Good day, ladies and gentlemen, welcome to Innospec's first quarter 2023 earnings release and conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question, you will need to press star one one on your telephone. I would now like to hand the conference over to your speaker today, David Jones, General Counsel. Please go ahead, sir. Thank you. Welcome to Innospec's first quarter earnings call. 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's site for these and related documents. In our discussions today, we have also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. 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 items to aid investor understanding of the company's performance in addition to the impact that 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. With that, I turn it over to you, Patrick. Thank you, David. Welcome everyone to Innospec's first quarter 2023 conference call. I am pleased to present another good set of results for Innospec. Our balanced portfolio again delivered strong operating results this quarter. Sales growth and margin improvement in Oilfield Services partially offset lower activity in Performance Chemicals and a $7.4 million misappropriation of inventory in Fuel Specialties. As expected, this was a soft quarter for Performance Chemicals. Weaker demand and customer destocking efforts continued to negatively impact volumes and margins in the quarter. In the near term, we believe that economic uncertainty will remain a headwind. We see no change in our customers' medium to long-term plans to shift to more mild and natural formulations. Our priorities remain focused on developing technology and margin improvement opportunities that will position us well beyond any short-term recessionary concerns. As new personal care contracts begin the third quarter, our target is for sequential operating income growth and margin improvement. In Fuel Specialties, gross margins improved sequentially over the prior quarter. The pace of inflation has slowed in some of our markets, and we have continued to take price action where required. This, combined with strong sales mix, contributed to a sequential margin improvement. As indicated in our earnings release, Fuel Specialties results were impacted by $7.4 million misappropriation of inventory in Brazil. Adjusted for this, Fuel Specialties operating net income grew by 12% to $39.8 million, and gross margins expanded to 34.1%. We are aggressively pursuing legal action related to this matter. Despite this isolated event, margin improvement remains a key focus and opportunity for our global fuels business in 2023. We expect these efforts to support gross margins at the lower end of our target range through the end of the year. Oilfield Services had an excellent quarter. Strong orders in Production Chemicals, combined with further sequential growth improvement in our Oilfield segment, continued to drive significant growth. Operating income was over 6x the prior year, and gross margins expanded by 6.2 percentage points. Despite the potential for some moderation in our Production Chemicals order activity, we feel optimistic that we can deliver full-year operating income growth in 2023. We continue to pursue margin improvement opportunities across the business. I will turn the call over to Ian Cleminson, who will review our financial results in more detail. I will return with some concluding comments. Ian and I will take your questions. Ian? Thanks, Patrick. Turning to slide 7 in the presentation, the company's total revenues for the first quarter were $509.6 million, an 8% increase from $472.4 million a year ago. Overall gross margin decreased slightly by 0.5 percentage points from last year to 29%. EBITDA for the quarter was $53.9 million compared to $59 million last year. Net income for the quarter was $33.2 million compared to $36.5 million a year ago. Our GAAP earnings per share were $1.33, including special items, the net effect of which increased our first quarter earnings by $0.05 per share. A year ago, we reported GAAP earnings per share of $1.46, which included negative impact from special items of $0.07 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.38 compared to $1.53 a year ago. Turning to slide 8, revenues in Performance Chemicals for the first quarter were $151.4 million, down 9% from last year's $167.1 million. A positive price mix of 6% was offset by a volume decline of 13% and an adverse currency impact of 2%. Gross margins of 15.9% decreased by 8.5 percentage points compared to the same quarter in 2022 due to a weaker sales mix and adverse manufacturing variances resulting from lower production volumes. Operating income decreased 59% from last year to $7.4 million. Moving on to slide 9. Revenues in Fuel Specialties for the first quarter were $190.3 million, down slightly from the $191.8 million reported a year ago. A positive price mix of 22% partially offset a 20% reduction in volume and an adverse currency impact of 3%. Fuel Specialties gross margins of 30.2% were 1.4 percentage points below the same quarter last year. Operating income of $32.4 million was down from $35.5 million a year ago. Adjusting for the $7.4 million misappropriation of inventory in Brazil, adjusted gross margins were 34.1%, benefiting from a richer sales mix and stabilizing raw material prices, allowing pricing to catch up. Adjusted