Good morning or good afternoon, and welcome to the Ingevity Third Quarter 2023 Earnings Call and Webcast. My name is Adam, and I'll be your operator for today. [Operator Instructions]. I will now hand the floor over to John Nypaver to begin. So John, please go ahead.

Thank you, Adam. Good morning, and welcome to Ingevity's Third Quarter 2023 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 under Events and Presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement and 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; and Mary Hall, our CFO. Our business leads, Ed Woodcock, President of Performance Materials, Rich White, President of Performance Chemicals; and Steve Hulme, President of Advanced Polymer Technologies, are available for questions and comments. John will start us off with some highlights for the quarter, and Mary will follow with a review of our consolidated financial performance and the business segment results for the third quarter. John will then provide an update on guidance followed by remarks addressing our announcement last night regarding the repositioning of our Performance Chemicals segment and its expected impact. With that, over to you, John.

Thanks, John, and hello, everyone. Let's begin on Slide 4. As you know, we made an announcement last night to reposition and restructure the company, and this includes the closure of our DeRidder, Louisiana facility, among other actions. These decisions are consistent with our objective of being a top-tier specialty chemicals company and are part of the execution of our long-term growth strategy. We are committed to maximizing the profitability and the earnings stability of the company. And later in the call, I'll go into detail about how these actions get us closer to our goals. But first, a few comments on our third quarter performance. To level set, last year's third quarter revenue and EBITDA were the highest ever for our company. Our Performance Chemicals and Advanced Polymer Technology segments led the way last year with both posting record quarters in a very robust demand environment. This quarter this year, our strongest performing segment was Performance Materials, which posted EBITDA margins north of 50%. We saw modest revenue growth and strong EBITDA drop-through due to increased demand of our automotive activated carbon in both North America and Asia Pacific. Impacts in the quarter from the auto industry strike were very limited. Additionally, the increased demand for hybrids over battery electric vehicles benefited the segment and bodes well for the segment longer term as well. Advanced Polymer technologies saw their volume drop in all business lines across all regions due to the continued industrial slowdown, but the team maintained their focus on profitability, improving their EBITDA margins by nearly 1,000 basis points. The team is using this time to advance the adoption of our products in new economy markets like bioplastics, where our capital products enable biodegradability in areas such as packaging, agriculture and sustainable fibers for apparel. In Performance Chemicals, payment had another great quarter as international expansion continues with strong adoption of our products progressing in South America. I would say the number of projects the team saw in the U.S. was not as robust as we had hoped is funding from the infrastructure bill was slow to make its way into local levels. But we do expect those dollars will be put to work, and our teams are ready to deliver solutions that use less energy during the paving process, make growth last longer and improve safety for drivers and pedestrians through more reflective markings. Industrial Specialties continues to feel the impact from the lack of rosin demand, particularly in the adhesive end markets. And during the quarter, we also saw a slowdown in drilling activity, which resulted in weaker oil field sales. The price we're paying for CTO, as expected, increased in the quarter, reaching approximately 25% of the company's total cost of goods sold. As a result, even with the addition of Ozark, Performance Chemicals saw lower sales and a sharp drop in EBITDA. I'll speak more on these market dynamics and how we are responding after Mary finishes a review of Q3 financials. Mary?

