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 predictions, projections and other statements about future events.

These statements are based on current 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 our discussions today, we've also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in earnings release.

The non-GAAP financial measures should not be considered as a substitute for or superior to 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 that such 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 2022 conference call. This was an excellent quarter for Innospec. Volume and price/mix improvements drove strong sales growth in all businesses. We delivered a 60% increase in operating income and margins expanded.

Over 80% of our gross profit in the quarter came from business outside of Europe where recessionary pressures are more prevalent. We believe we are well positioned for both an end market and geographic perspective to navigate continued expected headwinds.

In Performance Chemicals, strong Personal Care growth continued to offset weaker demand in smaller segments like our European Home Care. Overall volumes and price/mix both improved in the quarter and operating income was up 43%. We do not see any change in our customers' drive towards higher performance and cleaner formulations.

Major customer projects continue to move forward, and we remain cautiously optimistic that we can achieve mid single-digit volume growth and steady gross margin through the expected recessionary headwinds in 2023. To support additional contracted demand, we expect to complete the majority of our $70 million capacity expansion over the coming year.

In Fuel Specialties, operating income grew by 5% over last year. We expect this business to be relatively resilient through any near-term economic weakness. In addition, we continue to see potential for gross margin improvement as inflation normalizes and demand for our higher-margin jet fuel orders continues to recover.

Over the medium to long-term, we will continue to capitalize on sustainability themes, which are opening doors for new applications with our technologies in clean fuels, higher efficiency engines and non-engine applications.

We expect momentum to build in these areas as customers continue to look for cost-effective technologies that improve productivity and decrease emissions. In Oilfield Services, strong orders in our Production Chemicals business, combined with further improvements in our other Oilfield segments, drove sharp increase in operating income.

We expect reduced activity in the coming quarters versus this extremely strong third quarter. However, we continue to make progress towards a return to 2019 full-year operating income levels within the next two years. Now I will turn the call over to Ian, 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 $513 million, a 36% increase from $376.1 million a year-ago. Overall gross margin increased slightly by 0.4 percentage points from last year to 30.4%.

EBITDA for the quarter was $59.2 million compared to $41.4 million last year, and net income for the quarter was $38.7 million compared to $23.4 million a year ago. Our GAAP earnings per share were $1.55, including special items, the net effect of which decreased our third quarter earnings by $0.19 per share.

A year ago, we reported GAAP earnings per share of $0.94, which included a negative impact from special items of $0.21 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.74 compared to $1.15 a year ago. Turning to Slide 8.

Revenues in Performance Chemicals for the third quarter were $159.7 million, up 20% from last year's $132.8 million. Volumes grew 4% as strong growth in Personal Care volumes offset volume decline in our other European markets, while a positive price/mix of 26% was offset by an adverse currency impact of 10%.

Gross margins of 24.5% were unchanged from last year and operating income increased 43% from a year ago to $25.4 million. Moving on to Slide 9. Revenues in Fuel Specialties for the third quarter were $178.7 million, 14% higher than the $156.4 million reported a year ago.

A favorable price/mix of 30% offset a reduction in volumes of 6% and a negative currency impact of 10%. Fuel Specialties gross margins of 29.9% were 1.5 percentage points below last year and will remain at the lower end of our expected range until inflation moderates. Operating income increased 5% from last year to $27.9 million. Moving on to Slide 10.

Revenues in Oilfield Services for the quarter were $174.6 million, approximately double the $86.9 million in the third quarter last year, as very strong orders in Production Chemicals and a continued sequential recovery in other segments drove a sharp improvement.

Gross margins of 36.4% were up 0.5 percentage point on last year and operating income of $14.2 million was an $11.5 million improvement from a year ago. Turning to Slide 11. Corporate costs for the quarter were $17.4 million compared with $15.7 million a year ago, due mainly to higher performance-related remuneration accruals.

The adjusted effective tax rate for the quarter was 20.1% compared to 22.3% last year as a consequence of the geographical location of taxable profits. Moving on to Slide 12. Cash generation for the quarter was $39.8 million before capital expenditures of $9.7 million.

