Ladies and gentlemen, good day, and thank you all for joining this NewMarket Corporation Conference Call and Webcast to review Third Quarter 2019 Financial Results. [Operator Instructions] And now for opening remarks and introductions, I'm pleased to turn the floor over to your host, Chief Financial Officer, Mr. Brian Paliotti. Please go ahead, sir.

Thank you, Jim, and thanks for joining us this afternoon. As a reminder, the statements made during this conference call may be forward-looking. Relevant factors that could cause actual results to differ materially from those forward-looking statements are contained in our earnings release and in our SEC filings, including our most recent Form 10-K. During this call, we may also discuss non-GAAP financial measure included in our earnings release. The earnings release, which can be found on our website, includes a reconciliation of the non-GAAP financial measure to the comparable GAAP financial measure. We filed our 10-Q this morning. It contained significantly more details on the operations and performance of our company. Please take time to review it. I will be referring to the data that was included in last night's release. Net income was $68 million or $6.06 a share compared to net income of $58 million or $5.12 a share for the third quarter of last year. Sales for the petroleum additives segment for the third quarter of 2019 were $551 million compared to sales in the third quarter of 2018 of $561 million. This decrease was primarily due to lower shipments, partially offset by increased selling prices. Petroleum additives operating profit for the third quarter of 2019 was $95 million compared to $76 million for the same period last year, and the increase was primarily due to lower raw materials and conversion costs, partially offset by lower shipments. We are pleased with the year-to-date cost-to-serve efforts undertaken by our team to operate more efficiently and better serve our customers. This is evidenced in the lower conversion costs as we gain experience operating a broader supply network with our newer Singapore and Mexico facilities. It is also showing in our lower selling, general and administrative costs this year.…

Absolutely, thank you. [Operator Instructions] We'll go first to the line of Dmitry Silversteyn with Buckingham Research. Please go ahead. Your line is open. Hello, Dmitry, your line is open, did you signal for a question?

Hi. Can you hear me?

Yes sir. Please go ahead.

All right. Good afternoon. Thanks for taking my call. A couple of questions. First of all on the -- if I'm kind of looking at the margin improvement year-over-year, you mentioned raw material and conversion costs. If you look at kind of price in raw material and the lower processing and conversion costs that you guys talked about, how would I spit that up in two buckets in terms of at least relative size of these drivers?

In a margin perspective, Dmitry, I'll have to give you the exact from a dollar perspective that would relate back to margin, so I can get that to you after the call, if that's okay. But from the perspective of what was the larger driver of the two raw materials was the larger driver versus conversion.

Got you. Okay. Then if I kind of look at your 10-Q data and the difference between the performance in fuels and lubes, it looks like that the price mix in fuels was up like mid- to high single-digits in -- I'm sorry fuels. Yes in lubes it was very different. It looks like to be flattish may be up a little bit. So was it mostly price that you're still trying to push? Or was there kind of a mix shift in terms of within the product portfolio itself?

On the fuels and lubes side, it was more of a product mix shift versus price.

Okay. So more of a mix than price, okay. If I -- you mentioned that raw materials was the bigger driver, if you look at year-over-year and quarter-on-quarter, how did your raw material basket fare in the third quarter versus third quarter of last year and versus second quarter of this year? And how do you see that shaping up for the fourth quarter?

In general terms, the raw material basket we saw more stability from second quarter to third quarter this year and we didn't see that in 2018 in the third quarter. And from a go-forward perspective, we don't give guidance on what raw materials are -- we think raw materials are going to do. But from a standpoint of what we saw in the two quarters in the third and second this year we saw more stability than we did last year.

Okay. So it sounds like sequentially pricing stable more or less but on year-over-year it was down meaningfully. Is that a fair...

Meaningfully from a raw material perspective yes, we saw more stability this year than we saw the fluctuation in last year that's correct.

Okay. Have you guys looked at the IMO 2020 impact the possible impact that can have on the lube and fuel industry? And do you have any kind of a view on what the implementation of low-sulfur fuels in marine diesel was going to do for your business? I'm not sure if you're even a major player in marine diesel but I was just wondering for the industry overall, if you kind of thought about what the impact would be?

We understand that there'll be an impact to the additives business. And the marine business is not a business that we participate heavily in today. And so from the perspective of the industry there'll be an impact. And from our perspective, we don't see that much of an impact as we're not that heavily into that segment.

What kind of an impact would you -- were you thinking about seeing or the industry was thinking about seeing?

Well, I mean, the industry is going to see an impact, I mean, like I said, we don't play in that market, so I can't comment on what the other players are going to see or what the impact is going to be on them.

I guess my question is Brian more in general, I mean, impact doesn't have to be negative. So, I mean, is there going to be an opportunity to get more sophisticated lubes into the market or fuel additives or vice versa? I'm just trying to understand overall what the impact is going to be in the industry positive or negative?

Dmitry, I guess, what I'm trying to articulate is that the direct impact from what IMO was going to do on the market. We don't see a material impact to our business. I think that there will be an impact from the players that play in that segment that could have new products to go into that segment, but we would not have knowledge to what those would be and whether they'd positive or negative to that segment of the petroleum additives industry.

Got you. Okay. Thanks for clarifying that.

Sure.

You talked about various regions experiencing different sort of demand trends both in fuel and lube additives.

Sure.

If you look at your major regions, can you talk to sort of what the current environment is like and how it's different between regions? And what your outlook is for the balance of the year?

Yes, I would say what we've seen to this point from a region-to-region perspective is sorted followed along with what you've seen from a macro perspective. So you've seen the North American market be a little bit more resilient to ups and downs from an economic perspective, more softness in Europe, mainly driven by Germany and then from a new car sales perspective in Asia, specifically China, you're seeing softness. And we don't know what it's going to look like for the balance of this year but that's what we've seen and that's been reflected in the comments that we've made from a regional perspective.

Got you. And so you didn't mention Latin America, anything specific happened in Latin America that did not drive your volumes down this quarter, or is it just - is it macro, is it with Argentina? Can you talk about...

No. Nothing specific Dmitry, I mean it's just softness. You continue to see softness just in the macro auto industry every where and some -- as you know some of the regions are more impacted than others due to the demand.

Got you. Got you. Last question.

Sure.

In terms of cash generation and the cash use how should we think about your deploying cash? You already pretty under-levered, so, I mean, I'm assuming debt pay down is not going to be a big use of cash. So is it going to be dividend increases which you haven't done either, or is it going to be mostly share repurchase?

Well, I can tell you that the use of the cash follow the three steps that we think about, one is, giving the business everything that it needs in order to continue to grow from a CapEx perspective and we commented on what the CapEx is going to look like. The second is dividend and we did increase the dividend last quarter so that is a potential use of cash, and then acquisitions is, in the petroleum additives space is going to be another use of cash if we can find an opportunity. And then buybacks are always something from a shareholders' reward perspective that we potentially look at.

Okay. So excluding the serendipity of acquisitions, it sounds like dividend increases and buybacks would be sort of one, two and not much in terms of needing to pay down debt here?

Well, one is going to be given the CapEx for the business and then we will evaluate all the other uses of cash in that order of priority.

Great. Okay, got it. Thank you very much.

Okay, thank you.

[Operator Instructions] Mr. Paliotti, we have no signals from the phones. I'll turn it back to yourself and our leadership team for any additional or closing remarks.

Okay. Well, thanks everyone for calling in and we'll talk to you next quarter.

Ladies and gentlemen, this does conclude today's conference, and we thank you all for your participation. You may now disconnect your lines and we hope that you enjoy the rest of your day.