Thanks, John, and good morning all. Please turn to Slide 5. Sales were down 7.5% versus last year as all segments experienced weaker volumes as compared to last year's record quarter. The drop in volume was offset somewhat by better product mix and Performance Materials and the addition of Ozark sales within Performance Chemicals. Gross profit was down primarily due to higher CTO costs that impacted the Performance Chemicals segment. SG&A, excluding depreciation and amortization, improved to 7.6% of sales compared with 10.8% in the prior year as we began to see the positive impact of cost savings actions taken earlier in the year. Adjusted EBITDA for the quarter was down 20.1% to $110.4 million but we maintained adjusted EBITDA margin of 24.8%, which is in the top quartile specialty peers. Diluted adjusted EPS of $1.21 is lower than the prior year due primarily to weaker results in Performance Chemicals as well as higher interest expense associated with the Ozark acquisition. Turning to Slide 6. You'll see we generated free cash flow of $73 million for the quarter as slower CapEx spending and improved accounts receivable turnover offset the inventory challenges we continue to have with CTO and Rasin. With the free cash flow generated, we prioritize debt repayment and we're able to hold leverage flat to last year even though EBITDA is lower. Last quarter, we announced cost-saving actions expected to result in $35 million in annualized savings, with $20 million expected to be realized this year, and we are on track to reach this target. Turning to Performance Chemicals on Slide 7. Revenue was down 4.3% as the volume drop in Industrial Specialties was only partially offset by the addition of Ozark and higher pricing and pavement. Segment EBITDA was down 62.4%. As you see in the waterfall,…

Thanks, Mary. Please turn to Slide 10. We do not expect industrial markets to recover in the fourth quarter. Therefore, we are lowering 2023 full year EBITDA guidance to be between $375 million and $390 million, free cash flow to between $75 million and $85 million and the net leverage target to remain near these Q3 levels. Directionally, we are seeing our normal Q4 seasonality amplified by the weaker economy. We did see very limited impact of the UAW strike in October. It is possible that these will be made up over the rest of the year, but it could be in Q1 of next year. The paving season in the northern hemisphere will end as the weather turns cold. If this fourth quarter plays out as last year's did, we expect Performance Chemicals and APT customer buying patterns to slow as we move into the year-end. While specific impacts of our restructuring actions will be very limited in the quarter and begin in earnest in Q1 of 2024, we will be selling excess CTO in the quarter and expect losses on those sales as we rebalance our inventories and manage our working capital. Turning to Slide 12, we will go into more detail on the repositioning of Performance Chemicals and what it means to Ingevity as a whole. I will start by saying that these actions do not change the strategy we have articulated and that is to be a best-in-class specialty chemical company. As the business is being impacted by significant structural changes, we are accelerating our execution to refocus on our Performance Chemicals segment on our most profitable markets. By taking these actions, we are focusing our resources on our higher-margin, higher-growth products in less cyclical markets. These products include our Pavement Technologies business, both our legacy…

[Operator Instructions]. The first question today comes from Vincent Anderson from Stifel.

Thanks. Good morning, everyone. John. So let's start with Performance Chemicals. I mean the margins this quarter really weren't too bad given pavement and oilfield mix was a bit lighter than we were hoping for. I'm just curious, was this helped by like a longer tail of lower-priced CTO in the P&L? And then transitioning that into 4Q and the negative guidance change. Does some of the excess CTO sales guidance for 2024. Is some of that also going to be impacting 4Q?

So what's on the page for CTR resales is really a 2024 number, right? You're correct that the segment, and I think you're going to see this both in Q4 and in Q1, you have to remember one thing, we do not -- that segment does not benefit from the seasonality that's tied to the payment business in those quarters, right? So by definition, the quarterly patterns are lower than what you see in Q2, Q3. But it will also be aggravated by rising CTO costs that are, to your point, not in the P&L today, right? We do think those things -- those costs will level out at some point in the first half of next year, start coming down. But I would be clear with everyone that Q4 and Q1, we will be dealing with these issues.

Okay. And then going back to the planned CTO sales for 2024. I mean how much of that is just existing inventory given I thought under at least the public portion of your supply agreements, you had out clauses for the closure of plants, and I'm assuming Crosse being converted to AFAs would also qualify as a closure.

We do have out clauses, but they do take time. And we will not be -- we will be operating with the volumes that we have today through 2024, right? Or at least that's what we're planning for, right? We will be working to manage this situation. What excess CTO we don't need, we will sell. But we will be buying more CTO than we need through 2024 and potentially into 2025. But our expectation is, is that we will try to manage that.

