Michael Wilson - President & CEO Dan Gallagher - President, IR John Fortson - EVP, CFO and Treasurer Ed Woodcock - EVP, President, Performance Materials Mike Smith - President of Performance Chemicals

Mike Sison - KeyBanc Capital Markets Mark Zhang - Oppenheimer Jim Sheehan - SunTrust Mark Weintraub - Buckingham Research Jon Tanwanteng - CJS Securities Daniel Rizzo - Jefferies

Thank you, David. Good morning, everyone.

Welcome to Ingevity's First Quarter 2017 Earnings Conference Call. Earlier this morning, we posted a presentation under the Investor section of our website that we will be speaking to you on today's call.

If you haven't already done so, I would encourage you to download this file in order to follow along in the call. You can find it by visiting ir.ingevity.com under Events and Presentations.

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 these 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. As a reminder, the Company has made certain revisions to previously-issued financial statements.

These revisions can be found in our news release issued yesterday afternoon. 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; it can be found on the Investor Relations section of our website. Our agenda is on slide number 3.

With me today are Michael Wilson, President and CEO; and John Fortson, Executive Vice President and CFO. First, Michael will comment on the highlights of the quarter and then he will review the performance of our two segments.

John will discuss our current financial status and guidance. Then, Michael will make some brief closing remarks before we open up the phone lines for our Q&A session.

Joining Michael and John during the Q&A portion of the call will be Mike Smith, President of Performance Chemicals; and Ed Woodcook, President of Performance Materials. With that, I'd like to turn the call over to our President and CEO, Michael Wilson.

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

If you turn to slide number 4, you will know some highlights for the quarter. As you can see, we're off to a solid start to the year.

We delivered a significant increase in revenues of approximately 9% versus the previous-year's quarter by driving volume growth in a range of our businesses, including the Performance Materials segment and in sales to oilfield and Industrial Specialties applications within Performance Chemicals. Adjusted EBITDA of $50 million was in line with our expectations.

When compared with the particularly strong previous year's quarter while still part of WestRock, our adjusted EBITDA increased by approximately 4%. Our adjusted EBITDA margins of 23% were moderately lower than the previous year's quarter.

Yes, they were slightly higher than the 22.3% in the full year of 2016. In addition to the volume gains, the Company is benefiting from a significantly lower cost structure resulting from the cost reduction initiatives implemented in 2016.

We also had lower raw material costs, predominantly in our Performance Chemicals segment. These positive impacts were partially offset by unfavorable price and mix, negative foreign currency exchange impacts and additional standalone costs versus the prior year quarter.

As you can see on slide 5, we have a more positive story to tell on Performance Chemicals that has been the case as of late. The team delivered an encouraging rebound this quarter.

Segment sales in the first quarter were $135 million, up approximately $6 million or about 4.3% versus the prior year. This was driven by increased volumes and sales to industrial specialties and oilfield applications.

Sales into industrial specialties applications and these include printing inks, adhesives, agricultural chemicals, lubricants and others, were up approximately 2%. The revenue increase occurred in large part due to increased volumes of tall oil fatty acid or TOFA and other bio fraction products.

These volume increases were partially offset by year-over-year price declines in both TOFA and rosin-based products. We are seeing strong demand for derivatized products in some niche markets.

Our lubricants business started the year strong and we continue to see sales growth to agricultural chemicals customers. Sales of oilfield technologies products were up significantly.

We experienced a 39% increase in revenues versus the prior year quarter. Rig counts continue to trend above expectations.

As of April 21, Baker Hughes' U.S. rig count had doubled, up 426 versus the prior year.

We are realizing volume growth in the Oilfield market for both TOFA and TOFA-based derivatives. In addition, our focus on developing tailored solutions for oilfield customers has increased volumes.

Sales and payment technologies for the quarter were down approximately 8% versus the prior year quarter. As a reminder, the first quarter is seasonally slow for these applications, as customers are preparing for the paving season.

Most of the revenues in payment technologies, approximately 75% are generated in the second and third quarters. Performance chemicals segment EBITDA of approximately $16 million was up over $1 million or about 9%.

So, while pricing remains under pressure in the segment, we grew both EBITDA and segment EBITDA margins. The segment benefited from cost reduction initiatives and lower raw material costs including for crude tall oil or CTO.

