Ingevity Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management’s discussion and analysis of Ingevity Corporation's ( “ Ingevity, ” “ the company, ” “ we, ” “ us, ” or “ our ” ) financial condition and results of operations (“MD&A”) is provided as a supplement to the Condensed Consolidated Financial Statements and related notes included elsewhere herein to help provide an understanding of our financial condition, changes in financial condition and results of our operations. The following discussion should be read in conjunction with Ingevity’s consolidated financial statements as of and for the year ended December 31, 2024, filed on February 19, 2025, with the Securities and Exchange Commission ("SEC") as part of the company's Annual Reporting on Form 10-K ("2024 Annual Report") and the unaudited interim Condensed Consolidated Financial Statements and notes to the unaudited interim Condensed Consolidated Financial Statements, which are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All references to notes (herein referred to as "Note") in this section refer to the notes accompanying the Condensed Consolidated Financial Statements included in Item 1 within this Form 10-Q. Investors are cautioned that the forward-looking statements contained in this section and other parts of this Quarterly Report on Form 10-Q involve both risk and uncertainty. Several important factors could cause actual results to differ materially from those anticipated by these statements. Many of these statements are macroeconomic in nature and are, therefore, beyond the control of management. See "Cautionary Statements About Forward-Looking Statements" below and at the beginning of our 2024 Annual Report. Cautionary Statements Regarding 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. 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. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. We caution readers that a forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. Such risks and uncertainties include, among others, those discussed in Part I, Item 1A. Risk Factors of our 2024 Annual Report, as well as in our unaudited Condensed Consolidated Financial Statements, related notes, and the other information appearing elsewhere in this report and our other filings with the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. 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: • the anticipated timing, charges, costs and results of any current or future repositioning of our Performance Chemicals segment, including the oleo-based product refining transition and the closure of our plants in DeRidder, Louisiana and Crossett, Arkansas may differ materially from our estimates due to events that may occur as a result of, or in connection with, such repositioning efforts; • our announced review of strategic alternatives for the industrial specialties product line and North Charleston, South Carolina crude tall oil (“CTO”) refinery may not result in a transaction and any transaction entered into may not yield the expected results or benefits; • we may be adversely affected by general global economic, geopolitical, and financial conditions beyond our control, including inflation, the Russia-Ukraine war, and the conflict in the Middle East; • leadership transitions within our organization; • we are exposed to risks related to our international sales and operations, including changes in tariffs; • adverse conditions in the automotive market have and may continue to negatively impact demand for our automotive carbon products; 27 • if more stringent air quality standards worldwide are not adopted, our growth could be impacted; • we face competition from substitute products, new technologies, and new or emerging competitors; • we may be adversely affected by a decrease in government infrastructure spending; • adverse conditions in cyclical end markets may continue to adversely affect demand for our products; • 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; • we are dependent upon third parties for the provision of certain critical operating services at several of our facilities; • we may continue to be adversely affected by disruptions in our supply chain; • the occurrence of natural disasters and extreme weather or other unanticipated problems such as labor difficulties (including work stoppages), equipment failure, or unscheduled maintenance and repair, planned and unplanned production slowdowns and shutdowns, turnarounds and outages, which could result in operational disruptions of varied duration; • we are dependent upon attracting and retaining key personnel; • we are dependent on certain large customers; • from time to time, we are and may be engaged in legal actions associated with our intellectual property rights; • if we are unable to protect our intellectual property and other proprietary information, we may lose significant competitive advantage; • information technology security breaches and other disruptions; • government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs, the chemicals industry and subsidies or incentives that may impact key raw materials or products may adversely affect financial results; and • losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes. Overview Ingevity Corporation provides products and technologies