Ingevity Corporation (NGVT) Earnings Call Transcript & Summary

Greetings. And welcome to the Pavement Technologies webinar. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Dan Gallagher. Please go ahead, sir.

Thank you, Kevin. Good morning, everyone. Welcome to Ingevity's 2020 Webinar Series. From all of us here at Ingevity, we'd like to express our hope for the safety, health and well-being of you and your families. We'd especially like to express the same for our employees worldwide as we work together through the challenges that our world is presented with. As you saw from our press release on March 24, we're holding these webinars as a way to continue to inform and educate the financial community about our businesses. Today, we'll be focusing on our Pavement Technologies business. Turning to Slide 2. For participants who are logged into our webcast, the slides should be visible in the online viewing pane and we will be advancing them, or you can download the slides from the Investors section of our website. You can find those by visiting ir.ingevity.com under Events & Presentations. On Slide #2, you'll see our disclaimer that today's earnings -- or today's 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 SEC filings, including our Form 10-K and 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. Turning to Slide #3. I'd like to introduce the very experienced business leaders from Ingevity who will be taking you through our materials today. First, Mike Smith, President of Performance Chemicals, who, as you can see from the slide, has a very diverse background in terms of chemical industry experience and leadership. Second, we have Andrew Crow, Vice President of Pavement Technologies. As you can see, Andrew has a strong history of working in the pavement industry here at Ingevity. His progressive leadership experience in the industry speaks for itself. After Mike and Andrew's presentation, we'll open the line for questions. In addition to Mike and Andrew, Rick Kelson, our Chairman and Interim President and CEO; and John Fortson, our Executive Vice President and CFO, will be available to participate in the Q&A. We'd like to keep the Q&A focused on our Pavement Technologies business. We'll be happy to answer any questions about other -- our other businesses on their upcoming webinars with the dates listed in the press release from March 24. As for our current company outlook for 2020, we'll address those questions at our normally scheduled Q1 earnings call in 2 weeks on April 30. And with that, it's my pleasure to turn it over to Mike.

Well, thank you, Dan. And thank all of you for joining Ingevity's webinar today. We're really excited to provide you with an overview of our pavement technology business and the great opportunities our team is progressing to drive strong growth with our customers. Slide 4 here summarizes the leading positions Ingevity has across our businesses, and we've included this chart to provide some context to where the pavement technology business sits within our company. So as many of you are aware, Ingevity structures our business into 2 segments: Performance Materials and Performance Chemicals. With last year's sales of $183 million, the pavement business represented 23% of the approximately $800 million across the 4 business units in Performance Chemicals and is the global leader for additives in pavement preservation and warm mix technology. The majority of our sales in Performance Chemicals, including Pavement Technologies, are derived from specialty derivatives we manufacture in the pine chemical value chain we summarize here on Page 5. We use co-products from pulp production process as our key input materials. The primary raw material is crude tall oil that we fractionate in our biorefineries. For the majority of our products, we utilize key outputs, tall oil fatty acid, rosin and biofractions and further react these inputs with a wide range of other chemistries and a variety of manufacturing processes to derivatize them into a broad range of specialty additives, which provide critical functionality for various end-market applications. In addition to CTO, we also use lignin, another by-product from the pulping process. As you can see from the chart on Page 5, our pavement technology business utilizes derivatives of TOFA, biofractions and lignin to manufacture a broad range of products for our customers. So during the call today, we'll highlight some of the key drivers which makes our pavement technology business a great franchise and one we believe has a fantastic future and will continue to deliver profitable growth. Page 6 summarizes some of the key levers and attributes of the business. We are a recognized global technology leader in pavement additives. Our team has deep customer relations that provide solutions which our customers really value. Through strong technology adoption and infrastructure spending, we believe the business will continue to grow at 2 to 3x GDP levels and have significant future growth opportunities through warm mix technology adoption and further globalization of the business. So before we start to dive into further detail on the business, Page 7 provides a summary of some of the key components of the pavement technology business. Our Evotherm technology provides additives for road construction and warm mix asphalt, and our pavement preservation products are very valuable for road maintenance. In the upper right, you can see that over the last 15 years, the business has delivered an average annual growth rate of 8% and held up very well in economic downturns. And while pavement technology is a global business, last year, North America represented approximately 80% of the business' sales. And Andrew will talk more specifically about some of our efforts regarding global expansion. Another characteristic of this business which we consider very positive is that we have a large and diversified customer base, serving over 500 customers in 60 countries. And the top 10 customers represent less than 40% of our total sales. So when you think about the composition of a typical road, you can see on Page 8 the vast majority of it is composed of aggregate and then followed by asphalt. While Ingevity additives are used in very low doses, they provide significant value in terms of the impact they have on road performance. Use of Ingevity products and technologies have a wide range of benefits, which include faster construction, lower cost, reduced emissions, which benefit both worker safety and the environment and longer-lasting, safer roads. Now I'd like to turn the discussion over to Andrew Crow, the Vice President of our pavement technology business, who, as Dan mentioned, has a long history of leading Ingevity's pavement business as well as being a recognized leader in the broader paving industry.