As of September 30, 2022, Innospec had $100 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, Ian. Our team delivered another excellent quarter with double-digit growth, improved margins and strong cash flow. We expect economic headwinds and volatility to increase. However, we believe that our end market and geographic mix positions us well for the coming quarters.

Our direct and responsive approach with our customers continues to open new opportunities for our technologies. As a result, we have an exciting pipeline of technology-led organic growth opportunities. We generated over $30 million in cash and our net cash position returned to over $100 million.

We expect cash generation to continue in the fourth quarter as we remain focused on disciplined working capital management. This quarter, we returned value to shareholders through our $2.3 million of share repurchases.

In addition, we increased our semiannual dividend to $0.65, bringing our full-year dividend to $1.28, representing a 10% annual increase. We remain well positioned to pursue complementary M&A opportunities and complete our significant organic growth projects. Now I will turn the call over to the operator, and Ian and I will take your questions..

Thank you. [Operator Instructions] And your first question comes from the line of Mike Harrison, Seaport Research Partners. Please go ahead..

Hi. Good morning..

Good morning, Mike..

Good morning, Mike..

I was hoping that you could give maybe a little bit more color on what was going on in the Oilfield Services business to drive the strength by – we kind of get the sense from your commentary that some of that was more one-time in nature, some of it maybe a little bit more sustainable.

But any, I guess, help that you can provide or guidance you can provide on what that means for the outlook in Q4 and into 2023 would be appreciated..

Sure, Mike. This is Patrick. Most of that growth was in the production business, and it was global. It was offshore and onshore. Some of it was a little uptick on one-off. Some of it was the expansion of the business and some of our first order into offshore production business.

We will see some normalization in Q4 and a little bit of normalization going into 2023. But our expectations are upper single-digit growth for that business..

All right. Thank you. And then over on the Fuel Specialties business, the volume there was down 6% year-on-year.

Can you break out what you were seeing in different regions in terms of the volume performance in the quarter? And maybe also talk about some of the trends that you're seeing on volume by region?.

Sure. I'll let Ian take the first part of that, Mike, and I'll finish up with his comments..

So that's an interesting – that was an interesting question, Mike. We are comparing ourselves against Q3 last year, which was a really strong quarter, and that's a period where we were coming out of the pandemic, and we were experiencing some pretty high volume growth.

We've seen volume decline in pretty much most of our regions, but that's as much about the sales mix as it is about anything else. You'll see that the price/mix at 30 percentage points is really high and yet the volume is down at 6%. So there's definitely a mix element in there, where we're selling less volume, but we're selling it at higher prices.

And there's also a lot of inflation in the supply chain at the moment as well. So it's pretty much across the regions. There's no real trend in that. It's not concerning us. Overall, for the full year-to-date, volumes are where we expect them to be.

And you can see from our performance in Fuel Specialties, we've put together another really strong quarter..

Yes. Just to add to that, Mike, if you look historically on the Fuel Specialties business, it's somewhat recessionary free. We call it resistant.

And it's just a – it's a strong business that kicks out a lot of cash flow with great technology and our expectations as travel returns and AvTel comes back that we should still be in that single-digit growth, even moving into 2023 with these unpredictable markets..

Maybe just to follow-up on Fuel Specialties. We're hearing that in certain regions, there are shortages of diesel fuel.

Curious if you guys view that as something that is maybe a headwind to growth in some of the additives that you provide into diesel? Or is that actually driving some increased interest in maybe some of the additives that help to improve fuel economy, et cetera?.

Yes. You just said on the back-end, it's more of a tailwind. And obviously, there's a big push from the government to up their production of diesel and jet. And so as that comes on, that will give us more opportunities. So we don't view that as a headwind right now, we're more seeing it as a tailwind right now..

All right. And then I guess the last question I have is maybe more on the outlook and how we should be thinking about Q4 earnings. Last year, you guys did about $1.30 in EPS. It seems like you should be on track to be able to exceed that.

But I guess if you're willing to provide any type of insight into what your expectations are for Q4 amid the challenging macro environment, I think investors would appreciate that..

Sure, Mike. This is Ian. You know we don't give specific guidance, but let me just talk about generally about each of the businesses. Performance Chemicals, we do expect some slowing down in Q4 sequentially. And that's quite normal. We do typically see customers destocking ahead of the year-end, plus the holiday season does have some impact.