that purify, protect, and enhance the world around us. Through a diverse team of talented and experienced people, we develop, manufacture, and bring to market solutions that are largely renewably sourced and help customers solve complex problems while making the world more sustainable. Our products are used in a variety of demanding applications, including adhesives, agrochemicals, asphalt paving, bioplastics, coatings, elastomers, lubricants, paint for road markings, oil drilling, and automotive components. We operate in three reportable segments: Performance Materials, Performance Chemicals and Advanced Polymer Technologies. Recent Developments and Updates Proxy Contest On March 30, 2025, the company entered into a cooperation agreement (the “Cooperation Agreement”) with Vision One Fund, L.P. and its affiliates (“Vision One”), a stockholder of the company. Pursuant to the Cooperation Agreement, our Board of Directors (“Board”) agreed to appoint a new member to the company’s Board within one day of the 2025 annual meeting of stockholders (“Annual Meeting”), and Vision One agreed to withdraw its nominees for election at the Annual Meeting and to abide by certain customary standstill restrictions, mutual non-disparagement provisions, voting commitments and other obligations until the opening of the nomination window for the company’s 2026 annual meeting of stockholders. In connection with the Cooperation Agreement, Vision One was entitled to the reimbursement of certain of its reasonable and documented out-of-pocket fees and expenses. During the first quarter of 2025, we incurred costs of approximately $7.9 million in connection with our response to the proxy contest. These costs, which were included within "Other (income) expense, net" on the condensed consolidated statements of operations, include legal and other professional service fees as well as incremental proxy solicitation costs related to the Annual Meeting. We do not expect additional material costs related to the proxy contest to be incurred for the remainder of the year. Performance Chemicals Repositioning On November 1, 2023, we announced a number of strategic actions designed to reposition our Performance Chemicals reportable segment to improve profitability and reduce the cyclicality of the company as a whole. These actions increased our focus on growing our most profitable Performance Chemicals product lines, such as road technologies, and diversifying our raw material stream to non-CTO based fatty acids. The repositioning focused on reducing exposure to lower margin end-use 28 markets of our industrial specialties product line, such as adhesives, publication inks, and oilfield, representing approximately 45 percent of our industrial specialties product line historical annualized net sales. The repositioning included the closure of the Performance Chemicals CTO refinery and manufacturing plant located in DeRidder, Louisiana (the “DeRidder Plant”), including the polyol production assets associated with the Advanced Polymer Technologies ("APT") reportable segment. All production at the DeRidder Plant ceased in the first quarter of 2024. The Performance Chemicals repositioning initiative included additional corporate and business cost reduction actions executed in November 2023. Additionally, in July 2024, we announced plans to transition the refining of oleo-based products manufactured for the Performance Chemicals reportable segment from our Crossett, Arkansas manufacturing plant (the “Crossett Facility”) to our North Charleston, South Carolina manufacturing plant. This action included the closure of the Crossett Facility, as well as additional corporate and business cost reduction actions. We ceased production at the Crossett Facility in the third quarter of 2024. The actions referenced above, when combined with other targeted workforce reduction initiatives during 2024 and 2023, resulted in the reduction of Ingevity's global workforce by 23 percent. Specific to Performance Chemicals, the reduction represented approximately 40 percent of the reportable segment's workforce. Expected Charges We expect to incur aggregate charges of approximately $360 million, excluding the CTO resale activity as described below, associated with the Performance Chemicals repositioning, consisting of approximately $250 million in asset-related charges, approximately $25 million in severance and other employee-related costs, and approximately $85 million in other restructuring costs, including decommissioning, dismantling and removal charges, and contract termination costs. Through March 31, 2025, we have incurred $322.9 million associated with these actions, including $244.7 million of non-cash asset-related charges, excluding $7.4 million related to an asset retirement obligation ("ARO"), and $78.2 million of charges to be settled in cash, which include the aforementioned ARO. As of March 31, 2025, $65.0 million of the charges to be settled in cash have been paid and all non-cash charges have been incurred. In total, we expect approximately $110 million of cash charges, including approximately $25-$30 million during 2025. Inventory Charges The company believes the collective actions of workforce, operational, and regional business exits will hinder our ability to dispose of the associated