Ingevity Q4 2024 Earnings Report

Ingevity EPS Results

• Actual EPS: $0.95
• Consensus EPS: $0.29
• Beat/Miss: Beat by +$0.66
• One Year Ago EPS: N/A

Ingevity Revenue Results

• Actual Revenue: $298.80 million
• Expected Revenue: $297.40 million
• Beat/Miss: Beat by +$1.40 million
• YoY Revenue Growth: N/A

Ingevity Announcement Details

• Quarter: Q4 2024
• Date: 2/18/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 19, 2025
• Conference Call Time: 10:00AM ET

Ingevity (NYSE:NGVT) manufactures and sells activated carbon products, derivative specialty chemicals, and engineered polymers in North America, the Asia Pacific, Europe, the Middle East, Africa, and South America. It operates through three segments: Performance Materials, Performance Chemicals, and Advanced Polymer Technologies. The Performance Materials segment engineers, manufactures, and sells hardwood-based and chemically activated carbon products for use in gasoline vapor emission control systems in cars, motorcycles, trucks, and boats. This segment also produces other activated carbon products for food, water, beverage, and chemical purification applications. The Performance Chemicals segment consists of road technologies and industrial specialties. This segment's products are used in pavement construction, pavement preservation, pavement reconstruction and recycling, road markings, agrochemical dispersants, paper chemicals, and other industrial uses. The Advanced Polymer Technologies segment produces caprolactone and caprolactone-based specialty polymers for use in coatings, resins, elastomers, adhesives, bioplastics, and medical devices. It serves automotive parts and components manufacturers through sales representatives and distributors. The company was formerly known as WestRock Company, Specialty Chemicals Business and changed its name to Ingevity Corporation in September 2015. Ingevity Corporation was founded in 1964 and is headquartered in North Charleston, South Carolina.

Ingevity Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning or good afternoon all and welcome to the Ingevity Fourth Quarter and Full Year twenty twenty four Earnings Call and Webcast. My name is Adam and

[Operator]

I'll be your operator today.

[Operator]

I will now hand the floor to John Lipova to begin.

[John Nypaver, VP of Investor Relations & Treasurer at Ingevity]

Thank you, Adam. Good morning, and welcome to Ingevity's fourth quarter twenty twenty four 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.engevity.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.

[John Nypaver, VP of Investor Relations & Treasurer at Ingevity]

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. 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. Our speakers today are Luis Fernandez Moreno, our Interim CEO and Mary Dean Hall, our CFO. Our business leads, Rich White, President of Performance Chemicals and Steve Hume, President of Advanced Polymer Technologies, are available for questions and comments.

[John Nypaver, VP of Investor Relations & Treasurer at Ingevity]

Ed Woodcock, President of Performance Materials, is traveling. In his place to answer questions is Jonathan MacGyver, our VP of Global Commercial for Performance Materials. Luis will start us off with some highlights for the year. Mary will follow with a review of our consolidated financial performance and the business segment results for the fourth quarter and full year. Luis will then provide closing comments and discuss 2025 guidance.

[John Nypaver, VP of Investor Relations & Treasurer at Ingevity]

Our prepared comments will focus on full year results, but we are happy to take questions on the quarter during the Q and A portion of the call. With that, over to you, Luis.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Thanks, John, and good morning, everyone. Please turn to Slide four. In 2024, we took proactive steps to improve performance and enhance shareholder value. These actions, which are already delivering results, have significantly altered the way we perform as a company. First, we continue to reposition Performance Chemicals.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

This segment is now focused on higher margin end markets with improved raw material cost structure, which will be more visible once we consume the remaining high cost CTO inventory. Second, we accelerated execution of our strategy. Performance Materials had a record year in both sales and EBITDA, surpassing margins of 50%. And there is momentum behind this business as we see ICE vehicles continue to become more fuel efficient and consumer preferences trending towards hybrids, which require more advanced carbon technology. We're also making progress in developing new outlets for our carbon in silicon anode batteries through our investment in Nexeon.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Performance Chemicals margins improved in the second half of twenty twenty four, and we protected share and volume growth in APT in a difficult industrial environment. As a result, we generated over $50,000,000 of free cash flow in a year where we had $200,000,000 of repositioning cash costs. As we committed, we paid down debt and ended the year at 3.5 times net leverage. Third, we recently announced plans to explore strategic alternatives for Industrial Specialties product line and North Charleston CTO Refinery. Industrial Specialties has a great team and we are extremely proud of the work they are doing.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Nevertheless, we are assessing if Ingevity is the best owner of the cyclical business. We expect to have this assessment completed before the end of the year. All these accomplishments would be hollow without a good safety record that directly impacts the men and women of our team at facilities around the world. I am very pleased to share we achieved our goal to reach top quartile in personal safety performance in the American Chemistry Council's responsible care benchmarking. Even with all the changes we saw there in 2024, the teams made safety a priority and I couldn't be more proud of everyone's hard work.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

