Q3 2024 Ingevity Corp Earnings Call
[music].
Operator: Good morning, welcome to the Ingevity third quarter 2024 earnings call and webcast.
Good morning.
Speaker Change: I would like to be in jeopardy, you've got call. It 2024 earnings call and webcast. My name is that doing and nobody ever printed state if you'd like to ask a question in the Q&A portion of today's couldnt commit to smoke progressing style Phillip Huang on your telephone keypad some into the queue.
Operator: My name is Adam and I'll be your operator today.
Operator: If you'd like to ask a question at the Q&A portion of today's call, you may do so by pressing the star followed by 1 on your telephone keypad.
John Nypaver: I will now hand the floor to John Nypaver to begin, so John, please go ahead when you are ready.
Speaker Change: Now on the field strong hypothesis begin to turn please go ahead when you're ready.
Speaker Change: Thank you Adam good morning, and welcome to <unk> third quarter 2024 earnings call.
Luis Fernandez: Thank you, Adam.
Luis Fernandez: Good morning and welcome to Ingevity's third quarter 2024 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.ingevity.com under events and presentations.
Speaker Change: Earlier. This morning, we posted a presentation on our Investor site that you can use to follow todays discussion. It can be found on our IR dot and do you have any dot com under events and presentations.
Luis Fernandez: Also, throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for, comparable GAAP measures. 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 10-K.
Also throughout this call we may refer to non-GAAP financial measures, which are intended to supplement not substitute for comparable GAAP measures.
Speaker Change: <unk> 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 10-K.
Luis Fernandez: 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.
Speaker Change: 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.
Speaker Change: Our agenda is on slide three our speakers today are Luis Fernandez Moreno, our interim CEO and Mary Dean Hall, our CFO.
Luis Fernandez: Our speakers today are Luis Fernandez Moreno, our interim CEO, and Mary Dean Hall, our CFO. Our business leads, Ed Woodcock, President of Performance Materials, Rich White, President of Performance Chemicals, and Steve Hume, President of Advanced Polymer Technologies, are available for questions and comments.
Speaker Change: Our business leads Ed Woodcock President.
Performance materials, rich White president of performance chemicals, and Steve Hume President of advanced polymer technologies are available for questions and comments.
Luis Fernandez: Luis will start us off with some highlights for the quarter. Mary will follow with a review of our consolidated financial performance and the business segment results for the third quarter.
Speaker Change: Luis will start us off with some highlights for the quarter Mary will follow with a review of our consolidated financial performance and the business segment results for the third quarter. Luis will then provide closing comments and discuss 2024 guidance with that over to you Louise.
Luis Fernandez: Luis will then provide closing comments and discuss 2024 guidance.
Luis Fernandez: With that, over to you Luis.
Thanks, John and.
Luis Fernandez: Thanks, John, and good morning, everyone.
Luis: Good morning, everyone.
Luis Fernandez: Please turn to slide five. Let me begin by saying how excited I am to be here to help Ingevity continue to execute on our business strategies to maximize profitability. including the repositioning of our performance chemical segment. The team has done much of the heavy lifting to set this segment up for success. We've exited lower margins, cyclical, and markets. We've reduced our physical footprint to optimize costs and diversified our raw material stream. And we have exited long-term supply contracts, which have hindered our ability to manage the cost and timing of key raw material purchases. These efforts have not been easy.
Luis: Please turn to slide five.
Luis: Let me begin by saying how excited I am to be here to helping JBT continues to execute on our business strategies to maximize profitability.
Luis: Including the repositioning of our performance chemicals segment.
Luis: The team has done much of the heavy lifting to set this segment up for success.
Luis: We've exited lower margin cyclical end markets, we've reduced our physical footprint to optimize costs and diversify our raw material stream.
Luis: And we have exited the long term supply contracts, which has hindered our ability to manage the cost and timing of key raw material purchases.
Luis: These efforts have not been easy.
Luis: I have been a member of the executive Board since the day, we became public.
Luis Fernandez: I have been a member of the Ingevity board since the day we became public. And I can say that the board has been and continues to be supportive of this strategic direction. I know that many of you have been keenly focused on our actions in the performance chemical segment the last several quarters. understandably so. At the same time, I want to ensure our other segments, Performance Materials and Advanced Polymer Technologies, get the attention and focus they deserve. Together, these three segments give us scale and diversity around geographies and in markets.
And I can say that the board has been and continues to be supportive of our strategic direction.
Luis: I know that many of you have been keenly focused on our actions in the performance chemicals segment, the last several quarters under.
Luis: Understandably so.
Luis: At the same time I want to ensure our other segments performance materials and advanced polymer technologies.
Speaker Change: Pension unfocused data Sir.
Speaker Change: Together these three segments gives us scale and diversity around geographies and end markets.
Luis Fernandez: In addition to my focus on executing the business strategies on their way, one of my first tasks will be to review our portfolio of businesses to bring a fresh look to our overall corporate strategy. Ingevity has many things to be proud of. And you see this in our third quarter results, which Mary will go over in detail. Performance Materials continues to deliver profitable sales growth at top quartile margins in what some consider a soft auto production environment. APT maintained solid EBITDA margins despite mixed changes and pricing pressure. as inflation began to cool down while global industrial demand remained weak.