Turning to slide number 6, as you know, our performance chemicals segment is a leading refiner of crude tall oil created by the pulp and paper making process. We separate crude tall oil into its bio fractions, primarily TOFA and tall oil rosin or TOR.

These basic materials can be sold as is or further derivatized to increase their value to customers. While we prefer to derivatize them into higher value-added products, at times market conditions necessitate engaging in non-derivatized sales, particularly for TOFA.

Due largely to the resurgence in North American oilfield activity, we have seen a dramatic turnaround in the demand for TOFA which represents a small fraction of the broader fats and oils markets. The demand spike has resulted in us moving from a long to a short position in supply of TOFA.

In contrast, demand growth for rosin-based products is modest. In general rosins and competitive substitutes remain in abundant supply.

In the applications in which we participate, we have seen increasing competition from other producers of tall oil rosin, hydrocarbon resin manufacturers and producers using Chinese gum rosin. As a result, pricing for TOR and its derivatives remains under pressure.

Among the CTO bio-fractions, TOR based products are typically of the higher value, given the relative economics of today's TOR and total value chains, it makes the most sense to run our refinery at a rate that matches TOR supplied to demand. In this scenario, because the refinery produces bio-fractions and fixed proportions, the consequent production of TOFA is limited.

As a result, we expect our production of TOFA to remain in short supply versus demand. We recently announced a price increase for TOFA, effective April 1, averaging $120 per metric ton.

It's still too early to discern the impact of that increase on our business, but the price increase is getting traction. We have this announced price increase in context, current TOFA pricing is still low by historical standards.

As you can see on slide 7, once again our Performance Materials segment delivered outstanding financial results across all of its applications. Segment sales were $83 million, up $13 million or 19% versus the first quarter of 2016.

Adoption of the Company's honeycomb scrubber products for automotive customers, manufactured at our purifications solutions joint venture, continues at a rapid pace. As had been the case, volume growth has been due to the implementation of increasingly stringent regulations for automotive gasoline vapor emissions, mostly in the U.S.

and Canada. The scrubbers are a key component of Ingevity's U.S.

Tier 3 LEV III emission solutions. Segment EBITDA of $35 million was up approximately $1 million or about 2% versus the prior year.

Our segment EBITDA margins of 41.4% were slightly higher than the 41% for the full year of 2016. A couple of factors in the quarter, impacted margins versus an exceptional first quarter of 2016.

Spending was higher as we scale up meet to demand. Also planned outage impacts, particularly at the Wickliffe, Kentucky activated carbon plant, were more significant than in the prior year quarter.

Generally, increases in light vehicle sales have been a benefit to our business. The recent light vehicle seasonally adjusted annual rate or SAAR, slipped to $16.6 million in March.

However, NAFTA production remained strong and this quarter was one of the highest production quarters in the last nine years. Full year U.S.

vehicle sales forecast of between 17.1 million and 17.4 million reflecting modest slowing from 2016's record 17.5 million vehicles, but generally still reflect the continued strong sales that we experienced in 2015 and 2016. These forecasts are consistent with the assumptions that are embedded in our guidance.

In addition, we are continuing to see a beneficial shift to larger vehicles, which use more of our content. Specifically, in the first quarter of 2016, light trucks comprised 58% of light vehicle sales, while in the first quarter of 2017 they comprised 63%.

Moving to slide number 8. During last quarter's conference call, we discussed the near and mid-term drivers of demand for our Performance Materials segment, resulting primarily from Tier 3 LEV III standards adoptions in the U.S.

and Canada between now and 2022. These standards are equivalent to the onboard refueling vapor recovery or ORVR plus near zero evaporations category on this chart.

In addition, we also reported that China promulgated its China 6 national standard on emissions for light duty vehicles target for full compliance by July 1, 2020. As we indicated last quarter, the possibility exists earlier adoption by some regions and municipalities.

And in fact, we are already seeing signs of this. The Hebei province, which surrounds but exclude -- Beijing recently announced full implementation of the standard by January 1, 2019, a full 18 months ahead of the national standard adoption date.

