Ladies and gentlemen, hello, and welcome to the Ingevity Fourth Quarter and Full Year 2022 Earnings Call and webcast. My name is Maxine and I’ll be coordinating for today. I will now hand you to your host, John Nypaver, from Investor Relations, to begin. John, please proceed when you’re ready.

Thank you, Maxine. Good morning, and welcome to Ingevity's fourth quarter and full year 2022 earnings call. Earlier this morning, we posted a presentation on our Investor site that you can use to follow today's discussion. It can be found on ir.ingevity.com on events and presentations. Also, throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our Form 10-K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call. And we caution you that these statements are just projections, and actual results or events may differ materially from these projections as further described in our earnings release. Our agenda is on Slide 3. Our speakers today are John Fortson, our President and CEO; Mary Hall, our CFO; Ed Woodcock, President of Performance Materials; and Rich White, President of Industrial Specialties and Pavement Technologies. In addition, Steve Hume, President, Engineered Polymers will be available for questions and comments. John will start us off with some highlights for the year. Mary will follow with a review of our consolidated financial performance for the fourth quarter and full year. Rich, on behalf of his Performance Chemicals segment, Steve Hume, will discuss the entire Performance Chemicals segment, and Ed will review the results of Performance Materials. Finally, John will conclude with our guidance for 2023. With that, over to you, John.

Thanks, John, and good morning, everyone. Thanks for joining us today. On Slide 4, you will see that Ingevity has much to be proud of in 2022. Both segments posted record revenue and EBITDA; combined, Ingevity's revenue reached almost $1.7 billion, and our EBITDA was over $450 million. We profitably grew all the businesses in our portfolio. This was despite the challenges of 2022 that were thrown at us as we grappled with energy spikes, inflation and then fears of a recession. Like many of our peers, the fourth quarter was slower than expected. For us, the quarter was the tail of two halves. October and early November were strong, but starting just before Thanksgiving, we saw a significant deterioration in our order book as customers aggressively destocked inventory in advance of year-end, particularly in higher-value product lines such as adhesives. Additionally, as China began to reopen, auto OEMs and parts plants in the country ceased production as they dealt with rising COVID infections. During 2022, Ingevity continued to lay the foundations for sustainable long-term growth. Our investments included our purchase of Ozark Materials, which expands our reach into pavement marketing in the road construction market. We developed several alternative fatty acids, allowing us to diversify our raw material streams and expand into new markets. We certified our TOFA for use in the biofuels market. We added Capa polyols capacity for our Engineered Polymers business at our DeRidder, Louisiana site, allowing us to better meet the growing demand for this product. And we continue to develop new market opportunities for our activated carbon through our investments in the electric battery space and renewable natural gas. We did all these things while also returning significant capital to shareholders through our share repurchase program. All these growth initiatives are consistent with our mission to purify, protect and enhance the world around us. And we received recognition for these efforts in 2022 with a gold ranking from EcoVadis, an inclusion in Newsweek's Most Responsible Companies. We invite you to learn more about our ESG efforts by reading our sustainability report found on our website. I'll end my opening comments with a heartfelt thank you to the entire Ingevity team for their perseverance in delivering record performance in 2022. We are now firmly focused on 2023 and are off to the races. With that, I'll turn it over to Mary to discuss the financials.