Speaker Change: In addition to my focus on executing the business strategies underway. One of my first tasks will be to review our portfolio of businesses to bring a fresh look to our overall corporate strategy.
Speaker Change: In JBT has many things to be proud of.
And you see this in our third quarter results, which Mary will go over in detail.
Speaker Change: Performance materials continues to deliver profitable sales growth at top quartile margins and what some consider a soft auto production environment.
Speaker Change: <unk> maintained solid EBITDA margins, despite mix changes and pricing pressures.
Speaker Change: The inflation began to cool down while global industrial demand remained weak on.
Luis Fernandez: and our performance chemical segment saw margin improvement even as we worked through high-cost CTO inventory and were negatively impacted by adverse weather conditions in North America, in the key North American regions of our road technologies product line. This quarter gives you a glimpse of what this company can do even in the face of headwinds like slow industrial demand, weather impacts, and consuming high-cost CTO inventory. My focus in the upcoming quarters will be on execution to ensure our efforts and resources are focused on delivering the improved results we all expect. although it has only been four weeks.
Speaker Change: Our performance chemicals segment, so margin improvement, even as we work through high cost CTO inventory and were negatively impacted by adverse weather conditions in North America and there are some key even if america regions of our rote technologies product line.
Speaker Change: This quarter gives you a glimpse of what this company can do even in the face of headwinds like slow industrial demand weather impacts and consuming high cost CTO inventory.
Speaker Change: My focus in the upcoming quarters will be on execution to ensure our efforts on our resources are focused on delivering improved results. We all expect.
Speaker Change: Although it has only been four weeks.
Luis Fernandez: I am even more excited now about the future of Ingevity.
Speaker Change: Hi, Im even more excited now about the future of JBT.
Mary Dean Hall: With that, I'll turn it over to Mary to review the financials for the quarter.
With that I'll turn it over to Mary to review the financials for the quarter.
Mary Dean Hall: Thanks Luis and good morning all.
Mary: Thanks, Louise and good morning, all please turn to slide five.
Mary Dean Hall: Please turn to slide 5. Third quarter sales of $376.9 million were down 16% due primarily to our repositioning actions and performance chemicals that resulted in the exit of lower margin end markets in our industrial specialties product line and lower sales in the road technologies product line due to unfavorable weather conditions in key parts of North America, as Luis mentioned. During the quarter, we incurred before-tax restructuring charges of $86.9 million, primarily related to the closure of our CrossFit Arkansas facility, and a $100 million charge for the termination of a long-term CTO supply contract, which led to a GAAP net loss of $107.2 million.
Mary: Third quarter sales of $376 $9 million were down 16% due primarily to our repositioning actions in performance chemicals that resulted in the exit of lower margin end markets in our industrial specialties product line and lower sales in the round technologies product line.
Mary: Unfavorable weather conditions in key parts of North America as Luis mentioned.
Mary: During the quarter, we incurred before tax restructuring charges of $86 9 million.
Mary: Narrowly related to the closure of <unk> Crossett, Arkansas facility.
And $100 million charge for the termination of a long term CTO supply contract, which led to a GAAP net loss of $107 2 million.
Mary: We have excluded the impact of these charges in our non-GAAP disclosure and our discussion for the remainder of this presentation. A reconciliation of our non-GAAP measures to GAAP is in the appendix to the stack and also in our earnings release and Form 10-Q, which will be filed this evening.
Mary Dean Hall: We have excluded the impact of these charges in our non-GAAP disclosure and our discussion for the remainder of this presentation.
Mary Dean Hall: A reconciliation of our non-GAAP measures to GAAP is in the appendix to this deck and also in our earnings release and Form 10-Q, which will be filed this evening. Our adjusted gross profit of $146 million was flat last year, while gross margin was higher by 610 basis points. The gross margin gains were largely driven by our performance chemicals repositioning actions which have reduced our exposure to lower margin end markets in industrial specialty product lines and enabled our higher margin businesses such as performance materials and road technologies to represent a larger portion of our total company results.
Mary: Hey.
Mary: Our adjusted gross profit of $146 million was flat to last year while.
Mary: <unk> gross margin was higher by 610 basis points.
Mary: The gross margin gains were largely driven by our performance chemicals repositioning actions, which have reduced our exposure to lower margin end markets in industrial specialties product line.
And enables our higher margin businesses, such as performance materials and ROE technologies to represent a larger portion of our total company results.
Mary Dean Hall: In addition, the repositioning actions generated cost savings of $14 million, which benefited gross profit in the quarter. Adjusted SG&A dollars and percent of sales increased year over year, despite repositioning savings of about $4 million, primarily due to credits to variable incentive compensation recorded in the third quarter last year versus a normalized run rate this quarter. Adjusted EBITDA dollars were down about $4 million in the current quarter versus last year. This quarter's results were negatively impacted by approximately $5 million in CEO severance charges and almost $4 million in Crossit restructuring-related inventory charges. adjusted EBITDA margin improved 340 basis points to 28.2%, primarily due to a strong quarter from performance materials and the positive impact we're beginning to see of our repositioning actions in performance chemicals.
Mary: In addition, the reposition repositioning actions generated cost savings of $14 million, which benefited gross profit in the quarter.