So just to add to that, certain contracts do have what I'll call a wind down...

Based on plant closures.

Based on plant closures, such that we're obligated to continue purchasing certain levels of CTO for up to a 2-year period. And then we have more flexibility after that period. So even with the announced closure of DeRidder, we are obligated to take a certain volume of material, and that's why we're saying we will be long CTO in -- certainly next year. and possibly up to 2 years, and we'll be doing these resales as needed to balance inventory and working capital...

So a $80 million on that page... Just to make sure that everybody is clear on this, right, would represent an estimate between what we think would be the most punitive buying at a certain price, selling at another that we could be dealing with over the course of next year.

And we do want to just reiterate, too, that we are continuing discussions with all of our CTO suppliers to better align those existing contracts with our new footprint, if you will.

And I mean, look, we are trying to -- as I mentioned in my prepared comments, -- we're going to be working very hard to manage that number down have it eventually go away, right? This is over and distinct from what I would call the operating performance of the sort of core businesses. The -- what is hard to pin is exactly what the year will look like in this regard because as I mentioned, we do expect CTO prices to come down, both in terms of what we will pay, right? And then also, that will in turn impact what we will sell it for, right? So I think the first half of the year, we will be incurring these losses on the CTO sales. We would like to think by the back half of the year that we will be more in balance, but I don't want to over promise to that -- so hence, we put up the numbers we have.

Okay. Very, very helpful. And I know that took a little while to get through, but I wanted to ask what hopefully on round.

We want everybody to understand.

Yes. So on AFA, maybe a long question with a short answer. So just pinning you down a bit on the ramp-up, you were running, I think, you said 15% of your oilfield on AFA. Your target is $70 million of sales by year-end and then full utilization on that, call it, 175,000 tonnes of capacity by mid next year, and that gets you breakeven. So what I was hoping we could break all that down into is what the $70 million of AFA revenues equate to from an annualized exit rate for '23 -- and then roughly what kind of exit utilization would that look like so that we know sort of what you're still going to be filling in the first half of next year?

So here's what I would say that the numbers that you're dealing with and we're out -- none of that has changed, really were contemplated prior to the DeRidder closure, right? We are working now to change/accelerate the adoption of AFA into some of our more traditional legacy markets. to offset or to reposition from TOFA into these AFAs. So I am not prepared to sort of change those numbers right now because we're still working on this, and this is all being contemplated as a part of these actions, but you can expect that as we move into next year that we will come to you with a better vision on that. But clearly, our strategy is going to be moving the ones that are profitable away from TOFA into AFA.

Okay. So no change, but future change would probably reflect some attempt at an acceleration?

Well, it's going to be more than an attach..

Well, I don't want to put words --I know you don't want to promise anything. But okay. All right. Thank you very much. I'll turn the call over.

The next question comes from Jon Tanwanteng from CJS Securities.

My first one is, what utilization do you expect to have at the remaining CTO facility, number one? And number two, do you expect to keep the DeRidder property? Or is it up for sale for some cash maybe just to your plans around the facility after you shut it down?

So we are, Jon, just to answer the first part -- or the second part first. We have looked at a pretty full range of options for that asset, and we continue to look at a range of options for that asset. But right now, today, the decision is to shutter it down, right? To get to your other question, what run rate we choose to operate, Charleston at, will depend on the market environment going forward, right? Currently, we're not actually running the -- we haven't been running the refinery, but we have been running the derivatization plan, right? So that's part of the reason we want to separate those 2 from -- as you think about this, our expectation is as we kind of move forward, we're probably not going to be running at maximum right away because we're managing inventories and we're going to have some inventories that are excess as we sort of exit the rider. But at some point, we certainly have -- we have the capability to run that back up to a full run rate. As I said in my comments, we've got Jon, we've since checked this sensitivity check us pretty hard, and we're pretty comfortable that we have the capacity that we're going to need going forward to support the markets as they return to a more normalized economic environment, right? What's critical to understanding that, though, is that we're exiting low-margin cyclical stuff, right? So as the markets recover, we will be able to dial up our capacity both in the DeRidder or excuse me, in Charleston and in Crossed focused on the markets where we have the highest margin opportunities.

