Hello, and welcome to the Ingevity Q2 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Bill Hamilton, Treasurer and Vice President of Investor Relations. Please go ahead, sir..

Thank you, Kevin. Good morning, everyone. Welcome to Ingevity’s second quarter 2021 earnings conference call. This morning, we posted a presentation on our Investor site that you can use to follow today’s call. It can be found on ir.ingevity.com under Events & Presentations.

Any projections or goals we may include in our presentation today are likely to involve risks we’ve detailed in our earnings release, our SEC filings and the forward-looking statement you see on Slide 2.

I’ll also refer you to our earnings release and presentation for disclosures and reconciliations of non-GAAP measures we use when discussing our results. Our agenda is on Slide 3. With me today are John Fortson, President and CEO; Mary Hall, CFO; Ed Woodcock, President of Performance Materials; and Mike Smith, President of Performance Chemicals.

First, John will comment on the highlights of the quarter. Ed and Mike will review the performance of our two segments. John will briefly take a look back at our performance this quarter compared to 2019. Mary will comment on our current financial status, and John will discuss our revised guidance for the year.

With that, I’ll turn the call over to our CEO, John Fortson..

Thanks, Bill. Good morning, everyone. Thank you for joining us, and we appreciate your continued interest in Ingevity. If you turn to Slide 4, you’ll note some highlights for the quarter. We had a strong second quarter and finished the first half of the year in a terrific position. Demand improved across the board in all of our businesses.

Sales in the second quarter rose 32% to $358 million compared to the previous year’s second quarter. Our results were driven by volume and supported by price increases across both segments.

In Performance Materials, automotive based activated carbon sales were up sharply compared to the second quarter of 2020, that was affected by industry shutdowns in North America and Europe. Even though, this quarter’s results were tempered by the ongoing negative impact of the global Microchip shortage.

Engineered Polymers saw increased volumes in Q2 for all product lines, and this business has demonstrated significant growth over the first two quarters of the year. Our Industrial Specialties business also delivered a very good performance on increased demand and the North American paving season is off to an excellent start.

With respect to earnings, our adjusted EBITDA and adjusted EBITDA margin both rebounded sharply from second quarter last year, driven by volume gains and price mix improvement, which more than offset an increase in SG&A, due primarily to labor-related expenses, including investment in growth and innovation resources.

I want to thank the entire Ingevity team for all their continued hard work this quarter. Our supply chain team has done a terrific job and have stayed out in front of transportation and raw material cost pressures.

Our commercial teams have done a great job making sure we realize the value of our products and recouping increased logistical and production costs. Our plants across the globe are running hard to meet demand, and they are operating safely every day in what continues to be challenging circumstances.

I was at our Crossett and DeRidder facilities earlier this week, and they’re masking up again in Louisiana. The incredible efforts of these employees are the reason we are performing so well. I’ll now turn the call over to Ed to discuss second quarter Performance Materials results..

Thanks, John. As you can see on Slide number 5, sales for the segment were up 49% at $126 million. We saw strong sales of our activated carbon products used in gasoline vapor emissions control systems, compared to the second quarter of 2020 that was affected by industry shutdowns in North America and Europe.

The Microchip shortage continues to impact automotive production on a global scale. China light vehicle production declined almost 5% versus the prior year quarter. Excluding second quarter 2020 production levels, North America vehicle production in Q2 was at its lowest level since Q3 of 2011.

At the same time, Q2 North American production remains at a favorable mix of 80% trucks and SUVs to 20% sedans. This truck and SUV mix has been in this range since the beginning of the year as the OEMs are directing their limited Microchip volumes to their most profitable vehicles, pickups and SUVs.

These vehicles are also beneficial for Ingevity, as they typically have larger canisters and multiple honeycombs as part of their evaporative emissions control system. U.S. light vehicle inventories in June were down 2.5 million vehicles compared to June 2019’s pre-pandemic levels.