operating income was $39.8 million. Moving on to slide 10. Revenues in Oilfield Services for the quarter were $167.9 million, up 48% from $113.5 million in the first quarter last year. Gross margins of 39.5% were up 6.2 percentage points from last year's 33.3%. Operating income of $15.9 million was a $13.4 million increase over the $2.5 million in the prior year. Turning to slide 11. Corporate costs for the quarter were $17.7 million compared to $19 million a year ago, due mainly to lower share-based compensation accruals. The effective tax rate for the quarter was 26.2% compared to 24.3% a year ago. The increase in the effective tax rate was primarily because a higher proportion of the company's profits are being generated in higher tax jurisdictions. Moving on to slide 12. Free cash generation for the quarter was broadly neutral, with operating cash inflow of $21.8 million before capital expenditures and internally developed software costs of $22 million. As of March 31st, Innospec had $147.5 million in cash and cash equivalents and no debt. I now will turn it back over to Patrick for some final comments. Thanks, Ian. This was a good start to the year for Innospec. Adjusting for the one-off misappropriation of inventory, both our Oilfield Services and Fuel Specialties businesses achieved operating income growth and margin expansion. We expect our balanced portfolio to continue supporting our results in the coming quarters. Our focus remains on margin improvement in all businesses, along with potential sequential operating income growth in Performance Chemicals. With net cash of over $147 million, we continue to deliver on our record of returning value to shareholders while maintaining flexibility to pursue M&A and invest in organic growth. This quarter, our board approved a further 10% increase in our semiannual dividend to $0.69 per share. Our pristine balance sheet, global footprint, and technical leadership positions us well to navigate any economic volatility. In partnership with our customers, we remain well placed for growth through technical innovation and excellent customer service over the medium to long term. I will turn the call over to the operator, and Ian and I will take your questions. Ladies and gentlemen, we now begin the question and answer session. As a reminder, if you wish to ask a question, please press star 11 on your telephone. If you wish to cancel your request, please press star one one again. We are now taking the first question. Please stand by. The first question from Mike Harrison from Seaport Research Partners. Please go ahead. Your line is open. Hi. Good morning. Can you hear me okay? Yes. Good morning, Mike. Good morning, Mike. Great. We're very interested in the Fuel Specialties business, with the margin strength if we exclude the inventory issue. How sustainable do you guys view that margin strength? Maybe can you comment on where we are in terms of... I know a lot of your pricing has a contractual pass-through, index to some of your input costs. Are you at a point now when you've caught up with the inflation that you've been seeing, or are you actually exceeding with pricing, now that maybe some of your input costs have moderated? Yeah, Mike, let me take that one. Yeah, really pleased with the quarter from Fuel Specialties. We've taken action on raw material pricing where we've needed to do that. It's a little bit patchy in that some parts of the raw material environment are coming down, some are stable, and we're still seeing inflation in some areas. It's not a uniform picture. You're right on the ability of our pricing to catch up. It's certainly done that in the first quarter of this year. We've also seen a really strong sales mix in the first quarter where we've sold a much lower proportion of high volume, low margin business. We've achieved a lot more of our lower volume, high margin business. It's a really strong mixing there for us. That underlying 34% is very strong. We still feel that for the full year, 32% gross margins across the full year is achievable. That's what we're gonna be aiming for. You know, if we can keep going at the pace we're at and keep our pricing focused and working with our suppliers and customers, we think we're gonna be in good shape. All right. I guess any color that you can provide on the inventory misappropriation that occurred in Brazil, and I think we're mostly curious to see if there is action you can take, is there any chance that you recoup even a portion of that loss? Yeah, Mike, you know, obviously it's a fluid situation. It's under legal right now. We are going to go full after recovery of not only the loss of inventory, but the recovery of dollars lost. It's under legal. You know, it could be criminal charges. There's definitely civil charges sitting out there. We are gonna go after full recoup of all that $7.4 million. All right. The last question I have for now is on the Performance Chemicals business and the customer inventory destocking that you've seen there. Has that started to run its course? Are there still some pockets where order patterns are weak? I guess, with the destocking going on, do you have any sense of what underlying demand dynamics are looking like within that PC business? Yeah. There's still some destocking going on. There's still some high dive inventory sitting there. We are starting to see, you know, a