Thanks, John, and good morning all. Please turn to Slide 5. As John mentioned, for full year 2022, we posted record sales and EBITDA, with sales up nearly 20% to $1.7 billion and EBITDA up over 7% to $453 million. Adjusted gross profit of $636 million was higher by almost 10%, but margins were down for the year as input costs accelerated faster than our price increases, with a particularly noticeable impact late in the year as sales volumes in certain higher-value product lines fell off significantly in the last six weeks. We kept SG&A costs as a percentage of sales flat, showing that our growth initiatives are being resourced in a disciplined manner. Given the inflation we saw in raw materials, logistics, energy and wages during the year, we're pleased that we maintained a strong full year EBITDA margin of 27.1%, despite fourth quarter EBITDA of $74 million being heavily impacted by the sudden deceleration of sales due to customer inventory destocking and the COVID-related slowdown in China. Despite the challenging end to the year, our full year diluted adjusted EPS of $6.01 is a record for the company. Turning to Slide 6. In the upper left-hand chart, you can see the record sales results as well as the mix of sales per segment. This reflects the strength of Performance Chemicals in 2022. And given the addition of Ozark, we expect the revenue mix between segments to be similar going forward. We expect to continue to grow revenue and EBITDA in both segments through organic and inorganic growth while maintaining specialty margins. Based on the segment mix, we expect consolidated EBITDA margins in the mid-20s, with upside potential as global automotive production recovers faster than we anticipate. The upper right chart shows we invested over $142 million in organic capital spend in 2022 with over 40% on growth projects, and we still generated over $170 million of free cash flow. A portion of that free cash flow was used to repurchase $145 million of shares, as you can see in the bottom left chart. For the year, we repurchased 2.1 million shares and we've repurchased over 6 million shares since becoming a public company. The chart on the lower right shows our net debt leverage. As noted in our last earnings call, we used our revolving credit facility to acquire Ozark, elevating our net leverage to about 2.9 times. We expect to have net leverage back to our target of around 2.5 times by the end of 2023. In summary, the company delivered record performance and strong free cash flow while managing through historic challenges. I'm confident we will continue to deliver growth in revenue and earnings in 2023 while maintaining our strong balance sheet and cost discipline. And now I'll turn it over to Rich to discuss Performance Chemicals.

Thank you, Mary. Hello, everyone. Turning to Slide 7. It was a record year on both revenue and EBITDA for Performance Chemicals, with revenue up 28% and crossing the $1 billion threshold for the first time. Full year EBITDA of over $200 million increased 16% over the prior year, while our margin declined primarily due to the impact of higher input costs. In addition, Q4 was negatively impacted by significant customer destocking of higher-value products in the second half of the quarter, particularly in adhesives, as well as lower sales in our payment business as many municipalities had depleted their budgeted dollars for the paving projects prior to year-end. Engineered Polymers ended the year strong with revenue in the fourth quarter of $59.6 million, a 41% increase from the prior year's quarter, which helped drive full year revenue increase of 32% to $244.7 million. Throughout the year, the team saw plenty of inflation in raw materials, freight, and energy prices. They were able to help offset these increased costs with higher selling prices for our specialty products and increased volume due to strong customer demand, particularly in automotive, footwear, and apparel. Sales in each of these end markets grew over 40% from the prior year. The Capa polyol expansion at our DeRidder site is up and running, increasing our capacity to support continued growth in 2023 and beyond. Turning to payment technologies, revenue for the full year was up 24% to $241.3 million, which includes fourth quarter revenue from our newly acquired road marketing business, Ozark Materials. We continue to see adoption of our payment technology as municipalities are valuing the benefits of our products, including lower energy required to pave, elimination of harmful emissions, and longer-lasting roads. Combined with the higher reflectivity and long-lasting attributes of our road materials, we believe we are headed towards a strong 2023. Industrial Specialties had a strong year, increasing revenue by 28% from the prior year. Demand continues to grow in the high-value areas such as oilfield, benefiting from increased natural gas production, and agrochemicals where our products add value by enabling fertilizer to last longer, thus requiring fewer crop treatments. Fourth quarter revenue was up 12% from a year ago. Results were negatively impacted by significant customer destocking, primarily in our high-value adhesives business and, to a lesser extent, some supply disruption. In addition to the raw material cost inflation we experienced in 2022, the supply-demand dynamics of a key raw material, crude tall oil (CTO), are changing. You have heard us mention biofuels, which can be either additive or substitutes for traditional diesel fuel. There is a directive in Europe to move more towards biofuel. We view the new biofuel market as an exciting opportunity for us and our expertise in finding CTO. That being said, the market is still developing, and we believe that speculation among new interest and investment is driving increased volatility around the price and availability of CTO. We have long-term contracts to cover the majority of our supply needs, yet we expect the price of CTO to increase compared to the past. As you know, we converted a portion of our cross at the Arkansas facility to run non-CTO-based alternative fatty acids, which gives us new raw material streams that offer our customers alternatives to CTO-based chemistries and opens new markets for us. With that, I'll now turn the call over to Ed to discuss performance materials.

