Q2 2025 Ingevity Corp Earnings Call
This is a holding announcement for the inevitable Q2, 2025 earnings calling webcast. Google will begin at 1 minute. Thank you for your patience.
Good morning or good afternoon. Welcome to the Integrity Q2 2025 earnings call and webcast. My name is Adam and I'll be your operator today.
If you'd like to ask a question during the Q&A portion of today's call you may do. So by pressing star, followed by 1 on your telephone keypad. I'll now hand the floor to John liver to begin to John please. Go ahead when you are ready,
Thank you, Adam. Good morning and welcome to in jev's. Second 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 iring.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, definitions of these non-gaap Financial measures and reconciliations to comparable. Gaap measures are included in our earnings release and our also in our most recent form, 10K.
We may also make 4 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 3.
Our speakers today are David Lee our CEO and Mary Dean Hall our CFO.
They will provide introductory comments. Mary will follow with the review of our Consolidated financial performance and the business segment results. For the quarter, they will then provide closing, comments and discuss, 2025 Guidance with that over to you Dave.
Thanks John and good morning everyone.
This week marks my fourth month with in jevity.
As I've traveled to our sites and met with our teams globally.
I've been energized by the passion and pride, our people bring to work every day.
The invo way, our shared values and Mission to purify protect and enhance the world around us.
Is deeply embedded across the company.
and when I consistently hear from our organization,
Is that they feel we have reached an inflection point.
And are ready to start winning again.
This quarter was another clear demonstration of our strong execution.
Ability to deliver results.
And discipline focus on profitability.
Which drove significant free cash flow and leverage Improvement.
Our leverage has improved to 3 times, which reflects a full turn Improvement in less than a year.
Our strong profitability was driven by performance materials.
Which delivered another quarter of ibida margins above 50%.
And our successful repositioning actions and performance. Chemicals. Resulting in a Consolidated ibida margin of 30%.
Also, we are making meaningful progress on our strategic portfolio assessment.
The sale process for our industrial Specialties business.
And CTO Refinery has reached an advanced stage.
And we expect to share an update soon.
We are also advancing our review of the entire portfolio with a focus on strategic fit.
And value creation.
I'll share more about where we're heading in our in my closing comments. For now, I'll hand it over to Mary to walk through the quarter in more detail.
Second quarter sales of 365 million. We're down 7% versus Q2 last year, due primarily to repositioning actions in industrial Specialties combined with wet weather, impacting Paving activity and Road Tech, and indirect tariff impacts on the app, volumes particularly in Europe,
Despite the sales decline, adjusted gross margin improved, 600 basis points, driving a 9% increase in adjusted gross profit.
Most of this Improvement flowed through to adjusted earnings and adjusted, EBA, with adjusted earnings up, 39% and adjusted. EBA up 9%.
Our adjusted EBA margin improved over 400 basis points to 30.1%.
Even as spend increased.
To support investments in Innovation and performance materials to drive future growth and in equipment for apt to improve operational, efficiency and cost control.
During the quarter, we recorded a non-cash goodwill impairment charge of $184 million for our apt segment.
Shifts in this segment's, customer order patterns due to tariff uncertainty and ongoing weakness in global industrial markets.
Let us to conduct an interim. Goodwill impairment test.
Updated forecasts and Market assumptions, including a higher discount rate resulted in the conclusion that apt's Goodwill was fully impaired.
My comments going forward, exclude the impact of this charge and a full reconciliation to gaap results is provided in the appendix.
Please turn to slide 6 for financial highlights of our Consolidated results.
The consistent EVA growth we've delivered, combined with improved free cash flow, has allowed us to accelerate our reduction in net leverage.
The chart in the upper left of the slide shows how quickly we are driving that leverage toward our goal of 2 to 2 and a half times.
Also note, the capex chart in the right, top? Right of the slide while capex spending year to date appears light. This reflects our normal spend pattern and we continue to expect capex to be in the 50 to 70 million range for the full year.
I'll point out that our work to optimize, our manufacturing footprint, has structurally lowered, our maintenance capex requirements, and our guide for this year. Reflects those benefits
as a result of improved adjusted earnings,
Disciplined working Capital Management and lower capex. We are raising the midpoint of our free cash flow guide. And we are confident, we will be below 2.8 Times by year end.
Turning to slide 7 performance material sales declined about 3 million dollars or 2% as higher Revenue in North America was offset by declines in Europe and Asia. Excluding China where sales were flat year-over-year?
