Greetings. Welcome to the Ingevity Fourth Quarter and Full Year Webcast and Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to our host, Jack Maurer, Vice President, Communications. Thank you. You may begin.

Thank you, Diego. Good morning, everyone. Welcome to Ingevity's Fourth Quarter 2019 Earnings Conference Call. We appreciate your flexibility in joining us on short notice. My name is Jack Maurer, and I'm standing in this morning for Dan Gallagher, who is traveling this week. If you have any questions after this morning's call, you can reach out to me. My contact information is included on this morning's news release. Earlier this morning, we posted a presentation onto the Investors section of our website. If you haven't already done so, I would encourage you to download this file, so you can follow along on the call. You can find it by visiting ir.ingevity.com under Events and Presentations. For participants who are logged into our webcast, the slides should be visible in the online viewing pane and also available to download. On Slide 2 of that deck, you'll see our disclaimer that today's earnings call may contain forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are contained in our earnings release and in our SEC filings, including our Form 10-K and our most recent Form 10-Q. Ingevity undertakes no obligation to publicly release any revision to the projections and forward-looking statements made during this call or to update them to reflect events or circumstances occurring after the date of this call. Throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for, comparable GAAP measures. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP financial measures are included in our earnings release and can be found on the Investor Relations section of our website. Our agenda is on Slide 3. With me today are Michael Wilson, President and CEO; and John Fortson, Executive Vice President and CFO. First, Michael will comment on the highlights of the quarter and full year and review the performance of our 2 segments. He will then discuss our automotive gasoline Vapor emissions control business and steps we're taking to maintain our leadership position in this application. John will discuss our current financial status, then Michael will return to discuss how we performed this year versus our commitments and provide some perspectives and guidance for 2020. We'll then open the line for questions. Mike Smith, President of Performance Chemicals; and Ed Woodcock, President of Performance Materials, will join the call for Q&A. With that, I'll turn the call over to Michael.

Thanks, Jack. Good morning, everyone. Thank you for joining us this morning. We appreciate your interest in Ingevity. Before we dive into the results, just a heads-up that our prepared remarks this morning will be a bit longer than usual as we have a lot of ground we would like to cover. With that, if you'll turn to Slide 4, you'll note some highlights for the quarter. As expected, we finished the year with strong performance in the fourth quarter. Despite continued macroeconomic pressure, particularly in industrial applications, we benefited from growth in end-use applications that are driven more by regulation, technology adoption, and infrastructure spending. Overall, revenues in the fourth quarter were $303 million, up approximately 9% when compared to the previous year's quarter. This includes the benefit of additional revenue and earnings from our acquired Engineered Polymers product line formed through the acquisition of the caprolactone business of Perstorp Holding AB. We delivered significantly improved profitability in the quarter. Adjusted EBITDA were $91 million, up $18 million from the previous year's quarter. And for the fourth consecutive quarter, we achieved adjusted EBITDA margin of 30% or more, up 370 basis points versus the prior year. Our core SG&A costs were down 6%. And for the quarter, we generated strong cash flow of $50 million. For the full year, sales were up 14%, including the addition of the Engineered Polymers business. Adjusted EBITDA were $397 million, up 24% above the midpoint of our most recent guidance and within less than 1% of the midpoint of the guidance we gave at the beginning of the year. On a pro forma basis, which assumes we had owned the Engineered Polymer business for the full year in 2018 and 2019, sales were down 0.8% and adjusted EBITDA were up 4%. Our strong…

