David Williams – VP, General Counsel and Chief Compliance Officer Patrick Williams – President and CEO Ian Cleminson – EVP and CFO.

Ivan Marcuse – KeyBanc Capital Markets Jack O’Brien – CJS Securities Bill Dezellem – Tieton Capital Management Chris Shaw – Monness, Crespi, Hardt Gregg Hillman – First Wilshire Securities Management.

Good day, ladies and gentlemen, and welcome to the Innospec Q3 2014 Earnings Conference Call. For your information, today’s conference is being recorded. At this time, I’ll turn the conference over to Mr. David Williams. 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 third quarter 2014 financial results conference call. Today’s call is being recorded.

As you know, late yesterday we reported our financial results for the quarter ended September 30, 2014. 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 website.

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 with 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 presentations 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 will turn it over to you, Patrick..

Thank you, David. And welcome all of you to Innospec’s third quarter 2014 conference call. We are very pleased with Innospec’s performance in the third quarter as we have maintained momentum in our core businesses combined with growing contributions from our acquisitions.

In the face of challenging geopolitical issues and heightened competitive pressures, particularly in the EMEA region, Innospec continues to achieve its targets of profitable top and bottom line growth. We have also maintained a strong balance sheet with continuing healthy cash flows from our operations.

In total, the company delivered revenue growth of 18% year-over-year with a strong showing in Fuel Specialties where gross margins are 34.1% outperformed our targeted range. We delivered adjusted diluted earnings per share of $0.77, meeting the expectations and an impressive EBITDA performance, up 38% over last year.

Our business plan is working well and we feel confident about the near term. Fuel Specialties has continued its positive momentum and revenue for the quarter increased 14% year-over-year in spite of difficult economic and market conditions worldwide.

This segment’s growth was principally driven by performance in the Americas fuels business, sales growth marked expanding Oilfield Specialties business and enhanced by a strong quarter for the high margin Avtel product line. That said, we expect the Avtel business to normalize in the fourth quarter.

The gross margins in Fuel Specialties improved as a result of the robust performance of Oilfield Specialties and a richer sales mix in our core business. Fuel Specialties continues to impressively throughout the Americas, including Canada and an impressive sales performance this quarter from South America.

Our acquisitions contributed 17% to our results and we are very pleased with the integration progress of all of our acquisitions. We are maintaining our market position in EMEA despite the sluggish European economy and the impact of lower volumes and refinery activity, as well as heightened competitive pricing pressures.

As we reported previously, government sanctions related to Russia and Ukraine continue to negatively impact our sales in this region. We are continuing to monitor this situation closely. We are encouraged by our improvement and our new business growth in the Asia Pacific area as the underlying business is now growing at a 9% rate.

Our Oilfield Specialties business is now performing to our expectations and has showed good progress during the third quarter. Production chemicals is performing well, as I mentioned, and we are seeing the drilling business begin to rebound in sales.

We’ve made a series of organizational changes in drilling and we now feel we are on solid footing to deliver continuous sales growth. We are paying close attention to changes in crude prices in this market and we believe our diversified strategy will help us weather current market volatility.

On October 27th, we closed on the acquisition of Independence Oilfield Chemicals with annualized sales of approximately $150 million. Independence serves the oil and gas industries with a focus on completion, stimulation and production chemicals. The transaction has been cleared by the Federal Trade Commission and the Department of Justice.

Importantly, we now have a presence in most of the major energy basins in the U.S., strategically positioning Innospec for future growth. Our annual revenue run rate in Oilfield Specialties is now around $240 million with a growing global footprint.

Our Performance Chemicals business grew by 19% year-over-year, driven by an exciting new product pipeline and solid contributions from our acquisitions in the Personal Care segment. Importantly, Performance Chemicals delivered sales growth across all regions with margins benefiting from group product mix.

Our gross profit in this business was very solid, improving some 23% year-over-year. Performance Chemicals gross margin for the quarter was 24%, driven by growth in our Personal Care segment which, as you know, is our strategic focus. New technology and innovative products are core to our competitive advantage in this business.

