Conference Transcript - NGVT 2026-06-11

Mike Sissi, Analyst — Wells Fargo

Good morning, everyone. This is Mike Sissi from Wells Fargo. I cover the ever-exciting chemical industry, which, for what it's worth, has outperformed the S&P 500 this year. You know, coverage is up 14% year-to-date. S&P is up 8%. Ingevity has kept pace this year. Today, we have David Lee, the CEO of Ingevity, here, as well as Philip Platt, the CFO. So, you know, they're going to tell us why Ingevity is a much more exciting story than some small little space company coming out tonight. So we're excited to have them here. Thanks. You know, David, you took over CEO about a year ago in March 25. You started a transformation for the company. Maybe can you give us a quick summary of what you've learned, kind of the actions that you have been focused on, and ultimately the vision for the company? Since you started, your stock's up 50%, so Wall Street has clearly taken notice. So give us some color there, and we'll keep on going.

Speaker 3

First, thanks, Mike, for having us. Always appreciate and really appreciate the support from the Wells team. So thanks, and great to be here. As you mentioned, I've been with the company for over a year. I joined on Liberation Day, so exciting times there. But, you know, what I saw in the company coming in was really some remarkable, unique businesses, world-class, where we're the leader. And what kind of had held the company back was, unfortunately, some acquisitions that didn't work out as well as we thought and some businesses that we no longer considered core. So kind of the first thing that we did was really take a deep look at the portfolio and take a look at what we thought were our core competencies. In other words, what are we the best in the world at doing? And coming out of that, we got conviction around portfolio transformation that you talked about. That, one, you know, we're really excited about the core businesses that we'll have going forward, performance materials and pavement technologies. i i would um i i put a wager out there that no one could find a company with ebitda margins uh and cash flow conversion uh as high as we have with our core businesses um and and second obviously it's just kind of making sure the company's on more stable footing so through those divestments taking sort of the noise and volatility out of the story you know i know mike you're going to miss talking about cto and everything with longevity But that's no longer part of the story. So we're kind of fully into this portfolio transformation. We announced the intention to do three divestitures. We've done two of them successfully. The other one is well underway, which is the specialty polymers business. We talked about having something to announce there before the end of the year. So excited about coming out the other end of the portfolio transformation. Equally exciting, I think, is the work that we've done on the leadership and the culture. The company has a long and strong foundation of culture, which we call the N'java way. I think there's opportunities to build and refine upon that culture. And then we've really refreshed the leadership team. So you talked about Phil. Phil's been with the company for more than 10 years, but just took over as our CFO May 1st. We've also brought in some new leaders to lead some of our businesses, including performance materials, pavement technologies, and our growth areas in filtration and energy storage. So it's an exciting time at the company. The organization is engaged and energized, and I think we really can feel the momentum.

Mike Sissi, Analyst — Wells Fargo

Yeah, normally my next question is where's Crutol? Crutol? All the places we're going, but we don't really have to talk about that. just for those on the webcast I am live on Bloomberg Messenger so if you have a question just let me know well let's talk a little bit about your largest business performance materials you know for those who are not as familiar I remember when this business I spun off from Westrock it was you know it really created a lot of excitement in the stock you know what makes it so special you know it's a consistently generated EBITDA margins in the 50 plus range I I don't think there are other businesses and chemicals that are even, you know, in that area. And most impressively, it's your major customers are auto. So maybe give us, give the audience a little bit of color there.

Speaker 3

Yeah, great. And Phil, please chime in as well. But it is a remarkable business, primarily supporting evaporative emissions in the automotive space. That's for ICE and hybrid cars. And we've talked more and more about how hybrids are becoming more and more a part of the auto story, especially here in the U.S. And so what we provide is a unique carbon solution using our activated carbon, which we produce both in the U.S. as well as in Asia. We produce local for local. And so we have a long track record working with the automotive suppliers. We've never had a recall. We do have a unique business in that we increase pricing every year, but I think that's just reflective of the value that we provide. And essentially what we say is without the activated carbon solutions that we're providing, we'd have a lot of gas emissions going into the environment, which we know is harmful. By using our activated carbon solutions, it's estimated that we're saving around 8 million gallons of gas a day. So significant environmental factor to our solutions.

Mike Sissi, Analyst — Wells Fargo

It also historically has had an amazing barrier to entry. We've heard or seen companies try to inch into the business. The Chinese haven't even come close to, you know, they like to ruin a lot of chemical markets, but they can't. Can you remind us what's so special about the longevity technology, you know, why activating the carbon from wood is differentiated from activating from coal or any other sources?

