NGVT - Earnings call transcript Q1 2018

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Ingevity First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. And at this time, I’ll turn the conference over to our first speaker, Vice President of Investor Relations, Dan Gallagher. Please go ahead.

Dan Gallagher

Thank you, Nick. everyone. morning, Good First Ingevity’s Earnings Call. Conference Welcome Quarter to XXXX a the Investor Earlier this of under posted we morning, section presentation our website.

already file follow If to haven’t done would I you encourage download this on so along can you today’s call. so, you

contained in XX-K ir.ingevity.com call differ by Slide earnings these of statements. could recent factors materially revision may you’ll contain statements statements are we find deck, call filings, of and disclaimer non-GAAP the refer our after cause update for, X and Events to obligation Form that from visiting in to and our Form no SEC or our any circumstances and forward-looking can and events our in our Presentations. call, publicly made date reconciliations Relations under our supplement, not GAAP financial reflect which undertakes the measures projections forward-looking intended the non-GAAP release this to most can may actual or You release to that that see Throughout these found included it XX-Q. On Number comparable today’s are including Ingevity during on results to to them are occurring website. comparable earnings Relevant these measures, to of substitute this call. of be measures Investor financial release to financial and earnings section Definitions measures. GAAP forward-looking our

Number X. Vice and CFO. Slide me President on President Executive CEO; are is agenda Fortson, Wilson, as John Our With today, always, and Michael and

discuss And the Woodcock, of Q&A. brief remarks Mike line Performance our revised then call that, and over to highlights two Smith, Materials, Chemicals; Q&A. I’ll Ed of Michael. for quarter it Performance will status will and then of our review President the performance the with comment turn make for before our Mike will join the President financial on open we and Michael the some current First, segments. closing John will guidance, the of

Michael Wilson

your Dan. in Thanks, joining for for continued interest Thank morning and everyone. morning, Ingevity. Good you us this

on X, for our some the and and a XX% highlights turn adjusted you about quarter and our all quarter. year’s Recruit was revenue Volume, quarter. excellent. strong when the with previous Volume disciplined product to line first automotive market great of to sales in contributed mix growth us segment’s Materials Slide Number growth high the the the demand, we a If dynamics the single-digit continued in All post you’ll the to had in start expectations. quarter. to products was year EBITDA all, product Performance note activated price structure in that jump X% the of market. Overall, cost to benefits enabled execution to were primarily performance first in our carbon global higher Revenues compared from resulted increase.

from addition, to product sales offset increases to prior increase. higher oilfield reflecting and quarter well sales industries of services Georgia-Pacific’s acquisition chemicals revenue In in Performance sales oil by as Chemicals were the in the higher recent pavement benefited These declines partially pine company’s business. as and of applications. which year’s delivered $XX EBITDA to We value-added XX% adjusted up as available the million, versus applications pavement specialties was shifted million nearly and industrial we technologies $XX

oil, to positives impacts. costs, or material earnings freight. costs, partially addition exchange offset for higher production-related These and lower our specifically In revenue raw foreign the including by aided were favorable were impacts, by CTO, tall crude

prior points XX.X% margin from XX%. first quarter up year the was adjusted basis EBITDA Our XXX margin quarter of of

U.S. Sales on sales higher versus as in almost quarter, you to the rig XX%, about XXX improved from million, prior X increase. up first according The to segment can value-added first last to Baker XXX up the drilling were of up quarter the to XXXX. Slide X.X% see the its As Segment of in count, Hughes, Chemicals months products. $XXX the products quarter customers U.S. based Number activity X, climbed continued the year. in on our and XXX in Performance first in were to Performance continued performance, Chemicals oilfield shift XXXX

As important, continue efficiency. rigs oil to gain drilling

rig feet increases, of the As by X,XXX for the first linear week during products. drilled has an positive Anecdotally, in April. demand rig our impact U.S. each additional it the on broke the count

in quarter. As North season a second pavement the reminder, the typically generated with pavement approximately technologies, XX%, quarter in paving X% able North to in Most of our previous America. sales in overseas revenues products Revenues America markets. expectations. this are were drive light of adoption connection primary our were with about line in sales and of new increased That applications versus year’s in the are quarters our third in by said, as we in

Australia South in XX% America, Peru, However, of and saw particularly Korea. regions Brazil small about albeit South we experienced and a in outside of an We base. increase and North from in growth America,

adhesives, versus We on business footprint period. include into lubricants expanding year and the globally. industrial continue prior printing focus to chemicals, these and Sales agricultural inks, applications were others in specialties our this down X%

last or discussed, biorefineries run demand for of the TOFA. prices our rosin-based stable In as in we determines based previously remained availability of through oil on did which tall As year. fatty and the they dynamics, rosin-demand turn products acids quarter,

margins. our price/mix applications on continued overall $XX impact results. of supply to the was oilfield and of million services business. oil and chemicals improved technologies. TOFA segment TOFA shift we X, crude pavement demand up in acquisition about March of impact prices, a weeks, Georgia-Pacific’s of was EBITDA pine combined This, profitable result Performance lower tall it in chemicals our the had drove improvement in benefits, with XXX only pine more costs TOFA and had the On was XX%. an in we points. the significant G-P This This meet Chemicals constrained closed quarter, to acquisition, such basis success to three recovering a production for margins as of EBITDA meaningful on our segment derivatives As positive

