Q4 2022 Ingevity Corp Earnings Call

Speaker 1: of the magazine and I'll be coordinating with you today. If you would like to ask a question during the presentation you may do so by pressing starboard by one on your set of thinking pad. I'm now hand-distance your host, John at Nipover, tries throughout and invest relations to begin. John , please go ahead when you're ready.

Speaker 2: Thank you, Maxine. Good morning and welcome to Ingevity's fourth quarter and full year 2022 earnings fall. Early 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 on events and presentations. Also throughout this call we may refer to non- GAAP financial measures.

Speaker 2: during this call. And we caution you that these statements are just projections and actual results or events made different materially from these projections as further described in our earnings release. Our agenda is on slide three. Our speakers today are John Fortin, our president and CEO Mary Hall, our CFO .

Speaker 2: at Woodcock's president of performance materials and Rich White, president of industrial specialties and pavement technologies. In addition, Steve Hume, president, engineered polymers, will be available for questions and comments.

Speaker 2: John will start us off with some highlights for the year. Mary will follow with a review of our consolidated financial performance for the fourth quarter of the year. Rich, on behalf of his performance chemical segment, Co-Leads Defume, will discuss the entire performance chemical segment and Ed will review the results of performance materials. Finally, John will conclude with our guidance for 2023.

Speaker 2: billion and our EBITDA was over 450 million. We properly grew all the businesses in our portfolio. This was despite the challenges of 2022 that were thrown at us as we grapple with energy spikes, inflation, and then fears of a recession.

Speaker 2: Like many of our peers, the fourth quarter was slower than expected. For us, the quarter was a tale of two halves. October and early November were strong, but starting just before Thanksgiving, we saw a significant deterioration in our order book as customers aggressively destocked inventory in advance of year end, particularly in higher value product lines such as adhesives.

Speaker 2: Additionally, as China began to reopen, auto OEMs and parts plants in the country cease production as they dealt with rising COVID infections.

Speaker 3: During 2022, Injebete continued to lay the foundations for sustainable long-term growth. Our investments included our purchase of Ozark materials, which expands our reach into pavement markings in the road construction market. We developed several alternative fatty acids, allowing us to diversify our raw material streams and expand in the new markets.

Speaker 3: We certified our TOFA for use in the biofuel's market.

Speaker 3: We added Kappa Pollyalls' capacity for our engineer polymers business at our Derrida, Louisiana site, allowing us to better meet the growing demand for this product.

Speaker 3: And we continue to develop new market opportunities for our activated carbon through our investments in the electric battery space and renewable natural gas.

Speaker 3: Within all these things, we'll also return significant capital to shareholders to our share-reportches program.

Speaker 3: All these growth initiatives are consistent with our mission to purify, protect, and enhance the world around us. We received recognition for these efforts in 2022 with a gold ranking from Echo Vodis, an inclusion in Newsweek's list of America's most responsible companies. We invite you to learn more about our ESG efforts by reading our Sustainability Report found on our website.

Speaker 4: Thanks John . And good morning all. Please turn to slide 5. As John mentioned for full year 2022, we posted record sales and evada with sales of nearly 20 percent to $1.7 billion and evada up over 7 percent to $453 million.

Speaker 4: A Jupsey Grouse profit of $636 million was higher by almost 10%, but margins were down for the year as input costs accelerated faster than our price increases. With a particularly noticeable impact late in the year, as sales volumes insert in a higher value product line,

Speaker 4: fell off significantly in the last six weeks.

Speaker 4: We kept S-GNA costs as a percentage of sales flat.

Speaker 4: Showing that our growth initiatives are being resourced in a disciplined manner.

Speaker 4: Given the inflation we saw in raw materials, logistics, energy, and wages during the year, we're pleased that we maintained a strong, full-year EBITDA margin of 27.1%. Despite fourth quarter EBITDA of $74 million.

Speaker 4: being heavily impacted by the sudden deceleration of sale due to customer inventory stocking and the COVID related flowdown in China.

Speaker 4: Despite the challenging end to the year, our full year diluted adjusted EPS of $6.01 is a record for the company.

Speaker 4: Turning to slide six, in the upper left hand chart, you can see the record sales results as well as the mix of sales per segment.

Speaker 4: This works like the strength of performance chemicals in 2022. And given the addition of Ozark, we expect the revenue mix between segments to be similar going forward. We expect to continue to grow revenue in EBITDA in both segments through organic and inorganic

Speaker 4: while maintaining specialty margins.