As supply chain and parts disruptions begin to correct, we expect automakers to ramp up production to fill the significant pent-up consumer and fleet demand and eventually begin refilling their heavily depleted dealer inventories. We expect our volumes to benefit as the Microchip supply recovers. Lastly, U.S.

and Canada Tier 3 implementation is ongoing as some model year 2022 platforms were delayed by the pandemic. Remaining Tier 3 implementations should be complete by the end of the year or in early 2022. Based on IHS data, we estimate the Q2 impact to Ingevity of Microchip related production losses to be about $17 million to $23 million in revenue.

We expect the Microchip supply issue to continue throughout the rest of 2021 and into early 2022. But as supply issues begin to correct, we expect to see strong corresponding global production increases and continued OEM focus on truck and SUV production in North America. Segment EBITDA was $61 million, up 163% versus the prior year period.

Segment EBITDA margin increased to almost 49%, driven primarily by our year-over-year volume gains and their positive impact on both revenue and capacity utilization. With that, I’ll turn the call over to Mike to review the results for Performance Chemicals..

Thanks, Ed. On Slide 6, you’ll see our Performance Chemicals segment sales in the second quarter were $232 million, up almost 25% versus the prior year period. Across all our businesses, we realized growth in the adoption of the many sustainable solutions we offer customers.

Sales to Pavement Technology applications were up 6% compared to the previous year quarter that was only slightly impacted by the pandemic. This was a record second quarter and first half of the year for our Pavement team, driven by the continued adoption of our environmentally friendly, cold recycling technology. Industrial Specialty sales rose 32%.

Sales growth in packaging adhesives, inks, TOFA, dispersants, lubricants and oilfield, all exceeded 30%. The business implemented additional price increases for our tall oil rosin and tall oil fatty acid products, and we saw some of the benefits come through in the quarter.

Chinese gum rosins prices continue to be higher than levels seen in the last five years and supply demand dynamics in rosin based products and fatty acids remain strong. During the quarter, we saw continued sales of soy-based fatty acid derivatives and also had our first sales of non-CTO based fatty acid in July.

This is another important step as we expand our product portfolio and potential end-use applications by adopting raw material feedstocks beyond CTO. Further, we are seeing growing sales into publication ink customers via continued adoption of our new, sustainable phenol and formaldehyde-free product offering.

Additionally, in the second quarter, we delivered the first commercial sales of our new dual function dry tall oil-based emulsifier into the oilfield chemical market. We’re also pleased to see demand for Engineered Polymer products continue to grow.

Quarterly sales in Engineered Polymers were up more than 41% due to improved volume for all product lines across the globe, particularly in Europe and markedly higher demand in automotive, footwear and apparel and industrial equipment applications. We realized strong technology adoption and sales growth in electronics and EV batteries.

In addition to our sales in the bioplastic applications, we’re encouraged by the growth of our sustainable solutions like high-performance, solvent free coatings using our Capa technology.

Performance Chemicals segment EBITDA for the second quarter was $56 million, up almost 29% versus the prior year quarter due to higher volumes and price/mix, partially offset by elevated costs for raw materials, logistics and SG&A. I’ll turn the call back over to John to comment on our results compared to 2019..

Thanks, Mike. We recognize the second quarter of 2020 is not a typical comparable quarter. So we thought it was important to briefly look back on the second quarter of 2019 and compare our results of this quarter to a more normalized period. As you can see on Slide 7, our sales are slightly higher than Q2 of 2019, largely due to improved price/mix.

We saw strong price improvement in our Performance Materials segment, despite the drag on volume from the Microchip shortage as Ed mentioned. In Performance Chemicals, we continue to see growth in our Pavement Technologies business due to market adoption for our sustainable performance enhancing solutions.

The steady, consistent growth of the pavement business throughout economic cycles was demonstrated again from 2019 to 2021.

