Greetings and welcome to Ingevity's Fourth Quarter and Year-end Earnings webcast and conference call. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Jack Maurer, Senior Vice President, Public Affairs and Investor Relations. Please proceed.

Thank you, Brad. Good morning, everyone. Welcome to Ingevity's fourth quarter and full year 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 during 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 3. With me today are John Fortson, President and CEO and Interim CFO, Mike Smith, President of Performance Chemicals; Ed Woodcock, President of Performance Materials; Erik Ripple, Chief Growth and Innovation Officer; and Bill Hamilton, Vice President Financial Planning and Analysis and Treasury. First, John will comment on the highlights of the quarter and full year. Mike and Ed will review the performance of our two segments. John will review some key accomplishments in 2020 and discuss our Ingevity 2.0 strategy. Erik will provide an update on some focus areas for growth and innovation. Bill will comment on our current financial status. Lastly, John will review our 2021 outlook and guidance. With that, I'll turn the call over to our CEO, John Fortson.

Thanks, Jack. Good morning, everyone. Thank you for joining us. We appreciate your continued interest in Ingevity. If you turn to Slide 4, you'll note some highlights for the quarter. Overall, we delivered excellent fourth quarter and full year results. Our businesses were resilient despite challenging conditions. Revenues in the fourth quarter were $326 million, up 7% when compared to the previous year's quarter despite the continued economic impacts of COVID-19. Ingevity's fourth quarter results were driven by strong automotive production and sales in China, and a highly favorable shift towards trucks and SUVs in the U.S. and Canada. We also have benefited from increases in sales for Engineered Polymers and slight growth in North American paving sales. These positives were partially offset by reduced revenues in the oilfield and printing ink markets, and international paving sales, all of which were highly affected by the COVID weakened economic environment. With respect to earnings, adjusted EBITDA were $111 million, up almost 22% from the previous year's quarter. We continue to benefit from the midyear cost reduction actions that we implemented. Our margins are holding up well across the board, and as a result, our adjusted EBITDA margin for the fourth quarter rose to 34%, which is a fourth quarter record. For the quarter, we generated over $122 million due to our strong operating performance and excellent working capital management. This enabled us to reduce our leverage to 2.45x, which returns us to our target range of between 2x and 2.5x. I want to thank everyone on the Ingevity team for all their work over the last year as we navigated the ups and downs in both of our segments, especially our manufacturing employees. They figured out how to work productively despite the constraints of operating in a COVID safe environment. Our performance this quarter is a testament to the efforts of these employees across the company. If you turn to Slide 5, you'll see the fourth quarter results of Performance Chemicals. And at this point, I'll turn the call over to Mike Smith. Mike?

Thanks, John. Our Performance Chemicals segment continues to be impacted by a weakened economic environment due to COVID-19. In the fourth quarter, however, we drove improved results for Engineered Polymers and benefited from solid global paving activity that was down slightly, but still robust given the circumstances. Overall, segment sales in the third quarter were $165 million, down almost 6% versus the prior year period. As I mentioned, sales to payment technology applications were slightly lower than the prior year in what is essentially a slower period. Paving in North America was up slightly, while sales in China, Latin America, and Europe were down modestly. Sales for Engineered Polymers products were up more than 10% to improved demand in industrial equipment, bioplastics, and automotive applications. Sales decreased in industrial specialties applications due to continued demand weakness for printing inks, and other end-use applications such as rubber and sterols. This was partially offset by strengthening volumes for rosin products in adhesives and paper chemicals, and improved pricing for tall oil fatty acid. We are encouraged that the Chinese gum rosin export price has increased over 25% during the last 3 months, a positive signal of improving supply and demand dynamics. Also, we continue to see positive potential in our agricultural chemicals business dynamics, where our ultra-stick and ultra-solve technologies for sustainable agricultural applications are progressing, entering field stage trials with a number of our major customers. We also made strong progress in converting our ink customers to new highly sustainable products, which are phenol and formaldehyde free. In 2020, these products represented 25% of our sales in the inks from essentially zero in the prior year. Additionally, sales to Oilfield Technology customers continue to reflect weakness in North American drilling activity. According to Baker Hughes, the North American rig count at the end of the fourth quarter was down 56% versus the fourth quarter in 2019. That said, we continue to see wins in China and the Middle East as we work to diversify the geography of this business. Performance Chemicals segment EBITDA in the fourth quarter were $27 million, down 18% versus the prior year quarter due to lower volumes in price mix. This was partially offset by improved plant throughput and some foreign currency exchange benefits. We continue to control costs and generate a good mix of our higher profitability products, which resulted in our adjusted EBITDA margin holding steady at 16% in the fourth quarter, and 21% for the full year. With that, I'll turn the call over to Ed Woodcock to review the results of Performance Materials.