We were also recently named as one of America's Most Responsible Companies of 2025 by Newsweek Magazine for the third consecutive year. We are committed to advancing our mission to purify, protect and enhance the world and are proud to be recognized by our efforts. Lastly, the search for a permanent CEO is progressing well. While the search is in progress, I continue to be focused on executing our business strategy, which is showing results. Now, I will turn it over to Mary, who will go through the 2024 numbers.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

After that, I'll be back to discuss 2025 guidance.

[Mary Hall, Executive VP & CFO at Ingevity]

Thanks, Luis, and good morning, all. Please turn to Slide five. Full year sales of $1,400,000,000 were down 17% from last year's sales of almost $1,700,000,000 Performance Materials reported record sales, but that increase was more than offset by the almost $300,000,000 drop in sales in Performance Chemicals, which was primarily due to the exit of lower margin end markets in Industrial Specialties. Also contributing to the sales decline were lower sales in Road Technologies due primarily to adverse weather conditions and in advanced polymer technologies where increased volumes were more than offset by unfavorable mix and price concessions in certain markets, reflecting continued weakness in industrial demand and competitive pressures. We ended the year with a GAAP net loss of $430,000,000 which reflected several non recurring charges that are primarily related to our repositioning actions.

[Mary Hall, Executive VP & CFO at Ingevity]

These charges totaled $688,000,000 and included a goodwill impairment of $349,000,000 restructuring charges of $186,000,000 a $100,000,000 termination fee for a long term CTO supply agreement and $53,000,000 of losses on the resale of excess CTO. 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 this deck and also in our earnings release and Form 10 K, which will be filed this evening. Our adjusted gross profit of $521,000,000 was down 4% to last year, but gross margin was higher by five ten basis points, reflecting Performance Materials' improved profitability and our strategic repositioning of Performance Chemicals. Adjusted SG and A dollar spend was lower as a result of the cost savings initiatives we implemented during the year, but the percent of sales increased year over year due to the steep drop in sales I mentioned earlier.

[Mary Hall, Executive VP & CFO at Ingevity]

Adjusted EBITDA dollars were down on lower sales, while adjusted EBITDA margin improved three fifty basis points to 25.8% as our repositioning actions had their desired effect, driving a higher mix of revenue from our more profitable businesses and the savings we realized from cost reductions. Please turn now to Slide six. In the upper left chart, you can see how our repositioning actions are changing the business composition of the company. Industrial Specialties, our most cyclical product line, is now less than 20% of overall sales when historically it represented roughly one third to almost 40% of total company revenue. Our most profitable segment, Performance Materials, now represents over 40% of total company revenue, improving the company's overall margin profile.

[Mary Hall, Executive VP & CFO at Ingevity]

This is a direct result of our strategic actions in Performance Chemicals. In the upper right, you see we generated free cash flow of $51,000,000 for the year, much stronger than we guided in October. A key contributor to this performance was our disciplined working capital management in the fourth quarter, which resulted in a benefit of more than $50,000,000 Strategic inventory management was a major driver of the working capital improvement and the reduction in inventory was in finished goods and not related to the high cost CTO inventory we have on hand. And as a reminder, our free cash flow included the impact of roughly $200,000,000 of cash outflows related to repositioning actions, of which approximately 180,000,000 won't recur in 2025. However, we also do not expect to have a benefit from working capital reduction in 2025 and have taken all these moving parts into account in our free cash flow guidance for this year of between two twenty million dollars and $260,000,000 In the chart at the bottom right, you'll see that we were disciplined with CapEx spend as well and 71% of our spend was on maintenance and safety, health and environmental.