Industrial Specialties experienced significant declines in oilfield chemicals and publication inks beginning in the second half of 2019 and into 2020, but has successfully grown other product families to partially offset that decline.

And Engineered Polymer sales were up on volume and price/mix, seeing a strong rebound as industrial markets recover at an extended period of softness.

It’s interesting to note in the quarter, absent the effects of declines in oilfield and inks, the Performance Chemicals segment as a whole would have been up almost 9%, and Industrial Specialties would have been up 3% compared to Q2 2019.

Our adjusted EBITDA is up almost 9% versus Q2 2019, and adjusted EBITDA margins up over 200 basis points, driven primarily by improved price/mix as we took aggressive actions to strengthen profitability as the business environment recovered. Now I’ll turn the call over to Mary for further detail on our Q2 2021 financials and metrics..

Thanks, John, and good morning, all. And please turn to Slide 8, and I’ll cover Q2 2021. John, Ed and Mike covered revenue and adjusted EBITDA in some detail. So let me start with gross profit.

The strong volume pickup you heard about benefited both revenue and COGS as we have relatively high fixed costs related to our planned operations and the significant increase in volumes helped leverage these fixed costs.

These benefits and our improved product mix flowed through to gross profit, resulting in a gross margin improvement of 800 basis points year-over-year. Our SG&A was also up year-over-year, due primarily to labor-related expenses, which included filling open positions after delayed hiring in 2020 and investing in growth and innovation resources.

We remain focused on prudent cost management while ensuring we can meet the rebound in business activity. Net interest expense for the quarter was $12.2 million, up a bit from last year as we replaced our floating rate revolver borrowing in the second half of last year with a fixed rate bond with an eight year maturity.

Our tax provision on adjusted earnings was $16 million for the quarter, an increase year-over-year, reflecting increased earnings and also our earnings mix across different geographic locations. Our adjusted tax rate in Q2 was 20.5%, and we estimate our full year 2021 adjusted tax rate will be in the range of 22% to 24%.

Diluted adjusted earnings per share of $1.55 are up almost 2.5 times from $0.63 in Q2 last year. Turning to Slide 9, you’ll see our continued strong financial position that reflects our solid business performance, combined with our discipline in managing the balance sheet.

We generated good free cash flow of approximately $42 million in the quarter due to our strong earnings, even though we built working capital, particularly accounts receivable and inventory, as sales picked up.

Our leverage continued to improve, with a net debt to adjusted EBITDA ratio of 2.1 times at the end of Q2, down from 2.4 times at the end of Q1, and down from 3 times at the end of Q2 2020. Our average cost of debt was approximately 3.7%, and we have no meaningful debt maturities until August of 2023.

As we previously stated, we will continue to be opportunistic with share repurchases in 2021. In Q2, we repurchased about $29 million of shares, and year-to-date repurchases totaled about $68 million or 884,000 shares. This leaves approximately $344 million available on our share repurchase authorization. In summary, our balance sheet is strong.

We are balanced and disciplined in our capital allocation, and we have ample liquidity to support our organic and inorganic growth initiatives. And now back over to you, John..

Thanks, Mary. On Slide 10, I’d like to review our revised guidance for 2021.

Based on our solid performance in the second quarter and first half of the year, and the continued robust demand for our products, we are increasing our full year 2021 guidance for sales to between $1.32 billion and $1.36 billion and adjusted EBITDA to between $425 million and $440 million.

We expect issues related to the availability and rising cost of logistics, raw materials inflation and automotive sector input disruptions to be ongoing headwinds throughout the rest of the year. We’re paying close attention to supply and demand in the market and we’ll pass through costs to ensure we extract the optimal value for our products.

Despite these headwinds, we believe Performance Materials will benefit in 2022 and beyond from the expected rebound in automotive production as a result of pent-up vehicle demand. We also expect continued robust demand for our Performance Chemicals products, and we’ll pursue further improved pricing to offset higher raw material costs.

It’s good to see the team working hard to take advantage of these current market opportunities. We continue to execute on our 2.0 strategy.