And we continue to be excited by the quality of our new products being delivered by our R&D team. This robust product pipeline, combined with our commitment to customer service, are key to continued momentum in Performance Chemicals.

I will now turn the call over to Ian Cleminson who will review our results in detail and then I will return with some further comments on the year, as well as outlook and strategies moving forward. Then we will take your questions..

Thanks, Patrick. Turning to Slide 6 in the presentation, the company’s total revenues for the third quarter were $228.2 million, an 18% increase from $192.8 million a year ago. The overall gross margin was 32.3% driven by good contributions from our acquisitions as well as solid underlying growth in Fuel Specialties and Performance Chemicals.

Our GAAP earnings were $0.83 per share, up from the $0.58 per share reported in last year’s third quarter. Our adjusted earnings increased to $0.77 per share from $0.65 per share reported a year ago. EBITDA for the quarter – increase from last year and net income for the quarter was $20.8 million.

Moving on to Slide 7, revenues in Fuel Specialties for the third quarter were $156.1 million, 14% higher than the $137.4 million reported a year ago. The increase was primarily driven by sales growth in the Americas and a solid contribution from Oilfield Specialties.

Excluding the Bachman acquisition which added 17% to revenues, there was an 8% reduction in volumes, partially offset by a 5% richer sales mix. By region, excluding the acquisitions, revenues in Americas grew by 4% due to richer sales mix.

In EMEA, sales fell 12% from a strong performance in the comparative quarter driven by lower volumes impacted by ongoing market weaknesses and trading constraints in Russia and Ukraine. Sales in Asia Pacific fell by 3% compared to prior year, with underlying sales discounting the previously reported contract loss, continue to grow to plan at 9%.

Segments gross margin was 34.1%, up from 31% recorded a year ago, reflecting the strong contributions from our Oilfield Specialties and Avtel businesses. In Q4, we expect the Avtel business to normalize and growth margins to return to our targeted range of 30% to 32%.

Gross profit was $53.2 million and operating income for the quarter was $24.5 million compared to last year’s $22.3 million. Turning to Slide 8, revenues in Performance Chemicals for the third quarter improved by 19% to $57 million, driven by an 11% contribution from acquisitions and continued underlying growth in our core Personal Care markets.

Excluding the acquisitions, volumes grew by 5%, focused in the Personal Care market and there was a favorable currency impact of 3% with no impact in the quarter from the change is sales mix and pricing. By region, sales increased 30% in the Americas, 6% in EMEA and 22% in Asia Pacific driven by increased Personal Care volumes.

Gross margins improved to 24% and operating income for the quarter was $6.6 million, 18% higher than the $5.6 million reported a year ago. Moving on to slide 9, Octane Additives net sales for the quarter were $15.1 million, more than double the $7.5 million a year ago. The segment’s gross margin was 44.4% compared to last year’s 49.3%.

Operating income for the quarter was $4.9 million, up significantly from $2.1 million in last year’s third quarter. In the fourth quarter, we expect sales to be broadly $20 million. However, beyond this into 2015, we’re going to have limited visibility. We will, of course, update you again on our next call in the new year.

Turning to Slide 10, corporate costs for the quarter were $10 million, compared with $9.4 million a year ago. The increase was primarily driven by amortization related to the implementation of the company-wide information management system.

The effective tax rate for the quarter was 18.1% and the full year adjusted effective tax rate is anticipated to be around 23% Moving onto Slide 11, we closed the quarter in a net debt position of $19.7 million reduced from $42.1 million at the end of the second quarter.

Net cash generated from operations was $25.2 million, driven by a strong trading performance. As of September 30th, we had cash and cash equivalents of $95.3 million and total debt of $115 million. We have indicated consistently that our strategy is to leverage our balance sheet’s strength to improve shareholder returns.

The Independence acquisition is a key part of that strategy. As a result, we expect pre-amortization EPS accretion of $0.60 per share in the first full year. After the closure of the acquisition, our net debt will be below one times our trailing 12-month EBITDA, leaving us with further capability for growth.