little bit of volume erosion, from the consumer. With all the contracts that we have signed coming into the second part of the year, not the second quarter, but the second part of the half of the year, we see that improvement coming, during that time. you know, I think we'll see a similar quarter as we saw in first quarter in Q2. then you'll start seeing sequential improvement in Q3, Q4. All right. Thank you very much. Thanks, Mike. Thank you for your question. We are now taking the next question. Please stand by. The next question is from Lee Jagoda from CJS Securities. Please go ahead. Your line is open. Hi. It's actually Lee Jagoda for John this morning. Just to piggyback on the last question on the Performance Chemicals piece, can you remind us the normal amount of inventory that sits at your customers at any, at any period and kinda compare that to where we are today? Then maybe speak to, and I know you mentioned some consumer weakness, but is there a situation where the customers are waiting for the new contracts and kinda hoping the pricing comes down versus trying to take more inventory today? No. I think early on, there was a lot of pre-ordering because of the tightness in raw materials and the length of time to get the raw material to locations. There was a lot of pre-ordering, pre-purchasing during that time. Obviously, as the market's slowed a little bit, they're trying to destock what they've had sitting there. There's instances where we saw people had two or three days of inventory, who are now starting to order again. It's really a mix of everything that's caused the last two quarters to slow down. I think we'll see it again, as I said earlier, in the second quarter, and then we'll start seeing the new contracted volume coming on in Q3 and Q4, which will start the improvement process. It's a little bit of everything. It's a cause and effect. You know, it's shaking itself out, and you're seeing that throughout not just our company, but really throughout the chemical industry. Got it. Just switching gears to the M&A environment, can you speak to what you're seeing out there, both in terms of multiples, and then sort of your comfort level around the targets that you're looking at and their EBITDA projections, given the macro uncertainty, and how you balance all those things together? Yeah. I mean, we, you know, we don't look at, you know, market volatility as a need to not acquire or to acquire. If we find something that fits our portfolio and the timing is good, you know, we'll look to purchase it. We're seeing multiples come down. We're seeing some multiple compression. I still think there's a disconnect between buyer and seller, but that will shake itself out, we think, over the next three to six months. We are starting to see people looking at portfolios and saying, you know, it's a, you know, rationing what they should and could and want and needs are. So we are starting to see more businesses come out. I think the issue they have there is, again, is that disconnect. They don't see where they think they should be getting X multiple, and it's being offered Y multiple. With interest rates where they are and market volatility, there's still a disconnect there. We have looked at a lot. We're still looking at a lot. We think it's an opportunistic time with our balance sheet. If the right one comes along, we're hoping to get something done this year. That sounds good. Thanks very much. Thank you. Thank you for your question. We are now taking the next question. Please stand by. The next question from David Silver for C.L. King & Associates. Please go ahead. The line is open. Yeah, hi, good morning. Have had a few questions. I think the first one I'd like to follow up on would be related to Performance Chemicals. In particular, I was hoping you could share maybe some feedback from customers. One issue that's been mentioned by your company and some other, surfactants makers I follow is the idea of trading down, you know, from a higher value, let's say, personal care product to a more economical variety. You know, from your customers' perspective and, you know, from the background of their purchasing caution, I guess, that you've cited, is the trade down for the typical consumer, is that kind of a temporary thing? Is that a phase that, you know, they'll shift back to a sulfate-free shampoo form, product, you know, I don't know, once their personal situation or maybe, from your perspective, if a recessionary period passes? Or is the trade down, you know, move by a consumer kind of more stickier or longer lasting? In other words, if there is some trading down going on here in a period of economic uncertainty, is that business from your customer's perspective, you know, how sticky or how long lasting is that, does that trade down decision tend to be? Of course, I'm thinking about it in terms of your planned, you know, expansion and ramp up in some of those higher value, additives and formulations. Thank you. Yeah, you know, it's interesting. We've been through this before. You know, one of the things about diversifying our portfolios in Performance Chemicals was when we went through this first process of a recessionary time and in inflation at some point in time. We found out that we had to be in the low end, mid end, high end. We've done that. We've done a really good job diversifying that portion