Good day ladies and gentlemen and welcome to the Third Quarter 2017 Innospec Inc. Earnings Conference Call. For your information, today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. David Williams, General Counsel. Please go ahead sir.

Thank you and good day everyone. My name is David Williams, I'm Vice President, General Counsel, and Chief Compliance Officer at Innospec. Thanks for joining our third quarter 2017 financial results conference call. Today’s call is being recorded. As you know, late yesterday, we reported our financial results for the quarter ended September 30, 2017. The press release is posted on the company’s website, www.innospecinc.com. An audio webcast of the call and slide presentation on the results are also now available and will be archived on the website. Before we start, I would like to remind everybody that certain comments made during this call might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, any comments regarding management’s beliefs, expectations, targets, or other predictions of the future are forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by those forward-looking statements. These risks and uncertainties are detailed in Innospec’s most recent 10-K report as well as other filings we have with the SEC. We refer you to the SEC’s website or our site for these and other documents. In our discussions today, we have also included some non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release and in the presentation that follows, a copy of which is available on the Innospec website. With us today from Innospec are Patrick Williams, President and Chief Executive Officer; and Ian Cleminson, Executive Vice President and Chief Financial Officer. And with that, I will turn it over to you, Patrick.

Thank you, David, and welcome everyone to Innospec third quarter 2017 conference call. I am very pleased that our performance in the third quarter has continued with the success that we enjoyed in the first half of the year. All of our strategic businesses have continued to grow and deliver improvements in both revenue and operating income over the comparative quarter. In addition, our performance would have been even better without the effects of Hurricane Harvey on raw materials, cost, transportation, and the net effect on our customers' operations. Much of our headline sales revenue growth compared to 2016 is a tribute to the acquisition we made at the end of last year. But underlying this, all of our businesses are posting solid numbers. As we anticipated, we have moved working capital back to more normalized levels and this improvement has delivered very strong cash generation in the quarter with an associated reduction in net debt and leverage. Our adjusted EPS of $1 per share is up 28% on the same period last year. This has enabled our Board to approve a further increase in our semiannual dividend to $0.39 per share. This brings our total dividend payment for the year to $0.77 per share, which is a 15% increase over 2016. We've been able to increase our dividend every six months since its introduction four years ago. Benefits of our balanced portfolio and the strategic focus on key end markets have continued to show in our performance. This was a good quarter for Fuel Specialties with new products helping to drive a positive price mix effect. After a period of high margins, as expected, these have now returned to levels more in line with long-term expectations. Our new technology is creating a sound platform for future growth which will…

Thanks Patrick. Turning to slide seven in the presentation. The company's total revenues for the third quarter were $332.4 million, a 62% increase from $205.5 million a year ago. The overall gross margin was 29.7%, down from 38.5% last year, driven by the impact of the lower margin acquired business. Adjusted EBITDA for the quarter was $44.5 million, more than double the adjusted EBITDA in the same period last year. Net income for the quarter was $23.3 million, again more than double the Q3 results from last year. Our GAAP earnings per share of $0.95 includes several special items. The net effect of which decreased our third quarter earnings by $0.05 per share. A year ago, we reported GAAP earnings per share of $0.47 which included a negative impact from special items of $0.31. Excluding special items in both years, our adjusted EPS was $1 per share compared to $0.78 reported in the third quarter of 2016. Moving onto slide eight, revenues in Fuel Specialties for the third quarter were $130.1 million, 14% higher than the $114.4 million reported a year ago, driven by a 2% improvement in volumes, 9% of favorable price and mix impact, and a 3% positive currency variance. Sales performance was good in all regions despite the impact of Hurricane Harvey. Sales were up 5% in the Americas with the other regions recording even better results of 9% in Asia-Pacific and 20% in Europe, Middle East, and Africa. Gross margins were down from last year within our expected range of 34.3%. Operating income was up for the quarter at $24.9 million, a 3% improvement on last year. Turning to slide nine, revenues in Performance Chemicals for the third quarter were almost three times the level of 2016's third quarter, rising to $110.3 million. Revenues were also…