In addition, other cities and provinces are now said to be expressing interest in early adoption. Also as a reminder, last quarter, the EU announced the implementation of the Euro 6C regulation, which requires 100% compliance by September 1, 2019.

The level of stringency of these regulations is less than those in China and as such will require less carbon content. China and Europe aside, there remains a lot of opportunity for this business.

If you examine this slide, you can see why we are enthusiastic about the even longer-term prospects for the business. This chart shows the estimated annual per vehicle and vapor to emissions for new vehicles on the Y-axis.

The X-axis shows the latitude for major cities around the world. Latitude is used as a proxy for average ambient temperature, which relates to the levels of a vapor to the emissions.

What is apparent from the chart is that for most of the globe the vapor to the emissions from gasoline vehicles remain a major source of air pollution. While each country and or region will move at its own pace to curb these emissions.

We believe the trend towards more stringent regulation of emissions is a global one. For perspective, the U.S., Canada and China, the primary drivers of near-to mid-term growth represent approximately 55% of the annual new vehicle market.

This would indicate that there is clearly a remaining opportunity in nearly half the world to significantly further reduce gasoline vapor emissions. As the technology leader in this application, we view this as an opportunity for us well into the future.

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.

Thank you, Michael. Good morning, everyone.

If you turn to page 9, I will provide some additional color on the results, review our capital structure and briefly discuss our guidance before turning the call back to Michael for some closing remarks. As Michael has said, the first quarter was a solid start to the year.

Revenues were up 9.5% and EBITDA was up almost 4% versus the first quarter of last year. This is a good outcome versus the first quarter of 2016, which is the tough comparable period.

During the first quarter of last year, the Company had a one-time FX gain of approximately $3 million that was a result of marking to market certain liabilities while establishing the various standalone Ingevity legal entities around the world. Additionally, the company's cost structure in both SG&A and cost of goods sold was low that quarter, as we were just beginning to hire talent and invest in standalone infrastructure in advance of the spinoff.

And finally, the Performance Materials segment had an extraordinary quarter and produced an EBITDA margin in excess of 48%. Last year, the segment had only a minimal outage in the first quarter versus that was a much more significant outage this quarter in Wickliffe.

Also, this year, the ramp-up in Waynesboro is more impactful. When we account for all these factors, we are pleased with the first quarter of 2017 operating results.

Net interest expense for the quarter was $3.3 million. Net interest expense in the first quarter of 2016 was based on allocations from WestRock and therefore is not a comparable period comparison.

It is also worth noting that since the quarter end, we are entering into a cash pool bank account structure to manage some of our intercompany FX exposure between subsidiaries. In lieu of more traditional fair value hedges, the cash flow enables us to manage our largest intercompany FX exposure between the euro and the Chinese RMB.

While we expect our interest expense to continue to decrease as we pay down debt, the decline will be partially offset by interest expense associated with this new cash pooling program. However, by implementing a cash pooling account structure, we will limit the risk of FX volatility in our segment results.

Our net income attributable to non-controlling interest, which is the impact of removing from our results, the 30% ownership in the Waynesboro joint venture that we do not own, was $4 million in the quarter. We're thinking about this number for the balance of 2017, recognize that sales of honeycomb products are expected to increase in the latter half of the year, as the automakers begin producing cars compliant with a higher adoption rate requirements for 2018.

Our provision for income taxes on adjusted earnings was $11.7 million and cash taxes paid were $4.8 million in the quarter. We did not conduct any share repurchases this past quarter.

Diluted adjusted earnings per share in the quarter was $0.49, which is an 11.4% increase from the first quarter of last year. As of March 31, Ingevity had 42.1 million basic shares outstanding and 42.4 million diluted shares outstanding.

Turning to slide 10, our net debt increased slightly in the quarter due to the seasonal buildup in working capital. However, our net debt-to-EBITDA was just below two times to 1.98 times.

Working capital did increase this quarter, as we build inventories for the asphalt paving season. Additionally, our accounts receivable increased as our sales in the first quarter began to ramp up seasonally.

Our cash from operations in the quarter was $6.5 million and capital expenditures were $10.7 million. The resultant free cash flow was a negative $4.2 million.

This number is an improvement from last year and a bit better than we expected. As a reminder, due to the seasonality of our businesses, we typically turn cash flow positive in the second quarter.