Thanks, Rich. As you can see on Slide 8, revenue for the Performance Materials segment was flat in the fourth quarter at $132.8 million, as the impacts from COVID-19 outbreaks affected not only our operations in China, but also disrupted global auto production. Full year revenue in 2022 was $548.5 million, an increase of 6% versus 2021. The increase was driven by higher volume, which is an encouraging sign as supply chains and shipping availability improved. As supply chains normalize and China recovers, we believe this will facilitate increased global automotive production in 2023. EBITDA margins for the year were lower by 230 basis points. The drop is attributed to higher energy and raw material costs. As we noted on our last call, we typically negotiate prices with our customers annually early in the year, and these increased costs have been taken into consideration for 2023 pricing. We were pleased to see the European Commission publish their proposed Euro 7 regulatory package for automotive emissions control, which is now being evaluated by the European Parliament and Council in their ordinary legislative procedure. As proposed, it would result in tighter regulations on automotive emissions, similar to those enacted in Brazil last year. What that means for Ingevity in simple terms is our activated carbon content per vehicle would nearly double. We were hoping the proposed emission standards would be aligned with U.S. standards, which are the most stringent in the world, but are pleased with the progress. The Euro 7 proposal includes a July 25 effective date, which is earlier than we expected and means we could potentially see the impact as soon as 2024. Also, as many other countries typically follow European standards, we should benefit as those countries tighten their standards as well. I will now turn the call back to John to discuss the outlook for 2023 and for his closing comments.

Thanks, Ed. Please turn to Slide 9. As we mentioned on our last call, in an effort to increase transparency to investors, we have concluded we should report our Engineered Polymers business as a separate segment. They are a big part of our future, and we think it is important for investors to be able to see their growth and progress as they move into attractive end markets. This reporting change will begin in the first quarter of 2023, and this segment will be renamed as a part of this process. I'm also very excited to confirm the date of our Investor Day. It will be May 22 in New York City. Save-the-date notifications will go out. If you want to be added to our invitation list, please contact our IR team. We hope to see many of you at the event where we'll discuss the long-term growth drivers in each of the business segments and communicate new long-term financial targets for Ingevity. Finally, turning to Slide 10, you'll see our guidance for 2023. We are guiding revenue to be between $1.9 billion and $2.1 billion and EBITDA of $495 million to $515 million. As we look across our businesses, we expect the Performance Materials segment to grow its revenue and maintain its mid-40s margins as price increases take effect and global auto production continues to normalize from its depressed levels. Our Engineered Polymers business, while it has grown its top line, experienced compressed margins throughout most of 2022, primarily due to energy costs in Europe. We expect their profitability to improve due to increased pricing, volume growth, and cost discipline. Our Payment Technologies and Ozark businesses will benefit from infrastructure spending tailwinds. Parts of our industrial specialties end markets should continue to grow at attractive rates, in particular, our oilfield and adhesive businesses. However, we expect this business will be challenged by significant increases in the cost of its traditional raw material, CTO. CTO pricing has risen over the last year and is expected to continue to escalate over the course of 2023. We will address this by continuing to raise prices on our legacy products, and also by offering our customers fatty acid alternatives from other plant-based oils such as soy. CTO inflation is being driven by its value in the biodiesel markets. While this developing market is creating volatility and price pressure on CTO, it also represents a large opportunity for us, and we intend to participate in this market this year. 2023 has started somewhat slowly, but we expect customer order patterns to normalize and vehicle production to improve. As the year progresses, we expect to see the momentum pick up and the benefit in all segments with growth in revenue and earnings. We hope you share our enthusiasm for Ingevity. And with that, I'll turn it over to questions.

Our first question today comes from John McNulty from BMO Capital Markets. Please go ahead. John, your line is now open.

Thank you for taking my question. Good morning. I have a couple of inquiries regarding the businesses that may have faced challenges towards the end of the quarter, specifically in Industrial Specialties and road paving. For Industrial Specialties, can you provide an update on whether the destocking at the customer level is complete or if it is still ongoing? Regarding road paving, I understand that annual budgets may have been exhausted or municipalities have utilized their budgets quicker than anticipated. Does this mean the new budget cycle begins on January 1, or will there be a delay as we move forward? How should we approach the infrastructure spending build that might support this later in the year?