Speaker 3

I think it starts with, you know, we were one of the pioneers in the industry, working closely with the suppliers, and it's not just the recipe, it's the know-how, it's the applications, it's the teams that work closely with our customers that make the whole thing come together. I think that that provides a significant competitive advantage for us, as I mentioned. We've never had a recall, so that's very important for our automotive partners. Also, you know, I think there's an advocacy aspect to our business where we're working with the regulatory bodies, whether it's in the U.S. or China. China has a new emission standard that's expected to come out in the next several years. And so we're actually helping them write the standards, right? So we've become kind of experts in this emission space. So where we can, we provide help and assistance. Obviously, that also helps support our solutions as well. So there's an advocacy part. There's a quality aspect. There's obviously an IP aspect as well. And then there's just years of experience working with this industry. Let me ask Phil what he would add since he's been at the company a lot longer than I have.

Phillip J. Platt, CFO

Well, we're in the business of providing solutions to problems that our customers have. And that is particularly in the EVAP space is, you know, complying with these really stringent requirements, especially here in the U.S. with Tier 3 standards. So we've been doing that for many, many years, providing quality products that, frankly, have never had recall and, you know, fulfilling the need. So there's no unmet need in that space.

Speaker 3

Yeah, I was just with our teams a couple weeks ago. They're showing me a new sort of activated carbon that provides a very dust-free environment. That's not for every automaker, but if you're driving a high-end Porsche or something like that, that's very important to them. So, you know, we really work closely with our customers to make sure we're anticipating their needs. I think that all builds onto the kind of competitive advantage and value that we bring.

Mike Sissi, Analyst — Wells Fargo

Right. Well, I've got one college kid left, so I need three more years before I get that Porsche. You can buy the Porsche. I'll give you the honeycomb. So you've also talked about expanding into different markets. The technology, as I recall, as you've said, is just very unique. Your very early stages of moving into different areas, Can you maybe give us an update of what areas seem exciting, where this technology can go into and why they would pay a similar premium for that technology?

Speaker 3

Thanks for that. And so one of the areas that we're most excited about at Ingevity is our focus on filtration. First, I would say filtration is not new for us. We've been a participant in filtration for many, many years, but in the past, it's not with the intention to make it a sustainable business. A few things have happened. One is productivity. The teams working in our operations area have done a wonderful job improving productivity. That frees up capacity in our facilities. The second is, as the auto fleet has evolved, for example, the hybrids, that requires less activated carbon content, also freeing up volume. So as a result, what we've seen over the years is 20-plus percent of our volume in the past, we would just kind of, it obviously provides asset utilization, but we essentially just get rid of it at pretty negligible margin, and we were open about that. It was basically 0% EBITDA for us. The opportunity there is to take a look at that 20-plus percent volume. This is millions of pounds, Mike, that are going into filtration. Where are those end markets? Where are we actually adding value? And how can we understand our differentiation a bit more? Obviously, enhance those relationships and partnerships where we see better profitability opportunities, or just price based on the value that we're providing. So we've narrowed in on three areas that we're really excited about. pharma, water treatment, and food and beverage. We think that we're uniquely suited to support those industries. We're in a discovery process right now, so we've brought in some new leaders. We've brought in some new sales folks. This doesn't require new CapEx. It doesn't require invention. It's just really understanding the market. We're having a lot of customer conversations, and so we're really encouraged because, one, it's very close in, already participating. Two, the opportunity is not to invent something. It's really to take a significant volume that we're selling essentially at zero and selling it at something more, at 5%, 10%, 15% EBITDA. To your question, I don't think we're ever going to find something at 50 plus percent If you find something, please let us know. But even if we can take that 0% EBITDA to 10% or 15%, that's actually going to be accretive to our PM segment margins, which is hard to believe.

Phillip J. Platt, CFO

Yeah, and keep in mind that requires minimal to no CapEx. We have that capacity today, and it's just keeping the volumes consistent with today and just upgrading those volumes.

Mike Sissi, Analyst — Wells Fargo

You know, so for performance materials in total, I think, you know, there was a perception that EVs would take over and growth would slow, but you guys have done a really nice job with growth. And when you think about, you know, between now and the end of the decade, you know, What do you think the growth algorithm for performance materials is? And then you talked about China 7 or 6 or whatever. That's coming up. That could be a pretty nice catalyst for that growth.