Mary: Adjusted SG&A in dollars and percentage of sales increased year over year, despite repositioning savings of about $4 million.
Mary: Merrily due to credits to variable incentive compensation recorded in the third quarter last year.
Mary: Since our normalized run rate this quarter.
Mary: Adjusted EBITDA dollars were down about $4 million in the current quarter versus last year.
Mary: This quarter's results were negatively impacted by approximately $5 million and CEO severance charges and almost $4 million in crossett restructuring related inventory charges.
Mary: Adjusted EBITDA margin improved 340 basis points to 28, 2%, primarily due to a strong quarter from performance materials and the positive impact we are beginning to see of our repositioning actions in performance chemicals and.
Mary Dean Hall: In fact, we realized a total of $18 million of savings in Q3, which puts us on track to realize our 2024 target of $65 to $75 million in savings from the restructuring actions we have taken. We continue to expect that our full year 2024 effective tax rate will be between 23 and 25%.
Mary: In fact, we realized a total of $18 million of savings in Q3, which puts us on track to realize our 2024 target of.
Mary: Of $65 million to $75 million in savings from the restructuring actions we have taken.
Mary: We continue to expect that our full year 2024 effective tax rate will be between 23 and 25%.
Mary: Please turn to slide six.
Mary Dean Hall: please turn to slide 6. We generated free cash flow of $28.5 million in Q3, which includes the first $50 million payment to terminate a long-term CTO supply contract, as well as $21 million of cash restructuring charges. Clearly, we had a very good quarter from a cash generation standpoint. Also, we've been very disciplined on CapEx this year as we managed free cash flow while ensuring appropriate safety and maintenance spend at the plant. Leverage was slightly lower than last quarter, still around four times, but we expect this to move closer to three and a half times by year-end.
We generated free cash flow of $28 $5 million in Q3, which includes the first $50 million payment to terminate a long term CTO supply contract as well as $21 million of cash restructuring charges.
Speaker Change: Nearly we had a very good quarter from a cash generation standpoint.
Speaker Change: So we've been very disciplined on Capex. This year as we managed to free cash flow.
Speaker Change: While ensuring appropriate safety and maintenance spend in the plan.
Leverage was slightly lower than last quarter still around four times, but we expect this to move closer to three five times by year end.
Mary Dean Hall: Our bank-calculated leverage was about three times at the end of Q3, and we are comfortably in compliance with all of our bank covenants. As we've stated in recent quarters, our capital allocation priority for the near term is to focus on debt reduction.
Speaker Change: Bank calculated leverage was about three times at the end of Q3, and we are comfortably in compliance with all of our bank covenants.
As we've stated in recent quarters, our capital allocation priority for the near term is to focus on debt reduction.
Speaker Change: Turning to slide seven you'll find results for performance materials.
Mary Dean Hall: Turning to slide 7, you'll find results for performance materials. The segment delivered solid sales growth of 3% to $151.1 million. Not included in this number are approximately $4 million of sales that were scheduled to be shipped out in the third quarter, but were delayed into Q4 due to the port strike on the East Coast. EBITDA was up 8% to $80.6 million, with an EBITDA margin of 53.3%. The segment continues to benefit from lower input costs as a result of investments made at the plants to improve operational efficiency, primarily by reducing natural gas usage. Because of these improvements, it is possible the segment will maintain margins in the high 40s to low 50s over the next few quarters.
Speaker Change: <unk> delivered solid sales growth of 3% to $151 1 million.
Speaker Change: Not included in this number are approximately $4 million of sales that were scheduled to be shipped out in the third quarter, but were delayed into Q4 due to the port strike on the East coast.
Speaker Change: EBITDA was up 8% to $80 6 million with an EBITDA margin of 53, 3%.
Speaker Change: The segment continues to benefit from lower input costs as a result of investments made at the plants to improve operational efficiency, primarily by reducing natural gas usage.
Speaker Change: Because of these improvements it is possible that segment will maintain margins in the high <unk> to low fifties over the next few quarters.
Mary Dean Hall: But over the long term, we continue to expect EBITDA margins in this segment to be in the mid to high 40s as the geographic and automotive sales mix changes over time.
Speaker Change: But over the long term, we continue to expect EBITDA margins in that segment to be in the mid to high Forty's as the geographic and automotive sales mix changes over time.
Mary Dean Hall: Turning to slide 8, revenue in APT was $48.8 million, up 14% as volumes increased versus last year's lows. We believe Q3 last year was the peak of destocking for APT customers. China especially had a nice uptick this quarter, as sales for paint protective film for autos increased, which may indicate market demand in China is beginning to show some signs of improvement. EBITDA margins were a solid 20.1 percent, although down compared to last year. The increased volumes also improved our plant utilization, but these gains were more than offset by pricing pressure, unfavorable product mix, and a negative impact from movements in foreign exchange rates, primarily the strengthening of the British pound versus the U.S.
Speaker Change: Turning to slide eight revenue in <unk> was $48 8 million up 14% as volumes increase versus last year's lows. We believe Q3 last year was the peak of Destocking for HPT customers.
Speaker Change: China, especially had a nice uptick this quarter as sales for our paint protective film for autos increased which may indicate market demand in China is beginning to show some signs of improvement.
