Ingevity Corp Q1 FY2025 earnings call

Key Messages

• Company delivered strong first quarter with fourth consecutive quarter of year-over-year margin expansion. Focus on driving profitability, free cash flow, and improving leverage. David Li joined as CEO, Bruce Hoechner elected as chair. Repositioning actions successful in reducing exposure to lower margin end markets. Free cash flow improved $44 million from Q1 last year, net leverage ended at 3.3x. Michael Shukov joined as President of APT in March. Monitoring tariffs and macro demand conditions, with mitigation plans in place.

Performance Materials

• Higher sales due to favorable regional and product mix, annual price increases. In Q1, volume growth in China from government incentives, rest of Asia-Pacific due to exports to US anticipating tariffs, and favorable mix in North America offsetting lower volume. EBITDA margins near 54% in Q1. For full year 2025, continue to expect segment margins around 50%.

APT (Advanced Polymer Technologies)

• Lower overall sales in the quarter with mixed volumes by region. North America and EMEA volumes higher, Asia volumes down due to customers working through inventory and increased competition. EBITDA higher by $3 million in Q1, margins increased to 29.6%. Full year margins expected at approximately 20%.

Performance Chemicals

• Sales lower by 35% primarily due to repositioning actions. Industrial specialties revenue in line with quarterly run rate expectations. Segment EBITDA showed year-over-year improvement due to lower CTO costs and cost savings. Continue to expect full year segment EBITDA margins in mid to high single digits.

Guidance

• Widened guidance range for sales and EBITDA to reflect 10% reduction in North American auto production in line with industry forecast. Affirm prior guidance of leverage less than 2.8x by end of year. Continue to expect segment margins around 50% for Performance Materials in full year 2025. Adjusted low end of guidance for Performance Materials due to potential slowdown in auto production, but can pivot to filtration markets if needed.

Risks

• Impact of tariffs and broader global uncertainty on auto production. Potential slowdown in North American auto production affecting EBITDA. Increased competition in Asia for APT business.

Q: Can you speak to the pricing in the Performance Materials business and tariff mitigation?

A: Performance Materials typically does annual price increases, which is a lever to mitigate impacts. Tariff mitigation plans include utilizing existing inventory, expanding localization of material sourcing, and adjusting price where appropriate.

Q: Update on strategic review of industrial specialties?

A: Process is progressing well with broad interest, discussions are live but no specific details can be provided yet, with progress expected before end of year.

Q: Cash flow forecast and impact of EV slowdown?

A: History shows in scenarios articulated, free cash flow guide is affirmed. EV slowdown doesn't significantly impact investment in Nexeon as it relates to new battery technology and hybrids are still growing.

Q: Competition in China for APT and ability to recoup pricing?

A: Competitive environment in China, but new leader Michael Shukov brings experience and optimization of commercial approach. Encouraged by technology differentiation and progress, though it will be a slog.