Speaker 4: Based on the segment next, we expect consolidated EBITDA margins in the mid-20s with upside potential if global automotive production recovers faster than we anticipate. The upper right chart shows we invested over $142 million in organic capital spend in 2022.

Speaker 4: with over 40% on growth projects and we still generated over $170 million of free cash flow. A portion of that free cash flow was used to repurchase $145 million of shares as you can see in the bottom left chart.

Speaker 4: For the year, we repurchased 2.1 million shares and we repurchased over 6 million shares since becoming a public company. The chart in the lower right shows our net dev leverage. As noted in our last earnings call, we used our revolving credit facility to acquire Ozark.

Speaker 4: elevating our net leverage to about 2.9 times. We expect to have net leverage back to our target of around 2.5 times by the end of 2023.

Speaker 4: In summary, the company delivered record performance and strong pre-cash flow while managing through historic challenges. I'm confident we will continue to deliver growth in revenue and earnings in 2023 while maintaining our strong balance sheet and cost discipline. And now I'll turn it over to Rich to discuss performance chemicals.

Speaker 5: Thank you, Mary. Hello, everyone.

Speaker 5: Turning to slide seven, it was a record year on both revenue and EBITDA in performance chemicals with revenue up 28% and crossing the billion dollar threshold for the first time.

Speaker 5: Four-year EBITDA of over 200 men increased 15% over prior year, while our Mars and the Claren primarily due to the impact of heart and book costs.

Speaker 5: In addition, Q4 was negatively impacted by significant customer destocking of higher value products in the second half of the quarter, particularly in adhesives, as well as lower sales in our payment business as many municipalities had depleted their budgeted dollars for the Paving Project prior to urine.

Speaker 5: Engineer power and energy years strong with revenue in the fourth quarter of 59.6 million dollars. A 41% increase from the prior years quarter which helped drive four year revenue increase of 32% to 244.7 million dollars. Throughout the year the teams saw plenty of inflation and raw materials.

Speaker 5: freight and energy prices. They're able to help offset these increased costs with higher selling prices.

Speaker 5: for our specialty products and increased volumes of the strong customer demand, particularly in automotive, footwork and apparel.

Speaker 5: sales in each of these end markets grew over 40% from the prior year. The Capapolio expansion at our deritocyte is up and running, increasing our capacity to support continued growth in 2023 and beyond.

Speaker 5: Turning to payment technologies, revenue for the four years is up 24% to $241.3 million, which includes fourth quarter revenue from our newly acquired road marketing business Ozark materials.

Speaker 5: We continue to see adoption of our payment technology as municipalities are valuing the benefits of our products that our products provide, such as lower energy required to pave, elimination of harmful emissions, and longer lasting roads.

Speaker 5: combined this with the higher reflectivity and long and lasting attributes of our road markings and we believe we are headed toward a strong 2023. Industrial specialties had a strong year, increasing revenue by 28% from the prior year.

Speaker 5: Demand continues to grow in the higher value areas such as oilfields, which is benefiting from increased natural gas production, and agrochemicals, where our products bring values such as enabling fertilizer to last longer, thus requiring fewer crop treatments. While fourth quarter revenue was up 12% from a year ago, results were negatively impacted by significant customer stocking.

Speaker 5: Primarily in our high-value adhesive business into a lesser extent some supply disruption.

Speaker 5: In addition to the raw material cost inflation we experienced in 2022.

Speaker 5: to supply demand dynamics of a key raw material food tall oil are changing.

Speaker 5: You have heard as mentioned biofuels, which can be either added in the substitute for traditional diesel fuel.

Speaker 5: There is a directive in Europe to move more towards other dies of Tobalfield.

Speaker 5: Crew tall oil or CTO, which is a key raw material within my segment, is becoming a highly sought after raw material for the biofuels market.

Speaker 5: We view the new balls who have marked as an exciting opportunity for us, given our extrotition refining CTO.

Speaker 5: That being said, the market is still developing, and we believe that speculation among new interests and investors is driving increased volatility around the price and availability of CTO.

Speaker 5: We have long-term contracts to cover the majority of our supply needs, yet we expect the price of CTO to increase compared to the past.

Speaker 5: As you know, we converted a portion of our cross-ed Arcosophility to run non-CTO-based alternative fatty acids.

