Thank you, everyone. Welcome to Innospec’s first-quarter earnings call. Today’s call is being recorded. This is David Jones. I’m Innospec’s general counsel and chief compliance officer. Late yesterday, we reported our financial results for quarter. The earnings release and this presentation are posted on the company’s website at innospecinc.com. It will be available on the site for at least six months. During this call, we will be making forward-looking statements which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. These statements involve a number of risks, uncertainties and assumptions, including the effects of COVID-19 pandemic, such as its duration, its long-term economic impact, measures taken by governmental authorities to address it and the manner in which the pandemic may exacerbate other risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by forward-looking statements. These risks and uncertainties are detailed in Innospec’s 10-K, 10-Qs and other filings we have with the SEC. Please see the SEC’s website or Innospec’s site for these and other documents. In our discussions today, we’ve also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release, a copy of which is available on the Innospec site. They’re included as additional clarifying items to aid investors in further understanding the company’s first-quarter performance, in addition to the impact these items and events have on the financial results. Also 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 first-quarter 2020 conference call. We are very pleased with our first-quarter performance. But I’d like to start by reviewing the current situation. I’m saddened to report the passing of Joachim Roeser, who was a non-executive director of Innospec for 12 years. Joachim succumbed to COVID-19 on April 26. He was a valued colleague, a great friend and he will be greatly missed. When we consider the twin issues of the COVID-19 pandemic and the collapse of crude oil facing in our industries, I’m acutely conscious that you need to hear how we are responding to these challenges and how we see the near-term prospects. Our first priority will always be the safety and health of our employees, their families and our customers. My thoughts are with those employees who are sick and with the families who are helping them get through these difficult times. As well as aligning ourselves with our national and local government advice, we have enhanced our hygiene precautions and ensure that our teams are able to operate remotely and safely. We are conscious of our role in supporting our neighboring communities and we have already donated a large quantity of respiratory protection equipment and offered our laboratory facilities as a resource to the health authorities. In terms of manufacturing, we are covered by the definition of an essential industry, so we have continued to manufacture at all our sites. In doing so, we have employed social distancing while ensuring that our employees are protected by appropriate personal protective equipment. I’d like to take this chance to publicly acknowledge my appreciation to the great people of our company who are keeping us going through these difficult times. As a result of these actions, we are continuing to meet our…

Thanks, Patrick. Turning to Slide 8 in the presentation, the company’s total revenues for the first quarter were $372.3 million, a 4% decrease from the $388.3 million a year ago. The overall gross margin increased slightly from last year to 30.6% driven by improved margins in performance chemicals. EBITDA for the quarter was $56.7 million, a 10% increase compared to last year. Our GAAP earnings per share were $1.34, including special items, the net effect of which decreased our first-quarter earnings by $0.08 per share. A year ago, we reported GAAP earnings per share of $1.17, which included a negative impact from special items of $0.08 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.42, a 14% increase from $1.25 a year ago. Moving on to Slide 9, revenues in fuel specialties for the first quarter were $147 million, a 6% decrease from the $156 million reported a year ago. Volumes were down by 5% against a strong comparative quarter, which, together, with a net adverse currency impact of 2%, was partially offset by a positive price mix of 1%. Fuel specialties gross margin for the quarter was 34.8%, down slightly from 35.7% in the same quarter last year but within our expected range. Operating income for the segment was $32.1 million, down just 2% from $32.9 million in the first quarter of 2019. Turning to Slide 10, revenues in performance chemicals for the first quarter were $113.1 million, compared to $118.1 million last year, a decrease of 4%. Volumes were up by 7%, but there was an adverse price mix effect of 9% driven by the pass-through of lower raw material prices and a negative currency impact of 2%. Gross margins of 24.4% were 1.9 percentage points over the first quarter of…