Thanks Ian. We are very pleased with the progress we are making with our strategy. All of our core business units are delivering growth. The development end market of new products and technologies across a wide range of industries is building a very solid platform to the future of our business. We will continue to focus on improving our operating margins, building on our successful work done in this quarter. As we previously indicated our focus on cash conversion and working capital has resulted in the further reduction in our net debt levels. With leverage now around one time adjusted EBITDA, we're able to fully fund the capital we need for organic growth and we have the flexibility to increase our semi-annual dividend. The strength of our balance sheet gives us the ability to participate in acquisition projects that are aligned with our strategy and where we can clearly see a path to adding shareholder value. As the technology based company, we continue to focus on our R&D programs on developing new technologies which are closely aligned to our customers' needs which supports their future growth. All of our strategic businesses -- units are a positive about remainder of the year and we are looking forward to delivering growth in shareholder value in 2018 and beyond. Now, I'll turn the call over to the operator and Ian and I will take the questions.

Thank you. [Operator Instructions] We will take an opening question from Mike Sison of KeyBanc. Please go ahead. Your line is open.

Hey guys, nice quarter there.

Thanks Mike.

In Fuel Specialties, you've had two quarters in a row of pretty strong price mix, does that continue into the fourth and into 2018?

Yes, I think if you look at Q4, Mike, typically it's where we start selling cold flow improvers, which are obviously going to diesel. And I think that if you look at Q4, it's typically a high margin quarter for us. So, I think you'll see a nice price mix in Q4 and also carrying over into Q1 2018.

Okay, great. And then in terms of the Huntsman acquisition, it sounds like you're coming in a little bit better than expected. It -- maybe walk us through -- is it, yeah – are their sales coming in better? Is cost savings coming in better? What are the components of maybe coming in a little bit better this year?

Yes, it's a little bit of everything. If you recall when we bought the business at the back end of 2016. We knew it required a lot of work not only from the manufacturing side but obviously one of the strategic reasons we bought it was to bring more high profit, high margin products on to those assets. So, we've accomplished that. I think we're starting to take costs out of the system, and we're realizing as we thought that the assets are very diverse in nature. So it's really been a combination of a team effort by everybody and we see those margins even improving more over the next couple of quarters.

Great. And then just one last one. Given the balance sheet’s in good shape and the Huntsman acquisition is doing well, can you maybe talk about areas of opportunities on the acquisition front? Is the pipeline still pretty active here?

Yes, I mean we're active. We've got some small deals that are more technology-based in the pipeline right now. I think we wanted to make sure that we started to see the cash conversion that we expected to come in the quarter before it really started getting serious. We wouldn't make sure obviously that the integration of the Huntsman acquisition is coming to fruition. We're starting to see that as well. So, we are active. I think you're going to see a lot of focus on organic growth right now, especially Q4 and going into 2018, but I think we're properly positioned for an acquisition if the right one comes along and brings the shareholder value that we're looking for. It creates further opportunities for the businesses. But then – and we're looking at all areas, obviously, what came with the Huntsman acquisition was some adjacent markets, and we're even looking at do we expand those adjacent markets which are higher margin markets for us.

Great. Thank you.

Thanks Mike.

We will take our next question from Jon Tanwanteng of CJS Securities. Please go ahead. Your line is open.

Good morning, guys. Very nice quarter.

Thanks Jon

Thank you, Jon

You've kind of done a year or two of margin improvements in a single quarter in the Performance Chemicals segment. What's the upside left from here -- kind of where’s your target and the timeline to achieving that?

One of the things that we focused on, Jon we’ve talked about it all the time is that that we had to change that margin profile on the business that we acquired. We're not a commodity company, but we needed to have the asset base to build upon and that's what we've done. So, from a strategic standpoint, we did exactly what we said we would do and the assets brought exactly what we thought they would. I think our focus now moving forward is changing the operating margins of that business, and that's what our key focus is right now. And obviously there's a variety of ways to change our operating margins. So, there's a large focus with the management team in that area, but for not only sustainable growth, but sustainable growth with higher margin products. And I think it's just going to be a continuous battle moving forward to continue to strive to get better margins in that business and we'll continue to do that.