inventory on hand. As a result, we recorded zero and $2.5 million of non-cash, lower of cost or market, inventory charges during the three months ended March 31, 2025, and 2024, respectively, to adjust the carrying value of the impacted inventory to what we expect to realize upon disposal, less disposal costs. These inventory charges are recorded to "Cost of sales" on the condensed consolidated statements of operations. Since these inventory charges are directly attributable to the Performance Chemicals repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have excluded such impact from the financial results of our Performance Chemicals reportable segment. Refer to Note 14 for more information. CTO Resale Activity The DeRidder Plant closure, and the corresponding reduction in CTO refining capacity, significantly reduced our CTO volume requirements. However, we were obligated, under an existing CTO supply contract, to purchase CTO volumes through 2025 at amounts in excess of the CTO volumes needed to support our business operations. To manage this excess inventory, we sold CTO volumes (herein referred to as "CTO resales") in the open market. For the three months ended March 31, 2025 and 2024, we have incurred zero and $26.5 million, respectively, of CTO resale losses, which are recorded as "Other (income) expense, net" on the condensed consolidated statements of operations. On July 1, 2024, the CTO supply contract that resulted in these excess CTO volumes was terminated. As consideration for the termination of the CTO supply contract, we made cash payments totaling $100.0 million during 2024. The charge was recorded within "Other (income) expense, net" on the condensed consolidated statements of operations for the year ended December 31, 2024. As a result of the termination, the purchases under the CTO supply contract ended effective June 30, 2024. The CTO resale activity described above ended in 2024 and no excess CTO volumes were on hand at March 31, 2025. 29 Expected Savings and Impact The Performance Chemicals repositioning, which began in November 2023, is focused on reducing exposure to lower margin end-use markets of our industrial specialties product line, such as adhesives, publication inks, and oilfield, representing approximately 45 percent of our industrial specialties product line historical annualized net sales. As a result of this initiative, we expect to realize total cash savings of approximately $95 million to $100 million. These cash savings will be derived from headcount reductions, plant operating efficiencies, and reduced supply chain costs. Collectively, these savings are expected to be realized in the following financial statement captions: 70-80 percent in Cost of sales, 15-25 percent in Selling, general, and administrative expenses, and ~5 percent in Research and technical expenses, all presented on our condensed consolidated statements of operations. In the first quarter of 2025, we realized cash savings of approximately $8 million, including $6 million in Cost of sales, $1 million in Selling, general, and administrative expenses, and $1 million in Research and technical expenses, respectively. Since November of 2023, we have realized total cash savings of approximately $92 million, including $74 million in Cost of sales, $13 million in Selling, general, and administrative expenses, and $5 million in Research and technical expenses, respectively. We expect to realize all remaining savings in 2025. In addition to the cash savings, we expect to realize approximately $15 million to $17 million in lower full year depreciation and intangible amortization expenses, respectively. To date, we realized savings of approximately $12 million. We expect to realize the remaining savings in 2025. The charges we currently expect to incur and the savings we expect to obtain 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. 30 Results of Operations Three Months Ended March 31, In millions 2025 2024 Net sales $ 284.0 $ 340.1 Cost of sales 170.6 240.4 Gross profit 113.4 99.7 Selling, general, and administrative expenses 43.1 47.2 Research and technical expenses 7.7 6.8 Restructuring and other (income) charges, net 12.3 62.8 Acquisition-related costs — 0.3 Other (income) expense, net 4.1 32.2 Interest expense, net 19.4 22.3 Income (loss) before income taxes 26.8 (71.9) Provision (benefit) for income taxes 6.3 (15.9) Net income (loss) $ 20.5 $ (56.0) Q1 2025 Performance Summary The Net sales decrease was driven primarily by the Performance Chemicals industrial specialties product line due to repositioning actions which included the focus on reducing exposure to lower margin end-use markets and therefore reduced sales during the quarter by approximately $37 million. Also contributing to the lower sales was continued weakness in certain industrial end markets that negatively impacted sales in our industrial specialties product line and our Advanced Polymer Technologies reportable segment, slightly offset by an increase in our Performance Materials reportable segment. Net sales The table below shows the 2025 Net sales and variances from 2024: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2025 vs. 2024 $ 340.1 (55.4) — (0.7) $ 284.0 Three Months Ended March 31, 2025 vs. 2024 The Net sales decrease of $56.1 million in 2025 was driven by volume decline of $55.4 million (16 percent), and unfavorable foreign currency exchange of $0.7 million (zero percent). Gross Profit Three Months Ended March 31, 2025 vs. 2024 Gross profit increase of $13.7 million was driven primarily by decreased manufacturing costs of $18.1 million, LIFO liquidation benefit of $4.5 million, and favorable foreign currency exchange of $0.4 million. This increase was partially offset by unfavorable sales volume of $7.7 million, and unfavorable pricing and sales composition (mix) of $1.6 million. Gross profit for the three months ended March 31, 2025 includes realized savings of $6.0 million from the Performance Chemicals repositioning actions initiated in 2023. 