Speaker 5: which gives us new raw materials, dreams, and offers our customers alternative to CTO-based chemistries.

Speaker 5: as well as open zoo markets for us. With that, I'll now turn the call over to Ed to discuss performance materials.

Speaker 6: Thanks Rich. As you can see on slide 8, revenue for the performance material segment was flat in the fourth quarter at $132.8 million. As the impacts from COVID-19 outbreaks affected not only our operations in China, but also disrupted global auto production.

Speaker 6: 4-year revenue in 2022 was $548.5 million and increase of 6% versus 2021.

Speaker 6: The increase was driven by higher volume, which was an encouraging sign as supply chain and chip availability improved.

Speaker 6: As supply chains normalize and China recovers, we believe this will facilitate increased global automotive production in 2023. Eben of margins for the year were lower by 230 basis points.

Speaker 6: The drop is attributed to higher energy and raw material costs.

Speaker 6: As we noted on our last call, we typically negotiate price with our customers annually early in the year, and these increased costs have been taken into consideration for 2023 pricing. We were pleased to see the European Commission publish their proposed

Speaker 6: Euro 7 regulatory package for automotive emissions control.

Speaker 6: which is now being evaluated by the European Parliament and Council in their ordinary legislative procedure.

Speaker 6: As proposed, it would result in tighter regulations on automotive emissions.

Speaker 6: similar to those enacted in Brazil last year. What that means to Injeviti in simple terms is our activated carbon content per vehicle would nearly double.

Speaker 6: We were hoping to propose the mission standards would be aligned to the US standards, which are the most stringent in the world, but are pleased with the progress. The Euro-7 proposal includes a July 25 effective date, which is earlier than we expected, and means we could potentially see the impact as soon as 2024.

Speaker 6: Also, as many other countries typically follow European standards, we should benefit as those countries tighten their standards as well.

Speaker 6: I will now turn the call back to John to discuss the outlook for 2023 and for closing comments.

I will now turn the call back to John to discuss the outlook for 2023 and for closing comments. Thanks Ed, please turn to slide 9.

As we mentioned in our last call, in an effort to increase transparency to investors.

We have concluded we should report our engineer polymer's business as a separate segment. They are a big part of our future and we think it is important for investors to be able to see their growth and progress as they make moving into attractive end markets. This reporting change will begin in the first quarter of 2023 and the segment will be renamed as a part of this process.

I'm also very excited to confirm the date of our investor day. It will be May 22nd in New York City.

Save the date notifications will go out, and if you want to be editor or invitationless, please contact our IR team. We hope to see many of you at the event where we'll discuss the long-term growth drivers in each of the business segments and communicate new long-term financial targets for Injeviti.

Finally, turning to slide 10, you'll see our guidance for 2023. We are guiding revenue to be between $1.9 and $2.1 billion, an EBITDA of $495 to $515 million.

As we look across our businesses, we expect to perform material segment to grow its revenue and maintain its mid-40s margins as price increases take effect, and global auto production continues to normalize from its depressed levels. Our engineer, Polymer's business, while it has grown its top line, experienced compressed margins throughout the...

Parts of our industrial specialties in markets should continue to grow in attractive rates, in particular our all-field and adhesive businesses.

However, we expect this business will be challenged by significant increases in the cost of its traditional raw material CTO.

CTO pricing has written over the last year and is expected to continue to escalate over the course of 2023. We will address this by continuing to raise prices on our legacy products, and also by offering our customers fatty acid alternatives from other plant-based oils such as soy.

CTO inflation is being driven by its value in the bio diesel markets. While this developing market is creating volatility and price pressure on CTO, it also represents a large opportunity for us and we intend to be a participant in this market this year.

2023 has started somewhat slowly, but we expect customer order patterns to normalize and vehicle production to improve. As the year progresses, we expect to see the momentum pick up and to benefit in all segments with growth and revenue and earnings. We hope you share our enthusiasm for Injevani, and with that I'll turn it over to questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press staff followed by one on your telephone keypad now. If you do change the mind, please press staff followed by two.

When preparing to ask your question, please ensure that your line is unmuted. Our first question today comes from Jonathan Mouti from BMO Capital Market. Please go ahead, John , your line is now open. Hello, John . Yeah, thanks for taking my question. Good morning. So just a couple of questions on the businesses that maybe seem to struggle toward the end of the quarter. So inspect and maybe the road-paying side. On the inspect side, can you give us an update as to whether the destocking at the customer level looks like it's?

