Hello and welcome to today's Ingevity third quarter 2025 earnings call and webcast. My name is Bailey and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I'd now like to pass the conference over to John Nypavla, so please go ahead when you're ready.

Thank you, Bailey. Good morning and welcome to Ingevity's third quarter 2025 earnings call. Earlier this morning, we posted a presentation on our investor site that you can use to follow today's discussion. It can be found on ir.angevity.com under events and presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. For example, we are presenting the pending divestiture of our industrial specialties business for the first time within discontinued operations. In the appendix to our slides, we provide details that reconcile to total operations. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our most recent form, 10K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call, and we caution you that these statements are just projections and actual results or events may differ materially from those projections as further described in our earnings release. Our agenda is on slide three. Our speakers today are David Lee, our CEO, and Mary Dean Hall, our CFO. Dave will provide introductory comments. Mary will follow with a review of our consolidated financial performance and the business segment results for the quarter. Dave will then provide closing comments and discuss 2025 guidance. With that, over to you, Dave. Thanks, John, and good morning, everyone.

It was a highly productive quarter of strong execution for longevity. First, we achieved an important milestone in our strategic portfolio review with the announcement of the sale of our industrial specialties business for 110 million dollars. We expect this transaction to close in early 2026 and will likely use the majority of the proceeds towards further debt reduction. Second, we were pleased with our business segment results. Performance materials delivered another strong quarter within a dynamic global auto environment. Going forward, we are encouraged by the adoption of hybrids and fuel-efficient ice platforms, which should drive demand for advanced longevity solutions and content. Road Technologies also had a great quarter, highlighted by record sales for our pavement business in North America. Finally, APT delivered strong margins as the team prioritized operational improvements against a backdrop of continued weak end-market demand. Overall, these contributions reflect our team's disciplined execution as well as strategic repositioning actions, which drove best-in-class EBITDA margins of 33 percent, reflecting our sixth consecutive quarter of year-over-year margin expansion. Strong cash flow generation and disciplined capital allocation enabled us to reduce debt, achieve our leveraged target ahead of plan, and return capital to shareholders through share repurchases. And third, I'm very excited to announce we hired Ruth Castillo to lead our performance materials business. Ruth is a strategic and experienced leader with a deep understanding of how to navigate complex businesses and unlock new growth opportunities. I look forward to her leadership in guiding performance materials into its next phase of profitable growth. Before I turn it over to Mary for more details on the financials, I'm pleased to share that we will host an investor update on December 8th. This will be a virtual event where we'll share the results of the Strategic Portfolio Review and provide an assessment on what we believe the company will look like over the next two years. More details on how to register for the event will be forthcoming. And now I'll turn it over to Mary.