Thanks, Ian. Our first-quarter results were extremely good and we enter the second quarter in a financially strong position. However, the combination of COVID-19 pandemic and the collapse in crude oil and natural gas prices will provide a challenge for our company. I’d like to preface my next set of comments with a caveat. With the level of uncertainty we have, any comments or forecasts on the future are very speculative and are subject to the rapidly changing global environment. They are the best view we have right now. As our businesses face different challenges, let’s address each one separately. Performance chemicals may see some limited impact in the second quarter due to delayed consumer demand in the personal care sector. However, we expect this to be offset by higher demand for home care and disinfectant products. We would expect the overall market to recover and we should see increased growth with the enhanced consumer focus on cleanliness, hygiene and sanitation. Fuel Specialties prospects will be largely defined by the demand for fuel, which is particularly important in freight and trucking sector. It is clear there will be a substantial downturn in fuel demand in the second quarter as some parts of our industry are closed down. As the economy recovers, we would expect fuel demand to return to normal levels. The oil and gas industry is caught in a perfect storm. Global markets are oversupplied and the COVID-19 pandemic has caused the biggest demand erosion we have ever seen. The second quarter, we feel, will be the most challenging period in 2020 with a very substantial decline in customer activity. This market may take some time to recover and it’s also the most difficult market to predict. As I said earlier, we have already made the first phase of changes to our cost base and we have prepared ourselves for further actions, if required. When markets recover, we expect them to return to sustainable growth and there may be fewer competitors. Only those with the best technologies and strong balance sheets will survive. Our strong liquidity allows us to maintain our semiannual dividend at the same level as the second half of 2019, which is $0.52 per share. Depending on market conditions, we intend to increase our dividend for the full year. We believe our strategy is aligned to long-term growth and we have adapted to the current conditions. In addition, we have the financial strength to seeing us back through these challenges to emerge stronger and well-positioned for organic and acquisitive growth. Now I will turn the call over to the operator and Ian and I will take your questions.

[Operator instructions] And your first question today comes from the line of Jon Tanwanteng of CJS Securities. Please ask your question.

Good morning, gentlemen. Nice quarter and my condolences on the loss of your director. I’m sorry to hear that. Maybe to start, Ian, could you give a little bit more color on the decline in opex from last quarter? How much was active cost-cutting versus comp accruals and kind of the impact of the stock price on compensation as well?

Yes. Sure, Jon. The actual impact from the coronavirus was pretty minimal across the whole quarter. We saw a little bit of impact in our fuel specialties business and marine, saw it in the middle of the quarter where shipping in China was a little bit held up. And then right toward the end of the quarter, we started to see a drop in miles on the road, which impacted our trucking business slightly. But again, nothing that material in the fuel specialties. Performance chemicals was pretty unaffected throughout the whole of the quarter by coronavirus. Perhaps just a little bit of our production was impacted for a short period, but everything is back up and running now. And our oilfield business, that was mainly down to the price of crude and nothing to do with -- well, I suppose it’s the demand side impacted the crude side, the oilfield side. In terms of what are the big movers in terms of share-based compensation, per the press release last night, we highlighted that front and center. So yes, there was about $5.8 million credit in the quarter, which is the equivalent of $0.18 per share, which, of course, had benefited from cash-based comp with a drop in share price.

Got it. Okay. Thank you. And then just as you look forward, you mentioned reductions in costs and particularly in oilfield. How much are you expecting to save in terms of SAR and other expenses on a year-over-year basis?

I’ll let Ian pick this up and I’ll address it after Ian’s done.

Sure, Jon. So obviously there will be a little bit of a lag between the decisions that we’ve, unfortunately, had to make and the financial impact going through. So we’ve made decisions which will broadly save probably about $4 million to $5 million a quarter in operating expenses in oilfield right now. We will probably make further decisions and roll those through. So I think you’ll probably -- by the time we get to the start of Q3, you’ll probably start to see sort of $5 million to $6 million saving in operational expenses per quarter coming out of oilfield.

Got it. And just given those -- sorry, go ahead, Patrick.