31 Selling, general and administrative expenses Three Months Ended March 31, 2025 vs. 2024 SG&A was $43.1 million (15 percent of Net sales) and $47.2 million (14 percent of Net sales) for the three months ended March 31, 2025 and 2024, respectively. Overall, SG&A decreased by $4.1 million or nine percent driven by our Performance Chemicals repositioning actions that reduced non-cash intangible amortization expense by $1.9 million and included $1.0 million in cash savings. SG&A was further reduced by decreased spending on commercial activities of $1.2 million. Research and technical expenses Three Months Ended March 31, 2025 vs. 2024 Research and technical expenses as a percentage of Net sales remained relatively consistent period over period, at 2.7 percent and 2.0 percent for the three months ended March 31, 2025 and 2024, respectively. Research and technical expenses as a percentage of Net sales increased due to lower sales. Overall, Research and technical expenses increased by $0.9 million, compared to the prior year quarter, driven by a $1.9 million increase primarily within our Performance Materials reportable segment. The increase was partially offset by approximately $1.0 million in cash savings realized from the Performance Chemicals repositioning actions initiated in 2023. Restructuring and other (income) charges, net Three Months Ended March 31, 2025 vs. 2024 Three Months Ended March 31, In millions 2025 2024 Work force reductions and other $ 1.2 $ — Performance Chemicals repositioning 11.1 62.3 Restructuring charges $ 12.3 $ 62.3 North Charleston plant transition — 0.5 Other (income) charges, net $ — $ 0.5 Restructuring and other (income) charges, net (1) $ 12.3 $ 62.8 _______________ (1) See Note 11 for more information. Acquisition-related costs Three Months Ended March 31, 2025 vs. 2024 Acquisition-related (income) costs were zero and $0.3 million for the three months ended March 31, 2025 and 2024, respectively. All charges relate to the integration of Ozark Materials into our Performance Chemicals reportable segment. 32 Other (income) expense, net Three Months Ended March 31, 2025 vs. 2024 Three Months Ended March 31, In millions 2025 2024 Foreign currency transaction (gain) loss $ (1.4) $ 1.4 Loss on CTO resales (1) — 26.5 (Gain) loss on strategic investments (2) — 4.8 Proxy contest charges (3) 7.9 — Other (income) expense, net (2.4) (0.5) Total Other (income) expense, net $ 4.1 $ 32.2 _______________ (1) See Notes 11 and 14 for more information. (2) See Note 4 for more information. (3) See Note 14 for more information. Interest expense, net Three Months Ended March 31, 2025 vs. 2024 Three Months Ended March 31, In millions 2025 2024 Accounts receivable securitization (1) $ 0.7 $ 1.4 Finance lease obligations (1) 1.8 1.8 Interest rate swap (2) (0.2) — Litigation related interest expense (3) 1.3 1.3 Revolving Credit Facility and other lines of credit (1) 11.4 13.2 Senior notes (1) 5.6 5.6 Other interest (income) expense, net (1.2) (1.0) Total Interest expense, net $ 19.4 $ 22.3 _______________ (1) See Note 9 for more information. (2) See Note 8 for more information. (3) See Note 13 for more information. Provision (benefit) for income taxes Three Months Ended March 31, 2025 vs. 2024 For the three months ended March 31, 2025 and 2024, our effective tax rate was 23.5 percent and 22.1 percent, respectively. Excluding discrete items, the effective rate was 22.6 percent compared to 24.2 percent in the three months ended March 31, 2025 and 2024, respectively. See Note 12 for more information. 33 Segment Operating Results In addition to the information discussed above, the following sections discuss the results of operations for Ingevity's reportable segments. Our segments are (i) Performance Materials, (ii) Performance Chemicals and (iii) Advanced Polymer Technologies. Segment Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") is the primary measure used by the company's chief operating decision maker to evaluate the performance of and allocate resources among our operating segments. Segment EBITDA is defined as segment net sales less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, research and technical expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from segment EBITDA: interest expense associated with corporate debt facilities, interest income, income taxes, depreciation, amortization, restructuring and other income (charges), net, including inventory lower of cost or market charges associated with restructuring actions, goodwill impairment charge, acquisition and other-related income (costs), litigation