What's the upper limit do you think for operating margins there?

For operating margins, I'd like to see all of our businesses obviously in the double-digits. And so, if we can get operating margins of Performance Chemicals into that 10% range, I'd be happy. The focus now is to get the Oilfield business up into that 10%. So, as I said earlier in the call, there is a big focus on operating margins for Q4 in 2018.

Got it. And can you quantify the impact of Harvey on the Oilfield business and if there was any other impact on your other segments?

Yes, there was an impact across the Board, quite frankly. I mean we had -- there was some allocations on polyacrylamide, there was allocation on olefins. So, there was definite impact. I would probably say as a group about $6 million to $7 million of sales lost with probably a little bit of that split actually by a third, a third, a third quite frankly. But you're seeing some carryover not only in raw materials that have shot up, but you're also seeing the carryover transportation costs have actually shot up as well. I think that will normalize itself in the latter part of Q4, but yes, there's definitely been some price movement since Hurricane Harvey and some issues with raw materials.

Got it. And in the Fuel segment, just -- are we back at a more normalized level of margins. You had a sequential step down that was fairly large. Is this the environment we should be expecting in terms of profitability?

Yes, I think it is. We've been flagging that for probably the last three quarterly calls to say they're not normal. So, they will come back in a normalized range of 34 to 35 and I think we've said that to everybody, and it's probably in that normalized range, you might get a variation a quarter where it jumps up to 35, 36. But I think that 34 to 35 is probably a solid range.

Great. Thank you very much guys.

Thank you.

We will take our next question from Chris Shaw of Monness Crespi. Please go ahead your line is open.

Hey, good morning everyone. How are you doing?

Hi Chris. We're good.

I think Jon and Mike covered a lot of the -- one thing I've heard third quarter -- sorry us the second quarter, [Indiscernible] was down a bunch and that impacted Fuel Specialties. Does that come back in the quarter with a normal lumpiness up and down that part of the good [Indiscernible] performance in the quarter?

Yes, I mean it came up a little bit, but it was -- it didn't affect the quarter that much at all. It's still fairly lumpy. I think you'll see it a fourth quarter very similar to the third quarter. You did see a spike in the third quarter.

And then I was curious the Huntsman assets, are you still making some of the commodity product? Are you still selling all that? Or are you just converting -- with their excess capacity, you're now converting to more specialty stuff?

More excess capacity. So, we're going to keep commodity, obviously it benchmarks a baseline for us to have that commodity products movement in the system. What we're doing is the excess capacity, moving more towards a higher margin product.

Got it. That's really all I had. Good job on the good quarter. Thanks.

Thank you.

We will take our next question from Sean Milligan of Johnson Rice. Please go ahead your line is open.

Hey guys. Good morning.

Good morning Sean.

Good morning Sean.

Quick question. On the Fuel Specialties side, in terms of the year-over-year price gains, how much of that is related to overall improvement in oil prices in the past or you're seeing there?

Well, if you look at Fuel's, typically your raw materials for the Fuel Specialties business is based on crude oil pricing. So, really didn't have a plus or minus in the quarter based off raw material gains or losses. So, I would say I would take our raw materials from the standpoint of price movement on crude. What I would say is with Hurricane Harvey, you had some raw material increases that we ate a little bit in the Q3 that affected us a little bit that should as I said normalize itself out in Q4.

Okay. So, when you talk about plus 2% on volume and then double-digits on price, it's really selling higher value products?

That's correct. Yes.

And then as we look into 2018, what's kind of the expectation in terms of maintenance CapEx for the business next year?

Yes. Sure. In total that will be around about $25 million to $30 million, unless there's a specific project that we want to invest in terms of maintenance, $25 million to $30 million is a good range for you.

Okay. And obviously you're looking at some -- you kind of talked about some smaller technological acquisitions, but if you're kind of one-times on the leverage ratios now, how do you rank returning excess cash to shareholders? You've done a special div in the past, would you like to do specials or would you look to do buybacks? Just trying to think about how you -- shareholders?