Speaker Change: EBITDA margins for a solid 21%, although down compared to last year.
The increased volumes also improved our plant utilization, but these gains were more than offset by pricing pressure unfavorable product mix and a negative impact from movements in foreign exchange rates, primarily the strengthening of the British pound versus the us dollar.
Mary Dean Hall: dollar. We've also noted that APT is exposed to several end markets affected by the continued weakness in industrial demand. Not only does this slowdown affect current markets in which we participate, but it also dampens customer momentum to adopt new products such as bioplastics, which is where our CAPA technology brings many unique benefits.
We've also noted that <unk> is exposed in several end markets affected by the continued weakness in industrial demand.
Speaker Change: Not only does this slowdown in fact current markets in which we participate but it also dampens customer momentum to adopt new products, such as Bioplastics, which is where our cap of technology brings many unique benefits.
Speaker Change: Please turn to slide nine for performance chemicals results.
Mary Dean Hall: Please turn to slide nine for performance chemicals results. Sales of $177 million were down 31%, primarily due to the repositioning actions affecting the industrial specialties product line, where sales declined 54%. This reflects our intentional actions to exit lower-margin cyclical end markets. However, we're also still experiencing lackluster industrial demand in our remaining industrial specialties end markets, which include our fatty acids that go into mining and lubricants, dispersants that go into ag chem for crop protection, and rosin that goes into rubber and certain molten adhesive applications. Road technology sales were down 8 percent, primarily due to weather-related delays in road construction projects during the current quarter.
Speaker Change: Sales of $177 million were down 31%, primarily due to the repositioning actions affecting the industrial specialties product line, where sales declined 54%.
Speaker Change: This reflects our intentional actions to exit lower margin cyclical end markets. However are also still experiencing lackluster industrial demand and our remaining industrial specialties end markets, which include our fatty assets that go into mining and lubricants.
Speaker Change: Disbursements that go into AG Chem for crop protection, and rosin that goes into rubber and certain molten adhesive applications.
Speaker Change: Technology sales were down 8%, primarily due to weather related delays and road construction projects during the current quarter.
Mary Dean Hall: Since weather caused a number of road projects to be delayed in both the second and third quarters and we're entering the winter months, we expect many of those projects will shift into next year's paving season. Recognizing the challenges in getting resources to complete road projects, it is unlikely this shift will result in a significant increase in projects next year, since there are only so many projects that can be completed in any given year. EBITDA for the segment was $19.8 million, down 20 percent, due primarily to higher CTO costs. continued weak industrial demand and the weather-related delays impacting road technology.
Speaker Change: Since weather caused a number of road projects to be delayed in both the second and third quarters and we're entering the winter months, we expect many of those projects will shift into next year's paving season.
Speaker Change: Recognizing the challenges in getting resources to complete road projects. It is unlikely. This shift will result in a significant increase in projects next year.
Speaker Change: Since there are only so many projects that can be that can be completed in any given year.
EBITDA for the segment was $19 8 million down, 20% due primarily to higher CTO costs.
Speaker Change: Continued weak industrial demand and the weather related delays impacting road technologies.
Mary Dean Hall: These headwinds were partially offset by savings from our repositioning action. EBITDA margins improved 160 basis points to 11.2 percent. This is primarily a result of the exit of lower margin and markets in the industrial specialist product line, which is a key element of our repositioning strategy. As we indicated last quarter, we expect to run through our remaining high-cost CTO inventory by the end of the first quarter next year.
Speaker Change: These headwinds were partially offset by savings from our repositioning actions.
Speaker Change: EBITDA margins improved 160 basis points to 11, 2%. This is primarily a result of the exit of lower margin end markets and the industrial specialties product line, which is a key element of our repositioning strategy.
Speaker Change: We indicated last quarter, we expect to run through our remaining high cost CTO inventory by the end of the first quarter next year.
Luis Fernandez: And I'll now turn the call back to Luis for an update on guidance and closing comments.
Speaker Change: And I'll now turn the call back to Louise for an update on guidance and closing comments.
Louise: Thanks Mary.
Luis Fernandez: Thanks, Mary.
Luis Fernandez: Please turn to slide 10. As you heard today, and seen in our release, we had a good quarter. As you know, the fourth quarter is a seasonally low quarter for our road technologies product line, and we're still consuming high-cost CTO inventory in our performance chemical segment. as Mary mentioned. Also, as you heard from many other companies, there are few, if any, signs of industrial demand improving, and auto production forecasts appear to be softening. In light of these headwinds, we expect to deliver toward the lower end of our guidance of sales between $1.4 and $1.5 billion with adjusted EBITDA of between $350 million and $360 million.
Louise: Please turn to slide 10.
Louise: As you've heard today and seen in our release, we had a good quarter.
Louise: As you know the fourth quarter is a seasonally low quarter for our road technologies product line.
Louise: We're still consuming higher cost CTO inventory in our performance chemicals segment.
Louise: Mary mentioned.
Louise: Also as you heard from many other companies. There are few if any signs of industrial demand improving on auto production forecasts appear to be softening.
Louise: In light of these headwinds, we expect to deliver toward the lower end of our guidance of sales between one four and one 5 billion.
Louise: With adjusted EBITDA of between $350 million and $360 million.