Okay. Thank you, Mike, and thanks, everybody, for coming out to hear about our pavement business, really excited to have this opportunity to talk with you about what we do. So first, let's look into -- first, we've looked at what we make. Now it's where does it go in a road. And surprisingly to a lot of folks, there's multiple layers in roads that have different makeups and different functions, but the good news is that where -- our products goes everywhere in the road and very intentionally developed aspect of our business. So first of all, for building the road, structural paving, it's our Evotherm family of products, a business built around a very big innovation for us. Next, maintain the road. This very thin layer, very dark layer you see on top, maintenance, thin, protective overlay with a number of different products in there. And finally, down low in the base reconstruction or upgrading of a road is our Indulin products down there. This portfolio really gives us a nice hedge and layout for our business. So when funding is tight, in many cases particularly in North America, the full-scale projects may get pushed back or delayed a little bit. But if the money is not there, the pavement preservation business often takes over and goes up. So we feel like we can win in all economic conditions. So now moving on to Evotherm and an entire business unit built around a major innovation. This represents an entirely new category, a new way of paving warm mix asphalt. So Evotherm is our patented additive technology. It allows asphalt to be paved at up to 100 degrees F, lower temperatures than conventional paving. So as you see, the pictures down here on the left is a normal nighttime job of hot mix paving. And on the right is the same crew, the same night paving with Evotherm. So obviously, you could see the fumes, smoke issues, the improved environment for working, and there's also just the temperature difference. When you're going from 300-something degrees to 200, really, it's a mix that is dramatically safer for workers. But also in doing that, in lowering the temperature so much, you're lowering the fuel consumption, the fuel use by 30% to 40%. Now all the benefits that come with that, your emissions are dropped by not only the amount that you burn but whatever else materials coming out of the asphalt. This allows higher recycle contents. This -- and creates longer-lasting, higher-performing roads, so a huge number of benefits to come out of this concept. And with this warm mix category now being mainstreamed in North America, for sure in Europe and other spots around the world, we see it for North America even maybe a 30% penetration rate of the category of warm mix in America, still a lot of upside to the business. So then moving on to our pavement preservation business. This one is really based on selling a concept, the preservation, the maintenance idea that if you regularly apply thin protective layers onto a road, it can be nearly perpetual and save you a lot of money at the same time. So the analogy we really like to use is painting your house. Just like latex paint, this emulsion -- these are water-based emulsions of asphalt instead of paint. So looking at the graphic chart down there, you see that the deterioration curve of a road, as the orange being a normal pavement life as it goes down quickly as the years go on, if you let it go all the way to failure, the cost is enormous to reconstruct or repave the road. But if you can just catch it before it really, really looks bad, before it needs work and do it every 5 to 7 years, there's enormous savings to be had. So in a lot of places, that's understood. A lot of places are still working off of the old worst-first model as well. So -- and these technologies -- again, for us, it's a wonderful business. They're very thin, but it carries disproportionately high loading of chemistry. Again, thinking like paint formulations, you have emulsifiers, stabilizers, adhesion agents, thickeners, all kinds of chemistries, so really like a paints-and-coatings business almost for us. Okay. So then moving on to Slide 12. Yes. So we -- now finally, if you don't do your preservation, if you don't paint your house regularly and it really fails all the way down deep, then we've got a solution for that as well, our reconstruction business. This is a fast-growing group of technologies that comes out of the United States, but we're spreading it around the world. They all involve variations of what you see in that blue graphic, where you've got a fast-spinning set of teeth under a -- in a wheel shape that's moving forward, grinding up the road. And as the chips and pieces are flying around, we're spraying asphalt emulsion and other chemicals in there to coat, mix, create a new pavement. So front end of it is an old pavement. Out the back end of it comes a brand-new pavement, so again, a great, great business, very efficient and something that we're liking to see the growth of. So now moving on to our strategy section. You -- we think