Thanks, Mike. As you can see on Slide 6, revenues for the segment were a record up 25% at $161 million. Strong automotive production and sales in China, and a favorable shift towards trucks and SUVs in the U.S. and Canada continue to be a tailwind for our gasoline vapor emission control solutions. The industry is still working hard to refill the vehicle inventory pipeline. As in the previous quarter, U.S. vehicle inventory remains at 9-year lows and has been for each month since May 2020. With relatively strong vehicle demand, OEMs face the ongoing struggle compounded by the global semiconductor chip shortage to refill dealer lots, and we estimate this will continue into the second quarter of 2021. In the fourth quarter, North American vehicle production was essentially flat with a 1% increase, and sales in the U.S. and Canada slightly declined by 2%. The U.S. and Canada vehicle mix of light-duty trucks and SUVs versus cars continues to rise and hit a monthly record of 79% in December. This truck and SUV vehicle mix has trended high since April 2020 and is favorable as these vehicles typically have larger canisters, and multiple honeycombs as part of their evaporative emissions control systems. This contributed to strong demand for our honeycomb scrubbers used to meet regulatory standards in the U.S. and Canada. The team at our Waynesboro, Georgia facility continues to work hard, and in response, they set new quarterly production and sales records for honeycombs. In addition, we also set a quarterly sales volume record for our activated carbon products. Production and sales of vehicles in China continue to post monthly year-over-year increases since May 2020. The sum of data available for October and November shows vehicle production and sales both up 9% and 11%, respectively. December data has yet to be posted. The team at our Zhuhai facility also set a monthly production record in December. While there is no production data yet available for Europe in the fourth quarter, quarterly sales in the region were down 4%. We expect activity in Europe to continue to slow slightly. Segment EBITDA were $84 million, up almost 44% versus the prior year period. Segment EBITDA margin increased 670 basis points to 53%. We saw record volumes across the segment that leveraged our low variable cost structure, and in addition benefited from a strong price mix improvement and reduced legal expenses to defend our intellectual property. In October, we completed a kiln replacement outage at our Covington, Virginia facility 7 days ahead of schedule. This completes the last of four kiln replacements at that facility. Also during the fourth quarter, we completed a capacity expansion project at our Zhuhai China plant following significant debottlenecking and equipment upgrades. These upgrades have effectively increased production capacity by an additional 15% to 20%, helping us to meet the high global demand for our premium high-capacity pelletized carbon products in that country. At this point, I'll turn the call back to John.