[Mary Hall, Executive VP & CFO at Ingevity]

We expect CapEx to be lower this year in the $50,000,000 to $70,000,000 range due to our smaller footprint and also the fact that our remaining facilities have benefited the last couple of years from debottlenecking and related incremental maintenance spend. We used free cash flow and cash on hand to reduce debt by 66,000,000 which brings me to the chart on the lower left showing our net leverage ratio. I'm happy to say we ended the year at 3.5 times net debt to adjusted EBITDA, also better than expected. We continue to focus on free cash flow generation and debt reduction and now expect to be below 2.8 times net leverage by the end of twenty twenty five. We also expect our full year 2025 tax rate will be between 2224%.

[Mary Hall, Executive VP & CFO at Ingevity]

Turning to Slide seven. You'll see results for Performance Materials, which delivered record sales, EBITDA and EBITDA margins. Sales growth of 4% outpaced global auto production, which was up about 2%. The increase in sales was driven by a higher volume and improved price and mix. There are two components to mix that are key to understanding this segment.

[Mary Hall, Executive VP & CFO at Ingevity]

Auto mix is important as larger vehicles such as trucks and SUVs have more of our content. And the more hybrids and ICE vehicles in the mix versus all electric vehicles, the better for us. The regional mix is also important. North America, which is nearly 50 of Performance Materials sales, is our most profitable region due to the typically larger size of vehicles and this region also has the highest emissions control standards in the world, so vehicles typically require more of our product. Asia Pacific is also an important region, representing about 40% of total Performance Materials sales.

[Mary Hall, Executive VP & CFO at Ingevity]

Within Asia Pacific, about 50% is China and the remaining 50% is primarily South Korea and Japan. These countries have strict emissions control standards or strong export markets where our carbon plays an important role in meeting regulations. Europe is our least impactful region due to the regulatory environment favoring electric vehicles and also because Europe emission standards lag behind North America and Asia. As an aside, in our 10 K, which we released tonight, we show a more detailed breakdown of revenues by geography for all of our segments. EBITDA for Performance Materials increased 11% to $319,000,000 with EBITDA margins for the year of 52.3%.

[Mary Hall, Executive VP & CFO at Ingevity]

This record result was primarily driven by operational improvements that enabled the plants to run more efficiently, which reduced our input costs by using less natural gas and also improved yields. Our team is laser focused on continuous improvement and this is a great success story. Given natural gas prices in 2024 were by some reports the lowest in more than a decade, input costs this year are expected to be higher, but based on our normal price increases and expected volumes and mix as well as some increased spend on R and D, we believe segment margins will be around 50% for 2025. Please turn now to Slide eight. APT generated higher volumes year over year as the team made progress in end markets such as elastomers, adhesives and coatings, but unfavorable overall product mix and selective price concessions contributed to a revenue decline of 8%.

[Mary Hall, Executive VP & CFO at Ingevity]

The segment benefited from lower energy costs and an improvement in utilization rates as a result of the higher volumes, but these cost savings were more than offset by the revenue decline resulting in EBITDA of $35,200,000 and an EBITDA margin of 18.7%. We believe the actions we've taken with respect to pricing strategy and mix upgrade will produce margins of around 20% in 2025. Also, when global demand improves, we believe that tailwind will support not only existing markets, but also spur innovation in more profitable, high growth potential markets such as bioplastics used in food packaging and apparel that could improve margins further. Please turn to Slide nine for Performance Chemicals results. As a result primarily of our repositioning actions, revenue in the segment of $6.00 $8,000,000 was almost $300,000,000 lower than prior year, a 33% decline.

[Mary Hall, Executive VP & CFO at Ingevity]

Approximately $210,000,000 of the decline in revenue reflects the exit of lower margin end markets in Industrial Specialties as we continue to focus on maximizing profitability. The remaining sales decline was due primarily to lost sales as customers sought alternative suppliers in light of our repositioning actions and lower Roadtec sales attributed primarily

[Mary Hall, Executive VP & CFO at Ingevity]

to

[Mary Hall, Executive VP & CFO at Ingevity]

adverse weather in key U. S. States. PC generated EBITDA of $14,700,000 for the year, significantly better than our guide in October of breakeven for the segment. This better than expected outcome was primarily due to an acceleration of the savings from repositioning actions.

