NGVT Q3 2026 earnings call transcript, November 5, 2026

Good morning.

Very rapidly. So we've been pleased with the progress we're making in filtration and I think it's obviously early in the journey but seeing a lot of good progress and some commercial wins. Yeah, good morning, Dan. I'll just add Dave's comment a little bit. Well, what we have said is we're upgrading that volume so in the near term we don't expect any significant volume shift into the filtration market. We're just simply upgrading it. So we don't really expect significant margin compression. I think looking at 2027, there's clearly a bunch of puts and takes. And although we're not providing guidance, what I would say is we do have numbers out there. From the December 25 I-Day that we did. And I would say largely for performance materials, we expect that business in 2027 to deliver within the ranges that we provided back in December of 25 to give you a sense. That's what we expect. All right.

Thank you very much.

investor day. But I think most importantly is you know the growth drivers of the business are still very much intact and compelling. Yeah and just as a reminder you know what we saw this year. In terms of asphalt costs that our customers are bearing is in some regions within the United States asphalt costs have gone up about 50% since the beginning of the year. And so to give you a sense of scale a 50% increase in. Asphalt costs can drive about a 20% increase in the actual cost of the road. So what we've seen, we started to see it in the back end of Q2. And clearly I've seen it in in Q3 is our customers are being. Very resourceful in how they're utilizing their finite budgets. They're spending more money on road preservation and maintenance. As opposed to actually paving paving roads. So what we said in December of 25. Is we expect that that business to put up mid single digit growth. Primarily driven by growth in warm mix asphalt as we convert hot mix to warm mix. Clearly if expectations. Prevail. We expect asphalt costs to continue to persist at these high levels into 2027. We would expect without a significant shift in customer budgets, DOT budgets, they would continue to. Prioritize maintenance spend in 2027. Essentially reducing tonnage, so the amount of actual asphalt being put down on the road, which will, you know, hinder our ability to grow at mid-single digits for warmnecks.

But it's... Dave said that's a near-term headwind. We expect, you know, the growth to reside, you know, as either budgets accommodate higher costs of asphalt prices or we get a tailwind from... a drop in crude oil pricing. Okay, great.

Thank you for that, caller.

I'll jump back in queue.

Yeah, clearly what we saw in Q3, and we expect this to continue as we turn the calendar. is a higher sales in preservation and maintenance spend than in, you know, road construction and warm mix spend. That's what we saw in Q3, and we expect that to persist as we get into 2027. And just you mentioned about half, about two thirds of the business is pavement preservation slash maintenance emulsifiers. And one third is the warm mix side of the business just as a heads up. Yeah, I would just add, um, you know, obviously we're getting to the end of the paving season now. And as we end the year and go into next year, you know, you'll see budgets being reset. We're also taking some pricing and productivity efforts to sort of offset those headwinds too. So that should, that should set us well, set us up well for 2027 as a paving season. Okay. No, that's, that's helpful. And then on the filtration side in PM, I guess. My understanding your commentary, right? That it sounds like you haven't really seen a big increase in volumes, but what you've seen is you've converted those volumes from essentially no margin business to positive margin business. And I guess. If that is the case, when do you think we actually start to see the volumes for the non-auto side actually start to grow? Do we see that in 2027 based on some of these new contracts or is right now more of just.

Yeah, thanks, Peter. So first, I'd say, you know, I think our business model has proven to be very resilient and durable over a number of different economic environments and administrations. So we feel really good about our positioning. In my opinion, the election was sort of a referendum on the economy and affordability. So to the extent that there's any improvement in areas, whether it's oil price, as we've talked about, is potential headwind for pavement or just general inflation. And if to the extent that any of that improves, I think that's positive for consumer sentiment and would be a positive for our business. And I think on the other side of it, there's a lot of really exciting areas that we participate in that are I think definitely nonpartisan. So, you know, things like filtration, clean water, infrastructure, all those things, I think are pretty bipartisan focused areas. So I think we're really well positioned. And, and, and. I think we've been able to perform in a, in a variety of different environments. So we're confident. Okay. Thank you. And my next question is about the regional differences, you know, in the margins. So, you know, performance materials, North America held up.

Well, this quarter, while China and Europe softened, could you talk about what's driving those differences in the regional margins and how should we think about, you know, those regions evolving into a next year? Yeah, maybe I'll start and turn it over to Phil, you know, obviously.

As you mentioned, North America is the large majority of our performance materials business for auto, whether it's made in the U.S. or made for sale in the U.S. That is, I'd say, over 70 percent of our business. Uh, if you think about China, China, the auto markets evolving a little differently. Obviously, they're probably the country that's moving to electrification the fastest. The data is pretty clear there, but it's obviously not a blueprint for the rest of the world. So, for example, in the U.S., again, where we have the majority of our business, we've seen this revival of ICE, next generation ICE engines, next generation hybrid engines. We're working closely with customers on those solutions. And so I think although the China market is moving a bit faster than others, I think the U.S. market remains a really, really strong area for us. And obviously that's where the majority of our business is. What would you add? Yeah, what I would add to that is the regulatory landscape. So interestingly enough, the U.S. is actually the most stringent landscape as far as evaporative emissions for automotive applications. What does that mean? That means it requires not only a higher volume of content of material, but also our highest dollar value, most technologically advanced carbon. And so the tailwind is nice in the United States. When the consumer is preferring to purchase hybrids and ICE vehicles over BEVs. When you think about China and Europe, they're what we call a tier two requirement. So it's a step down. It's what the.

Fifty four percent, but we could see some some continued uplift to that as filtration continues to to to improve the profitability. OK, great. Can you give us an update on the battery? Business for the carbon materials and how that that's progressing? Yeah, so we've got several efforts in that area. First, we've invested in a company called Nexion for silicon anode technology. Then we also have a license to and a partnership with. company called Chasm for carbon nanotubes. And then third, we have our own organic efforts and things like hard carbon. I'd say there's been progress in all of those. But as we mentioned in our investor day, we don't have those in our 20. seven numbers. I think things continue to progress. It's obviously a very dynamic space. And we're pleased with the progress, but it's not reflected in the financials. I think it's a farther out investment that we're thinking about in terms of returns. Okay, great. And then finally, is there any update on China moving to the highest level of emissions control as we get to the end of the decade? Yeah, I think you're referring to China 7. So then China moving to a more stringent emission standard, and obviously we'd benefit to the extent they have more stricter emission standards similar to what we've seen in the U.S. You know, expectations continue to be that that will be at the end of this decade and rolled out. And obviously you see some inventory build up ahead of that announcement.

Would that be a 29 or a 30 event at this stage? I don't, you know, our teams are... Working very closely with those regulatory bodies, but they haven't come out with a definitive year yet, but it'll be in that timeframe. Okay, great. We'll stay tuned. Thank you.