Yes. It’s interesting that we’ve seen this before in 2009. We’ve seen it in 2015 and 2016. So there is a pre-prep that has been done and we’ve gone through this process before. So we have lined up additional cutbacks, if need be. But what you don’t want to do, Jon, is decimate the business. So when it does come back, you’re scrambling to take care of your customers. So we have to be very prudent on our cutbacks and our cost base to make sure that we don’t fall on our face down the road.

Understood. And I know it’s kind of hard to tell at this point, but what are your expectations for profitability for the segment for the year? And again, what assumptions are you making about oil prices to get to that number, if you have an internal view?

Yes. If you look at -- and we’re talking specific to oilfield -- crude probably needs to be in that mid-30s range, low to mid-30s to see activity start picking back up. There’s a lot of hedges in the market in some areas, so people are going to be okay. I think, for us, it’s a function of taking some of the cyclicality out of the market, which we’ve done. And we just have to continue to watch it. Again, it’s a supply demand issue. And as soon as we start seeing miles on the road improve, you’ll start seeing inventories come back down and you’ll see prices start going back up. So it’s more of a wait and see than anything else.

Okay, got it. You mentioned a little bit of, I guess, client or production headwinds in the performance chemicals segment. Can you quantify and kind of qualify what’s going on there?

Yes. Some of our customers had some of their facilities shut down due to the COVID-19 pandemic. And so when you can’t get into a facility and deliver product, you can’t manufacture products. So that was part of the issue. Most of those have been resolved and so most of our customers are back up and running. And so we’re seeing a pick-up in volumes again, as we anticipated.

Got it. Okay. And then, finally, Patrick, just the commentary on the dividend, pretty strong commentary, especially your comment on increasing it later in the year. How committed are you to that given the headwinds you’re facing? Is the cash flow there to support it? And what was driving your confidence there, really?

Yes. I mean, we have a great balance sheet and we’ve always been very prudent on how we spend our capital, not only from an acquisition standpoint, but from shareholder value and returning money back to our shareholders. And so if you look at the outlook in Q2, Q3 and Q4, we still feel very strong that we’ll be in a nice position to go ahead and increase our dividend long term. We feel the dividend is very valuable. We think it’s a very prudent issuance of our cash. We still have nice credit facilities to tap into to do an acquisition, if we so be it. And if the market -- multiples come down and your valuations come down into a territory we feel is fit for our strategy. So I think if you look at our overall balance sheet, we’re in great shape to continue the dividend, probably increase the dividend. But the reason why we didn’t do it in this quarter is because we want to make sure that the markets are coming back as we anticipated and we are starting to see that, which is a good sign.

Thank you. Your next question today comes from the line of David Silver of C.L. King. Please ask your question.

Yes. Hi, good morning, David. I have several questions. I guess maybe I’ll just start with performance chemicals. So if I’m reading this right, the operating income was a record in that group. And I’m wondering if you could point to where the incremental earnings came from. In other words, was it the sale of higher-margin products? Or was it continued efficiencies that you were able to wring out of the business? And then secondarily, a little bit counter maybe to the trends in your other two segments. I mean it would seem that performance chemicals would be well-positioned to benefit from the increased demand for disinfection and sanitation products. I believe that your company is kind of more positioned at the higher-value end of the business there. But maybe if you could talk about the secular growth opportunities you see in the current post-pandemic environment for maybe a structural pick-up in demand in performance chemicals.

Okay. Let me take some of that and I’m sure Patrick will come over with some additional comments. So first of all, you’re correct. Q1 was a record performance in terms of operating income for the business. We’re delighted with the performance of the guys that produce there and [indiscernible] see them in pretty difficult times. What’s really driven that is our continued focus on new product introduction, changing the sales mix toward higher-end, higher-value products, so initiatives to reduce costs in the operational end of the business. And all these things, all these incremental things that we’re doing are really starting to show through now. So that’s where you’re getting the additional volumes coming through. That’s where you’re getting additional gross margin expansion and that’s why we’re starting to see the benefits of the efforts of the guys there really dropping through to the operating income line. In terms of the actual products, it’s really across the line, both in our personal care and home care products. And you called it pretty spot-on there, David, in terms of sort of the medium to longer term. We do expect the world to change its habits. We do play toward the sanitation, the hand sanitizers, the disinfectant, the cleanliness and a lot more products play into those arenas. And we do think that there’s going to be a change in consumer activity, where they’ll be more focused on those items. So we’ve got a very, very good opportunity coming down the track, not only just to grow our existing core business, but also to add on some more lines in the sanitation area and the disinfectant area and really grow our business in many different ways.