[Mary Hall, Executive VP & CFO at Ingevity]

We'd originally expected to realize $65,000,000 to $75,000,000 of savings in 2024, but I'm happy to say that we realized $84,000,000 of savings during the year. The remaining savings of roughly $10,000,000 to $25,000,000 are expected to be realized in 2025. We also previously indicated that we expected to consume the remaining high cost CTO inventory by the end of Q1 twenty twenty five. But given the continued weakness in industrial demand, we now expect to fully consume that CTO in Q2 twenty twenty five. In 2025, we expect Performance Chemicals to generate EBITDA margins in the mid to high single digits, primarily reflecting the cyclicality of industrial specialties, which continues to be challenged by weak industrial demand and competitive price pressures.

[Mary Hall, Executive VP & CFO at Ingevity]

We have reduced our prices to align with market prices, and this will mostly offset the benefit of lower average CTO costs in the latter part of the year. We expect the higher margin, more stable Roadtec business to return to normal growth in 2025, helping to improve segment margin. In summary, we're very pleased to see the benefits of our repositioning actions translating to improved earnings, margins and cash flow. We expect strong free cash flow generation in 2025, which we will use to drive leverage to below 2.8 times from the current 3.5 times. Many thanks to our dedicated team as the company is well positioned for near term and future value creation.

[Mary Hall, Executive VP & CFO at Ingevity]

And now I'll turn the call back to Luis for an update on guidance and closing comments.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Thanks, Barry. Please turn to Slide 10. As I have said, while I'm in the CEO position, the team and I are keenly focused on execution. And for 2025, that includes generating sales between $1,300,000,000 and $1,400,000,000 EBITDA between $400,000,000 and $415,000,000 I have also said I'm committed to reducing our debt and I expect we will generate between $220,000,000 and $260,000,000 of free cash flow, which combined with our improved EBITDA should enable us to reduce net leverage to below 2.8 times by the end of the year. As a reminder, this guidance does not include any potential impact from the exploration of strategic alternatives for industrial specialties and the North Charleston CTO refinery.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

In summary, I am excited about the progress we have made and believe Ingevity will continue to improve with EBITDA margins in the high 20s and businesses that generate very strong cash flow, which will provide the flexibility to allocate capital across a variety of avenues. I look forward to leading these efforts until my replacement is named. In the meantime, the company and the Board remain focused on maximizing value to our shareholders through the priorities I have previously communicated. With that, I'll turn it over for questions.

[Operator]

And our first question comes from Jon Tanwanteng from CJS Securities. Jon, your line is open. Please go ahead.

[Jon Tanwanteng, Managing Director at CJS Securities]

Hi, good morning. Thank you for taking my questions and really nice quarter and pulling in the cost. Question on the pricing in the Performance Chemicals business. Are you already at the pricing that you expect to be at when the high priced C2 inventory runs out or is there still a further leg down that you can take when that does come out and you can use low input costs?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Hi, John. Good morning. Yes, we have stayed competitive with the market since the prices of CTO for most people have come down. We just have to be competitive. So the way I would describe it is that our current prices reflect the current market price of CTO.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

And as such, if CTO stays at these levels, we're pretty much at the right price level to be competitive in the marketplace.

[Jon Tanwanteng, Managing Director at CJS Securities]

Okay. So when you do run out of that inventory, you will see some proof profitability, but that should be you mentioned offset to that. I was just wondering what the disconnect is?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

No, that is correct. So we will see that in as we consume the CTO. I don't think there is a disconnect. The issue that we wanted to make sure that everybody understood is that those prices are already at a level that it's lower than last year. So making a comparison year on year on this is the CTO reduction, that CTO cost reduction is impacted by the fact that we're also reducing have reduced our prices to be competitive in the marketplace.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

But we will see an improvement as the high inventory CTO is consumed.

[Jon Tanwanteng, Managing Director at CJS Securities]

Okay, understood. And then secondly, could you just talk about the auto markets a little bit more? What are you seeing trends in Q1, especially in the terms of mix of hybrid versus EVs and how that will play out through the year?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Yes. Let me ask Jonathan, if you can comment on that.

