CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (i) NOT MATERIAL AND (ii) WOULD BE LIKELY TO CAUSE COMPETITIVE HARM TO THE COMPANY IF PUBLICLY DISCLOSED. SUCH EXCLUDED INFORMATION IS DENOTED BY ASTERISKS IN BRACKETS [*****].
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement") is made effective as of March 1, 2022, between Ingevity Corporation, a Delaware corporation (the "Company"). and Michael Smith ("Consultant").
WHEREAS, Consultant desires to render certain consulting services to the Company and the Company desires to retain Consultant for the purpose of rendering such services pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I. - APPOINTMENT; TERM
1.1. Appointment. The Company hereby appoints Consultant, and Consultant hereby accepts such appointment, to provide management consulting services, including, without limitation, those set forth on Exhibit A, and perform such other services incidental thereto as requested by the Company from time to time during the Term (the "Services"). During the Term, Consultant shall provide such Services as requested by the Company not to exceed one hundred (100) full-time (8 hour) days per year. The Services shall generally be performed remotely and at mutually agreeable times.
1.2 Term. Subject to earlier termination of the appointment of Consultant in accordance herewith, the term of this Agreement shall commence on date hereof and terminate at the close of business on February 29, 2024 (the "Term").
ARTICLE 2. - COMPENSATION; EXPENSES
2.1. Compensation.
(a) The Company agrees to pay Consultant for the rendering of the Services at the rate of One Thousand Dollars ($1,000) per full-time working day (the "Consulting Fee"). The Consulting Fee shall be payable by the Company within thirty (30) days after the end of each calendar month.
(b) As consideration for Consultant agreeing to the noncompetition and nonsolicitation provisions set forth in Section 3.4, if Consultant is in compliance with his obligation set forth in Section 3.4, the Company will pay Consultant the amounts set forth on Exhibit B in accordance with the terms of Exhibit B.
2.2. Business Expenses. The Company will reimburse Consultant for all reasonable out-of-pocket business expenses incurred by Consultant in performing the Services hereunder during the Term; provided that: (a) Consultant submits documentation verifying said expenses and (b) Consultant had received written or email approval from the Company for individual expenses exceeding $500 prior to incurring said expenses (the "Business Expenses"). For reimbursement of travel expenses, the Company will reimburse Consultant for coach or economy level service only; provided, that, for international airfare in excess of six (6) hours, the Company will reimburse Consultant for business level service. The Business Expenses shall be reimbursed by the Company within thirty (30) days submission of the required documentation.
ARTICLE 3. - CONFIDENTIALITY; OWNERSHIP OF MATERIALS AND INVENTIONS; NONCOMPETITION AND NONSOLICITATION
3.1. Confidentiality Obligation.
(a)As used herein, “Confidential Information” means private, confidential, trade secret or other proprietary information (whether or not embodied or contained in some tangible form) relating to any actual or anticipated business of the Company or its affiliates or any
research and development of the Company or its affiliates, or information suggested by or resulting from any tasks assigned to Consultant or work performed by Consultant for or on behalf of the Company or its affiliates. Confidential Information includes, but is not limited to, any information which, if kept secret, may provide the Company or its affiliates with an actual or potential economic advantage over others in the relevant trade or industry, such as, but not limited to: formulae, compilations, computer programs and files, source and object code, devices, methods, techniques, know-how, inventions, research and development, business data (including cost data), strategies, methods, prospects, plans and opportunities, customer lists, marketing plans, specifications, financial information, invention disclosures, patent applications (whether abandoned or not), techniques, products, services and research. For purposes of this Agreement, Confidential Information shall also include any information or material received in confidence by the Company or its affiliates from a third party, and/or information held in confidence by a third party and made available to Consultant. In the event that Consultant is required by court of law to disclose Confidential Information, Consultant shall first, where permitted, provide the Company with notice and the opportunity to seek a protective order or take other appropriate action to preserve the confidential nature of the information.
(b)Except with the prior written authorization of the Company, Consultant shall not directly or indirectly use, disclose, disseminate, publish or otherwise reveal any Confidential Information for any purpose other than to benefit the Company or its affiliates unless and only to the extent that such Confidential Information becomes generally available to the public through no act or fault of Consultant.
(c)Consultant will not use, rely on, reveal or incorporate any preexisting confidential or trade secret information, already owned by Consultant or others to whom a duty of confidence is owed, in performing any Services.
3.2. Intellectual Property.
(a)As used herein, “Intellectual Property” means inventions, discoveries, concepts and ideas, whether or not patentable, copyrightable, trademarkable, protectable as a mask work, or protectable as a trade secret including, but not limited to, any process, method, formula, article, composition, device, product, tool, machine, computer program, apparatus, appliance, design, drawing, practice or technique, as well as any improvements thereto and know-how related thereto and any registrations or applications for registrations of any of the foregoing.
(b)The Company shall be the sole owner of all the products and proceeds of Consultant’s Services hereunder, including, but not limited to, all Intellectual Property, free and clear of any claims by Consultant (or anyone claiming under Consultant) of any kind or character whatsoever. Consultant acknowledges and agrees that all copyrightable materials arising from Intellectual Property created by Consultant shall be considered works made for hire under the copyright laws of the United States and that these works shall, upon their creation, be owned exclusively by the Company. Consultant hereby agrees to, and hereby does, assign to the Company all of Consultant’s rights, title and interest in each item of Intellectual Property. During the Term and thereafter, Consultant shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend, its right, title and interest in or to any such properties.
(c)Consultant will not use, rely on, or incorporate any preexisting Intellectual Property, already owned by Consultant or others, in any Intellectual Property, without first informing the Company in writing and receiving the Company’s advance written permission to do so.
3.3. Return of Property. Consultant agrees that he will deliver to the Company upon the conclusion of his engagement, and at any other time upon the Company’s request, all property of the Company and its affiliates, including, without limitation, all Confidential Information, memoranda, notes, records, computers, computer programs, computer files, computer disks, drawings or other documentation, and all copies thereof, in his possession, custody or control, whether made or compiled by Consultant alone or with others or made available to him while or in connection with performing Services for the Company or its affiliates. Consultant further agrees to sign a statement verifying that he has returned all such property.
