Greetings, and welcome to the Ingevity First quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please follow the operator's instructions. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Gallagher, Vice President of Investor Relations. Thank you. Mr. Gallagher, you may begin.

Thank you, Jessie. Good morning, everyone. Welcome to Ingevity's First Quarter 2020 Earnings Conference Call. On slide number 2, you'll see earlier this morning, we posted a presentation onto the Investors section of our website. If you haven't already done so, I encourage you to download the file so you can follow along on the call. You can find it by visiting ir.ingevity.com under Events & Presentations. For participants who are logged on to our webcast, the slides should be visible in the online viewing pane and also available to download. On Slide 2, you'll see our disclaimer that today's earnings call may contain forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are contained in our earnings release and in our SEC filings, including our Form 10-K and our most recent Form 10-Q. Ingevity undertakes no obligation to publicly release any revision to the projections and forward-looking statements made during this call or to update them to reflect events and circumstances occurring after the date of the call. Throughout the call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP financial measures are included in our earnings release and can be found on the Investor Relations section of our website. Our agenda is on Slide 3. With me today are Rick Kelson, Chairman of the Board and Interim President and CEO; John Fortson, Executive Vice President and CFO; Mike Smith, President of Performance Chemicals; and Ed Woodcock, President of Performance Materials. First, Rick will comment on the highlights of the quarter and then discuss some of the actions we've taken related to the coronavirus. Then Mike and Ed will review the performance of our two segments. John will discuss our current financial status, and then Rick will make some remarks about our outlook for the rest of 2020, and John will review our revised annual guidance and the one-time special guidance we provided for the second quarter given the unusual nature of the current environment. Rick will offer some closing thoughts, and then we'll open the call for Q&A. And with that, it's my pleasure to turn the call to Rick Kelson.

Thank you, Dan, and good morning to everyone. I appreciate you joining us today. If you look at Slide 4, you'll see some key highlights for the quarter. Ingevity had a strong first quarter despite the initial impacts of the coronavirus. The financial effects from COVID-19 were not as severe as we anticipated in mid-February. The decline in Chinese auto demand did affect our Performance Materials results as expected. However, most of the COVID-19-related impacts in Performance Chemicals seem to have been delayed. As John and I will discuss later, we expect more significant effects from the coronavirus starting in the second quarter. Overall, our first-quarter revenues were $288 million, an increase of 4% compared to the same quarter last year. Despite challenges in China, the Performance Materials segment grew in the quarter. Sales in the Performance Chemicals segment were largely unchanged, as growth in pavement and oilfield technologies and the addition of the Engineered Polymer business were balanced by declines in industrial specialties applications. Regarding earnings, adjusted EBITDA reached $92 million, which is an increase of $9 million or 10% year-over-year. We achieved an adjusted EBITDA margin of 32% for the fifth consecutive quarter, which is an increase of 180 basis points from last year. This quarter, we generated strong free cash flow of $41 million, compared to a negative $36 million from the same quarter last year. This allowed us to lower our leverage, which now stands at 2.7 times net debt-to-adjusted EBITDA. As mentioned, we delivered these robust results despite pandemic-related impacts, and if you review Slide 5, I would like to highlight the measures we've implemented in response to the pandemic. From the outset, Ingevity recognized the potential economic impact of the coronavirus and acted quickly. Our facilities in China took prompt and effective actions, which have informed our global protocols. I'm pleased to report that currently, we are not aware of any Ingevity employees, either domestic or international, who have tested positive for COVID-19. We have adopted a comprehensive set of measures, as shown on this slide. Our business continuity team and task force have been activated to streamline our efforts. We created positive test scenarios and tools, and we enhanced communications with employees. To ensure employee health, we instituted work-from-home and social distancing measures, limited travel and visitation, offered free telehealth services, and are conducting temperature checks at all production facilities. Our facilities in China resumed full operations after the Chinese New Year, and the Performance Chemical sites are functioning normally. We have reduced operations at our Performance Material facilities and implemented temporary furloughs as necessary. We also postponed planned capital projects in Covington, Virginia, and Warrington in the UK. From a financial perspective, out of caution, we drew down $250 million from our revolving credit to secure liquidity during this crisis, and we anticipate seeing some savings as a result. Finally, we launched a deep-dive webinar series to offer investors insights into the strategies of each of our businesses. We believe we are taking all the right measures to ensure employee safety and health, and we are committed to being responsive to our customers while maintaining a strong balance sheet and solid financial position. If you look at Slide 6, you’ll find the first-quarter results for Performance Chemicals. Now, I'll hand the call over to Mike Smith, President of Performance Chemicals.