Additional information will be available in our Form 10-Q, which we expect to file it today. If you turn to slide 11, we are reiterating the guidance that we issued on last quarter's call.

We are maintaining our fiscal year 2017 guidance of sales between $930 million and $950 million and adjusted EBITDA between $215 million and $225 million. Our adjusted effective tax rate this quarter was 32%.

However, we continue to believe we will realize a rate in the 33% to 35% range for the full year. With regards to CapEx, our spending each year is somewhat back end loaded.

So while we spent $11 million this quarter, we still intend to execute our full plan for the year. We do however, have a possibility to generate higher free cash flow for the year.

It's too early to be definitive and we will be in a better position to assess the year's projections at the end of the second quarter. I will now turn the call over to Michael.

Thanks John. As both John and I've said, we're pleased with the quarter's results.

But nothing has significantly changed in terms of market dynamics that would alter our view of the year. I'm even more confident about our ability to achieve the guidance numbers we set forth.

We are continuing our focus on implementing our growth strategies, while operating efficiently and holding the line on costs. We expect to turn in a strong performance in 2017, with near double digit adjusted EBITDA growth.

We continue to believe very strongly in the potential for our company. We hope you share enthusiasm for Ingevity.

At this point, operator, we'll open up the call to questions.

Hi guys. Nice start to the year.

Thanks Mike.

In terms of Beijing, just curious when would your technology start to become specified or -- are you having conversations now with OEMs there to help meet standards in that area?

Yes Mike. We've been working with OEMs for some period of time to prepare for the implementation of the national regulations in China.

I think specifically as it relates to Beijing, what's new this quarter is the announcement by the Hebei province, which again excludes Beijing, but surrounds it that they're going to implement early, about 18 months early. So the impact for us is that it probably pulls forward some demand growth into the beginning to first half of 2018, in order to be able to supply those customers.

Got it. And for Performance Chemicals, the results were solid, any thoughts on that business as the year progresses?

Is it may be coming a little bit better? Do you kind of feel that there's a bottom kind of supporting the business at this point?

We're certainly hoping that we're past the bottom. I think clearly, we had a strong first quarter, which was a nice rebound and we're anxious to see how the rest of the year unfolds.

We know that we're going to be supported as we go through the year with the lower cost structure that we put in place. We also know that as we move to the second half of the year, our CTO savings are going to become more significant.

And then of course, our pavement business is very seasonal. So the second and third quarters will be very significant for that business.

Great. Thank you.

Good morning guys. This is Mark Zhang on for Ian.

Thanks for taking the question. I also wanted to follow-up a little bit on the performance chemicals segment.

So, I guess with the recovery, how do you -- how should we think about, I guess, number one, the topline performance going for the balance of the year? And is there more recovery on the oilfield or the industrial side and also, mergers going forward, how should we think about that?

Thank you.

Yeah Mark. Thanks for the question.

I think the best way to think about it is, if you think about the two primary bio-fractions that we talk about coming off the bio-refinery from the CTO, the TOFA and the TOR, clearly, there has been an improvement in the demand for TOFA. A lot of that -- a majority of that has been driven by increased demand in the oilfield sector, as activity has increased.

Our outlook is that, that activity should be sustainable throughout the balance of 2017. So supply-demand economics in TOFA are -- have turned clearly and are more favorable.

The other side of the business, the TOR side or rosin side of the business continues to see significant pressure by oversupply. So pricing there is under pressure.

So I think we just have to see how the dynamics unfold for both of those bio-fractions. And again I think the health of the oilfield sector as well as how strong a paving season we have, will have a lot to say about the performance of our Performance Chemicals segment for the full year.

Okay, terrific. That's very helpful.

And then I guess just to confirm that, with stronger volumes now, when will you guys -- I guess, expect to see a potential rebound on the pricing side?

Well, as it relates to TOFA, as I mentioned in the prepared remarks, we've already implemented or in the process of implementing a price increase of $120 per ton for TOFA and TOFA derivative products. That price increase was effective April 1.

So there was really no benefit of that in the first quarter. And it's really too early to say what the overall impact will be for the full year.

But early indications are, is that the increase is getting traction. So we expected to provide some benefits to us as, we progress through the second, third and fourth quarters.

