Good day, ladies and gentlemen, and welcome to the Q4 2017 Innospec Inc. Earnings Conference Call. 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, and I'm Vice President, General Counsel and Chief Compliance Officer at Innospec. Thanks for joining our Fourth Quarter and Year-end 2017 Financial Results Conference Call. Today's call is being recorded. As you know, late yesterday, we reported our financial results for the full year and quarter ended December 31, 2017. The press release is posted on the company's website, www.innospecinc.com. An audio webcast of the call and the slide presentation on the results are also now available and will be archived on the site. Before we start, I would like to remind everyone 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 at 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'll turn it over to you, Patrick.

Thank you, David, and welcome, everyone, to Innospec's fourth quarter and full year 2017 conference call. We started 2017 with some major challenges and opportunities for our company. We grew our established businesses, while managing the recovery of Oilfield Services and integrated our largest acquisition to date in Performance Chemicals. I am delighted to report the team has risen to the challenges. Full year sales exceeded $1.3 billion for the first time, and we also delivered record adjusted EPS of $4.66 per share. As we expected, we ended the year with a strong quarter with growth in sales, cash flow and earnings per share. All our strategic businesses are contributing to our growth, and we continue to improve many of our key metrics, including an increase in adjusted EBITDA of 52%. Our strong cash flow has enabled us to reduce our net debt, which now stands at $134.1 million. The combination of reduced net debt and improved earnings means that we end the year with leverage at approximately 0.7x EBITDA, which gives us a very strong balance sheet moving forward. Our largest business, Fuel Specialties, continued its steady growth. Profitability was in our expected range, although it was slightly down on a very strong quarter last year. Cash generation from this business remains excellent. Our investment in new technology is paying dividends, and we have a great pipeline of new products, which is well aligned to our customers and end market needs. The business is well positioned for future growth and continued cash generation. It has been a transformational year for Performance Chemicals, with full year sales growing to almost $420 million. The addition of the acquired business has not only delivered critical mass but also balanced the geographical location of our assets. Additionally, our heritage business made a particularly…

Thanks, Patrick. Turning to Slide 7 in the presentation. The company's total revenues for the fourth quarter were $353.8 million, a 49% increase from $237.8 million a year ago. Overall gross margin decreased from last year to 30.7%, driven in the main by the lower margins in the acquired business. Adjusted EBITDA for the quarter was $55.1 million, a 52% increase compared to last year. As a result of the $40.6 million one-time tax charge for U.S. tax reform, we reported a net loss for the quarter of $4.8 million compared to a net income of $22.1 million a year ago. Consequently, our GAAP loss per share was $0.20, including special items, the net effect of which decreased our fourth quarter earnings by $1.67 per share. A year ago, we reported GAAP earnings per share of $0.90, which included a negative impact from special items of $0.19 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.47 per share, a 35% increase from $1.09 per share a year ago. For the full year, total revenues of $1.3 billion increased 48% from $883.4 million in 2016. Net income for 2017, including the $40.6 million of one-time tax charge due to U.S. tax reform, was $61.8 million or $2.52 per diluted share compared to $81.3 million or $3.33 per diluted share a year ago. Special items decreased net income for the full year by $52.5 million or $2.14 per diluted share. In 2016, similar items decreased net income by $11.8 million or $0.47 per diluted share. Excluding special items in both years, our adjusted EPS for the year was $4.66 per share, a 23% increase from $3.80 per share a year ago. Adjusted EBITDA for the year was $187.7 million, up 39% from $134.6 million in…

