Good day. Thank you for joining us. Welcome to Innospec's Second Quarter 2021 Earnings Release and Conference Call. I want to inform you that today's call is being recorded on Wednesday, August 4, 2021. Now, I would like to turn it over to David Jones, General Counsel and Chief Compliance Officer. Please proceed.

Thank you. Late yesterday, we reported our financial results for the quarter ended June 30, 2021. The earnings release and 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, 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 forward-looking statements. These risks and uncertainties are detailed in Innospec's 10-K, 10-Qs, and other filings with the SEC. Please see the SEC site or Innospec's site for these 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 posted on our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to those prepared in accordance with GAAP. They are included as additional clarification items to aid investors to further understand the company's performance in addition to the impact that these items and events had on financial results. 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'll turn it over to you, Patrick.

Thank you, David, and welcome, everyone, to Innospec's Second Quarter 2021 Conference Call. This was a strong quarter for Innospec as operating income exceeded the pre-COVID 2019 comparative for the first time. In the absence of any material downturn in economic activity due to the recent surge in global COVID cases, we are entering the second half of 2021 with an optimistic view of continued recovery and momentum in all of our businesses. Performance Chemicals delivered an excellent quarter with record sales and a 47% increase in operating income over 2020. Since 2017 and throughout the pandemic, this business has delivered margin expansion and double-digit annual operating income growth. We are in the early stages of a global effort by the home and personal care industry to reformulate entire product lines around consumers, who increasingly prefer more sustainable, natural, and mild ingredients without any compromise in performance. This trend keeps the technical bar high and allows our research, sales, and operations teams to play to their strengths. Our industry-leading technology, combined with our formulation expertise, positions us as a key development partner with our customers to address these long-term trends. We are adding substantial new capacity to meet current and future customer demand, and our new R&D facilities are expected to be online by the first quarter of 2022. In addition, we are fast-tracking further growth investment opportunities in the U.S. and Europe. In Fuel Specialties, sales and operating income exceeded their pre-COVID comparative levels for the first time. While global fuel demand achieved sequential improvement, there continues to be a gap versus pre-pandemic levels, giving us headroom for further growth. Along with critical safety improvements, our fuel additives decrease diesel and distillate consumption, resulting in immediate and material customer cost savings as well as significant reductions in associated carbon emissions. The impact of these costs and greenhouse gas reductions is becoming meaningful in regions like Asia where fuel demand is expected to grow over the coming decades and where additive use is still relatively limited. In Oilfield Services, sales grew by 12% on a sequential basis and operating income approximately doubled. We believe that there are several opportunities to improve current operating margins, and it is critical that we deliver on them in the second half of 2021. These include further price actions in certain market segments where necessary, rationalization of equipment, and other improvements. These margin expansion opportunities are in addition to ongoing operating leverage gains that we expect to achieve as sequential activity levels improve in all oilfield markets. The industry is advancing along its recovery path, and we are seeing an increased focus by operators on chemistries that can drive both higher returns on capital and long-term sustainability. Our R&D and field service teams are very well positioned to support our oilfield customers in achieving these goals. Now I will turn the call over to Ian Cleminson, 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 second quarter were $354.5 million, a 45% increase from $244.9 million a year ago, driven by recovering demand in all our businesses compared to that in the COVID-impacted prior year. Overall, gross margin increased 6.5 percentage points from last year to 30.6%. EBITDA for the quarter was $50.6 million compared to a loss of $19.5 million last year. Our GAAP earnings per share were $0.90, including special items, the net effect of which decreased our second quarter earnings by $0.40 per share. A year ago, we reported a GAAP loss of $1.62 per share, which included a negative impact from special items of $1.44 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.30 compared to a loss of $0.18 a year ago. This quarter benefited from above-average order phasing for our AvGas fuel additives. The impact of these orders was approximately $0.16 of EPS for the quarter. Turning to Slide 8. Revenues in Performance Chemicals for the second quarter were $128.2 million, up 34% from last year's $95.7 million. Volumes grew 18% with a positive price/mix of 9% and a favorable currency impact of 7%. Gross margins of 24.6% were down 1.4 percentage points compared to 26% in the same quarter in 2020. Operating income increased 47% from last year to $17.9 million. We believe our Performance Chemicals business can sustain high-single-digit revenue growth, reflecting the strong organic opportunities in the pipeline. Moving on to Slide 9. Revenues in Fuel Specialties for the second quarter were $143.1 million, 33% higher than the $107.4 million reported a year ago. Volumes grew by 20%, and there was a positive price/mix effect of 6% with a favorable currency impact of 7%. Fuel Specialties gross margin for the quarter was at the upper end of our expected range at 35% compared to 23.6% in the same quarter in 2020. Operating income for this segment was $28.5 million, up significantly compared to the $4.7 million a year ago. Fuel demand has continued to improve. And subject to any further sustained economic lockdowns, demand for our fuel additive technology should continue to recover over the remainder of 2021 and beyond. Moving on to Slide 10. Revenues in Oilfield Services for the quarter were $83.2 million, approximately doubling the $41.8 million in the second quarter last year as customer activity continues to increase. Gross margins of 32% were up 8.3 percentage points on last year's 23.7%. Operating income of $2.2 million was a $14.6 million improvement from the loss of $12.4 million a year ago. We expect further sequential improvement, driven by a combination of increasing customer activity and internal actions, both of which will deliver higher profitability. Turning to Slide 11. Corporate costs for the quarter were $11.6 million compared with $15.4 million a year ago, due mainly to lower personnel-related expenses. The effective tax rate for the quarter was 44.1% compared to 26.2% last year, primarily due to the enacted change in U.K. tax rate impacting deferred tax. The adjusted effective tax rate for the quarter was 24.2%, in line with expectations. Moving on to Slide 12. Cash generation for the quarter was impacted by an increase in working capital due to sales growth, which resulted in an operating cash outflow of $1.1 million before capital expenditures of $9.2 million. As of June 30, Innospec had $94.4 million in cash and cash equivalents, and a finance lease debt of $0.2 million, resulting in a net cash position of $94.2 million. And now I'll turn it back over to Patrick for some final comments.

