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Ingevity Corp (NGVT) Q1 2024 Earnings Call Transcript Highlights: A Mixed Financial Performance ...

GuruFocus Research
·4 min read

  • First Quarter Revenue: $340.1 million, down 13% year-over-year.

  • Net Loss: GAAP net loss of $56 million for the quarter.

  • Adjusted Gross Profit: Approximately $120 million, declined 19%.

  • Adjusted Gross Margin: Down 260 basis points to 35.2%.

  • Adjusted SG&A: Improved by 6% year-over-year.

  • Adjusted EBITDA Margin: Strong at 22.6%.

  • Free Cash Flow: Negative $28.7 million.

  • Performance Materials Revenue: Up 3% to $145.1 million.

  • Performance Materials EBITDA: Up 12% to $78 million, margin nearly 54%.

  • APT Revenue: $48 million, down 27%.

  • Performance Chemicals Revenue: $147 million, down significantly.

  • Performance Chemicals EBITDA: Negative $10.6 million.

  • 2024 Guidance: Revenue between $1.4 billion and $1.55 billion; Adjusted EBITDA between $365 million and $390 million.

Release Date: May 02, 2024

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

Positive Points

  • Performance Materials segment saw a 3% increase in sales and a 12% increase in EBITDA, with margins reaching nearly 54%.

  • Company achieved $20 million in savings related to Performance Chemicals repositioning and other corporate actions, on track for annual savings target of $65 to $75 million.

  • Adjusted EBITDA margin remained strong at 22.6%, reflecting the underlying strength of Ingevity Corp (NYSE:NGVT)'s core portfolio.

  • Performance Materials segment benefited from annual price increases, higher activated carbon volumes, and lower input costs.

  • Despite challenges, the Advanced Polymer Technologies (APT) segment maintained healthy EBITDA margins of 20%, supported by lower costs and improved SG&A.

Negative Points

  • First quarter sales declined by 13% due to repositioning actions in Performance Chemicals, including a plant closure and exit from certain low-margin markets.

  • GAAP net loss of $56 million for the quarter, influenced by $64.8 million in restructuring charges and $26.5 million in CTO resale losses.

  • Performance Chemicals segment experienced a significant decline in revenue and EBITDA, with negative impacts from higher CTO spend and unfavorable plant throughput.

  • First quarter free cash flow was negative $28.7 million, worsened by cash losses on CTO resales and cash spend related to Performance Chemicals repositioning.

  • Revenue in the APT segment was down 27% due to continued global demand weakness in many of the segment's end markets.

Q & A Highlights

Q: Is it fair to infer that from the much smaller difference between your booked losses on CTR resale versus your cash losses on CTR resale that your costs are converging towards that resale price? A: John Fortson, President and CEO of Ingevity, explained that while costs for Q2 are expected to be slightly lower than Q1, significant convergence of costs towards resale prices is anticipated in the latter half of the year. He also highlighted ongoing efforts to shift towards oil-based chemistries, which could represent a significant portion of revenue in the near future.

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Q: Could you provide details on the paving agreement in Brazil, specifically whether it depends on seasonal factors like rain rather than temperature? A: John Fortson clarified that paving in Brazil is indeed more dependent on the rainy season rather than temperature, allowing for year-round paving but with potential interruptions during the rainy season.

Q: Did you indicate that Industrial Specialties should have a run rate of about EUR100 million sales per quarter for the year? A: John Fortson confirmed that about two-thirds of the $101.3 million in Industrial Specialties sales this quarter are expected to continue, with the remainder from selling off inventory in markets they are exiting.

Q: Regarding the PM EBITDA margin of 54%, is it now the norm to expect high 40s to low 50s margins going forward? A: Mary Hall, CFO, indicated that while they aim for high 40s, margins can vary due to factors like scheduled downtimes and input cost fluctuations. However, the current margin reflects a strong performance and favorable conditions.

Q: Can you discuss the impact of new EPA regulations on PFAS levels and how it might affect demand for your activated carbon products? A: S. Edward Woodcock, President of Performance Materials, noted that while there is significant interest in activated carbon for PFAS removal, the efficacy needs to be tested for specific PFAS compounds, which could influence sales and profitability in this application.

Q: How is the pricing environment in the PM business contributing to margins, especially with the shift towards hybrid vehicles? A: John Fortson discussed that pricing strategies are adjusted annually, aiming for mid-single-digit increases. The shift towards hybrids, which require similar activated carbon amounts as ICE vehicles due to regulatory standards, is supporting strong margins.

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

This article first appeared on GuruFocus.