of 3 major tiers of strategy -- 3 major pieces of our strategy: market development, it's about creating demand for us; innovation, constantly bringing out new technologies; and geographic expansion, taking our model to targeted global markets. So now first, let's focus on market development. For us, this slide really gets to the heart of our go-to-market strategy. To get the adoption rates we need and grow like we want, we really have to sell to the entire supply chain. First of all, for us, it's going to the end, selling the concept to DOTs, getting them to understand what's really possible out there technology-wise and getting them to spec -- to develop specs. And oftentimes, they let us go straight to specs or really be involved in the process. And then they have to tender the technologies out to contractors. We've got to get contractors on board. We have to get them to like, master the technology, learn it and bid on the jobs. And finally, also the refiners, we've got to get them on board, buying and adding the chemistry and then marketing a value-added asphalt, which is often not in their normal product line. So underlying all of that is the deep market knowledge, the tech expertise, the innovations we do that make this all possible and give us the credibility to pull it off. And finally, the other trick too is you got to do it all in the same geography. Having a contractor in one state but a DOT in another does not inch in there. So we call that concept critical mass, and it's key to creating new markets. So moving on. Another key aspect for us is creating quantifiable value proposition. So for us, it's all about creating value for our customer. And really for our business, you've got to clarify that and deliver those quantifiable value propositions to every layer. You've got to give it to the DOT, you got to give it to contractors and asphalt producers. Evotherm is a really unique technology in -- based on just the sheer number of benefits that it can bring, and a lot of them can be applied simultaneously and kind of have to be to get to the value levels we like to see to make it go. So we work closely. We have online spreadsheets. We work with contractors. We let them punch in their own numbers and their own cost and calculate for themselves what the value would be brought by Evotherm, very effective and it works for other pieces of the supply chain as well. So as you can tell, like the trick for us here is that the complexity of the sell is pretty sizable and certainly a challenge for anybody. But with our deep bench of technical people, of civil engineers and chemists and, at the same time, technical salespeople, we have the capability to pull that off. So now moving to innovation. Innovation is really central to our approach. And for us, it's -- there's a lot of pieces to it. It's more than just bringing the product to market. We've really developed pipelines for innovation, relationships, track records with our customers and with key DOTs particularly in the United States in a way that we can launch products early, fast, first-generation products, get the concept out there and get them in the game and us in the game, and then quickly come back with continuously improving products and over and over obsolete ourselves. But again, we're lucky that it's a fantastic market for taking this kind of approach, and we do it. And for us, a big differentiator in innovation is not just the speed to innovate, but it's also our manufacturing capabilities and the flexibility of our assets and our operations to go from a benchtop, leader-sized solution to a problem to truckloads, tank trucks, railcars, huge volumes in a matter of weeks. It really makes us stand out, and it's something we leverage in the market. Two recent product launches. Evoflex is a spin-off product from our Evotherm business focused on recycling and rejuvenating of asphalt and get the old, oxidized, white-looking asphalts. Working to bring those back to life, bring their properties back is a significant market potential. And then Onyx, very different, this is a pavement preservation treatment, one of the thinnest ones ever. We're talking 1/8-inch thick, but it can last for years, so very black, very fast curing, restores some friction characteristics to roads, and it's used on both highways and airports around the world. So just thinking about adoption and innovation, how we drive that out in the market and just a few case studies. Here's an interesting one after Hurricane Matthew down in Florida on the legendary A1A Highway. After Matthew, a lot of destruction, a lot of need to get back usable on the highways. You see the kind of damage, like a shark fight, onto the highways, but the governor needed it open again in 30 days. It was still the middle of hurricane season. Evotherm, with its off-season, whatever-weather paving capabilities, really accelerated speed, got it done and opened in 14 days, and everybody was excited and did it very cost effectively. So now moving over to our recycling slide?