3.4. Noncompetition and Nonsolicitation.
(a) Consultant acknowledges and agrees that Confidential Information and Company's goodwill, Customer (as defined below) and Supplier (as defined below) relationships are among Company's most valuable business assets. Consultant further acknowledges that his position is one of trust, and that he will receive and have access to the highest levels of Confidential Information during the Term. Accordingly, Consultant expressly covenants and agrees that he will not, during the Restricted Period (as defined below), directly or indirectly, for Consultant's benefit or the benefit of others, whether direct or indirect, as an employee, independent contractor, owner, shareholder, partner, limited partner, or otherwise:
(i)own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director, independent contractor or in any other similar capacity with, or have any financial interest in, any Named Company Competitor (as defined below), or aid or assist any Named Company Competitor in any manner that enhances the ability of such Named Company Competitor to develop, market, sell or provide Competitive Products or Services (as defined below);
(ii)in the Territory (as defined below), own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, employee, partner, director, independent contractor or in any other similar capacity with, or have any financial interest in, any Company Competitor (as defined below), or aid or assist any Company Competitor in any manner that enhances the ability of such Company Competitor to develop, market, sell or provide Competitive Products or Services; provided nothing in this clause (ii) shall restrict Consultant from employment with a division or business unit of a Company Competitor that does not provide Competitive Products or Services, or from employment with a Company Competitor where Consultant’s responsibilities and activities do not involve the development, marketing, sale or provision of Competitive Products or Services (provided further, for the avoidance of doubt, that all other terms of this Section 3.4 continue to apply);
(iii)aid or assist any person or entity for the purpose of the development, marketing, sale or provision of Competitive Products or Services;
(iv)solicit, persuade or induce any individual who is, or was at any time during the last twelve (12) months of the Term, an employee of the Company, for the purpose of engaging in the development, marketing, sale or provision of Competitive Products or Services: (i) to terminate or refrain from renewing or extending such employment by the Company, or (ii) to become employed by or enter into a contractual relationship with Consultant or any other individual, person or entity;
(v)solicit, persuade or induce any individual, person or entity which is, or was at any time during the last twelve (12) months of the Term, a Supplier (as defined below) of critical components to the Company, including, for the avoidance of doubt, any Supplier of Crude Tall Oil, to terminate, reduce or refrain from renewing or extending such Supplier’s contractual or other relationship with the Company, or otherwise materially changing such Supplier’s volume, terms and conditions; or
(vi)solicit, persuade or induce any Customer or Indirect Customer (as defined below): (i) to terminate, reduce or refrain from renewing, extending, or entering into contractual or other relationships with the Company with regard to the purchase of Competitive Products or Services, or (ii) to become a customer of or enter into any contractual or other business relationship with Consultant or any other individual, person or entity for the purpose of purchasing Competitive Products or Services.
(d)Nothing in the Agreement should be read as limiting Consultant from owning less than a five percent share of publicly-traded stock of any entity.
(e)Definitions.
(i)“Company Competitor” means any business providing a Competitive Product or Service, and for the avoidance of doubt, includes the Named Company Competitors set forth on Exhibit C to this Agreement.
(ii)“Competitive Product or Service” means any product or service that is substantially the same as or similar to any product or service sold or provided by Company during the Restricted Period and/or any product or service meant to accomplish the same or a similar purpose as, and/or to serve as a substitute for, products or services sold or provided by Company during the Term.
(iii)“Customer” means any person or entity that is a customer of Company as of the termination date of this Agreement (i.e., has an ongoing business relationship as of that date, whether or not there are then current outstanding commitments). Customer shall also include any prospective customer whose business you have actively been seeking on behalf of the Company within the six months prior to the termination date of this Agreement.
(iv)“Indirect Customer” means any person or entity to whom the Company’s direct Customer supplies product that incorporates the Company’s products. In the case of the Company’s automotive carbon business, Indirect Customer includes the automobile manufacturers and any business that supplies product to an automobile manufacturer that includes the Company’s products.
(v)“Named Company Competitors” means those companies identified as such on Exhibit C.
(vi)“Restricted Period” means the Term, plus a period of twelve (12) months following termination of this Agreement. In the event Consultant is found by a Court of competent jurisdiction to have violated any of the provisions of Section 3.4 of this Agreement, the Restricted Period shall be extended by any such period of non-compliance.
(vii)“Supplier” means any supplier or vendor of any product or service to Company that Company, in turn, provides to or procures for any Customer.
(viii)“Territory” means [*****].
3.5 Enforcement. Consultant recognizes that the provisions of this Article 3 are vitally important to the continuing welfare of the Company and its affiliates, that money damages alone constitute a totally inadequate remedy for any violation thereof, and that any breach hereof will cause immediate and irreparable damage to the Company and its affiliates. Accordingly, in the event of any such violation by Consultant, the Company, and its affiliates, in addition to any other remedies they may have, shall have the right to institute and maintain a proceeding to compel specific performance thereof or to issue an injunction restraining any action by Consultant in violation of this Article 3.
ARTICLE 4. - TERMINATION
4.1. Termination. The Company may terminate this Agreement in the event of: (i) Consultant's inability to perform the duties set forth herein or (ii) Consultant’s breach of any the obligations and responsibilities as outlined in this Agreement if Consultant fails to remedy such breach within ten (10) days after
receipt from the Company of written notice specifying such breach. If Consultant's appointment hereunder is terminated, Consultant shall immediately cease performance of all Services and the Company shall have no further obligations to Consultant hereunder, other than the payment of the Consulting Fee for the Services performed prior to the effective date of such termination, compensation earned per Section 2.1(b) prior to the effective date of such termination, and the payment of proper Business Expenses incurred prior to the effective date of termination.
4.2. Survival. The following provisions of this Agreement shall survive any such termination or expiration of this Agreement: Articles 3, 5, 6 and 7.
ARTICLE 5. - INDEPENDENT CONTRACTOR; EXCLUSIVITY; REPRESENTATION AND WARRANTY
5.1. Status as Independent Contractor. In the performance of the Services, Consultant shall act solely as an independent contractor, and nothing herein contained or implied will at any time be construed so as to create the relationship of employer and employee, partnership, principal and agent, or joint venturer as between the Company and Consultant. Consultant shall have no authority to bind the Company or its affiliates in any way or make any representations or warranties on behalf of the Company or its affiliates and shall not represent to any person or entity that he has such authority.
5.2. Insurance; Benefits. It is understood that the Company shall be under no obligation to procure any insurance covering Consultant in connection with the Services performed hereunder or otherwise to provide to Consultant any other benefits.
5.3. Taxes. All taxes applicable to this Agreement shall be paid by Consultant, and the Company shall not withhold or pay any amount for federal, state or municipal income tax, social security, unemployment or worker's compensation, unless required to do so by law. Upon request by the Company, Consultant will provide documentation evidencing compliance with all applicable federal, state and municipal income tax and or self-employment tax laws with respect to all amounts received under this Agreement.
5.4 Representation and Warranty. Consultant represents and warrants to the Company (a) that no proprietary or other confidential information of any person or entity shall be wrongfully or unlawfully disclosed to the Company in connection with the performance by Consultant of the Services hereunder, (b) that none of the provisions of this Agreement conflict with or violate any other agreement to which Consultant is a party, (c) that Consultant has the experience and expertise to perform the Services hereunder, (d) that all Services shall be performed in a professional and workmanlike manner; (e) that Consultant has full authority to enter into this Agreement, to carry out its obligations under this Agreement and to grant the rights granted to the Company; (f) the Company will acquire good and clear title to all deliverables and any work product produced during the delivery of the Services, free and clear of all claims, liens, and encumbrances and (g) that all Services shall be performed in accordance with all applicable laws, rules and regulations.