Decline was attributed to tariff related uncertainty and the decline in Asia acts China was due to timing of customer orders which benefited Q2 last year.
Auto production forecasts are being revised frequently.
And have improved since April of this year, particularly for North America.
However, expectations still call for lower Auto production year-over-year in all major markets except China.
We have reflected the most recent information. We have in our updated guidance.
Eva margin ended the quarter. Just over 50%.
The decline in margin year-over-year was due to the slightly lower Revenue. I mentioned
We made an innovation to drive future growth and certain 1-time employee compensation costs.
We continue to expect full year segment. Eva de margin to be above 50%.
Please turn to slide 8 for apt results.
Weaker customer demand, partly attributed to tariff uncertainty and price concessions to address competitive. Pressures contributed to a 10% drop in sales in our apt segment.
Last quarter, we commented that direct impacts from tariffs for expected to be minimal for our segments and that continues to hold true.
However, during the quarter we began to see customer demand weaken further in our apt segment due to indirect tariff impacts.
As we've noted before, apt is our most globally, Diversified business and the indirect impact of tariffs has been meaningful to apt's results.
We have seen this most clearly in Footwear and apparel and Automotive markets, particularly in Europe where our customers slowed, their order patterns as a result of tariff uncertainty and concern over increased costs.
We expect this uncertainty to continue and to impact customer demand in the second half of the year.
In addition, our apt plan in the UK was down for an extended period of time to install new boilers. As we discussed last quarter, the outage costs of about 5 and a half million dollars in combination with the Topline pressures. I just discussed resulted in Eva de of about 1 million for the quarter.
I'm happy to report that the boilers are up and running and are expected to give us better control over energy costs and improve operational, efficiency going forward.
Also as markets and businesses adjust to the new tariff environment. Our team is moving aggressively to reorganize and refocus our commercial efforts to align with our customers as they pivot between regions and markets.
Due to the shifting landscape and current market conditions. We expect full year Revenue in apt to be down mid to high single digits as a result of lower industrial Demand with Eva margin between 15 and 20%.
Please turn to slide 9 for performance chemicals results.
Sales were down about 10%, as last year's results included the final remnants of revenue generated from the lower-margin markets. We exited as a result of repositioning actions.
Lower sales and Road Tech also contributed to the drop in sales. As we saw a slow start to the paving season due to wet weather. And that may sound like a repeat of last year, which was also affected by a wet weather. But last year was more concentrated. In terms of geography this year, a wider swath of the country was impacted
Particularly in the Mid-Atlantic and the South.
The good news is that we saw a strong June, and the positive momentum continued into July. We are cautiously optimistic that the crews will be able to complete enough road construction projects in the second half, such that on a full-year basis, Road Tech revenue should be up low single digits.
The segment continued to show improved profit and stability as a result of our successful execution of repositioning actions.
Segment Eva was more than 3 times last year's number and Eva de margin approached 20%, the highest in nearly 2 years.
Is at Market rates which today are around 550 to $600 per ton.
In addition to lower raw material costs, repositioning allowed us to right-size our footprint.
So we are seeing significantly lower costs in our supply chain for Logistics, storage and warehousing for example, which also contributed to the IBA Improvement.
Because we are realizing next and cost improvements more quickly than originally anticipated. We are increasing our guidance for full year performance. Chemicals, ebita margin to be in the high single digit to low double digits.
As we expect second-half margins to be similar to first-half.
In summary, the company's focus on execution Excellence is evident in our results, through continued, Improvement, and profitability and strong free cash flow, which we are using to accelerate deleveraging. We're pleased with the progress. We're making in a very challenging Global business environment. And I'll now turn the call back today for an update on guidance and closing comments.
Thanks Mary. Please turn to slide 10.
The continued strong performance and performance chemicals and sustained, 50 plus percent ibida margins in performance materials.
Coupled with an improved outlook for North American Auto production.
We are raising the low end of our full year, ibaa guidance.
To a range of 390 to 415 million dollars.
In addition to the strong free cash flow we're generating, we're revising our full-year free cash flow guidance upward to $230 million to $260 million.
and we remain highly confident.
We will achieve our year-end. Net leverage Target.
Of below 2.8 times.
We are maintaining our sales guidance as we continue to navigate macroeconomic uncertainty and weakness in industrial and consumer demand, as well as potential shifts in interest rates and tariffs.
