Good day, and thank you for standing by. Welcome to the Innospec Third Quarter 2024 Earnings Release Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. David Jones, General Counsel and Chief Compliance Officer. Please go ahead.

Thank you. This is David Jones. The earnings release for the quarter and this presentation are posted on the company's website. During this call, we will make forward-looking statements, which are projections about future events. These statements are based on expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by such forward-looking statements. The risks and uncertainties are detailed in Innospec's 10-K, 10-Qs and other filings with the SEC. Please see the SEC site and Innospec site for these and related documents. In today's presentation, we have also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is in the earnings release. The non-GAAP financial measures should not be considered as a substitute for those prepared in accordance with GAAP. They are included as additional items to aid investor understanding of the company's performance in addition to the impact of these items and events had on financial results. With me 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 third quarter 2024 conference call. Overall, this was a good quarter for Innospec with results broadly in line with our expectations. Performance Chemicals and Fuel Specialties delivered double digit operating income growth with margin improvement, while Oilfield Services continued at lower activity levels as expected. Performance Chemicals operating income was similar to the first two quarters of 2024, and we expect comparable performance in the coming quarter. Our target for 2025 remains to return our operating income run rates and margins to full-year 2022 levels. We continue to expand our industry leading portfolio of 1,4-dioxane and sulfate-free technologies. Supported by our formulation expertise, we will deliver the value and performance that our customers require for their next generation of products. In addition to growth in personal care, we see broad mix of multi-year organic opportunities in our home care, agriculture and other industrial end markets. Fuel Specialties delivered double-digit operating income growth with improved gross margins, which remained within our target 32% to 35% range. With a steady demand outlook for heavy transportation fuels over the coming decades, our focus continues to be on cleaner and renewable fuels along with lower emissions. Our technology pipeline will drive opportunities in both fuel and nonfuel applications. As expected, Oilfield Services continue to be impacted by lower activity in our Latin America business. We currently assume these lower levels will persist through the end of this year and into 2025. Our team remains focused on multiple growth and margin improvement opportunities in our other Oilfield segments, which we expect to drive sequential quarterly growth in 2025. Now, I'll turn the call over to Ian Cleminson, who will review our financial results in more detail. Then I will return with some concluding comments. After that, Ian and I will take your questions.

Thanks, Patrick. Turning to Slide 7 in the presentation, the company's total revenues for the third quarter were $443.4 million a 4% decrease from $464.1 million a year ago. Overall gross margin decreased by 1.6 percentage points from last year to 28%. Adjusted EBITDA for the quarter was $50.5 million compared to $54.3 million last year, and net income for the quarter was $33.4 million compared to $39.2 million a year ago. Our GAAP earnings per share were $1.33 including special items, the net effect of which decreased our third quarter earnings by $0.02 per share. A year ago, we reported GAAP earnings per share of $1.57 which also included the negative impact from special items of $0.02 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.35 compared to $1.59 a year ago. Turning to Slide 8. Revenues in Performance Chemicals for the third quarter were $163.6 million up 13% from last year's $145.2 million. Acquisition growth of 8% and volume growth of 9% were partly offset by an adverse price mix of 4%, due mainly to lower raw material costs flowing through to selling prices. Gross margins of 22.1% increased 1.2 percentage points compared to the same quarter in 2023, benefiting from a richer sales mix and higher production volumes. Operating income of $20 million increased 18% over last year. We expect to be able to maintain this level of operating profit in the fourth quarter. Moving on to Slide 9. Revenues in Fuel Specialties for the third quarter were $165.8 million down 2% from $169.3 million reported a year ago. A 2% increase in volume was offset by an adverse price mix of 4% with a favorable sales mix outweighed by lower pricing from the easing of raw material costs. Fuel…

Thanks, Ian. I'm pleased with the overall results this quarter which were generally in line with our expectations. Fuel Specialties and Performance Chemicals both delivered double-digit operating income growth over the prior year, while Oilfield Services was flat with the second quarter. In the fourth quarter, we expect relatively steady sequential results in Performance Chemicals in Oilfield Services and some growth on seasonal demand in Fuel Specialties. In 2025, we believe we are well positioned for full year growth in Fuel Specialties and Performance Chemicals with sequential core recovery in Oilfield Services. This was another excellent quarter for cash generation. With over $300 million in net cash on our balance sheet, we are well positioned to continue to pursue organic investments and complimentary M&A, while returning value to shareholders through dividend growth. This quarter, we increased our semiannual dividend to $0.79 bringing our full year dividend to $1.55 representing a 10% annual increase. Now, we'll turn the call over to the operator and he and I will take your questions.

Thank you. [Operator Instructions]. We will now take the first question from the line of Mike Harrison from Seaport Research Partners. Please ask your question.