5.5 Conduct. Consultant agrees that it shall comply with the Company’s Supplier Principles of Conduct set forth on Exhibit D and other rules and policies applicable to its contractors, as provided to Consultant from time to time.
ARTICLE 6. - GENERAL PROVISIONS
Consultant shall indemnify and hold the Company, its affiliates and its and their respective directors, officers, employees and stockholders or partners, as the case may be, harmless from any and all losses, liabilities, claims, demands, actions, costs, damages and expenses (including expenses of counsel and reasonable attorneys' fees) arising from a breach by Consultant of any of the provisions hereof.
ARTICLE 7. - GENERAL PROVISIONS
7.1. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without giving effect to its rules regarding conflicts of law.
7.2. Notices. Any notice or communication which a party hereto is required to give or may desire to give in connection with this Agreement shall be in writing and shall either be (a) delivered in person, (b) sent by standard overnight courier or (c) mailed, registered or certified mail, return receipt requested, postage prepaid and addressed to the attention of the party intended as the recipient at the address listed below. All such notices shall be deemed to have been received (x) upon the date of delivery, if hand delivered or sent by overnight
delivery; or (y) on the third business day after deposit in a regularly maintained receptacle for the deposit of United States mail if mailed, registered or certified mail, return receipt requested, postage prepaid and addressed as follows: (a) If to the Company, to: Ingevity Corporation, 4920 O’Hear Avenue, Suite 400, North Charleston, SC 29405, Attn: CEO and (b) if to Consultant, to Michael Smith, [*****]. Any party may, by notice given in accordance with this Section to the other party, designate another address or person for receipt of notices hereunder.
7.3. Entire Agreement; Waiver; Amendment. This Agreement constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. The parties hereto agree that this Agreement supersedes and replaces any and all other agreements, whether oral or in writing, regarding the subject matter hereof. The provisions of this Agreement may be waived, altered, amended or supplemented, in whole or in part, only by a writing signed by both parties. The failure or delay by either party to exercise any of its rights hereunder shall not be construed to be a waiver of any of such rights.
7.4. Assignment. Consultant may not assign this Agreement, nor may Consultant delegate or subcontract the performance and obligations imposed hereunder, without the prior written consent of the Company.
7.5. Severability. If any part of this Agreement shall be declared to be void or unenforceable by any court or administrative body of competent jurisdiction, such part shall be deemed several from the remainder of this Agreement, and this Agreement shall continue in all respects to be valid and enforceable. The parties mutually agree to cooperate with each other to revise this Agreement so as to make this Agreement enforceable.
7.6 Counterparts; Facsimile Signature. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. A signature sent by pdf or facsimile transmission shall be as valid and binding upon the party as an original signature of such party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.
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| Ingevity Corporation | | Consultant |
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| By: | /s/ John C. Fortson | | /s/ Michael Smith |
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| Name: John C. Fortson | | Name: Michael Smith |
| Title: President & Chief Executive Officer | | Date: February 23, 2022 |
| Date: February 23, 2022 | | |
Exhibit A
Services
The services to be provided by Consultant include:
1.Transitional matters relating to Consultant’s retirement from the Company
2.Advising the Company with respect to its Performance Chemicals segment
3.Advising the Company with respect to strategy and business development opportunities
4.Assisting with customer and vendor disputes
5.Other related services requested by the Company from time to time
Exhibit B
Noncompetition and Nonsolicitation Payment
Per Section 2.1(b) of the Agreement, the Company will pay Consultant the following amounts:
1.On or prior to April 1, 2023, an amount equal to the sum of:
(a)1,804 multiplied by the Company NYSE stock closing price on February 27, 2023;
(b)the amount determined by multiplying 6,567 by the 2020 LTIP Payout (as defined below) and then further multiplied by the Company NYSE stock closing price on February 27, 2023; and
(c)4,644 multiplied by the Black-Scholes option pricing model of a Company nonqualified stock option based on the Company NYSE stock closing price on February 26, 2023.
2.On or prior to April 1, 2024, an amount equal to the sum of:
(a)710 multiplied by the Company NYSE stock closing price on February 26, 2024;
(b)the amount determined by multiplying 4,257 by the 2021 LTIP Payout (as defined below) and then further multiplied by the Company NYSE stock closing price on February 26, 2024; and
(c)1,538 multiplied by the Black-Scholes option pricing model of a Company nonqualified stock option based on the Company NYSE stock closing price on February 26, 2024.
3.Definitions.
(a)“2020 LTIP Payout” shall mean the percentage payout criteria approved by the Company’s Leadership Development and Compensation Committee of the Board of Directors in February 2023 with respect to the 2020 LTIP Performance Share Units.
(b)“2021 LTIP Payout” shall mean the percentage payout criteria approved by the Company’s Leadership Development and Compensation Committee of the Board of Directors in February 2024 with respect to the 2021 LTIP Performance Share Units.
(c)Nothing set forth in this Exhibit B provides Consultant with the right to any unvested stock options, performance-based restricted stock units, or service-based restricted stock units that were otherwise forfeited upon his retirement pursuant to the terms of the Company’s 2016 Omnibus Incentive Plan, as amended (the “Plan”).
(d)In the event of a Change in Control (as defined in the Plan), notwithstanding the terms of this Exhibit B, Section 1: (i) the 2020 LTIP Payout and 2021 LTIP Payout shall each be deemed to be 100% and (ii) all calculations in this Exhibit B, Section 1 relating to amounts not yet paid shall automatically be calculated based on the Company NYSE stock closing price on the date of closing of the Change in Control transaction, but remain payable on or before the dates set forth herein.
Exhibit C
Named Company Competitors
“Named Company Competitor” means [*****].
Exhibit D
Ingevity Principles of Conduct
Ingevity is committed to conducting business in an ethical, legal and socially responsible manner. Ingevity expects its Suppliers to share this same commitment and, as a condition of doing business, requires its Suppliers to follow these Principles of Conduct (“Principles”). Suppliers must take reasonable measures to ensure that any suppliers from which they source act in accordance with these Principles.
Compliance with Laws is Required: Ingevity Suppliers must operate their businesses in full compliance with all applicable laws, codes, rules and regulations of the countries, provinces, states, regions and municipalities in which they operate.
Child Labor Is not Permitted: Ingevity will not tolerate the exploitation or use of children as workers by Suppliers. Ingevity shall not contract with any Supplier that employs individuals younger than 15 years of age or the legal minimum age, if higher.
Forced, Prison or Involuntary Labor is not Permitted: Ingevity will not tolerate the use by Suppliers of forced labor in any form, including slave, prison, indentured or bonded labor.
Discrimination is not Permitted: Ingevity will not tolerate discrimination by Suppliers of their workers on the basis of race, color, religion, gender, social and ethnic origin, age, marital status, pregnancy, creed or political belief, disability, sexual orientation or any other basis prohibited by law.
Harassment is not Permitted: Ingevity expects its Suppliers to provide a work environment that is free from any form of harassment, including verbal, physical, or sexual harassment. Threats or acts of retaliation or physical punishment against workers will not be tolerated. At all times, workers shall be treated with respect and dignity.