Yes, 20.

Moving to another case study. Cold in-place recycling. This is another form of our recycling. That's $1 million layout of equipment there, a train for recycling. And again, as we said, it is grinding up, milling, sorting, coating and repaving back out the back end of it all in one fell swoop. So this is an exciting growth technology in New Mexico, great DOT for working on innovation, bringing new things. We won a New Mexico innovation award and something with a lot of promise. Okay. So finally, geographic expansion, key to our continued growth and something we feel like there's an enormous amount of upside going forward. For us, a real key to our tradition of success and our beachhead for going forward is our network of tech support laboratories around the world. So we've built and staffed with very experienced experts in all of these locations, and we're able to really provide the real-time technical support, real-time connection to local markets, DOTs, what -- the things that we need to do to sell, as we said, into 60 countries around the world. So again, these are -- they're both about supporting customers, keeping them working, which is the name of the game in the paving business and also that pipeline for launching new technologies. So let's take a look at a few little case studies around the world. First of all, in China, our Onyx ultrathin, ultrafast technology has really caught on in airports over there, maybe more than highways. And we love airports because they are just oceans of asphalt in one very small place there and it's beautiful to us. Runway issues, safety starting to be an issue, and they need to keep the airport open. So they have to have paving solutions. They could do it during the night and have the runways and things ready to go by the first flights in the morning. So it's been a good driver for us. Another one, thinking with Evotherm and all its unusual paving capabilities, remote Brazil, near the Amazon rainforest, not in it, but near in Northern Brazil, big projects with key roads, still environmentally sensitive. We're able to lower production temperatures, again, by 100 degrees, improve the fuel use for this project and give the contractors and the authorities the ability to actually pave very quickly in between rainfalls and get the work done and not have to just create a suboptimized, throwaway road that they have to redo later. So moving on. So what does that sum up to? Certainly, we've seen an interesting outlay of how the business has grown but very balanced global growth. Look at North America, the rest of the world, they're basically both in that 8% average growth rate depending on the year. So you see a lot of stability, a lot of great growth in North America through good times and bad, through economic cycles, consistency. And certainly the rest of world's slide -- the rest of the world chart is a little spiky. They do react especially in emerging markets more to economic conditions, but the growth pattern is clear there. And in fact, that biggest spike you see in 2010 was China with their stimulus as a reaction to the economic crisis around the world. So again, there are things that change, but we like what we see and we feel good about the future. So in summary, our business is a technology leader and an innovator, and we combine that with very sticky customer relationships based on heavy and local support. For us, this has created a long history of 2 to 3x GDP growth. We see that kind of thing going forward. And we still see a lot of runway in Evotherm around the world and numerous other technologies that we are bringing out. Thank you.

Okay. Thanks so much, Andrew. And we're in a position now to open the lineup for some Q&A. So Kevin, if you want to go ahead and do that. And we'll also have John Fortson and Rick Kelson available to join us.

[Operator Instructions] Our first question today is coming from John McNulty from BMO Capital Markets.

So I guess I had a couple of quick questions. The first one is just can you give us some clarity on the differentiation between the Evotherm platform and the preservation and recycling platform or reconstruction platform in terms of profitability. Are they similar? Are they dramatically different? I guess how should we be thinking about that?

Well, thanks, John, and thanks for listening. I think they're relatively similar. The Evotherm technology does have somewhat higher profitability than the pavement preservation business. But both of these businesses and the pavement preservation business as a whole is really a very strong margin business. The profitability of pavement preservation is kind of -- is well above the average for the Performance Chemicals segment. So it not only has had significant growth rates but also sustainable and frankly improving-over-time margins.

Got it. Okay. And then just in terms of the business mix, is there a way to think about how much of it's tied to state budgets and state funding versus federal budgets and federal funding for roads? And then if there is a portion that's tied into the private sector, I guess how should we think about the general mix or makeup of where -- essentially where the revenue is coming from?

Andrew, why don't you take that?