Yes, I think Ian made some good comments there, David. And one of the things that we talked about when we expanded this business a while back and made the acquisition over in Europe is that we would focus on margins and conversions of margins into op inc and product mix. And we’ve done that and you’ve seen that consistently over the quarters and it’s really starting to show. And I give credit to the guys in the business for doing what they’ve done. I think Ian’s right. There’s a lot of new secular trends and secular growth going on in this market, primarily pushed by the COVID-19. And as he alluded to, the antibacterial, the antiviral, there’s multiple things that we look at that fit right to our strategy long term and right into our technology growth sector. And so it could expand its paws into many different things when you start looking at shampoos and body gels and lotions and things of that nature. So there’s a lot of things that you’re going to see in this market where some will be what we would call a mid-tier and some will be specialty. And I think there will be a good balance moving forward. And again, it’s all consumer trends. That’s what you have to look at social behaviors, consumer trends and that’s really what we’re going to be looking at moving forward.

That’s great color. Thanks. Patrick, I’m going to stick with you here and I know that your historical background is in the oilfield services area. And I have a number of questions that I’d like you to comment on. But just, in general, oil prices go up and down and I was always impressed with your company’s ability to gain significant share over the past few years via a bundled products and service offering that was very appealing to customers. So just a couple of things. Do you think that there might be share opportunities for you as oil prices recover and production resumes? In other words, with production down, it gives the remaining operators a chance to rethink how they want to operate once conditions are more favorable. And will that bundled products and service offering prove incrementally more attractive to them coming out? And then maybe ancillary to that. From an M&A perspective, I know you’ve said that you think you have everything you need with your bout with M&A activity roughly five or seven years ago or seven or eight years ago. But in this environment, is this an opportunity to add, I don’t know, a single service or an additional incremental product or two that you think would improve your competitiveness with greater breadth or with a greater portfolio to bring to bear on the market once it does resume back to more normal operations?

Sure, David. If you look at the oilfield sector, there is a lot of balance sheets that are very stretched, especially in the services side and you could even lop in midstream as well. Our focus right now will obviously be on technology and making sure we’re prepared for when that growth comes back. The benefit of our balance sheet is it gives us the ability to wait these things out. We can do things that a lot of companies can’t at this point in time. A lot of equity, a lot of small companies have jumped into this business when it came back after 2016. And again, they have a lot of stretched balance sheets out there and a lot of the majors do, I mean, a lot of the majors going through layoffs like we are. That’s what you have to do to right-size the business. But I think our focus on technology really puts us on the forefront and that’s why we were able to grow a lot quicker than most of our competitors in this marketplace. And I think that will also help us grow as we come out of this sometime in the near future. So yes, it’s a lot of really watching where we can be advantageous in the market. I think there will definitely be some customer growth coming out of this. And again, our focus needs to be technology and customers. And that’s really what we’re doing right now and rightsizing the business but not decimating the business. So that’s the focus moving forward for oilfield specialties. I think if you look at acquisitive growth, most of what we’ve done is what we did in the past is strategically placed our business in lowest-lift cost basis. Additionally to that, we said and…