Luis Fernandez: As I look at the next few months, I see three key priorities for me. improved execution and focus. reducing our leverage to improve free cash flow and complete a fresh look at our business portfolio and corporate strategy.
Louise: If I look at the next few months I see three key priorities for me.
Louise: Improved execution and focus.
Louise: Reducing our leverage through improved free cash flow.
Louise: I'm pleased to a fresh look at our business portfolio and corporate strategy.
Luis Fernandez: Based on these priorities, while it is too early to provide guidance on 2025, With the actions we have taken and our continued focus on improving growth and profitability, I have challenged the team to deliver a plan approaching $400 million of EBITDA for 2025 and return our leverage to around three times by year-end 2025. I will be able to provide more details of these initiatives and our progress in our February earnings call. Let me say again how excited I am to be in this position to drive the execution of our strategy.
Louise: Based on these priorities while it is too early to provide guidance on 2025.
Louise: With the actions, we have taken and our continued focus on improving growth and profitability.
Louise: Challenged the team to deliver our plan approaching $400 million of EBITDA for 2025.
Louise: On our return our leverage to around three times by year end 2025.
Louise: I will be able to provide more details of these initiatives and our progress in our February earnings call.
Let me say again, how excited I am to be in this position to drive the execution of our strategy I look forward to speaking with you. All again next quarter. When we will also share more details on our outlook for 2025.
Luis Fernandez: I look forward to speaking with you all again next quarter, when we will also share more details on our outlook for 2025.
Operator: With that, I'll turn it over for questions. As a reminder, if you'd like to ask a question today, please press star followed by 1 on your telephone keypad. to ask a question, please ensure your headset is fully plugged in and unmuted.
Louise: With that I'll turn it over for questions.
Speaker Change: As a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypads into the queue.
Speaker Change: Just two questions. Please ensure your headsets because you've locked in an unmetered locally.
And our first question today comes from Jonathan One thing from CJS Securities. Your line is open. Please go ahead.
Lee Jagoda: First question today comes from John Tanwanteng from CGS Securities.
Lee Jagoda: John, your line is open, please go ahead.
Speaker Change: Hi, Good morning, This section Vijay <unk> on for John This morning.
Lee Jagoda: Hi, good morning. It's actually Lee Jagoda for John this morning.
If we could just start with the <unk>.
Luis Fernandez: Let's start with the CTO sales. how much inventory you have remaining. I think prior expectations were that you should be done with all the high-cost inventory sometime during Q1 of 2025. So I believe the CTO resales were very nominal. in Q3, and as I think we said last quarter, we expect that we have completed essentially the resales. Your comment about the CTO inventory, we continue to have high-cost inventory that runs through our production as we're actually consuming CTO to make product, and that's the CTO, the high-cost CTO that is actually impacting the EBITDA margins, for example, and profitability, and that's what we said that we expect to...
Speaker Change: <unk> sales in Q3 can you speak to the volume of CTO sales you had in Q3, how much inventory you have remaining.
Speaker Change: Sure.
Speaker Change: Zinc prior expectations were that you should be done with all the high cost inventory sometime during Q1 of 2025 is there any update to that.
Speaker Change: So I believe the CTO resales.
We're very nominal.
Speaker Change: In Q3, NII and as I think we said last quarter. We don't expect we expect that we have completed essentially the re sales your comment about the CTO inventory, we continue to have high cost inventory that run.
Speaker Change: Through our production as we're actually.
Speaker Change: Consuming CTO to make product and thats the CTO the high cost CTO that is actually impacting the EBITDA margins for example in profitability and that's what we've said.
Speaker Change: We expect to fill.
Luis Fernandez: finish with that high-cost inventory, consume it essentially all by the end of first quarter of next year.
Finish with that high cost inventory consume it essentially all by the end of first quarter of next year.
Speaker Change: Okay, Great and then just another question on CTO.
Lee Jagoda: Great.
Luis Fernandez: And then just another question on CTO, where is the underlying price of CTO today in the spot? And, you know, how does that compare to your expectations from prior? Go back to the mark. So. While what we have talked about is how the spot price of CTO has continued, did continue to come down largely throughout the year, I would say plateaued in the last few months. And I think the last ARGUS price I saw was in the... $700, $650, $750, call it range. So again, significantly below where we had indicated our CTO contract costs had been previously, although not back to the levels that we had seen in prior years before the dynamic of biofuels began to impact CTO prices.
Speaker Change: Whereas the underlying price of CTO today in the spot market.
Speaker Change: <unk>.
Speaker Change: How does that compare to your expectations from prior quarters in terms of when you need to go back to the market.
Speaker Change: The spread versus the high cost stuff that you're burning through today.
Speaker Change: So.
Speaker Change: While what we have talked about is how the spot price of CTO has continued did continue to come down largely throughout the year.
Speaker Change: I would say.
Towed.
Speaker Change: In the last few months.
And I think the last Rguest price I saw was in the.
Speaker Change: $706 50, 750 call it range.
Speaker Change: So again significantly.
Speaker Change: Below where we had indicated our CTO.
Speaker Change: Contract costs had been previously although not back to the levels that we had seen in prior years before the before the dynamic of Biofuels began to impact CTO prices.