already network, highly the production teams are benefits seeing across of the engaged product. we’re into its efficient Arkansas Our in by shifting most facility bringing location and to our

focus to contributed our will we delivering in $X consistent the integrating when segment expectations. not announced the EBITDA, acquisition on expectations. $X outlined transaction. continuing was Based the this with experience quarter, up if we with the on business in In date sales synergies We’re our million the expect about swiftly which and million business, to, the live fully exceed to we longer-term and our acquisition

regulations was up sales Of the prior the our sales strong of X, and quarter. impacted Revenues X.X% honeycomb solutions LEV the in used growth sales U.S. nearly of in for once comply year, Overall, California $XX primarily X by an segment implementation for rose production see sales. which strength versus in the Canada. all-time by quarter vehicle note, the can automotive Protection auto on due the gasoline U.S. was quarter. quarter mostly Number Performance again revenue X.X% of U.S. performance. of Material quarter record Tier were up in missions, vapor to automotive X versus Consequently, first first reduced we with versus North the the of on standards. Segment sharp and prior increasingly our prior to you Slide XX% were Environmental stringent Agency million, As marginally the the in only realized turned American year’s automakers' a segment increase industry sales a year’s this

and to In moved split addition, the cars a indicative XX% move between trucks trucks the in is XX% the year. XX% toward of SUVs Ward’s, to previous U.S. cars in first in This and long-term from trend. the trucks the XX% and continuing. quarter According is and

away By portfolio their Ford North and XX% XXXX, may For shift noticed sedans. of in you regarding have their will from recent America example, commercial SUVs, vehicles. announcement its Ford’s be says trucks in portfolio

positive all Performance pricing adjusted year, early implement Province on our which and honeycomb costs. in ended products, City region, hearing vehicles confirmed the a XXXX, week, XXXX. pelleted week, margin, may were impact The which and and approximately vehicles the and results As be know, XXX,XXX XX% July by EBITDA demand up improved January to million versus logistics intent volumes, a period standard X, of for to as municipalities a announced the from China public X, of consumes growth were year’s by the driven are full January a energy year their translated prior partially basis adoption adopt ago. on X by products. rule, compliance general Last last adjusted primarily quarter. end vehicles spending points The national for year, our standard for you support XXXX must larger increased promulgated This now higher to at is for end offset up gains earlier. was regions XX.X% of products. Materials Several the EBITDA date. X, and have XXX Hebei was $XX Shenzhen the At the expected the to in XXXX. new a Last a

In vehicles. annual could evaluating addition, of early were of early regions adoption. a publicly three they Hainan consumes sales Overall, which this million XXX,XXX that Province, announced X trend implementation vehicles continue. year, approximately represent these We approximately believe

more President, John for Executive this team this Materials remain this Treasurer, I’m the area status detailed CFO of focus going to financial XXXX. us to for and of point, a for actively over this turn key review John? updated Performance preparing a and increased At is Our and guidance demand, our year. will for Vice call our our Fortson,

John Fortson

discuss you, the additional some results, turning review and structure will I guidance remarks. Good our morning, back our to the on everyone. capital and Michael outlook Thank for color before Michael. closing call some provide

was quarter said, the Michael to line and start great with a first our in As expectations. was the year

both performance and segments. accretion pleased We margin the with are in revenue

in Moving $X.X the down million, bond that our quarter reflecting the was expense statement, interest senior net was with income January. associated expense issued increased the unsecured for

at X.XX%. the rate borrowing bank notes at loan fixed X.X%, The senior dollar industrial on for bond X.XX%. rate quarter rate million the our term the remains is our revenue at was Our $XX end borrowing and of

income was million adjusted taxes on for earnings provision the $XX.X quarter. Our for

XX% March XX.X%, from down tax rate adjusted of Our ago. as was year a XX

was non-controlling net quarter. the our of venture of attributable not the XX% the in joint own Our from is interest, we to million $X the that results which income impact do removing Waynesboro

board-authorized earnings $XX.XX. of available was quarter quarter, the $X.XX, share our a shares the is from weighted million cost share first $XX.X repurchase of XX.X% Diluted XX,XXX quarter remain from the program. per a in repurchased last per year. which adjusted increase During we share at

XX, March As outstanding million and of basic had Ingevity shares diluted shares million outstanding. XX.X XX.X

Turning the working build capital the debt in acquisition end quarter the X, $XXX.X million. as season. pavement pine net funding our of Georgia-Pacific This advance of at of seasonal reflects chemicals to the our as Slide was well the

quarter, the X.X of debt to desired capital our three things: net in X within adoption X.X times of due our the activated at country’s end did that times advance pavement for However, this inventory was of of quarter times. of in significantly product first, new to target stated carbon EBITDA Working inventory; buildup long-term the the to of and Georgia-Pacific’s leverage intentional standards. of the second, buildup inclusion finally, gasoline season; preparation in the inventory China of the emissions increase

accounts from receivable our balances the both accounts last month quarter in particularly selling our and Additionally, payable increased the began as Georgia-Pacific the season. quarter, the absorbed we of sales as ramped first we up, in and the pavement as

ensure given to as we requirements. of uncertainty We we to our continuing in demand. a advance need of will build this must timing the subsequent Investor inventory in discussed process in regulatory requirements and we carbon be of in the have available order multiyear This required ensure we rate meet do country’s adoption. to are Chinese carbon and activated supply product to As Day, the