Thanks, Rick. Segment sales in the first quarter were $167 million, essentially flat versus the prior year period. This includes the addition of the Engineered Polymers products. Sales into industrial specialties applications, including printing inks, adhesives, agricultural chemicals, lubricants, and others, were down about $16 million or 17%. Sales in this area were affected by weak demand in industrial markets and the exit of an unprofitable distributor agreement. We continue to see an oversupply of alternative materials, particularly low-priced gum rosin as compared to the prior year's quarter. We are beginning to see an uptick in prices for Chinese gum rosin since the beginning of the year. Generally, however, we continue to experience pressure on rosin markets. Sales of Performance Chemicals products to oilfield customers were up about 3% versus the prior year. This business, as you would expect, continues to weather through volatility. A worldwide lot of inventory and depressed prices, driven by reduced demand are negatively impacting the whole industry, including North America drilling and production. According to Baker Hughes, the U.S. rig count at the end of the first quarter was down 8.4% versus the fourth quarter and down 21% compared to the first quarter of last year. However, since the end of March, the U.S. rig count has decreased a further 36%. Having said that, we have had some success with new customers in the Middle East and China. These are initiatives that we began several years ago as part of our strategy to expand our geographic presence and are now beginning to develop. Sales to pavement applications were up 12% in the first quarter, which, as you know, is a seasonally slow quarter. We are clearly experiencing a solid start to the paving season, especially in North America. We're also seeing increased business in some South American countries. We continue to accelerate our innovation efforts in this business, and we are seeing strong adoption and price improvement for Evotherm warm-mix asphalt technology. In the Performance Chemicals segment, as I said, we had the benefit of the additional revenue from our Engineered Polymers product line. These results, though, were 13% below the prior year's pro forma period, which assumes that we had owned the business for the full years 2019 and 2020 due to lower sales in Europe. It's important to note that this was a tough comparison, meaning that a year ago the first quarter was particularly strong for this business. Sequentially, this quarter saw a 16.3% improvement versus the fourth quarter of 2019. We are continuing to see increased sales of thermoplastics, especially in North America for bioplastic applications, as we continue to globalize this business and move towards more high-value derivatized products. As we reported before, margins remain strong and are holding up well for the Engineered Polymers. Performance Chemicals segment EBITDA was $31 million, down 4%. Segment EBITDA, as reported, benefited from reduced spending and was offset by lower volumes, price mix, and foreign currency exchange. Segment EBITDA margins fell slightly from 19.3% to 18.6%, a decline of 70 basis points. With that, I'll turn the call over to Ed Woodcock, President, Performance Materials, to review the results for the segment.

