• Revenue: $376.9 million, down 16% year-over-year.
• Net Loss: GAAP net loss of $107.2 million.
• Adjusted Gross Profit: $146 million, flat compared to last year.
• Gross Margin: Increased by 610 basis points.
• Adjusted EBITDA: Down $4 million year-over-year; margin improved by 340 basis points to 28.2%.
• Free Cash Flow: $28.5 million in Q3.
• Leverage: Around 4 times, expected to move closer to 3.5 times by year-end.
• Performance Materials Revenue: $151.1 million, up 3%.
• Performance Materials EBITDA Margin: 53.3%.
• Advanced Polymer Technologies Revenue: $48.8 million, up 14%.
• Advanced Polymer Technologies EBITDA Margin: 20.1%.
• Performance Chemicals Revenue: $177 million, down 31%.
• Performance Chemicals EBITDA Margin: Improved by 160 basis points to 11.2%.

• Warning! GuruFocus has detected 6 Warning Signs with NGVT.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ingevity Corp (NYSE:NGVT) achieved a higher gross margin by 610 basis points due to repositioning actions in performance chemicals.
• The company realized $18 million in savings during Q3, putting them on track to achieve their 2024 target of $65 million to $75 million in savings.
• Performance materials segment delivered solid sales growth of 3% and maintained high EBITDA margins, benefiting from lower input costs.
• Advanced Polymer Technologies (APT) saw a 14% increase in revenue, with signs of market demand improvement in China.
• Ingevity Corp (NYSE:NGVT) generated free cash flow of $28.5 million in Q3, demonstrating strong cash generation capabilities.

Negative Points

• Third quarter sales were down 16% due to repositioning actions and unfavorable weather conditions affecting the Road Technologies product line.
• The company incurred significant restructuring charges of $86.9 million and a $100 million charge for terminating a long-term CTO supply contract, leading to a GAAP net loss of $107.2 million.
• Performance chemicals segment sales declined 31%, primarily due to repositioning actions and weak industrial demand.
• Ingevity Corp (NYSE:NGVT) is still consuming high-cost CTO inventory, impacting EBITDA margins negatively.
• The company expects to deliver toward the lower end of their guidance due to headwinds like slow industrial demand and softening auto production forecasts.

Q & A Highlights

Q: Can you speak to the volume of CTO sales you had in Q3 and how much inventory remains? Is there any update on when you will be done with high-cost inventory? A: Mary Hall, CFO, stated that CTO resales were nominal in Q3, and they expect to finish consuming high-cost CTO inventory by the end of Q1 2025. The high-cost inventory impacts EBITDA margins and profitability.

Q: Where is the underlying price of CTO today in the spot market, and how does it compare to prior expectations? A: Mary Hall noted that the spot price of CTO has plateaued in recent months, with the last price around $650 to $750. This is significantly below previous contract costs but not back to pre-biofuel impact levels.

Q: Can you provide criteria for the new CEO search and any update on the process? A: Luis Fernandez-Moreno, Interim CEO, mentioned that the Board has a committee conducting the search with specific criteria. He emphasized his commitment to act as a full-fledged CEO until the right leader is found.

Q: Does reviewing the portfolio suggest potential divestitures of the PC or APT segments? A: Luis Fernandez-Moreno stated that they are reviewing the portfolio to ensure the right corporate strategy and composition. While not speculating on specific businesses, he acknowledged the current composition provides scale and diversity.

Q: What drove the improvement in performance chemicals margins from Q2 to Q3 despite lower sales in higher-margin businesses? A: Mary Hall explained that the improvement was due to exiting lower-margin products and the closure of the Crossett facility, which removed a drag on margins.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.