Thank you, Michael. Good morning, everyone. I will provide some additional color on our fourth quarter results and review our capital structure. Turning to Slide 14. As Michael has covered the revenue and EBITDA of the company and its segments, I will begin at the SG&A line on the income statement. SG&A is up from last year by approximately 14%, primarily reflecting the additional costs, both cash and noncash, associated with the Engineered Polymers acquisition, as well as increased legal expenses related to the defense of our Performance Materials intellectual property. This number is up slightly on a percentage of sales basis. As Michael noted, our litigation expenses were around $15 million for the full year. Our core SG&A for the quarter, excluding litigation expenses of $5 million and amortization of $8.1 million included in SG&A from the acquisitions, was down 6.1%, reflecting our continued focus on cost discipline across the company. Net interest expense for the quarter was $10.6 million, up 33% as a result of the increased debt associated with the Capa acquisition. Our income taxes on adjusted earnings were $10.4 million for the quarter. Our adjusted tax rate for the quarter was 18.3% and for the year was 21.5%. Our estimated cash tax rate is 12%. Diluted adjusted earnings per share were $1.10, up 3% from a quarter a year ago. We did not repurchase shares during the quarter as we focused on deleveraging as we committed in our third quarter call. Approximately $389 million remain available for repurchases in our current authorization. We generated outstanding free cash flow of $50 million, up 5% versus the prior year's quarter. One might expect with an adjusted EBITDA increase of 24%, we should see a greater improvement in free cash flow. The reason our free cash flow was lower…

Thanks, John. If you turn to Slide 16, I'd like to take just a minute to summarize how we've delivered versus the commitments we made at the beginning of 2019 and from the time of our Investor Day in 2018. In 2019, we fell just short of our original guidance range for revenues, to be specific by $7 million or 0.5%. At the start of the year, it's clear we didn't anticipate the severity or the duration of the macroeconomic headwinds the global industrial manufacturers will be fighting against. Despite this backdrop, we still delivered adjusted EBITDA within our guidance and in fact within 1% of the initial midpoint of our guidance. Given the business environment, we see this as strong execution. We implemented our capital program as planned, and we were on track to deliver our free cash flow target that John noted until the very end of the fourth quarter when some customers stretched our receivables. These receivables have since been collected. Nonetheless, we were able to drive down our leverage from 3.4x in the first quarter after completing the Engineered Polymers acquisition to 2.8x at the end of the year. Lastly, our segments are ahead of schedule toward meeting the revenue growth and adjusted EBITDA margin goals we set for them at our Investor Day in 2018. As I said earlier, we're very proud of our team's performance last year, but all of that is now in the rearview mirror. As you know, we aspire to do so much more. Our objective is to continue to be a leading specialty chemicals and materials company with atypical growth trajectory, premium margins, a strong balance sheet and excellent returns. In our short 4-year tenure as a public company, we've provided strong evidence of our ability to be just that.…

[Operator Instructions]. Our first question comes from Mike Sison with Wells Fargo.

Nice end of the year there. In terms of Capa for 2020, you're looking for better growth. Can you maybe walk us through some of the improvement and timing of the improvement you expect to see as the year unfolds?

Sure, Mike. Again, I think in that business, we're expecting a return to growth in the mid-single-digit area, and I'm going to let Mike Smith talk to some of the specifics.

Yes. Thanks, Mike. We have some really exciting new pipeline of innovations coming and some new forecasts from our customers. We've got -- I'd say one of the largest growth areas will be in bioplastics, so that's the thermoplastic polymers within the Capa product line and also some really positive news from adhesive customers, both in United States as well as Europe. In respect to timing, I would say that the more positive comparable is likely to start in the second quarter of this year.

Got it. And then as a quick follow-up for Performance Materials. When you think about that business beyond 2020, maybe just a lot of moving parts here, right? You've got a couple issues in the courts. You've got some of these other expirations of regulations, others that come on. So bottom line, what do you think the growth rate should be for the business post 2020?

Yes, Mike, we really haven't given that specific guidance beyond 2020. But as I indicated in the prepared remarks, our outlook, which we do have a longer-term plan shows continued revenue and earnings growth in the years post 2020, really out through the expiration of the patent in 2022, and then recognizing that beyond 2022 we'll likely begin seeing new regulatory-driven growth at a faster pace. But I think in those intervening years, though we won't have the momentum of these large regulatory adoptions that have been occurring, we will still deliver growth year-to-year.