Speaker 3

Yeah, thanks for that. We're excited. You know, first, I would just say looking at the macro. The macro for auto has been pretty flat. So even within that environment, we've been able to grow through pricing, higher value product mix. So we think that can continue. When you look at the auto fleet, for example, in the U.S., it is as old as it's ever been. I think the average age of a car is, what, 12 plus years or something like that.

Mike Sissi, Analyst — Wells Fargo

14 now, right?

Speaker 3

So I encourage everyone to get out there and buy some new cars. ICE and hybrid, for sure, will be here for a long, long time. And as long as those vehicles are being produced and purchased, we're going to have a big part in that, right? And so we see that as a very sustainable, long-lived part of the business. We talked about filtration as sort of that upside growth to the business, but we're not also standing still. We're innovating even in the automotive space with new solutions just so that we're going hand-in-hand with customers that are trying new engine designs. Hybrid is becoming a much larger part of that equation. If you look at where we were just a few years ago, I think most would say pure EVs are going to be a very significant part of the auto fleet. Where we stand today is the government subsidies have been backed off or taken out completely. I think consumers recognize that there's benefits to electrification, but you get the best of both if you have a hybrid vehicle. So we're seeing that as a big part of the story going forward.

Phillip J. Platt, CFO

And the regulation that's coming in play, right? So China 7 at the end of this decade, that's moving China from China 6 to China 7. That's the equivalent of a tier 3 in the United States, which is the highest regulated jurisdiction for us and highest profitability. We expect to participate in that. India as well. India is moving to tier 2, so developing economy and expect to participate in that as well. So there's regulatory tailwinds that will come at the back end of this decade that we fully expect to participate in.

Mike Sissi, Analyst — Wells Fargo

Right. And to do a little math as I recall when you go from a tier two to tier three you add you basically add the honeycomb and That's right per car goes from like 13 to something higher 20 or yeah It could be upwards of it's disclosed on our website 40 to 45 dollars for the content right for the new for the tier three level Yeah, right, and you know there have been attempts in China to use inferior products as the Chinese have tried to come in how do you manage because you do have a big facility there how do you manage IP protection and that type of stuff from getting stolen yeah I think

Speaker 3

Mike it's it's really you know I was just visiting with our teams in China recently you know we have great teams we have two facilities we have a big team in Shanghai we've got a facility in Zuhai and also a facility in Tangshu and And the teams there, I think, really value working at the company. I'm really proud of them, and they've done a great job. We obviously take safeguards with IP, but so far, we've seen pretty minimal competition globally. So we're obviously super paranoid about it. We take the measures we think are needed to protect that IP, but it's not one single recipe.

Mike Sissi, Analyst — Wells Fargo

It's all the know-how, it's the application space, it's the advocacy efforts, all of those go into to what we provide to customers right great you do have a very nice smaller business and in real tech you know maybe give us a little bit of color on that business it's been a very steady growth business for you guys for a long time a lot of infrastructure spending I live in New Orleans so you know the roads are a disaster so I think we need more your stuff there we're definitely get what it's worth so maybe just give us your thoughts on that business and and how it really fits in the portfolio for longevity right so from a revenue perspective about a third of the size of the company within that

Speaker 3

what we call pavement technologies segment you really have two kind of businesses one is pavement preservation and one is kind of the warm mix additive evotherm I think that when you think about pavement preservation think of that is sort of a GDP plus type of business on the other side of it where we're really excited is the opportunity to convert hot mix which is the traditional way of laying asphalt into something called warm mix by using our additive so this is something that traditional pavers can just use in their process without any sort of significant change and get all the benefits so they get benefits including longer road life lower energy costs because they're not heating the asphalt as much they get a longer paving season which can be invaluable in certain regions as well as it's much more environmentally friendly and so the education process with that conversion is all those factors we're working with the pavers we're working with the local departments of transportations to advocate for it for those and educate and I think we're seeing nice progress what we expect from that business as you mentioned is the The overall segment should be growing at sort of mid-single digits as we grow profitability. We've recently updated our profitably projections to be sort of high teens. In the future, I think that can be a 20 plus percent EBITDA business. And within that segment, what's growing the fastest is Evotherm, right? So if the segment's growing at mid-single digits, Evotherm's growing at something much higher.

Mike Sissi, Analyst — Wells Fargo

Right, right. and then you know I guess let's let's you know with the Iran war sort of I think ongoing how's that affected your businesses in total obviously there's an inflationary impact because of raw materials and such you don't buy a lot of petrochemical raw materials but there's general inflation and so so how do you think this is impacted in longevity or two different businesses if at all yeah first I would say and I'll ask Phil to chime in as well we're fortunate that we have a very North America centric business so we're selling a lot of our products in the US that are produced in the US and not

Speaker 3

really reliant on a lot of oil or oil byproducts so I think we're well insulated there we do have one business APT which is in the process of being invested that has some exposure we've put in place surcharges so the teams have done a great job what would you say Phil?