Thanks, Mike. Turning to Performance Materials. As you can see on slide number 7, the segment delivered solid results and growth despite issues in the automotive industry, driven by the coronavirus, predominantly in China, for this quarter. Segment sales in the second quarter were $121 million, up 11% versus the prior year's quarter. Sales in China increased significantly in the year-over-year quarter as automakers there have essentially completed the implementation of the China 6 standard. In our estimation, China's automakers were at an approximately 99% compliance rate. That said, the significant downturn in auto production in China caused by the coronavirus sharply impacted our sales in February and muted what could have been an extraordinary quarterly sales result. Because of the shutdowns, light vehicle production was down in China by 47% in the first quarter. Fortunately, Chinese automakers are now rapidly coming back online. And in fact, we estimate that Chinese passenger vehicle retail sales for the first three weeks of April are only down 7% versus prior year period sales. We are continuing to see strong sales of both our base automotive activated carbon products and our honeycomb scrubber products used to comply with U.S. EPA Tier 3 LEV III gasoline vapor emission standards. We estimate that the industry is above the mandated compliance rate of 80% for the 2020 model year. In the first quarter, we did not see the production downturn of the automotive industry as much as in China, though that now is changing. North American vehicle production was down 11% through March. Sales in the European Union and in other regions were essentially flat. Again, we will see a sharp impact in these regions in the second quarter due to the virus. In the quarter, Performance Materials segment EBITDA was $61 million, up $10 million or 20% versus the prior year segment EBITDA. We experienced solid price and mix improvement in this segment. We also saw reduced production costs. Segment EBITDA margins were 50.5% in the first quarter versus 46.9% in the prior year period. At this point, I'll turn the call over to John Fortson, our Executive Vice President, CFO and Treasurer, for a more detailed review of our financial status.

Thanks, Ed. Good morning, everyone. I will provide some additional color on our first quarter results and review our capital structure. I'll then turn the call back to Rick for some perspectives on the rest of 2020. Turning to Page 8, as Rick and Mike and Ed have covered the revenue and EBITDA of the company and its segments, I will begin at the SG&A line on the income statement. SG&A is essentially even with the previous year down 1.5%. On a percentage of sales basis, our total SG&A is down 70 basis points. Our core SG&A, which excludes the amortization of $8 million included in SG&A from acquisitions, was down 170 basis points, reflecting our focus on cost discipline across the company, which is receiving extra attention in the current environment. Net interest expense for the quarter was $10.9 million, which decreased almost 2% year-over-year. The provision for income taxes on adjusted earnings was $9.8 million for the quarter. Our adjusted tax rate for the quarter was 17.2%. We expect our fiscal year 2020 estimated cash tax rate to be in the range of 18% to 20%. Diluted adjusted earnings per share were $1.12, up 13% from the quarter a year ago. Before the full impacts of the coronavirus were apparent, we purchased 750,000 shares at an average price of $43.18. Approximately, $468 million remains available for repurchases in our current authorization. We generated outstanding free cash flow of $41 million, up versus negative $36 million in the prior year's quarter. As a reminder, the prior year's quarter cash flow was negatively impacted by $31 million of costs related to the Capa acquisition. Adjusting for the prior year Capa acquisition cash outflows, our free cash flow increased in the year-over-year period by over $45 million. This is a great outcome in the first quarter. As those of you who follow us know, we typically consume cash in our first quarter as we prepare for the paving season. We appreciate the efforts across Ingevity to work both with our customers and suppliers in ensuring we manage our cash positions. Turning to Slide 9, you'll see our current capital structure. Our borrowing rate at the end of the quarter for our revolver was LIBOR plus 150 basis points. The borrowing rates of our term loans are LIBOR plus 100 and LIBOR plus 150 basis points. Of the term loans, $166 million has been hedged in euros to be fixed at 1.35%. The result in the weighted average interest rate was approximately 3.33%. The rate on our senior notes remains fixed at 4.5%, and the $80 million industrial revenue bond borrowing rate remains at 7.67%. Net debt as of March 31 was $1.113 billion. Our net debt-to-EBITDA was 2.7x, down from the fourth quarter of 2019 at $2.8 million. Trade working capital for the quarter increased from the previous quarter to $272 million, which is 21% of sales versus 20% in the previous quarter. In regards to our capital allocation, given recent events and the impacts of the coronavirus on our business, our priorities have shifted somewhat. We are, first and foremost, taking necessary steps to ensure our liquidity and maintain a strong balance sheet. We are focused on returning to our long-term target of net leverage between 2 and 2.5x. At the same time, if and when the market stabilizes, being opportunistic with share repurchases, as we did earlier in the first quarter before the full scope of the coronavirus impacts were known. While we continue to examine M&A opportunities, we are weighing those in light of the preferred uses of capital as outlined previously. Additional information will be available on our Form 10-Q, which we expect to file later today. If you turn to Slide 10, I'll turn the call over to Rick for some views on the rest of the year.