And John, if I could add to that. This is Rich. That Charleston plant has a north and a south plant, on the one side is the refinery, the other side of derivatization. So out of the refinery, we're making products that feed our pavement business and also within our paper size business and some of our multiheteas well as some of our rubber business. Those businesses are providing us the margin today that we need to sustain the business going forward. But as John mentioned, we have the flexibility to ramp up that refinery to produce even more products as the market detects or demand. So right now, the market has been in a low state many of you can see and have heard from Mary and John's comments on our risen drag in specific business, but the flexibility that we'll have in Charleston will allow us to toggle as the market demand increase and/or decrease.

Great. Does DeRidder have the capacity to convert to ASA if the demand is there eventually if you don't sell that?

Well, we're exiting DeRidder, but DeRidder is a refinery that is not -- it's -- we did it and cross it. It could be done by us or someone else, but we are exiting DeRidder.

So I think it's important Well, John, I think -- let me say this, and then if it doesn't get at your question, let us know. Sometimes people think of our plants as just clones of each other, but in fact, they each have unique capabilities. And that DeRidder plant, the legacy was printing inks originally. And then when printing inks as an industry began to die out a couple of decades ago, the pivot was made to oilfield and adhesives. As markets have evolved over time, those are the end markets that are lower margin for us and sometimes high volume but lower margin. And so that's why the decision was made to exit that DeRidder site. The Charleston site does derivatization. And as Rich mentioned, as we grow the higher-value, more specialty products, we do have the capability to expand and ramp up and then expand Charleston.

Well, and as we mentioned when we were together for Investor Day, I mean, we have the ability today to double the volume output at cross it, right? So we feel comfortable we have the volume, we have the volume ability to, as I said, capture the recovery in our markets but also grow the business.

If you're asking why -- this is Rich again, John, you're asking why with regard to DeRidder and the markets that we play in, when you think about the CTO and the fractionation associated there with an adhesive product or inks product is more than 90% based on Rosin, which is CTO heavy. So as we see the inflation on CTO, it drags down the profitability significantly on those markets for us.

The next question comes from John McNulty from BMO Capital Markets.

So one thing I just wanted to clarify. So the $65 million to $75 million of annual savings beginning in '24, is that the run rate at the end of '24? Or is that what you expect in '24? And then actually, the run rate would presumably be higher as you end the year? Like how should we be thinking about that?

We expect those savings to be realized in 2024, fully realized. We're taking the actions now. We expect some amount of the savings to begin here in the last couple of months of the year...

It's pretty de minimis.

It's a total with the actions we took earlier this year of about $25 million. But then the $65 million to $75 million, John, will be fully realized in 2024 and going forward.

Okay. So if the -- if some of these fixes don't happen until the end of the first half of '24, is there the presumption that things could be even bigger in terms of savings as you look to '25? Is that -- and things kind of normalize? Or is that maybe being too optimistic?

That is possible. We've laid out internally the time lines and the expectations to the best of our ability and feel comfortable with the $65 million to $75 million number if market dynamics and other factors go our way, could the savings be greater if that's possible, but not -- we're not willing to commit to that today.

None of this is tied to a...

Fair enough.

Economic -- these are what I would characterize as sort of fixed cost saves

Controllable costs

Controllable costs that we are...

Committed to...

Committed to and sort of permanently restructuring out of...