Our next question comes from Jim Sheehan with SunTrust Robinson Humphrey.

In your discussion of leverage, you talked about getting below 2.25x before potential share buybacks. Are you considering allocating more cash to share repurchases given the discounted valuation of your stock?

Yes, Jim, it's not something we've taken a decision on, but it is something that we're strongly considering. And John can correct me if I'm wrong, but I think we have an existing authorization of $380 million, $390 million?

$389.5 million.

Yes, outstanding. And I guess, one thing I would also like to add is note, in our corporate tenure over the last four years on a couple of occasions, we've increased leverage outside our target range of 2x to 2.5x in order to pursue value-creating acquisitions. I consider a high-return investment in our own company in the same way.

Terrific. And what is the impact of the Covington kiln replacement on your EBITDA, and which quarter will that occur? I think you said it was in the spring. And also, was that kiln replaced in -- was another kiln in Covington replaced in 2016 and again in 2018? Just wondering how many kilns you have there, and if they're -- how many will be needing replacement over the next couple of years?

Yes, Jim. So, your memory's good. We actually have 4 kilns at our Covington facility, and this is the fourth one that has to be replaced. These kilns are getting replaced on a 20- to 30-year cycle, and this outage will actually span Q2 -- or Q1 and Q2. So, a little bit of the impact in both of those quarters. In terms of the impact of that outage on first half versus second half, it's probably low-single-digit millions at an EBITDA level.

And regarding the patent expiration in March 2022, do you expect your Performance Material EBITDA margins will continue to expand after that patent expiration, and if so what will drive that?

I expect that they will either continue to accrete or at least to hold. And I think the reasons for that are many of the things I said in the prepared remarks of taking advantage of the opportunity we have to capture value; better value for our pelleted carbons, which are unique; our efforts as we continue to lower cost through operational excellence initiatives; and just the growing demand and volume for our products. I think it's a combination of all of those factors that I talked about in defending our market position.

Our next question comes from John McNulty with BMO Capital Markets.

With regard to the Performance Chemicals business, I guess when I'm looking at a revenue outlook that's flat to down slightly, I'm a little bit surprised to see the margins coming down, especially considering you've got Capa and paving kind of -- or the road paving businesses being the ones that should be showing up growth, and yet they're also the highest margin businesses. So, I guess can you help us to understand kind of the dynamics that are going on there, and when we might be able to see the margins actually start to tick up for that segment as we look forward?

That's a great question, John. I have the same question. What's really impacting the margins, and again we're saying they're going to be flat to slightly down, is really within the legacy pine chemicals, putting Capa aside. Because of some of the demand hits, we have lower production, which is leading to the lower fixed cost absorption, and then we also have some slight inflationary pressure on CTO. So, it's mostly a cost-related issue. If I think about pricing across the key components of pine chemicals and I looked at 2019, I think total pricing was up about 4%. Rosin pricing was down about 4%. And we see both of those at a relatively volume so I'm not expecting a lot of year-over-year pricing decline. I think it's mostly a volume story. And I think the good news there is, is once we do get that turn in the industrial macro, which, again, we're not calling for, some other people may be, we'll see volumes go up, and then we're going to get a lot of benefits from that, both in cost absorption and back on track in improving margins. But the increased percentage of mix to Capa and asphalt, to your question, we'll continue to help improve margins as we go forward, not just in 2020, but in the years ahead.

Got it. And then maybe with regard to capital deployment and, I guess, potential for maybe more on the buyback front. Would you consider an ASR at this point, given how much your stock has come down? Like how should we think about your kind of appetite for buybacks in this kind of an environment at these kind of levels?

Yes. As I indicated earlier, it's something we're seriously considering.

All options are on the table, John.

Our next question comes from Jon Tanwanteng with CJS Securities.

My first one is do you know how much business you might have lost due to MAHLE's actions? Second, are they still investing in that business, given the litigation? And third, are their products even as good as yours in terms of performance?