Yes, good question Sean. Here's the great thing about the way we manage this business. We give ourselves flexibility. And we have some assets that we've bought -- that we feel are operating efficient as we anticipated. There's going to be more -- there's going to be a little more CapEx potentially going into 2018 due to some new product technologies that we will be introducing that will potentially cause us to add reactors. So, we're obviously focused on cash being number one for organic growth. I think secondarily to that, the dividends and the buybacks and the acquisitions go hand-in-hand. Our view is we've increased our dividend 10% to 15% on an annualized basis. We will continue to increase our dividend. We feel confident that we have the balance sheet to do that. We want to make sure we have some dry powder for some of these smaller acquisitions that we're looking at. And at the appropriate time, if buybacks are key to us, we'll look at buying back the stock. But I think the focus right now will be in -- and not in this specific order, but organic growth, increasing the dividend, and looking at bolt-on technologies.

Okay, great. And Oilfield Services, I think you have more visibility than some others and that you sell directly to some of the larger [Indiscernible]. But just trying to get a sense of what type of topline progression you think you have over the next couple of quarters there?

Yes. I mean -- if you look at -- you're probably looking at anywhere from 7% to 10% growth over the next two to three quarters. And obviously with prices where they are today, there's -- it changed the game a little bit. You'll see activity pick up.

Great. Thanks guys.

Thank you.

[Operator Instructions] Our next question comes from Kirk Sigmeyer, he's also of KeyBanc. Please go ahead. your line is open.

Hey, good morning guys.

Good morning Kurt.

Good morning Kurt.

Hey, just wanted to follow-up on a couple of questions you guys had on Fuel Specialties. The topline had a nice sequential improvement with -- if I recall, I think volumes were down in the mid-teens and turned positive in the quarter. So, I was just wondering, I know last quarter there were some new formulations, is that typical when new formulations are introduced to kind of see a temporary volume pause or decline like that as the transition takes place or was there more of an inflection in demand this quarter? Maybe a little bit more color there.

I think it's a little bit of both. Typically when you introduce the new technology, as we said in the Q2 call, as you have a better trade rate which drops your revenue but helps on your margin basis. When you introduce that in markets, it gives you the ability to pick up new clientele and we've been able to do that. I think the other is a price mix which has helped us and benefited us as well. And you're coming to the end of Q3, early Q4 when you start getting into the winter weather products, which typically gives you a larger quarter anyways.

Okay. And then on Performance Chemicals, you guys posted positive organic growth 4% there. I was just wondering where -- what kind of drove that growth? And then the pricing pressure that you saw, sort of, what that was driven by and your outlook for pricing kind of going forward?

Yes. I mean when we put the strategy together for this acquisition, it was definitely based off growth. And one of the things that we said early on is that there really wasn't a synergy cost associated with the acquisition. This was more built on growth. So, what we put together, what we strategize as a group has come together and we've picked up a lot of new clientele. We've picked up a lot of new customers with new technologies. In areas where they were strong and we weren't and vice versa, they complemented each other. So, that's the benefits that we're starting to see and as we anticipated. I think if you look at the margin improvement, it's a multiple of reasons why we got margin improvement and we see that continued forward. And I think as we change the dynamics of that asset and bring in more non-commoditized specialized price on that asset, over time, it's not going to happen in three, six, nine, months. Over time, you'll see those -- not only the gross margins, but the operating margin increase as well.

Okay. Thank you.

Thank you.

We will take our next question from Bill Dezellem of Tieton Capital. Please go ahead. Your line is open.

Thank you. I have a couple of questions. But first of all, really nice quarter without the hurricane and with it. Doubly, well done.

Thanks Bill.

Thanks Bill.

So, you announced earlier in the quarter that you opened a Beijing office. What is that signaling to us or what has changed in China leading you to do that?

Yes, I mean there's a lot of different dynamics going on in China right now and for us, we weren't a company that would just jump in and go buy assets or go set up a [Indiscernible] intel. We really felt like the time and need, desire was there. So, if you look at the Fuel Specialties side, there's more push from a regulatory standpoint to clean up the air. If you look at what we're doing at Performance Chemicals, there's a lot of opportunity in that Asian market for us to expand in. So, it was just the right time, Bill, for us to start looking at in country trading for not only the business as a whole, but looking at raw material positions and looking at asset acquisitions. So, if you really want to read through, what I think you'll see that we're going to start pushing some growth in the Asia-Pacific, specifically Chinese market.