verdict charges, gain (loss) on strategic investments, loss on CTO resales, CTO supply contract termination charges, proxy contest charges, and pension and postretirement settlement and curtailment income (charges), net. In general, the accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in the Annual Consolidated Financial Statements included in our 2024 Annual Report. Performance Materials Q1 2025 Performance Summary Performance Materials Net sales increased one percent compared to the prior year quarter driven by slightly higher volume and price and sales mix. There are two components to mix that are key to understanding this reportable segment. The segment benefits from production of larger vehicles, such as trucks and sport utility vehicles, as well as more hybrids and internal combustion engine vehicles versus all electric vehicles, as these vehicles contain more of our activated carbon content. Regional mix is also important as North America, which is nearly 50 percent of Performance Material sales, is our most profitable region due to the typica lly larger size of vehicles requiring more content, and this region also has the highest emissions control standards in the world requiring more advanced forms of our activated carbon product. Asia Pacific is also an important region, representing about 40 percent of total Performance Materials net sales. Within Asia Pacific, about half of our net sales are in China and the remaining are made up primarily of South Korea and Japan. All of these countries have strict emissions control standards or strong export markets where our activated carbon plays an important role in meeting regulations. Europe is our least impactful region due to the regulatory environment favoring electric vehicles, and also because European emissions standards lag behind North America and Asia Pacific. Segme nt EBITDA for Performance Materials increased $1.1 million or one percent and Segment EBITDA margin was flat compared to the prior year quarter. In millions Three Months Ended March 31, 2025 2024 Total Performance Materials - Net sales $ 146.8 $ 145.1 Segment EBITDA $ 79.1 $ 78.0 Net Sales Comparison of Three Months Ended March 31, 2025 and March 31, 2024: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net sales Three months ended March 31, 2025 vs. 2024 $ 145.1 0.8 0.9 — $ 146.8 Three Months Ended March 31, 2025 vs. 2024 Segment net sales. The increase of $1.7 million in 2025 was driven by favorable pricing and sales mix of $0.9 million (one percent), and volume growth of $0.8 million (zero percent). Segment EBITDA. The increase of $1.1 million in 2025 was driven by volume growth of $0.5 million, decreased foreign currency exchange and other charges of $3.2 million, and decreased manufacturing costs of $1.4 million. The increase 34 was partially offset by LIFO charges of $2.0 million, unfavorable pricing and sales composition (mix) of $0.7 million, and increased SG&A and research and technical expenses of $1.3 million. Performance Chemicals Q1 2025 Performance Summary Performance Chemicals net sales decreased $52.0 million (35 percent) compared to the prior year quarter, primarily as a result of our repositioning actions. Approximately $37 million of the decline in net sales reflects the exit of lower-margin end markets in our industrial specialties product line as we continue to focus on maximizing profitability. The remaining net sales decline was primarily due to a slower start to the road paving season, and weakness in industrial demand within our industrial specialties product line. Segment EBITDA improved $10.3 million compared to the prior year quarter, reflecting the positive impact of repositioning actions, including benefits from cost savings actions and lower raw material costs. Three Months Ended March 31, In millions 2025 2024 Total Performance Chemicals - Net sales $ 95.0 $ 147.0 Road Technologies product line 44.3 45.7 Industrial Specialties product line 50.7 101.3 Segment EBITDA $ (0.3) $ (10.6) Net Sales Comparison of Three Months Ended March 31, 2025 and March 31, 2024: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net Sales Three months ended March 31, 2025 vs. 2024 $ 147.0 (52.2) 0.2 — $ 95.0 Road Technologies product line 45.7 (2.3) 0.9 — 44.3 Industrial Specialties product line 101.3 (49.9) (0.7) — 50.7 Three Months Ended March 31, 2025 vs. 2024 Segment net sales. The decrease of $52.0 million in 2025 was driven by a volume decline of $52.2 million (35 percent), as a result of a decrease in industrial specialties ($49.9 million) and road technologies ($2.3 million). This was partially offset by favorable pricing and sales mix of $0.2 million (zero percent), attributable to an increase in road technologies ($0.9 million), partially offset by a decrease in industrial specialties ($0.7 million). Segment EBITDA. The increase of $10.3 million in 2025 was driven by lower manufacturing costs of $6.5 million, primarily due to lower cost CTO, LIFO liquidation benefit of $6.5 million, lower SG&A of $1.9 million, which benefited from the Performance Chemicals repositioning, decreased foreign currency exchange and other charges of $1.9 million, and favorable pricing and sales mix of $0.2 million. The increase was partially offset by a volume decline of $6.7 million. 