It's done yet or is there still more to go? And on the road paving side, can you speak to, you know, I understand that, okay, annual budget's kind of ran out or, you know, municipalities kind of spent kind of faster than maybe they expected to. I guess, does that restart the clock January 1 or do we see a little bit of a lag as we move through? I guess how should we be thinking about that and the infrastructure spend bills that may be helping that later on this year? A couple things, John . We do think it sort of resets just to answer that, right? Because, you know, these types of, this business is basically build around annual campaigns, right, based on funding and budgeting that goes to the customer.

In this case, it was really just your normal seasonal shutdowns. But that does lead to the first part of your question, which is destocking. We did notice, and I think you and I have talked about this, but it feels like it kind of runs across a lot of our customers more and more and more so over the last few years. I think, given the uncertainty and the economic environment that's kind of pervaded for the last three or four years.

the one who kind of clamped down. And I think we really saw them kind of shut the spigot off right around Thanksgiving, truthfully. But when you get into an environment now where things go better, customers then have to kind of turn on the order books and the anticipated price decreases that they thought they might see aren't really materialized. And that's our ordering.

Okay, no, that's helpful color. And then when you think about the CTO raw material inflation and some of the things going on in that market, it sounds like it's a challenge for you from a cost perspective. I guess can you help us to think about, though, if there's any revenue repercussions as well, like that we should be thinking about where, you know, maybe products that in the past. Yeah.

You know, your derivative products or what have you were, were maybe better solutions for the value that they were giving, but now maybe competitive products may be able to creep in. Is that an issue that we should be thinking about, or is it really more just a cost issue and you need to be able to kind of iron that out over time? Well, I mean, it's really in my mind, predominantly a cost issue, right? I mean, there are obviously revenue changes that will occur. You know, first off, I would say, look, we've known this was coming for a long time, right? What makes us in a good, unique position is that we do have long-term contracts that allow us to ensure a certain amount of supply of CTO to run our facilities, right? So, but we do buy some in the third party market and, you know, it is inflating and those prices are going up.

about the biofuels market. That is a very, very, very large market for fatty acid and not just argon, not just hollow fatty acid. But we think we're going to be able to offer our in-market customers kind of a suite of different alternatives. And in theory, we should be able to hold the revenue if not grow it as we enter this new...

Please go ahead, your line is now open.

Hi, good morning. Thank you for taking my question. Just a quick question on the de-stocking trend. Have you seen that reverse already or is that something that's expected to be on the common or maybe reverse in Q2? Just an indication of where trends are heading there. And specifically in what M market that you mentioned, he says, I don't know if there's any going on in cap or anywhere else, but just across your entire portfolio if you could do that.

Hi John , this is our Rich and as John Portson mentioned, we saw January a bit soft but February is starting to pick up a bit and we expected we go through Q1 that we'll see that trend continue and normally the season is higher for us overall in Q2 and Q3 as compared to Q1 and Q4 so that's what we're expecting going for. And it was mainly...

in the industrial specialty segment, not so much in our engineer problem or is there any of our other segments. Okay, great. Thank you. And then you mentioned repricing your annual repricing and the carbon business. But obviously you ran into difficulties last year when the price has ran up on you. Has there been any change in the pricing formulas or contracts that you have that enables you to adjust a little bit more in real time as you go through the year if that does happen again? Or are you just resetting to the point where you think you've adjusted for those if they happen again? Yeah, John , this is Ed. Yes, we've pushed through pricing effective January 1st and...

You know, we're trying to recoup energy costs as well as raw material increases. And if we're unable to do that, then we will consider additional price increases as we move through the year.

Okay, great. And the last one for me, just the implication for the margins in the chemicals business, if you're expecting materials to be a little bit better year over year, revenues to be growing, but even does to be roughly flatish, I would assume that the margin is going down in that segment. Is that simply a function of the top line increasing and the margin comes down mathematically or are you actually expecting a margin decline on a per on the right way, John ? I mean, look, if you, I mean, you can kind of reverse.

Do the math, right? I mean, you make some growth assumptions on ed's business. Performance materials we've talked about margins in the mid-40s, which is kind of where they finished last year. So you can go back into what that looks like for the PC side of things. We talked about engineer polymers improving their margins on continued growth. I think that growth will come down a little bit from last year because it was pretty explosive. But well above, sort of GDP or market growth.