Thanks, Ian. It's been quite a year for Innospec. I am delighted that the team has been able to continue growing our businesses while rising to the challenges of managing a controlled recovery in Oilfield Services and the successful integration of our largest acquisition to date. With sales exceeding $1.3 billion for the first time, all three of our core businesses are contributing to the success of our portfolio, which allows us to balance our investment opportunities and priorities. Fuel Specialties maintained its solid performance and excellent cash flow. Growth in Performance Chemicals has been good, and we will continue to work on enhancing both gross and operating margins in 2018. Revenues in Oilfield Services continue the recovery, and our focus will firmly on improving operating income in the coming year. All of our strategic businesses have great foundations backed with solid technology. Our focus on growth of these businesses combined with the improvement of margins delivered excellent cash generation in the fourth quarter. This means that we start 2018 with lower leverage than we expected with a very strong balance sheet. We have the finances to continue to fund organic growth as well as the ability to participate in acquisitions that we believe can deliver shareholder value. I am confident that our strategy of focusing on our core businesses, while expanding cautiously into adjacent markets, will continue to deliver value to customers and shareholders. We feel very positive about the coming year. Now I'll turn the call over to the operator, and Ian and I will take your questions.

[Operator Instructions]. We will now take our first question from Mike Sison from KeyBanc.

Nice end to the year there. But when you think about Fuel Specialties heading into 2018, can you maybe walk us through where you could see some growth? And what the profitability profile could look like as you see that growth next year?

Yes, Mike. It's Patrick. I think the growth is going to be pretty well balanced between the three regions, between As-Pac, EMEA and the Americas. We're starting to see some movement in regulatory in the Asia-Pacific region, which I think will boost not only revenue growth but profits in the upcoming years. But it's a pretty steady business, as you can see from the last four, eight quarters, it's pretty steady at that GDP plus 2% to 3%. And as we've been telling you guys from day one, it's probably going to be in that 35% gross margin moving forward.

Okay. Great. And then the balance sheet is in pretty good shape, as you noted. Is there -- when you're taking a look at opportunities for 2018 and beyond, is this still strictly focused on Performance Chemicals? Or do you have some good position in Oilfield Services? Is that an area that you can maybe take advantage of as that end market recovers?

Yes. We really took the year off to integrate the EDS acquisition that we made. And I think it's fully Innospec now, and you've seen what we've done with the earnings there. I believe that what you'll see when we look at capital is you'll probably see us looking at increasing the dividend over time, as we've done in the last few quarters. I think what else you'll see is that we're going to be driving some organic growth. As we've stated that's always your cheapest growth and not paying a multiple on it. And I think you'll see some announcements coming out there on some things that we're doing for organic growth. And I think, secondly, we are starting to look at acquisitions now. And you're right, a lot of it's going to be Performance Chemicals. It could be in the active ingredients and natural ingredients side. You will see us starting to expand in the ag and mining sectors, where we pick that up with the acquisition. And there could be some growth from a technology standpoint in either Oilfield or geographic growth in Oilfield. And with Fuels, there is really 6 major players and until there's some consolidation there, only thing you'll see is religious revenue growth from organic growth.

[Operator Instructions]. We will now take our next question from Jon Tanwanteng from CJS Securities.

The first one is, what's driving the strength in the heritage Performance Chemical business? Is that new products that you're rolling into the Huntsman assets or something else that's going on?

Yes. You're right, John. It's exactly what it is. New products that we rolled into the EDS business and its expansion of new products coming out of our technology. So it's really a little bit of both. It's been a really nice balance in the fourth quarter.

Got it. So I would expect that those are still going to continue to ramp as we go through the year?

Yes. They should.

Got it. And just going back to the prior question on growth in the Fuel Specialties segment. How much of -- how much benefit are you incorporating from new products that you're expecting to roll out? Maybe give us an update on some of those initiatives that you're planning?

Yes. John, this is Ian. As you know, new products is the absolute lifeblood of the Fuel Specialties business, and we continue to put about 35% of our revenues from new products introduced in the last 5 years. So you can see the pace of change there, which is really important. Lots of opportunities coming through across all of our product range, and we're pretty excited about the coming year as well. So you'll expect to see us doing some interesting business in the next 12 months.

Okay. Great. And then finally on the Oilfield business. How long do the Harvey and freight issues linger in your modeling? And when we should expect some kind of recovery in margins?