No Undocumented Workers: Suppliers shall only utilize workers who have a legal right to work.
Compensation (Wages and Benefits): Ingevity requires that Suppliers compensate employees in compliance with all laws and regulations relating to minimum wages, overtime, piece work, employee benefits, maximum hours worked per day or maximum days worked per week.
Freedom of Association: Suppliers shall recognize and respect the right of workers to associate freely or organize as permitted by applicable laws and regulations and to be free to raise concerns related to employment issues.
Product Quality and Product Safety: All products that Supplier manufactures on behalf of or sells to Ingevity shall be designed and produced to be safe for their intended uses, and for other reasonably foreseeable uses. Ingevity is committed to providing products that meet applicable regulatory specifications and quality standards.
Sustainability of Resources: Suppliers must only use materials derived from operations that are in compliance with the environmental and social laws and regulations of the country of origin.
Environment: Suppliers shall meet or exceed all environmental standards required by applicable laws, codes and regulations.
Workplace Safety and Health: Suppliers shall keep the work environment free from recognized hazards and assure compliance with all applicable laws regarding working conditions, including worker health and safety, sanitation, fire safety, risk protection and electrical, mechanical and structural safety.
Security: Ingevity strongly encourages its Suppliers to implement security controls to secure their international supply chain to comply with anti- terrorism laws in the countries and regions of the world in which they operate and transact business. Ingevity has specifically partnered with U.S. Customs and Border Protection (CBP) to secure Ingevity’s international supply chain and so requires all Suppliers of U.S.-bound products to demonstrate that they are meeting Customs-Trade Partnership Against Terrorism (C-TPAT) security criteria, as published by CBP.
Business Practices: Suppliers shall not engage in bribery, kickbacks, collusive bidding, price fixing or other unfair trade practices.
Demonstration of Compliance: Supplier must be able to demonstrate compliance with these Principles at the request and to the satisfaction of Ingevity. These minimum requirements are part of all agreements between Ingevity and applicable Suppliers. We expect our Suppliers to develop and implement appropriate internal business processes to ensure compliance with these Principles. Ingevity routinely utilizes independent third-parties to assess Suppliers’ compliance with these Principles. These assessments generally include confidential interviews with on- site workers. If a Supplier fails to uphold any aspect of the Principles, the Supplier is expected to implement corrective actions. Ingevity reserves the right to terminate an agreement with any Supplier that cannot demonstrate that it is upholding the Principles.
Notice of Violations: Any worker with any knowledge of violation of these Principles should contact Ingevity at:
www.ingevity.com/suppliers/compliance
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Ingevity Corporation
4920 O'Hear Avenue
Suite 400
North Charleston, SC 29405 USA
www.ingevity.com |
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| News | | Contact: Caroline Monahan 843-740-2068 media@ingevity.com |
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| | Investors: Mary Dean Hall 843-INGEVITY investors@ingevity.com |
Ingevity reports fourth-quarter and full-year 2021 financial results
HIGHLIGHTS: (comparisons versus prior year period)
•Company delivered solid results despite supply chain challenges and inflationary cost pressures, and the continuing microchip shortage that negatively impacted fourth-quarter (Q4) and full-year (FY) performance
•Net sales in Q4 of $336.0 million increased 3.2%, with FY net sales of $1.4 billion up 14.4%
•Q4 net income of $29.3 million and diluted earnings per share (EPS) of $0.74; Q4 adjusted earnings of $30.9 million and diluted adjusted EPS of $0.78
•FY net income of $118.1 million and diluted EPS of $2.95, reflecting an $85 million litigation verdict charge that had a $1.63 impact, net of tax, to diluted EPS; FY adjusted earnings of $209.5 million increased 3.4% and FY adjusted diluted EPS of $5.23 was up 7.2%
•FY adjusted EBITDA of $422.2 million, up 6.1% and FY adjusted EBITDA margin of 30.3%
•FY operating cash flow of $293.0 million with free cash flow of $189.2 million
•Company announces fiscal year 2022 guidance for sales between $1.525 billion and $1.60 billion and adjusted EBITDA between $430 million and $460 million
The results and guidance in this release include non-GAAP financial measures. Refer to the section entitled “Use of non-GAAP financial measures” within this release.
NORTH CHARLESTON, S.C., February 23, 2022 – Ingevity Corporation (NYSE:NGVT) today reported its financial results for Q4 and FY 2021.
Net sales of $336.0 million in Q4 rose 3.2% versus the prior year quarter, and FY net sales of $1.4 billion were up 14.4% compared to last year, as the company drove price increases throughout the year to help offset inflationary cost pressures. Net income and adjusted earnings for the quarter and the full year were negatively impacted by reduced automotive emission product volumes due to the ongoing microchip constraints on global vehicle production. Q4 net income of $29.3 million decreased 36.3% compared to prior year Q4 and FY net income of $118.1 million decreased 34.9% year over year. Adjusted earnings of $30.9 million in Q4 decreased 43.9% versus the prior year quarter, with FY adjusted earnings of $209.5 million up 3.4% year over year.
Diluted EPS in Q4 was $0.74 compared to diluted EPS of $1.11 in the prior year quarter. Diluted adjusted EPS in Q4 was $0.78, which excludes, net of tax, $0.04 primarily related to restructuring and other charges recognized during the quarter. This compares to diluted adjusted EPS of $1.33 in the prior year quarter. FY diluted EPS was $2.95 compared to $4.37 in the prior year. FY diluted adjusted EPS was $5.23, which excludes, net of tax, $0.31 related to restructuring, acquisition and other charges, $1.63 of litigation verdict charge, and $0.34 related to certain discrete tax items recognized during the year. This compares to diluted adjusted EPS of $4.88 in the prior year.
FY adjusted EBITDA of $422.2 million was up 6.1% versus 2020, despite a decline in adjusted EBITDA margin to 30.3% from prior year’s 32.7%, primarily due to the shortfall in Performance Materials automotive-related sales, which also negatively impacted operating cash flow of $293.0 million, down 16.9% from prior year.
“Strong Performance Chemicals volumes across the segment drove our fourth-quarter and full-year results, supported by higher selling prices in Engineered Polymers and Industrial Specialties to offset rising energy, logistics and raw materials costs, and higher selling, general and administrative expenses,” said John Fortson, president and CEO. “Performance Materials also executed well in an extremely challenging environment. Our automotive product sales continue to be impacted by lower vehicle production due to the prolonged microchip shortage, yet the team managed these challenges and delivered a solid performance.”
Performance Chemicals
Sales in the Performance Chemicals segment benefited from strong volumes and price increases, with Q4 sales up 23.7% from prior year to $204.0 million and FY sales up 23.9% year over year to $874.7 million.
“Sales across our Performance Chemicals segment rose significantly compared to the prior year quarter,” said Fortson. “We saw double-digit growth in the majority of our markets and continued to grow demand for our higher-value derivatized products in all three businesses. The team did an incredible job pushing through higher selling prices across the segment, allowing us to fully offset energy, logistics and raw materials inflation in the fourth quarter and more than offset these pressures for the full year.”