Phillip J. Platt, CFO

Yeah we've been reasonably insulated from that you know when you think about raw material costs or really energy inputs to the to our both our businesses primarily natural gas which has been relatively insulated from the impacts of you know higher pricing of crude oil yeah I mean and to the extent that we haven't impacted it's really been APT and we we instituted back in March of this year some temporary surcharges to recapture the costs of the elevated raw material inputs in that business.

Speaker 3

You know, one thing I would say coming out of the conflict, and hopefully it ends soon, is that this theme of hybrids becoming more and more part of the auto fleet has really become more pronounced, right? As gas prices go up, I think there's still a strong preference for ICE engines, so the hybrid provides a really good solution for that. And we saw that, we talked about that in Q1 as one of the drivers for the outperformance. And I think that is a structural, sustainable change that we'll see going forward.

Mike Sissi, Analyst — Wells Fargo

And then, you know, back to the APT potentials, you know, review, sale, or whatever. The business alone has improved quite a bit on your own. And, you know, the biggest issue is competitive position with China. You know, as you think about that business and what you've been able to do over the last year to improve it, But where do you think we are now on sort of that ramp up? And then any update, I think you said recently the interest was good and that we're still on track to find a solution by the end of the year.

Speaker 3

Why don't I let Phil comment on the transaction. The business itself is performing well, so we brought in place, put in place a new leader last year. He's done a fantastic job kind of revitalizing the innovation, the operations, the commercial approach. And I think it comes at a good time because we're one of three suppliers worldwide of this specialty polymer. And I think we are well positioned, especially in this kind of Middle East conflict environment to supply this specialty polymer. We, you know, admittedly, we've been in a trough for a while from an end market demand perspective. we're starting to see some recovery in those end markets and within that we think we're really well positioned to outperform versus our peers in the space so we're seeing that recover we're seeing that kind of results of our efforts that we invested in last year and so we're encouraged by the performance of the business yeah with respect to the process I mean we're on schedule what we said is we're continue to say is we're highly encouraged by interest in the asset.

Phillip J. Platt, CFO

We would expect to have an announcement probably by the end of the year no later than the end of the year on where we are in that process.

Mike Sissi, Analyst — Wells Fargo

Okay and then you know can we talk a little bit about your little bit longer-term targets there were longer term when you got here. 2027 targeting revenue of 940 to 980, third pavement technologies you mentioned, two-thirds from performance materials, you know EBITDA in that 350 to 370 range and margins of 36, 39. Seems like you're on track but just just any thoughts or any nuances on on that goal as you think about it only one year away?

Speaker 3

You know I think one is we put those kind of two-year projections out there we're we're encouraged by where we are versus the kind of transformation of the company that we talked about on the onset we feel like we've got good momentum there I'll let Phil talk about performance versus the specific targets. But we feel really good about where we are in the business. We do know that we're going to have to update those financial metrics. So we anticipate… We've got five minutes left. So we won't update those today. However, we would anticipate an investor day sometime in the first half of next year to update some of the progress. I think some of the things that investors and folks that are interested in this story should look forward to is, you know, how's our progress on some of the growth pathways, including filtration? How are we doing at sustaining and building on our strong position in automotive, and how's that whole market evolving? And then how is the sort of EvoTherm adoption story happening?

Phillip J. Platt, CFO

Those are sort of the things that we stay focused on. obviously we're working on a lot of other things around the company but those are three things that I think will move the financial metrics yeah I think the internal theme and we're trying to display this externally as well as we're doing exactly what we said we're gonna do and so we would expect assuming an announcement sometime in this year with APT start the beginning of 2027 as new longevity and as Dave said we are you're executing to our strategy and our plan A quick follow-up question from my Bloomberg or the webcast, just curious on how you think about acquisitions going forward, new CFO and new thoughts.

Mike Sissi, Analyst — Wells Fargo

It is part of the growth potential for a lot of companies and materials and chemicals. Obviously, you're probably not ready to do any right now, but your balance sheet looks pretty good. How do you think about acquisitions, longer term or strategically?