The increasing sales of our new soy-based fatty acid products, the growing sale of honeycombs into health and safety applications, and our strategic partnership with RNG provider, GreenGasUSA, that we announced in Q1, are just some of the ways we are working to position Ingevity for the future by entering adjacent growth markets where our assets and technologies give us a competitive advantage.

I am pleased that we are seeing increased interest in our products across our businesses as customers continue to look for sustainably sourced materials. I am also pleased to share that earlier this month, we created our first equity inclusion and diversity officer role to maximize total organizational performance.

This role will be instrumental in elevating our equity inclusion and diversity strategy, awareness and advocacy efforts, and we welcome Janeta to the team. Before we end the call, I’d like to encourage you to attend the fourth webinar in our series for investors and analysts this year, which occurs on Wednesday, August 25.

We’ll focus on the outlook for pine chemicals and rosin industry dynamics. In closing, we continue to believe deeply in the long-term potential of our company, and we hope you share our enthusiasm for Ingevity. At this point, Operator, we’ll open up the call to questions..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from John McNulty from BMO Capital Markets. Your line is now live..

Yes, Good morning. Thanks for taking my questions. So I guess, the first one would just be on the Performance Chemical business. The margins came in really strong. And I know there’s seasonality, but it looked like the improvement was kind of bigger than the usual seasonal norm. And that’s, I guess, despite some planned downtime.

So I guess, can you help us to understand what drove that or what some of the fundamentals are that kind of gave you that margin lift? And how we should be thinking about the margins as they progress into 3Q?.

Yes, John. Thanks. I think primarily, it’s an increased positive mix within the business. As you could see, the Engineered Polymer business had another terrific quarter. And then we’ve got the pavement business, which continued to grow in much the way we anticipated it. So that’s naturally going to be delivering that ongoing positive margin.

That’s very consistent with our overall strategy to optimize the results of the segment..

And should the margins be higher as we go into 3Q without the downtime that you had in 2Q?.

I think that the margin in Q2, Q3, probably reasonably similar. It’s a little bit hard to anticipate at that time. But second quarter, third quarter margins are generally strong, and we expect that both the Engineered Polymers and pavement business will continue to have a very robust Q3 and throughout the rest of the year..

Got it. And then just as a follow-up, when we look at the free cash that you’ve been generating, I mean, the leverage looks like it’s going to be down to time times by the end of the year, maybe even a little bit below that.

I guess, can you speak to the capital uses? And if we can see maybe more cash going either into M&A or into buybacks? I guess, how would you characterize that now that you’re getting toward the low end of your kind of debt targets?.

Ah, thanks John. As you know, we’re well within our target debt ratio of the 2 times to 2.5 times. And as I said, we will continue to be opportunistic with the share repurchases as we have done already this year.

But our focus is growth, and we have a good, healthy M&A pipeline that we’re looking at and hope to continue to make strategic investments where appropriate..

Great. Thanks very much for the color..

Our next question today is coming from Mike Sison from Wells Fargo. Your line is now live..

Hey, Good morning guys, nice quarter. I appreciate the comparison with 2019. And if I think about the outlook for Performance Materials in 2021 versus 2019 in total, margins and EBITDA looked like they’re going to be higher, given a lower build rate.

So just curious if you think about the potential of the build rate to ramp back up and then the mix that you’re talking about being the heavier cars doing a little bit better.

How does that sort of shake out as we head into 2022 in terms of mix? Is that – will that still be a plus? Or is that maybe a little bit of a headwind?.

Mike, this is Ed. Just kind of reflecting back to 2019 Q2 period, that was a period when China was actually implementing ORVR. So the mix at that time was shifting from, let’s say, granular carbons to our higher-value pelleted carbons. Looking forward though, obviously, we’re working through the global Microchip issue.

We believe Q2 is the trough for the year. Our expectation is that it will continue to improve incrementally over the next four quarters..