Okay. So in reality, the biggest piece is state funding. And in fact, the federal funding is really just divvied out to all the states and managed by the state. So besides the national parks, there's not a lot of federal paving. The states manage their own interstate. So that's probably 50%, 60% of the funding mix, then you've got cities, counties as another at 25%, 30%. And then the neighborhoods and the private work is probably -- it varies definitely, about 15% of the mix.

Got it. Okay. And then maybe just one last question. So I mean there is, I guess, talk that there may be a significant stimulus bill tied to infrastructure, which I would think would be a big benefit for this type of business. I guess one, are we thinking about that right? But two is how much excess capacity do you have for something that could be pretty significant. And also, how capital-intensive is this? Like how quickly could you bring up excess capacity if you need it more for a big stimulus package or something like that?

Yes, John. So absolutely, we are highly connected and taking -- monitoring the situation with highway spending and increasing infrastructure. And without question, that could be a big help to the business, and frankly, we believe that's a great help to the overall economy. When it comes to scaling up and our ability to serve the needs in terms of a rapid infrastructure, we are very confident that we can meet those needs. We've got a lot of flexibility between our assets. We have the capability to make sure that we prioritize customers that need fast turnaround and get it to them. And we've got the raw materials in terms of being back-integrated to important products like TOFA and lignin to ensure that any surge that might come in the future from additional infrastructure spending, we'll be able to meet those needs.

Our next question today is coming from Jim Sheehan from SunTrust Robinson Humphrey.

Can you talk about whether paving activities are deemed essential activities during the coronavirus shutdowns in various regions of the U.S. and also in other countries?

Yes. So Jim, yes, the pavement is considered essential at this time across North America. We have continued to see activity. There are a lot of projects out there. And the virus, at least at this point, has not had any impact. Andrew, if you want to add any additional commentary further on the -- in the international markets for...

Yes. So internationally, first, we have seen, country by country, some shutdowns. We have seen places that the -- paving maybe just not considered essential. But at the same time, in most of those markets, it's the Northern Hemisphere and the season hasn't really started yet. So in most cases, there's no impact from -- at this point from the virus. Again, our business is 80% North America.

And you talked about demand typically growing 2 to 3x GDP. How does the business usually perform in a recession?

Well, for us, the thing that we really like to see is the portfolio that we have and the way that we're involved in both maintenance, construction, rehabilitation and all of those. So sometimes we see a shift towards preservation when funding is tight or when there's a -- when there's economic issues going on. In most cases, for North America, the system is slow enough to react to whatever is going on that it's down the road a ways that you would see an impact a year later.

Okay. And then regarding -- yes, regarding that -- you're showing your international demand, there was a big spike in 2010. Maybe you can just explain what was going on back then, and I suspect maybe some of it had to do with China. If you could talk about how funding evolves in a Chinese 5-year plan. What part of the cycle are we in, in China today?

Yes. Andrew, go ahead.

Yes. So definitely, that big spike around 2010 and a little spillover in '09 and '11 was due to China's big stimulus package that they put in place on top of the way they were running the 5-year cycle back in those days. They certainly did, Jim, a lot of different infrastructure build. In fact, a lot of high-speed rail was built in 2010 that we were involved in. So at the same time, at the end of their each 5-year cycle, they have national inspections and they'll do some extra maintenance work and again, as we said, the paint concept, so a bit of the politicians' paintbrush there to make everything black and do well on their national inspections. They've changed somewhat. They've more spread that out though for these days, and so we expect a much reduced spikiness there.

Our next question is coming from Jon Tanwanteng from PCJ Securities (sic) [ CJS Securities ].

My first one is how hard is it to convince contractors and DOTs and all the other people in the supply and manufacturing and construction chains to switch over to using your product in a recessionary environment. Is there an upfront investment that's required? I assume there's more training and education that's involved. Is it easier or harder to do that, I guess, is my question. And I have a follow-up after that.

Yes. I think -- yes. That's a good question. We would say that there's certainly an enormous amount of variability between different DOTs. We know which ones are the innovative ones. We know the more open-minded culture DOTs, so we know where to start and focus with innovations. But overall, to the question of economic times, if we're bringing and convincing them of these quantified value propositions that they're really saving money, particularly in the United States, they are very open to try things. I'd say we really have -- the key for us is the -- is challenging. As we all think of the DOTs, they are, by far, the most open-minded, fast-moving and innovative around the world, more or less. So again, we don't see that. And you can track that through our growth rates and our numbers over the tough economic years where we still are in the ballpark of the 8% growth.