Thanks, John. Overall, we expect that the coronavirus and its subsequent effects on the global economy will impact a variety of our businesses in different ways. Generally, we expect more significant impacts from the coronavirus to begin in the second quarter. In Performance Chemicals, we expect Chinese gum rosin prices to increase modestly, but not to a significant degree. As such, we are forecasting continued pressure on the rosin market. The oilfield industry is likely to be volatile through 2020 with a sharp impact on North American drilling, slightly offset by some opportunities we hope to capitalize on in international markets. The paving business is expected to grow steadily this year. We're already seeing a normal growing paving season, and should the federal infrastructure bill pass, that would only serve as a tailwind. We are expecting some normality in the Chinese and European paving markets as we expand our geographic reach. As for Engineered Polymers, we expect to see steady growth throughout the remainder of the year with strong results in certain markets such as bioplastics. For Performance Materials, the picture is a little murkier since we are much more dependent on the auto industry in this segment. Our guidance assumptions reflect global auto sales and production that continue to decline to a floor in April. However, if North America recovers in much the same manner as China, we will reach a 75% to 85% level of production by the end of the year. Lastly, we are seeing increased orders in Europe, as some customers are coming to us as their automotive activity carbon provider. So these are the fundamental assumptions we've made to develop our revised guidance, which John will review.

On Slide 11, you'll see our revised guidance for the year. To account for the uncertainties related to COVID-19, we are revising and broadening our guidance for sales to between $1.1 billion and $1.2 billion and adjusted EBITDA to between $310 million and $350 million. We'll be controlling our capital expenditures and currently plan to spend about $85 million, down from our previous guidance. As such, we expect free cash flow for the year to be between $130 million and $170 million. Our revised guidance range really incorporates three potential outcomes for the year. It is difficult to determine the exact rates at which the auto consumer will return to buying in each region of the world. China's current sales represent a rapid recovery from their shutdown. However, it is difficult to know, a) if this will be sustained in China; and b) if this template will be followed in other regions of the world. Therefore, we have developed three scenarios: a low, mid, and high case, each reflective of assumptions around the rate of auto sales in North America, China, and Europe for the remainder of the year. These scenarios represent our best current thinking on the markets we are facing. It is important to note that a significant assumption in all three scenarios is that we do not forecast a full recovery of auto sales to 2019 levels. Our scenarios vary when in the year these rates will be achieved in each region. The first most punitive case assumes that oil prices remain in the high teens to lower 20s dollars per barrel and that the auto consumer globally does not recover to the 75% to 85% level until sometime in the fourth quarter. Our mid-range scenario maintains the same assumptions regarding oil prices but assumes that auto sales stabilize at these assumed levels in the middle of the third quarter. Our final high-end scenario assumes some stabilization of oil in the mid-20s range and the auto sales market reaches the 75% to 85% level in the early part of the third quarter. Currently, we do not see a recovery of the auto market to 2019 levels until 2021 or beyond. We do reserve the right to adjust these ranges up or down over the course of the year as we gain more clarity. In addition, this morning, we provided special one-time information on the coming quarter and advised that second quarter 2020 revenue will be down 25% to 30%, and adjusted EBITDA will be down 35% to 40% versus the second quarter of 2019. This guidance is driven by the shutdown of auto production in Europe and North America as well as current sales estimates in China for the quarter. These numbers assume that North American and European manufacturers resume production on the dates announced and at reduced rates as estimated by us and other forecasts. As the year progresses, there are a variety of levers that we will be looking at implementing in order to enhance our financial performance. Included in these are further adjusting or delaying certain capital projects, furloughs beyond what we've already implemented, and reduced corporate spending. As we demonstrated in 2015 and 2016, we focus on controlling what costs we can in environments that are challenging. With that, please turn to Slide 12, and I will now turn the call back over to Rick.