Then we talked about the tailwinds that we expect to have and pavement what you're looking with is industrial specialties margins, which we think will come under some pressure potentially because of the CTO. So you know us, we're pretty conservative. We're trying to factor in what we think could be that inflation. We can see more it. At this point are

Thank you, John . Thanks, Alton. Thank you. But I will say, John , I mean, look, if you look at it over the long haul, we've always maintained that we want to be a specialty chemical business in that. And while we may suffer a little bit next year, our plan is to get those margins back into the top quartile area as we sort of move through these different markets and make hard to see, as those are in right ese any continuing of our stocks are very careful in dovendably, we have developed over the past, most specifically vodka bean???? ?? ??? Laden, buzzing in power,? Erin, pump a which rise, boost a Msy Private, Love, Army, Owlb ?ang, I ????? mehr ??????, ally,

So you hinted at this already. So as I think about the scenarios for CTO availability over the next few years, we've talked a lot about alternative fatty acid feed stocks, but we really haven't talked about RAS and what it might take for you to maintain your market position there if you were to switch more capacity away from CTO. So just, is it feasible for you to process crude gum rising?

For instance, out of Brazil, to backfill some of your torture evidence. And I want to focus on crude because one of the distinguishing characteristics of your more adhesive-focused competitor traditionally has been their terpene chemistry. So is there some additional opportunity by finding a way to process crude gum?

Well, it's interesting, John , you're being brief awful. To answer your question, or Vincent, sorry. To answer your question, Vincent said, I mean, yes, we have the ability to use other types of rosins, and we are looking at those other types of rosins.

I'm not necessarily going to go into which ones we are focusing on at this point, but our intention is to continue to be competitive. As you know, and what's kind of interesting, we've talked about this. Some of our fatty acids that we're looking at are not going to generate the same levels of rosin.

that you typically get from Crutolo, but that's not necessarily a bad thing because it allows us to look at other Rosens that could be used in the marketplace as substitute, right? And we feel better about it just because the price of Tofa is so high, right? It gives us the We're not in a bad spot economically to try and look at some of these different markets if that makes sense Sure, no that that checks out

And then, you know, it sounds like a good portion of your high-value product, the stocking that you noted was something that was mostly in the rise in value chain, maybe a little bit in pavement there. But where you did see the stocking and topha derivatives, then maybe your outlook for oil field in general as natural gas prices have rolled over. Can you walk us through at a high level what the mix impact looks like today, given current commodity topha prices are so high? And I assume given the timing of the destocking weight in the corridor, were you even able to move any of that loss demand into the spot market?

Okay, excellent. Thank you. I'll turn it over. If I could add, this is a response that the ability of our oil field team to have already been able to receive approval of our alternative product in the oil field segment has helped us to balance that Tofa demand that we have in the rise and impact that we have to meet the Tofa demand.

just the price of the CTO that's going to be an issue, right? So that's what we're working on. We do have our long-term agreement. We do buy in the third party. Our supply is secure for the year. It's just a function of what we're going to pay for it. Okay. All right, now that's helpful. Thank you. Thank you. Our next question is from Chris Couch from Leap Capital. Thank you.

generally how are you thinking about definitely to buy that key? Okay, you were breaking up a little bit. I'll answer and jump chime in if I miss something there, but yeah, what we said in the releases back to that two and a half times area by your end.

which is consistent with what we've said in the past. We were pretty aggressive on Sherry Purchase in 2022. We continue to balance and our philosophy and actions are to balance debt paydown with Sherry Purchase and expect to continue that in 2023.

Okay, fair enough. And then, John , you talk about the sequential trends in and around the destocking and industrial specialties and pavements. I'm curious if you could just talk about the sequential trends related to the COVID lockdown and trying to how is that affected?

The business is a reopening and China, are you seeing that in terms of manifesting and demand? How that progressed through the fourth quarter and thus far into the fourth quarter. Thank you.

I don't know if you're question Chris. I mean, you know, typically, and we talk about it a lot, right? I mean, typically in China, there's usually a large kind of pre-build and a lot of activity in the fourth quarter of China because they try and knock it out before Chinese New Year, right? And...