That’s great color, Patrick. Thank you. One last question, if you don’t mind and this would be one area where maybe you were a little spare on comments that I was anticipating would be a discussion of your new product efforts. And you did touch on the DRAs, but I was also interested with the low-sulfur marine fuel additives and the GDI engines. And on the low-sulfur fuels, I was wondering, I guess, my understanding was that there had to be kind of a feedback loop between the operators and the fuel additive makers, such as yourselves. And I’m wondering, even with reduced travels, maybe I’m wondering if -- with slower operating demand or slower operating conditions, has that allowed yourselves and your counterparts to kind of analyze the results to date and maybe come up with fuel-additive solutions that kind of address the needs and certainly not over the next quarter. But do you think you can accelerate the development and commercialization of those additive formulations that you think the IMO 2020-affected vessels will need? And then just secondarily, any comment on your penetration of the GDI engine market?

Sure. If you look at the IMO 2020 and the advent of the low-sulfur fuel, it takes time for some of these vessels’ engines to have problems, to build up particulate, to have problems in the tanks, etc. And we’ve said that this is -- we know there’s going to be a problem. It’s a function of do you treat it at the refinery, do you treat it at the terminal, or do you treat it on the vessel, or is it all three? And until you start seeing major problems in the field with these fuels or with operations, people obviously aren’t going to pay for fuel additives, if they don’t think they need to, until there’s a problem. We’re now starting to see that. And unfortunately, with the COVID-19 issues on hand, it’s slowed down quite a bit on vessel freight. And so for us, once you see that picking back up, I think you’ll start seeing the IMO 2020 products come back into play. We are selling them. We were expecting to sell a lot more until the pandemic hit. I think we’re properly positioned with great technology. We are starting to see the problems and they’re out in the open public domain. So you will see that pick up, David, over time -- and we feel like we’re properly positioned to take advantage of that market and it’s a highly functional, highly technological product that is typically a fair margin for our business. And so we’re looking forward to getting back to some form of normality, so we can see the increase in sales in that product line. On GDI, it’s the same. I mean, you’re seeing most engines coming out now are GDI. They’re gasoline-direct injection. You don’t see any PFI engines out there. But the old fleet is PFI. The new fleet is GDI. And again, we have a great product that is patented that is really waiting for the market to stand up and mature and that’s just going to take time. These are both -- the IMO 2020 and the GDI are both future products that we’ll start seeing benefits when we start seeing miles on the road and vessel activity. And so I think it’s probably a third, fourth and first quarter next year where you’ll start seeing the benefit of those sales.

All right. Thank you very much. That was great color again. I appreciate it. Thank you.

Thank you. Your next question today comes from the line of Chris Shaw from Monness, Crespi and Hardt. Please ask the question.

Good morning, everyone. I guess this is pretty much a question for Patrick. I know your experience and you’ve been pretty -- a good, I guess, fortune-teller on how the oilfield business looks in general. So I wanted to -- how is this downturn do you think going to be different than in 2015, ‘16, both for the industry as a whole and I guess maybe more specifically for your business? I mean, I know there’s the change that you’ve mentioned, DRA, Middle East. I guess, specifically for Innospec, is I guess the profit bottom floor much higher than it was in the past?

Yes, I mean, they’re two very different downturns. 2016 was recessionary driven, but you still had miles on the road. You still had demand. You still had planes flying and cars driving and vessels moving. This is a downturn in -- I hate to use the cliché word of unprecedented, but this is a downturn that nobody has ever lived through. And so it’s very difficult to say what the timing is on it, how long it’s going to take to get through it and what the overall ramifications are. And again, this bodes well for companies -- and we stated this in our script -- for companies who have great balance sheets and this goes for all of our businesses. And I think coming out of this, we’re all looking at when do some of the governments and local authorities and local agencies start opening up and we’re starting that across the globe. Well, you’re starting to see demand come back. Now that demand is just not only -- we’re not talking about just fuel demand and oil demand. We’re talking about demand like specialty shampoos that go into hair salons, things of that nature which we’ve never seen the likes of in ‘16 in comparison to what it’s like in 2020. So this is really just difficult waters to chart on because we’ve never seen it before. But I think that we’re so well balanced that we will get through this. It’s just going to be at what timing, at what quarter, when do things get back to normalcy. And if they don’t go back to normalcy, for instance, consumer trends or consumer demands or social behaviors and we have to make sure the company we’re adopting and adapting to those social behaviors and consumer trends. And that’s a constant going on, not only with our executive team, but with our sales team, with our technical team. It’s a constant revolving door right now as to what’s going to happen in the future. I think we’re on top of it. I think we’re well-positioned. And again, I wish we all had the crystal ball and I could predict what’s going to happen.