Thanks, John. There are most certainly unprecedented times from a business standpoint. While we have limited certainty on what the rest of the year will bring, we have sought to share with our investors the best information we have in order to provide a level of transparency into what we believe the rest of the year holds. We would emphasize that guidance means just that, guidance. But based on the experience of our business leaders, we believe these are reasonable estimates, and we're going to try our very best to meet them. We're working from a position of financial strength, and we're working to control what we can control in a tumultuous environment. We are largely reliant either way on conditions in our key end-use applications, particularly the automotive industry. As automotive OEMs and customers in other key industries recover, we will be prepared and in a solid position to bounce back with them. I would also like to remind the investment community of the differentiating factors or long-term investment thesis behind Ingevity. We believe we're well positioned for value creation. As a market-leading global specialties company, we continue to leverage our technical expertise to the benefit of customers, combined with a strong balance sheet and experienced management team, we believe the soundness of our strategy and our sharp execution warrants continued investment in Ingevity in the long term. Lastly, as I mentioned earlier, we have started a series of webinars to provide investors with insights into the growth strategies for our businesses. Our next webinar will focus on Engineered Polymers on May 28, and I encourage all of you to join us if you can. In closing, I appreciate the work and efforts of our 1,850 employees worldwide. They are a distinct competitive advantage for us. We continue to believe very strongly in the long-term potential for our company. We hope you share our enthusiasm for Ingevity. At this point, operator, we'll open the call to questions.

We will now be conducting the question-and-answer session. Please follow the operator's instructions. Our first question comes from John McNulty with BMO Capital Markets.

Glad to hear everybody is doing well on the health front, too. So in the Performance Materials segment, I guess, how should we think about how much inventory may be in the system, either with you or with your customers because I guess Asia picked back up, looks like it may sequentially at least be pretty meaningful. So I'm wondering if you're going to feel all of that or part of that, how should we be thinking about that?

Yes, John, this is Ed. Yes, obviously, with almost zero demand in EMEA and in North America over the past several weeks, we have taken a temporary downtime at our facilities and temporary furloughs of the employees to try to adjust our inventory. From an inventory perspective with our customers or within their system, there's probably a couple of weeks in that. Obviously, the shutdowns of the OEMs put some of the suppliers in positions with products that they were stuck with while waiting for production to restart. So we expect somewhere around maybe two to three weeks of lag of inventory in the system globally.

Got it. No, that's helpful. And then just to be clear, in terms of some of the color that you gave. On the auto industry returning to 75% to 85% levels, I assume that's volumetric autos. It's not a revenue forecast for the Performance Materials business. I know you do have some year-over-year benefits rolling in from some of the regulatory new product demand. So can you just confirm that one way or the other?

Yes, John, that's correct. We are speaking about prior year numbers of vehicles sold in each region.

Got it. Okay. And then I guess the last, just the last question. This may be a little bit of a nitty-gritty question. But on the Performance chemicals decline that you saw, what portion of that 17%, I think it was, was tied to the distributor business being cut out? And how much of it was just actual weakness in the end market? How should we think about that?

Yes, John, this is Mike. About $5 million of the industrial specialties decline was due to the distributor agreement that we cut out.

Curious about the Performance Materials EBITDA margins, you topped 50% for the first time. Wondering what drove that and whether you think that's sustainable for the rest of the year.