Demand for Engineered Polymers products was robust in Q4 and throughout the year, with sales up 22.3% in Q4 and 45.5% for the FY due to increased global volumes, particularly in automotive and industrial markets, as well as higher prices. Sales in Industrial Specialties applications rose 27.9% in Q4 and 26.0% FY due to growth in adhesives, tall oil fatty acid, dispersants and oilfield markets and the positive impact of prices across all markets. Our Pavement Technologies products benefited from a North America paving season that extended into Q4 with sales up 11.1% Q4 versus prior year quarter and FY up 4.6%.
Q4 segment EBITDA was $21.6 million, down 18.8% versus Q4 2020 as higher volumes and prices were more than offset by increased energy, logistics and raw materials costs, and increased selling, general and administration expenses, all of which further escalated in Q4. As a result, Q4 segment EBITDA margin was 10.6%. FY segment EBITDA was up 16.2% year over year to $172.8 million with segment EBITDA margin of 19.8%.
Performance Materials
Sales in Performance Materials in Q4 2021 were $132.0 million, down 17.9% compared to a record Q4 2020 when the automotive industry rebounded sharply post the initial pandemic lockdowns. This positive sales momentum continued into early Q1 2021 but was short lived as microchip production was unable to meet the surge in auto demand. As a result, the remainder of 2021 saw much lower automotive production, reducing sales of Ingevity’s high-value auto emission products. Despite these challenges, FY segment sales were up slightly year over year to $516.8 million primarily due to price increases and mix shift that offset volume declines.
“Fourth-quarter comparisons are challenging, as Q4 2020 saw exceptionally strong sales of our high-value automotive products,” said Fortson. “In comparison, Q4 2021 sales were impacted by reduced volumes of our automotive products and a higher mix of our lower-value water, food and beverage purification products. Sequentially, revenue grew 11.8% in Q4 2021 due to higher North America and China vehicle production, which we attribute to a temporary increase in microchip supply.”
Q4 segment EBITDA of $58.0 million was down 31.2% versus the prior year period with Q4 segment EBITDA margin of 43.9%. FY segment EBITDA of $249.4 million was up 0.1% with FY segment EBITDA margin of 48.3%.
Full-Year 2022 Guidance
Ingevity announced its 2022 guidance of sales between $1.525 billion to $1.60 billion and adjusted EBITDA between $430 million to $460 million.
“Our 2022 guidance assumes Performance Chemicals revenue will outpace ongoing energy, logistics and raw materials inflation, and reflects our modest outlook for Performance Materials as we expect vehicle production will continue to be constrained by the prolonged microchip shortage and other automotive supply chain issues,” said Fortson. “We will continue to optimize our operations and inventory to provide outstanding service to customers and remain committed to capturing the maximum value for our products. As a united team, I am confident we will advance our strategic growth and sustainability efforts and deliver a strong performance this year.”
Ingevity: Purify, Protect and Enhance
Ingevity provides products and technologies that purify, protect, and enhance the world around us. Through a team of talented and experienced people, we develop, manufacture and bring to market solutions that help customers solve complex problems and make the world more sustainable. We operate in two reporting segments: Performance Chemicals, which includes specialty chemicals and engineered polymers; and Performance Materials, which includes high-performance activated carbon. These products are used in a variety of demanding applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants, publication inks, coatings, elastomers, bioplastics and automotive components that reduce gasoline vapor emissions. Headquartered in North Charleston, South Carolina, Ingevity operates from 25 locations around the world and employs approximately 1,850 people. The company is traded on the New York Stock Exchange (NYSE:NGVT). For more information visit www.ingevity.com.
Additional Information
The company will host a live webcast on Thursday, February 24, 2022, at 10 a.m. (Eastern) to discuss Q4 and FY 2021 results. The webcast can be accessed on the investors section of Ingevity’s website. You may also listen to the conference call by dialing 844-200-6205 (inside the U.S.) or 929 526 1599 (outside the U.S.), and entering access code 751599 at least 10 minutes prior to the start of the event. Information on how to access the webcast and conference call, along with a slide deck containing other relevant financial and statistical information, will be posted to Ingevity’s investor site prior to the call. A replay will be available beginning at approximately 2 p.m. (Eastern) on February 24, 2022 through March 23, 2023.
Use of non-GAAP financial measures: This press release includes certain non‐GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided within the Appendix to this presentation. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those measures provided. The company does not attempt to provide reconciliations of forward-looking non-GAAP guidance to the comparable GAAP measure because the impact and timing of the factors underlying the guidance assumptions are inherently uncertain and difficult to predict and are unavailable without unreasonable efforts. In addition, Ingevity believes such reconciliations would imply a degree of certainty that could be confusing to investors.
Forward-looking statements: This press release contains “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements generally include the words “will,” “plans,” “intends,” “targets,” “expects,” “outlook,” “believes,” “anticipates” or similar expressions. Forward-looking statements may include, without limitation, expected financial positions, guidance, results of operations and cash flows; financing plans; business strategies and expectations; operating plans; impact of COVID-19; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost-reduction initiatives, plans and objectives; litigation related strategies and outcomes; markets for securities and expected future repurchases of shares, including statements about the manner, amount and timing of repurchases. Actual results could differ materially from the views expressed. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, adverse effects from the COVID-19 pandemic; adverse effects from general global economic and financial conditions, including inflation; risks related to our international sales and operations; adverse conditions in the automotive market; competition from substitute products, new technologies and new or emerging competitors; worldwide air quality standards; a decrease in government infrastructure spending; adverse conditions in cyclical end markets; the limited supply of or lack of access to sufficient crude tall oil and other raw materials; the United Kingdom’s withdrawal from the European Union; integration of future acquisitions; the provision of services by third parties at several facilities; supply chain disruptions; natural disasters and extreme weather events; or other unanticipated problems such as labor difficulties (including work stoppages), equipment failure or unscheduled maintenance and repair; attracting and retaining key personnel; dependence on certain large customers; legal actions associated with our intellectual property rights; protection of our intellectual property and other proprietary information; information technology security breaches and other disruptions; complications with designing or implementing our new enterprise resource planning system; government policies and regulations, including, but not limited to, those affecting the environment, climate change, tax policies, tariffs and the chemicals industry; and losses due to lawsuits arising out of environmental damage or personal injuries associated with chemical or other manufacturing processes, and the other factors detailed from time to time in the reports we file with the SEC, including those described under "Risk Factors" in our Annual Report on Form 10-K, our Form 10-Q for the quarter ended September 30, 2021, and other periodic filings. These forward-looking statements speak only to management’s beliefs as of the date of this press release. Ingevity assumes no obligation to provide any revisions to, or update, any projections and forward-looking statements contained in this press release.