Okay. Great. And then the second question is more on competitive dynamics as they stand today. Can you just talk about maybe who's out there competing with you in warm mix here in the U.S.? Are they in relatively better or worse positions? And then outside of the U.S., I know concrete has been a pretty often and common substitute depending on the local economics. How does that stand compared to you? And where have the -- I guess the competitive dynamics moved in this environment?

Well, certainly, we do have competitors in the market and competing technologies. When we started, it launched the whole warm mix. There were 22 different technologies out there, and ours has emerged from that as the product and the technology of choice. It's a patented technology and we do enforce our IP, but we've got some -- a couple of chemical companies competing with us, and we've got a lower-end technology of foaming asphalt that's also out there that does a significant volume. So yes, we still definitely see competition. As far as competition of asphalt versus concrete, in -- across the total volumes of the U.S. for road building, we're at about 94% asphalt and 6% concrete. Even though so many concrete projects are high profile in cities, it's dominated by asphalt. So that's -- there's no major shift over different economic cycles. Maybe 1% of the market goes -- will move back and forth over years, but we've never really seen any more than that between asphalt and cement.

Okay. I guess the question really was are you seeing more competitive advantage now given your position. Or is it going to be most of the same as you've seen before?

No. I don't think we're seeing a -- I'd say mildly heavier competition but also seeing consolidation in our markets as well.

Jon, the thing I would add to that is when we look at this business and we see the type of very tight customer collaboration we have, the expertise that our team brings with a combination of civil engineers, chemical engineers, our ability to utilize a lot of different chemistries and match those chemistries specific to the aggregate, specific to the asphalt, frankly, there's nobody out there that can touch our capability. And when customers think about they need to solve a problem, build a road, do it quickly, doing in a challenged environment, we are absolutely the first port of call. I think that the business -- our customer retention and our overall growth and our technology adoption speaks for the great work that this team has done over time and established its reputation. And I think it's an absolute, sustainable, competitive advantage that it's going to be very, very tough for any competitor to even come close to mimicking.

[Operator Instructions] Our next question is coming from Chris Kapsch from Loop Capital Markets.

So a follow-up on just the budgets, the municipal spending on paving and infrastructure. Everyone is paying attention to see if an infrastructure bill emerges from Washington. The flip side of that, I guess, in this -- in the nature of this recession is there's a lot of pressure on state and local budgets suddenly, obviously. And according to our sort of building products analyst who's covered the aggregate names for a couple of decades, he's indicated that maybe in 2021, there could be lower volumes because of the pressure on those budgets. So do you -- how do you see that from a macro standpoint? Do you need the infrastructure build to help offset some of the pressure that's going to probably result in those budgets? How do you see that dynamic playing out in terms of volumes?

Yes. Well, thanks for that question, Chris. And Andrew, I know that you've been really staying on top of how that dynamic is playing out, although there's some uncertainty in it, but go ahead and...

Yes. Well, for us, there's a couple of things to get out there. Certainly, we -- funding matters to us, and it's important in every market. But really, the biggest driver for us in the growth and success of the business is technology adoption. Again, as you see, a U.S. paving market that's gone from, in 2007, nearly 500 million tons of paving to this year not even getting back to 400 million tons of paving, so a long tough road out there, we grew right through the downside and the upside in those markets. So for us, it's -- number one is adoption. Funding certainly matters but we're in a good funding spot. The federal funding has gone up 2% each of the last 5 years. There's a new bill that -- again, the current one expires in September. And we feel good about a bill passing and everybody, both on the Senate, the House side, the President, everybody is in favor of significantly boosting up the federal money. And really, the way it works is just based on formulas. That money goes straight to all the states and they match it with their own funding. So many, many states have increased their gas tax. Even though there's less gas being consumed and less driving, they've increased those gas taxes and are on an upswing for funding. Then one other piece right now that's being discussed with a lot of support would be a Phase 4 stimulus package that would include potentially $50 billion in supplemental highway funding. So we feel pretty solid about it. And again, it's more incumbent on us on innovating, putting the new products out there and taking market share, converting already existing markets.