Michael early situation dynamic the As mentioned, the potential and real. for is is adoption

adoption stabilize, normalized As will inventory and more back this curve becomes trends soon down as we clear work to demand the levels.

in from flow from negative expenditures $XX.X million, quarter The $X.X is capital improvement year. resulting and the $X.X last a million. Our was cash million. free was operations number slightly an cash were This

seasonality cash positive the the we businesses, second typically quarter. As a of to in turn due reminder, our flow

expect in our today. available to which be Form Additional XX-Q, information will file we later

pricing application improved our or both TOR, As continue working both to line Across segment, areas TOFA-based In products. sight are said recover to and we opportunities have strength. outlook, the of Performance high-margin to the rosin, its segment, show and we risks. Chemicals we to oil tall our earlier, Michael for XXXX anticipate

early full While pricing in we our the seen it’s process benefits be clear and have too in to TOFA of efforts improved TOR-based in already derivatives, products. on the

grow continued and accelerate both modest expectations, double-digit expect Georgia-Pacific energy. working manufacturers, related increases. pressures to tailwinds expecting this synergies product line we to Like offset strong the segments is to many freight deliver a recover we for EBITDA mix pine We While contribution than inflationary so year, and chemicals primary some acquisition are far prices expect objective these improve with segment related to costs. and in to we sufficient are our It is more logistics primarily still to the growth. volumes, CTO

In Performance targeting Materials without double-digit the G-P the benefit about segment, fact, the we’re growth. strong EBITDA thinking pine also acquisition, growth. even Performance of deliver Chemicals still will chemicals When

it’s throughout model to the compliance the until quarterly products increase honeycomb important the to not in Automakers of quarter expected However, are to that growth year-over-year recognize is X year. XXXX slow sales each obligated year. Tier

have approaching we as double-digits we discussed, year quarterly anticipate must posted distortions on the the are to rate production due on we look outage this be full Likewise, the digits, high at you segment. to schedules. annual growth business While there this as an by basis single for margins rates OEMs XX% growth in and sales quarter,

this in EBITDA each the over will margin margins may for the XXXX. accrete segment move While believe up we segment annual do or quarter, down

will call last due half our at X adoption Investor first the than second in growth this on half of segment schedule. the stronger and year Tier be discussed we the As the to Day,

this purposes, remaining guide $X we three quarter required R&D XXXX. China number earned to of million is in July National probably not adoption For good the a modeling until for quarters. interest begin in each the is

on based by municipalities both Covington adoption some carbon mentioned, be two from by we of as impacted half activated China second potentially benefit outages in the regions. in Also, the early However, planned will year demand may we significant and at Wickliffe.

turn segment. said expect some are Nonetheless, this, before, XX. working pressures Materials growth also, of all which are if In our we cost Performance on double-digit light Slide we encountering to to you to as inflationary We committed offset.

on the narrowing the We revenue both the EBITDA midpoint raising and are and range for our for guidance year.

tightening We fiscal sales, the and $X.X midpoint, are $X.XX between raising billion of guidance XXXX year our billion. to

our EBITDA between and adjusted $XXX guidance We million. are tightening $XXX and to raising million

Our adjusted effective XX.X%. this rate quarter tax was

continue we range to to year. XX% a for we in the realize believe will XX% full the range However,

be entities and restructure cash tax exposure work capital around of our for tax expect We tax With as a rate changes, expenditures, each have our we year loaded. are some There overseas. to to lot spending our to the we XX%. in uncertainties the still position foreign positions law is our year regard to back-end and optimize

year intend year We So while the between are a due we execute operating adjusting flow spent $XX.X million for higher this the tax quarter, despite plan we our free $XX and million. the for is our cash flow $XXX profit and This we million better do, believe we to generate to free expenditures. capital forecast higher of to position. still $XXX Accordingly, cash higher however, full million. will

than now turn should two call capital be less over to to net year-end, Our I plans times. the debt based ratio current on Michael. EBITDA at allocation will

Michael Wilson

summary, XXXX, kick optimistic we’re for strong performance off Thanks, another year it’ll as Ingevity. we be of John. In

a efficiently distinct Our employees focus improving work G-P market I performance of integrating efforts preparing conditions X,XXX growing capturing Chemicals, worldwide. are in us. in of competitive global the pine Performance chemicals Materials turning demand They Performance is the for XXXX. on our appreciate and acquisition, and in the advantage another in strong for benefits

the We to We hope share believe long-term this call we’ll very enthusiasm for potential up Ingevity. company. the continue our you operator, open in point, to strongly of At questions. our

Operator

of Please first Research. go with We’ll Instructions] Weintraub the [Operator line ahead. go Mark to you. Thank Buckingham