And now, I’ll turn it back over to Patrick for some concluding comments..

Thanks, Ian. In summary, Innospec is in a very good position for continued success. Our fundamentals are strong, our core businesses are very much on track and our acquisitions are making good contributions. Our balance sheet remains strong even after the Independence acquisition and we continue to see healthy cash flows from our operations.

We are excited about our prospects in the Oilfield Specialties business as we have scaled up relatively quickly in this business and are becoming a recognized force in this sector.

Independence is very complementary to our existing Oilfield Specialties business, both in terms of technology from geographical footprint and brings an exceptional management team.

While we are focused on acquisition integration and organic growth, we will continue to be alert to opportunities that fit our business strategy, particularly on the Personal Care space. We are prudently evaluating these opportunities as they arise.

We are pleased as well when in October a U.K judge dismissed in its entirety a lawsuit brought against Innospec by Al-Gaood & Partners. We told you from the beginning that we believe the matter was without merit and this has been proved to be the case. We have worked hard to build a first-class compliance program at Innospec.

And with the successful conclusion of this case and the completion of the monitor’s 10-year [ph], we can now devote our undivided attention to the continued growth of this company.

Importantly for our shareholders and as a result of our continued strong performance and expectations, the board has decided to expand our dividend payout for the second half of 2014 to $0.28 per share. Combined with the first half dividend for May, this brings the 2014 payment to $0.55 per share, a 10% increase over 2013.

We will continue to review our capital management program in conjunction with the strategic needs and financial performance of the business as part of our continued commitment to deliver maximum value to our shareholders. We did not utilize our buyback program during Q3 due to the Independence acquisition.

But we would expect the program to activate in Q4. Innospec is well positioned for continued growth, success and profitability. We very much appreciate the interest and support of our stockholders and the hard work and dedication of all our Innospec employees and obviously the continued loyalty of our customers.

Now I will turn the call over to the operator and I will take any of your questions..

Thank you very much, sir. (Operator instructions) Today’s first question is coming from Mr. Ivan Marcuse of KeyBanc Capital Markets. Please go ahead, sir. Your line is open..

Great. Thanks for taking my questions. The first one that I have is on your gross margin for Fuel Specialties. 34% was – I don’t know if it’s a record but it’s pretty high relative towards the last several quarters.

What sort of drove the 310 basis points or how much did Avtel add to that or was there a favorable price cost spread that impacted the quarter? Do you have a little more color on that?.

Yes, sure, Ivan. I’ll start and then Patrick will come over to talk. What we’ve seen in Q3 is that you’re absolutely right. We’re way above our normal 30% to 32% range.

The two drivers of that primarily are the Avtel business which has had an exceptional quarter, both from a sales mix perspective, also from a manufacturing perspective and we expect that all to normalize as we go into Q4.

Also what we’ve seen is that the Oilfield business has made an increasing contribution and that’s how we’ve pushed the margins up to 34% as well..

How much would you – of the 310 basis points would you 00 just roughly would you say Avtel was responsible for that improvement? Was it half of it or two-thirds?.

Probably a little bit over half of it..

Got you. And then you mentioned competitive pressures in EMEA with pricing. I understand demand is I guess lethargic would be a way to describe it over there.

What’s driving the competitive pressures? Are you seeing imports or are some of the competitors being a little less rational than they have been in the past or could you give a little bit more – or is there not really much to worry about there?.

Not much to worry about, Ivan. It’s very typical in this business you’ll have a very stable environment for quite a long time. And then when you have a shakedown or a slowdown in the market, you will have a few competitors obviously trying to fill capacity but trying to make a footprint in a specific region. And that region is in EMEA.

So it will shake itself out. We don’t see it going any further down. I think as the economy starts to improve at some point in time which I don’t think we’ll see for a while on EMEA, we’ll have some of this continued trend. But it will stabilize at some point..

Great. And then moving over to the acquisition Independence.

You mentioned annualized sales of $150 million, is that in LTM or is that you’re just taking the current quarter and annualizing it out?.