Got it. And so one follow-up and it's a little nuanced, but like your one slide that talks about the percentage of content on the road construction, you said 1% your additive, 5% asphalt, 94% aggregate. Curious about that. Is that by weight or by value? Because the thought being like if asphalt was a bigger percentage by value that even with flat budgets suddenly with oil below $20, these budgets can afford a lot more asphalt and therefore -- so I didn't know if -- I didn't realize aggregate was that much, but I was wondering is that more a volume or a value sort of metric.

Really, that number is an average across a lot of different applications with a lot of different dosage rates. I would say from a cost-and-impact value, it's a little higher than that and it's something that we look at, the actual cost in that Evotherm value proposition slide. So yes, you're talking a little higher than that, but it's still in the single -- the low single digits number. So from a volume standpoint, it -- there's applications at 1%. There's one all the way down to 0.01% of a road still having impact on the performance. And that's really a spot that we -- that we'd love to be in, where we're in a really, really small impact because it still is a bid-based system that our customers' customers are working in. So they -- in so many cases, they see us as pretty cheap insurance for their projects.

And then finally, so the products that you feed into this market, do they tend to be derivatized TOFA or straight TOFA? I'm asking because you mentioned the mix being sort of higher than the business unit average, and so that may imply derivatized. And I'm just wondering if -- obviously, if there's demand tied to, say, an infrastructure bill with -- the decline in demand for TOFA associated with oilfield, is that sort of awash in terms of optimizing the CTO refinery operating rates? Or is there an opportunity to actually have more beneficial mix here if, in fact, the demand flows through, say, from an infrastructure bill?

Okay. Well, first off, for the pavement technology business, essentially all of that product are specialty derivative products. So straight merchant TOFA is not something that is part of the pavement technology business today. It's a very wide range of specialty derivative products, often starting with TOFA as a base. When it comes to the capability to supply without question, this business, the pavement technology business, will get any TOFA it needs in order to continue to support the business. And to the extent there's increased demand, we are very happy and quick and flexible to move that input source over to the pavement technology business, and then we will kind of work through all of the other sort of priorities in terms of margin and profitability throughout our overall performance chemical portfolio.

Our next question is coming from Vincent Anderson from Stifel.

Really nice presentation, guys. I had a quick question. Is this push towards the use of recycled plastics and roadway mixes, does that influence the ability to use your products at all? Or is that something you're developing new products for? Just curious what you've seen there.

We'd say we certainly welcome the ideas of finding more in addition to just recycling asphalt to find recyclables to help lower the cost and improve the performance. So I think we, in general, like the addition of materials. There have been ground-up shingles introduced into asphalt, ground-up tire rubber being recycled into it, now plastic that they're looking at. And generally, those things make asphalt more difficult to handle, more difficult to roll and compact and get it the way you want it. And our assets really help in the workability and the rollability of the material. So we like things that are coming along that are making asphalts more difficult to work with. It's more opportunity for us.

That's great. And you talked about China earlier, but it looked like India also had some pretty favorable increases to their highway spending plan this year, if I'm reading their budget correctly. So I'm curious how you're positioned in that market today, and what kind of recent activity you've seen there as a result.

Yes. We're very positively positioned in India. We certainly look at that as one similar to China for us in the respect that we bet early on that market and went, established ourselves. As you saw from the map, we've got a technical laboratory in India, and so many things are so specific and local to India that we feel very good about it and we think it should be a great market over time. There's still plenty of challenges and issues, but in markets like this where you've got a maybe more slower-moving government, more bureaucratic, we tend to like to work with the concessionaires. There's a lot of toll roads, a lot of public-private partnerships, and those guys tend to be much less restrained by specifications or traditions or inspections or all the different things that they can't handle. So that tends to be the strategy we adopt in markets like that, focus there first and then wag the dog.

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to Mr. Gallagher for any further or closing comments.

Kevin, I just wanted to thank you. And I want to thank everyone for taking the time out of your day, your busy conference call, Zoom days, to join us to learn a little bit more about our business. And have a great rest of the week and great weekend.

Thank you. That does conclude today's conference. You may disconnect your lines at this time. And have a wonderful day. We thank you for your participation today.