Great. And then Engineered Materials continues to improve pretty well this year versus last year, and sequentially.

How do you see that – how do you see the second half sort of unfolding for that business? Were there any raw material shortages that impacted that? And what type of growth do you think we’re going to be on going forward on a normalized basis with Capa?.

Okay, engineered polymers. Got it..

Okay. Thanks, Mike. I think we feel really good about sort of a very positive reset with the first half of the year and believe that’s going to continue throughout this year.

And if you had a chance to listen to the webinar that we did a few months back, we see very solid consistent growth going forward from mid to high single digits on an ongoing basis, and we believe that that should also be benefited through ongoing improved mix as we’re really focusing on the highest value applications..

Great. Thank you..

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

Hi, good morning, guys. This is Mark on for Ian thanks for taking our question. So maybe just digging into the Industrial Specialties business a bit more.

Can you guys just give a sense of which end market users really drove the strength? And I guess, like how to sort of think about that going to the second half of the year? And then just related to that business, can you just also give a sense of how oilfield, that business trended? And then maybe like how to – I guess like, how it trended maybe on a sequential basis? Thank you..

Well, as you may have heard, the strength in Industrial Specialties was really very broad-based. Really good growth in packaging adhesives, dispersants, lubricants, oilfield. So we look – we feel very bullish about those businesses continuing to grow.

As we have continued to focus on, we believe our – the sustainability aspects of our portfolio, not just from a raw material standpoint, but from a customer solutions standpoint, is really excellent. So we think that there’s going to be continued adoption from a sustainability standpoint.

Specifically within oilfield, the oilfield business grew quite significantly. The oilfield business compared to Q2 last year, which was quite low, was sales were up over 40% within that business unit. It’s now in Industrial Specialties. So that was very positive.

And I’d say – and that level of growth was significantly higher than the increase in rig cap compared to the Q2 of last year. So we believe that oilfield business has had a nice rebound and believe it should be steady and hopefully, sequentially on a positive path going forward..

Got it. That’s very helpful. And then just maybe a follow-up. You saw good pricing volumes in the quarter. Maybe can you give us a sense for that business, how much pricing versus volumes? And then how we should think about it directionally between the two as we move to sort of second half of the year and then I guess like into 2022? Thanks..

Well, I’m not going to specifically break down volume versus price. As you can see, and as we discussed, they were both quite positive in the second quarter. What I will say is that, especially on the price side, we see pricing to further improve in the second half of the year. The market dynamics remain very strong.

So in addition to the significant increase that we’ve seen from a demand standpoint that’s resulted in those volume increases you referred to, we’re very optimistic that second half price realization will be even higher than what we delivered in the second quarter..

Okay, great. Thank you, guys so much..

Thank you. Next question today is coming from John Tanwanteng from CJS Securities. Your line is live..

Hey, Good morning and nice quarter guys. My first question is, I think you talked about the semiconductor shortage limiting your revenue in autos to the tune of $17 million to $23 million headwind. And I think I heard that someone said that that might improve incrementally as the year progresses.

I was wondering where do you see that gap as you execute Q3 and Q4? Does it shrink? Or does it actually get bigger?.

Hey, John, this is Ed. Unfortunately, we really don’t have much clarity to the overall chip supply market. So it does make it difficult for us to be able to predict.

Based on IHS, what we hear from around the semiconductor chip manufacturers is that they are responding to the shortage and do expect, as I kind of stated earlier, that over the next four quarters, it should continue to improve.

On top of that, obviously, you’ve got increasing production following up in the back half or beginning in early 2022 and early – or the back half of 2022 as well. So we expect to see continued growth from this period forward, and especially in 2022..

Okay, great. And then just in terms of the rest of the supply chain and logistics, where do you see the biggest headwind right now? Where are things improving? Or is it mostly stable? I’m just wondering how you’re thinking of that going forward and if pricing outpaces that as you progress through the year..