So we basically see customers managing their inventory levels coming to year-end. And I think right now, we're seeing customers being a little bit more proactive on that than they have been in previous years. So I'd expect our Q4 performance this year to be very similar to where we were in Q4 2021.

As we move into 2023, as we said on previous calls, we've got major customer projects that are moving forward. And we remain cautiously optimistic, I guess, that we can achieve that mid-single volume growth and with steady gross margins. So we feel that we can manage our way through those recessionary headwinds.

On Fuel Specialties, we do expect to show a little bit of growth over Q4 2021. And sequentially, I'd expect Q4 to be very similar to where we were in Q3. As Patrick said earlier on, the fuels business is pretty resistant to recession, although it's not shockproof.

So in 2023, for the full-year, we'd be expecting the business to be fairly stable and fairly flat against where it was in 2022. I think Europe is going to be a tougher environment for us, no doubt. But we do feel that we've got opportunities elsewhere globally in different applications and in different regions.

And we've talked a little bit about oilfield already. Q4 will be probably slightly down on where Q3 was. And in 2023, as Patrick said, we will sort of be more moderating that business and it will be slightly ahead of where it was this year for the full-year, but we won't see the same performance that we're going to see in Q3 and Q4..

Excellent. Thanks very much..

Thank you. And your next question comes from Jon Tanwanteng from CJS Securities. Please go ahead..

Hi guys. Good morning. Great quarter. My first question is, you mentioned mid-single-digit volume growth through 2023 with maintaining your gross margin.

Was that across the entire business? Or is that just one of the segments? And then secondly, where are the areas you might expect to see a decline next year as you look at it?.

Jon, that was – I mentioned that, that was in Performance Chemicals, mid-single-digit volume and gross margins holding around that sort of 24% to 25% range..

Okay. Great.

And the second piece, just are there any business you expect to be weaker through 2023, just given the pressures that are out there?.

No, we don't see that right now. We see a little more moderation. And as Ian alluded to earlier, you'll see a little pull down of oilfield field from third quarter. Obviously, it was an exceptional third quarter. You'll see that more normalize. I think you'll see a little more normalized in Performance Chemicals.

In Fuel Specialties, as we said, it's fairly resilient. But we still see a nice single-digit growth across the business..

Okay. Great. And I think you also mentioned high single – or mid- to high single-digit growth in oilfield going forward.

Is that inclusive of the outsized revenue that you got in Q3, so if you look at it on an annualized basis?.

It does. It does..

Great. Okay. Just help us – again, help us with an update on just the inflationary environment, your ability to recover gross margin.

Where do things stand now? Is it moderating? Is it more the same? Or are there any other things that we should be thinking about as you try to bring out margins in fuels and to press forward to keep the same [oil prices]?.

Yes. It's moderating in some of our businesses. Inflation is still fairly high in others. I think we can all see trucking starting to come down. Some of the oil yields are starting to come down. So we are starting to see some moderation in some of the inflationary pressures that are out there.

So I think the other thing that we've done, and we're working really closely with our customer base to work with them and their headwinds to either, a) a modification of technology or new technologies to the market. And I think we've done a really good job in that area as well. So I think it's just something, Jon, we're going to have to watch.

Do you run into a double-dip recession? Are we going to see inflationary pressures for another two quarters? These are things that we've kind of looked at internally and monitor those very close. And obviously, we'll take price actions as needed either way..

Okay. Great. What is the expectation for jet fuel this holiday season just because the travel seems to have improved quite a bit. You're obviously getting the effect of them coming out of coal flow and your items being sold in there..

Yes. I mean it's coming back, and we see it coming back in Q3 and Q1. Obviously, if there's no other COVID shut down, again. You're not going to see a lot of improvement in Asia Pacific just due to the fact that there's a lot of shutdowns still going on in China and other areas. But we are starting to see our aviation business come back.

And then again, as you just said, in coal flow improvers, the winter is hitting and typically, that helps the Fuel Specialties business globally when you get a cold winter, and we're hoping that that's the case..

