Innospec Inc.

Hello, this is David Jones, and I am InnoSpec's General Counsel and Chief Compliance Officer. Yesterday, we reported our financial results for the quarter ended September 30, 2021. The earnings released in this presentation are posted on the company's site at InnoSpecInc.com. During this call, we will be making forward-looking statements, which are predictions and projections. These statements are based on current expectations and assumptions that are subject to risk and They can cause actual results to differ materially from the anticipated results implied by forward-looking statements. These risks and uncertainties are detailed in INSPEC's 10-K, 10-Qs, and other filings with the SEC. Please see the SEC site or INSPEC site for these and other documents. In our discussion today, we've also included some non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release, which is also posted on our site. The non-GAAP financial measures should not be considered as substitute for or superior to those prepared in accordance with GAAP. They are included as additional clarification items to help investors further understand the company's performance in addition to the impact that these items and events have on financial results. With us today from Innispec are Patrick Williams, President and Chief Executive Officer, and Ian Clementson, 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 Inispec's third quarter 2021 conference call. This was another very good quarter for Inispec. Our global business teams did an excellent job managing through a difficult supply chain and inflationary environment. All businesses delivered strong sales growth while holding overall gross margins in line with historic levels. Our outlook is for ongoing tightness in logistics and raw materials as we move through the coming quarters. We will continue to prioritize close communication and coordination with our suppliers and customers to limit the impact of any future price actions which may be required to offset inflation. Our balance sheet remains strong, and I am delighted that the Board has approved another increase to our semiannual dividend to 59 cents, bringing our full-year dividend to $1.16 a 12% increase. Performance Chemicals delivered another excellent quarter with record sales, improved margins, and a 44% increase in operating income over 2020. Our technologies directly address growing long-term consumer trends like clean beauty, sustainable packaging, and low-carbon formulations. To keep pace with the demand associated with these trends, we expect to materially step up our organic growth investment in 2022. These investments are targeted for our existing U.S. and European sites and will add incremental capacity, economies of scale, and flexibility to these operations. The majority of this growth CapEx will support our premium industry-leading personal and home care ingredients and formulations. Accordingly, We recently raised our medium term organic volume growth outlook from mid single digits to high single digits for performance chemicals. In fuel specialties, sales and operating income were up significantly over last year as global fuel demand continues its recovery towards pre-COVID 2019 levels. In the coming quarters, both volumes and mix are expected to improve in parallel with the further lifting of the global COVID-19 restrictions and the acceleration of jet travel, and particularly international jet travel. Over the medium term, we fully expect global demand for diesel, jet, and renewable fuel to exceed 2019 levels. Our technologies will continue to play a critical and increasing role in reducing fossil fuel consumption and emissions while also supporting renewable fuel adoption in the global commercial trucking, marine, and aviation fleets. In parallel, supported by our technical and R&D leadership, we are actively extending these technologies outside of fuel applications into areas such as coatings and petrochemical industries where our business has constantly and consistently delivered double-digit annual growth over the past four years. In old-field services, sequential sales and operating income grew and operating margin expanded for the fifth consecutive quarter. The recovery in this business is progressing, but the rate of progress is below our internal expectations. The overall market environment in terms of commodity prices, completion and production activity is healthy and expected to continue to improve sequentially. With this backdrop, we continue to see significant potential for operating income growth and margin expansion in the coming quarters. Now I will turn the call over to Ian Clementson, who will review our financial results in more detail. Then I will return with some concluding comments. After that, we will take your questions. Ian?

Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the third quarter with 376.1 million, a 42% increase from 265.1 million a year ago, driven by recovering demand in all our businesses compared to a COVID-19 impacted prior year. Overall gross margin increased by 0.3 percentage points from last year to 30%. EBITDA for the quarter was 41.4 million compared to 31.5 million last year. Our gap earnings per share were 94 cents, including special items, the net effect of which decreased our third quarter earnings by 21 cents per share. A year ago, we reported gap earnings per share of 51 cents, which included the negative impact from special items of 20 cents per share. Excluding special items in both years, our adjusted EPS per quarter was $1.15 compared to 71 cents a year ago. Turning to slide eight, revenues in performance chemicals for the third quarter were 132.8 million, up 30% from last year's 102 million. Volumes grew 10% with a positive price mix of 19% and a favorable currency impact of 1%. Groves margins of 24.5% were up one percentage point compared to 23.5% in the same quarter in 2020. Uprated income increased 44% from last year to £17.8 million. We believe our capital expenditure plans in performance chemicals will support the delivery of high single digit volume growth over the medium term. Our estimated spend on these capital projects is £32 million in 2022 and the same again in 2023 as the business accelerates its growth plans to meet market demand. Moving on to slide nine, revenues in fuel specialties for the third quarter were 156.4 million, 30% higher than the 120 million reported a year ago. Volumes grew by 17% and there was a positive price mix effect of 12% with a favorable currency impact of 1%. Fuel specialties gross margin for the quarter was slightly below our expected range at 31.4%. compared to 33.6% in the same quarter in 2020. Operating income increased 20% from last year to $26.6 million. Moving on to slide 10, revenues in the oilfield services for the quarter were $86.9 million, approximately doubling the $43.1 million in the third quarter last year, as customer activity continues to increase. Gross margins of 35.9% were up 2.5 percentage points on last year's 33.4%. Operating income of 2.7 million was a 7.2 million improvement from the loss of 4.5 million a year ago. Turning to slide 11, corporate costs for the quarter were 15.7 million compared with 13.3 million a year ago, due mainly to higher share-based compensation accruals. The effective tax rate for the quarter was 24% compared to 37.1% last year, which included the adverse impact of the change in the UK tax rate. The adjusted effective tax rate was 22.3% compared to 23% a year ago due primarily to the geographical distribution of profits. Moving on to slide 12. Cash generation for the quarter of 2.8 million before capital expenditures of £7.9 million was adversely impacted by an increase in working capital due to higher levels of trading and inventory growth to offset supply chain disruption. We have taken the positive decision to hold greater volumes of raw materials and finished goods where it makes commercial sense to do so, to ensure continued production at our plants and supply to our customers. We will keep this under review as we move through the fourth quarter and into 2022. As of September 30th, 2021, Interspec had $89.2 million in cash and cash equivalents and no debt. And now I'll turn it back over to Patrick for some final comments.

Thank you. Tight supply chain and inflationary conditions are expected to persist in the coming quarters. We will continue to adapt and manage through the environment while maintaining our excellent standard of customer service. We will continue to work with our suppliers and customers to look for ways to limit the impacts of future price actions, which may be required in the coming quarters to offset inflation. These near-term challenges will not delay our execution on the significant number of organic growth investments, which are planned for 2022. As we have frequently noted, organic growth is our capital allocation priority. And in 2022, we expect to complete a record level of these growth investments in performance chemicals. These investments will primarily support increasing demand for our training, personal, and home care technologies. While the size and quality of our near-term organic pipeline has favored building over buying, we continue our disciplined pursuit of M&A opportunities, which would add further scale and complement our performance chemicals business. In parallel, with these market growth opportunities, we believe we are well positioned in all our businesses to benefit from increasing demand as economies continue to recover and move closer to full reopening. With the support of our strong balance sheet, we are continuing our record of returning cash to our shareholders by again increasing our semi-annual dividend to 59 cents. which represents an annual increase of 12%. Now I will turn the call over to the operator, and Ian and I will take your questions.