We’ve faced logistics challenges on a number of fronts, ocean, trucking, et cetera, supply chain disruptions in certain areas and chemicals have continued as well, not just the chip shortage issues.

So as I think John mentioned in his comments, we see those headwinds continuing and the pace at which they tail off is yet to be determined, but we’re confident in our ability to address those challenges..

Okay, great. One more, if I could, just on the carbon business. I see you had your appeal denied, which I think was mostly expected.

I guess the question is, are your competitors now qualifying or shipping more products at all in the carbon end markets?.

Yes, John, I’d say, I mean, our competitive issues are still the same. Nothing really has changed based on the outcome of that patent – trial. Obviously, we’re disappointed in it, but we are effectively seven months away from the expiration of that patent anyway.

So I just don’t feel that we’re going to see any impact to the business as a whole because of the ruling..

Okay, great. Thank you..

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

Hi, Just to follow-up on the questions just previously. You mentioned the freight and supply chain issues.

I was wondering if labor issues are something that’s affecting you and also affecting your customers, and if that’s something that could ease potentially in the fall with the change in the macro environment?.

Yes. Its, John Forstson. I mean, look, it is – like everyone, we are dealing with what I would characterize as sort of an increased labor cost environment, right.

We’re managing through it because of what we’ve all been through over the last 18 months or so, and we are relooking how we do things, how the company operates, who works from home, who returns to the office. Obviously, the guys in the plants are going out at full bore regardless. So it is a very dynamic environment.

As Mary alluded, I think we’re doing a great job sort of managing those costs and working our way through it. And we – but we want to take advantage of this opportunity commercially, and we’re not going to short-change ourselves. We are in a great environment.

And you can see it in our numbers, you can see how hard our people are working, and we want to take advantage of that. So is there some – could there be an opportunity to do a little better in the back half of the year? It might normalize. But it’s hard to put a finger on when that’s going to be.

And right now, we’re just – we want to take advantage of the market opportunity..

Okay, that’s helpful. And then I think Mary mentioned a pretty active M&A pipeline.

I was just wondering if, I guess, your focus on M&A is still the same, if you’re still focusing on the same areas? Or what’s exciting now for potential consolidation?.

Look, I mean, I don’t think – our capital allocation priorities have not changed, right. I think the M&A environment, there’s a lot out there. We continue to look at a lot of stuff. I mean, my own view is it feels like evaluations are starting to get a little more reasonable.

And we might benefit from that as we sort of move through the back part of the year into next year. But we’re still focused on identifying opportunities to grow the company, right. And we’ve been pretty upfront with everyone about where we’re looking to do that and where the areas of focus are.

And I think we’ll find some opportunities, but we’re going to take our time, and we’re going to do it the right way. And we do have a balanced mix of opportunities that are sort of organic versus inorganic. And that – creating that kind of tandem of work, I think, is actually how we’ll create long-term value for our shareholders..

Thank you very much..

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

Thanks, good morning. I guess as a follow-up to last question, and I realize it’s too early to think about next year’s CapEx.

But given you’re working on several growth initiatives, any larger internal investment opportunity that you have identified that looks attractive?.

Yes, so, I mean, the way I think about – we obviously flexed it on down last year, Paretosh. And we’re returning to a more normalized level, I think, this year.

We will – and we are looking at capacity expansions in both segments of our businesses, I would characterize them as sort of incremental production or efficiency improvements, some larger than others, but it’s true they’re going to happen in both sides of the business. And some of those are related to growth. A lot of it actually is related to growth.

But we’re also doing some cleanup, if you will, just to make sure that we take care of our facilities. But I don’t see any sort of dramatic uptick, if that’s what you’re looking or asking for, as we move forward..

Got it, okay.

And then in Engineered Polymers, what was the bigger growth driver? Was it pricing or volumes?.

It was volumes. The team has really done a great job moving price..

They are raising price..