Thanks, Ed. If you turn to Slide 7, I'd like to take a moment to highlight Ingevity's accomplishments in 2020. We are proud of what we achieved this year. Besides our strong financial results, we have moved quickly to develop Ingevity of the future, and our work is just getting started. Throughout the course of the year, we reduced costs and placed greater emphasis on organic growth and innovation, generating revenues that were 92% of our initial pre-COVID guidance and adjusted EBITDA that were 97% of our initial pre-COVID guidance. At the end of the year, adjusted EBITDA were fundamentally even to our 2019 performance and generated outstanding free cash flow of $270 million. Additionally, we took advantage of a favorable interest rate environment by securing an 8-year $550 million bond at a fixed interest rate of 3.875%, while also extending and amending our credit facility. We bought back an impressive $88 million in shares. And as I mentioned earlier, this brings us back to our targeted net debt ratio. Both of our business segments delivered solid performance in a tumultuous year. Our Performance Chemicals segment delivered mixed results in the face of COVID weakened demand but was bolstered overall by sales to payment technology customers in North America and overseas. We drove expanded sales of Engineered Polymers in the bioplastics and successfully completed the monomer production glassware replacement project at our Warrington, U.K facility. Our Performance Materials segment delivered yet another year of record revenue and earnings as the team adapted to the strong decline and then snap back in global automotive production. I can tell you from firsthand experience, the team at Waynesboro is working very hard to meet incredible demand. Our teams and colleagues in Zhuhai did great work in completing the necessary capital projects at those facilities. We continue to be very optimistic about the long-term potential for our Performance Materials segment. Recent estimates and proclamations pertaining to the term electric vehicles have created a lot of confusion around the growth rates of battery electric vehicles. The term electric vehicles typically includes full battery electric vehicles and plug-in hybrid electric vehicles. Full hybrid vehicles and plug-in hybrid electric vehicles both use internal combustion engines, and hybrid growth is exceeding that of pure battery electrics. In 2020, in Europe, the adoption of hybrids outpaced registrations of pure battery electric vehicles and ended the year with a market share almost 3x that of pure battery electric vehicles. And in China, as part of their new electric vehicle or NEV requirements, they are emphasizing greater use of low fuel consumption vehicles, which are hybrids, to lessen an OEM's NEV credit closure, thus allowing the OEMs to reduce their focus on battery electric vehicles in favor of hybrids. As we study IHS and other data sources, we remain convinced, we have a long runway for further growth, both from our legacy automotive products but also from other applications. And as Erik will discuss in a minute, we are committed to maximizing the potential of our carbon and high-growth, high-margin products. We rolled out Ingevity 2.0, an organic growth strategy. This reenergized approach to our vision and strategy will place greater emphasis on sustainability, customer centricity, and innovation, and we expect over time to significantly increase our revenues as a result. We continue to make progress in developing and commercializing our adsorbed natural gas or AMG technology. We are continuing to work collaboratively with natural gas utilities, OEMs, and other partners to validate this technology for light and medium-duty trucks for which batteries are constrained. We are developing in the areas of renewable natural gas or RNG with this system as a way of further enhancing its environmental benefits. And as the recent announcement from Amazon that they're purchasing an increasing number of natural gas trucks indicates, fleet owners represent a part of the market where our AMG technology can play a role. Lastly, we also continue to make significant strides in the implementation of our inclusion in diversity and sustainability programs. We published our first two reports outlining the greenhouse gas reduction benefits of our Nuchar and Evotherm products. We proudly maintained our Silver rating from EcoVadis and moved to the 70th percentile in the Dow Jones Sustainability Index, all while continuing to better position ourselves to leverage the increasing importance of sustainability on a global level to drive organic growth into the future. Turning to Slide 8, I'd like to take a closer look at what Ingevity 2.0 will look like in 2021 and beyond. In particular, how we will grow our enterprise and drive business excellence to maximize value and drive to increase profitability. Our enterprise will grow by focusing on what we call the big six initiatives that Erik will discuss next. First, we have an eye towards leveraging our activated carbon expertise beyond the automotive industry and into other high-margin performance material markets. With the commercialization of our AMG technologies for light-duty trucks, we've already begun to leverage our long history and strong technical expertise in the capture and release of automotive vapors. We are leveraging this expertise further to provide innovative adsorption technologies in areas such as the capture, storage, and transportation of biomethane. Additionally, we are looking at human health applications such as antimicrobials, antivirals, and time-release drug delivery. We are also focused on the use of alternative feedstocks from our refineries to optimize our manufacturing assets, diversify our raw material sources beyond CTO, and expand our products into new derivatives and adjacent end markets. One of these markets is biofuels, which is expected to continue to grow rapidly. Erik will provide more detail on both of these initiatives. We are testing alternate materials now. Third, we remain committed to exploring and expanding the use of our rosins in diverse end markets such as adhesives and other polymeric applications. Additionally, we plan to drive continued growth in Engineered Polymers. In addition to our focus on derivatized high-margin products, we will capitalize on favorable trends and market needs where our capital solutions are uniquely suited to solve customer challenges. One such trend is the growing need for biodegradable compostable plastic products, or our cap of thermoplastics enabled plastic bags and utensils to break down fully into carbon dioxide and water and be composted at home or in an industrial facility. In fact, our revenues from these products have doubled over each of the last 2 years. We will continue to focus on growth in this application. I am encouraged by what we are seeing from Engineered Polymers both in the fourth quarter, but also as we have begun 2021. We continue to believe that as our customers work to decrease their carbon footprints, we have a differentiated opportunity to problem-solve with our chemistry. Our initiative to evaluate the societal benefit of our significant product lines by 2022 is well underway. We have also begun to embark on an aggressive certification program aimed at recognizing the renewable nature of our products by third-party experts. Lastly, we will keep working steadily to become a truly global brand by increasing our international sales and strategically maximizing our presence worldwide. Particular opportunities exist in the pavement, oilfield, and agricultural chemicals markets. Increasing our presence overseas is just beginning. We intend to remain a top quartile specialty chemical company as measured by EBITDA margin and ROIC. To this end, we will continue our commitment to driving increased efficiency and customer experience. Our SAP S/4 digital transformation continues to progress on track. We also continue to benefit from the focused efforts of our supply chain team to optimize logistics, reduce expenses, and streamline operations. As we begin 2021 these efforts have been critical. Our capital allocation strategy will focus on a balance of growth investments, debt reduction, and opportunistic share repurchases. We have returned to our target net debt range which provides us additional flexibility, and we will continue to take a disciplined approach to capital allocations. Our repurchases in the fourth quarter should indicate that we will buy shares at values we find attractive. I'll now turn the call over to Erik to discuss more specifically some of our growth initiatives in more detail.