[Jonathan MacIver, VP - Global Commercial, Performance Materials at Ingevity]

Sure. Thank you, John. Yes. What we're looking at is in line with what we've seen in the most recent S and P Global forecasts. Less of a declining interest in EVs versus hybrids, which we know bodes well for Ingevity's content in vehicles.

[Operator]

The next question comes from Daniel Rizzo from Jefferies. Daniel, your line is open. Please go ahead.

[Daniel Rizzo, Analyst at Jefferies]

Good morning, everyone. Thanks for taking the question. Can you just put tariffs in perspective both in terms of what your customers are saying on near term impacts and how it might affect order patterns?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Could you repeat that last part of the question?

[Daniel Rizzo, Analyst at Jefferies]

Well, what your customers are saying about tariffs and what their near term impacts and how it might affect order patterns?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Okay, got

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

it. So yes, that's a great unknown to be honest. There's definitely a lot of uncertainty and unfortunately not a lot of clarity. So far today, we have seen no impact when it comes to longevity or even when it comes to our customers. So in that regard today, all of the announcements have really had very minimal impact on both our customers and our business.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

But there's no question that some changes of what has been proposed could have impact either in automotive production in The U. S, consumer demand in The U. S. Related to higher price or higher inflation related to those tariffs. But for the time being, we really haven't seen anything.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

It's just the uncertainty that it's bringing to not only us but our customers.

[Daniel Rizzo, Analyst at Jefferies]

Okay. Thanks for that. And then just in terms of CapEx with the changes that are going on and kind of reducing your footprint and stuff like that, I was just wondering of what you're projecting for 2025, how much of that is maintenance CapEx? And is there any I mean, will you be spending it all on Performance Materials? Is that necessary?

[Daniel Rizzo, Analyst at Jefferies]

Or just how we should think about it going forward?

[Mary Hall, Executive VP & CFO at Ingevity]

Yes. Most of the expected spend is on maintenance and what we call SHI, safety, health, environmental. But there is some growth spend in there. But I would say for 2025, it is primarily maintenance related spend.

[Daniel Rizzo, Analyst at Jefferies]

All right. Thank you very much.

[Operator]

The next question comes from John McNulty from BMO Capital Markets. John, your line is open. Please go ahead.

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

Yes, good morning. Taking my question. So just regarding some of the increased innovation spend in PM, can you help us to think about where that's going? I'm assuming some of it's toward the Nexeon platform, but can you help us to think about some of the investments that you're making there?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Hi, John. Good morning. Yes, indeed, you're right. The increased spend there is, as you know, as we look at these new applications in batteries and specifically in the silicon anodes, it requires a significant amount of testing. And not only testing, but also the fine tuning of the materials.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

So I would say the vast majority, if not all of it, is related to the development of the new application for electric for batteries, both for electric vehicles and other applications.

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

Okay. Got it.

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

No, I appreciate the color. And And then the other question was just, Mary, I think you said on the cash flow side, you're not assuming any improvement in 2025 on a working capital basis. I guess, why would that be if the CTO inventory is still kind of sticky and you're going to work through it in the first and second quarter? Is there an offset that we should be thinking about? Or is that just kind of a level of conservatism?

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

I guess,

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

how should we be thinking about that?

[Mary Hall, Executive VP & CFO at Ingevity]

So I think what I was trying to point to is we saw such a big, reduction in working capital benefiting cash in 2024. And I was I'm cautioning people not to expect that again because in a more normal environment, putting the high cost CTO aside in a more normal environment, we would expect to grow the company and have increasing accounts receivable and inventory off of our now new kind of base business. So that's really what I was trying to address.

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

Okay. But should we be thinking about the CTO inventory working itself through? Will that likely be at least somewhat of a tailwind? Or again, does it get offset by the growth maybe in the core business? I guess trying to size out how big is that PTO inventory that has to be worked through maybe?

[Mary Hall, Executive VP & CFO at Ingevity]

Our assumption, sitting here today is that the inventory related benefit of working off that high cost CTO will is offset by other increases in working capital as we respond to growing parts of the business. That's our assumption today.

[John McNulty, MD - Chemicals Analyst at BMO Capital Markets]

Got it. Okay. Thanks very much for the color.

[Operator]

The next question comes from Abigail Ebers from Wells Fargo. Abigail, your line is open. Please go ahead.