So to answer your first question, it's really impossible to know, Jon. And part of the reason for that is because of the ITC action, as we indicated, the federal court action has been stayed, and that includes discovery. So until we get past the ITC and get back to the federal court action, we're not going to have that information. Ultimately, I was going to say when, when and if -- if and when we prevail with the suit, all that information will be provided. And we, of course, will be looking to try to recover damages that we've incurred from these platforms that have been commercialized. But at this point, it's really a bit impossible to know exactly what those are. As I said, though, we think it's on a limited number of platforms, 20 to 25. So you think of the total number of vehicle platforms in the U.S. and Canada, it's a relatively small percentage. Also, as I indicated, MAHLE remains one of our top 5 customers today, a large customer, both for our pelleted products and for the honeycomb products. In terms of efficacy, we believe our products are superior, and the future technology that we're bringing to the market will be superior as well. Did I miss some--

Sorry, go on.

Did I miss your middle question or did I cover it?

Are they still investing in the business, I guess, was the other question but if you -- that's not -- just covered.

Yes, that's a great question. So part of the actions we took legally are to defend our IP, first and foremost. We have an obligation to do that for our customers and for the marketplace. Part of it is ultimately to recover damages that we've been incurred because of infringing products. But the rest of it is really to put everyone on notice from competitors, the OEMS, the Tier 1s, the testing houses that this patent is out there, that's in force, and it remains valid today. And I do think that both actions, both MAHLE and BASF, have had the intended effect of slowing down the infringing activity. Has it stopped it completely? We won't know that again till we get into the trial phase of both of these.

Fair enough. And then just one question on the outlook. I just wanted to clarify. You only have a single week of the direct coronavirus impact reflected in your guidance or have you contemplated a broader impacts of both the Chinese economy in order demand, on the chemicals and materials side in there?

The week has to do with our own plant operation. We were scheduled after the Lunar New Year started on the 27th to restart, actually yesterday on the third. But the Chinese government, as you know, extended the Lunar holiday. And so we're now scheduled to come back up on the 10th. We're monitoring that every day in terms of the availability of our employees, having them back to Zhuhai and Changshu, respectively, our expats coming back, et cetera. And as of today, we are on plan and scheduled to restart on the 10th. That obviously can change. And I think a couple of weeks here can, one way or another, can make a difference. Unfortunately, we needed to pull this call forward in order to address some of the issues we addressed today. So I don't have the benefit of another couple of weeks to see how this thing plays out. So at this point, we're going with the forecast, the plan that we put together in late December with our Board that was prior really to the coronavirus. And so I would say, for all intents and purposes, not baked in. But again, we also haven't baked in anything from the improving industrial outlook in the second half of the year.

Okay, got it. And just to be super clear, so it's 1 week of downtime, no change to what you forecasted your -- in demand for China for the year?

That's correct.

Our next question comes from Chris Kapsch with Loop Capital Markets.

So in your formal comments, you had mentioned the fact that the gum rosin industry is oversupplied, has been oversupplied and is adversely affecting pricing on TOR. And then towards the end of your formal comments, you mentioned that you thought that the pine chemicals business or industry, more generally, is adequate to the bottom of the cycle. So what I'm curious about is how much of this -- there's a dynamic where the curtailment of gum turpentine production or the pursuit of gum turpentine production could cause the gum rosin industry to produce less rosin and create an inflection in the dynamics around that business. I'm just wondering if, based on prior cycles, how long that typically takes place, and if you see that playing out? And if you have any visibility along those lines at this juncture?

Yes, that's a great question, Chris. The gum turpentine pricing sort of corrected itself over the second and third quarters of last year. And we saw gum rosin pricing really reach a bottom, I would say, mid- to late third quarter. And the pricing has just been bumping along the bottom. And I think the harvest season ended in the third quarter, but the situation of elevated price of the turpentine persisted for quite some time. So I think there was a significant amount of gum rosin inventory that was built up. And -- what I think you see happening now is just the pricing sort of bumping along the bottom until that inventory is consumed, and we then begin to see that upward inflection point. My guess right now is we don't really see that until the beginning of the second quarter. And then I think we just have to see how it trends from there, but that's something that we track week to week.