Thanks, John, and good morning. On Slide 9, I'd like to provide an update on some focus areas for our growth and innovation team that will help drive value as part of Ingevity 2.0. As John mentioned earlier, one of the three main drivers behind the reenergized approach to our strategy is a focused approach to innovation. To this end, we have established a dedicated growth and innovation team to lead this effort and today are pleased to highlight the initiatives developed over the last several months. To expand the use of our activated carbon, we're primarily interested in the areas of biomethane and human health. In the emerging field of biomethane and renewable natural gas or RNG, we see opportunities to further leverage our activated carbon expertise. We believe we can provide innovative adsorptive technologies that capture biomethane from landfills, municipal wastewater treatment facilities, and agricultural farms by handling the purification, storage, and transport of both gas. We are developing external relationships to participate in unique business models that will further drive growth for Ingevity. Next, the field of human health provides some attractive entry points for Ingevity, including adding surface functionality to our carbon technologies, leveraging emerging chemistries that mitigate bacteria and viruses like COVID-19, and medical applications in time-release drug delivery. Our activated carbon technology is already being used commercially as a critical input into airborne COVID killing applications. In order to drive expanded uses of our legacy CTO and optimize our manufacturing facilities, we will focus on the areas of alternative feedstocks and biofuels. Today, soy and tallow are just two of the alternative feedstocks we are evaluating and have completed extensive testing in our plants to better understand where the most attractive market opportunities exist for Ingevity. Lastly, our CTO chemistry positions us well to participate in the global transition from fossil fuels to more sustainable biofuels like renewable diesel. This fast-growing segment has a full range of options for Ingevity, including selling Ingevity products as feedstocks or leveraging our manufacturing capabilities to upgrade other suitable fuel precursors. Here, we've also developed external partnerships to explore other innovative business models in which we can participate and/or invest. As you can see, we build a diverse and robust pipeline of opportunities that will form the foundation of our future growth. We look forward to continuing to provide regular updates on our progress and the impact of our efforts. I'll now turn the call over to Bill Hamilton to discuss our financial position.

Thanks, Erik. I'll now briefly discuss our financial summary, which you'll find on Slide 10. Before I dive into the numbers, I'd like to draw attention to the overall strength of our financial position. A healthy summary you see on this slide has been achieved with purposeful execution and clearly reflects the numerous efforts our team made in 2020. The fact that we were able to return to our targeted net debt levels less than 24 months after the Capa acquisition is a testament to our ability to generate strong cash flow, even amidst a challenging economic environment. Our borrowing rate at the end of the quarter for our revolver and our term loan was LIBOR plus 150 basis points. The rate on the senior notes issued in October 2020 and January 2018 remains fixed at 3.875% and 4.5%, respectively, and $80 million industrial revenue bond borrowing rate remains fixed at 7.67%. The resultant weighted average interest rate was approximately 3.2%. Net debt as of December 31 was $974.8 million. Our net debt ratio was 2.45x, which is down from the third quarter when it was 2.73x. Trade working capital for the quarter decreased sharply from the previous sequential quarter to $233 million, which is 19% of sales. While our working capital typically spikes during the first half of the year, as we prepare for the paving season, we remain focused on maintaining optimal working capital moving forward. As we stated earlier in 2020, we will continue to be opportunistic with share repurchases. In the quarter, we repurchased $60 million of shares, bringing our total 2020 repurchases to $88 million. We have $407.6 million remaining on our current share repurchase authorization. Additional information will be available in our Form 10-K, which we expect to file next week. I'll now turn the call back over to John.

Thanks, Bill. On Slide 11, I'd like to review our guidance and outlook for 2021. We've announced our fiscal year 2021 guidance for sales between $1.25 billion and $1.3 billion and adjusted EBITDA between $400 million and $420 million. Our guidance reflects growth versus 2020's performance despite continued economic pressure from COVID-19 and the uncertainty around potential impacts on global trade due to tightness across transportation modes worldwide. While the business environment feels pretty good as we speak today, a lot of uncertainty remains. On the Performance Chemicals side, we anticipate improved conditions for merchant rosin. These will be slightly offset by weakness in printing inks and paper chemicals. We also expect growth in agricultural chemical dispersants. We should benefit from moderate growth and demand for payment technologies based on strong paving project backlogs and continued Evotherm warm mix technology adoption. In Engineered Polymers, we expect increased demand for thermoplastics. And lastly, we do expect to see continued weakness in the oilfield industry. For Performance Materials, we expect the segment to deliver double-digit revenue growth despite the absence of any significant regulatory standards being adopted globally. This growth will occur largely due to continued industry efforts to refill the vehicle inventory pipeline. We are watching the semiconductor situation in the auto industry closely. Based on the most recent data, we expect about a 5% impact to global auto production in the first quarter as a result of the chip shortage. This would translate to an impact of $5 million to $10 million in revenue to Ingevity, which we expect to make up in the back half of the year. To the extent our perspective changes, we will adjust as necessary. We expect demand for trucks and SUVs to continue to expand, and our litigation spend will be as expected at around $50 million for the year. In terms of capital expenditures, we plan to spend between $100 million and $120 million. Major capital projects in 2021 include the continued expansion of our Covington, Virginia activated carbon facility, the SAP/S4 HANA digital transformation project, and an increase in growth and innovation capital. With the increase in capital spending and stabilized working capital levels, we expect free cash flow for the year to be at or above $200 million. We also expect to keep our net debt to adjusted EBITDA ratio between 2x and 2.5x as in any acquisition. Overall, we will deliver strong results in 2021 despite the challenging global macroeconomic conditions and increased capital expenditures. In 2020, we demonstrated our ability to be flexible and drive performance through consistent execution amidst great uncertainty, and we will continue this in 2021. We believe deeply in the strength of our reenergized Ingevity 2.0 and our team's ability to execute on the opportunities ahead. These continue to be unprecedented times from a business standpoint, yes, we are incredibly pleased with our performance in the fourth quarter and for the year. Given our track record of both maintaining and meeting guidance, we remain both optimistic about the year and confident in our guidance for 2021. We also believe we're well-positioned for value creation in the long term. As a market-leading global specialty chemicals company, we continue to leverage our technical expertise in the benefit of our customers. Combined with a strong balance sheet and experienced management team, we believe in the soundness of our strategy and our ability to execute on the opportunities in front of us. Before we end the call, I'm pleased to share that we are in the midst of preparing another webinar series for the first half of 2021. We will provide additional information on the topics and timing in the coming months. So expect more to come. In closing, I appreciate the work and efforts of our 1,750 employees worldwide. They are a distinct competitive advantage for us. We continue to believe very strongly in the long-term potential for our company, and we hope you share our enthusiasm for Ingevity. At this point, operator, we will open the call to questions.