[Abigail Eberts, Equity Research Associate at Wells Fargo]

Hi. Thanks for taking my question. So I see you're guiding for 50% EBITDA margin for Performance Materials in 2025. How should we be thinking about Performance Materials margins longer term in a more volume growth oriented environment given that you're expecting Global Auto Protection to be lower this year?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

So I guess in the short term, we continue to expect the Performance Materials business delivered that 50% EBITDA margins. Obviously, that depends on us continue to sell at the level that we're predicting for automotive production. Any significant change in automotive production or a significant shift towards battery electric vehicles would definitely have an impact in either direction. I mean, the more ICE or hybrid vehicles, the better for us, which is the trend that we are seeing today. And in that regard, we do expect to keep those margins.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

We've talked about the fact that there continue to be further regulatory rules in China that if implemented in 2028, they will have a significant benefit to the utilization of carbon. And as such, we expect that demand to come up, but that would be the time that could be any competitor coming in. So as we think about the longer term EBITDA margin on this business, assuming that there is that extra or that possible competitor in China, then our margins will be in the high 40s. But at least for 2025, our expectation is that those margins are going to remain in the 50% range based not only on the current sales, but all of the actions that we've taken regarding productivity in our manufacturing sites.

[Abigail Eberts, Equity Research Associate at Wells Fargo]

Okay. Got it. Thank you.

[Operator]

We have a follow-up from John from CJS Securities. John, please go ahead.

[Jon Tanwanteng, Managing Director at CJS Securities]

Hi. Thanks for the follow-up. I might have missed this as you said it earlier, but I was wondering if you could talk about the logistics of exploring alternatives for the industrials business. One, does that include the alternative fatty acids business? And two, how would you physically separate the business from the pavement business in the event you will find a buyer or something else?

[Jon Tanwanteng, Managing Director at CJS Securities]

Just explain how something like that will be structured.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Yes, that's a very good question, John. So again, we're still assessing the options and this obviously could change. But at this time, our expectations is that we will continue to remain flexible when it comes to raw material supply. So as such, we will keep the flexibility on alternative fatty acids or CTO based TOFA for the pavement business. So we don't expect that to change that capability that we have developed over the past couple of years.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

When it comes to the actual assets, and you're probably very familiar with this in the chemical industries, People and companies have done this many a times where you have assets in the same location, but you are able to separate them and find ways to provide the services. What again, our current thinking is we will keep all of those assets for pavement, even though they are co located in the same site, but they are different assets and be able to do that in sort of a condominium as many condominiums exist today in the chemical industry. I always say it's not something that it's easy, but it has done many, many times and worked well. So that's what we're thinking. But again, it's still the analysis.

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

It's something that we're developing and we'll come up with more information when we're ready. But hopefully, that color does provide a little perspective.

[Jon Tanwanteng, Managing Director at CJS Securities]

It does. I was wondering, have you spoken to outside parties who might be interested yet? Or is this still an internal focus? Just figuring out what you can split or not split?

[Luis Fernandez-Moreno, Interim President & CEO at Ingevity]

Yes. As you could imagine, the moment we announced this, we have had a fair amount or a significant amount of interest on the assets. So we are again continue the assessment and evaluations and we'll come up with more information later. But yes, even at the moment we announced, there were a fair amount of inbound requests as we would have expected.

[Jon Tanwanteng, Managing Director at CJS Securities]

Understood. Thank you very much.

[Operator]

We have no further questions. So I'll hand the call back to the Ingevity team for some concluding remarks.

[John Nypaver, VP of Investor Relations & Treasurer at Ingevity]

Great. Well, that concludes our call. Thank you for your interest in Ingevity and we'll talk with you again next quarter.

[Operator]

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Participants

Executives

• John Nypaver, VP of Investor Relations & Treasurer
• Luis Fernandez-Moreno, Interim President & CEO
• Mary Hall, Executive VP & CFO
• Jonathan MacIver, VP - Global Commercial, Performance Materials

Analysts

• Jon Tanwanteng, Managing Director at CJS Securities
• Daniel Rizzo, Analyst at Jefferies
• John McNulty, MD - Chemicals Analyst at BMO Capital Markets
• Abigail Eberts, Equity Research Associate at Wells Fargo