And so your guidance assumes -- for the full year assumes, at this point, no recovery in that? No inflection in that dynamic?

That's correct.

Okay. And then just one quick follow-up on the litigation front. Given that as you put, the -- there's greater awareness throughout the supply chain because of these actions that you've taken against MAHLE and BASF, is there any instances where the OEs could be on the hook for damages for potentially -- potential infringement? And how are you managing those conversations with, ultimately, those customers who are specking in via maybe a Tier 1 or Tier 2 supplier?

Yes. OEMS, likely, in some cases, likely are infringing, both directly and perhaps indirectly. And we have had communications with those OEMS, making sure that they are aware of the patent situation and the potential for damages. I think in some cases, I don't know this for a fact, but I think in some cases, their Tier 1 suppliers that are infringing may be indemnifying them. A lot to find out as all this progresses.

Our next question comes from Ian Zaffino with Oppenheimer & Company.

This is Mark on for Ian. Just a quick one. In terms of the -- I guess your petition process with the U.S. ITC, what's the estimated time line of the petition? And when do you guys expect to see a response or resolution? And sort of does this, I guess, coincide with the federal infringement suit you guys mentioned for early 2021?

Yes, in terms of the ITC action, we need to file our request for a review of the administrative judge's decision by February 10. If the ITC commission decides to go forward with a review, they need to complete all of that by May 28 of this year. In terms of the schedule of other items, the infringement case against BASF is scheduled to go to court in September of this year. And the court date for MAHLE has been stayed pending the outcome of all the work with the ITC. So it's not likely that court date even gets set before the second quarter of this year, and it will likely be sometime in 2021 at the earliest.

Our next question comes from Paretosh Misra with Berenberg.

In your Performance Chemicals business, how much headwind are you factoring in from the raw material inflation?

It's not something that I want to really quantify for competitive reasons. But yes, it's probably high single-digit millions to a little higher.

Got it. Fair enough. And then just a clarification on the comments on your Capa Engineered Polymers business, I think you said mid-single-digit growth. Is that on a pro forma basis or as reported basis?

That'd be on a pro forma basis year-over-year.

Okay. And lastly, on your free cash flow, is the cash tax rate pretty much the same as the book? Or is it much different?

It's different. It will be a little bit lower. So I would think of it as being in the sort of 17%, 18% range, Paretosh.

Our next question comes from Daniel Rizzo with Jefferies.

You mentioned opportunities, I think, in oilfield offshore. I was just wondering where that's coming from?

It's largely in the Middle East. So we're offshore drilling outside the U.S.

I mean, is it growing as a significant clip? Or is it just --

Mike, do you want to comment on that, the new business that we've gained?

Yes, I'd say that it is nowhere near the level and size that we have in North America. But as a percentage of the business, it can have a nice improvement. It could be 5% at some point during next year of our total oilfield business in terms of growth over 2019.

Okay.

You'd hope that as a potential partial offset of what we expect to be lower North American drilling in 2020 based on the forecast we're getting from our current customers.

Okay. And then you mentioned as one of the ways you're kind of defending your position in Performance Materials is just with the length of supply agreements. I was just wondering if you can provide color on how long it lasts? And then just any details on how it helps just ward off competitors?

Yes, I'm going to be been very careful what I say here because, again, for competitive reasons, really don't want to get into the nature of those. But we have supply agreements that are both short term and long term in nature across various products.

Our next question comes from Vincent Anderson with Stifel.

Yes. So just quickly, what exactly is driving the CTO inflation, especially if you're going to be buying less outside of your long-term supply agreements on these lower utilization rates?