Our first question today comes from John McNulty of BMO Capital Markets. Please go ahead with your question.

Yes. Good morning. Thank you for taking my question and congratulations on your impressive results. My first question is about the guidance for the Performance Chemicals business. It appears you expect EBITDA to remain flat or increase, as indicated. When considering all the positives and negatives, it seems there are more positive factors, such as the rising pricing for resin, and it seems some derivative pricing may also be starting to rise. Additionally, there are several end markets expected to perform better, mitigated only by a couple that may slightly decline. Is there anything else we should be aware of, perhaps regarding raw materials or other factors, that might support the cautious guidance?

Yes, look, John, I appreciate it. Thanks for the question. We are taking a conservative posture sitting here. I mean, as I said in the prepared remarks, listen, it feels pretty good sitting here today. But we do think we're going to see some raw material pricing pressure across a lot of different parts of our businesses. We are seeing freight problems, right, like a lot of industrial companies. We are stuck up and sort of the global transportation freeze that's occurring. So we're optimistic, but I think we want to be balanced. We're sitting here in February. Everyone knows what sort of played out last year. Well, we don't expect a big COVID resurgence. We think it's going to take a little while to work through the spin back up, right? So it feels good, but we'll see how it plays out.

Got it. Fair enough. And then I guess a question on the Performance Materials side, I think in the release around your guidance, there was a comment we expect to see margins get back to more normal levels. Admittedly, this is a pretty volatile business when it comes to the margins, and we've seen them push higher because of increased content, etcetera. I guess what do you view as a normal margin environment for this business? How should we be thinking about that?

In 2020, we demonstrated how this company can perform under pressure from macro issues beyond our control. We significantly improved our working capital and operated the business with high efficiency. However, this level of efficiency isn’t sustainable long-term. As business conditions return to normal, we anticipate margins will stabilize in the mid-40s, which reflects our long-term expectations for the business. While we are proud of our performance under pressure, moving forward, we will need to manage the business in a more typical fashion and focus on growth investing and increasing working capital to meet customer needs. Our inventory levels are currently tight, and we would prefer to have a bit more flexibility, especially in our position within the auto supply chain.

Got it. It makes sense. Maybe I can squeeze one last one in too. Just on the Ingevity 2.0 growth initiatives, I mean, first of all, it was helpful to kind of walk through the four big ones that you're excited about. I guess, does one stand out to you as being closer to commercialization? And I guess, can you help to frame maybe the one that you're the most excited about right now?

Well, go ahead.

Yes, I would say the one on biomethane and renewable natural gas is the one that we're most excited about, and the one that we're closest to on commercialization. For a lot of reasons, we like it because it fits with our activated carbon business and provides a really good point of leverage to get into that industry.

I'm really excited about the work being done in Performance Chemicals regarding alternate feedstocks. This business has faced many challenges in recent years, as you're aware. It has been historically dependent on one crucial raw material, which we are fortunate to have secured through long-term supply agreements. The efforts to diversify our feedstocks will enhance the utilization of our facilities and lead to new product development, as well as reformulating some of our existing products. It's quite exciting, and there were many smiling faces here earlier this week due to some recent successes. Both of these initiatives are promising, so stay tuned for more updates from us. While I don't want to overpromise on timing or specifics, we believe we're making progress and moving forward.

Great. Thanks very much for the color.

The next question is from Ian Zaffino of Oppenheimer. Please proceed with your question.

Hi. Kind of maybe want to build upon that last question. On the AMG side, how's the pilot going? Any kind of new news to report on additional fleets that the AMG has been adopted in and what should we expect from that business?

Yes. Ian, this is Ed. Great question. A little early for us to be talking about the opportunities that are going to come through, I think that'll be a Q2 or Q1 coverage for us. We've got a number of irons in the fire. The one that I can talk about is our own fleet that we have that we use as demonstration vehicles around the U.S. And then we have basically converted them to the use of RNG renewable natural gas and that is the only fuel that has a negative carbon intensity. And we feel that that's a great pathway in combination with our AMG vehicles to continue to grow that platform.

