, these chemicals.

Additional regulation of or requirements for such chemicals could require us to change our operations, and these changes could affect the quality or types of products we manufacture and/or materially increase our costs .

Increased focus by governmental entities on environmental issues and sustainability may result in new or increased regulations.

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Our financial condition and results of operations could be materially and adversely affected by any of the foregoing .

Inflation and other adverse global economic conditions could result in an adverse impact on our results of operations.

Inflation could result in an adverse impact on our results of operations.

We are affected by general global economic and financial conditions that are beyond our control, including inflation and significant spikes in energy costs.

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However, to the extent our customers are under fixed-price contracts with limited or no price adjustment mechanisms, we are unable to mitigate the impact of inflation by passing on price increases through to our customers, and we could experience an adverse impact on our results of operations as a result .

Challenges in the commercial and credit environment may materially adversely affect our future access to capital.

Challenges in the commercial and credit environment may materially adversely affect Ingevity’s future access to capital.

We have, at times, relied on various forms of credit to satisfy working capital needs.

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Volatility in the world financial markets could increase borrowing costs or affect our ability to gain access to the capital markets, which could have a material adverse effect on our competitive position, business, financial condition, results of operations, and cash flows .

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors