Hello, and welcome to the Ingevity Second Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jack Maurer, Vice President, Public Affairs and Investor Relations. Jack, please go ahead.

Thank you, Kevin. Good morning, everyone. Welcome to Ingevity's second quarter 2020 earnings conference call. Earlier this morning, we posted a presentation onto the Investors section of our website. If you haven't already done so, I would encourage you to download this 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 into our webcast, the slides should be visible in the online viewing pane and also available to download. On Slide number 2 of that deck, 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 or circumstances occurring after the date of this call. Throughout this 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 number 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 discuss some of the recent cost reduction actions we've taken in light of the economic impact related to the coronavirus or COVID-19. Then, Mike and Ed will review the performance of our two segments. John will discuss our current financial status and our reaffirmed annual guidance. Rick will offer some closing thoughts. And then, we'll open up the call for Q&A. With that, I'll turn the call over to Rick Kelson.

Thanks Jack, and good morning, everyone. Thank you for joining us this morning. We appreciate your interest in Ingevity. If you turn to Slide 4, you'll note some highlights for the quarter. Ingevity delivered second quarter financial results in line with the special one-time guidance we provided at the end of the first quarter. And looking forward, as John will discuss later, we are reaffirming our fiscal year 2020 guidance. During the quarter, our team remained focused and implemented a series of cost reduction initiatives to bolster second quarter profitability, while at the same time, continuing to conduct business despite the constraints of the economic impact of the coronavirus or COVID-19. Overall, revenues in the second quarter were $271 million, down 23% when compared to the previous year's quarter. This was slightly better than our second quarter guidance. Similar to most companies, we experienced lower volumes attributable to weakened demand associated with the coronavirus. The downturn in automotive sales and production in North America and Europe during the quarter significantly reduced our revenues for our automotive activated carbon products. This was partially offset by an upturn in demand for similar products in China. Reduced demand in industrial specialties applications such as printing inks and volatility in the oil field drilling and production industry also contributed to the revenue decline. With respect to earnings, adjusted EBITDA were $67 million, down 38% from the previous year's quarter. This was within the range of our guidance. We experienced an increase in production costs due to the reduced throughput driven by lower volume. However, we more than offset this with a series of cost reduction initiatives that I'll review in just a minute. Our adjusted EBITDA margin for the Company was 24.8%. For the quarter, we generated solid free cash flow of $34 million. As I said earlier, we posted these results by taking a hard line on costs. And if you turn to Slide 5, I'd like to review some of the steps we've taken. We made some difficult decisions to reduce headcount in the organization. That said, we saw that quickly and respected people's dignity, while at the same time, making sure we retain the talent we need for our future. We implemented an early retirement program, for which approximately 61 people were eligible. We had 39 acceptances. We also implemented an involuntary reduction in force of approximately 26 people. We suspended 401(k) and deferred compensation matches and have reduced the accrual for annual incentive compensation. In terms of SG&A, we've seen reduced travel as you might imagine, but we've also reduced spending on other corporate initiatives. As a result of these actions, we will see a benefit this year of $16 million and have taken about $9 million out of the annual run rate. During the quarter, our operations and supply chain teams were able to quickly adapt to changes in demand signals from customers in this dynamic market, which allowed us to meet demand while keeping costs down. If you add this to the benefits of lower plant spending associated with reduced demand, and this includes curtailed production and temporary furloughs at certain facilities, maintenance expenses and energy savings, the cost reductions total $35 million in 2020 and will reduce our ongoing cost structure by $12 million. In summary, we continue to maintain a strong financial position. Most importantly, we are working on controlling what we can control and continue to focus on the levers we can pull to enhance our performance in an environment of uncertainty. If you turn to Slide 6, you will see the second quarter results for Performance Chemicals. At this point, I will turn the call over to Mike Smith. Mike?

Thanks, Rick. In Performance Chemicals, sales to all of the end-use applications declined due to COVID-19 economic impact in varying degrees. We saw comparatively reasonable strength in pavement technologies and engineered polymers, partially offset by reduced demand in industrial specialties and oilfield technologies. Overall, segment sales in the second quarter were $186 million, down 19% versus the prior year period. Sales to pavement technology applications were about even with the prior year. Paving season in North America is progressing largely unaffected by the economic shutdowns. Projects planned by the majority of State Departments of Transportation are generally proceeding as planned and progressing on schedule. In addition, we realized a sales increase in EMEA, which was partially offset by decreases in India. Sales for the engineered polymer product line were down somewhat due to reduced industrial demand, predominantly for caprolactone monomer, particularly in Europe. At the same time, we have seen increased demand for thermoplastic for bioplastic applications. We continue to move toward high-value derivatized polyols and thermoplastics in this business. In fact, in the quarter, polyols and thermoplastics accounted for approximately 80% of engineered polymer revenue. Margins continue to remain strong. And given our raw materials petrochemical linkage to benzene, we are realizing some cost benefits due to lower input costs. Sales decreased in industrial specialties applications, and these include printing inks, adhesives, agricultural chemicals, lubricants and others, were down about 24%. Sales in this area were affected by weak demand in industrial markets, especially for printing inks, as printed advertising declined due to the coronavirus-impacted retail industry. And for the last quarter, revenues were down due to the exit of an unprofitable distributor agreement in the year-ago period. We also continued to experience pressure in our tall oil rosin prices from supply of alternative materials, particularly low-priced Chinese gum rosin I'll discuss in a minute. Despite oil prices have stabilized in the quarter, sales of oilfield technology customers were cut sharply, in line with the reduced drilling in North America. This business, as you would expect, continues to weather the volatility. Sales of Performance Chemicals products to oilfield customers were down about 50% versus the prior year. Performance Chemicals segment EBITDA were $144 million, down 26% versus the prior year quarter due to lower volumes. Price/mix impacts, production costs and foreign currency exchange were fundamentally unchanged. Selling, general, administrative, SG&A, cost reductions helped to improve the segment EBITDA. Segment EBITDA margin declined 210 basis points to 23.6%. From an operations perspective, we did take a six-week temporary furlough at our Crossett, Arkansas pine chemicals facility. That plant restarted earlier in the week. Given the dynamic state of markets in which our segment competes, I thought we will review some pertinent economic conditions on Slide 7. Ingevity's exposure to oil over the last several years has decreased significantly. Our oilfield technology sales will comprise less than 8% of the Company's total in 2020, and there is only de minimis relevance to other parts of the business. Nonetheless, it continues to be a top-of-interest. And as you all know, the oil industry has been extremely volatile as of late. Due to the Russia-Saudi Arabia oil price war and the reduction in demand due to the coronavirus, we saw prices of oil drop precipitously. Since then, they have recovered in the $40 per barrel range. While pricing has stabilized recently, there remains a significant drop in demand. In addition, a worldwide glut of inventory is negatively impacting the whole industry, including North American drilling and production where we primarily participate. According to Baker Hughes, the US rig count is down 67% year to date. Having said all this, we have had some success with new customers in the Middle East in China. These are initiatives we began several years ago as part of our strategy to expand our geographic presence and we are now beginning to develop as a partial offset to the reduction in our US sales. Regarding our tall oil rosin business, we closely track what's happening with gum rosin and hydrocarbon resins since these are considered substitute materials in many applications. After a sharp price reduction compared to 2018 levels, due in part to a shortage of turpentine from a European plant outage that brought more Chinese gum supply onto the market, we have seen year-to-date uptick in prices of Chinese gum rosin of approximately 25%. These prices more recently seem to have plateaued and remain at low levels. One element likely preventing further recovery of Chinese gum rosin prices is additional competition from Brazilian gum rosin. Assisted by currency devaluation earlier this year, Brazilian gum rosin's export prices are approximately 30% lower than they were two years ago. And as for C5 hydrocarbon resins, despite volatility in oil prices, the prices for these resins have remained somewhat stable. Year-to-date hydrocarbon resin prices are flat. All of these dynamics continue to put pressure on pricing for tall oil rosin, and we expect this will continue until there is a change in the supply-demand balance. With that, I'll turn the call over to Ed Woodcock to review the results for the segment.

Thanks, Mike. Turning to Performance Materials, as you can see on Slide 8, revenues for the segment were down 31%. Shutdowns by automakers in North America and Europe resulted in significantly lower volumes in the quarter. The decline was partially offset by rebounding automotive business in China. China's automotive pellet sales in the second quarter were the second highest on record, reflecting the strong demand rebound and the implementation of the China 6 standard, which is essentially completed. Overall, we saw significant demand late in the quarter, which enabled us to finish the period strongly. We believe this bodes well for the rest of the year. Segment EBITDA were $23 million, down 53% versus the prior year period due to the sharp downturn in volumes and the resulting decrease in production throughput. These were partially offset by decreased plant spending, furloughs at several Performance Materials manufacturing facilities and reductions in SG&A costs. Segment EBITDA margins decreased 1,240 basis points to 27.6%. This significant fall reflects the high fixed cost nature of this business. It's important to note that this fixed versus variable cost ratio benefits us greatly in normal conditions. But by the same token, they fall equally hard in a difficult environment. From an operations perspective, our US carbon plants and honeycomb scrubber plant in Waynesboro are running normally. Our plants in China are running on reduced shifts in order to reduce some inventory. We have maintenance outages planned in Wickliffe, Kentucky and our plant in Zhuhai, China in the third quarter. And we'll be completing the last of four kiln replacements in Covington in the fourth quarter. With that, turning to Slide 9, I'd like to talk a little bit about current conditions in the global auto industry. China has had an amazing rapid V-shape recovery to their auto market. The rapid restart can be attributed to a degree to the production readiness and inventories that were in place prior to the Chinese New Year. All vehicle production plants are operating, and rates are at least 85% of normal. China had year-over-year light vehicle sales increases in all three months of the quarter, with June's light vehicle sales reaching 2.1 million vehicles, up 9% versus the prior year. For the quarter, light vehicle sales were 107% of prior. Production in China has rebounded perfectly in lockstep with the demand. Looking forward, similar to the US' July production shutdown, China typically takes August shutdowns. However, these have been reduced, canceled or delayed and will support more production in 2020. China 6 has been fully implemented. And we'll continue to see strong year-over-year revenue growth through the third quarter. U.S. and Canadian; April, May and June light vehicle sales were respectively 51%, 70% and 74% of prior year, which tally to a quarterly total of 65% versus prior quarter. North American light vehicle production fell well short of the sales totals. April light vehicle production was a remarkable 10,300 vehicles, which was 1% of prior. May's production of 235,000 vehicles increased to 16% of prior. And June's production of 1.14 million vehicles finally reflected a return to production as it reached 80% of the prior year. For the quarter, production was 33% of prior year. A strong end-of-period finish in Q2 and weak North American production in the same period left end-of-June US light vehicle inventories down 1.3 million vehicles, or 33% below prior year's inventory. June sales leveling off is likely a reflection of the low vehicle inventories. OEMs have greatly reduced, canceled or pushed out their normal July shutdowns to rapidly rebuild dealer inventories in the third quarter. OEMs are focusing their production efforts on their most valuable platforms, light duty trucks and SUVs. These vehicles typically have the highest content of Ingevity's products. The European market was more heavily impacted by the COVID-19 virus than the US or China. April, May and June light vehicle sales were respectively 24%, 46% and 80% of prior year, which led to a quarterly vehicle sales total of 51% of prior. Similar to China and North America, we do expect the European OEMs to add more production into August, which is typically the primary holiday month in Europe. In summary, June was a strong month for sales in these three regions in comparison to April and May. China was at 109% of prior, the US and Canada were at 74% of prior, and Europe was 80% of prior. For these three regions in total, which comprised roughly 70% of the 2019 global auto demand, the June light vehicle sales were 88% of prior year. We believe this is a positive sign heading into the second half. 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. John?

Thank you, Ed. Good morning, everyone. I will provide some additional color on our second quarter results, review our capital structure and discuss our reaffirmed annual guidance. Turning to Slide 10, as Rick, Mike and Ed have covered the revenue and EBITDA of the Company and its segments, I will begin at the SG&A line of the income statement. SG&A is down 19% versus the previous year, reflecting the initiatives that Rick discussed at the beginning of the call. On a percentage of sales basis, our total SG&A is up 70 basis points. And our core SG&A, excluding amortization of $8 million included in SG&A from the acquisitions, was down 20 basis points as a percentage of sales. Net interest expense for the quarter was $10 million, which decreased almost 24% year-over-year. The provision for income taxes on adjusted earnings was $7 million for the quarter. Our adjusted tax rate for the quarter was 21.1%. We continue to expect that our fiscal year 2020 estimated cash tax rate to be in the range of 22% to 24%. Diluted adjusted earnings per share were $0.63, down 54% from the quarter a year ago. We did not repurchase any shares in the quarter, and approximately $407 million remain available for repurchases in our current authorization. Free cash flow was solid at $34 million, down 32% versus the prior year's quarter. Given the current economic conditions, we believe this is a solid outcome in the second quarter. Turning to Slide 11, 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. And the borrowing rates of our term loans are LIBOR plus 100 basis points and LIBOR plus 150 basis points. Of the term loans, $166 million has been hedged in euros to be fixed at 1.35%. The rate on our senior notes remains fixed at 4.5%. And the $80 million industrial revenue bond borrowing rate remains at 7.67%. The resultant weighted average interest rate for Ingevity was approximately 2.71%. Net debt as of June 30 was $1.078 billion. Our net debt ratio was 2.96 times, up from the first quarter, which was at 2.7. Trade working capital for the quarter increased slightly from the previous sequential quarter to $277 million, which is 23% of sales. In regards to our capital allocation, given recent events and the impact of the coronavirus to our business, our priorities have shifted somewhat. We are focused on returning to our long-term target of net leverage between 2 times and 2.5 times, at the same time, if and when the market stabilizes, being opportunistic with share repurchases, which we did 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 these in the light of the above preferred uses of capital. Additional information will be available in our Form 10-Q, which we expect to file later today. On Slide 12, you'll see our reaffirmed guidance for the year. Our guidance stands at sales between $1.1 billion and $1.2 billion and adjusted EBITDA between $310 million and $350 million. We'll continue to control our capital expenditures and currently plan to spend about $85 million, almost all of that on maintenance. As such, we expect free cash flow for the year to be between $130 million and $170 million. What gives us confidence in this guidance and what should give our investors some confidence is our most recent performance in the second quarter. At the end of the first quarter, given the level of uncertainty around the coronavirus impacts, 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. As Rick stated, we exceeded our guidance for revenues, are right down the middle of the fairway for our guidance for adjusted EBITDA. As those of you who follow us recall, at the end of the first quarter, we provided three potential scenarios for the year, which served as the bookends for our annual guidance, and these scenarios correlated to when auto demand globally returns to a 75% to 85% level, the fourth quarter, mid-third quarter or early third quarter. As we stand today and based on what we're seeing currently in the auto industry, we believe we are strongly in the middle-range scenario. While June performance gives us optimism, it will take time to see exactly how the rest of the year plays out. However, this gives us confidence in the annual guidance we are affirming. With that, please turn to Slide 12. And I will now turn the call back over to Rick.

Thanks, John. These are most certainly unprecedented times from a business standpoint. That said, we are generally pleased with our performance, all things considered. More importantly, given our track record on guidance and meeting guidance, as John said, we continue to have cautious optimism and confidence in our guidance for the full year. Longer term, we believe we are well positioned for value creation. As a market-leading global specialty chemicals 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 that the soundness of our strategy and our sharp execution warrants continued investment in Ingevity in the long term. 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 of our company. We hope you share our enthusiasm for Ingevity. At this point, we'll open the call up for questions.

Our first question today is coming from Jim Sheehan from SunTrust. Your line is now live.

Thank you. Good morning. Could you comment on Performance Materials EBITDA? What was that for the month of June? Or what was the run rate exiting the quarter?

Yes. I think, Jim, we exited kind of at our normal margins. And so, it gives us again strength of looking at the back half relative to volume getting back into our plants.

Thanks. And on engineered polymers, really stronger results than I was expecting there. You talked a little bit about some of the drivers. But could you provide more color on that? Why are the end markets doing so well in some of the bioplastics, etcetera? And what's your outlook for continued tailwinds from lower benzene costs going forward?

Yes. Sure, Jim. This is Mike. Well, as I mentioned, we did have some pretty significant growth in the bioplastics market, which is an area that we've really been working on developing with our customers. So, that's positive. We were having to face a lot of both industrial headwinds. So that's tough. And we also have a pretty significant presence in footwear, and not a lot of footwear being sold of late. But with the advancements we're making with new applications with customers and how they are introducing products, the engineered polymers business line is progressing pretty well and especially the growth in bioplastics for our thermoplastic product line.

Terrific. And could you provide any update on your intellectual property lawsuits? Has there been any developments on the honeycomb scrubber patent lawsuits?

Yes, Jim. This is Ed. No changes since the webinar. We're still scheduled for trial with BASF in September. But as we kind of discussed, we expect that to be delayed because of the COVID-19 issues.

Thank you very much.

Thank you. Our next question today is coming from Ian Zaffino from Oppenheimer. Your line is now live.

Thank you very much. I appreciate your efforts. Can you provide some insight into your visibility regarding the ongoing strength? Additionally, what is your perspective on the situation once existing projects are completed? Will there be a gap, or do you anticipate a smooth transition into new projects? Thank you.

Sure, Ian. As I mentioned, so far our pavement business has been performing quite well, and projects for the third quarter appear to be progressing as planned. Regarding funding levels, particularly related to state budgets for gasoline, I believe we will remain in a strong position this year. The key issue will be what happens as we move into next year, and it's difficult to predict that with much certainty. There's ongoing discussion about major infrastructure investments, which would certainly benefit us. Many communities and states are eager to continue with infrastructure and paving, and we hope that trend continues moving forward.

Okay, thank you. And John, you said that you would look for M&A. Is that correct? Were those the words?

No, I think we're focused on debt reduction right now. You can never really stop because you don't always control when different assets come to market. But given the broader macro drop and the uncertainty in financing capabilities, it's not at the top of our list right now.

Okay, great. Thank you very much.

Thank you. Our next question today is coming from John McNulty from BMO Capital Markets. Your line is now live.

Hey, good morning, guys. This is Colton on for John.

Hi, Colton.

So, I guess the first question I had is, I believe the Tier 3 products that you sell into the North American market in Performance Materials are a little bit higher margin than some of the Tier 2 products. So, I was just wondering, with North American auto production down almost 70% in the second quarter and that decreasing to low single digits in the third and fourth quarters, I was wondering how much that margin mix impacted margins in the second quarter and how it will progress going forward?

Yes. This is Ed, Colton. I would say our main challenge was related to our production facilities. We chose to absorb all the difficulties in the second quarter regarding the operation of our facilities. These activation facilities cannot be partially operated; they are either fully on or completely off. For our activation facilities, specifically the Covington and Wickliffe facilities in the US and the Zhuhai facility in China, they were inactive for over half of the quarter. However, this decision has prepared us to operate our US facilities for the second half of the year, aside from the usual outages I previously mentioned for kiln replacement and maintenance at Wickliffe. Therefore, I believe the challenges we faced in the second quarter will enable us to return to our normal margins in the latter half of the year, and we expect demand and production to rise as inventories on dealer lots continue to be replenished.

Okay, thanks. That's helpful. And just one quick follow-up. I see on the Performance Materials side that price was a positive contributor to segment EBITDA. And I know, in past downturns, you guys have been pretty successful in pushing through prices. Is that kind of what's happening right now? Or is there something else going on with that number?

No, it's still the case. We annually look at our product pricing and we try to capture the value that it creates. We put a significant amount of price in non-China in this quarter. We did add a price increase in China. So, that was showing up some for the quarter. But again, I think it's just the cumulative year-over-year price increases that you're seeing additive for the quarter.

Okay, thank you. I really appreciate it.

Thank you. Our next question today is coming from Jon Tanwanteng from CJS Securities. Your line is now live.

Yes, hi, good morning. It's Peter Lucas for Jon. You guys have covered most everything. I guess, just one general question for me in terms of your outlook. How does that change if a second U.S. stimulus bill is or isn't passed?

Well, obviously, a stimulus bill, to the extent it helps consumer sentiment, particularly on the auto side, would just give us more confidence to be probably more towards the higher end of the guidance that we've given. But right now, we sort of stand behind. We think, auto sales are in that 75% to 85% range by the end of the year. It's just a question of how quickly they get there and does it stay sustained.

Perfect. And as I said, the other questions were answered. So, thank you.

Thank you. Our next question today is coming from Paretosh Misra from Berenberg. Your line is now live.

Thank you. Good morning. So, in Performance Materials in China, as we go into Q3, there's really no incremental adoption there, right, due to China 6. In other words, China was essentially at 100% for the entire Q2.

Yes, Paretosh, this is Ed. That's correct.

Got it. Regarding the engineered polymers, have you fully accounted for the $7 million benefit you've mentioned before, or is that still pending in the numbers?

I think that's primarily all been accounted for, yes.

Got it. And lastly, just going through your industrial specialty business, how likely do you think that it bottomed in the second quarter? Given that some of the substitute prices have improved and you realized them or see them, I guess, with a bit of a lag, and just the general improvement in industrial activity in Q3 versus Q2, so which should be good for your volumes. And any comments on that would be great.