Again on the rosin side, still pricing under pressure, and it remains to be seen when we're going to see that turn around.

Great. Thank you guys very much.

Great quarter.

Thank you.

Good morning. Thanks for taking my questions.

In activated carbon, you mentioned some outage costs, maintenance costs in the quarter at the Wickliffe plants. I think you also mentioned Waynesboro.

Could you talk about the magnitude of those costs in the first quarter and if any of those costs will carry through into the second quarter?

Yeah Jim. Thank you for your question.

In terms of the Wickliffe outage, this was originally an outage that we planned in the second quarter, but we moved it forward into Q1. The outage was significant, but not a major outage.

I think the total outage time was around 10 days. So I would say the impact of that is probably low single digits millions of dollars.

In terms of the costs that we're seeing at the Waynesboro facility, as we've talked about, we're essentially in the process over a two year period of time quadrupling the capacity of that facility. So we bring on additional capacity, additional shifts at various increments.

So that's the additional cost that we're experiencing in Waynesboro. That operation is less capital intensive than our primary carbon plants, has more manual labor.

So you've got more direct costs.

Great. And then staying in activated carbon, when we look at how the China market is developing here?

Could you talk about how your discussions are going with OEMs for the 2020 implementation period? And also address what your market share is today in China and where do you think that's going over the next two or three years?

Yes Jim. I think Ed Woodcock is probably the best person to provide color on that.

Ed, you want to comment?

Sure. Good morning Jim.

The China market has been preparing for these new regulations for probably the last four years, as the EPA of China had been discussing with the OEMs of their intentions. So we've been working with these OEMs for a number of years.

And as a reminder, as the regulatory technology or package increases in complexity, it benefits our business where we have a higher product set, a higher technology product set. So we are seeing an extremely good adoption rate for our business so far.

We also expect that it's going to be biased towards our higher 15 BWC products. I think the OEMs in general though because they've been working on this for a number of years, are ready to meet the demand in 2018.

Some of them, eventually more China-oriented OEMs would probably be better able to meet that demand in 2019. So I think based on what Hebei province did, they first recognized that the automobile suppliers are capable of being able to meet that earlier adoption and they felt comfortable with moving that forward to January of 2019.

So we still expect other cities to as well announce some earlier adoption rates and will be updating you as those occur.

Jim, this is Michael Wilson again. As you know, we don't comment specifically on market share, but what we have said is that in the China market, we do have a majority share.

Though that level of share is much lower than we have in North America and other regions, and we do expect our share of market to increase, as the regulations are implemented for all the technology reasons that Ed intimated.

Thanks and Ed, to follow-up on that. The 15 BWC grade that you say, that the OEMs are biased towards, could you explain what's motivating that bias and if they class the OEM more to have higher technology products, obviously that would cost them more.

Why would they want to pay more for it.

Yes. This again is a new technology for China and so there is a very much an opinion from the OEMs and the [indiscernible] suppliers to minimize their risk, relative to this new technology.

And as they implement ORBR standards and they will be following forward with adding technology, so that they have a substantial safety factor relative to the emissions. I'd also add that China with this new regulation has installed a high level of penalties for not meeting the regulation.

And so that drives that greater content and that greater safety factor as well.

Any idea what that penalty might be?

Yes, it's pretty big and it's per vehicle. I think we can get you those details at a later date, if that's okay?

Great, thank you very much, gentlemen.

Thank you. And first, just can you give a sense of the approximate tonnage on the TOFA?

You mentioned about $120 per ton price increase, how much tonnage would that potentially impact?

Mark. We typically don't give out the specifics around volumes in terms of tons, [inaudible] I think that we did disclose our total purchases historically of CTO or processing capacities about 300,000 tons, a year that we process.

And if you think about the two primary bio-fractions of TOFA and TOR, they probably make up close to 80%.

Okay. That's helpful.

And if in fact you do get the pricing in TOFA -- at some point, does it make more sense to be producing more, even when the TOR market is soft or just -- the economics are such, is really the limiting factor is what goes on with TOR?

Yes. Given where the market pricing is today and the various value streams for TOFA and its derivatives and derivatized TOR, it makes sense to base the refineries on meeting the demand that we have for the TOR or rosin products as opposed to TOFA.