TABLE OF CONTENTS
INGEVITY CORPORATION
Condensed Consolidated Statements of Operations (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions, except per share data | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | $ | 336.0 | | | $ | 325.6 | | | $ | 1,391.5 | | | $ | 1,216.1 | |
| Cost of sales | 231.0 | | | 198.2 | | | 878.7 | | | 750.6 | |
| Gross profit | 105.0 | | | 127.4 | | | 512.8 | | | 465.5 | |
| Selling, general, and administrative expenses | 48.3 | | | 41.5 | | | 179.3 | | | 149.4 | |
| Research and technical expenses | 7.0 | | | 5.8 | | | 26.3 | | | 22.6 | |
| Restructuring and other (income) charges, net | 3.9 | | | 5.2 | | | 16.2 | | | 18.5 | |
| Acquisition-related costs | (0.3) | | | 0.1 | | | 0.6 | | | 1.8 | |
| Other (income) expense, net | (1.7) | | | (4.0) | | | 79.9 | | | (4.1) | |
| Interest expense, net | 11.5 | | | 12.4 | | | 47.7 | | | 42.2 | |
| Income (loss) before income taxes | 36.3 | | | 66.4 | | | 162.8 | | | 235.1 | |
| Provision (benefit) for income taxes | 7.0 | | | 20.4 | | | 44.7 | | | 53.7 | |
| Net income (loss) | $ | 29.3 | | | $ | 46.0 | | | $ | 118.1 | | | $ | 181.4 | |
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| Per share data | | | | | | | |
| Basic earnings (loss) per share | $ | 0.74 | | | $ | 1.12 | | | $ | 2.97 | | | $ | 4.39 | |
| Diluted earnings (loss) per share | $ | 0.74 | | | $ | 1.11 | | | $ | 2.95 | | | $ | 4.37 | |
| Weighted average shares outstanding | | | | | | | |
| Basic | 39.3 | | | 41.1 | | | 39.8 | | | 41.3 | |
| Diluted | 39.6 | | | 41.4 | | | 40.1 | | | 41.5 | |
Financial Schedules - Page 1
INGEVITY CORPORATION
Segment Operating Results (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | | | | | | | |
Performance Materials (1) | $ | 132.0 | | | $ | 160.7 | | | $ | 516.8 | | | $ | 510.0 | |
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| Performance Chemicals | 204.0 | | | 164.9 | | | 874.7 | | | 706.1 | |
| Pavement Technologies product line | 33.0 | | | 29.7 | | | 195.4 | | | 186.8 | |
Industrial Specialties product line (1) | 128.8 | | | 100.7 | | | 493.5 | | | 391.6 | |
| Engineered Polymers product line | 42.2 | | | 34.5 | | | 185.8 | | | 127.7 | |
| Total net sales | $ | 336.0 | | | $ | 325.6 | | | $ | 1,391.5 | | | $ | 1,216.1 | |
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Segment EBITDA (2) | | | | | | | |
| Performance Materials | $ | 58.0 | | | $ | 84.3 | | | $ | 249.4 | | | $ | 249.2 | |
| Performance Chemicals | 21.6 | | | 26.6 | | | 172.8 | | | 148.7 | |
Total segment EBITDA (2) | $ | 79.6 | | | $ | 110.9 | | | $ | 422.2 | | | $ | 397.9 | |
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Interest expense, net | (11.5) | | | (12.4) | | | (47.7) | | | (42.2) | |
(Provision) benefit for income taxes | (7.0) | | | (20.4) | | | (44.7) | | | (53.7) | |
| Depreciation and amortization - Performance Materials | (9.9) | | | (8.7) | | | (36.8) | | | (31.2) | |
| Depreciation and amortization - Performance Chemicals | (18.3) | | | (18.0) | | | (73.1) | | | (69.0) | |
Pension and postretirement settlement and curtailment (charges) income, net (3) | — | | | (0.1) | | | — | | | (0.1) | |
Restructuring and other income (charges), net (4) | (3.9) | | | (5.2) | | | (16.2) | | | (18.5) | |
Acquisition and other-related costs (5) | 0.3 | | | (0.1) | | | (0.6) | | | (1.8) | |
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Litigation verdict charge (6) | — | | | — | | | (85.0) | | | — | |
| Net income (loss) | $ | 29.3 | | | $ | 46.0 | | | $ | 118.1 | | | $ | 181.4 | |
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| _________________ | | | | |
(1) In 2021, we updated disaggregated revenue disclosures, combining certain product groups to reflect categories that depict how the nature, amount, and uncertainty of revenue and cash flows are affected by economic factors. As a result, Automotive Technologies and Process Purification product lines have been combined within the Performance Materials segment. Similarly, the Oilfield Technologies product line has been combined with the Industrial Specialties product line within the Performance Chemicals segment. |
(2) Segment EBITDA is the primary measure used by our chief operating decision maker to evaluate the performance of and allocate resources among our operating segments. Segment EBITDA is defined as segment revenue less segment operating expenses (segment operating expenses consist of costs of sales, selling, general and administrative expenses, other (income) expense, net, excluding depreciation and amortization). We have excluded the following items from segment EBITDA: interest expense, net, associated with corporate debt facilities, income taxes, depreciation, amortization, restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, pension and postretirement settlement and curtailment (income) charges, net. |
(3) For the year ended December 31, 2020, all charges relate to the Performance Materials segment. Our pension and postretirement settlement and curtailment charges (income) are related to the acceleration of prior service costs, as a result of a reduction in the number of participants within the Union Hourly defined benefit pension plan during 2020. These are excluded from our segment results because we consider these costs to be outside our operational performance. We continue to include the service cost, amortization of prior service cost, interest costs, expected return on plan assets, and amortized actual gains and losses in our segment EBITDA. |
(4) For the three and twelve months ended December 31, 2021, charges of $1.5 million and $6.0 million relate to the Performance Material segment, respectively, and charges of $2.4 million and $10.2 million relate the Performance Chemicals segment. For the three and twelve months ended December 31, 2020, charges of $2.0 million and $7.4 million relate to the Performance Material segment, respectively, and charges of $3.2 million and $11.1 million relate the Performance Chemicals segment. |
(5) For the three and twelve months ended December 31, 2021, income (charges) of zero and $(0.2) million relate to the acquisition of a strategic investment in the Performance Materials segment and $0.3 million and $(0.4) million relate to the integration of the Perstorp Capa business into our Performance Chemicals segment, respectively. For the three and twelve months ended December 31, 2020, all charges relate to the integration of the Perstorp Capa business into our Performance Chemicals segment. |
(6) For the year ended December 31, 2021, litigation verdict charge relates to the Performance Materials segment. |
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Financial Schedules - Page 2
INGEVITY CORPORATION
Condensed Consolidated Balance Sheets (Unaudited) | | | | | | | | | | | |
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| December 31, |
| In millions | 2021 | | 2020 |
| Assets | | | |
| Cash and cash equivalents | $ | 275.4 | | | $ | 257.7 | |
| Accounts receivable, net | 161.7 | | | 148.0 | |
| Inventories, net | 241.2 | | | 189.0 | |