That didn't happen this year. That's kind of what made it unusual because of their reopening strategy. Because they reopened so fast, a lot of the plants, not only OEMs, but also park people so an influence on the broader Asia region, really couldn't operate for periods of time because they were having to get there.

people through that sort of first wave and get their, you know, immunities up, right? So, and then they roll right into Chinese New Year, right? So you have this kind of period that's not historically normal in China, but, you know, we expect and can see it. They're coming back, coming back to the races, we expect them to get back in, the reopening I think will be a positive. Their economy will recover. I think they're desperate to get back to normal, and we are going to benefit from that. So, I think we're going to benefit from that.

Got it. And just one quick follow up in the PM segment. The pricing entitlement or maybe not a good word, but the price increases that you reference for calendar January 1. Are those balanced in North American China? Can you just provide any color on your approach, your strategic approach to pushing those pricing increases through? Thanks.

Chris said we typically try to have global pricing and so it makes it a little easier for us to manage the business that way if we have South America, Brazil, Europe , China all working on the same price levels. And so that's our target and we're pretty close to achieving that this year. These are all well-costumeers, Chris. Right, man. Bye, large. Thank you. Thank you. The next question comes from Ian Zaffino from Oppenheimer. Please go ahead, your line is now open. I agree. Thank you very much.

You know, on the how are you? On the auto side, you talk about a recovery in auto production. What are you looking at and sort of, you know, US versus China versus kind of the rest of the world? And then that's the biggest piece of it, but you know, by market.

Where are you looking at it with covering and kind of what gives you confidence on that look? Thanks Yeah, and this is that you know, we're expecting you know There's a significant amount of depending on the regions, right? There's a significant amount of pen up demand in the US

You think of the average age of a vehicle in the US is 12.2 years and COVID has really pushed out that cycle. But I do think there's more positive trends going on as well as North America. We've had six months in a row of increasing inventories in the US.

To me, that indicates that supply chains are getting better and recovering. Chip issues are also recovering. And so, you know, we're looking at a good first half, but a lot of expectation for the back half of the year. Okay, thanks. And then, you know,

long-term contract about 70 to 80 percent of our CTO is under long-term contractual agreements right now, right? It's hard to define market versus commodity-based, right? What I would say is there's a...

kind of a repricing going on from what would be sort of traditional fuel purposes as the alternative into the new fuel biodiesel alternative, right? So it is changing the way everyone in the market is looking at the value of CTO. But again, as I've tried to allude to, it's an opportunity on a lot of levels, right? Because the biodiesel market.

The next question is from Daniel Rizzo from Jeffries. Please go ahead Daniel, your line is now open. Hi everyone, thanks for taking my question. You mentioned that we talked a lot about the CTO pricing and energy, but I was wondering if logistical and production costs were also continued to trend higher. Actually, I would argue that there are somewhat training to obey.

I think certainly on the freight side of things we're seeing some relief. I mean I do like everyone. I think we have some personnel or manpower cost that continue to increase. But we're fortunate in that most of our production is not terribly manpower intensive. The stuff is pretty heavily automated. So it's not the driver that you would see. For us.

And the things that we pay most attention to really are natural gas and freight, right? And both of those things seem to be sitting in a pretty decent position right now. Okay. And how should we think about working capital in 2023 just giving kind of the puts and takes that we described here? I mean, is it going to continue to be somewhat of an outflow or is it going to improve or it's going to spend any color? So we do expect to get, you know, that's a good driver for our free cash flow, which is I think

So what I mean by that is our typical seasonal draw on cash and Q1 is what we would expect to see this Q1 and then the rest of the year, again, free cash growth momentum picking up and working capital playing out over the course of the year. If you go back to the anime, what is really probably...

over the course of the year, right? So then you pick up in Q2, you pick up in Q3, and then you really pick up in Q4, and then it kind of tapers off. And I think you're gonna see that pattern sort of go back to what it, the minutes away this company sort of always been. All right, thank you very much.

Thank you. As you will mind it, if you would like to ask a question, please press staff below by one on your telephone keypad now. Our next question comes from Mike, Mike Tyson from Wells Fargo. Please go ahead, your line is now open.