That's really just supply and demand for CTO. To some degree, supply of CTO was reduced during the course of 2019 as paper manufacturers for packaging board, containerboard had reduced need. They produced less pulp, produced less CTO, and that created some tightening of the supply and demand for CTO.

Okay. And then as we look at Evotherm and Capa and its derivatives growing in share and performance, is there some additional SG&A that will have to come along with that? Or should we start counting on a pretty good amount of SG&A leverage ahead of us here?

Not significant additional SG&A. I think we expect margins in both of those areas to grow over time.

Great. If I could sneak in one more. I was just curious if you were willing to break out sort of how much of your TOFA value chain is going into export markets or other places where it may benefit from this pretty significant increase in feedstock costs for other fatty acids?

Mike, do you want to comment to that?

Well, let's -- the amount of TOFA for export is really quite modest. Out of our TOFA portfolio, it's probably in the neighborhood of 10% that gets exported and...

And on the rosin side?

And on the rosin side of the business, it's around 20% of our rosin that gets exported.

Okay. And just a clarification on rosin, does that include ester derivatives? Or is that just rosin?

That's the entire rosin portfolio, both derivatized and straight merchant rosin.

[Operator Instructions]. Our next question comes from Roger Spitz with Bank of America.

Last quarter, you said that the Chinese gum rosin prices were below 2,400. Can you give any more specificity about -- it sounds like you said earlier this call that they really troughed around in Q3. What price level did they trough at? Where are they now? Where are they at the beginning of 2019, just to give us some sense?

Sure. First of all, I think there's a misquotation in that the $2,400 per ton number probably related to gum turpentine, which had fallen from somewhere in the mid-$5,500 a ton to $2,300, $2,400 a ton. Gum rosin prices sort of bottomed around $1,300 to $1,350 a ton, Mike? And then you can give a little color as to where they are today and where they were a year ago?

Sure. So they're in that $1,300 per ton neighborhood, and they've actually been there for approximately 6 months. That level and the current level is approximately 25% below the 2018 average for Chinese gum rosin.

And I'll give you an idea, I think first quarter last year was something like $1,550 or $1,500...

Yes, yes. Because it was $1,800 on average. And then it was gradually going down, and it stayed stable at around $1,300 since July.

I think a more reasonable longer-term benchmark for gum rosin has been $1,700 to $1,800 a ton.

And that's consistent with the 2018 average.

And my other question is, can you give us any insight on caprolactone monomer volumes. For the full year, what were the volumes for just the monomer down by, if you can tell us that?

I don't know if you had that level of detail, Mike…

Yes, the monomer volumes were down approximately 30% pro forma basis in the Capa business.

And I think we said overall on a pro forma basis if you back out the impacts of the revenue, impacts from the Perstorp transition that on a pro forma basis overall, capital was down 12%. So that means that the derivative products were down very little.

And again, I understand you said demand was down on the monomer, but is there any color you can give on the drivers of that -- of the monomer demand decline?

Well, yes, two impacts. First, we had a Japanese competitor who have their plan out for fire. And they entered the market earlier in 2019 and regained their share position. And so that happened, and we see that happens really in the second quarter of last year. And that level has remained fairly stable throughout the course of 2019 and as we start this year. And then the second point would be, I'd say, just the general overall industrial challenges. A lot of that monomer goes to Europe. The industrial economy, as you know, in Europe has been very weak. So between the competitor regaining share and weak industrial markets, that's the driver for the monomer decline.

Our next question comes from Garo Norian with Palisade Capital Management.

I know you talked a little bit about the innovations in Capa and talked about one of the areas being bioplastics. From a big picture, the plastics world seems to really be focused on improving the biodegradability and recyclability of plastics with some guys putting some big targets out for 2025 and such. And I was just curious, from that perspective and your capacity that you have in Capa today and looking out over the next few years, is there a likelihood that you'll actually have to expand capacity in order to potentially meet that type of demand?

