10-K: Ingevity Corporation's 2023 Annual Report: Strategic Repositioning and Financial Review

• Ingevity Corporation's 2023 annual report highlights a strategic shift, particularly within its Performance Chemicals segment, aimed at enhancing profitability and stability.
• The company is reducing its focus on historical end-use markets within the Industrial Specialties product line, such as adhesives and publication inks, and closing its DeRidder, Louisiana manufacturing facility.
• This restructuring is expected to incur approximately $280 million in charges, with a significant portion being non-cash and recognized in 2024.
• The company is also transitioning its Crossett, Arkansas facility to process non-CTO plant-based feedstocks, diversifying its raw material sources.
• Ingevity's Performance Materials segment saw growth in automotive carbon product sales, while Advanced Polymer Technologies experienced a sales decrease due to market weakness.
• The company's net sales for 2023 were $1.692 billion, a slight increase from $1.668 billion in 2022, with a gross profit of $471.9 million, down from $570.1 million in the previous year.
• Ingevity reported a net loss of $5.4 million for 2023, compared to a net income of $211.6 million in 2022, primarily due to restructuring charges and increased manufacturing costs.
• The company's Adjusted EBITDA for 2023 was $396.8 million, down from $452.6 million in 2022.
• Ingevity expects 2024 net sales to be between $1.40 billion and $1.55 billion and Adjusted EBITDA to be between $365 million and $390 million.

Score: 4

Explanation: The document presents a mixed picture. While there are positive aspects like strategic repositioning and growth in certain segments, the significant net loss, restructuring charges, and ongoing legal issues create a negative sentiment. The forward-looking guidance is also somewhat cautious, indicating a challenging year ahead.

• The Performance Materials segment experienced solid automotive volume growth due to improved semiconductor chip availability and China automobile production stimulus.
• The company is actively diversifying its raw material stream by transitioning the Crossett facility to non-CTO plant-based feedstocks.
• Ingevity is focusing on higher-margin and higher-growth specialty products, which is expected to improve profitability.
• The company has a strong safety program and culture, with ongoing efforts to improve safety training and incident reporting.
• Ingevity has a diverse and experienced team, with a focus on attracting and retaining top talent.
• The company is leveraging sustainability by adding value to products made from renewable materials.

• The company reported a net loss of $5.4 million for 2023, a significant decrease from the $211.6 million net income in 2022.
• The Performance Chemicals segment experienced a decrease in sales in its Industrial Specialties product line due to weak demand.
• The company is facing significant cost pressures from elevated CTO raw material costs.
• The restructuring of the Performance Chemicals segment is expected to incur approximately $280 million in charges.
• The company is dependent on third parties for critical operating services at several facilities, which poses a risk to operations.
• Ingevity is involved in ongoing legal actions related to intellectual property rights, which could result in significant costs and diversion of resources.

• The closure of the DeRidder plant may result in adverse legal or regulatory actions and may obligate the company to purchase excess CTO volumes.
• The company is dependent on third parties for critical operating services, and any disruption could negatively impact operations.
• Disruptions at any of the company's facilities due to natural disasters, labor difficulties, or equipment failure could negatively impact production.
• The company is highly dependent on CTO as a raw material, which is in limited supply and subject to price increases.
• Adverse conditions in the automotive market may negatively impact demand for automotive carbon products.
• The company faces competition from new technologies and new or emerging competitors.
• The company is dependent on certain large customers, the loss of which could have a material adverse effect on sales.
• Cyber-attacks, data breaches, or a failure of information technology systems could disrupt operations and expose the company to liability.
• The company is exposed to risks inherent in international sales and operations, including fluctuations in foreign currency exchange rates and geopolitical instability.
• Environmental regulations and related legal proceedings have the potential to involve significant costs and liability for Ingevity.