Hi, good morning. So I was hoping that we could start out with the Oilfield business. I guess I was a little bit surprised to see that revenue did move a little bit higher sequentially. Just curious, are you guys feeling good about the opportunities that you're seeing outside of Latin America to make up some of this revenue shortfall? And maybe can you give us some details on where you're looking for those opportunities and how you expect them maybe to play out over the next few quarters?

Good morning, Mike, it's Patrick. I think if you look at Q4 and then we look at full-year 2025, we don't see really a lot of business running through that Latin American entity quite yet. I think with the new government coming in, getting a handle on what's going on, we'll hope to see some traction, but it's kind of a wait and see approach. But what we have done is we concentrated on not only margin improvement, but also business activity in our other businesses being DRA, being U.S. completions and other areas, including production chemicals. A big push that we have right now is in the Middle East, in specific to Saudi Aramco. We've made a lot of headway there and all the people in Saudi and those offices in our Middle East have done a really good job. Matter of fact, I just returned from a trip there and we have a lot of opportunities there. We've proven ourselves with great products, we've proven ourselves with great services, and we'll continue to do that, and that's why I think you'll see the uplift moving forward in 2025.

All right. And then, in Fuel Specialties, if I kind of look at the SG&A expenses or operating expense line, it seems like that came in a lot lighter than it was last quarter. Can you just talk about whether there was anything unusual going on the SG&A line within Fuel Specialties?

No, nothing at all, Mike. A little bit of time with costs, perhaps a little bit about debt relief. Nothing of any significance whatsoever.

All right. Great. And then, Performance Chemicals, I know that pricing number is still lower. It sounds like that was just passed through of lower raw material costs. But can you just talk about the trends you're seeing in raw material costs and when we might expect to see that price mix number kind of stabilize?

Yes. So, generally across the business, Mike, we're seeing pretty stable raw material pricing right now. A lot of our pricing comes from crude derivatives or natural products. It's pretty stable at the moment. So in fuels, we're seeing some higher gross margins and some stability there. We've caught up on all the pricing there. And in Performance Chemicals, that sort of pass through is sort of stabilizing now. So we're seeing year-over-year movements, but we're not seeing sequential movements as violent as we have done in the year-over-year numbers. So I think sequentially, you're going to see that settle down. I think it's just going to take a little bit of time period, so we get the comparatives more realigned.

All right. And then last question for me is just on the guidance. It sounds like you're talking about a seasonal uptick in the fuel specialties business, maybe kind of steady performance or maybe a little bit of sequential improvement in Performance Chemicals and then Oilfield maybe a little bit lower. So is the $1.35 that you just reported, is that still in the right ballpark for next quarter or would you expect to see that a little bit higher on the EPS line? Thank you.

I think Mike is broadly in line. I think you'll see some sequential improvement moving forward in Oilfield, and I think you're spot on the other businesses and probably at $1.35 maybe a tad higher is right in line.

All right. Thanks very much.

Thank you. We will now take the next question from the line of Jon Tanwanteng from CJS Securities. Please go ahead.

Hi, sorry I was on mute. Good morning. Thank you for taking my questions. I was wondering, I noticed that you had some higher corporate costs from historic pension items in the quarter. I was wondering what the normalized corporate cost looks like and what should we think about going forward.

Yeah, this is Ian, John. Good morning. Yeah, that was a sort of a one-off credit that we received from some historic pension costs in the U.K. The adjusted number is about $20 million this quarter for corporate costs and that's a good number going forward into 2025. So $20 million a quarter, $80 million for the full year.

Got it. Okay. And then, Patrick, I think you mentioned organic investments on top of M&A. What's in the pipeline for you just in terms of investing for growth and in the business?

It's interesting, we're monitoring it as we speak, to make sure that the markets are still fluid like they are, but I think you're looking at a little bit still in Performance Chemicals. Some of that with the new acquisition down with QGP in Brazil, a little bit in Oilfield, potentially some expansion of DRA and some other areas and then just looking at other areas of our business that we think geographically we could expand organically and then we also are looking at additional M&A opportunities outside of that.

Okay, got it. And then just in light of the election results, what do you think the benefits or impacts might be on your business as we go forward? For the stock might be reacting to that today and I'm wondering what your thoughts are?

Yeah, I mean, you see the corporate tax benefits that's going to help everybody. Our general view is you hope to have some political stability globally. That's the hope. I think that general in general business, things are looking positive pre-election. I think post-election, there should be quite a bit of positivity as well and I think that, whoever gets in there as president, we were hoping that, obviously, it brings world stability and world peace and bring prosperity back to everybody and that's the hope that that's going to happen. But our businesses are set up very well, no matter what happened with the election and I do think this is a potential boost.

Great. Thank you.