Yes. You should start seeing recovery towards the latter part of Q1. We obviously had a tough winter as well that caused additional problems outside of just Harvey. We are really going to focus on operational leverage in Oilfield Services. It's one thing to get revenue. It's another thing to turn that revenue into EPS. And that's the focus of our Oilfield Services guys this year, is to turn the revenue into operational leverage and give ourselves better EPS. So I would say, you will start to see that improvement coming into the latter part of Q1, and it should be fully improved going to Q2, 3 and 4.

Great. Maybe one more, if I could. Exxon announced a pretty big investment into the Permian recently where I think you've pretty strong exposure. Do you think others follow suit? And how does that impact your oil business going forward? What's the time frame for that happening?

We have a variety of customers in those basins. We're well set up, and I think that it just benefits us over time. I mean, you see the capital investments that are being put in the basins, not only in Texas but in New Mexico, Colorado, up in the Bakken, Oklahoma. So we're well positioned for capital investment from E&P companies, and I think that we're in a good spot.

[Operator Instructions]. We will now take the next question from Bill Dezellem from Tieton Capital.

Couple of questions. First of all, relative to Fuel Specialties, the cold in Europe this first quarter. What impact is that having on the business? It seems as though that would be driving some strength there?

Yes, Bill, it's really -- it's starting -- it's been cold in the U.S. as well. And so I think you will see that advantage being taken in Q1. Obviously, we have cold flow improvers, which is a big mover in cold weather. And I think you'll see the impact of that in Q1 in the Fuel Specialties business.

So it would be a natural extrapolation that you would get above average growth in that business this quarter?

Yes. We can get a little bit above average growth in this quarter. That's a good statement.

Yes. Okay. And then you put out a press release on December 20 talking about doubling capacity in an important product that I don't know that I can pronounce correctly, but Iselux? Would you discuss the implications of that doubling of that capacity? And how we should be thinking about the earnings impact?

Yes. If you look at Iselux, it's been in our portfolio for quite some time, and it's a patented product that's natural. So what we've done is, we've launched dry surfactants. We not only have it now in the U.S., but we have dry surfactant capabilities in Europe as well with the new acquisition. And so really what we've done, Bill, is instead of shipping water over the pond, we're able to take direct product from Europe or direct product from the U.S. depending on where the application is. So I think it's just preparing ourselves for more and more business as well as using the operational leverage that we have in the given regions to better our margins.

Great. And then you did mention that the regulatory environment in Asia is showing some directionally positive signs for you. Would you talk more broadly about what you were referring to there, the timing that, that might turn into meaningful revenues? And then if you're talking about something other than China, would you specifically also talk about what you see happening in China on that front?

Yes. It's looking at China and India, in specific, and they're starting to get some tighter regulatory around lower sulfur fields. The trick here is, when they're actually going to stick to it and when the announcements are going to be made to either come to a Euro standard or to a ULSD standard. So we're just hearing a lot. We're hearing a lot of noise out there right now that it is coming. And as you've seen, we've announced our [indiscernible] in China, so we're preparing ourselves for that potential outcome. So I can't give you a date, Bill, because we don't know yet. But I would assume, it's going to start getting some pressure here real soon.

So you mentioned that you are hearing some dates that are floating around, although you can't really confirm that, that will actually happen. What are the dates that you are hearing, recognizing that those may not mean anything when we look back on them?

Yes. You're probably looking more into 2020, but people will start ramping up in '19.

As there are no further questions at this time, I would like to turn the call back to Mr. Patrick Williams for any additional or closing remarks. Please go ahead, sir.

Before I close, I'd like to record a special vote of thanks to David Williams, our General Counsel, who is retiring from the company after many years of invaluable service. Our new General Counsel, David Jones [ph], will be taking over his responsibilities and will join us for the next call. Thank you all for joining us today, and thanks to all our shareholders, customers and Innospec employees for your interest and support. If you have any further questions about Innospec or matters discussed today, please give us a call. We look forward to meeting up with you again to discuss our Q1 2018 results in May. Have a great day.

Ladies and gentlemen, this will conclude today's Innospec conference call. Thank you all for your participation today. You may now disconnect.