Yes. First, your last question, I don't think it's sustainable for the rest of the year, but it was a very good first quarter for us. Our production facilities really outperformed in the quarter. We also had, if you think of China's Q1 of last year, there was relatively little China 6 compliance in that, and today, we're sitting on a near 100% implementation rate in China. But I'd also say our honeycombs had a very good year, a good quarter in NAFTA as well. And then price was a key component too. So I think all of those nicely lined up to generate a very high EBITDA margin quarter for us.

This is obviously an unusual year, Jim, right? But as you know, and we talk frequently, you cannot look at this business quarter-on-quarter like that. That actually happened to us the first quarter of last year. If you recall, we put up a very high number. Every year is different because of downtime and production schedules. As we've said, in a normalized environment, the margins in that segment will continue to accrete when you look at it on a year-over-year basis. But it's a long-winded way of saying, don't get too excited about that. So it's a great margin.

Okay. And then can you talk about some of the patent suits and intellectual property challenges you have around the honeycomb scrubbers? Do you have any updates on any of the litigation?

There's not really an update, Jim. The ITC, we did appeal their decision not to take up our protest. But that appeal, they decided to uphold the ruling of the lower judge, which is not a surprise to us in any way, shape, or form. So it's nothing really new to report. Assuming that things stay on schedule, the trial should start in the fall, but in this environment, who knows?

Okay. And in Performance Chemicals, can you talk about the competitive dynamics of that industry in a low oil price environment? Are you seeing more competitive intensity aside from the gum rosin issue you already mentioned? And also in Engineered Polymers, maybe you can talk about how the low oil price environment affects your profitability there?

Okay. Sure, Jim. First, at this point, the low oil prices really have not impacted the overall Performance Chemical business. We're going to have to be carefully monitoring the TOFA price in particular, given the downturn in oilfield, but we've moved a lot of that business to more specialty derivatives. So we are very focused on maintaining those margins and doing our best to maintain the price improvement that we've achieved over the last few years. In terms of Engineered Polymers, first, I'd say that this is a highly specialty application. The pricing and performance within that business are driven by the high solution value that it brings to a wide degree of customers. So we do not anticipate significant swings either way related to the oil industry. We'll certainly be mindful of any competitive pressure. We likely will see some tailwinds from a raw material standpoint in that business. And we'll be working hard to keep that in our pocket, as you will, given the specialty nature of that business.

It's pretty important to note the work that the chemical segment team has done. When you think back to where that business was in '15 and '16 and when oil went from sort of $100 down to the 30s as to where we are today, that business is in a very different place. They've done a lot of work reformulating. They've taken a lot of costs out, and it's in a very different cost position. So it's part of why our margins have expanded so much in that segment. But it's also why we're just in a different spot than we were back then.

Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your question.

Good morning, guys. And thank you for the questions and the time next quarter and also for providing guidance when a lot of companies are not doing that. First, can you talk about the breakdown for the Q2 revenue and EBITDA guidance kind of if you go by segment or by business line or region, where do you see the most areas of most weakness or even relative strength?

Yes. I mean, as you know, Jon, we typically don't provide that sort of guidance in the quarter. As we've tried to layout, but the bulk of the challenge really is related to North American and European auto shutdowns, right? Which I'm sure you're following, some of them are going to come back up next week. Some of them are coming up a little bit later or two weeks after that. Then you have to make some assumptions around at what rates they're going to start coming back at, and what the slope of that line looks like, right? So that's how we've gotten to those numbers.

Okay. Fair enough. And then as governments and automakers are pressured around the world, do you expect any changes at this point to either emissions regulations that are on the books or maybe planned for the future? Have you been hearing anything like that?

Yes. This is Ed. An update. I mean, Brazil is still on track for their 2022 implementation that will run through 2025. We are seeing, not necessarily regulatory changes, but we are seeing harmonization. It's more of an optimized canister mix for automotive OEMs. Effectively, they have three canister designs: one for the U.S./Canadian markets for the Tier 3 LEV III; the next canister design is an ORVR canister for China; and the third one is Euro 6d canisters. Instead of having multiple different canisters, we are seeing, particularly the Asian manufacturers, working towards simplifying their canister mix designs to those three types of canisters. Having Euro 6d via common platform across the world is helpful for us because it also increases the size of a canister, and it shifts more towards pellets rather than granular.