Mark Weintraub

of Thank you. couple questions. A

increases XX% you your benefit does from a in announced of And the does May and the in early tall X? for effective acids be on significant adoption the potential increase cetera, amount fatty XX% the how guidance, that First et rosins, price to oil the handle it incorporate the China? off, would or had

Michael Wilson

our does morning throughout Mark. our the include year. guidance we all assumptions Good volume of Yes, pricing, Hey, as and go around other is Wilson. Michael impacts This

As wasn’t that increases May products we TOFA X. effective on you the TOR until indicated, price announced the and

to exactly in some to outlook, yet and traction early our that’s bit of there. our we’ve it’s embedded in about call little to out. gain a ability it’s But that made how So assumptions course, going play on

the bit adoption provinces go of the terms little and decided still of early, uncertainty China in early us to In a in timing. who there’s for

I – conservative We’re think in we’re appropriately and cautious the being outlook.

in this fast really expecting in it’s there into difficult additional is our which benefit guidance, embedded how that quarter, demand’s soon fourth or We’re will how at going be to point time know that to just but come. some the

Mark Weintraub

oil follow-up. one that they On little a higher prices types implications can today? the potential prices, just And where oil quick to stay of speak with at – bit are Okay. you levels

Michael Wilson

think, same to in business. favorable oil our to at I higher on our dynamics at time, tailwind in seeing the the they’re going today the they’re business impact CTO at are and and market today levels the benefits not is general, we’re side. prices At where

right Ingevity. largely a So an for environment in we’re I now, win-win think that’s

Mark Weintraub

Thank you, very much.

Operator

Our of Oppenheimer. line next comes question Ian the with Zaffino from

Mark Zhang

Zhang guys. a on my for little Thanks just come dig This I Hi, little into on wanted Mark a bit. Ian. for to Chemicals is bit questions. taking

the margin to related in specialties? industrial how better was So mix profile to improvement, much from quarter, the it margin this of regards

Michael Wilson

would the it’s Performance segment on largely on uses. or end say getting Well, impact sort rededicated I’m overall that again, individual but profitable we’ve product of significant specific because not had most overall. redirected yes, to or to – a improved Chemicals specialties, I mix And its on

margin. declines in volume because products applications technologies specialties, pavement those redirected which industrial to saw oilfield fact, available higher we So in are and

the shift mix benefit part is segment. to that think I So the of

direct the a portion may benefit. and into that, selling to addition of kind from these to TOFA part gone be that But bigger selling the we’ve of applications. fact that’s derivatives to selling other more In parcel even

Mark Zhang

in got potential are of what Okay, forward. detail. these like you applications, sense like stage selling like is what you. – guys if a general to into I other of guess there at Maybe go And and in, can’t just sort terms you currently going

Michael Wilson

for we side, and there. very our now Look, business so are cautiously would more to see seeing think industrial expect business, pavement both robust the those I we’re oilfield specialty continued nicely also in developing our going we’re improvement growth on in of optimistic us.

really so seen prepared optimistic we’re last and and months As bit both those we’ve And say, rosin-based products. for we terms price. indicated or a volumes in little demand in our stability of both pricing XX the forward, remarks, going about over, more in

again, being little cautious pretty early in price it’s we’re However, on the piece the process. because a

Mark Zhang

much. you, Okay, very great. Thank

Operator

comes next Our Securities. Jon from question from CJS Tanwanteng

Jon Tanwanteng

Good I could room? maybe quarter. ,gentlemen the quarter $X Or signal deceleration guidance morning very but had If great are Is that headwinds? about a inflationary or relatively you only be was leaving that nice earnings start, the an there you ahead a raised just million some standpoint, could midpoint. from to yourself

Michael Wilson

adoption them half automakers to is ability the X understanding the there Performance pricing Jon, it’s three around of did a early on Again, Michael dynamics, this our XXXX pretty like sight exactly what second think out, Hi to we Chemical ago, no we year. increase for on that. LEV the will just have pointed happen there’s side, secure in things months Wilson. mandate than line of moving with better was year. in lot still as a I Clearly, is of the Well, Tier but

of our us, outages a significant they are important John course, also to at facility. taking do I sort also view that conservative not. then, in outages as Covington are of And second-half we’re with terms So we loaded one mentioned, and a think of

every something kiln we We’re do don’t it’s a but years. about replacing that XX –

we couple to a those the XX months of so. or next over have replace We have

short we we’re think that I to in So giving your answer you. feel is question confident the guidance the

think not it’s we’re be of a going ourselves. trying I ahead year, to strong get but to

Jon Tanwanteng

question And and earnings? in contribute on it very revenue G-P, much how That’s terms did John, of actually a just it. quick the Got in quarter helpful.