Thanks. Regarding shipments and what you're observing on the OEM side, inventories are currently very low at the OEMs. Is there an effort to increase shipments, or will there be more restocking on their part, or are your shipments aligned with vehicle production? I'm trying to understand what the situation looks like. Thanks.

Yes, as John mentioned, we anticipate some impact in the first quarter and possibly some in the second quarter. All the OEMs and their suppliers are making significant efforts to secure as many chips as possible. If you saw the GM press release, it mentioned an interesting approach they are taking by producing vehicles without the chips, storing them, and then installing the chips as they become available. This creates demand for us since it's being accounted for in the vehicles, even though they are not fully completed. I expect to see similar strategies at other OEMs, allowing them to optimize production and begin to fill the vehicle pipeline rather than completely halting vehicle production.

To some extent, Ian, this is helpful from an operational perspective because we need the time to get our inventory replenished internally. We were running really tight. But the point is, you're probably going to see a little bit of disconnect between our production and what auto production is actually recorded as in Q1.

Okay, great. Thank you very much.

The next question is from Vincent Anderson of Stifel. Please proceed with your question.

Yes, thanks and good morning. So a lot of interesting things in here to unpack. When you start stacking up the amount of bio and renewable diesel capacity coming online in the U.S. and what it's doing to vegetable oil prices, definitely inclined to agree that it looks like we can see a gap in feedstock availability sooner than later. Have you already started to have discussions with potential customers that want to get TOFA certified as a feedstock for RIN generation, getting a carbon intensity score calculated for the California carbon credits? Or are we not really that far along yet?

Yes. We are absolutely having those conversations with several customers.

And just to add on the comment on TOFA. We have our facilities registered and certified to supply into the biofuel market in Europe. So we believe, over time, that that's going to be an increasingly valuable outlet for biofuels, and that will become part of our sort of TOFA end market application focus.

Excellent. Thank you. And when you think about the economics there, it's tough to pin down exactly where TOFA pricing is. But as you stack it up against biodiesel feedstock prices at their current levels, if you could sell into that market today, would it be a positive mix impact? Or is this kind of getting out ahead of where the market might be going in the future?

Yes. At this moment, TOFA isn't significantly benefiting us from a pricing perspective. However, looking ahead to the next year or two, we anticipate that the increase in demand will likely allow us to shift some of our TOFA into that market, compared to other export opportunities we are currently servicing in the industrial sector.

Excellent. If I could ask a follow-up question regarding your mention of low carbon intensity alternative feedstocks, you referred to some existing biodiesel feedstocks, but are there additional opportunities in the pulp value chain, such as further lignin processing or possibly venturing into stump processing?

That's not an area that we are focusing on regarding lignin in the pulp sector. While there is potential and some technology for pyrolysis that could eventually serve that market, it is not something we are currently prioritizing. We believe there are better options that align with our assets and technology, as well as the end market and derivatization capabilities our plant assets and technology team can offer.

Excellent. Thank you very much.

The next question is from Jon Tanwanteng of CJS Securities. Please proceed with your questions.

Good morning, gentlemen. Thank you for taking my questions. My first one is can you provide an update on the competitive landscape in the materials business and any legal actions you are pursuing in that area, considering the current situation you are facing?

Yes, the competitive environment is roughly the same as it has been for the past couple of years. Obviously, we have a legal issue with BASF relative to their entrance into the marketplace with competing technology. Outside of that, we do have a competitor in China. But at the end of the day, that's kind of the lay of the land for competitors that we see in the auto sector.

Okay, great. Maybe a question for John. Now that your leverage is down to your target level, is there a preference for share repurchases or M&A? And if it's the latter, how do you see that playing out? Are you actively engaged? Are there a lot of targets of opportunity out there?

It certainly provides us a lot of flexibility. I don't view these options as mutually exclusive. We can maintain our leverage within a comfortable ratio while also investing in growth and buying back shares if we believe it's the right decision. We will continue to explore various opportunities, as there are many available. As we mentioned in our 2.0 strategy, we are considering different avenues, which may include investments. Looking back a year ago, there were concerns regarding our leverage and the timing of the Capa acquisition, but we believe we have moved past that. Now, we are in a position to focus on growing the business and maximizing value.

Got it. If I could go back to the investment topic just one more time. Can you just give us an indication of how much content you have in dollar terms that maybe an SUV has or a hybrid has these days, or maybe even a hybrid SUV and kind of how that plays into what you're seeing in terms of growth and units for the future?

Yes. This is Ed. It's really determined by the regions. If you think of a European content for us, think of it as maybe $3 of content on a vehicle. China, with larger canisters and some use of additional scrubbers, you're looking at a content level of $6 to $8. And in the U.S., it's a big spread, somewhere between $15 and $35 per vehicle.

We like big trucks.