We believe that the business experiences a reset because it is built around annual campaigns that depend on customer funding and budgeting. Additionally, the Ozark business is seasonal, similar to pavement, which means it's important to evaluate these businesses on an annual basis since the first and fourth quarters can be weaker. These quarters can be influenced by weather conditions; for instance, warm weather in the fourth quarter may lead to earlier activity, while persistent weather can cause delays. Recently, normal seasonal shutdowns contributed to destocking. We've noticed that many of our customers have been destocking significantly, likely due to the economic uncertainty over the past few years. As a result, they are trying to manage their year-end inventory levels more carefully. Last year, there was considerable anxiety about a potential recession, which led customers to significantly reduce their orders. We observed a notable decrease in order placements around Thanksgiving. However, as conditions improve and anticipated price drops do not occur, customers are beginning to resume ordering. We have started to see an increase in orders, although January was weaker than we hoped. Nevertheless, we anticipate that this positive momentum will continue to grow throughout the year.

Got it. Okay. No, that's helpful color. And then when you think about the CTO raw material inflation and some of the things going on in that market. It sounds like it's a challenge for you from a cost perspective. I guess, can you help us to think about, though, if there's any revenue repercussions as well, like that we should be thinking about where maybe products that in the past, your derivative products or what have you, were maybe better solutions for the value that they were giving. But now maybe competitive products may be able to creep in. Is that an issue that we should be thinking about? Or is it really more just a cost issue and you need to be able to kind of iron that out over time?

Well, I mean, it's really, in my mind, predominantly a cost issue, right? I mean there are obviously revenue changes that will occur. First off, I would say, look, we've known this was coming for a long time, right? What makes us in a good, unique position is that we do have long-term contracts that allow us to ensure a certain amount of supply of CTO to run our facilities, right? But we do buy some on the third-party market, and it is inflating, and those prices are going up, and that will continue next year, there's no doubt, right? But what we want to be able to do is we're trying to articulate in our prepared comments is we want to be able to offer our customers either a CTO-based product or an alternative from another fatty acid, right? We might even look at historically, some of the volatility, as you guys know, follow us have really been on the rosin side of things. And frankly, if we found ourselves in a position where we need to provide alternatives, we would. But where oil prices are and where we think it will go, it will provide some relief for us from the rosin side. And on the fatty acid side, what's going to be different is we're pretty excited about the opportunities, right? We talked about the biofuels market. That is a very, very large market for fatty acid and not just for all oil fatty acid, but we think we're going to be able to offer our end-market customers kind of a suite of different alternatives. And in theory, we should be able to hold the revenue, if not grow it, as we enter this new market of biofuels, right? So that's our strategy.

And the next question comes from Jon Tanwanteng from CJS Securities. Please go ahead. Your line is now open.

Hi. Good morning. Thank you for taking my question. Just a quick question on the destocking trends. Have you seen that reverse already? Or is that something that's expected to be on the come or maybe reverse in Q2? Just an indication of where trends are heading there? And specifically, on what end markets, I think you mentioned adhesive. I don't know if there's any going on in the catheter anywhere else, but just across the entire portfolio, if you could do that.

John, this is Rich. And as John Fortson mentioned, we saw January was a bit soft, but February is starting to pick up a bit. We expect as we go through Q1 that we'll see that trend continue. Normally, the season is higher for us overall in Q2 and Q3 as compared to Q1 and Q4. So that's what we're expecting going forward. And that was mainly in the Industrial Specialty segment, not so much in our engineered polymers or any of our other segments.

Okay. Great. Thank you. And then you mentioned repricing your annual repricing in the carbon business. But obviously, you ran into difficulties last year when the prices ran up on you. Has there been any change in the pricing formulas or contracts that you have that enable you to adjust a little bit more in real time as you go through the year if that does happen again? Or are you just resetting to the point where you think you've adjusted for those if they happen again?

Yes, John, this is Ed. Yes, we pushed through pricing effective January 1. We are trying to recoup energy costs as well as raw material increases. If we're unable to do that, then we will consider additional price increases as we move through the year.

Okay. Great. And then last one for me. Just the implication for the margins in the Chemicals business, if you're expecting materials to be a little bit better year-over-year revenue to be growing, but EBITDA to be roughly flattish. I would assume that the margin is going down in that segment. Is that simply a function of the top line increasing and the margin comes down mathematically? Or are you actually expecting a margin decline on a per-unit basis?

