Good morning or good afternoon all, and welcome to the Ingevity Q2 2025 Earnings Call and Webcast. My name is Adam, and I'll be your operator today. [Operator Instructions] I'll now hand the floor to John Nypaver to begin. So John, please go ahead when you are ready.

Thank you, Adam. Good morning, and welcome to Ingevity'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 ir.ingevity.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 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 3. Our speakers today are David Li, our CEO; and Mary Dean Hall, our CFO. Dave will provide introductory comments. Mary will follow with a review of our consolidated financial performance and the business segment results for the quarter. Dave 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 Ingevity. 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 IngeviWay our shared values and mission to purify, protect and enhance the world around us is deeply embedded across the company. And what 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 disciplined focus on profitability, which drove significant free cash flow and leverage improvement. Our leverage has improved to 3x, which reflects a full turn improvement in less than a year. Our strong profitability was driven by Performance Materials, which delivered another quarter of EBITDA margins above 50% and our successful repositioning actions in Performance Chemicals, resulting in a consolidated EBITDA 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.

Thanks, Dave, and good morning all. Please turn to Slide 5. Second quarter sales of $365 million were down 7% versus Q2 last year due primarily to repositioning actions in Industrial Specialties, combined with wet weather impacting paving activity in Road Tech and indirect tariff impacts on APT 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 EBITDA, with adjusted earnings up 39% and adjusted EBITDA up 9%. Our adjusted EBITDA 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 noncash 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 led 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 EBITDA 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 net leverage toward our goal of 2x to 2.5x. 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…

Thanks, Mary. Please turn to Slide 10. Given the continued strong performance in Performance Chemicals and sustained 50-plus percent EBITDA margins in Performance Materials, coupled with an improved outlook for North American auto production, we are raising the low end of our full year EBITDA guidance to a range of $390 million to $415 million. In addition, with 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 2.8x. 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 3 straight quarters of year-over-year improvement in EBITDA and free cash flow, 5 straight quarters of year-over- year EBITDA 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 Ingevity's 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 strengthened financial profile and a clear strategic direction, we believe Ingevity 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.

[Operator Instructions] Our first question comes from John Tanwanteng from CJS Securities.

Congrats on a nice earnings quarter and the higher outlook for the year. Maybe first of all, could you give us an update on the profitability of the In Spec business stand-alone ex pavement where fuel CTO prices are relative to a year ago and also relative to alternative oleos and crude alternatives?

Yes. As you know, we don't break out the profitability of that, John. I think where we try to guide people on that is if you look at -- 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 In Spec. And that's really the best we can do.

But John, I'd say, overall, we're pleased to be through the higher cost inventory of CTO. We're pleased with the -- to be through the repositioning efforts. And as I mentioned, I think we're -- we feel like we've reached an inflection point for the company.

Got it. I was wondering if you could talk about the investments that you mentioned in your prepared remarks. Maybe some of the opportunities there if those are mostly in the carbon segment or others? And if there's any update on the already ongoing projects that you have?

Yes. Thanks, John. So as you know, we've made investments and have a strong partnership with a company called Nexeon. So part of that investment is continued investment into that partnership, which we're very encouraged about. It will allow us to use our highly engineered activated carbon in the EV segment of the business. Also, we've been participating in other applications for activated carbon, 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 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 those investments as well.

Okay. And just to sneak one more in. I don't know if Ed is listening, but congratulations on a really exceptional run for the segment. Any thoughts on just what you're looking for in leadership there and if there's any tweaks you might be doing to the segment?

Yes. So as we announced, we -- after a very long and celebrated career, we had one leader step away from the business, Ed, and 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 come aboard. We hope to have that completed search in the next several months, I would say. And then internally, we have a lot of momentum. So we don't want to wait for that new leader to come aboard. We're already reorganizing to focus on, of course, the automotive aspect of the business, but also. As I mentioned, that process purification business, we brought on some new leaders to focus in that area and excited about what they'll bring to that part of the business.

The next question comes from John McNulty from BMO.

Sorry about that. I was stuck on mute. So on Performance Chemicals, obviously, a really big jump in the margins, maybe bigger than what we were looking for, but a lot of kind of things going on in there. I guess, can you help us to think about what the margin would have been if you didn't have the high-cost CTO running through the P&L? The presumption would be it would have been even higher and probably in the 20s. But can you help us to maybe think about that?

So I'll let you -- I'll give you some insight how I think about that. And then we've got Phil Platt here, our Head of Finance and Accounting here as well. So as I mentioned, when we think about the full year, 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. And again, so that reflects the seasonality of pavement, but also the fact that 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 absent hurricanes and the like, pavement does a bit better in Q3 than Q2, but -- and we don't have the drag from the CTO inventory that gets you to kind of that full year look that I gave. What else am I missing, John? Is there something -- does that help?

Yes, definitely give us a little bit of color on it at least. Okay. And then maybe we can...

Second half, John. Yes, 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. Fair enough. Okay. That helps. And then on the free cash flow side, so 2Q is normally kind of just about a breakeven type free cash quarter, this time, noticeably better than that. I guess, can you help us to think about some of the levers that you're pulling to drive incremental free cash flow as we look forward? Are there some new kind of initiatives or things that you're focused on to kind of tighten things up or push the profitability and the improvement on the cash flow a little bit harder?