Speaker Change: Got it and one more for me and I'll hop back in just in terms of the.
Lee Jagoda: And one more for me and I'll hop back in. kind of give us the criteria for Some of the things that. and any update on when the process...
Speaker Change: CEO search process can you kind of give us the criteria for.
Speaker Change: Some of the things that a new CEO.
Speaker Change: You might want in a new CEO and any update on when the process might be completed.
Luis: Hi, This is Luis Yeah, a couple of comments regarding that.
Luis Fernandez: Hi this is Luis. Yeah, a couple of comments regarding that. The board has a committee that is conducting the search and obviously they have the criteria that is needed for that search.
Luis Yeah: Our board has a committee that is conducting the search and obviously they have the criteria that it's needed for that search.
Luis Fernandez: The thing that I always highlight is that while that happens, I am committed to stay here for as long as it takes. to find the right leader for the company. And I will be acting as a full-fledged CEO. I don't expect to be just being a gatekeeper. So my focus and the focus of the organization continues to be to deliver based on my leadership. And again, the board is diligently acting on it, but they're going to take the time required to find the right leader for the company.
Luis Yeah: The thing that I always highlight is that while that happens.
Luis Yeah: Committed to stay here for as long as it takes to find the right leader for the company.
Luis Yeah: I will be acting as a full fledged CEO I don't expect to be Josephine I gatekeeper. So my focus on the focus of the organization continues to be to deliver based on my leadership.
Luis Yeah: The board is diligently acting on it but they're going to take the time required.
Luis Yeah: To find the right leader for the company.
Speaker Change: Okay. It sounds great I will hop back in queue. Thanks very much.
Lee Jagoda: Great, I will hop back.
Speaker Change: The next question comes from Daniel Rizzo from Jefferies. Your line is open. Please go ahead.
Daniel Rizzo: The next question comes from Daniel Rizzo from Jeffreys. Daniel, your line is open, please.
Daniel Rizzo: Good morning. Thank you for taking my questions are you mentioned during your prepared remarks that you're reviewing portfolio businesses does this suggest that you might be selling or divesting the PC or <unk> segment is that a possibility.
Daniel Rizzo: Good morning. Thank you for taking my questions. You mentioned during your prepared remarks the reviewing portfolio.
Daniel Rizzo: suggest that you might be selling or divesting the PC or APT segment.
Speaker Change: Hi, Dan how are you.
Luis Fernandez: Hi, Dan. How are you? Yeah, it means that we are looking at the portfolio. I will be looking at it. The comments talk about the fact that the three segments that we have today provide scale and geography and market diversity.
Speaker Change: Yes. It means that we that we are looking at the portfolio I will be looking at it.
Speaker Change: <unk>.
Speaker Change: The comments talk about the fact that the three segments that we have today provide scales.
On the geography and market diversity.
Luis Fernandez: Having said that, with me coming on the board, I think it's a good time to revisit and check if this is the right composition, the right corporate strategy, the right portfolio composition. So I cannot and will not speculate on what that may mean in terms of specific businesses, other than indeed myself, the team, and the board will be continuing to review the composition and the strategy. But again, recognizing that the current composition provides scale and diversity.
Having said that with me coming on the board I think it's a good time to revisit the check if this is the right composition the right corporate strategy the right portfolio.
Speaker Change: Composition, so I cannot and will not speculate on what that May mean in terms of specific businesses other than indeed.
Speaker Change: Myself the team under board will be continued to reviewing the composition in the strategy.
Speaker Change: But again recognizing that the current composition provides scale and diversity.
Speaker Change: Yeah.
Thank you.
Daniel Rizzo: Thank you.
Daniel Rizzo: Thank you for the clarification.
Speaker Change: The clarification and then within industrial specialties is there a percentage all your base at this point or is it a transition still kind of in.
Daniel Rizzo: And then with industrial specialties, is there a percent that's oleobased at this point? Or is the transition still kind of in So, the strategy around industrial specialties is to diversify our raw material capability so we are not tied to one or the other and being able to optimize the raw material mix to maximize both quality, profitability, but also, again, the ability to move from one to the other. So, at this time, that's not something that we're focusing on in terms of what percentages because the percentages may change quarter to quarter depending on the specific economics of each of the raw materials.
Speaker Change: Yes.
Speaker Change: Any statements.
So.
Speaker Change: The strategy around.
Speaker Change: Industrial specialities is to diversify our raw material capability. So we are not tied to one or the other and being able to optimize the raw material mix to maximize.
Speaker Change: Both quality profitability, but also again the ability to move from one to the other so at this time.
Speaker Change: Thats something that were focusing on in terms of what percentages because the percentages may change quarter to quarter, depending on the specific economics of each of the raw materials and again that provides flexibility that it's very important to us moving forward.
Daniel Rizzo: And again, that provides flexibility that is very important to us moving forward.
Speaker Change: Alright, Thank you very much.
Speaker Change: The next question comes from John Mcnulty from BMO capital markets. John Your line is open. Please go ahead.
John Mcnulty: The next question comes from John McNulty from BMO Capital Markets.