I think for caprolactones into bioplastics, it is from a relatively small base, but it's growing rapidly, more than 20% per year. And just so that people understand, one of the alternatives to traditional plastics are polylactide chemistries. But the reason people don't like polylactides is they don't have many of the characteristics of traditional polymers with respect to rigidity and thermal stability and those kinds of things. And so how Capa is used is in the polylactide chemistry to impart those characteristics that give the product more of the fill that the consumer is used to. So it is a very exciting area for development. I think as we stand right now, we are debottlenecking the Capa facility, along with the glassware replacement project we talked about. So we're going to get additional capacity from that. And in terms of future derivative capacity, again as we mentioned previously, we're doing a lot of work to see if we can actually use some of our existing capability and capacity on the pine chemical side to produce the downstream polyols. And that's looking more and more encouraging. So we'll continue to monitoring the capacity side of it, but I don't see any really large CapEx outlays for that at this point.

Our next question comes from Vincent Anderson with Stifel.

I was just wondering, is there anything that you can do proactively right now to drive your utilization rate back up in pine chemicals, whether it's more ester derivatization on the TOR side or something along the fatty acid side?

Yes. I guess a couple things. First of all, you may remember that from an operating philosophy standpoint, we run to rosin demand because when you look at the product value chain, there's more value there than on the TOFA side. It's pretty easy to move TOFA into the marketplace as a substitute for other fatty acids that we wanted to. But again, when you fractionate the CTO, you get rosin and TOFA in relatively fixed proportions. So the one thing that we don't want to do is to overproduce rosin, oversupply and impact the pricing dynamics. So the one thing that we are intent on doing is making sure that supply matches demand. I think, ultimately, that makes for a healthier industry.

So you're not capacity constrained on a derivative where there would be an option to push more product on the TOR side?

No. Absolutely not. No.

Okay, that's great. And then just one other one. I don't know how big of a business it is for you, but I would imagine agriculture has what are hopefully some easy comps to last year in North America. We've heard there's some destocking still left to do in certain products, but I would imagine you're expecting some year-over-year recovery included in your ag products?

Yes, I would say like with Performance Materials and like Pavement and some of our other markets, our growth is really being driven more by the adoption of our technology that we're providing a dispersant that is considered superior. So it's being substituted for existing chemistries. But, Mike, I don't know if you want to comment on that situation overall?

I'd say your characterization is accurate. We have had very strong growth, high single-digit growth in our ag dispersion business, and we expect that to continue long term. And we actually see good globalization of that technology. But as you also mentioned, the ag business in 2019 was challenged, and there are -- there likely is some destocking to be done in the beginning of the year.

Great. Any chance we could get a rough share of Performance Chemicals? Or is that too much detail?

I don't know about it from a share standpoint, but the size of this application for us is $25 million, $20 million?

About $25 million for the ag part. We also have dispersions for dies.

Our next question comes from Ryan Bloom with The Hartford.

I just want to understand better the transition to the 649 family of patents. Is it necessarily required under regulatory standards for that technology to use the pellets going forward? Or can there be some relative delay if the economics of the legacy patents are cheap enough to delay that uptake?

No. What's going to drive that patent into coverage is the change in engine technology that move to these low purge systems. And that's really being driven by automakers in order to control evaporative emissions under that low purge technology, we'll probably be operating at least, we think, 30% to 70% of designs under the teachings of our patent. Ed, could you comment a little more on that?

Again, it's based on the long-term shift from a higher purge engine to low purge engines. And as those low purge engines become more mainstream, it goes -- it falls into the solving the purging and the emission structure of that canister system. Our 649 patent really enables them to meet 0 emissions with a much more challenged engine environment.

Ladies and gentlemen, there are no further questions at this time. I'll turn it back to Michael Wilson for closing remarks.

Well, thank you, everyone, for your time and interest. I hope that we were successful in clearing up a lot of things there might have been confusion about. It goes without saying, we remain very positive about this business, and we look forward to talking to you soon. Take care, and have a great day.

Thank you. This concludes today's call. All parties may disconnect. Have a great day.