Yes. So, especially as there has been inflationary pressure on cyclohexanone specifically.

So they’re doing a terrific job on price, but the higher proportion of that significant – over 40% sales growth was driven by volumes across, as we described, a variety of end uses and the technology adoption that we’ve really been working on in the last few years..

Got it. Thanks guys. That’s all I had..

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

Good morning. So a question, I guess, kind of around the potential tensions between the currently strong demand environment in your pine chemicals business and the strategic interest in accessing and feeding alternative feedstocks through your system. So I’m just wondering if you could speak to that.

I think the interest in alternative feedstocks reflect some secular strategic commercial opportunities, but maybe also speaks to what you thought had been maybe an underabsorption of your asset footprint. But I’m just wondering what the headroom is for ramping alternative feedstocks.

And does this have anything to do with your structural ability to access CTO? Could you – are you having any constraints there? If you could just remind us of your strategy and as you evolve this business? Thanks..

Sure. I’ll start off, Chris and then Mike can chime in where those any holes in the answer. But – look, we are determined to take advantage and generate the highest returns on our assets and our investments that are possible, right. So you want to have these plants running at the highest level of capacity utilization you can.

We are fortunate and our engineers have done a lot of great work where we can run our alternate feedstocks today, somewhat in parallel at one of our facilities with ongoing CTO consumption, right.

So at least for the foreseeable future, although we may expand capacity as that market grows and do something different, but the plan today is to be able to run them in parallel, right. And so it would be incremental capacity to what we’re doing today. We do see these as both offensive and defensive opportunities for the company.

It is offensive and that we do believe that these products that come from bio-based feedstocks, whether it’s CTO or other, SOFA, et cetera, are going to be an increased demand as the world moves away from petroleum-based chemistries. We think there’s opportunities there, right. So we do see this as an offensive strategy.

It is also defensive in the sense that if we see price escalation in CTO, which we do anticipate, but we will have the opportunity to be able to flex between the two raw materials to help mitigate inflationary pressures that we might find. But I would not characterize the moves today as a result of any CTO inflation.

Today CTO, while it is inflating, is moved within the bands of where we kind of have predicted it would be this year. I don’t know, Mike, if there’s anything else..

No, the only thing I would add, just to make sure that we still have available capacity within our three plant network. Obviously, we are very pleased with the turnaround in demand and the technology adoption and the increasing in growth in our pine chemical business.

But as John alluded to, we want to push the utilization of those plants to every extent that we can and use the technology that we have. And so we have some available capacity to do that. And if and when, we need more and incrementally add to that capacity, we have options to do so..

And just as a follow-up to this, is there any constraints, again, either structurally or temporarily in terms of your ability to access CTO?.

No, we can access CTO. As I think you know, we have long-term supply agreements in place. And like others, we have a portion of our product that we need to go out and source in the market on an annual basis, and that’s exactly what we intend to do..

Got it and then, I guess, I was kind of surprised it hasn’t been asked already, but just on the IP litigation, there was a ruling that sort of backed up the ITC determination. And I don’t know, maybe this is becoming [indiscernible] as we’re into model year 2022 cars at this point.

Just wondering what your – what next steps – is there an appeal process? Or is there more likely….

Actually Chris, it was asked earlier. And as Ed alluded to, that ruling that came out was not a surprise to us. It was anticipated. We’re obviously disappointed because we believe in our legal position. But it doesn’t really change anything from a commercial perspective because we’re basically seven months away from the patent expiration already..

Would – is there a licensing? Is that a possible outcome still?.

On that patent at this point, no. There’s no licensing. I would clarify as well, though, we have additional patents that will provide future support for us in the marketplace and obviously disappointed in the ruling, but we still feel like we’re in a very good spot..

Yes, I mean, the reality is, Chris, licensing is always out there as an option, but it’s not a strategy that we’re pursuing, and we don’t need it..

Okay, thank you..

We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to Bill for any further or closing comments..

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

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