Thank you. We will now take the next question from the line of David Silver from CL King & Associates. Please go ahead.

Yes. Hi. Thank you. Good morning. First question would be on the Performance Chemicals area. So a couple of things, but it's been a few quarters now since your Latin American acquisition. And I'm just wondering if you could comment on maybe the overall integration and the role it's playing currently. So in other words, is that unit producing for local markets purely? Is it part of more of a global network where it's specializing in certain products or formulations and shipping those globally? And I think you touched on it earlier, but maybe overall, does this make you more likely to try to find more similar kind of strategic bolt-ons in this area? Thank you.

Yes, Dave, good question. It's a it was a strategic acquisition to give us manufacturing capabilities in Latin America, especially in country in Brazil. It's fairly diverse in regards to the assets. Over time, we'll be able to make not only Oilfield products on there, but probably Fuel Specialty products on there as well. So we like the capabilities of the assets. It is primarily a Latin American business, but it does have applications in the U.S. as well. and they do have customers in the U.S. It's meeting our expectations. We expect to have a nice year from there going into 2025, especially as the agriculture markets come back. So that is very well positioned. And what that does do is we as we fully integrate that into our system, we'll look at similar type activities and whether it's China or India or areas of the world like that, where we need in-country assets and we don't want to go and spend 100s of million, but we can control it by spending millions and giving capabilities to all three business units.

Okay. And then, maybe just to comment on the demand also for Performance Chemicals, but maybe the demand profile that you're seeing currently. So in other words, you did undertake your major organic investment and expansion program with a certain amount of new business in mind or customer programs in mind and I know that certainly for a while there, the pandemic or post-pandemic effects kind of were, I don't know, causing some adjustments in versus planned demand. But we see the revenue base very close to where to overtaking your Fuel Specialty revenues on a run rate basis. Just where do you think you are? Have the customers fully engaged? And are you're filling orders for the entire, I don't know, menu of new projects that you anticipated? Or would there still be some incremental demand or customer programs to fill going forward?

Yes. The hope and I think what we'll see in 2025 is hitting the levels that we are hitting in 2022. You are seeing a product mix differential, especially in high inflationary markets. They've gone to a lower caliber type product, not commodity, but not as the higher type product that we like to sell. I think as you'll see market stabilization, you'll see them moving back up into the higher trends. But it's been a nice rebound. I think we'll continue to see that rebound in 2025. And the goal is to get those to at least 2022 levels and then keep pushing beyond that. So we're moving the right mix, the right direction. And as long as we get the right price mix, you'll see those margins improve as well.

Okay. If I could just switch over to Fuel Specialties for a moment. I did want to touch on the margin performance and I guess I'm looking at EBITDA margins here, but the current quarter's margin is the highest it's been in quite a while and I'm just wondering a couple of things, would that be a reflection of maybe your business mix, returning to kind of the pre pandemic levels? In other words, the contributions from your higher margin, maybe aviation fuel or other additives? Or is this a reflection of maybe some new business, some new products getting into the market a little bit more and starting to see the benefits of that? So just maybe a comment on what went into kind of this very strong margin performance in the fuel specialty side? Thank you.

I think it's a mix, David. It's product mix, it's lower raw materials, and there's a conscious effort internally for margin improvement. And so I think combined with all three of those, they had a really strong quarter in margins. I think we have to be cautious moving forward, but we see a similar quarter in Q4 before maybe trends down a little bit in 2025. But we do see similar type margins in the fourth quarter.

Okay, great. That's great. And then just maybe one last one, but I mean, you did touch on the situation in Oilfield with the lower revenue levels. Just wondering if compared to 90 days, well 90 days ago when we were talking, I think the situation with your reduced orders was that your feeling was that customers can't do without your products forever and that it would hurt their operations pretty directly. I mean it's 90 days further on. Any further thinking along those lines? I certainly understand there's a political process or whatever that might be involved, but anything around the edges that you've picked up that maybe indicate, how the customer might be proceeding down the road?

Yeah. I mean, we have gone through, all product testing that was in the market. We know production levels have come off. We know the safety has come off a little bit. We know our product is one of a very few products that work in that marketplace. We're well established. We're technically well established. We've got a great partner down there. It's literally a political environment that's out of our control. I think at some point in time, they'll get their hands around it, and we'll be there waiting to help them pick up the pieces. But it's definitely something that we're involved in, we're still involved in. We're pretty sure they've probably tried other things that have not worked. So we're just going to sit tight until they need us. And when they need us, we'll be there to help them.

Okay, great. I appreciate all the color.

Thank you. I would now like to turn the conference back to Patrick Williams for closing remarks.

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 Q4 2024 results in February. Have a great day.

This concludes today's conference call. Thank you for participating. [Operator Closing Remarks].