John Mcnulty: John, your line is open. Yeah, good morning. Thanks for taking my question. So I guess the first one is in performance chemicals. When I look at the improvement from 2Q to 3Q, and the margin doubled, and yet, you know, sales in some of your higher margin business on the paving side was actually down a little bit. So I guess, can you help us to understand what drove that improvement from quarter to quarter? Yeah. It's primarily two things, John, and good catch there. So, clearly, we're seeing the benefit of the mixed shift as over, you know, again, progressively exiting those lower margin products, and we're seeing that mixed shift to the higher margin products in that segment, and also, frankly, you know, in Q2, we were still operating Crossit, the Crossit facility.
John Mcnulty: Yes. Good morning, Thanks for taking my questions. So I guess the first one is in performance chemicals, So when I look at it.
John Mcnulty: Improvement from two Q3 Q.
John Mcnulty: And the margin double and yet.
Sales in some of your higher margin business on the paving side was actually down a little bit. So I guess can you help us to understand what drove that improvement.
From quarter to quarter.
Speaker Change: Yes, it's primarily two things John.
Speaker Change: And good catch there. So clearly we're seeing the benefit of the mix shift as over again progressively exiting those lower margin.
Speaker Change: Products.
Speaker Change: In Europe, we're seeing that mix shift to the higher margin.
Speaker Change: Products in that segment and also frankly in Q2, we were still.
Speaker Change: Had we are still operating crossett across that facility, we announced the shutdown of that at the very end of Q2 and are seeing some the benefit of not having the drag if you recall, we talked about earlier the drag from the profit facility. So we would've had that drag.
Luis Fernandez: We announced the shutdown of that at the very end of Q2, and are seeing some the benefit of not having the drag. If you recall, we talked about earlier the drag from the Crossit facility, so we would have had that drag in Q2. We don't have it in Q3. So, both those things really are benefiting and showing up in that margin improvement. Okay, now that's helpful, and it definitely was, obviously it was a big one.
Speaker Change: <unk> in Q2, we don't have it in Q3, so both those things really.
Speaker Change: Are benefiting and showing up in that margin improvement.
Got it okay.
Speaker Change: That's helpful and it definitely was obviously was a big one.
John Mcnulty: So I guess the other question that I had, also on PC, I know it's a little bit early in terms of a guide for 25, but I guess there's a lot of kind of big buckets of improvement to come with CTO, lower, cross at gone. I guess, can you help to quantify? The buckets as we go from 24 to 25, let's just say the macros, everything's flat. Like let's make a, you know, no comp case around what's going on in the rest of the world. But on the savings, on the lower CTO, et cetera, can you help us to think about what that year-over-year bridge might look like for 25?
Speaker Change: So I guess the other question that I had also on PC I know, it's a little bit early in terms of the guide for 'twenty five, but I guess, there's a lot of kind of big buckets of improvement to come with CTO lower cross it gone I guess can you help to quantify.
Speaker Change: The buckets as we go from 24 to 25 lets just say the macro is everything is flat.
Speaker Change: Let's make a no comp case from what's going on in the rest of the world, but on the on the savings on the lower CTO et cetera can you help us to think about what that year over year bridge might look like for 2005.
Speaker Change: And I'll.
Luis Fernandez: I'll point to some information that that we did talk about end of Q2 when we when we talked about Crossit for example. We said that we expected the savings from closing Crossit to be, Crossit alone, to be between 20 and 25 million dollars with an additional 10 million dollars of savings coming from corporate actions taken to right-size the company as a result. On the CTO, again, you know what we've done is moved from long-term contractual arrangements at much higher costs to more of a spot purchase and you heard, you know, so we are obviously looking at the spot prices and again as I mentioned those have come down.
Speaker Change: I'll point to some information that that we did talk about.
Speaker Change: End of Q2, when we when we talked about cross said for example, we said that we expected the savings from closing cross to be crossed it alone to be between 20 and $25 million with an additional $10 million of savings coming from corporate actions taken.
Speaker Change: Two to rightsize the company as a result.
Speaker Change: On the CTO again.
Speaker Change: What we've done is move from long term contractual arrangements at much higher cost to more of a spot purchase and you heard.
Speaker Change: So we are obviously looking at.
Speaker Change: The spot prices and again as I mentioned those have come down also recognize though I believe as we talked about last quarter.
Luis Fernandez: Also recognize though I believe as we talked about last quarter in industrial specialties, because our raw material costs were so high, we were less competitive in pricing and selling of certain products in the market. So now with those CTO costs coming down as we move forward, we would expect that pricing will adjust as well, and again, we'll be more competitive in the market.
Speaker Change: In industrial specialties, because our raw material costs are so high we were less competitive.
Speaker Change: Pricing and selling of certain products in the market.
Speaker Change: So now with those CTO costs coming down as we move forward, we would expect.
Speaker Change: That pricing will adjust as well.
Speaker Change: And again, we'll be more competitive in the market, we should see volume improvement as a result of that but I think for.
John Mcnulty: We should see volume improvement as a result of that, but I think, you know, for modeling purposes to just take the Delta and CTO costs without any price movement would not be a fair apples-to-apples comparison.
Speaker Change: For modeling purposes to just take the delta in CTO costs without any price movement would not be a fair apples to apples comparison.
Speaker Change: Got it okay. That's helpful. Thanks, very much for the time.
John Mcnulty: Got it. Okay.
John Mcnulty: No, that's helpful.