of the portfolio. What you do see is you do see the high end moving towards a mid-tier and a mid-tier moving towards a low end. Once you start coming out of recession, they go right back to the high end. We've been through it, we've prepared for it, I think we're well balanced in our portfolio in Performance Chemicals. I think you'll just see, you know, over the next couple of quarters, you'll start to see the uptick from the contract work that we have in Q3, Q4. I think as you see us coming out of these uncertainty, uncertain times, that the consumer will start to buy back up in the more mild, natural, et cetera. They can only hold out for so long, hopefully. Yeah. Actually, let me think here. Actually, just a question about the capital spending portion or the investing portion. I noticed, in my model, you know, starting in the fourth quarter of last year, you're now booking amounts, you're capitalizing some software costs. You know, it's a meaningful amount each for the last two quarters. Could you maybe give us a little perspective on what that project is? What's the total outlays that you're anticipating? You know, how should we think about that going forward in addition, you know, now to your normal CapEx budget? Thanks. Yeah, Dave. What we embarked upon is a global implementation of SAP to consolidate all our ERP systems. We've done a lot of the preparation work, and throughout 2023, we'll be preparing our EMEA and APAC business, and then we'll roll over into 2025 to cover off most of our Americas business, and that will also roll into 2026. In total, the project will come to around about $50 million, but that'll be spread over probably the next three years. We're in fairly early stages of design, and we're in pretty good shape. Everything's on track. You know, our target here is to have a global system that simplifies our business, gives us lots of insight and leverage so that we can make better, more profitable, business decisions. Got it. Thank you for that. I do wanna swing over to Oilfield Services, and this probably will end up being a two-parter. This is the second, you know, consecutive quarter where you've had really outstanding, you know, top line and operating income results. If I recall correctly, I mean, I think one quarter ago, Patrick or Corbin might have characterized it as a lot of first fill kind of business that may be, you know, temporarily boosted sales volumes. Looking at this, you know, second consecutive quarter of, you know, kind of historically very extremely, you know, attractive growth and margins, you know, is that still the case? Is this still the blush of kind of early fill or first fill by your customers, or might there be something else going on? Are there some incremental, you know, share gains from your new, you know, the new suite of water-based products that you've introduced, or is it another factor? Thank you. It's a little bit of both, David. I, you know, I think it was a pleasant, I wouldn't say surprise, maybe a little bit of expectations internally. There was still some first fill, but there was also expansion of business and volume growth. You know, we picked up new customers. We've grown new technologies. All that balanced out with, you know, some large customers expanding into offshore into other areas, you know, have really delivered strong growth to the business. I think that you'll see a similar quarter as you saw in Q1. You'll probably see a similar quarter in Q2. It's been pretty strong. We're very happy where we are. There's still some margin improvement in some of those areas, just like there is in all of our businesses that we're working on and working with our customers to make sure they have the best technology during these high inflationary times. You know, we're very pleased with where Oilfield is. As we continue to diversify that portfolio, you know, hopefully we continue on this quest of long-term growth. If I could just follow up on that, please. I hope this doesn't sound too naive, but, you know, maybe if you could just highlight the value proposition, you know, from the customer's perspective or, you know, how your new suite of water-based products or other new products are being marketed so effectively here. In other words, you know, I'm not an energy expert, but I don't really recall, you know, the need to shift, you know, drilling fluids and whatnot to a water-based formulation, you know, coming up much in the past. Is this the case where it's really, you know, the environmental basis for the formulations that are driving the growth, or is it superior performance, or is it both or, you know, or is there another factor? What, you know, what would you attribute, you know, this kind of outsized, recent success, you know, with these, with your suite of products for, you know, your traditional shale, basin customers? Yes, all the above. You know, it's excellent customer service. It's on-site customer service. It's changing and excelling in technology, and it's the ESG footprint. So literally, it's all three of those in conjunction that have enabled us to grow this business and change the dynamics of this business over the last year. That's provided, obviously, many opportunities to the company, and it's given us the growth that we've expected and we're looking for and we're finding. The key is to make sure it's long term and sustainable, and