Great. Any updates on just what your plan is with all the cash? I know you raised the dividend.

Is there any other priorities that you're thinking about?.

It's to keep increasing our dividends. It's to focus on buybacks when we feel opportunistic. It's to continue to fund our organic growth. I think that's the cheapest and most controlled growth and most profitable growth because you're not paying a multiple on it. And then, of course, last but definitely not least, it's continue to look at M&A.

And we are still seeing a lot of deal flow right now. And I think we'll be ready to go when we find the right deal. The LBO markets are underwater. As you see, it's expensive debt now. So we're in a really good position if we find the right deal, and that's what we'll continue to look for over the coming months.

But Jon, we're very academic about this, and we're very patient, and we're going to remain that way..

Got it. Thank you. Good job as usual guys..

Thank you..

Thanks Jon..

Thank you. And your next question comes from the line of Christopher Shaw, Monness, Crespi, Hardt. Please go ahead. Your line is open..

Hey. Good morning, gentlemen.

How are you doing?.

Good morning, Chris..

Good morning, Chris..

If I can ask on oilfield, you said get profitability back to 2019 levels over the next couple of years, yet sales are already ahead of 2019 levels. And I know there's a lot of probably pricing in there, but that means margins are less than half what they were.

I mean, what's keeping margins low at this point? Is it cost? Is the volume not come all the way back? And how do you get to the 2019 profitability levels then?.

It's a little bit of both, Chris. And there's also a technology play in there as well. And we're moving to different technologies over time, which should help us with the margin improvement moving to 2023.

And again, as you just said, it's cost, it's labor cost, it's raw material cost, it's trucking cost, all the inflationary costs that are out there right now that have hit margins, too. So it's a little bit of all of the above. Now as I've said, we're starting to see that improve, and we should see further improvement on the margins as we move forward.

And so what we're excited about is we're starting to see nice profits in that business. We have a nice diversified portfolio in all three of our strong businesses. And you can see what happens in a quarter when all three businesses do well. And that's what excites us.

And I think that our portfolio is so diversified now that we can withstand any recessionary or inflationary headwinds that we're dealing with right now..

Has oilfield been a more difficult market to get pricing to recover costs than some of your other businesses?.

It has. And as I said, we're just starting to see some relief there. We're changing some technologies there as well, which will help to benefit us. But it's definitely been a little slower than the other businesses have..

And then just switch to performance.

The $70 million capacity expansion, when does that actually come online? What part of next year?.

Comes on in phases. You'll see a little bit in the first half of 2023, and you'll see the remainder coming on in the last half of 2023, into early 2024..

Got it.

That partly fuels your view of mid single-digit kind of growth in your volumes?.

That's correct. Even though you'll see some pull back in Home Care and Personal Care in Europe because of the some of the growth that we already have signed up contractually, that's why we see the single-digit growth..

Got it. Thanks..

Thank you..

Thank you. And your next question comes from the line of David Silver, CL King & Associates. Please go ahead..

Yes. Hi. Thank you. Good morning..

Good morning, David..

Good morning, David..

Yes. Good morning. I wanted to maybe start out with a couple of questions on Performance Chemicals. But in particular, it was quite a divergence. The price/mix was up quite a bit at 26%, but volumes were maybe just a touch below where I might have expected them. So I was just wondering if you could maybe provide a little more color on the 26%.

In other words, how much of that was merely, I don't know, cost to catch-up price versus maybe the mix effect from new product introductions from a steadily upgrading sales mix? How should we think about that 26% and how it might perform in a more stable, let's say, cost environment? Thanks..

Sure, Dave. This is Ian. I think the first thing I would say around the volume, we grew volumes 4% globally in Performance Chemicals. And there's a real regional split there. And we've continued to grow volumes really strongly in the Americas region, something like 22% year-over-year growth in volume there.

And that's because that's where are focused on that personal care market, and the market has been really strong, all those new products coming through and doing extremely well. Where we've been weaker on volume is in our European region, focused around the Home Care.

And we've been flagging that for the last couple of quarters that we've seen some weakness in that market. When you combine those two regions together, that's why you get sort of that 4% volume growth. So I just wanted to highlight that to you. Now when you actually drop down into the price product mix, it is really strong.