Hey, good morning. You know, the challenge is the fourth color. I think it's pretty well documented in terms of what a lot of the other companies are seeing. But what do you think about the C-Cunchle prune in the first quarter? A lot of companies have said, you know, a little bit worse, a little bit better. How do you think, and I know you don't care, Corley guidance, but how should we think about the potential for improvement?

in the Badaw into the first quarter and how that weighs in for the rest of the year in terms of your Badaw forecast. My personal view, Mike, is that the first quarter may be a little softer from last year, right? Just because when you're off to January like it was. But I sit here and I look at February and we're rolling into March and I look at the order books. I mean, I can see the momentum building. So I think we'll have a pretty strong Q2, pretty strong Q3. We'll see what happens with Q4. The last couple of years of current, there'll be some surprises.

First of all, yet to be very careful with fourth quarter margins, they typically are single digits. This is lower, this is on the lower end of what we've ever done. In fact, it may be our lowest. Typically, they are single digits for performance chemicals in Q4, and that's just because of that seasonality factor.

that was exaggerated by some things in destocking. There were other issues of plant runtimes, et cetera, et cetera. I personally think that the margin this year for that business should be in the kind of high teams. Given the CTO pressure, I think being realistic, that's what we're trying to kind of aspire to.

Long term, as we talked about, and we think these margins need to stay kind of north to 20 percent to truly be a best-in-class company. But, you know, that's, I think, at least through 23, you know, given the CTO, that's what we're talking about here.

Okay, and then follow up with those are kind of the backlog work for that business as you head into the summer and very very small other paid companies.

It's not paying, right? You need to be careful with this. It's in a road marking business, right? So it's very, very seasonal, just like our pavement business, right? The asphalt, pavers, painters, strippers, what have you, you know, they really start buying in the first quarter of the year in advance of Q2Q3.

and depending on the market may buy something Q4 but it really falls off. Okay and are you expected to see some deflation that could maybe be the smartest little bit of that business as raw material cost I think have come down generally speaking. We don't necessarily see that. Okay great thank you.

Thank you. As a final reminder, if you would like to ask a question, please press the download by one on the telephone keypad now. We have a follow-up question from John Tan-Renton from CJS Securities. Please go ahead, your line is now open. Hi, guys. Thanks for taking my follow-up.

Just wanted to follow up on the Euro regulation update. You mentioned that coming a little bit early with an expected which is great to hear. I was wondering about the rest of the world's following Euro. How quickly does that generally happen?

and what kind of volumes are you talking about? Because that's a pretty meaningful opportunity just in the number of units in the vehicle. So how do we understand what the implications of that are if that happens and rolls through? Yeah, John , this is that. It usually will take probably...

lagging what Europe does the rest of the world probably be two to three years, four years behind that. Just because you've got some rather large countries such as India, Southeast Asia region as well. Russia is an example. Ukraine is an example that are using them as well. But...

I think they all each have their own timeline and they have their own priorities of when they want to adopt a new regulation. They would be adopting the European requirements, but I think there's a spread of timeframes between it will happen post-Europe doing what they do. It will be so it's gradually spread out over three or four years.

Do you have your thoughts on this? You're thinking of somewhere around 12 to 15 countries that follow European requirements. Okay, great. And do you have similar share in those markets that you do in Europe right now?

Yeah, I mean, what a lot of the, I mean, if you think of what's happening in India, India is still using a rather antiquated regulatory package. We are engaged with the Indian government to help them understand what the opportunities will be to move with not only what Europe does, but potentially with what the US does. We are engaged with the Indian government to help them understand what the Indian government is doing.

But it's a slow moving change in some of these countries. Others are fast, but again, we do expect this to change to happen over time. Okay, great. And then could you give us an update on your other alternative uses in the markets for carbon and others that you're developing? Yeah, at first and foremost, would be our activities with next.

Manufacturers, we've done some scale trials at some of our plants on them to make sure that we can meet the requirements and also the type of porosity that is needed for the silicon anode to work.

You know, from a, you know, I think we've probably got another year or two years of work before it becomes marketable. But, you know, we're there behind them and helping them as best as we can. God, thank you. And just one housekeeping question, Mary, do you have a projection for interest?

balance sheet at your end and you know the spread the spread on our debt is published published in the K and the Q it'll be the 10-K you'll come out tonight so you can think of you know right now I'd say in that 6%

area would be the interest cost on the debt. Okay, great. Thank you guys.

Thank you. This concludes our Q&A session for today, so hand over to John at Night Pover for Closing remarks.

That concludes our call. Thank you for your interest in Ingevity and we'll talk with you again next quarter. Thank you. Ladies and gentlemen, this country today is called Thank You for joining. You may now disconnect your lines.