During the second half.
As I close, let me once again, highlight the significant progress, the company has made over the last 2 years.
as a result of the successful execution of our repositioning strategy,
We've posted three straight quarters of year-over-year improvement in EBITDA and free cash flow.
5 straight quarters of year-over-year. Ibida margin Improvement.
And 4 consecutive quarters of reduced, Leverage.
We believe our results demonstrate that we are building momentum.
As we transition Beyond this repositioning phase.
Strategically, we are pleased with the progress of the sale of our industrial Specialties business and CTO refinery.
And expect to provide an update soon.
I'm also excited to share that we expect to host an investor update later this year or early next year, where I'll communicate the results of our comprehensive portfolio review.
Share our long-term growth strategy and articulate our vision for longevity future.
in closing, our strong results over multiple quarters, underscores the strength of our execution,
And the momentum, we are building across the company.
With more stable and profitable businesses.
A strength and financial profile, and a clear strategic Direction.
We believe in jevity has passed an inflection point and is well positioned for sustained growth and long-term value creation.
With that, I'll turn it over for questions.
As a reminder, if you'd like to ask a question on stage, cool, please press star. Followed by 1 on your telephone keypad. Now, when preparing to ask a quick question, please ensure you welcome you to locally
Our first question comes from John tanu from CGI Securities. John, please go ahead. Your line is open.
Hi, good morning. Thank you for taking my questions and congrats on a nice earnings quarter. And the higher, I'll look for the year.
um,
Maybe first of all, could you give us an update on the profitability of the Inspect business standalone? Next, payment with C, your price, C, your prices?
Alternative.
Yeah. Um, as as you know, we don't break out the profitability of that uh John I think I
What where we tried to guide people on that as if you look at uh, keep in mind, the seasonality of pavement, which is a Q2 Q3 story and compare that to Q4 q1. You get an idea of the profitability relative profitability of inspect and that's really the best, uh, the best we can do. But but John I'd say, overall, we're pleased to be through the higher cost, inventory of CTO. We're we're pleased with the the, you know, to be through the repositioning efforts. And and as I mentioned I think we're we feel like we've reached an inflection point for the company.
Got it. Thank you. Um, I was wondering if you could talk about the Investments that you mentioned you prepared remarks, uh, maybe some of the opportunities there. If those are mostly in the carbon segment, uh, or others. And if there's any update on the already ongoing projects that you have
Yeah thanks John. So you know as you know we've made um Investments and and have a a strong partnership with uh a company called nexion. So part of that investment is continued uh investment into that partnership which we're very encouraged about. It'll allow us to use our highly engineered activated carbon in the EV
Segment of the of the business. Also you know we've been participating in um other applications for activated carbon uh which we call Process purification. And I think in the past although we've participated we haven't been really intentional or haven't developed those channels in a in a, in an intentional way and so we're putting some more energy and focus behind that.
And I think we'll see some really good results in the future from from those Investments as well.
Really exceptional Run for the segment. Any thoughts on what? What you're looking for in leadership there and if there's any tweaks, you may be doing to the segment.
Yeah. So as we announced we, you know, after a very long and and and celebrate career, we had 1 leader step away from the business Ed and uh really want to acknowledge his contributions to building that business. We have an active search ongoing for his replacement and we're really pleased with the progress. We're making there and excited for that new leader to to come aboard. Uh, we hope to have that um completed search in the next, you know, several months I would say. And then internally, you know, we have a lot of momentum, so we don't want to wait for that new leader to come aboard. We're ready, reorganizing to to focus on, of course, the the automotive aspect of the business, but also, as I mentioned that process purification business.
Uh, some new leaders to to focus in that area and excited about, uh, what they'll bring to to that part of the business.
Great. Thank you.
Thanks.
The next question comes from John mcnel from BMI John. Please go ahead. Your line is open
We did locally.
Sorry about that. Uh, we're stuck on mute. Um,
So, on performance chemicals, obviously a really big jump in the margins may be bigger than what we were looking for. Um, but a lot of kind of things going on in there. I, I guess. Can you help us to think about what the margin would have been? If you didn't have this, the high cost CTO running through, the p&l presumption would be, it would, it would have been even higher in probably in the 20s, but can you help us to to maybe think about that?
So I'll I'll let you, I'll, I'll give you some insight how how I think about that. And then we've got Phil Platt here our um,
Head of, uh, finance and and accounting here as well. Um, so as I mentioned, when we think about the full year,
you know, a lot of noise in the first half as we were working through the high cost CTO, but we did say, I did say we expect the second half.