The vast majority is – as you said, it's sort of flexing towards the higher-margin Personal Care, but there's also still a chunk of inflation in there as well, David.

But once that inflation moderates and the business stabilizes in terms of the split between Home Care and Personal Care, I think we'll just then revert to that mid single-digit growth which we expect round about that 4% to 6% in 2023, which will be mainly volume-driven..

Okay. Thank you for that. And just to follow-up just a tiny bit, so you talked about the volume split by region weakness in Europe. Certainly, that's a region that remains a little bit uncertain here. And you did, I think, directionally point to slower kind of fourth quarter trends in your Performance Chemicals segment.

So is this the case where you may have a quarter or so where the volume growth is flat or slightly negative? Is that on a year-over-year basis, is that possible? Or is this more just on a sequential basis that you're discussing maybe a little bit softer trend in the fourth quarter? Thank you..

Yes, David, you're correct. We talked earlier on about sequentially how Q4 will be softer than Q3. And we went through the reasons behind that, the seasonality, the traditional destocking ahead of year-end. So this is all the things that we normally see in the Performance Chemicals business.

And I pointed to the fact that our expectation is that Q4 this year will be very similar to Q4 last year. In terms of volumes, I don't really expect anything particularly that high or that low against last year.

But as we move into 2023, our expectations are that will be worked more to that sort of Q2, Q3 style business in terms of profitability, and we'll continue to see that mid single-digit volume growth year-over-year..

Okay. Great. And then one more on Performance Chemicals, and this would be, in particular regarding your growth plans. So I believe the way it was framed, but when the $70 million kind of two-year program was announced, I think it was framed as having a number of customer orders kind of in hand or very well developed.

And I think, if anything, I mean, the pace of the growth in that particular segment has exceeded your expectations, let's say, at the beginning of this year.

So internally, I mean, is there any thought to either accelerating the completion of the current $70 million program or is it the case maybe you're working on kind of Stage 2, the next discretionary spend on building out the capacity and logistics capabilities? So just kind of how are you thinking about it beyond the end of next year and – given the prospects that you're seeing in hand? Thanks..

Yes. David, we've actually been trying to escalate getting that first half of the build-out done because we do have contractual volume. The issue with the inflationary times and labor issues was getting the reactors, the personnel, the technicians, the engineers and everybody to put these reactors in and piping in to get the volume that we need.

So is not that we're slowing the first half of this project down, it's been more of a market issue than anything else. So we'll continue to push. I think that you'll see us get the $70 million expansion finished in 2023. First half should be done in the first part of the year.

And we're going to continue to push forward due to the fact that, as we said, we do have contractual volumes, and we're going to continue to push forward..

All right. I'm going to ask one more, and I'll stipulate upfront this question is completely unfair to ask you at this early stage.

But I think the investment community went into yesterday thinking the elections in the United States were going to turn out with a wave in one direction, and we wake up this morning and, I don't know, in my opinion, it's a different outcome than that.

And I think a number of your businesses either rely on the cost of fuel or hydrocarbons or the willingness of people to invest to produce from. Patrick, I know you have kind of a very comprehensive view of the industry.

What would you say has changed for your company or your thinking in terms of capital allocation or where your growth prospects lie this morning maybe as opposed to 24, 48 hours earlier? Has anything meaningful changed in your mind? Thanks..

Yes. I don't think it has. I think that both administrations are starting to realize that you do need hydrocarbons to move forward. We're not positioned as a – not only in United States, but globally to operate just strictly in the green zone. So I don't think you're going to see a real change in the capital allocation of E&P companies.

I think it's going to be steady as they go. I think it's probably good for the industry to not get into the standpoint where capital is flowing freely in that industry. I think it's very disciplined, and we're going to stay disciplined. I think everyone's probably a little surprised by the results. I won't comment one way or the other.

But David, it really does not change anything that we're fundamentally doing as a company. We didn't put any political expectations into our numbers whatsoever nor our strategy..

Okay. That's fantastic color. Thanks very much..

Thanks, David..

Thank you. I will now hand the call 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 all 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 fourth quarter 2022 results in February.

Have a great day. Bye-bye..