Ingevity Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Repositioning: Performance Chemicals repositioned to higher margin end markets; Performance Materials had a record year.
• Financials: Full year sales were $1.4 billion (down 17% from prior year). GAAP net loss was $430 million due to non-recurring charges. Adjusted EBITDA margin improved to 25.8%.
• Free Cash Flow: Generated over $50 million free cash flow despite $200 million in repositioning cash costs, ending the year with 3.5 times net leverage.
• Strategic Alternatives: Exploring strategic alternatives for the Industrial Specialties product line and North Charleston CTO Refinery.
• Safety: Achieved top quartile in personal safety performance and named one of America's most responsible companies.
• CEO Search: Interim CEO leading execution, with search for permanent CEO ongoing.

Segment Performance

• Performance Materials: Record sales and EBITDA in 2024, with margins over 50%. Sales grew 4% outpacing global auto production. EBITDA was $319 million (up 11%) with a margin of 52.3%. Expected margins around 50% in 2025.
• Advanced Polymer Technologies (APT): Higher volumes but revenue declined 8% due to unfavorable mix and price concessions. EBITDA was $35.2 million with a margin of 18.7%. Expected margins around 20% in 2025, with potential improvement as global demand recovers.
• Performance Chemicals: Revenue dropped 33% to $608 million due to repositioning and exit of lower margin markets. EBITDA was $14.7 million, better than breakeven guide. Expected mid to high single-digit EBITDA margins in 2025, with road tech expected to return to normal growth.

Guidance

• Sales: Guided for 2025 sales between $1.3 billion and $1.4 billion.
• EBITDA: Guided for EBITDA between $400 million and $415 million.
• Leverage: Expect net leverage to be below 2.8 times by end of 2025.
• Tax Rate: Full year 2025 tax rate expected between 22% and 24%.
• Performance Materials: Expected margins around 50% in 2025.
• APT: Expected margins around 20% in 2025, with potential improvement with demand recovery.
• Performance Chemicals: Mid to high single-digit EBITDA margins expected in 2025.

Risks

• Tariff Uncertainty: Potential impact on automotive production and consumer demand, though no immediate impact seen.
• Industrial Demand: Performance Chemicals still challenged by weak industrial demand and competitive price pressure.
• Working Capital: Assumption that working capital improvements from CTO inventory will be offset by growth in core business.

Question and Answer

Q: Regarding pricing in Performance Chemicals, are there further price reductions when high-cost CTO inventory is consumed?

A: Current prices reflect market levels, and when CTO inventory is consumed, there will be profit improvement but prices are already competitive, with reductions offsetting some CTO cost benefits.

Q: Trends in auto market, hybrid vs EV mix?

A: S&P Global forecasts show less decline in hybrid interest vs EVs, which is beneficial for Ingevity's automotive business.

Q: Impact of tariffs on business?

A: No immediate impact seen, but uncertainty around tariffs could affect automotive production and consumer demand.

Q: CapEx for 2025?

A: Most CapEx in 2025 is for maintenance, safety, health, and environmental, with some growth spend.

Q: Innovation spend in Performance Materials, specifically Nexium?

A: Increased spend is for development of battery applications, including silicon anodes for electric vehicles.

Q: Performance Materials margins longer term?

A: Short term, expect 50% margins; longer term, depending on market shifts, but current trends favor maintaining margins.

Q: Logistics of exploring strategic alternatives for Industrial Specialties?

A: Assessing options, keeping flexibility with raw materials, assets are collocated but can be separated, and there has been interest from outside parties.