You're thinking about it correctly, John. If you consider the growth assumptions for Ed's Performance Materials business, we talked about margins in the mid-40s, which is where they finished last year. You need to analyze how that translates for the PC side. We mentioned that Engineered Polymers will improve their margins with ongoing growth, which I believe will decelerate a bit from last year's significant surge, but will remain well above GDP or market growth. We discussed the favorable conditions we expect, particularly in payments. What we must account for is potential pressure on Industrial Specialties margins due to the CTO. Being conservative, we're trying to incorporate possible inflation factors. However, looking at it from a long-term perspective, we have always aimed to be a specialty chemicals business. While we might experience some challenges next year, our goal is to reclaim those margins into the top quartile as we navigate these markets and implement necessary adjustments.

The next question comes from Vincent Anderson from Stifel. Please go ahead. Your line is now open.

So, you hinted at this already. So, as I think about the scenarios for CTO availability over the next few years, we've talked a lot about alternative fatty acid feedstock, but we really haven't talked about rosin and what it might take for you to maintain your market position there if you were to switch more capacity away from CTO. So just is it feasible for you to process crude gum rosin, for instance, out of Brazil to backfill some of your derivatives? And I want to focus on crude because one of the distinguishing characteristics of your more adhesive-focused competitors traditionally has been their turpentine chemistry. So, is there some additional opportunity by finding a way to process crude gum?

It's interesting, Vincent, that you're being quite thoughtful. To answer your question, yes, we have the capability to use other types of rosins, and we are currently identifying those alternatives. I won’t specify which ones we are focusing on at this time, but our goal is to remain competitive. Interestingly, some of the fatty acids we are considering may not produce the same levels of rosin that you typically obtain from crude tall oil, but that’s not necessarily a drawback because it allows us to explore other rosins that could serve as substitutes in the market. We feel more positive about this option due to the high price of TOFA, which economically incentivizes us to explore these different markets.

Sure. No, that checks out. And then it sounds like a good portion of your high-value product destocking that you noted was mostly in the rising value chain, maybe a little bit in pavement there. Where you did see destocking in TOFA derivatives and maybe your outlook for oilfield in general as natural gas prices have rolled over. Can you walk us through at a high level what the mix impact will look like today given current commodity TOFA prices are so high? And I assume, given the timing of the destocking late in the quarter, were you even able to move any of that lost demand into the spot markets?

That's a very good question, Vincent. You are right, that's a very good read, and that is exactly what happened. The destocking mainly took place in the Rosin-based end markets, while the total-based end markets remain very strong, and we don't see that changing, particularly in relation to oil fields. That market has been very robust. We have successfully sold both TOFA and SOFA into that market, and we expect this trend to continue throughout 2023.

If I could add, this is Rich, Vincent. The ability of our oilfield team to have already received approval of our alternative product in the Oilfield segment has helped us balance the TOFA demand and the impact of rosin to meet that demand. The timing was great; without the alternative fatty asset, it would have been more problematic for us.

And I want to be clear, too, Vince, we don't see volumes of CTO on the margin; it might come down a little bit. It all just depends on how the year plays out. It's really just the price of the CTO that's going to be an issue, right? So that's what we're working on. We do have our long-term agreements. We do buy in a third party. Our supply is secure for the year. It's just a function of what we're going to pay for it.

Our next question is from Chris Kapsch from Loop Capital. Please go ahead. Chris, your line is now open.

Good morning. You mentioned your target leverage by the end of 2023 is 2.5. I am curious about your assumptions regarding buybacks in relation to that target. More generally, how are you approaching the governance of buybacks?

Okay. You were breaking up a little bit. I'll answer, and John chime in if I miss something there. But yes, what we said in the release is back to that 2.5-time barrier by year-end, which is consistent with what we've said in the past. We were pretty aggressive on share repurchase in 2022. We continue to balance, and our philosophy and actions are to balance debt paydown with share repurchase and expect to continue that in 2023.

Okay, fair enough. And then, John, you talked about the sequential trends in and around the destocking in Industrial Specialties and pavements. Curious if you could just talk about the sequential trends related to the COVID lockdowns in China. How has that affected the businesses? Are reopening in China? Are you seeing that in terms of manifesting in demand? How has that progressed through the fourth quarter and thus far in the first quarter? Thank you.