Mike Sison: The next question comes from Mike Sison from Wells Fargo.
Speaker Change: The next question comes from Mike season for both Fargo. Mike. Your line is open. Please go ahead.
Mike Sison: Mike, your line is open, please go ahead. Hey, good morning. and Outlook. Luis, I guess, when I think about... of 2025. The last two quarters are running above that run rate. I understand the seasonality. being a little bit lower. But, you know, when you think about building that bridge the next year that you're sort of walking your team through. Just off the cuff, how much of that bridge from this year could be, you know, kind of just what you do on your own? And, you know, how much help do you think you need from auto bills or the economy?
Speaker Change: Hey, good morning.
Mike Fargo: Nice quarter and outlook.
Speaker Change: When I think about it.
Speaker Change: 2025.
Mike Fargo: The last few quarters are running above that run rate I understand the seasonality first.
Mike Fargo: And fourth quarter being a little bit lower.
Mike Fargo: When you think about building that bridge with next year.
Mike Fargo: Sort of walking through.
Speaker Change: Yes off the top.
Speaker Change: How much of that bridge from this year could be kind of what you do on your own.
How much help do you think you need from auto available in the economy.
Luis Fernandez: Yeah, hi Mike, how are you? Very good question. I think that the reason I'm challenging the team to deliver a plan that is, again, approaching $400 million, at this time obviously we understand that there's a fair amount of uncertainties on the things that you mentioned around auto production, industrial demand, but I'm definitely focusing on the self-help that we've done as a company, including the fact that we got out of the CTO contract that will allow us to benefit from lower CTO costs in the last three quarters of the year, the benefits that Mary was just referring to when it comes to the PC repositioning, and the third element are the benefits of the enhanced focus or accelerated focus on execution, by, again, making sure the teams are focused on the right things that allow us to improve profitability and growth.
Yes, Hi, Mike how are you.
Mike Fargo: Very good question.
Speaker Change: I think that the reason I'm challenged the team to deliver a plan that is again approaching $400 million.
Speaker Change: At this time, obviously, you understand that Theres, a fair amount of uncertainty.
Speaker Change: The things that you mentioned around auto production industrial demand, but I'm definitely focusing on the self help that we've done so the company, including the fact that we got out of the CTO contracts that will allow us to benefit from lower CTO costs in the last three quarters of the year.
Speaker Change: Benefits that Mary was just referring to when it comes to the PC repositioning.
Speaker Change: The third element are the benefits of the enhanced focus our accelerated focus on execution by us.
Speaker Change: Again, making sure. The teams are focused on the right things that allow us to improve profitability and growth.
Luis Fernandez: I think those are the key elements.
Speaker Change: Those are the key elements, while we understand that there are dynamics in the markets that are still uncertain.
Luis Fernandez: While we understand that there are dynamics in the markets that are still uncertain, but definitely we'll be able to provide way more clarity in the February call in February 2025. understood.
Speaker Change: But definitely we will be able to provide more clarity in the February call in 2020 in February 2025.
Speaker Change: Understood and then.
Mike Sison: And then We kind of gave a little bit of color on... like to see, but...
Speaker Change: Kind of gave a little bit of color on.
Speaker Change: Yes.
Speaker Change: For the segment.
Speaker Change: You'd like to see but.
Mike Sison: Can you maybe give us... Just on general, when you think about what type of businesses that you or Ingevity should own or want to own, any sort of metrics behind that versus what type of growth, what type of return to capital, what type of cash flow, any color of what is a good business you think that should be kept in the portfolio? That's a great question, Mike, and the only thing I can tell you is, obviously, I'm starting to look together with the team at the portfolio, but it would be too early for me to tell, even with four weeks on the job and even as we're looking at the board, it will be very early for me to tell you what we're thinking.
Speaker Change: Can you maybe give us I mean.
Just on general and when you think about what types of businesses that you are then do you have any ship owner wants out any sort of metrics behind that.
Speaker Change: What type of growth what type of returns of capital.
Speaker Change: Cash flow any color of what is a good business you think that should be kept in the portfolio.
Yes.
Speaker Change: That's a great question Mike.
Speaker Change: The only thing I can tell you is obviously I'm starting to look together with a team of the portfolio.
Speaker Change: But it would be too early for me to tell.
Speaker Change: Even with four weeks on the job and even as we're looking at the board. It will be very early for me to tell you what what we're thinking clearly we have some thoughts, but I think it will be early to <unk>.
Luis Fernandez: Clearly, we have some thoughts, but I think it will be early to share some of those.
Speaker Change: Sure some of those.
Speaker Change: Okay, great. Thank you.
Mike Sison: Okay, great. Thank you.
Speaker Change: Okay.
Speaker Change: We have no further questions. So I'll hand, the call back to John for some closing remarks.
John Nypaver: We have no further questions, so I'll hand the call back to John Nypaver for some closing Thanks Adam.
John Mcnulty: Great. Thanks, Adam well that concludes our call. Thank you for your interest in <unk> and we'll talk with you again next quarter.
John Nypaver: Well that concludes our call. Thank you for your interest in Ingevity and we'll talk with you again next quarter.
Speaker Change: This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
Operator: This concludes today's call. Thank you very much for your attendance.
Operator: You may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.