John Fortson

EBITDA. Yes, about $X about It $X we was talked revenue million million right? about of it, of and

Jon Tanwanteng

that deciding And Thank on or know date many then Perfect. discussion could about how which are Chinese are just ones still do that provinces ahead, the go? of the still in actually cars talking the moving you. represents specifically that and you kind

Michael Wilson

have allow Yes, some I I’m think comment. to Ed on that. going Woodstock information we to

Ed Woodcock

X.X island There City well, Hainan, a as January on Good They’re a province. million vehicles January about adoption in Hebei, and a X. vehicles. morning, implementation. are then X, is of for XXX,XXX early little off million And that vehicles. which Jon. far XXXX so Guangzhou about Beijing, couple. XXX,XXX small which have about It’s a discussions Shenzhen surrounds vehicles announced X over that’s

Jon Tanwanteng

it? but Right. yet ones potential announced And the actually are that discussing haven’t

Ed Woodcock

far and it’s adoption kind the discussing mix River of Yes, XXXX mid-year is around maybe but an XXXX. early likely Pearl in in it, but Delta, as more not also of then Shanghai additional as the

Jon Tanwanteng

regions if And have you the year, great. in per cars number Okay, two of those information? that

Ed Woodcock

Yes, and about probably Guangzhou, totals and includes area Yangtze X Shanghai is River vehicles. X.X about million the then that and Shenzhen Delta, the delta the million,

Jon Tanwanteng

very you for Thank Great. the color. much

Operator

is Jim with next ahead. Our Please SunTrust. question Sheehan from go

Jim Sheehan

you. Thank

on being it the better much assumed synergies with your of from price only margins, the possibly And is this than $XX. getting XX%-plus? talk Performance clearly, your in timing and back about oil accelerated higher Georgia-Pacific of levels with little Chemicals your quarter. of about range than a normalized to mid-XXs in – expected the came you Can So

Michael Wilson

were Michael on which track G-P Hi, we to XX%. good thanks going what the to we to I drive this we XX% and Wilson, were Jim, do, solidly acquisition, morning, think was exactly to for said margins is the question. do Prior to

dynamics talked you’ve that. the about, current as helping think favoring market are that and I

something. too getting XX% I I in the on minus are of or having Of get to roughly also business be the think mean, year business that to G-P margin’s time we that, full by is Without XXXX part course, going now specific plus as our helpful.

So...

Jim Sheehan

about more, and bigger in seeing business Great. is it I’m need what possible And causing that you risk activated then you early have slow and in to to to early you or early causing standards emission a carbon your terms in adoption produce to China up the of to to adoptions, down? you’re curious see potential just Would hurry and China adoptions delays there. the be it

Michael Wilson

Well, it, know have position market for we’re Again, adoption. because to early ready that we but that preparing hard calling we’re the have. we for we be not of

it So inventory can’t and deal and about are to nor capital is to and but be great is our statistics customers. not our we intentional built, we happy neither John a talk about I strategic that we’ve the because afford very it working it an unfailing supplier

But comes, if for we we is passed. China that to we’re delayed, question than other I regulations is they’ve be of So your probably implement like that ready able for if risk. carry But risk longer on and to. sure a I But working it we’re bit supply. of means the I of just it path confident capital think, we’ll the all, and that low it we’re that to to it see side the would as that first adoption this delay. a is mean,

Jim Sheehan

And revenues, your you X up X those you over purification those Great. – China as to trend the ramps next in to to to how expect do expect years? decline process Do that automotive? on

Michael Wilson

want will anything is redirect undoubtedly that? applications. up to they think there Ed, add decline, you as specific product and I to more ramps China Yes, profitable we to But

Ed Woodcock

going and move. moving that, to that market there’s as a upgrade that mix taking previously from nice the No, we’re markets basically to that it powdered those be into where we we automotive discussed carbon sell

Jim Sheehan

you. Thank

Operator

Please question go Sison KeyBanc Our will come next from Michael from Capital. ahead.

Michael Sison

Nice guys. the start to Okay year.

Michael Wilson

Mike. Thanks

Michael Sison

quick China. One on follow-up

are shares rest world. good but than the of lower the market Your pretty there,

in that do Given as go more a that about there adopted? some have adoptions, is if the of areas the bit? talked – ones share adopt, market well your a early And you couple quite positioned these are would you better up

Michael Wilson

And that correct. We’ve pretty it’s regulatory look And regions. that This bar, the than consistent at a other Yes, China raised, the application, automotive we’ll standpoint, technical low. as the share market but volume, is it certainly in been technical it’s our along because share standard, – you been We the than increased adopts, that significantly bar more is in for regulations. advantage. you’re has Mike. from in That our with And well. if saying the China performance lower is Michael. to that from believe as way expectation benefit our stringent additional been plays from only not being regionally it’s

Michael Sison

Great. And you a EBITDA margin in then, XX%. goal the Chemicals, set get initial okay. segment to Performance think I of Right, to

You’re pretty close there.

like demand, things going there lot annualized favor. your you see? now of do Sounds there get basis oil quickly based prices, an a How term? on that And think upside can what on in is you you are to longer

Michael Wilson

Mike, are you can threshold, we talking about get margin? to XX% the EBITDA how quickly

Michael Sison

EBITDA Yes, margin.

Michael Wilson

Yes.

ago, in plus achieve As something. we I XXXX, had that I mentioned a will X.X% or few minutes minus or think

So I think we’re going to get there.

margins that I think drive above we the bigger question quickly can is how XX%.

over of think we Investor have the planning business, we our the at into remember in Day margin in drive that said horizon can mid-XXs. we sort for February, you the we As business

upside of will that a there’s potential but happen Now time in lot gradually, over and chemicals.