Do you think, specifically for your customers in oilfield, I mean, is there anything different this time? Or will be anything different in their behavior? Or is it like you simply said before, once we get back up to $35 a barrel, things will just start right back up, you’ll see things will be somewhat normal?

Yes. It’s interesting. When you shut in wells, you still have to treat it for bio and stability and things of that nature, so you don’t mess up the well formation. I think some wells will come back and have some issues. I think people are going to be reluctant to come back real quick, especially to go and drill and frac at $35 a barrel. Some companies are hedged appropriately and they’re going to be Okay through this process. And I think, overall, it all depends on where you are, what basin, what does your cost consists of to see how it’s going to look when crude goes to $35. I think what you’ll see at $35 is people who have shut production in will at least come back on. And I think what you’ll see in companies that were hedged through this process will start drilling and completing again wells at $35. Some won’t just come back. I mean, there is no possible way until they either go through bankruptcy or somebody bails them out. So what you’re going to see in our opinion is you have a big build right now. I think you’re going to see a big drop-off. And as demand returns, the drop-off is going to still -- a big decline. And so all of a sudden, you’re going to see a big spike in volumes and a big spike in usage, but you won’t have products there. You won’t have the oil sitting there like it is right now, because you’ve obviously had OPEC cut back and you’ve got a lot of production going out, not only in the U.S., but globally. This is happening globally. So for us to be properly positioned and take advantage of this is the right thing to do and you’ve got to do it through technology. But we’ve got to make sure the customer has the right technology given the best cost base. And that’s what we’re focusing on during these times.

Thank you. We do have one more question at the moment. This comes from the line of Bill Dezellem of Tieton Capital. Please ask a question.

Thank you. I do have a couple of questions. The first one is relative to the octane additives business. You did mention that your customer is using product. Longer term, what are you seeing in terms of their conversion and what you think future orders could look like, understanding that you said you did not see any on the order book now? And then secondarily, have you looked at -- I think it was specifically your performance chemicals business, but maybe you also saw this happen in fuel specialties. You said that some customers’ plants shut down. And I guess the question is, is that permanently lost business or is there catch-up that needs to be done because those products, in fact, were being or inventory being drawn down while the plants were shut down?

Good morning, Bill. Good questions. On the OA demand, we all know the last country is Algeria. We have been speaking to them on a constant basis. They still are using excess inventory that’s sitting in-country. We’re waiting to see if they’re going to order again. We don’t think they are. But again, it’s a wait and see. You just don’t know in these times what they are going to do. All the refineries, but one, have converted over to the new fuel and so we’re just going to have to wait and see. That’s probably all I can say about octane additives. On the performance chemicals business and others, if you look at the customers who were shut down, a lot of that was because of the pandemic. It wasn’t because of lack of demand, as you said. I think you’ll see some catch-up in sales, especially some of the specialty products. But it won’t be that big spike that you might look or anticipate. But you’ll definitely see some catch-up in sales as they’re starting to all come back online.

And were the plants and the products that were being produced, was the demand negatively impacted by the virus? Or did that demand further continue and/or increase? It’s just the plants were not considered essential?

The plants that were just shut down due to the fact they had some COVID activity and so personnel were not able to get on the plant and their operation had a skeleton crew. And so a lot of that is what’s happened. Now that they’re coming back on, we’re starting to see more activity with orders.

Thank you. There are no further questions at this time. Patrick, please continue.

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 Q2 2020 results in August. Have a great day.