| Prepaid and other current assets | 46.6 | | | 34.0 | |
| Current assets | 724.9 | | | 628.7 | |
| Property, plant and equipment, net | 719.7 | | | 703.6 | |
| Goodwill | 442.0 | | | 445.3 | |
| Other intangibles, net | 337.6 | | | 373.3 | |
| Restricted investment | 76.1 | | | 73.6 | |
| Other assets | 168.7 | | | 110.0 | |
| Total Assets | $ | 2,469.0 | | | $ | 2,334.5 | |
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| Liabilities | | | |
| Accounts payable | $ | 125.8 | | | $ | 104.2 | |
| Accrued expenses | 51.7 | | | 46.6 | |
| Other current liabilities | 91.4 | | | 72.6 | |
| Current liabilities | 268.9 | | | 223.4 | |
| Long-term debt including finance lease obligations | 1,250.0 | | | 1,267.4 | |
| Deferred income taxes | 114.6 | | | 117.0 | |
| Other liabilities | 161.7 | | | 84.6 | |
| Total Liabilities | 1,795.2 | | | 1,692.4 | |
| Equity | 673.8 | | | 642.1 | |
| Total Liabilities and Equity | $ | 2,469.0 | | | $ | 2,334.5 | |
Financial Schedules - Page 3
INGEVITY CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions | 2021 | | 2020 | | 2021 | | 2020 |
| Cash provided by (used in) operating activities: | | | | | | | |
| Net income (loss) | $ | 29.3 | | | $ | 46.0 | | | $ | 118.1 | | | $ | 181.4 | |
| Adjustments to reconcile net income (loss) to cash provided by operating activities: | | | | | | | |
| Depreciation and amortization | 28.2 | | | 26.7 | | | 109.9 | | | 100.2 | |
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| Other non-cash items | 12.3 | | | 21.9 | | | 43.4 | | | 66.0 | |
| Changes in operating assets and liabilities, net of effect of acquisitions: | | | | | | | |
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| Changes in other operating assets and liabilities, net | 6.2 | | | 58.7 | | | 21.6 | | | 4.8 | |
| Net cash provided by (used in) operating activities | $ | 76.0 | | | $ | 153.3 | | | $ | 293.0 | | | $ | 352.4 | |
| Cash provided by (used in) investing activities: | | | | | | | |
| Capital expenditures | $ | (37.4) | | | $ | (31.1) | | | $ | (103.8) | | | $ | (82.1) | |
| Finance lease expenditures | — | | | — | | | — | | | (23.8) | |
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| Purchase of strategic investments | (18.8) | | | — | | | (35.3) | | | — | |
| Other investing activities, net | (1.0) | | | (1.1) | | | (1.5) | | | (4.7) | |
| Net cash provided by (used in) investing activities | $ | (57.2) | | | $ | (32.2) | | | $ | (140.6) | | | $ | (110.6) | |
| Cash provided by (used in) financing activities: | | | | | | | |
| Proceeds from revolving credit facility | $ | — | | | $ | — | | | $ | — | | | $ | 346.1 | |
| Proceeds from long-term borrowings | — | | | 550.0 | | | — | | | 550.0 | |
| Payments on revolving credit facility | — | | | (170.0) | | | — | | | (477.3) | |
| Payments on long-term borrowings | (4.6) | | | (375.0) | | | (23.4) | | | (389.1) | |
| Debt issuance costs | — | | | (11.0) | | | — | | | (11.0) | |
| Financing lease obligations, net | (0.1) | | | (0.2) | | | (0.7) | | | 23.1 | |
| Borrowings (repayments) of notes payable and other short-term borrowings, net | — | | | (3.5) | | | (1.9) | | | (4.4) | |
| Tax payments related to withholdings on vested equity awards | — | | | (0.2) | | | (2.4) | | | (3.2) | |
| Proceeds and withholdings from share-based compensation plans, net | 1.0 | | | 0.5 | | | 4.7 | | | 3.6 | |
| Repurchases of common stock under publicly announced plan | (9.1) | | | (55.6) | | | (109.4) | | | (88.0) | |
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| Net cash provided by (used in) financing activities | $ | (12.8) | | | $ | (65.0) | | | $ | (133.1) | | | $ | (50.2) | |
| Increase (decrease) in cash, cash equivalents, and restricted cash | 6.0 | | | 56.1 | | | 19.3 | | | 191.6 | |
| Effect of exchange rate changes on cash | 0.1 | | | 1.9 | | | (1.7) | | | 2.2 | |
Change in cash, cash equivalents, and restricted cash | 6.1 | | | 58.0 | | | 17.6 | | | 193.8 | |
| Cash, cash equivalents, and restricted cash at beginning of period | 269.9 | | | 200.4 | | | 258.4 | | | 64.6 | |
Cash, cash equivalents, and restricted cash at end of period (1) | $ | 276.0 | | | $ | 258.4 | | | $ | 276.0 | | | $ | 258.4 | |
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(1) Includes restricted cash of $0.6 million and $0.7 million, and cash and cash equivalents of $275.4 million and $257.7 million, for the years ended December 31, 2021 and 2020, respectively. Restricted cash is included within "Prepaid and other current assets" within the consolidated balance sheets. |
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| Supplemental cash flow information: | | | | | | | |
| Cash paid for interest, net of capitalized interest | $ | 12.0 | | | $ | 1.9 | | | $ | 47.5 | | | $ | 39.6 | |
| Cash paid for income taxes, net of refunds | 10.5 | | | 5.2 | | | 53.7 | | | 46.6 | |
| Purchases of property, plant and equipment in accounts payable | 3.5 | | | 0.8 | | | 9.4 | | | 2.7 | |
| Leased assets obtained in exchange for new finance lease liabilities | — | | | — | | | — | | | 23.8 | |
| Leased assets obtained in exchange for new operating lease liabilities | 5.8 | | | 2.7 | | | 20.5 | | | 27.2 | |
Financial Schedules - Page 4
Ingevity Corporation
Non-GAAP Financial Measures
Ingevity has presented certain financial measures, defined below, which have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP on the following pages. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. 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.
We believe these non-GAAP financial measures provide management as well as investors, potential investors, securities analysts and others with useful information to evaluate the performance of the business, because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.
Ingevity uses the following non-GAAP measures:
Adjusted earnings (loss) is defined as net income (loss) plus restructuring and other (income) charges, net, acquisition and other-related costs, litigation verdict charges, pension and postretirement settlement and curtailment (income) charges and the income tax expense (benefit) on those items, less the provision (benefit) from certain discrete tax items.
Diluted adjusted earnings (loss) per share is defined as diluted earnings (loss) per common share plus restructuring and other (income) charges, net per share, acquisition and other-related costs per share, litigation verdict charge per share, pension and postretirement settlement and curtailment (income) charges per share and the income tax expense (benefit) per share on those items, less the per share tax provision (benefit) from certain discrete tax items per share.
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, acquisition and other-related costs, litigation verdict charge, pension and postretirement settlement and curtailment (income) charges, net.
Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Net sales.
Free Cash Flow is defined as the sum of cash provided by (used in) the following items: operating activities less capital expenditures.