We would need to see TOFA prices continue to increase pretty substantially before we would change the calculus and say it makes sense to run the TOFA demand.

Okay. And then you had mentioned that -- you could be generating higher free cash flow -- you reiterated your prior guidance, but mentioned that you could be generating higher free cash flow.

Is that -- would that be coming from the earnings side, CapEx, working capital, can you give us a flavor as to what the driver that you're most focused on that could be contributing to the potential for higher free cash flow would be?

Hey Mark, it's John. I mean, it's really a combination of operational performance and working capital management.

If you think about our business model, right, when we get the CTO that's going to come out all the time and we make decisions on whether to run it through the refinery or not, based on demand. And so we're constantly assessing those different variables.

But as we sit here today and you kind of look at where our inventories are moving and where our demand schedules are, we think we're going to put in -- we're going to have a very strong year. It's early.

That's why we haven't changed the number. I mean, second and third quarter are pretty important for this company.

But we feel good sitting here today.

And then, on the China, can you sort -- how is this Zhuhai -- I probably pronounced that close to, right-- how that facility is doing? Is that contributing financially yet?

Things are going well at Zhuhai facility. We have a number of customers who have been qualified and that we're supplying from that facility.

But there are customers who are outside of China at this point in time. It also is continuing to ramp up to its full nameplate capacity, and to some degree, we're using it to build inventory ahead of -- which is going to go against some of the working capital initiatives we have elsewhere.

But we're building some inventory ahead of the demand in China that we know is coming. But I would say at this point we're still operating at relatively low utilization rates and I would think of it as sort of breakeven profitability for 2017.

And maybe last one, as you mentioned 2Q, 3Q, the big quarters, I think you mentioned also paving being an important variable in that too, when do you start having a read -- a pretty good read on how it will play out? Are you already getting that sense now or is it still a little bit early?

I think we're just at that point. So over the next 30 days or so, we're probably going to know a lot more about how strong the North American paving market is going to be.

At this point, again, everything is sort of consistent with our outlook and guidance.

And what would tend to be the kind of key determinant that is going to push it one way or the next that you're going to kind of learn in the next 30 days -- would you say?

Really, when you think about that business, it's kind of project by project in terms of paving and construction. So it really depends upon what projects that State Department of Transportations and municipalities bring forward for implementation.

And then I'm always loathed to mention this, but weather plays an impact in terms of when they start those various projects and whether they get them completed. I think we talked about it in the fourth quarter that a number of states had approved budgets for infrastructure spending that were favorable.

The one thing that remains a frustration to us is going back to, I think, 2015, the FAST Act was passed which was supposed to provide for greater infrastructure spending at the federal level beginning 2016 and it was supposed to increase infrastructure spending, I think, by 4% in the first year and 2% in each subsequent year. That's a law and it's on the books, but it's never been funded, because they continue to fund the government through reconciliations as opposed to passing a budget.

Okay, great. Thank you.

Good morning, guys, nice quarter. And thank you for taking my questions.

Thanks Jon.

If possible, can you clarify what's built into your guidance in terms of total U.S. auto sales, the adoption rate of Tier 3 products and the mix of vehicles by gas tank size?

I don't think we're going to get into that level of granularity. What I did mention in the prepared remarks is the current forecast for North American automobiles for 2017 and those forecasts are consistent with the assumptions that are embedded in our guidance.

So in terms of the overall production and sales, I think we're comfortable with the current outlook for the North American market. In terms of the adoption rate, we believe basically they're on trajectory that they met the 40% implementation required for 2017 and that they will be right there at 60% for 2018 model year vehicles.

In terms of the gas tank sizes, I guess I would just point you back to the information that we talked about, that North American consumers are continuing to favor trucks and SUVs over passenger vehicles or cars, and I think we gave some market share changes among those vehicles in the remarks.

Okay, great. Thanks.

Moving to the China side, any sense of how many cars are sold in Hebei and the relative demand from the other areas that are considering pulling forward the adoption standards?

Yes. I think in the Hebei province itself, it's about 1.5 million vehicles, annually new vehicles are sold.

In Beijing, that Hebei surrounds and Beijing has not announced anything yet, it's closer to 0.5 million.