And so I want to make sure that I heard that answer correctly. You're not talking just about the environmental clean air aspect, you're talking about making acquisitions, which may or may not be tied to clean air and the Performance Chemical growth which acquisitions could fall in there also?

Yes, what I would say is -- I would say we're looking necessarily at acquisitions in China yet. What we're looking at doing is that -- we can take care of all three of our business units. And it gives just the building trade in country and it gives us the ability to compete on a raw material basis. So, we want to know crawl before we walk. And that's what we'll do. When you get into acquisitions in China, they can be very tricky. So, we want to be careful. Do we do it ourselves or we do it with a Chinese partner? I think you'll see that over time that strategy will help develop itself.

That's helpful. I want to actually take this one step further. As you think about the various opportunities that you see in China, what is the number one or first on your priority list for the next 12 months?

Well, if you look at the Chinese market, Bill, it's a massive Personal Care market. And so the focus there really is going to be in Personal Care and Fuel. We've already been in there for Fuel. We really haven't tapped the Chinese market with the Performance Chemicals business. So, I think you'll see really a strong focus on Personal Care and strong focus on Fuels over time.

And does the Personal Care market -- is that something you can go alone or do you feel like you need a partner in country to be successful?

I think it depends on what technology. I think for the technologies that are close to home, we have to be very careful in introducing that technology into the Chinese market. I think more and more commoditized product or a non-specialty product, it's easier to pull a partner in. But as I said, we probably need to have time before we decide do we JV, do we go on in alone. Having that won't be [ph], gives us the ability and the flexibility to do a lot of things. And that's why I can't give you a direct answer today.

Thank you for the all the explanation. And one more unrelated question if I may. Oilfield in the U.S. grew sequentially without the rig count growing. How did you do that?

It's just -- again as we said, we've gotten more crews. We've got great technology. And we said if we had crew in that -- stayed around $50 for a period of time that we really didn't need a lot of growth from a drilling sector because there's still a lot of wealth behind pipe. So, for us, I think it's technology-driven. We're very focused on the right basins in the right regions and it benefited us in the quarter. The issue we have there now is the big focus has to be operating margins. In our group, we have to do two things; get to the inflection point where the infrastructure you have today, you can have revenue on, which obviously will increase your margins and your operating margins. And secondly, have the guys focus fully on operating margins moving forward. I think if we put those two things together, that business can really, really change and drop a lot of money to the bottom-line over a period of time.

We're looking forward to that. Thank you for the time.

Thanks Bill.

We will take the follow-on question from Sean Milligan of Johnson Rice. Please go ahead. Your line is open.

Hey guys. Just to kind of follow-up on the China question. So, in Fuel, what kind of percentage of topline comes from China now? And then two, in terms of milestones in changing regulations, what's kind of the milestones we should watch that would provide you a much bigger opportunity in terms of sales?

Yes, I mean if you look at the general markets, it's probably 45% EMEA, probably 40% Americas, and the rest of that's Asia-Pacific. Chinese market right now for Fuels is fairly small. You've got to remember what drives Fuel in that market is regulation. And if you don't change regulation, meaning China going into a ULSD standard or some form of euro standard, then you're just not going to get the sales there yet. So, you have to prepare for a future market and that's what we're doing. So, there's not a lot of sales from Fuel Specialty. No, we haven’t, but not a significant portion, it's fairly small. Not a lot of sales Fuel Specialties, not a lot of sales Performance Chemicals. But doing what we're doing, I think you could see the light of the woods that we're preparing for it.

Thanks.

Thanks Sean.

As we appear to have no further questions, I would like to turn the call back to Patrick Williams for any additional or closing remarks.

Thank you all joining us today. And thanks to our shareholders, customers, and Innospec employees for your interest and support. If you have any further questions about Innospec or matters discussed on this call, please give us a call at any time. We look forward to meeting up with you again to announce our fourth quarter results in February 2018. Take care.

Thank you. That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.