Net Debt is defined as the sum of notes payable, short-term debt, current maturities of long-term debt and long-term debt less the sum of cash and cash equivalents, restricted cash associated with our New Market Tax Credit financing arrangement, and restricted investment.
Net Debt Ratio is defined as Net Debt divided by last twelve months Adjusted EBITDA, inclusive of acquisition-related pro forma adjustments.
Ingevity also uses the above financial measures as the primary measures of profitability used by managers of the business. In addition, Ingevity believes Adjusted EBITDA and Adjusted EBITDA Margin are useful measures because they exclude the effects of financing and investment activities as well as non-operating activities.
GAAP Reconciliation of 2022 Adjusted EBITDA Guidance
A reconciliation of net income to adjusted EBITDA as projected for 2022 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 costs; litigation verdict charges; 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.
Financial Schedules - Page 5
INGEVITY CORPORATION
Reconciliation of Non-GAAP Financial Measures
Reconciliation of Net Income (Loss) (GAAP) to Adjusted Earnings (Loss) (Non-GAAP) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions, except per share data (unaudited) | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) (GAAP) | $ | 29.3 | | | $ | 46.0 | | | $ | 118.1 | | | $ | 181.4 | |
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Restructuring and other (income) charges, net | 3.9 | | | 5.2 | | | 16.2 | | | 18.5 | |
Acquisition and other-related costs | (0.3) | | | 0.1 | | | 0.6 | | | 1.8 | |
Pension and postretirement settlement and curtailment charges (income) | — | | | 0.1 | | | — | | | 0.1 | |
| Litigation verdict charge | — | | | — | | | 85.0 | | | — | |
| Tax effect on items above | (1.1) | | | (1.0) | | | (23.8) | | | (4.4) | |
Certain discrete tax provision (benefit) (1) | (0.9) | | | 4.7 | | | 13.4 | | | 5.2 | |
Adjusted earnings (loss) (Non-GAAP) | $ | 30.9 | | | $ | 55.1 | | | $ | 209.5 | | | $ | 202.6 | |
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| Diluted earnings (loss) per common share (GAAP) | $ | 0.74 | | | $ | 1.11 | | | $ | 2.95 | | | $ | 4.37 | |
| Restructuring and other (income) charges | 0.10 | | | 0.12 | | | 0.40 | | | 0.45 | |
| Acquisition and other-related costs | (0.01) | | | — | | | 0.01 | | | 0.04 | |
| Pension and postretirement settlement and curtailment charges (income) | — | | | — | | | — | | | — | |
| Litigation verdict charge | — | | | — | | | 2.12 | | | — | |
| Tax effect on items above | (0.03) | | | (0.02) | | | (0.59) | | | (0.10) | |
| Certain discrete tax provision (benefit) | (0.02) | | | 0.12 | | | 0.34 | | | 0.12 | |
Diluted adjusted earnings (loss) per share (Non-GAAP) | $ | 0.78 | | | $ | 1.33 | | | $ | 5.23 | | | $ | 4.88 | |
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| Weighted average common shares outstanding - Diluted | 39.6 | | | 41.4 | | | 40.1 | | | 41.5 | |
| _______________ |
(1) Represents certain discrete tax items such as excess tax benefits on stock compensation and impacts of legislative tax rate changes. Management believes excluding these discrete tax items assists investors, potential investors, securities analysts, and others in understanding the tax provision and the effective tax rate related to continuing operating results thereby providing useful supplemental information about operational performance. |
Financial Schedules - Page 6
INGEVITY CORPORATION
Reconciliation of Non-GAAP Financial Measures
Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA (Non-GAAP)
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| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions, except percentages (unaudited) | 2021 | | 2020 | | 2021 | | 2020 |
| Net income (loss) (GAAP) | $ | 29.3 | | $ | 46.0 | | $ | 118.1 | | $ | 181.4 |
| Interest expense, net | 11.5 | | 12.4 | | 47.7 | | 42.2 |
| Provision (benefit) for income taxes | 7.0 | | 20.4 | | 44.7 | | 53.7 |
| Depreciation and amortization | 28.2 | | 26.7 | | 109.9 | | 100.2 |
| Restructuring and other (income) charges, net | 3.9 | | 5.2 | | 16.2 | | 18.5 |
| Acquisition and other-related costs | (0.3) | | 0.1 | | 0.6 | | 1.8 |
| Litigation verdict charge | — | | — | | 85.0 | | — |
Pension and postretirement settlement and curtailment charges (income) | — | | 0.1 | | — | | 0.1 |
Adjusted EBITDA (Non-GAAP) | $ | 79.6 | | $ | 110.9 | | $ | 422.2 | | $ | 397.9 |
| | | | | | | |
Net sales | $ | 336.0 | | $ | 325.6 | | $ | 1,391.5 | | $ | 1,216.1 |
| Net income (loss) margin | 8.7 | % | | 14.1 | % | | 8.5 | % | | 14.9 | % |
Adjusted EBITDA margin | 23.7 | % | | 34.1 | % | | 30.3 | % | | 32.7 | % |
Financial Schedules - Page 7
INGEVITY CORPORATION
Reconciliation of Non-GAAP Financial Measures
Calculation of Free Cash Flow (Non-GAAP)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| In millions (unaudited) | 2021 | | 2020 | | 2021 | | 2020 |
| Net cash provided by (used in) operating activities | $ | 76.0 | | | $ | 153.3 | | | 293.0 | | | 352.4 | |
| Less: Capital expenditures | 37.4 | | | 31.1 | | | 103.8 | | | 82.1 | |
| Free Cash Flow | $ | 38.6 | | | $ | 122.2 | | | $ | 189.2 | | | $ | 270.3 | |
Financial Schedules - Page 8
INGEVITY CORPORATION
Reconciliation of Non-GAAP Financial Measures
Calculation of Net Debt Ratio (Non-GAAP)
| | | | | |
| In millions, except ratios (unaudited) | December 31, 2021 |
| Notes payable and current maturities of long-term debt | $ | 19.6 | |
| Long-term debt including finance lease obligations | 1,250.0 | |
| Debt issuance costs | 10.9 | |
| Total Debt | 1,280.5 | |
| Less: | |
Cash and cash equivalents (1) | 275.7 | |
Restricted investment | 76.1 | |
Net Debt | $ | 928.7 | |
| |
| Net Debt Ratio (Non GAAP) | |
| |
| |
| |
| |
Adjusted EBITDA (2) | |
| |
| |
| |
| Adjusted EBITDA - last twelve months (LTM) as of December 31, 2021 | $ | 422.2 | |
| |
| |
| |
| Net debt ratio (Non GAAP) | 2.20x |
| _______________ | |
|
(1) Includes $0.3 million of Restricted Cash related to the New Market Tax Credit arrangement.(2) Refer to the Reconciliation of Net Income (GAAP) to Adjusted EBITDA (Non-GAAP) schedule for the reconciliation to the most comparable GAAP financial measure.
Financial Schedules - Page 9