Margins to be similar to first half.
Um and again so that reflects the seasonality of pavement, but also the fact that uh we we will have worked through the high cost CTO and it won't be dragging down the second half of the year.
Keep in mind that pavement as I mentioned, had a relatively tough Q2 because of the weather impacts.
And I mentioned the strong June and the good momentum in July. So if you think about maybe, you know, absent hurricanes and the like pavement does a bit better in Q3 than Q2. Um, but and we don't have the drag from, uh, from the CTO inventory. That gets you to kind of that full year, look that I gave
Um, I'm on. What else am I missing? John. Is there something?
Does that help?
Yeah, definitely definitely. Give us a. Give us a little little bit of color um on it at least. Um, okay. And then maybe we can do a second half second half John. Yeah, just to be clear. Second half won't include the impact.
Of the high cost CTO.
And we're saying that the margin. We expect the margin to be similar to first half.
Okay. Um, fair enough. Okay. That that that helped. Um and then on the Free Cash Flow side. So you know 2 Q is normally kind of just about a break even type free cash quarter this time noticeably better than that. Um I guess can you help us to think about some of the levers that you're pulling? Uh,
To to drive incremental free cash flow. As we as we look forward is, is, are there some new kind of initiatives or things that you're focused on that to to kind of tighten things up or or or push that uh, push
The profitability and the improvement on the cash flow are a little bit harder. Yeah.
I think the, um,
you know, the main drivers in
In second quarter were the improved earnings.
Uh, and we've clearly uh continued to work on our inventory management initiatives.
Uh so and with the the cost of the inventory also coming down. Um, we see the benefits showing up in, um,
In working capital.
so,
Um, lots of the capex story. As I mentioned, you know, we are, it's pretty typical for us to spend less in the first half of the year on capex than we do in the second half.
um,
But um but it's really due primarily to the improved earnings. Yeah and I think John just to add on to Mary's comment, you know, we're really pleased with our execution. Obviously, we're seeing benefits from the repositioning strategy clearly through an inflection point there. And I think what we would expect and we guided to this as well, is really much more predictable cash flows for the business. Um, that the
Underlying strengths of our business model, whether its performance materials, which had another 50 plus percent, even a quarter. Um you know, we would expect strong cash flows and predictable cash flows going forward.
Got it. Thanks very much for the caller.
Question comes Antonio Rizzo from Jeffrey's Daniel. Yolen is open. Please go ahead.
Hey, good morning, thanks for taking my questions. You mentioned doing a strategic review just kind of for the whole portfolio is kind of like an earlier process that once you you're done with um, what you're thinking about with, uh, with industrial Specialties that you'll then move on to the next or is it something that could happen all at once? I mean, is there ongoing conversations with others about different parts of your business that haven't been previously mentioned?
Yeah, thanks Danielle. So so what we mentioned is that we're an advanced stages of the sale process of our industrial Specialties business and CTO Refinery and hopefully have an update soon. We're very encouraged and at the same time, you know, there's a lot of work going on internally in parallel to look at the entire portfolio and obviously we want to be measured here there. It's a it's obviously those are some big decisions for for the company and how we're approaching it is just thinking about, you know, what are our core competencies? Where are we the best owner uh, and then transposing kind of the financial profile of the
The different businesses, where can we really add value? And, uh, that work is ongoing. Now we would expect
Opportunities I mentioned 1 process purification and within performance materials where perhaps we've under resourced in the past and we see opportunities for growth. So we'll be able to talk more about that in the second half or later in the year. But that process is ongoing as we speak.
Thanks thanks for that and then you you mentioned that CTO prices. Now as you purchase them on the open market I think is 550 to 600 a tan. I was just wondering what that is as comparing to what your high cost 1 was from you know the beginning of the year late last year and if
And how how we should think about it. Going forward is is the market long CPO now or just given what you've done or yeah or how we should just think about these costs versus in versus your other um inputs uh in the back half of the year.
Yeah, the 550 to to 600 again. You know, we we use that Argus uh data versus what we were paying before. I think we at 1 time had talked about um,
Levels. Even in the
That it was 5x, Uh, current market conditions at a time when the CTO um market prices were in a similar area.