Got it. Thank you very much, guys.

All right.

The next question is from Daniel Rizzo of Jefferies. Please proceed with your question.

Good morning, guys. You mentioned that there's a 25% price improvement in Chinese gum rosin and you said it was because of supply-demand favorability. I was just wondering if that's because supply is being reduced by the Chinese? Or is it just a rebound in demand during what is economic recovery?

Yes, the main factor is a reduction in supply in China. There was a significant amount of inventory that has now been cleared from the system, leading to a decrease in the overall supply and production of gum rosin in China. Demand has been relatively steady and possibly improving modestly, but the supply is now better aligned with that demand. This has tightened the market, creating an imbalance and resulting in a price rebound to a more acceptable level.

Okay. Okay. And then on the litigation surrounding your intellectual property. I was just wondering if you could provide color. I mean how far away are we from a resolution? Is this still years away?

We have at least another year to navigate the various aspects of our lawsuits and legal challenges. I wouldn't anticipate a resolution until early in the first quarter of 2022.

All right. Thank you very much.

The next question is from Mike Sison of Wells Fargo. Please proceed with your question.

This is Richard Garchitorena on for Mike. First question is on Performance Materials, double-digit revenue growth for this coming year. I was just wondering how much of that is from volume improvement versus price. And also just have you incorporated your expectations on higher hybrid demand into that or lower EV demand as well?

Yes, for this year, I don't think any impact for EV is going to materially affect the business. From a price/mix standpoint, we historically continue to put price in every year, and we will continue to do that this year. Volume is going to be favorable. If you think of all the volume that was lost globally in Q2 or early Q1. If it was China that was lost over the year, that volume should return. Obviously, some muted impact with the global chip issue, but the OEMs are still in a position of having very little inventory on dealer lots and need to start refilling those dealer lots. So we do feel that we will have a good year-over-year increase on an annual basis of vehicles produced.

Great. And then my follow-up on the renewables initiative. How much of the CapEx this year is toward that if any? Any R&D expense increase? And then in terms of incorporating that into your mix, are you going to have to retrofit existing plants? Or is this going to use existing manufacturing facilities?

The aim is to utilize our current manufacturing facilities as much as we can. We are prepared to invest in those facilities that we believe will yield a suitable return. This approach is more advantageous than starting new projects from scratch or pursuing mergers and acquisitions to enter these markets. We intend to proceed in the most capital-efficient manner. When looking at our capital expenditure guidance, it will fluctuate based on whether certain investments come to fruition throughout the year. We expect to allocate around $20 million of that for growth capital focused on these initiatives, though it may vary slightly. Some of this spending will depend on timing and ensuring it aligns with our strategic objectives.

Sounds good. Thank you.

The next question is from Paretosh Misra of Berenberg. Please proceed with your question.

Thank you. Good morning. Can you elaborate on your activated carbon applications and carbon capture technology? Specifically, what changes might be required for the existing activated carbon product sold to the automotive industry? Are there different specifications, such as butane working capacity, or is the process mostly the same?

No, that’s one of the attractive features of this opportunity, is we don't have to change the activated carbon that we're using for capturing renewable gas. The aspect that's really important that applies to our automobile business as well is that our carbon is a catch-and-release carbon, so it can be used over and over again and not be thrown away where other carbons, like coconut or coal-based carbon, we call catch and throw away, so you use it once and throw it away. Ours can be used over and over again, and that's exactly what you need in these situations where you're capturing gas off of a landfill and then getting that transported to a pipeline and then using that activated carbon to repeat that process over and over again. So we don't have to make any changes to it. It actually works perfectly for the application.

Thanks. Very interesting. And then as a follow-up, in your pine chemicals business, sorry if I missed that, but what's the reason for wanting to reduce reliance on CTO as a feedstock? Is that because you think CTO prices will go higher? And will you need to make adjustments to your biorefinery to take these alternative feedstocks?

We have significant capabilities with our existing facilities and assets to work with various feedstocks. While we might need to make some small investments to enhance efficiency, we have consistently faced investor concerns about our dependence on a single critical raw material. The supply of CTO is limited, stemming from a pulping industry that is fundamentally tied to GDP growth. This has led us to pursue diversification to reduce that reliance. Currently, we see a genuine business opportunity as the landscape shifts towards biofuels and renewable feedstocks. Our team of talented engineers is well-equipped to expand our product portfolio with these alternative feedstocks, and we can also reformulate some of our products to reduce risk associated with CTO.

Right. Thanks, John and looking forward to learning more on some of these interesting initiatives this year. Thank you.

Yes, thank you.

The next question is from Chris Kapsch of Loop Capital Markets. Please proceed with your question.