Ingevity expects 2024 net sales to be between $1.40 billion and $1.55 billion and Adjusted EBITDA to be between $365 million and $390 million. The company anticipates growth in Performance Materials and Road Technologies, while Advanced Polymer Technologies is expected to see a demand rebound in the second half of the year.

• Management is focused on growing the most profitable Performance Chemicals product lines such as road technologies.
• Management is accelerating the transition to non-crude tall oil (CTO)-based fatty acids.
• Management intends to manage CTO inventories by reselling excess volumes in the open market.

The report reflects broader industry trends of companies seeking to diversify raw material sources and focus on higher-margin products. The shift towards sustainable and renewable materials is also evident in Ingevity's strategic decisions. The automotive industry's transition to electric vehicles poses a long-term risk to the company's activated carbon business, which Ingevity is attempting to mitigate by developing products for all-electric and hydrogen fuel cell vehicles.

• Ingevity's performance in 2023, particularly the net loss and decline in Adjusted EBITDA, is below the performance of some of its peers in the specialty chemicals industry, such as Eastman Chemical Company, which reported a net income of $315 million in Q4 2023.
• The restructuring charges and plant closures are similar to actions taken by other companies in the chemical sector facing supply chain disruptions and cost pressures, such as DuPont's restructuring plan announced in 2023.
• Ingevity's focus on sustainable and renewable materials aligns with the broader industry trend towards environmentally friendly products, similar to companies like Novozymes and Corbion.
• The company's reliance on CTO as a raw material is a unique challenge compared to competitors that use more diversified feedstocks, such as Kraton Corp. and Eastman Chemical Co.
• Ingevity's road technologies business competes with companies like Nouryon Chemicals B.V. and Arkema S.A., which also offer road construction and pavement preservation products.

• Shareholders will be impacted by the net loss and restructuring charges, but may benefit from the company's strategic repositioning and focus on higher-margin products.
• Employees may be affected by the workforce reductions and plant closures, but the company is committed to providing a safe and rewarding workplace.
• Customers may experience changes in product offerings as the company reduces its focus on certain end-use markets.
• Suppliers may be impacted by the company's transition to non-CTO plant-based feedstocks.
• Creditors may be affected by the company's increased debt levels and restructuring activities.

• The company will continue to execute its strategic plan to reposition the Performance Chemicals segment.
• Ingevity will focus on growing its most profitable product lines and diversifying its raw material sources.
• The company will manage its CTO inventories by reselling excess volumes in the open market.
• Ingevity will continue to monitor and address the ongoing legal actions related to intellectual property rights.
• The company will continue to implement its new ERP system and monitor its effectiveness.

• Ingevity is involved in ongoing legal actions related to intellectual property rights, specifically the 844 Patent, with a final resolution potentially taking up to 24 months.
• The company has accrued $85.0 million for the jury verdict against it in the Delaware Proceeding.

• 1964: Ingevity's business originated as part of the operations of Westvaco Corporation.
• May 2016: Ingevity separated from WestRock Company and began trading on the New York Stock Exchange.
• July 19, 2018: Ingevity filed suit against BASF Corporation alleging patent infringement.
• February 14, 2019: BASF asserted counterclaims against Ingevity in the Delaware Proceeding.
• November 18, 2020: The U.S. District Court dismissed Ingevity's patent infringement claims against BASF.
• September 15, 2021: A jury in the Delaware Proceeding issued a verdict in favor of BASF on the BASF Counterclaims.
• May 18, 2023: The court in the Delaware Proceeding entered judgment on the jury's verdict.
• April 2023: Ingevity ceased the processing of CTO at the Crossett Arkansas facility and converted the facility to the processing of a variety of plant based feedstocks.
• November 1, 2023: Ingevity announced the planned closure of the DeRidder, Louisiana CTO facility.
• February 13, 2024: The court in the Delaware Proceeding denied BASF's motion for pre-judgment interest and Ingevity's motion for judgment as a matter of law.
• February 14, 2024: Ingevity had 36,235,885 shares of common stock outstanding.