Got it. And then finally, just any update on the CEO search? I don't know if you mentioned that earlier at all.

This is Rick. We have engaged a search firm, and we and the search firm are screening, internal and external candidates as part of the process. We're moving as expeditiously as we think prudent, but the key is to get the right person. So we're doing this the right way, and it will progress and hopefully wrap up sooner as opposed to later. But you know how these things go.

I have joined a little bit late, but can you just give us an update on what's happening over at Capa? Also as far as Brexit, how you're preparing and what you've maybe seen there?

Ian, this is Mike. Yes, we're quite pleased with how the Capa business, our Engineered Polymers has continued to progress, certainly meeting our expectations in the first quarter. As you can see, there was strong sequential build from the fourth quarter and the second half of last year on a top line basis. So I think that's all quite positive. We're going to continue to work on the development of new applications. Depending on when you came in, we had noted that we've had some good success in the thermoplastic area, especially due to new demand for bioplastics. So that's quite positive.

I have a couple of follow-ups. Just on the Performance Materials segment and the impressive margin improvement, you explicitly mentioned manufacturing costs, also mentioned a mix benefit and some pricing. You didn't mention the bleeding off of higher cost inventories that you had built in China ahead of the adoption over there. So I'm just wondering if that contributed also? Or if that's something that's still to benefit the business as we re-ramp in China?

Chris, that inventory was largely done at the end of last year, right? So we didn't really see, it really did not play a role. If anything, it was the other way. We're trying to work to manage the inventory as the OEMs have had shutdowns.

Got it. Okay. And then I appreciate the details on the scenario analysis. And with respect to the gradual ramp timing being uncertain to sort of the 75% to 80% levels for auto builds, whether it's, and exiting this year or beyond. Just curious, is that magnitude of that level of production, for North America and China, is it comparable? Or do you expect one region to be stronger? And the other reason I ask is, obviously, China's auto sales have been down probably about 15 months consecutively before the pandemic.

Yes. Chris, this is Ed. I'd answer the China one: we're actually seeing a rather quick V-shaped recovery in China today. I think part of it is due to reticence to use mass transit. So you're seeing consumers buying vehicles so they can basically have a safer way of getting to wherever they're going, whether it's the office or elsewhere. I do expect EMEA and NAFTA to have a much more U-shaped recovery. They're just now beginning to restart. The restart is going to be gradual, likely single-shift-oriented. They've got to get their logistics chain working as well. So I think it's going to take time. It's very complex. EMEA and NAFTA also source parts from outside of their home regions. The whole transit and ocean transit issue is also going to be complex as far as getting the system back up and operating. We're also kind of heading into July, which is typically a model changeover period. I think that's an opportunity for the OEMs as well to take a look at their inventories, but also, they need to reevaluate whether they introduce new vehicles or continue to operate with older platforms and generate some cost savings by not having to issue the new ones. So I think Q2 is really going to be a little bit of a slog up. But I think starting in July, we should have a better feel for consumer demand as well as how the OEMs are able to get their production back up to a more normalized rate.

Got it. That's very helpful. And then just one quick follow-up, nuanced around the oilfield business. You mentioned a little surprise, I think probably, people were that sales were up, and you mentioned the international sales. Curious if that business you saw, was that sort of like a one-time spot sale in nature? Or is it business that's actually been specked into projects that should therefore have some sustainability to it? Thank you.

Chris, this is Mike. No, we anticipate that this business should be sustainable. As we mentioned, it's a business that we've been working on for a few years and have seen some gains there. We hope to continue to participate strongly outside of North America.

Hey, guys. Just one quick question. Can you just remind us how you protect intellectual property in China? And how that dynamic may change if and when China goes through a higher standard to a Tier 3 standard, which might require some type of scrubber?