Yes, that was the key three revenues annualized out item..

So what’s it on a LTM basis?.

It’s a lot lower than that because it’s based [ph] in pretty high growth mode. You’ve probably seen some of the 8-K information that we’ve put out. We’ve valued the business based on Q3 and we’ve looked forward based on the Q3 numbers. So if you go back last 12 months, it’s probably not helpful..

Got you.

And then if you look at the synergies or – I’m sorry, the $0.60 that you talked pre-amortization, how much is the amortization going to be from an EPS basis or from a dollar basis? And does that conclude any synergies, if at all, and are there any opportunities here in synergies?.

Yes, I’ll take the amortization piece and Patrick will take the synergies piece. We expect the amortization to be about $7.5 million. That’s from roughly about $0.21 of the $0.60. So you’d be looking at around about mid $0.30 to $0.40 of accretion in 2015 from the Independence acquisition, which is pretty good..

Yes, and to add to that, Ivan, if you look at the – there won’t be a lot of cost synergy savings. This is more from a growth synergy. They have assets in regions that we don’t have current assets. So we will cross utilize assets and cross utilize products. So it’s really more about growth than it is about cost savings..

Great. And then the last question, I’ll get back in the queue.

The oil prices have been falling and in a way I understand you sort of serve the middle market, so why wouldn’t the middle market and the drilling be hit harder than maybe the larger guys from a capitalization standpoint or however you want to look at it with falling oil prices or how you’re going to be able to offset that or am I not thinking about it correctly?.

No, it’s a good question. And I’ll answer in two ways. If you look at the basins that we’re currently in now and the primary basins being the Bakken, the Permian, Eagle Ford and over there in the Scoop, their cost to get it out the ground or lift cost is a lot lower than a lot of other what we would call mediocre plays.

Our view really if you start looking at crude prices, we’re going to view this is as an opportunity than we are as a negative. And I will tell you why. If you look at the mid-market, there’s a lot of startups, a lot of BC, a lot of private equity money, a lot of leverage balance sheets that really can’t take a slowdown in the oilfield sector.

Our view is that it will shake itself out. If we have crude sitting under $80 a barrel for 6 to 12 months and we’ll be opportunistic at that time. Again, as Ian said, we don’t have a leverage balance sheet which we feel very confident and comfortable with.

But I think moving forward, a market like this, we feel very confident that we’ll be more opportunistic than we will as a negative..

Great. Thanks for taking my questions. I appreciate it..

No problem..

Thank you very much, sir. And we’ll now go to Jon Tanwanteng of CJS Securities. Please go ahead..

Good morning. This is actually Jack O’Brien filling in for Jon..

No problem. Good morning then..

You guys have done a healthy nerve [ph] of acquisitions over the past year.

So are you guys going to return more to an integration mode or can we expect more on the acquisition pipeline?.

Yes, if you look at the Oilfield sector, it would be more an integration mode. And if you look at Personal Care, as we said in the prelude that we are still looking. We always will look at things that come in our door.

But I think for right now Oilfield would be an integration, Fuel Specialties would be continued growth from a new product development and discoveries. And then if you look at Personal Care, we’ll still be looking at acquisitions but obviously nothing that – unless it fits our strategy..

Okay, great. And then your most recent acquisitions have been U.S. based and appear to be in high growth businesses, so I was wondering if there’s going to be any implication on your tax rate because of that..

Yes, let me take that, Jack. Yes, over a period of time we expect our tax rate to pick up a little bit. We’re expecting the effective full rate this year to be 23% and we’re expecting it to be about 25% next year. There’s a couple of different dynamics moving here. One is that we’ve bought businesses in the U.S.

which are anywhere between 35 to a little bit higher depending on the state tax. And also some of our business in the Octane Additives area is declining and that was in the low tax jurisdiction. So there will be a natural progression outwards..

Okay, great. And then last question.

For Octane, if it does wind down in ‘15, what, if any, one-time costs can we expect?.