Yes. I think the main drivers in the second quarter were the improved earnings. And we've clearly continued to work on our inventory management initiatives. So -- and with the cost of the inventory also coming down, we see the benefits showing up in working capital. So less of the CapEx story, as I mentioned, 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. But it's really due primarily to the improved earnings.

Yes. And I think, John, just to add on to Mary's comment, 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 that the underlying strength of our business model, whether it's Performance Materials, which had another 50-plus percent EBITDA quarter. We would expect strong cash flows and predictable cash flows going forward.

The next question comes from Daniel Rizzo from Jefferies.

You mentioned doing a strategic review, just kind of for the whole portfolio. Is this going to be like an earlier process that once you're done with what you're thinking about 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?

Yes. Thanks, Daniel. So what we mentioned is that we're in 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, 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. It's obviously those are some big decisions for the company. And how we're approaching it is just thinking about what are our core competencies, where are we the best owner and then transposing kind of the financial profile of the different businesses, where can we really add value. And that work is ongoing now. We would expect that to be completed. And we mentioned that we'd be providing an investor update, hopefully, by the end of the year, might be early next year, but that work is already ongoing. It also includes a look at where we are -- where we have opportunities to grow. So there may be opportunities. I mentioned one, process purification 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.

And then you mentioned that CTO prices now as you purchased them on the open market, I think, is $550 to $600 a ton. I was just wondering what that is as comparing to what your high-cost one was from the beginning of the year and late last year. And if -- and how we should think about it going forward? Is the market long CTO now just given what you've done? Or how we should just think about these costs versus your other inputs in the back half of the year?

Yes. The $550 to $600, again, we use that Argus data versus what we were paying before. I think we, at one time, had talked about levels even in the -- that it was 5x current market conditions at a time when the CTO market prices were in a similar area. So the reality is we were -- 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 the first half of this year.

And going forward?

And going forward, yes, I mean, volume of purchases would be similar to what we saw in Q2. And with the price, again, we're comfortable that we have enough CTO to run our operations and certainly are less dependent on the vagaries of the CTO market and how pricing is moving than we have ever been in the past.

The next question is from Mike Sison from Wells Fargo.

Nice quarter and outlook. I guess first question, in terms of Performance Materials, you got pricing, again. It seems like the ability to get pricing has been very good over the years. Can you sort of talk about why in the year with down volumes, you've been able to get pricing and how that looks for the second half of the year?

Right. So thanks for the question. I think just first touching base on the business itself. We see pretty resilient. Obviously, we're very North American-centric from a business perspective. We sell globally, but the North American market is very important to us, and that's proven to be pretty resilient, whether it's North American auto production or so far, the consumer's buying behavior. With respect to pricing, I think it's just reflective of the value that we're providing to customers. We're providing a highly engineered activated carbon solution. Customers are delighted with the products and the technology. We continue to work closely with those key customers globally. And so that pricing 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've always been able to get price in price increases in that business. That has been really unique somewhat -- 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 is a clear sign of that business's resilience that in the face of the kind of the tariff uncertainty this year, we've been able to continue just kind of business as usual on the pricing front.

Got it. And then shifting gears to Advanced Polymer Technologies. David, this is -- this business seems to have underperformed quite a bit over the years. Just curious your thoughts on the business itself. What needs to happen for this to be considered a core business longer term? And what's sort of your assessment of this segment, I guess, is the question?

Yes. Thanks for the question. First, as we mentioned in the last call, we have new leadership in place. And that team, I think, is doing a really great job taking a look at the entire -- whether it's the commercial approach or approach towards innovation. And so we're encouraged, and I think we'll see benefits from those -- that team and that leadership in the near term. I think as I mentioned in the midterm, 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. APT will be part of that review. And as I mentioned, we'll have more to say on it towards the end of the year. But also, as Mary mentioned, we just got through a pretty major CapEx investment. We're pleased with that, how it's come online. And so I think the team is in place. The leadership is in place. So I think we're set up well in the near term. In the mid- to longer term, we're looking at the portfolio and more to come.

Great. And then just one quick last one. Yes, your free cash flow looks pretty good. I think you raised that and the goal is to lower debt get your leverage ratio down. So beyond this year, what do you think is the right way to deploy cash going forward if the leverage looks good beyond this year?

Sure. And where you finished, getting the debt to our target area, that 2x to 2.5x is clearly our priority. But beyond that, again, investing organically, as I mentioned, we're continuing to do some of that. We continue to see pathways for growth organically and want to give that the priority that it's due. Share repurchases in our past before the leverage got elevated, we were a regular participator in share repurchases. And I think that is something that clearly is on our radar as well in terms of returning cash to shareholders. M&A in terms of our capital allocation priorities, again, not a priority in the near term, clearly, but something that is always on the list to the extent that once we are stable, generating a lot of free cash flow, the other capital allocation priorities are hitting on all cylinders. We will have the flexibility to look at M&A opportunities when they arise.

We have no further questions. So I'll hand the call back to John Nypaver for some closing comments.

Thanks, Adam. That concludes our call today. Thank you for your interest in Ingevity, 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.