Yes, Dan, this is Ed. Our 844 patent, which expires in March of 2022, we do not have that patent in China. Yet, we are still the preferred provider of products for the China market. I think it speaks well to the quality of our products and the efficacy that they have in the last life of the vehicle. We also have new patents. Our next round of patent protection in China as well. So as China looks at doing regulatory change, that's likely going to be a positive tailwind for us with the patents that we hold.

Okay. Thank you. And then you mentioned this briefly, I think in your prepared remarks, about maybe just pulling back a little bit on M&A. But I was wondering, when you first got into the Capa business, you mentioned that there were some adjacencies that were very attractive. I was wondering if you still find that very attractive, maybe not the next three months, given the current environment, but if we look out longer term.

Nothing, Dan, in the long-term thesis has changed. We continue to view Capa as a very strong company and business that fits in our portfolio. We remain interested in growing that business, both internally and externally. The only caveat is in this environment, when you look across how you would deploy capital, there's just not a lot of opportunities, nor would it necessarily be the right thing to do right now as we kind of navigate through the current uncertainty. But nothing has changed with regards to the long-term strategy.

Thank you. Please stand by while we collect questions from the phone lines.

Hey, guys, glad to hear everybody is safe and sound. When you think about maybe rebuilding earnings power for you guys, and I understand it's quite a tough environment right now. But when you think of more of a normalized potential, do we sort of get back to your initial guidance over time? Or is it back to '19 levels? And it sounds like if auto builds come back, you're sort of there. Can you maybe just walk us through how we sort of get back to a higher earnings power once things sort of normalize over time?

Mike, you're thinking about it the right way. I mean, ultimately, to the extent that the global auto consumer returns to more normalized buying patterns, we clearly will be back on track in that business, right? Likewise, I think you are correct. I think the Performance Chemicals segment. And I think as you include Capa is going to ride this storm pretty well and might surprise some people with the stability that they have. To my points earlier, it's just a different business than it was in the last '15, '16, not nearly as geared or levered, if you will, to oil prices. It's still there as a relationship, but not like it used to be. So just some general improvements in the broader macro. I think you'll see Performance Chemicals continue to grow. We are not that far away from where both Capa and the asphalt businesses are really driving that segment's future, right? They are gaining scale, and as the economy improves, I think you'll just see that accelerate.

Right. And then in terms of Capa, I think the opportunity was to derivatize more of the monomer. Given things are slow, to say the least, but is this an opportunity to get into clients quicker or more often? I know with the shelter at home, it might be difficult, but to showcase what you guys can do and help them during this time period.

Mike, this is Mike. We're continuing to do whatever we can to engage with customers, and we're doing that through video conferencing and Zoom just like we're doing internally. I've been very impressed with our commercial and technical organizations to stay engaged. So I don't think that our approach to it is that much different. It's always been the direction and strategy of that business to add value to customers and give them those solutions, which generally come through those derivatized products. During this period, we're continuing to do our best wherever we can in order to make that kind of progress. There may be a little less that some of our customers can actually do in their laboratories at this time, but we'll keep working on doing whatever we can.

Got it. Well, I hope you guys are okay, but one quick follow-up in terms of the pine chemicals, I mean, it does appear that the olefin competitive products will be, well, prices will come down. And I know you mentioned in an earlier question that you didn't think lower oil would be an issue. But are there pockets of the portfolio that could have issues with those olefin alternatives? Or overall, do you think the portfolio was balanced enough that it won't be a secular negative?

We unfortunately are going to have to exit this building as this is not a drill. So we will, we didn't say we're not going to have any impacts, Mike. We're definitely going to have some impacts. It's just not as amplified as it was the last time around. But what we'll try and do is we speak with each of you guys on the calls, the rest of the afternoon, we'll kind of answer any follow-up questions. But sorry about this, and we appreciate you guys dialing into our call.

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