Okay. Now, that makes sense. And then just taking kind of a step back and maybe at a higher level, look at it. So you spoke to -- I think it was on slide Slide 13 about how the repositioning basically takes out, whatever, call it, $300 million of revenue out of Performance Chemicals. So if we use, whether it's ''22 or '23 as a base, that basically says the revenue -- the kind of normalized business is about $800 million or so of revenue. And you're looking for now once kind of the dust settles on the cost saves, you're looking for a 15% to 20% EBITDA margin. So is it fair to think that, again, when the dust settles, you generated all the savings that you're expecting that the EBITDA run rate for this business is $120 million to $160 million. I mean I know that's a little overly simplistic, but is that the right way to think about it at this point going forward?

Well, it depends on what time frame, John. I mean, look, I think we're not -- we're not giving '20 guidance yet. So let me be clear. What -- you're right in the sense that the business will lose about $300 million, so it's going to come to about $800 million of revenue rate. We believe that we can get the operating businesses into the 15% to 20% range as the AFA business ramps up over the course of next year into 2025. I think to be realistic, though, and we're trying to make sure that everybody understands this, that's excluding the impacts of the CTO until that situation abates itself, okay? So if you look at it as a consolidated segment, including the CTO sales or resales, if you will, it's going to take a while to get to those margins, but the operating businesses can get to those margins. And then as the CTO situation sort of unwinds itself, you'll see the segment margin get back to those levels. So I want to be careful sort of saying that we're just going to spring back to those types of numbers.

I think the other thing that gets lost and John or Rich, correct me if I don't get the nuance right here. But you can't look at the DeRidder revenue loss that we've said is roughly $300 million. You can't take the average PC margin and apply it to that. What Rich was saying is that the products and the markets that we sell into the product from DeRidder, the adhesives, certain of the oilfield products, the printing inks, those are the lower-margin businesses within that segment. And those are the businesses we'll be exiting. So that's what's helping to drive that margin improvement as the dust settles.

I would even take it a little bit further, John, just for everybody's complete understanding of the situation. The EBITDA that will be generated in 2023 in the Performance Chemicals segment comes almost exclusively from the Charleston plant -- so by exiting the DeRidder plant, we are removing revenue, but you are not removing profit.

Got it. Okay. No, that's hugely helpful.

The next question comes from Daniel Rizzo from Jefferies.

I just want to change it up a little bit. I know there's a lot of interest in the restructuring. But just in your Performance Materials segment, you mentioned how strong hybrids are doing. Can you remind us or have you said how much activated carbon goes into a hybrid car versus maybe a traditional ICE car. And also, do hyperdose scrubbers?

Yes. Dan, this is Ed. They do use activated carbon canisters. They're typically larger because you've got a pressurized fuel tank -- so to capture those emissions during refueling, you will have somewhere around a 2-liter canister plus a honeycomb attached to it as well.

So I think in the past, you said on an SUV in the U.S., it's -- or just any car, I think it's like $16 to $20 per auto and correct me if I'm wrong on that. I was wondering how that compares to a hybrid.

Yes. You've got a little more content on a hybrid because you've got a pressurized fuel tank.

We used to say thanks fiction is important... It is important, Dan, and thank you. It's a really good question because we did say that we expected that a hybrid vehicle might be a bit less profitable for us because of the amount of carbon. But given how hybrid structures have evolved and as Ed mentioned, the highly pressurized tank. We've had to evolve our carbon to meet the needs of that different tank structure. And so the value we can get for that now is at least equivalent to what we were getting on just an ICE vehicle previously -- was that clear on legacy Ice.

Okay. That's all that's amazingly helpful. And with thermoplastics, you mentioned competitive pricing kind of like making it a more difficult market. Are you taking share? Are you guys lowering your prices to match that or just kind of giving it up and waiting for things to more normalize.

We've been holding in price, but I think we're beginning to -- we're seeing some price degradation. We've done -- and I don't think we're all that dissimilar from a lot of other chemical -- we've been holding price pretty firm. But candidly, I mean, I think as we move forward in the cycle, price will come down a little bit as volumes start -- that helps drive volume. So our focus really, and I'm very proud of what those guys have done over there is really on the margin. They have done a great job of getting that business back to levels of profitable -- are you talking about -- are you talking about APT or are you talking about road markings?