Michael Sison

second quick apologize incur half and a it. turnaround I need of will Materials. or sort Did as the back if Performance you plus? the Okay. And on just a follow then outages in that to missed kind that quantify your of of you come impact, I in the up XXXX

Michael Wilson

is till and No, give means going did sense relatively and half it, significant versus did outage wait maybe half. first But half a that for on so fairly really it complex, you the amount I’d prefer year not we it’s what it of sort to planning tremendous second not to that. quantify we of for

our to Covington kilns facility. So replace that at we we have have X more

similar one, know another XXXX? but in half one this of or those that’s we I will So know then, have And in half of XXXX. first be whether occur do fall – that second you is project XXXX, will yet which a don’t

Ed Woodcock

Second half.

Michael Wilson

So second XXXX. half of

same be XXXX dynamic So in the sort and of XXXX. it’ll

Michael Sison

Got thank you.

Operator

we’ll the questions Rizzo line with have from Next, Daniel of Jeffries.

Daniel Rizzo

Could the a you amount difference? used or in works activated truck tell how like a what difference the us carbon magnitude car, with it versus – of the in

Michael Wilson

– right, of of the best is really about determine – a to U.S., It’s that’s the the talking size about way you’re vapor going varies. if gasoline the really it’s particular Yes, vehicle. tank, the the amount proportional the tanks to it gas size it off coming of be think it’s to because

the if the a I car Focus So amount the of difference the tank, XX-gallon the And don’t of going the a vehicle. got course, I that’s either if – or a size also Chevy versus what of with use we number make see that a goes that’s then, XX-gallon But or is. is have significant scrubber you’ve in numbers in it difference you’re – a example liters right the Ford canister. or to tank of carbon you on a will know Suburban honeycomb the pelleted got guess the

So the of U.S. liters carbon have consumer shift only we But on X.X the small this towards, why where vehicles, and preference that’s more have content on And vehicle, the Suburban pelleted might might not larger a SUVs have vehicle the more liters. X.X a our the you vehicle going in but of and product. the larger on that’s terms in we remind of essentially, periodically trucks.

Daniel Rizzo

as tank. a tank, efficiencies simple gained a for it a activated with mean, there of XX-gallon carbon XX-gallon worth it one with mean, number’s are a like I truck? just – as sake, Focus that for So versus Is – ] larger I $X are a Ford it’s is

it Is it like You $X. just it’s a that? work X:X by ratio? so X, multiply Does

Michael Wilson

not simple. it’s No, that quite

the makes per of it’s not proportional the and same But product unit. the probably, the the carbon, So the that price honeycombs. piece economics are non-proportional amount is

Daniel Rizzo

more you in you Are of in buildup you. And over of just you Or China built you’re expecting a level think anticipation the – sufficient then is to mentioned that activated next in carbon. in you the in at Got you what – anticipating your demand end year couple dynamics? are at of meet XXXX quarters? inventory a in demand the the given changes

Michael Wilson

flow down. continue for but the until is, get won’t think kicks assumption and we on build see what No, inventory then guidance I you’ll in embedded that is China the earnest, really drawn in that build in our inventory I year. specific will to cash inventory

Daniel Rizzo

much. very you Thank

Operator

Loop Capital with Pash Markets. Chris from question a have we Next,

Chris Kapsch

Chris Good It’s morning. Kapsch.

associated couple little you’ve strong was mix you presumably So and others? with one order an with were Did larger Chemicals. multiple discuss much the energy then were costs year-over-year? I of on which if there struggling the – so being CTO those biggest dug magnitude? mix with market, into year-over-year you’ve in Performance But pricing the down like or than contributor a to gotten margin is calls, order follow-ups, contributors end – the if Did bit. this Georgia-Pacific, one’s apologize equal What of improvement, associated those a

Michael Wilson

them it’s in some and of mix, address a impacts bridge me that did bit, on allow give But There’s Performance what a just Chris, for shows marketplace overall just to slides. price the actually et Mike Yes, Smith he’s color in our Chemicals. we let the cetera. seeing costs,

Mike Smith

has in been first, Sure, we the oilfield sales, EBITDA. as increase million in higher-margin next Chris. Well, $X which of acquisition largest of derivatives. in is script, indicated the about The from magnitude our largely increase the contribution significant the component an in is Georgia-Pacific

We And business, improvement technology as that’s overseas business last CTO first us. a increase year. base, would the then TOFA decrease in that, our in fairly small you last in while, – be margin also for costs had pavement a pricing. for compared know, bit the underlying strong off all of significant to the quarter a And

Chris Kapsch

benefit now that with have not – the if don’t of? customer the that opportunities Georgia-Pacific X to either guess the you this at speak with juncture? assets – of now, the know, for the closed X you’ve or or you I Anything result opportunities to like see synergies owning wondering months list would that you’ve anticipated I logistics guess, respect now, presented any just in months, themselves some the with business quite I had or So surprises –