Yes. Good morning. Thanks for taking my questions. Curious about the traction you're getting on the TOFA price increases. Is there any way you could elaborate on the magnitude of success there? And really more curious about the extent you're getting pricing. I'm curious about, is it a function of tight TOFA supply-demand conditions? Because obviously, you have this backdrop of oilfield, which is one key outlet for the TOFA being so weak. So is the supply demand tight to support the pricing? And if that's the case, is it a function of just the industry ratcheting back on its utilization rates that's diminishing the supply? Or are you starting to see, maybe not in your system but from other players, some movement on this demand for TOFA for the biodiesel in Europe?

Yes, we've got traction on TOFA pricing, and I would say that progress in 5% to 10% price increase is quite reasonable. For the most part, what we are doing is mix optimizing because, as you're inferring, the supply of it overall is not growing, and we do have the reduction, especially as we look at first quarter oilfield demand last year versus this year. So we are essentially having an opportunity to compete in industrial export markets where alternative vegetable oils pricing has gone up quite significantly. And some of those markets, such as overseas coatings markets that have the ability to change between fatty acids, we are taking advantage of utilizing TOFA to do that and increase price accordingly versus other fatty acid substitutes.

It seems like you have some flexibility with the pricing of alternatives to TOFA. Does this also create a chance to increase your production volume if you were to boost the utilization rates at your refineries? Thank you.

Yes. Well, as I think we generally have discussed previously, we focus our refinery run rates based on the demand of our rosin products. So as long as the rosin demand is healthy and we can be profitable selling it, essentially, that will provide us an amount of TOFA that we will sell into the marketplace. And then we take that TOFA and obviously move it to the most profitable market, starting with the derivatized markets and then we have other profitable straight TOFA markets. And lastly, some of the overseas industrial markets that substitute between other different fatty acids.

That makes perfect sense. I believe that with that idea, the opportunity to identify additional TOR end markets as part of your growth initiative presents a great chance to potentially increase TOFA volume. Could you provide an update on the timeline for developments regarding alternatives for TOR? Thank you.

Yes. We are always seeking to promote our TOR and demand in lots of different applications. We think that there is an ongoing opportunity as a sustainable substitute for hydrocarbon-based products, especially in adhesives. We have actually seen even in some other markets, such as the oil market, the use of products that contain rosin for proppants and sand coatings. And so we are going to continue to push the positive sustainability attributes, whether it be in packaging and adhesives, safety road striping versus hydrocarbons, and then seek to broaden applications like we always do for the use of TOR and its derivatives.

Thank you.

The next question is from Vincent Anderson of Stifel. Please proceed with your question.

Thank you for bearing with me. I would like to discuss a few more points regarding the 2.0 comments, particularly on activated carbon and its applications in antimicrobial and pharmaceutical areas. Is this intended to primarily act as a carrier for an active compound? Moreover, is this characteristic exclusive to your hardwood carbon, or can we already find specialty grades of carbon that are utilized in these applications today?

Yes to both of your questions. First, it is acting as a carrier. And secondly, it's about the functionality of our carbon compared to other carbons is what we're trying to leverage in that market.

All right. That's great. And then if I could squeeze in something on Capa. That trailing mix of derivatized product is really quite impressive. I'm just curious if that's on a trailing basis or if that's adjusted for more normalized demand where we might see a larger mix of monomer come back?

We think that the 80% that we've achieved is very sustainable. And in fact, if we look at the growth opportunities that we're seeing even as we enter this year, they are much more based on the derivative products. We've got thermoplastics, as we've mentioned before, with a very high opportunity for biodegradable bioplastics. And also our polyols products across a broad suite of industrial applications for high functional specialty polyurethane applications are really where we are seeing the positive growth. So I think that that 80% derivatized product portfolio is very solid. And in fact, over time, could increase even further based on the focus we put on it behind innovation and some of those higher-growth areas.

I would just touch on … Right. So … No, I was going to revisit the topic of antimicrobial and antiviral products. We prefer not to overstate things, as you're likely aware. However, I can share that we are currently producing filters for devices that will be commercially available for COVID filtration. I wouldn't say these are significantly impactful to our current results, but that's due to our limited capacity. We are manufacturing these in Waynesboro, and there is a substantial opportunity there. We'll adjust our production as we determine the best products with the highest margins and value. It may be more advanced than you realize, but I still wouldn't classify it as significant to our results at this time.

No, that's helpful. I had planned to ask just one last question, but your comments on Capa lead me to one more. Given the success in polyols, have you considered the possibility of pursuing bolt-ons, such as acquiring a polyurethane system house or two, to capture a bit more value and further accelerate the commercialization of Capa polyols?

Yes. So we are on the lookout for bolt-on acquisitions for the Engineered Polymer business, whether it involves potentially going downstream or adding sort of adjacent products to Engineered Polymers in the sort of profitable part of the polyol product mix, those are on the table. We will continue to evaluate those opportunities and hope over time that we will be successful in adding inorganically to that business as well as the success that we foresee in the organic growth aspect of that business.

Excellent. Thank you very much. Good luck this year.

Thank you.

Thank you.

There are no additional questions at this time. I would like to turn the call back to Jack Maurer for closing remarks.

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.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.