Got it. And then any update on potential competitors in the carbon segment either approaching on the level two or level three standards?

Is anyone catching up to from a technology perspective at all?

Ed, you want to take that?

Yes, you're right. I talked about earlier -- with the technology shift to OR-VR, it is pushing more volume towards our higher performance products.

We feel we have a major market share today and we think that will continue to grow with that shift to greater technology.

Yes, Jon. Relative to the U.S.

on the Tier 3 LEV III, again we have intellectual property that provides us protection in that marketplace through 2022.

And finally, just any update on the use of cash and potential for M&A?

I think in terms of the use of cash. John gave some comments regarding what we expected from a leverage standpoint as we go through the year.

In terms of capital allocation, again, our priorities are first and foremost, to continue to invest fully in our businesses, particularly in the Performance Materials side of the business. We don't think there's anywhere that's going to give us a better or higher return than that market segment.

We are interested in inorganic growth. We said previously, we believe there're opportunities both in the Performance Materials as well as the Performance Chemicals space.

The opportunity set frankly is probably a bit broader in chemicals than materials, just because of the niche in which we compete on the material side. But we do believe that there're opportunities that will be value creating for shareholders.

We have a process in place and we're actively screening for opportunities. Obviously, can't comment on anything specific, but at the end of the day we're going to find value creating opportunities to invest or otherwise, we're going to return the cash to shareholders because it is their cash after all.

Great. Thank you very much.

Good morning guys. Just with pavement technologies, can you just discuss, I guess, the interest level or adoption for Evotherm and new product that it seems to have a lot of added benefits?

Sure Dan. I am going to let Mike Smith comment on that.

Thanks Dan. We continue to be very excited about the prospects for Evotherm technology.

We saw strong growth in that technology last year, and based on the initial projects that we have going on this year, we see continued growth. There are a number of important value drivers that our customers can benefit from, with Evotherm and they are increasingly interested in working and using them in terms of lower temperature types of asphalt applications.

Okay. And then with TOFA, is there any -- I mean what needs to happen for, I guess, for the capacity constraints to ease or for the supply issues to kind of pull back?

I mean what would have to happen in the future?

I'm not sure I fully understand your question. We are seeing a significant uptick in demand for TOFA, and pretty dramatic turnaround to be honest with you.

We've gone from a position where in the fourth quarter of 2016, we were long on supply. We had substantial inventories, a big uptick, particularly from oilfield activity has really moved us from a long to a short position.

And we're probably going to -- our view is, that that will probably continue to be short, because we think the demand for TOFA is going to outstrip supply, again because of the discussion we had around the economics of the bio-refinery, which really dictate that we should run to rosin demand instead of the TOFA demand. So in this scenario, we will take the volumes of TOFA that we're producing and place those in their highest value added applications.

Really, we're the ones who are going to realize the most price [ph].

Excellent. That makes sense.

Thank you for the clarification. Thank you.

If I could just add one more comment to Dan's question on TOFA, I think the other thing that's important is we talked about -- we prefer to derivatize both the TOFA and the TOR as opposed to selling it directly as TOFA. Those derivatives create more value for our customers and allow us to capture more value.

So one of the ways that we can increase volume and increase revenue given the fixed amount of the raw material that being TOFA or TOR is by derivatizing it, because the derivatives will have less than 100% of TOFA content. So that's something that we're interested in, and as now we're in a tight supply position, we're favoring that, and that's occurring now particularly in oilfield.

Thank you.

So operator, I don't know if there are any other questions?

Sorry for the confusion. So just to follow up with TOFA and how you prefer to derivatize, is there a significant step change in price that would -- I mean that you can quantify or just kind of provide color on?

Well, there is certainly is a price level for TOFA, of which the economics of running the bio-refinery would favor TOFA over TOR. However, we're a long way from that, so while we have optimism about the price increase and we are also certainly glad to see that we're getting back to a point where demand has increased, and we have some pricing leverage.

I think we need to keep in perspective, the fact that TOFA pricing today is still well below the levels that it needs to be or sort of reinvestment economics.

All right. Thank you.

Okay. I just like to thank everyone for your time and interest this morning.

We remain very positive about the long-term outlook for Ingevity, and we look forward to talking with you again next quarter. Have a great day.