Um, so um, you know, the, the reality is we were we with the downsizing of our footprint, our CTO purchase requirements, volume requirements also came down, so the combination of requiring less CTO as well as the lower prices.
is really what you're seeing in those improved results in in the first half of this year,
And going forward.
And and going forward. Yeah, I mean volume of purchases would be similar to what we saw in Q2. Um, and the price, you know, again we're uh, we're comfortable that we have enough CTO to run our operations and certainly our less, uh,
You know, dependent on the vagaries of the CTO market and how pricing is moving than than we have ever been in the past.
Thank you very much.
as a reminder that stuff I want on your telephone keypad,
The next question is from Mike seism from both Fargo Mike, please go ahead.
hey, good morning, nice nice quarter and Outlook um,
I, I guess first question in terms of
Performance materials. You got pricing again. Seems like the ability to get pricing is has been very good over the years. Can you can you sort of talk about? You know, why, um, in in the year with Don volumes, we've been able to get pricing and, and how that looks, uh, for the second half of the year.
Right. So, um, thanks for the question. I I, you know, I think just first touching base on the business itself.
We see, you know, pretty resilient. Obviously, we're very North American Centric. From a business perspective. We sell globally, but the North American Market is, is, um, you know, very important to us. And that's proven to be pretty resilient whether it's North American Auto production or uh so far, the consumers buying Behavior Uh with respect to pricing. I think it's just reflective of the value that we're providing to customers. You know, we're providing a highly engineered uh, activated carbon solution. Um, customers are delighted with with the with the products and the technology. We continue to work closely with those key customers globally. And and so that pricing and and that value that we're getting back is just reflective. I think of what we're providing to those customers. And as, you know,
Mike, we we've always been able to get price in price increases in that business that has been really unique. Some, you know, we believe unique and as an auto supplier in that chain that we were able to get those price increases every year. And I think it's, it is uh, clear sign of that, business's resilience that, in the face of the kind of the Tariff, um, uncertainty this year, we've been able to to continue just kind of business as usual on the pricing front.
On the business itself, what do you know needs to happen for this?
For this to be to to be considered a Core Business longer term. And you know what what sort of what sort of your assessment of this, this segment I guess is it is is uh, is the question.
Yeah, thanks for the question. You know, first, as we mentioned in the last call, um, we have new leadership in place and that team, I think is doing a really great job, taking a look at the entire, you know, whether it's the commercial approach or approach towards Innovation, and so we're encouraged. And, and I think we'll see benefits from those that team. And that leadership, uh, in the near term, I think as I mentioned in the midterm, you know, from a portfolio perspective we're looking at the entire portfolio and seeing really where we can add value where we can be the best owner. Um, apt will be part of that review. And as I mentioned, we'll, we'll have more more to say on it towards the end of the year. Uh, but also, as Mary mentioned, we just got through a pretty major capex investment. We're pleased with that, how it's come online. Um, and so I think the team and is in place, the leadership is in place. So I think we're set up well in the near term in the
It's a longer term. We're we're we're looking at the portfolio and and more to come.
Alright, and then just 1 quick. Um, 1 quick last 1. Yeah. Your free cash flow looks pretty good. Um, I think you raised that and and the goal is to lower debt, uh, get your leverage ratio down. So, be Beyond this year. What do you think is the right way to deploy cash? Uh, going forward, if, um, if the leverage looks good beyond beyond this year,
Sure.
Um,
Where you finished, uh, getting the debt to our target area, that $2 to $2.5.
Times is clearly our priority but beyond that. Um, again, investing organically. Uh, as I mentioned, we were, we're continuing to do some of that, we continue to see Pathways for uh, for growth organically and want um, want to give that the priority that it's due. Uh, share repurchases uh, in our past before before the leverage got elevated, we were a regular particip participator in uh share repurchases. Uh, and I think that is something that clearly is on our radar, as well, in terms of returning, cash to shareholders, um, m&a.
today in terms of our Capital allocation priorities,
Uh, again not a priority in the near term clearly, but something that is always on on the list, um, to the extent that once we are stable generating, a lot of free cash flow. The other Capital allocation priorities are are, uh, hitting on all cylinders. You know, we, we will have
The flexibility to look at M&A opportunities when they arise.
Great. Thank you.
No further questions. So I'll go back to John, no problem for some closing comments.
Thanks, Adam. That concludes our call today. Thank you for your interest and invitation, and we'll talk with you again next quarter.
This concludes today's call, thank you very much for your attendance. You may now disconnect your lines.