Yes, we’re working our way through that. We know exactly how we would bring the manufacturing volume down. We’ve done it before. There will be one-time costs. But we’re not in the position yet to announce that because we haven’t got the timing on that. So I’m sure you’ll appreciate when we know what that is and the timing, we’ll let you all know..

Okay, great. Thank you very much..

No problem..

Thank you very much, sir. And now we’ll go to Mr. Bill Dezellem of Tieton Capital Management. Please go ahead..

On the Personal Care acquisition front, would you provide a little more insight into the pipeline in terms of quantity and size?.

Yes, Bill, it’s very similar to the strategy that we’ve put forth over the last three years size-wise as well. We’re looking anywhere from that $50 million to $150 million revenue type companies that are specialized in surfactants or silicones that we can combine in the bottle.

So it’s still a very, very same strategy that we’ve had over the last three years. We haven’t deviated and we feel strong that we could find something in that sector that fits our portfolio..

And your comment something, does that imply you’re really looking for a single acquisition or are you open to multiple acquisition?.

It would be more of a single acquisition at this point..

Great.

And then secondarily on a completely different note, if you have some unique and potentially needle-moving R&D successes, would you please discuss those?.

We typically don’t do that over these calls, obviously the open nature of the calls. But I will say, Bill, that we continuously push R&D. If you look at the portfolio of patents that we’ve put out over the last three years, it proves itself in its own process. We will now integrate IOC, or Independence Oil as we call it, into our portfolio of R&D.

And I think you’ll see more new technologies coming out over the next 6 to 12 months. But we’ve been working on technologies on all sectors of our business and have patented technologies along the way.

And I’ve think we’ve seen that for sales growth, if you look at our sales growth over the last five years, 45% of the new sales have come from new products..

Would you please repeat that? What percentage again?.

About 45%..

And do you have a long term target in terms of what you’d like that to be?.

We would like it to be over 50%..

And as you sit today, do you feel like you have a good line of sight on how you’re going to get there?.

We do..

And final question.

What’s the timeframe that you believe you’ll get to to that point?.

From an R&D perspective, it’s ongoing. Again, like if you’ll look at Fuels, it’s a minefield of patents. Same with Personal Care and Oilfield. It just takes time and patience. And we’ve come a long way in a short period of time. And I think we just got to continue on the process that we’re moving forward on right now..

Great. Thank you..

Thanks, Bill..

Thank you very much, sir. We’ll now go to Chris Shaw of Monness, Crespi. Please go ahead. Your line is open..

Hey, good morning, guys.

How are you doing? You discussed sort of the impact of lower oil on the Oilfield Chems side of the business, but can you just sort of talk about the puts and takes with oil down in the 70s, how that impacts the Fuel Specialties side of the business and what may change and how the customers may change I guess their buying patterns?.

Yes, I mean typically if you’ll look at – are you talking how low oil prices affect Fuel Specialties?.

Yes, outside of Oilfield Chem..

Yes, if you’ll look at Fuels Specialties, as you know, you’ll see price of raw materials come down. Now, you have a general lag in our chemical industry of about six months.

And I think what’s going to happen is you’ll see prices come down but you’re also going to see some pressure from the customer base to get some pressures on lower price to the customers as well. So we will keep our Fuels Specialties predicted gross margins at that 31%.

We hope to get better but I think you will have some price pressure on raw materials..

Do you see any shifts in demand when oil drops from, let’s say, gasoline to diesel or something? Is there any shifts on the demand side at all?.

No, not at all..

Okay. And then a question on Performance Chemicals. It seems the underlying growth – none of the acquisitions slowed from 2Q to 3Q really significantly but is there – it seems Personal Care is doing fairly well.

Was there something on their polymers or the fragrance side that was weaker in the third quarter?.

Yes, I mean, as you know, Chris, our focus is on Personal Care, both from an acquisition perspective, also from our organic business. And we’ve been really pleased with the way both our acquisition and organic business has grown. So we’re delighted there. Fragrances and polymers tend to be more flat businesses.