Speaker 3

Yeah, I think for us right now, we've been very intentional about saying, you know, in terms of capital allocation priorities, you know, share repurchase and debt repay down are definitely 1A and 1B. And I think we've done, to Phil's point, done exactly what we said we're going to do there. I think there's a few drivers for that in terms of kind of deprioritizing M&A for right now. One is we want to get the company in a more financially stable position. We're levered a bit high for what we'd like to be at. We were at four times at one point. Now we're much closer to our target range. I think we're 2.6 or something like that. And I think given the – we just really wanted a chance to let the quality of the underlying businesses kind of show themselves. And I think that's what's happened over the last few quarters. And going forward, we expect more of the same. We will generate a lot of cash. And so that theme or opportunity to do some M&A, I do think M&A will have a place in Ingevity's future, but just not in the next, I'd say, year or so. If I had sort of an ideal target, it'd be something smaller in the filtration space, perhaps, to accelerate our own organic efforts. That might be something of interest to us. But I think we're really excited about our organic playbook, and we want to give that some time to play out.

Mike Sissi, Analyst — Wells Fargo

In terms of the balance sheet, you're aiming to have roughly a billion of deployable cash over, when you said the plan over the next two years, you're within that leverage target of two, two and a half times, capped back $60 million, and you want to sort of buy back $300 million of stock over the next couple of years. Just any update there in terms of getting to that goal?

Phillip J. Platt, CFO

Yeah, well, again, we're doing what we said we would do. So through our Q1 earnings release, we're around $70 million. dollars bought back out of that 300 and what we did say is a minimum of at least 300 so when we think about the balance sheet going forward we we aim to be within the two to two and a half times range for for leverage we're gonna obviously prioritize you know allocating capital to organic growth opportunities we disclose that in the in the strategic portfolio update around 60 million dollars a year and the rest will will buy back shares and return cash to shareholders.

Mike Sissi, Analyst — Wells Fargo

So the goal is to get the balance sheet strong and very flexible. And then there was another follow-up question on in February 24 you you had an agreement to try to get into the battery space or some a licensed technology any update on I think that was with Chasm advanced materials as I recall any update there was I think the carbon nanotubes was it?

Speaker 3

Yeah so we have a few we've put a few bets out there in energy storage i think it is important uh for us to participate in in that space because it's a growing uh space for for us for for the world and you know i think activated carbon has an important role to play and so we put a few bets out there i i describe them as sort of more exploratory and r d in nature the two that have We've been most public about our partnership with Nexion, the silicon anode provider, and also Chasm, who's a carbon nanotube supplier. We're encouraged by both. They're obviously farther out there, and it's a very competitive and dynamic space. But nonetheless, I think putting a few bets out there makes sense. We don't see them, and they weren't reflected in the kind of financial projections we put out there.

Mike Sissi, Analyst — Wells Fargo

To the extent that those companies are successful, we will be successful with them. right and then you know just just to wrap it up a little bit you know you have 2026 guidance out there uh 370 395 in ebitda a billion or so in sales and you gave us an ebitda margin range you talked about auto a little bit a lot of companies have suggested it's sluggish thus far here through 2q just any thoughts on the trends and you know obviously the war is very difficult to to incorporate in anybody's guidance these days. So, any thoughts on maybe the upper end of the range, lower end of the range, what sort of helps you get to one point?

Speaker 3

How did I know we get a guidance question, Mike? Put it in at the last minute. I think for us, one, we came out Q1 very strong, some outperformance there. We talked about the reasons why. In terms of how we think about guidance for the remainder of the year, we'll be announcing in July, I think it is, and I think the one thing I think, you know, to look at is some of those trends that we talked about, for example, hybrids, we think that they're here to stay, that will provide us, even within a flattish auto environment, some upside from a product, higher value product mix perspective, and so I think that is encouraging for us as we work with those customers on new hybrids and new solutions in that area. I think that, and knock on wood, paving system, paving season is upon us, so hopefully no rain in those regions that are doing paving. That has kind of held us back a little bit in the previous years. I think paving season is off to a good start so far. So those are some things I would say. What would you say?

Mike Sissi, Analyst — Wells Fargo

Well said. I think that's it for me. We're right on time here. Thank you very much, David. If you have any closing remarks or thoughts, we'd be happy to close it here.

Speaker 3

No, again, thanks again to the Wells team. Always great to be here. I think you can hopefully hear it from us that it's an exciting time at Ingevity. We feel like we've got momentum. We're kind of really in the midst of this transformation. We're kind of through most of the portfolio transformation. We've got some interesting growth pathways and a refreshed leadership team that's highly energized and engaged to grow the company. So thank you, thank you, thank you.