Are you talking about Ozark and margins? Or are you talking about thermalplastics and APT?

I was talking about thermalplastics in APT, but I'll take interest in both.

Listen, I think they've done an incredible job over there working very, very hard to get those margins back up. And we -- what I'm most encouraged by is they continue to work -- they've used this period to really be aggressive in product development and making sure that as the markets do sort of normalize, that we'll get the drop-through that you would expect.

The next question comes from Chris Kapsch from Loop Capital Markets.

A follow-up on the PM segment. So John, I know you've been saying hybrids for many years. And I know that for a while, the macro sentiment was enamored by EV. So you probably have some feeling some validation that the sentiment has shifted with kind of the world kind of anti-EV certainly less...

We are just running our business -- we're just running the business.

So the question on the follow-up, there's a lot of different hybrid lexicon out there, mild hybrids, plug-in hybrids, hybrids with range extenders, or content per... What's that?

You said you don't see... There is a lot of diverse[indiscernible] out there.

Your content per vehicle lift in hybrids. Can you just explain where that's relevant. And also, the data I look at actually while everybody talks about EV penetration in China, it looks -- it looks like about 1/3 of the [indiscernible]EVs in China are hybrid. So curious if your content lift in hybrids is also relevant to China.

Look, I'll start off and then add you, Chart because, yes, we do feel a little validated. But the truth of the matter is we're not -- sometimes -- and believe it or not, there are some organizations out there that include start-stop technology is a variant of a hybrid, right? Because when you stop at a stopping lot and then you turn the engine turns off, it runs on your battery and then it -- when you take your foot off the brake, it kicks back on, right? Basically, if it involves an internal combustion engine, right, in some way, shape or form, it has our technology on it, right? And the traditional hybrid that most people think of, which is a -- it has an internal combustion engine and then a battery motor or a larger battery pack, right, is going to involve where it's switching between the 2, right? It's going to require our technology. And as we said earlier, we're relatively agnostic between if it's only an ICE or if it's got an ICE and an electric motor next to it. So Ed, I don't know if you want to add anything to that.

Yes. From an overall look at the market in China, we've got data across 3 years that you show basically what I call a classic S curve, right? So you've got battery electric vehicles going up, and then you've got this plateau of battery electric vehicles. But underneath that, you have a growing rapidly growing plug-in hybrid, hybrid platforms in China. And that's getting upwards of 25%, 30%. And if you think of who's the primary manufacturer of those, it's BYD. And so we do kind of like what's happening in China, but it's also happening elsewhere. It's in Europe, it's in North America, and you're seeing a lot of people walking away from full battery electric vehicles for what is a more simpler program with plug-in hybrids and mild hybrids.

I also think it's a question of affordability, Chris, right? I mean the -- look, electric vehicles and electrification is here to stay. We fully believe that, right? It's just when you think about a consumer and you can kind of look at it by geography, right, -- it's been interesting even in the European market to see that the number of Chinese vehicles that are finding their way into the European -- Western European markets, right? And it's because of affordability, right? And these vehicles are so expensive relative to what -- particularly with interest rates where they are relative to what a consumer can pay. A hybrid actually is a great solution, right? You can drive on electric power to and from your job 8 to 10 miles each way. But when you want to take the road trip, you can flip over to gas engines. So yes, we're very encouraged by all this, but it bodes very well for our business over the long term.

Right... It just to be devil's advocate on that cost argument. And some would say, I totally get I'm watching closely the EVs trying to get some parity with ICE. But one might also say though that true hybrid has dual drivetrains and that's sort of expensive and complex over time. And so is the variant of hybrids that where you're not really truly on 2 drivetrains. Does that require your emission abatement...