Thanks, Dave, and good morning all. It's nice to have some good news to share in this unsettled economic environment. Our Q3 results reflected continued growth in adjusted EBITDA, margins, and free cash flow despite pressure on the top line, affirming the resilience of our businesses and the successful execution of our repositioning actions and performance chemicals as previously noted with the announced sale of industrial specialties we're now reporting the results of that business as discontinued operations with the sale expected to close by early 2026. given our close proximity to year end and that full year guidance is based on total company performance i'll focus my comments on total company results so that comparisons to prior periods are apples to apples. I'll provide more color on continuing and discontinued operations when we discuss the performance chemicals results. Please refer to slide five. Total company sales of 362 million in Q3 were down about four percent as increased sales in performance materials and road technologies were more than offset by decreases in industrial specialties and APT. Gross margin improved over 600 basis points, reflecting significantly lower raw material costs, primarily in industrial specialties, and the successful execution of our repositioning actions. SG&A increased due primarily to higher variable compensation expense on improved business results. Adjusted earnings improved significantly, up almost 500 basis points to $56.3 million, driving adjusted EBITDA margin to 33.5%. Please turn to slide six. As a result of strong earnings and disciplined capital management, our free cash flow of $118 million enabled us to repurchase $25 million of shares in the quarter and accelerate deleveraging. We ended the quarter with net leverage of 2.7 times, already beating our previous year-end target of 2.8 times. We now expect net leverage to be approximately 2.6 times by year-end. This does not include the benefit of any proceeds from the sale of industrial specialties, which is expected to close by early 2026, as I mentioned earlier turning to slide seven performance material sales increased three percent primarily due to volume growth reflecting improved global auto production segment EBITDA and EBITDA margin were down a bit as the benefit from increased volumes and price was more than offset by increased variable compensation expense and a negative impact from foreign exchange Q4 is looking solid, but we do expect Q4 to be a bit softer, coming off of a strong Q2 and Q3. So on a full year basis, we expect PM revenue to be flat to slightly down year over year, with EBITDA margins over 50%. Our results demonstrate the resilience of this business in the face of unprecedented uncertainty caused by the dynamic tariff environment. Please turn to slide 8 for APT results. Sales in APT declined year over year for many of the same reasons we discussed last quarter. The indirect impact of tariffs continues to weigh on already weak end market demand, especially in footwear and apparel, delaying the upturn we otherwise expected to see. In addition, competitive dynamics in China are continuing to impact sales in the paint protective film markets. The team did a great job holding onto price where possible and managing costs and posted an EBITDA margin of 26% for the quarter, which also reflected a tailwind from foreign exchange. Near term, we see no indications that the current market conditions or competitive dynamics will improve. We now expect full year revenue for APT to be down by mid-teens on a percentage basis with full year EBITDA margin of 15 to 20 percent down from their more typical 20% area margins due to the extended plant outage in Q2. On slide nine, performance chemicals, the left side presents a combined view of performance chemicals results, including continuing operations and discontinued operations. As I mentioned earlier, with the announced sale of industrial specialties, accounting rules require that we separate results of the product lines being divested into discontinued operations. However, because the sale is not yet completed and our guidance is for full company results, we're showing the Q3 results on a combined basis. As you can see, combined sales were down almost 5% due to industrial specialties and our repositioning actions in that business. Road Technologies posted sales up 5% as the pavement business delivered a record Q3 in North America, which is our largest and most profitable region. Road Technologies, as part of continuing operations, includes the lignin-based dispersants business previously included in industrial specialties. Combined segment EBITDA and EBITDA margins improve significantly year-over-year due to lower raw material costs in industrial specialties and the successful execution of repositioning action. On a continuing operations basis, performance chemicals EBITDA margins were down slightly, primarily as a result of pricing decisions made in the road markings business to maintain volumes. Please refer to slide 27 in the appendix of the slide deck for a reconciliation of performance chemicals segment EBITDA on a continuing operations basis to the combined segment EBITDA, inclusive of discontinued operations. On the right-hand side of slide 9, we've added some detail regarding the impact of the divestiture on the combined results. There's noise in the Q3 numbers so we believe it's most useful to look at the estimated impact on a full year basis. As you can see we expect the divestiture to contribute approximately 130 million dollars in sales for the full year with an EBITDA margin of approximately 6% inclusive of indirect costs. Please note that these indirect costs related to the divestiture, often referred to as stranded costs, are included in continuing operations for reporting purposes. On a full year basis, we estimate these indirect costs will be approximately $15 million, dollars, which we expect to eliminate by the end of 2026. In addition, the divestiture is expected to contribute approximately 40 million dollars to free cash flow on a full year basis, primarily due to lower working capital. In summary, we continue to focus on delivering results in a very challenging and are proud to report our sixth consecutive quarter of year-over-year adjusted EBITDA margin expansion. In addition, with our strong pre-cash flow, we have strengthened the balance sheet and resumed share repurchases. I'll now turn the call back over to you, Dave, for update on guidance.

Thanks, Mary. Please turn to slide 10. We are very pleased with our third quarter results and are on track for a strong finish to the year. Our results reflect sustained execution, the durability of our business model, and our leadership in the industries we serve. We are raising full-year free cash flow guidance and now expect net leverage to be around 2.6 times by year-end. We will continue to be disciplined in how we allocate capital and look forward to closing the sale of our industrial specialties business soon. Lastly, given the ongoing tariff uncertainty and slower industrial demand primarily impacting APT, we're adjusting our full-year outlook to narrow the top end of our sales and EBITDA range. In closing, we look forward to hosting everyone virtually on December 8th for our investor update when we will provide the results of our strategic portfolio review and our expectations for the future. With that, I'll turn it over for questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Once again, to ask a question, please press star followed by one. Our first question today comes from the line of John Tamanteng from CGS Securities. Please go ahead. Your line is now open.

Hi, good morning. Thank you for taking my questions and nice job in the quarter. My first question is just regarding the four-year outlook. I noticed that you're taking down the top end for APT, which makes sense. I was wondering if you could actually speak to the performance materials segment and to the publicized aluminum plant fires in North America, the chip shortages that are going on in China and just how that's impacting your outlook there and what's implied in the guidance and if you've accounted for that.

Yeah, thanks, John. Yeah, with respect to those challenges you mentioned, obviously, if you zoom out, it's been a pretty dynamic year for the industry. I think it actually speaks to the resilience of the auto industry in general. I mean, we've been through tariffs, some macro uncertainty, and as you mentioned, some more recent supply chain challenges and our our results and outlook would reflect any impact from those but I think overall if you look at the results we've delivered for performance materials it demonstrates also the durability of our business the continued leadership we have in that space and I think quarter over quarter we've continued to deliver strong results but But to answer your question, on those two supply chain challenges, our results and outlook do reflect any impact to those.

Got it. That's helpful. Thank you. And then just on the discontinued ops, you mentioned, or I guess you gave metrics for what you expect from the year in the in-spec business.

Could you kind of tell us what's implied in the Q4, just because we don't have the first half results in there, and then you broke out the Q3? um in terms of your contribution this is john you know we uh we do show full year uh for that discontinued ops um it should be easy for you to get to that i would think but we can talk offline if if you need help on that yeah and john i i kind of just in terms of sizing the business on an annualized basis think of it as about a kind of mid single digit evita business.