Yes, I would like to think that the second quarter is close to the bottom. However, as we enter the third quarter, I can't say that we are noticing a significant increase compared to our performance in the second quarter. It seems like we are just maintaining a low level in the industrial specialty market. We will need a broader increase in industrial demand to achieve a turnaround.

Understood, that's fair. Thanks, guys. That's all I had.

Thank you, Paretosh.

Thank you. Our next question today is coming from Daniel Rizzo from Jefferies. Your line is now live.

Thanks for taking my questions. Just a couple. You mentioned that at this point, oil services is only about 8% of total sales. Is that a business that you could or would consider just exiting or just completely de-emphasizing, given how small it's now and the outlook for oil domestically? I mean, I know you had some wins in the Middle East when you withdrew process is there.

I think that you have to think about the sort of contribution that our oilfield business makes to the overall refinery balance. The oil business is based on TOFA or TOFA derivatives. And so, having an important outlet like the oilfield market and to be able to make specialty derivatives for the oilfield market I think is one that really sort of meshes well with our sort of refinery system in general. So, at this point, I wouldn't see that we would be exiting the oilfield business in that regard.

Okay. For my second question, you mentioned some maintenance outages in China, Kentucky, and a kiln replacement. I was curious if that was a situation where you brought something forward that was originally planned for next year, and now you're set for five years. Did you manage to complete a turnaround faster than expected, or was there another reason? I'd like to understand the thought process behind that.

Yes, Dan. During our downtime, we addressed several maintenance outage issues. The kiln replacement in Covington requires an extended shutdown for us. We were unable to expedite that due to the scale of the contractors involved and the work needed to remove the old kiln and install a new one.

How long does a kiln last and must be replaced?

Yes, these are 20-year assets. And so, if you think back to the mid-90s, when we put ORVR in place, all those kilns were added. So they, basically we've gone through over the last five years, working through replacing those kilns, and this will be the last one for us. Outage timing is about 30 days.

Okay. And the cost?

$2 million to $3 million.

Thank you. Our next question today is coming from Chris Kapsch from Loop Capital Markets. Your line is now live.

Good morning. I have a question regarding the Performance Chemicals segment. The EBITDA margin of 23.6%, while down, seems fairly reasonable given the significant sales decline and the likely adverse mix, particularly from the reduced oilfield business. I'm interested to know if part of the explanation for this is the benefits gained from lower CTO costs. Additionally, I suspect that the under-absorption might have negatively impacted the numbers late in the quarter due to the Crossett facility being shut down for a couple of weeks. Can you clarify what factors are supporting the EBITDA margins and how this might influence the outlook for the third quarter, especially considering Crossett was closed for most of July?

Yes. Thank you, Chris. And we're pleased that even under challenging conditions that EBITDA margins in Chemicals are holding up pretty well. To answer your first point, CTO did not have any impact on those margins. They've been reasonably steady versus last year. The benefits that we were having was our continued focus strategically on really pushing the higher-derivatized, higher-value products. So, if you think about, in the second quarter, as we would expect that continue to happen in the third quarter, we've got strong pavement technology business. And that business is holding up well, and that is a very high margin business and one that the team is continually working on increasing its innovation and trying to do whatever we can, especially pushing Evotherm or any new products that we have that come in at higher margin. And the other part is the Capa business. The margin in the Capa business is certainly higher than the average for Performance Chemicals. And Chris, relatively speaking, that's also holding up pretty well. So, I think that kind of puts us in a pretty sustainable position as we head into the third quarter.

Okay. Will the shutdown of Crossett for most of July adversely affect margins sequentially? Considering the seasonality of the pavement business, there seems to be an outsized benefit in the second and third quarter. Is that the correct perspective? Thank you.

Yes, Chris. Regarding the Crossett furlough, the lower absorption from that site has a negative effect. However, the cost reduction from furloughing employees there for six weeks helped mitigate that negative impact. We are also focused on optimizing our three-plant network, so as we scale down operations at Crossett, we can shift sales of other products to the Charleston and DeRidder facilities, which enhances our business and allows us to reduce costs through the Crossett furlough. Additionally, as you pointed out, the second and third quarters are typically strong for the pavement business, and the third quarter is starting off well. We believe this positive trend will continue.

Thank you.

Thank you. We have reached end of our question-and-answer session. I'd like to turn the floor back over to Jack for any further or closing comments.

Thank you, Kevin. So, thank you everyone for your time and interest this morning. We remain very positive about our long-term business outlook. And look forward to talking with you again next quarter. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.