Michael Wilson

Yes better give you than some of a we got and business out it’s thought comments, Chris, I’d a the And we’re just acquisition. Mike great a and couple it with then But pleased details. We But great very I’ll a say organization was. site Crossett. Mike? in – general let

Mike Smith

revenue, add much line is we our somewhat just better. bought an if overall not that, business Yes, standpoint, very think EBITDA, to to I from in expectation, what with

even the to more a those process announced we the a working couple anticipated us each and – are to accelerate efficiently increase next when organization hood our network to to difference further. the some give The acquisition. putting the hopefully what years, of the synergy synergy think that opportunities number teams the that X-plant standpoint we as I what that plant and technology a from used both exciting organization the have unveiling some little compared under really combine sort has together them get utilize over I had of operations originally opportunities of together is we are bit and really the opportunity to and are are think opportunities we going opportunities that

Chris Kapsch

side. the – if helpful. That’s follow could And one materials on just up performance I

think, we purposes American the that that at proxy $X line a the overall John, the be segment, North of for equity a the that thinking said of market good million we’re on of – mean this would as predominantly still quarter. you juncture? should that be I roughly trajectory Is for consolidated modeling performance that depending I given

John Fortson

quarter, or pieces there’s There’re honeycomb single gives there’re to so $X range, we So a be high growth growth the honeycombs be, course transparent We as sort quarter million coming line going. we it, the XX% the whole year think for put think about the using a X we’ve business as where the quarter. But to right? by so carbon, the can that the right? sense up top the be approaching you we that is we’re the the and of Well, in of number good XX% XXXX, year the the trying totality, its the – talked talked in sort we of – over on see of over I right? segment digits, that should that the right. about segment this of year down, as

yet, will the for you up sequentially quarter it the year, digits segment. – down, be be high it’ll each still single see but coming will the growth for So

Chris Kapsch

Okay.

on but – rate, don’t half Okay. penetration So a facing a you’re as comps right? the sequential of guess. Obviously, is reasonable it. Got basis, I we it’s tougher the in step-up that get – the proxy, latter in year so

John Fortson

one the talked my to the on we been jump phone said everybody��s about X.XX%. industrial clarification, to I I bond, before Just guess, brought next when question. I while attention revenue It’s that

hope For it’s those of I cost who follow you X.XX%, us. know you it, and fixed that’s for a

Operator

CJS take a from Thank Jon from We’ll follow-up you. Securities. Tanwanteng question

Jon Tanwanteng

Just one up. quick follow

I you of portion on think get you carbon that the pellets your were able pricing to business. mentioned

and of that drove extend you’re that production and to business to that what related that Any that business? Was kind rest thoughts the the directly through? power Or is costs you on that? just in wondering that. you greater passing input some Just there pricing have of can

Michael Wilson

pressures. pass did but on a we basis, It’s sensitive it Maybe the on And through XXXX, our of, price across done a increase will to margins. carbon. to we we’ve much pelleted course required in consistent ongoing our a historically Jon, in – our contribute but inflationary the over Yes, that on board. something digits basis. XXXX single not percentage and – prepared say, about and talked low are And obviously this again general we’ve so remarks,

and for to trying this, it’s And not they seen I growth. be and mix again, X to inflationary X price, volume better we’re ahead that stay Mike and in pressures top more than mandate experiencing but through better it. companies both think teams on that haven’t something a years, Ed to stay sure any their they’re are it’s of most offsetting and of

Jon Tanwanteng

very thank much. Great, you

Operator

the to of now Buckingham go Research. Mark with line Weintraub We’ll

Mark Weintraub

quick Two real follow-ups.

cars, adopted technology? trying the the out than of interpret just second the to in have in does are it should that in differently understand, China the in adoption it XXXX, China will play one there little First, Or would U.S.? half scheduled January with stringent made that XXXX, basically all a starting for being more

Michael Wilson

the July Yes, of XXXX. firstly, actual Mark, is adoption date

you January. China? have that on vehicle play want I model-year So think in Ed, you you may standpoint expect to from comment to said just how a

Ed Woodcock

Yes. it’s do unique. And actually, doesn’t all model is years, It date by across vehicles. China by it

X, is in it’s think changing July XXXX. if will the forward, across it’s changing they unique Europe’s about of to standard. in point meet of So But XXX% from that that you China’s, U.S. that X, will instantaneous allow all be vehicles. where model-year vehicles, kind time, September Those have points vehicles and phase-ins XXXX, regulations,

Mark Weintraub

platforms when do U.S.? mean Does would frankly model so the changeover And realistically China would When that were producers meet transition need sure that to when they standards? all be would and in that? car even turnout – way in would making mean selling in to that years the But China? the – know. basically is their starting that – would in – the China might do don’t meet I cars that make the How XXXX OEMs the any we July

Ed Woodcock

new of as parts certain the on it’s will most an canister vehicles, regulation, tailpipes, implement China are But things so or provinces has those they switched of vehicles the likely own and model others. standard not how switching well think evaporative as decided individual – about there’re earlier sooner. model-year implementation each July ones that. years strategy introduced, to Mark, with be Yes, are instead There standards over, waiting That’s in OEM as layered regulation, what they to new you XXXX. typically are move their until adopt just emission going that to