There has been a little bit of an improvement in the polymers business in Q3 year-over-year. And then fragrances has performed pretty much as we expected as well, both solid businesses. But again, not the focus of our – that segment’s attention. So we’re all about Personal Care..

Just sort of a quick last one.

Did you say for the fourth quarter that Octane Additives was looking at $20 million revenues, is that what I heard?.

Correct..

That’s correct..

Okay, great. Thank you..

Thank you..

We’ll now go to Mr. Gregg Hillman of First Wilshire Securities Management. Please go ahead..

Yes, good morning, gentlemen..

Good morning, Gregg..

And Patrick, could you talk about the regulatory front a little bit, number one in China in terms of what additional diesel additives will be required and when do you think that will happen? And maybe you could talk about diesel adoption in the United States, too, a little bit..

Yes, if you look at China direct, there’s obviously a lot of pressure on the Chinese government to come to some Euro standard for low-sulfur diesel. And when that happens, we don’t know – during the Beijing Olympics they did. It cleaned up the air of the Olympics and then we’re back to a cheap source of fuel thereafter.

I think it’s going to happen over the next 24 months. And that develops a lot of opportunities for us and we’re properly positioned in Chinese market to really make headway. So I would say over the next 24 months would be probably a good timeline to see China come into some type of regulation, whether it’s a Euro or a U.S.

ULSD but they’re both about the same now..

Do you think it’s like a $20 million opportunity for you?.

I wouldn’t put a number on it, Gregg. Until you really see what they’re going to do at the refineries to hydro treat or hydro crack that fuel, I would really be hesitant to put a number on it..

Okay.

And elsewhere on the world, is there anything important happening regulatory-wise that might affect you positively or negatively?.

Yes, nothing on a negative forefront in fuels. Mostly positive. I mean India has the same issues and we’re hoping to see India start pushing to a Euro standard as well. And I think if you’ll look at, on the Oilfield side, there could be some fracking issues. But again, that’s probably going to be state-driven and more of a dossier than a shutdown.

So we’re pretty confident that on a regulatory standpoint there’s not anything glaringly negative in front of us on all the businesses at this point..

Okay.

And then finally, just for like worldwide diesel fuel consumption, what was that or what was the percentage increase or decrease in the third quarter year-over-year?.

Yes, if you look at gasoline consumption, it’s down a little bit. If you look at diesel consumption, it’s up a fraction..

Okay.

And about diesel adoption in the United States for passenger cars, is there anything happening there in terms of number of cars going to diesel?.

Yes, good question. A lot of new technologies come in the U.S., but U.S. is primarily an over the road market. We’ll see what happens over the next five to ten years on the diesel side for passenger cars, but it’s primarily and over the road market..

Okay.

And that’s increased the diesel fuels for over the road markets?.

Yes. And then consumptions increased as well..

Can you put a figure on that or a percentage?.

Yes, and it’s a small percentage..

Okay, okay. Thanks very much..

Thank you..

(Operator instructions) I will now go to Mr. Ivan Marcuse of KeyBanc Capital Markets coming back with follow-up questions. Please go ahead..

A couple of quick follow-ups.

When oil falls like this quickly, do you ever see any customer destocking going to the fourth quarter more so than maybe what would be usual?.

No, we don’t..

And then if you take into the acquisition, how much is dock [ph] total on an annual basis now going to be?.

Ivan, I didn’t quite catch what you said..

Depreciation, amortization total for the company with the inclusion of the acquisition, what would you expect that to be on an annual basis?.

Yes, it will probably be around the $20 million mark..

Great. Thanks..

Thank you very much, sir. As we have no further questions, I will turn the conference back over to Mr. David Williams for any additional or closing remarks. Thank you..

Actually, it’s Patrick Williams but thank you all for joining us today and thanks to all our shareholders and Innospec employees for your interest and support. If you have any further questions about Innospec or matters to discuss on this call, please give us a call. We look forward to meeting up with you again in Q4. Take care..

Ladies and gentlemen, that will conclude today’s conference. We thank you very much for your participation. You may now disconnect. Thank you..