Ingevity Corp Q1 2022 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Congratulations on a strong start to the year. I had a question regarding the commentary around some potential new European regs. I guess, can you give us any insight, if you have any, as to the kind of level that, that might push Europe to? Would it get us as high as kind of the Tier 2 that we all kind of referred to? Is that kind of in the cards? Is it less? Then I guess, is there any way to kind of level set us on that? .

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. that will be huge if it comes out that way. Okay. No, that's great. And then I guess, the second question was more about capital allocation. So your balance sheet is looking clean and it looks like you've got a really strong year ahead, assuming kind of the cash flows work out in the back half of the year, the way I think they will. You'll have enough flexibility for as much as $900 million or so of balance sheet flexibility, if you figure whatever a leverage level up to 3x or so, which I think in the past kind of the peak of what you've looked for. So when I think about opportunities in terms of deploying capital, whether it's for buybacks or whether it's for a larger scale M&A or smaller scale M&A, I guess how do you kind of lay out those opportunities? Do you see chances for a larger-scale M&A in your future? Or should we kind of stick to what we've seen over the last year or 2, which is little onesies and twosies investments in some of your existing business and buybacks. How should we think about that? .

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, that's all helpful color. Maybe I can sneak in one last one. Just with regard to the Chinese gum rosin situation where it does seem like things are tight and it's a good environment, can you speak to the impact of China lockdowns on that, what that might be doing to the market as well, like if it's either exacerbating things or it's actually helping things? I guess, can you help us to frame that with a little bit of color? Richard White - Ingevity Corporation - Senior VP of Performance Chemicals and President of Industrial Specialties & Pavement Technologies Yes. Thanks, John. This is Rich. And thanks for your write-up yesterday evening. We are seeing this gum rosin market continue to be tightening and the lockdowns in China are not helping. The folks can't get out to the field to do the harvesting, and we all know that the harvesting is due to start later this month. So we expect that the market will continue to be tight there throughout this season, primarily because of the lockdown, not because they're not trying to harvest the product. But everything associated with the lockdown. .

Question: Paretosh Misra - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : In the Performance Chemicals business, your EBITDA margins were almost flat, but prices were up probably a lot. So just curious how your reserves

Question: Paretosh Misra - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Got it. And just a follow-up. I don't know if you commented on that earlier, but how does your maintenance outage schedule looks like for the rest of the year for the 2 segments?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Yes. I got 1 or 2 just left. So first would just be on the pavement side. So it's off to a really strong start. Would you say that's a function of, hey, weather was great. And so we made, hey, while the sun was shining. Or is it more a function of the stimulus dollars finally kind of getting to the finish line and actually states and municipalities kind of putting that to work. Richard White - Ingevity Corporation - Senior VP of Performance Chemicals and President of Industrial Specialties & Pavement Technologies John, thanks for the follow-up question. No, the stimulus dollars haven't made their way into any of our demand as of yet. And as I mentioned earlier, we expect it in the second half. So this was just strong demand driven by both America and Europe. It wasn't prebuy. It was just the earlier demand because of the weather, as you alluded to. They're off to a great start. But as you know, the majority of that business or that season comes in the second and third quarter. .

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Yes. No, that's fair. I mean, maybe putting it just a different way, do you feel like you've got enough pricing in the business to offset some of the inflationary pressures yet? Or is there more work to be done?