that's the key for and the key focus for our management team. Okay, just one last one. I appreciate it. Just again, building on Oilfield. You know, from an M&A perspective, I mean, I think you've kind of excluded, you know, the Oilfield from, you know, it was kind of not considered to be meriting a tremendous amount of, you know, discretionary capital from an M&A perspective, you know, regardless of what the opportunities are. You know, with this last kind of couple of quarters of, I guess, record earnings, best quarter last year, second best this quarter, I mean, I'm assuming there are some targets in there. I'm assuming there's some people who are less attached to the business. Is this kind of an opportunity for you to kind of use this, you know, gateway or this product advancement that you're, you've implemented or commercialized to maybe, you know, do some opportunistic M&A and maybe get some additional cross-sell or, you know, just strengthen your overall product offering? Thanks. Yeah. You know, I think, Dave, it's more of geographical growth, organic growth for us right now because that's what's enabled the growth where we're at today. We don't necessarily need to go out and acquire, even though multiples, as you said, are very depressed in the oilfield market. You know, I think there's gonna be some shakeout, especially with crude prices falling. There's gonna be quite a bit of a shakeout over the next six to 12 months. Could there be an opportunity at that time to pick up something for pennies on the dollar or a very low price? Absolutely. As of right now, our focus is probably on M&A more on the side of Performance Chemicals and Fuel Specialties. Again, if there is something in Oilfield that comes up that makes a lot of sense, we would look at it. Right now the focus in Oilfield is organic growth, diversification, either product diversification or geographical diversification. Got it. Very clear. Thank you. Thank you for the color. Thank you. Thank you for your question. We are now taking the next question. We are now taking the question from the line of Mike Harrison from Seaport Research Partners. Please go ahead. Your line is open. Hi. Just a couple more for me. I wanted to ask about the Performance Chemicals pricing. That came in, kind of weaker than where it's been trending. I know you mentioned that mix was lower. Is the pure pricing, still pretty strong in Performance Chemicals? Maybe give us some color on what you're seeing on the price mix front there. Mike, the sales mix hasn't helped with this quarter, that's for sure. You know, a lot of our higher value products in Performance Chemicals haven't performed as well as we would like. There's certainly a mix impact there. Pricing is generally holding up pretty well in Performance Chemicals. What I would say is, you know, it's not easy. We're under a lot of pressure to reduce prices. You know, we're having to work with customers, and we're having to work with suppliers to work our way through that. Generally, pricing is holding up, the sales mix in the third quarter and the second quarter certainly isn't helping us. Yeah. I think there's still some higher priced inventory that we have still sitting there too. That's, you know, as Ian said, that hasn't helped us. We need to get rid of that. We're pretty close to that happening as we speak. All right. Then, I guess, just looking for maybe some guidance on either next quarter or full year as we're thinking about earnings. You know, my sense is that next quarter probably looks a little bit similar to this quarter, maybe if we kind of add back the inventory issue. As we get into the second half with the improvement you're expecting in Performance Chemicals, you know, it seems like when you add that all up, you get to an EPS number for the full year that could approach the $6.50 level. Just kind of curious if you think there's any issues with my math there. I think I'll just sort of set that, quarter by quarter, Mike, if that's okay. For quarter two, you've heard myself and Patrick say that broadly, the Performance Chemicals and the Oilfield business will be the same as the first quarter. In Fuel Specialties, we do expect the business to be probably in the sort of around about $30 million-$32 million of operating income. Just remember that we usually see a stronger performance in Q4 and Q1 because of the winter period, where we do tend to perform a little bit better. As we look out to the full year, I think a lot of it really depends on the two things. You know, one is, are we gonna see Performance Chemicals bounce back in the middle of the year like we expect it to? How long, you know, and will we retain that oilfield business at the current levels? Our expectations are absolutely that. I would say that $6.50 is probably towards the top end of your range, but that's certainly a target that we'll be aiming for. You know, we probably would be guiding a little bit lower than that right now. Understood. Thank you for the color there. Thanks. Thank you for your question. There are no further question at the moment. I will hand back the conference to Patrick Williams for closing remarks. Please go ahead. 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 second quarter 2023 results in August. Have a great day. That concludes the conference for today. Thank you for participating. You may hang up.