35 Advanced Polymer Technologies Q1 2025 Performance Summary Advanced Polymer Technologies net sales decreased 12 percent compared to the prior year quarter primarily due to a volume decline from continued market weakness across Asia and unfavorable overall product mix and selective price concessions. S egment EBITDA increased by 32 percent, primarily driven by higher utilization rates as we built inventory in preparation for a planned extended outage in the second quarter to install new boilers. In millions Three Months Ended March 31, 2025 2024 Total Advanced Polymer Technologies - Net sales $ 42.2 $ 48.0 Segment EBITDA $ 12.5 $ 9.5 Net Sales Comparison of Three Months Ended March 31, 2025 and March 31, 2024: Change vs. prior year In millions Prior year Net sales Volume Price/Mix Currency effect Current year Net sales Three months ended March 31, 2025 vs. 2024 $ 48.0 (4.0) (1.1) (0.7) $ 42.2 Three Months Ended March 31, 2025 vs. 2024 Segment net sales. The decrease of $5.8 million in 2025 was driven by a volume decline of $4.0 million (eight percent), unfavorable pricing and sales mix of $1.1 million (two percent), and unfavorable foreign currency exchange of $0.7 million (one percent). Segment EBITDA. The increase of $3.0 million in 2025 was driven by decreased manufacturing costs of $6.1 million. The increase was partially offset by a volume decline of $1.5 million, unfavorable pricing and sales mix of $1.1 million, increased foreign currency exchange and other charges of $0.3 million, and increased SG&A of $0.2 million. 36 Use of Non-GAAP Financial Measure - Adjusted EBITDA Ingevity has presented the financial measure, Adjusted EBITDA, defined below, which has not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has provided a reconciliation to net income, the most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is not meant to be considered in isolation nor as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. Adjusted EBITDA is utilized by management as a measure of profitability. We believe this non-GAAP financial measure provides management as well as investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business, because such measure, when viewed together with our financial results computed in accordance with GAAP, provides a more complete understanding of the factors and trends affecting our historical financial performance and projected future results. We believe Adjusted EBITDA is a useful measure because it excludes the effects of financing and investment activities as well as non-operating activities. Adjusted EBITDA is defined as net income (loss) plus interest expense, net, provision (benefit) for income taxes, depreciation, amortization, restructuring and other (income) charges, net, goodwill impairment charge, acquisition and other-related (income) costs, litigation verdict charges, (loss) gain on strategic investments, loss on CTO resales, CTO supply contract termination charges, proxy contest charges 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. A reconciliation of Adjusted EBITDA to net income is set forth within this section. Reconciliation of Net Income (Loss) to Adjusted EBITDA Three Months Ended March 31, In millions 2025 2024 Net income (loss) (GAAP) $ 20.5 $ (56.0) Interest expense, net 19.4 22.3 Provision (benefit) for income taxes 6.3 (15.9) Depreciation and amortization (1) 24.9 29.6 Restructuring and other (income) charges, net (2) 12.3 62.8 Acquisition and other-related (income) costs, net (3) — 0.3 Loss on CTO resales (4) — 26.5 (Gain) loss on strategic investments (5) — 4.8 Proxy contest charges (6) 7.9 — Adjusted EBITDA (Non-GAAP) $ 91.3 $ 74.4 _______________ (1) Refer to Note 14 for more information. (2) We regularly perform strategic reviews and assess the return on our operations, which sometimes results in a plan to restructure the business. These costs are excluded from our reportable segment results and for the purposes of calculating our non-GAAP financial performance measures. Refer to Note 11 for more information. (3) Charges represent costs incurred to complete and integrate acquisitions and other strategic investments, and include the expensing of the inventory fair value step-up resulting from the application of purchase accounting for acquisitions, and certain legal and professional fees associated with the completion of acquisitions and strategic investments. (4) Due to the DeRidder Plant closure, and the corresponding reduced CTO refining capacity, we were obligated, under an existing CTO supply contract, to purchase CTO through 2025 at amounts in excess of required CTO volumes. On July 1, 2024, the CTO supply contract that resulted in these excess CTO volumes was terminated. As a result of the termination of this contract, the purchases under the CTO supply contract ended, effective June 30, 2024, and we ended our CTO resale activity as of December 31, 2024. Since these CTO resale activities are directly attributable to the Performance Chemicals repositioning, that is, they do not represent normal, recurring expenses necessary to operate our business, we have excluded the CTO resale (income) charges for the purposes of calculating our non-GAAP financial performance measures. For the three months ended March 31, 2024, the loss on CTO resales relates to the Performance Chemicals segment. Refer to Note 11 for more information. 