Good question, Chris. Typically, we talk about it a lot, right? I mean, typically in China, there's usually a large kind of prebuild and a lot of activity in the fourth quarter in China because they try and knock it out before Chinese New Year, right? That didn't happen this year. That's kind of what made it unusual because of their reopening strategy, right? So, because they reopened so fast, a lot of the plants, not only OEMs but also parts people also influence kind of the broader Asia region, couldn't operate for periods of time because they were having to get their people through that sort of first wave and get their immunities up, right? And then they rolled right into Chinese New Year, right? You have this kind of period that's not historically normal in China, but we expect and can see they're coming back, coming back to the races. We expect them to get back in. They are reopening; I think it will be a positive. Their economy will recover. I think they're desperate to get back to normal, and we are going to benefit from that.

Got it. I have a quick follow-up on the PM segment. Regarding the price increases you mentioned for January 1, are those balanced between North America and China? Can you share any details about your strategic approach to implement those price increases?

Chris, it's Ed. We typically try to have global pricing, and so it makes it a little easier for us to manage the business that way. If we have South America, Brazil, Europe, China, all working on the same price levels, and so that's our target. We're pretty close to achieving that this year.

These are global customers, Chris, by and large, right?

The next question comes from Ian Zaffino from Oppenheimer. Please go ahead. Your line is now open.

Hi, great. Thank you very much. On the auto side, you cover in auto production, what are you looking at? And sort of U.S. versus China versus kind of the rest of the world and then that's the biggest piece of it. But by market, where are you looking at it recovering and kind of what you view confidence on that recovery? Thanks.

Yes, Ian, this is Ed. We're anticipating a significant amount of pent-up demand in the U.S., depending on the regions. The average age of vehicles in the U.S. is 12.2 years, and COVID has extended that cycle. There are also some positive trends in North America. We have seen six consecutive months of increasing inventories in the U.S., which suggests that supply chains are improving and recovering. The issues with chips are also resolving. We're projecting a solid first half, with high expectations for the second half of the year.

Okay, thanks. And then just on the TPO side, just one more question. How much of that is now market-based versus commodity-based? And how much is long-term contracts still versus spot?

The answer is that about 70% to 80% of our CTO is under long-term contracts. It's challenging to distinguish between market-based and commodity-based situations. What I can say is that there's a recalibration happening as traditional fuel sources move towards alternatives like biodiesel. This shift is altering how the market perceives the value of CTO. However, I believe this represents an opportunity on multiple fronts because the biodiesel market is substantial and poised for growth. Long-term, that pricing dynamic could be advantageous.

Hi, everyone. Thanks for taking my question. You mentioned that we talked a lot about CTO pricing and energy, but I was wondering if logistical and production costs are also continuing to trend higher.

I would argue that they are starting to decrease. We are seeing some relief on the freight side. While we still have rising personnel costs, most of our production is not very labor-intensive as it is largely automated. Therefore, it's not a major concern for us. The primary focus for us involves natural gas and freight costs, and both of those are currently in a reasonable position.

Okay. And how should we think about working capital in 2023, just given the puts and takes that we described here? I mean, is it going to continue to be somewhat of an outflow? Or is it going to improve or spend any color?

We anticipate that our free cash flow will be strong this year, which I believe aligns with your expectations. Historically, Q1 has shown higher cash inflows than usual, but we expect this coming Q1 to revert to more typical levels. Our usual seasonal cash draw in Q1 is what we foresee for this year, with stronger free cash flow momentum building throughout the year and working capital dynamics evolving as we progress.

If you go back, Dan, what is really probably the normalized cash flow for this company is you have to kind of set aside some of the distortions of COVID and what happened because Q2 and Q3 are such a big part of our profit drivers. What ended up happening in Q1 is typically like Q2, you gained momentum over the course of the year. You pick up in Q2, you pick up in Q3, and then you really pick up in Q4, and then it kind of tapers off. I think you're going to see that pattern sort of go back to what it has been.

Hi. Good morning. The challenges in the fourth quarter are well known, as many companies have reported. When considering the improvement expected in the first quarter, some companies have indicated slight variations in performance. Although you don't provide quarterly guidance, how should we view the potential for EBITDA improvements in the first quarter and their impact on your EBITDA forecast for the rest of the year?