So we've reported three quarters of it. So kind of extrapolating that out to the fourth quarter, I think would make sense. Okay, great. Thanks.

Thank you. Our next question today comes from the line of Daniel Rizzo from Jefferies. Please go ahead. Your line is now open.

Hey, guys. You mentioned working capital and free cash flow. I was just wondering how we should think about working capital posted divestiture as maybe as a percent of sales or just how So, you plan to, yeah, to kind of manage that.

So, you're really thinking looking forward into 2026, Dan?

Right. Well, just, I mean, not for just 2026, but just how it changes it all once the business is divested.

Hey, Dan. This is Phil. I think if you look at our balance sheet, which is included in the press release schedules, we broke out the impact of the discontinued ups on the balance sheet and pulled them out at separate line items so it'll give you a really good clear indication for what we're thinking working capital looks like for the business going forward okay and then you you mentioned that um i think that that diva is going to be about 27.7 times um at the end of the year and then you get 110 million roughly from from the sale i mean and that's going to be used towards debt so i guess my So my question is, what is the net depth even to target?

Because it seems like that would bring you relatively low.

So, Dan, just for clarity, we finished the quarter at 2.7 times. And as a result of beating our year-end target already, we're reducing our target for year-end to 2.6.

Right. And then in terms of use of proceeds, Dan, we mentioned or I mentioned in my comments, comments, we'd likely use the majority of proceeds when received to further pay down debt. I want to hold off a little bit because we'll also talk more about capital allocation as one of the major topics on December 8th, but obviously if you look at primary use of the proceeds as debt reduction, you can do that trajectory down. But we're really pleased with our achievements so far ahead of plan. We had targeted 2.8 or below by end of year, so we finished the quarter, as Mary mentioned, at 2.7, and we think we've got GlidePath at 2.6 without any use of proceeds to pay down further debt. Thank you very much.

Thank you. As a reminder, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad. We have no additional questions waiting at this time. So I'd like to pass the call back over to John Nybaba for any closing remarks.

Actually, Bailey, I believe someone is in the queue, if you wouldn't mind double checking.

Yes, we will take our next question. Apologies from John McNulty from BMO Capital Markets. Please go ahead.

Yeah, good morning. Sorry about the last second question there. So I guess I just wanted to understand performance materials a little bit better for the full year sales to be kind of flat to slightly down. I mean, when we look at kind of the overall auto forecasts out there, they're roughly in line with that, but I assume normally you're getting some reasonable amount of price. So I guess is there some negative mix that we should be thinking about on the auto builds that may be contributing to, you know, this type of a result? Or is pricing maybe more modest than it's been where maybe it's taken a little bit of a pause after the last few years? I guess, can you help us to think about that?

Yeah, John. So as we mentioned earlier in the year, we've taken pricing as we typically do. I think there's, you know, when you look at the auto forecasts, as we do as well, they're calling for sort of flattish to slightly down. That's similar to RPM business. But in terms of the overall mix of those vehicles, obviously we've had a lot of volatility, for example, for EVs throughout the year. So when you look at the overall trend for automobiles may not reflect just ICE and hybrids. We think we have a very strong position in that market. Market continues to be healthy. Actually, still inventory levels are pretty low and the fleet remains pretty aged. So we're thinking that we're even not back to a healthy level production.

But given that i think that's how sort of the the math would shake out for us it's just not taking into account the portion that's evs but mary what what else would you add yeah maybe just another little point of clarity um focusing on north american production which as you know john is where were most profitable. While the forecast has improved again, actually for the full year for North America in particular, it's still down. So it's the latest forecast information we have is that even North America is still down a couple of percent year over year, albeit an improvement over the prior forecast. So I think that in combination with some of the noise that we're also, as we mentioned, factoring in the fire at Ford, chip issues, et cetera, that are making noise in the supply chain system of automotive, we feel comfortable with our current guide.

Got it. Okay, fair enough. So it sounds like it's really a mixed thing more than anything else. And then I guess the other question is just any update on the Nexion platform and that venture and how things may be going there.

Yeah. So as we mentioned with Nexion, that's a kind of a far out R&D type of initiative. We do expect their plant to be up and running in the next few months. As a reminder, that's not using our activated carbon for this first generation. but continues to be a strong partnership and an exciting space that we look forward to participating in with them. Thanks very much for the caller.

Thanks. Thank you. As one final reminder, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad. As we have no additional questions waiting at this time, I would now like to pass it back over to John Nybaba for any closing remarks.

Thanks, Bailey. That concludes our call. Registration for the Strategic Portfolio Update is now open on our investor website under Events. We will also issue a press release with more details later today. If there are any questions, please feel free to reach out to me directly. My contact information can be found in the earnings release and slide deck. Thank you for your interest and longevity.

This concludes today's call. Thank you all for your participation. You may now disconnect your lines.