37 (5) We exclude gains and losses from strategic investments from our segment results, as well as our non-GAAP financial measures, because we do not consider such gains or losses to be directly associated with the operational performance of the segment. We believe that the inclusion of such gains or losses, would impair the factors and trends affecting the historical financial performance of our reportable segments. We continue to include undistributed earnings or loss, distributions, amortization or accretion of basis differences, and other-than-temporary impairments for equity method investments that we believe are directly attributable to the operational performance of such investments, in our reportable segment results. Refer to Note 4 for more information. (6) Charges represent legal and other professional service fees as well as incremental proxy solicitation costs related to a proxy contest. Adjusted EBITDA Three Months Ended March 31, 2025 vs. 2024 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. Current Full Year Company Outlook vs. Prior Year We continue to monitor the evolving macroeconomic landscape, including the implications of recent tariffs and broader trade uncertainty. We are adjusting the lower end of our previously disclosed outlook to Net sales between $1.25 billion and $1.4 billion for 2025. This change reflects updated industry forecasts that estimate an approximate 10 percent reduction in North America light vehicle production. As such, we would expect Net sales in our Performance Materials reportable segment to be flat or down compared to the prior year. For our Performance Chemicals reportable segment, we expect Net sales in our road technologies product line to improve compared to 2024 we have moved away from lower margin products and adverse weather conditions experienced in key states within the U.S. negatively impacted 2024. Our industrial specialties product line remains focused on higher margin end markets and is expected to deliver Net sales between $160 and $200 million. Additionally, our Advanced Polymer Technologies reportable segment anticipates Net sales flat to prior year due to weak end market demand and continued competitive dynamics, particularly in Asia. Our Adjusted EBITDA outlook, which has been adjusted to incorporate the ~10 percent reduction in North America light vehicle production, is expected to be between $380 million and $415 million for 2025. If the forecasts suggesting a ~10 percent reduction in North America light vehicle production are true than we expect our Performance Materials reportable segment EBITDA to decline compared to the prior year. We expect to maintain segment EBITDA margins around 50 percent based on improved pricing and continued operational efficiencies. Our Performance Chemicals reportable segment EBITDA is expected to improve due to revenue growth in our road technologies product line, lower CTO costs, and further savings from our repositioning actions. We expect segment EBITDA margins in the mid-to-high single digits. We anticipate that our Advanced Polymer Technologies segment EBITDA will modestly improve versus prior year as our enacted pricing and mix strategies will produce segment EBITDA margins of around 20 percent. A reconciliation of net income to adjusted EBITDA as projected for 2025 is not provided. Ingevity does not forecast net income as it cannot, without unreasonable effort, estimate or predict with certainty various components of net income. These components, net of tax, include further restructuring and other income (charges), net; additional acquisition and other-related income (costs); additional pension and postretirement settlement and curtailment (income) charges; and revisions due to legislative tax rate changes. Additionally, discrete tax items could drive variability in our projected effective tax rate. All of these components could significantly impact such financial measures. Further, in the future, other items with similar characteristics to those currently included in adjusted EBITDA, that have a similar impact on comparability of periods, and which are not known at this time, may exist and impact adjusted EBITDA. 38 Liquidity and Capital Resources The primary source of liquidity for our business is the cash flow provided by operating activities. 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 March 31, 2025, our undrawn capacity under our revolving credit facility was $309.4 million. Over the next twelve months, we expect to fund the following: debt principal repayments, interest payments, capital expenditures, income tax payments, additional spending associated with our Performance Materials' intellectual property litigation, and restructuring activities such as the repositioning of our Performance Chemicals reportable segment as further described within Note 11. In addition, we may also evaluate and consider purchases pursuant to our stock repurchase program (and related excise tax payments), 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 $71.5 million at March 31, 2025. 