My personal view, Mike, is that the first quarter may be a little softer than last year, right? Just because when you're off January like it was. But I sit here and I look at February and we're rolling into March, and I look at order books, I mean, I can see the momentum building. So, I think we'll have a pretty strong Q2, pretty strong Q3. We'll see what happens with Q4 over the last couple of years, and there'll be some surprise none of us are thinking about. But I do think we're going to get some sequential strength; that's just me sitting here today.

Right, right. Okay. And then you've got EBITDA margin for Performance Chemicals clearly an anomaly out there. Can you remind us with Ozark and all the growth potential in the other businesses where we should think that the margin could get to maybe on a run rate towards year-end and maybe longer term?

Well, as we discussed, first off, you need to be cautious with fourth-quarter margins. They are usually in the single digits. This year is on the lower end of what we've experienced in the past, possibly even the lowest. Typically, Performance Chemicals sees single-digit margins in Q4 due to seasonality that has been further affected by destocking and issues like plant run times. Personally, I believe that the margin for this business should be in the high teens this year, considering the CTO pressure. Realistically, that's the goal we're aiming for. In the long term, as we've mentioned, we believe these margins should stay above 20% to be considered a best-in-class company. However, at least through '23, given the CTO situation, that's what we are looking at. It's very difficult to discern. It's not generating income, and you have to be cautious about this. It's a gross margin business, quite seasonal, similar to our payment business. The asphalt pavers, painters, and strikers begin purchasing in the first quarter of the year in preparation for the second and third quarters. Depending on the market, some purchasing might occur in the fourth quarter, but it significantly decreases. Okay. We expected to see some deflation that can maybe boost margins a little bit in that business as raw material costs have, I think, have come to, generally speaking.

We have a follow-up question from Jon Tanwanteng from CJS Securities. Please go ahead. Jon, your line is now open.

Hi, guys. Thank you for taking my follow-up. Just wanted to.

Sorry about that, Jon. Somehow you got cut off. So, we apologize.

No worries. Just wanted to follow up on the Euro regulation update. You mentioned that it was coming a little bit earlier than you expected, which is great to hear. But I was wondering about the rest of the world following Europe. How quickly does that generally happen, and kind of what kind of volumes you're talking about? Because that's a pretty meaningful opportunity just in the number of units in vehicles. So how do we understand what the implications of that are, if that happens and rolls through?

Yes, John, this is Ed. It usually will take probably lagging what Europe does. The rest of the world probably would be two to three years, four years behind that. Just because you've got some rather large countries, such as India, Southeast Asia region as well. Russia, Ukraine is an example that are using them as well. They each have their own timetable and their own priorities for when they want to adopt a new regulation. They would be adopting the European requirements, but I think there's a spread of time frames for it will happen post Europe doing much.

Sort of gradually spread out over three or four years.

Got it. And do you have a similar share in those markets that you do in Europe right now?

Yes. If you consider what is happening in India, the country is still operating under an outdated regulatory framework. We are working with the Indian government to help them recognize the potential benefits of aligning with both European and U.S. practices. The pace of change varies, as some countries adapt quickly while others take their time. However, we anticipate that changes will occur gradually over the years.

Okay. Great. And then could you give us an update on your other alternative uses and the markets for carbon and how those are developing?

Our primary focus is on our collaboration with Nexeon, specifically in the development of silicon anodes for battery electric vehicles. We are actively working alongside Nexeon to assess the products we are creating for them. We are committed to continuing the manufacturing process and have conducted scale trials at some of our facilities to ensure we can fulfill the necessary specifications and the appropriate porosity for the silicon anode. I estimate we have about one to two years of work ahead of us before the product is ready for the market, but we are fully supporting Nexeon in this endeavor.

Got it. And just one housekeeping question. Mary, do you have a projection for interest expense this year?

Yes. We don't provide guidance on interest expense, but if you look at the debt on the balance sheet at year-end and the spread on our debt is published in the filings, the 10-K will be released tonight. You can expect the cost of the debt to be around 6%.

Okay. Great. Thank you, guys.

That concludes our call. Thank you for your interest in Ingevity, and we'll talk with you again next quarter.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.