Ingevity Corporation Water Tower Research Virtual Insights Conference

Hello, and thank you for joining this WTR Insights conference session with Ingevity Corporation. I am Peter Gastreich, Managing Director of Energy Transition and Sustainable Investing in Water Tower Research. I am very pleased to welcome David H. Li, who is President and Chief Executive Officer of Ingevity. Dave, thank you for being with us, and welcome to the WTR Insights conference.

Thanks, Peter. Great to be here.

We have a few quick items here before we begin. Ingevity's safe harbor statements can be found on the investor tab of the company's website. Investor questions are very welcome, so please submit them through the chat box and we will make sure that those are delivered to Dave and his team during or after the chat. Anyone wishing to request a meeting with Ingevity management can indicate that through the conference portal. With those items covered, let us get started here. Dave, this is the first time that we are hosting you for a fireside chat, so we will have some people in the audience who might be new to the story to Ingevity. Starting with, you took over as CEO the previous year in spring, and the company does look quite different today than it did then.

Could you give us a high-level picture of Ingevity as it stands now, and the transformation that you have been executing since joining?

Yes. Thanks, Peter. It's been a wonderful journey. I started April of last year, and as you mentioned, we've been embarking on really a transformation of the company. How we started is really looking at the portfolio, taking a deep look at where our core competencies are, and then making some sometimes difficult decisions on what are truly our core businesses. We've done that and as you mentioned, we are well underway with that strategic portfolio transformation. Last December, we hosted an investor day where we announced the future Ingevity. In that future Ingevity, we also announced that we'd be divesting three businesses. To date, we have successfully divested two of them, and the last one, which is our Advanced Polymer Technologies business, is also in what we'd characterize as advanced stages.

We're well underway with the portfolio transformation, which I think is really providing a lot of strategic clarity, both internally and externally. At the same time, we've had a focus on stabilizing and strengthening the balance sheet. Because of the high quality and profitability of our businesses, we generate a lot of cash. What we've used with that cash is paying down debt, returning capital to shareholders. We've been buying back a lot of stock. We've reduced our leverage from almost 4 to 2.5 now, so a much healthier level. We feel like we've got a lot of extra additional capacity to fuel future growth. Going forward, the two businesses that we consider core are Performance Materials and Pavement Technologies.

Those are areas that we're leaders in both spaces, and we're also looking at future growth pathways coming from both of those businesses. It's an exciting time for the company.

Stepping back across the markets that you serve, from automotive emissions control to water treatment to road infrastructure, which of these do you see as the primary driver of Ingevity's growth over the next several years, and what is the company's strategy for capturing that growth?

Right. As we've become a more focused company, that's allowed us the bandwidth to really focus on those future growth pathways. First, I'd look within our core business and Performance Materials. We're seeing an exciting transition to hybrid vehicles, I think driven by consumer preference. That's actually a positive for Ingevity because it requires our most advanced carbon solutions. Even though it's potentially lower content, it's higher dollar value. That's a driver of growth. We've also been disciplined in terms of pricing, so that could be another driver of growth. Then within Performance Materials, we're very excited about filtration. I'm sure we'll talk about it later, but we announced our first PFAS win where a customer was able to use our activated carbon to address the really challenging PFAS issue that many municipalities around the U.S. and around the world are facing.

We think that's an exciting growth pathway. A little further out, energy storage, we've got some investments there that we think are exciting. Then lastly, in Pavement Technologies, we have a very disruptive technology that allows our customers to basically build better roads, and we think there's a lot of growth potential in that business as well.

We'll come back to PFAS and the other opportunities in just a moment here. Just continuing with the shift to hybrids. In your recent earnings call, you described this consumer move toward hybrids as being a structural phenomenon. What is it about a hybrid that drives more demand for your products than a conventional gasoline vehicle? What gives you the confidence that this trend has staying power?

Sure. First, we're not the only ones looking at the auto industry. We, of course, use industry analysts like S&P and others, and all of them have kind of calling out this hybrid transition as something that is structural and sustainable. I think what's really happening there is, whether it's the Middle East or just customer preference, the hybrid really hits a sweet spot for the consumer because obviously it allows an efficient use of energy. For Ingevity, what that means is, again, our most advanced carbon solutions, so lower carbon content, but because of the technology and the advancements we've put into these solutions. For example, just to get into the technical aspect a little bit more, hybrids have a little bit less start and stop, which allows the purging of gas vapors.

We had to come up with something even more advanced than what has traditionally been used for ICE vehicles. That has allowed us to, again, work closely with our customers on new platforms, provide them with those advanced solutions that are needed to address the evaporative requirements for hybrids, and in turn, that turns to be a higher value or higher product mix for us at Ingevity. We are excited about that trend. I think it is good for the consumer, and it ends up being also good for Ingevity.

That is, of course, housed within your Performance Materials business, which is your biggest business segment, and it earns very strong margins. For investors who are trying to size up that landscape, what is it that defends that position, and how do you characterize the competition overall?