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 March 31, 2025, included $67.5 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. We believe that our foreign holdings of cash will not have a material adverse impact on our U.S. liquidity. If these earnings were distributed, such amounts could be subject to U.S. federal income tax at the statutory rate less the available foreign tax credits, if any, and could potentially be subject to withholding taxes in the various jurisdictions. The potential tax implications of the repatriation of unremitted earnings are driven by facts at the time of distribution, therefore, it is not practicable to estimate the income tax liabilities that might be incurred if such cash and earnings were repatriated to the U.S. Management does not currently expect to repatriate cash earnings from our foreign operations in order to fund U.S. operations. Debt and Finance Lease Obligations Refer to Note 9 for a summary of our outstanding debt obligations and revolving credit facility. Other Potential Liquidity Needs Share Repurchases On July 25, 2022, our Board of Directors authorized the repurchase of up to $500.0 million of our common stock (the "2022 Authorization"), and rescinded the prior outstanding repurchase authorization with respect to the shares that remained unused under the prior authorization. Shares under the 2022 Authorization 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 Exchange Act. During the three months ended March 31, 2025 and 2024, we repurchased no common stock. At March 31, 2025, $353.4 million remained unused under the 2022 Authorization. Capital Expenditures Projected 2025 capital expenditures are $50-70 million. We have no material commitments associated with these projected capital expenditures as of March 31, 2025 . 39 Cash flow comparison of the Three Months Ended March 31, 2025 and 2024 Three Months Ended March 31, In millions 2025 2024 Net cash provided by (used in) operating activities $ 25.4 $ (12.1) Net cash provided by (used in) investing activities (11.5) (16.3) Net cash provided by (used in) financing activities (11.0) 23.4 Cash flows provided by (used in) operating activities Cash provided by 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 $25.4 million for the three months ended March 31, 2025. Cash provided by operating activities for the three months ended March 31, 2025, when compared to the three months ended March 31, 2024, increased by $37.5 million. This increase was driven by a decrease in CTO resale cash outflows of $26.0 million, increased cash earnings of $7.9 million, a net reduction in trade working capital of $10.2 million (including accounts receivable, inventory, and accounts payable), and lower cash interest paid of $2.4 million. Partially offsetting these cash inflows was increased employee compensation payments of $5.9 million, increased spending on restructuring initiatives of $1.6 million, and an increase in tax payments of $1.5 million as a result of the higher cash earnings. Cash flows provided by (used in) investing activities Cash used in investing activities in the three months ended March 31, 2025 was $11.5 million and was primarily driven by capital expenditures of $10.0 million. In the three months ended March 31, 2025 and 2024, capital spending included the base maintenance capital supporting ongoing operations, and growth and cost improvement spending. The decrease in Net cash used in investing activities when compared to the prior year period is primarily due to reduced capital expenditures of $6.6 million. Capital expenditure categories Three Months Ended March 31, In millions 2025 2024 Maintenance $ 6.0 $ 9.1 Safety, health and environment 2.6 1.1 Growth and cost improvement 1.4 6.4 Total capital expenditures $ 10.0 $ 16.6 Cash flows provided by (used in) financing activities Cash used in financing activities in the three months ended March 31, 2025, was $11.0 million and was primarily driven by payments on our revolving credit facility of $100.3 million, partially offset by borrowings on our revolving credit facility and other borrowings of $92.3 million. Cash provided by financing activities in the three months ended March 31, 2024 was $23.4 million and was primarily driven by borrowings on our revolving credit facility of $81.4 million, partially offset by payments on our revolving credit facility of $55.0 million. New Accounting Guidance Refer to Note 2 for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our Condensed Consolidated Financial Statements. 40 Critical Accounting Policies and Estimates Our Condensed Consolidated Financial Statements are prepared in conformity with GAAP. The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We have described our accounting policies in Note 2 to our consolidated financial statements included in our 2024 Annual Report. We have reviewed these accounting policies, identifying those that we believe to be critical to the preparation and understanding of our financial statements. Critical accounting policies are central to our presentation of results of operations and financial condition and require management to make estimates and judgments on certain matters. We base our estimates and judgments on historical experience, current conditions and other reasonable factors. For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our 2024 Annual Report. Our critical accounting policies have not substantially changed from those described in the 2024 Annual Report.