So eventually many a they XXXX XXX% July so possibility add that will between and they there’s components to get XXXX. going until to to automobile layer there’re company that vehicles XXX% will because a so this certification. an a certain many full ultimate in to are so have vehicle the in requirement platforms, But early

Michael Wilson

Michael this is Mark, So Wilson.

have going declared think about quarter ramp is that now we’re limited seeing as the to forward. they’re way cities this some fourth of January, it ramp – that least this I begin so to and of you some and early like going XXXX, provinces demand then think by by think it’s to we these best early, the definitively as is I have And a goes I July begin, up or XXX% that curve then just go that that accelerates – think at as year. to and

happen to to and have that have. acceleration pretty once But that’s going don’t it’s quickly it what So slope we starts. the exact is, clarity the

Mark Weintraub

starts so you’re July XXX%? understood at accelerating, – we’re that. just it’s starts to you say make just the sure just when it saying XXXX, And like clarify, – to ramp by I So

not July So XXXX, go XXXX. it starts meant – that July we the after Is accelerating to what you as there?

Michael Wilson

law, the right. be sold exactly per has XXXX, compliant. the vehicle By regulations, every July per That’s to

Mark Weintraub

But super. pavement in then small Okay, are out outside your sense it’s us of at your of technologies percentage lastly, North this sales America can as point? one. what And of a a – to you give

Michael Wilson

roughly but disclosed, we’ve what XX%? sure not I’m

John Fortson

XX%. to XX%

Mark Weintraub

a super Okay, lot. thank

Operator

Next, we have a question from Davis Paddock Invesco. with

Davis Paddock

morning. Good

begin Just amount out? of the a transition? yes, that to it, a Is the any of months is here sort – given can it manufacturer the to quick latest follow – what’s out ramp of Or months up? six three or have process What China. thoughts car that to on up average time takes

Michael Wilson

million shift. see forecasting, XX the to What going we decisions we’re late this Well, what to late I like our vehicles been do for maker’s that from to looks with what, and begin July look, from X regulation of auto or by both planning They’re this particularly beginning I at think China’s the from Again, being demand completely not curve XXXX. they’ve ramp for think are an it the prepared X standpoint so – the are perspective, is at years XXXX should this or from just regulatory they it’s nationally But made more? point, implementing. year, now, now, locally. that – consistent

John Fortson

More.

Michael Wilson

Yes.

lot. a So it’s

Davis Paddock

that time back you quarter. anything Going – EBITDA correct? pine Georgia-Pacific the you I to that that I is had around chemicals announced at acquisition, XX% on – that Was acquisition, Was unusual was the did the XX% performance? higher they think the it drove there believe that this margins. business, that they I noticed margin’s mentioned

John Fortson

is a XX% the I good number. number think

Davis Paddock

Why quarter was this XX%?

Michael Wilson

ahead, Go Mike.

Mike Smith

of we inventory the this for we where that quarter, our take the had sort mix larger a some in on accumulating during products, – quarter. – will lower biofraction place of were The sale margin a

include that within So and lower-margin did the three-week products mix higher-margin owned some that of products. biofraction towards the more not skewed we was it, the period

Davis Paddock

you. Thank

John Fortson

for that is mean But EBITDA I be XX% to I clear, business margin pre-synergies. the guess, of sort

Michael Wilson

Right.

John Fortson

Correct.

Operator

And we have a question from Jim SunTrust. with Sheehan

Michael Wilson

Jim. Hi

Jim Sheehan

you. Thank Hi,

be OEMs share levels have So the in your China, your auto on U.S.? that that you cars eventually would in it China to selling dialogue market the with that realistic based will approach in expect are

Michael Wilson

We believe that it will, Jim.

Jim Sheehan

price else the excess adhesive that see increases. if over-supplied can TOR being And you right tighten that situation happening supply rationale Great. talk is as seems there resins It will something Do then that you for or about absorbed are now. quickly, market?

Michael Wilson

two think was Well, somewhat $X,XXX despite two things $X,XXX prices – a that some resin to a ton. color above continued that’s gum That’s It years the Hydrocarbon Chinese ton. and prices up I for of let from the a three detail. lower probably ago. a along. I Mike But give actually recovered now come capacity low I’m there’s going is, fact I $X,XXX to ton from mean, you us think, rosin one, additional

market dynamics, think, better Mike, just see specific I products. and in we demand for rosin-based stability So general, our

Mike Smith

good think summary. that’s I a Yes,

around inflation. rosin As gum Chinese has some Hydrocarbon higher seen above been Michael point at it’s have months $X,XXX, energy by indicated, driven where six the resins costs. been now this

don’t standpoint, that going products significant our to substitution So we for adhesive the there. we’re increase are price amount there’s for products very And the hydrocarbons. believe from be towards optimistic our a from backgrounds of a types of away

Jim Sheehan

you. Thank

Operator

further no At are presenters, queue. this questions in there time,

Michael Wilson

about for a business, Have positive that to again thank Okay. this day. to Well, quarter. interest very we and our talking great time We morning. next you, and everyone, forward outlook look you for your remain long-term

Operator

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Ingevity (NGVT) 4 May 182018 Q1 Earnings call transcript