We have to have an internal combustion engine, Chris, that's the best way I can think about it, right? If you have an internal combustion engine in there in any way shape or form, you're going to have our technology on there, right? I -- listen, I appreciate and we obviously look very carefully at the cost curves and the argument that eventually EVs are going to come down, et cetera, et cetera. But I also think hybrids will continue to come down because the electric piece of the hybrid will come down, right? And what they're up against is the sunk cost that's already been all the development and all the infrastructure of supporting ICE, right? So I would not underestimate a hybrid's ability to bring its cost down as the EV. This is going to be competitive and it's going to come down to consumer sentiment.

Fair enough. Just one real quick one on the transformation on PC and the actions you're taking. Sorry, so as I understand it going forward, does Cross It now become a swing plant with the ability to do AFA and CTO -- or is it still dedicated...

Cross it will remain as an AFA facility. Right... I mean, listen, theoretically, we could convert it back to a tall oil rosin CTO running facility, but I do not see that as -- right now, the plan is to run it on AFA...

That's right, John. This is Rich, Chris. -- that cross, we took the -- April 1, as you know, we transitioned that, that transition is complete. I would think that before we would transition cross it back to CTO that we would consider doing something different at Charleston or somewhere else.

And the ability, listen, I know it's something you need to understand, and Mary made this point earlier, which I think is important. People think of these plants as sort of these monolithic dual purpose, very similarly structured. Each one of these plants was optimized for different capabilities, right? And we're trying to optimize the network. It would be -- if we were to decide to expand our CTO purchasing and broaden that, there are a number of options available to us in Charleston, and those are separate and away from the refining piece or the derivative piece. The refining is separate from the derivatives. So we are in a plant optimization that's going to be driven by focusing on the higher-margin products and we will meet the demands of the higher-margin products, higher growth opportunities, and we have the footprint to make that happen.

Got it. And the pathway there is rationalizing some tour products but also some TOFA-based products that are below...

That's right because. I mean TOFA value, Chris. I mean it has a lot of value. It's a problem today is it's value, you have to look at crude tall oil versus the value of TOFA and Rosin, right? And right now, the rosin is despite really elevated TOFA prices, the Rosin is very, very low price. Frankly, this is inhibiting its use in TOFA's use in the biofuel market because it's making it unaffordable relative to what other options they have like used cooking oil. The beauty of AFA is it does not generate Rosin, but this doesn't mean a wholesale exit. However, I want to be upfront if these market conditions persist and it is uneconomic to operate crude tall oil, a refinery of crude tall oil, not necessarily the products but a refiner of crude tall oil, then we will reassess our plant position.

We have a follow-up from John Tanwanteng from CGS Securities.

Just a quick one just on next year. I know it's early, but would you expect EBITDA to be higher or low just directionally, given how you phrased the contribution from Charleston...

I'm not going to get into 2024.

I know that's noncore...

Yes. Right. I mean, look, I'm not going to get into 2024, right? What I will say is, as you know, we have a great performance materials business that is continuing to grow. We have an APT business that is continuing to grow. And while it's having some macro issues, to the extent the macro economy improves, it's got a great, bright future, right? We've laid out for you the row path for Performance Chemicals. I do think what's critical for you to understand is -- and you've touched on it, is we believe the operating assets of the Performance Chemical or the core business of the Performance Chemicals segment, we have made more attractive, right? And as the economy recovers, that business will do very well. We will have to manage through the CTO resales for some period of time. You know that there's a 2-year sort of term on the unwind from DeRidder, but there's a lot of dynamics at work in there, and that is, in our view, sort of separate in a way. So that's where we -- that's what we want you to focus on...

Okay. Great. Do you know if the CTO resale impact is going to be more front loaded or back loaded or is it just impossible to predict at this point?

It's hard to say, but I will say that we are going to be knowing what we've done, we are going to be pretty aggressive sellers of CTO through the first half of 2024.

We have no further questions. I hand back to John Nypaver for some concluding remarks.

Thanks, Adam. Well, everyone, that concludes our call. Thank you for your interest in Ingevity and we'll talk to you again next quarter.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.