Thanks, Ian. This was an excellent quarter for Innospec, and the general outlook is positive in our end markets heading to the second half of 2021. Our company is built on a combination of innovative technology and highly responsive customer collaboration and support. This is a culture that is shared by all our employees. Demand is accelerating for our advanced technologies, which enable higher operational efficiency, reduce carbon footprint, and more natural and mild products. We will continue to leverage and deliver on the strong pipeline of growth opportunities that these trends present in all our businesses. With respect to cost inflation and supply chain tightness, these conditions will likely continue in the coming quarters. We are taking additional price action where required and close communication with our suppliers and customers will remain a focus as we manage through this environment. We expect to announce further growth investment projects in the coming quarters, which support our specialized technologies and product formulation expertise. In addition, our strong balance sheet gives us the flexibility to support strategic acquisition opportunities and continue our record of returning value to our shareholders through our balanced capital management program. Now I will turn the call over to the operator, and Ian and I will take your questions.

Our first question for today is from Jon Tanwanteng from CJS Securities.

Hi good morning, it's Pete Lucas for John. You guys covered a lot. Just a couple of quick questions. Should we expect cash flows to turn positive again in Q3? Or will there be more working capital investment going forward?

Yes. Good morning, Pete. I'll take that one. Yes, we've had a big outflow of working capital driven by the sales growth. And as you'd imagine, we have to fund that. That's good working capital on the balance sheet. Q3 and Q4, we expect to return to positive free cash flow.

Very helpful. Thanks. And then is the overall inflation supply chain and logistics situation improving at all into Q3? Getting stable, getting worse? And where do you see your biggest headaches there?

I think it's becoming more stable. While there are still some tightness and ongoing issues, we are still experiencing some residual effects from the Gulf freeze. Despite the tight inflation costs and general market conditions, we have managed to navigate through it, and we do not anticipate it impacting us in Q3 and Q4.

Great. And last one for me. Just a technical one. How should we think of the tax rate on a go-forward basis after the changes in the U.K?

Yes. We're still in that sort of 24% to 25% range. The U.K. change is all impacted on our deferred tax, so the adjusted rate of 24% to 25% is pretty good to stick with.

The next question is from David Silver from CLK.

Yes, hi thank you very much. So there were a lot of kind of teasers in the press release this time, and I was hoping just to see if we could get a little bit more color. But the first one I would say would be about the incremental growth opportunities that you mentioned in Performance Chemicals, so above and beyond the project that you accelerated some development spending on. You did talk about kind of what sounded like discrete growth opportunities. And I was just wondering if you might be able to kind of detail it, like what makes these opportunities worthy or justifying some discretionary capital down the road? I mean do you have the customer and a long-term agreement kind of in place or envisioned? Maybe just talk about what comes after the current growth opportunity that you accelerated your development spending for. Thanks.

Yes, David. It's across the board. As you know, when you put a strategy in place, sometimes it takes years for that strategy to really take off. And as we've discussed in previous calls, we've been working on this strategy quite some time on sustainability, mild products, and natural products. And that's where our focus has been, and that's where the growth is coming from, hence, that's why we have the capital projects. But it's really across the board, quite frankly. It's in home care. It's in agriculture. It's in mining. We've had growth in all sectors in our Performance Chemicals. And we see that moving forward. We've moved our growth rates up; we used to say mid-digit growth. Now we're at high-single-digit growth. And it wouldn't surprise me to see us in double-digit growth consistently over the next few years in that business. We've got a strong pipeline of products across all our businesses. But in primarily Performance Chemicals that you're asking about, it's really in all sectors of that business. So the guys have done a really good job positioning our company to take advantage of the consumer markets and really take off, and you can see it in our results.

Thank you for that. I wanted to ask about the M&A pipeline. Patrick, you've discussed the M&A target funnel with potential opportunities, and your company was associated with a significant opportunity. However, I'm curious about your comments on Performance Chemicals and Oilfield Services as areas where bolt-ons or complementary technologies or products could be reasonable targets. Could you provide some insight on how you view the M&A opportunities and what you anticipate may be achievable in the medium term?

Sure, David. Our primary focus in M&A over the last few years has always been the Performance Chemicals sector and technology-driven. And you would have a few outliers that sit there, but our focus still sits in Performance Chemicals. We've seen a lot of deals in the market. Multiples are extremely high. There's a lot of cheap cash out in the marketplace right now. And as you know, we're not going to buy just to buy. I don't want to be one of those companies that buys at a 16 multiple, and two years later you sit back and say, why did I do that? So we're going to be smart stewards of our shareholders' cash and our employees' cash. And where we see a great fit for our company, where we see long-term value, not a short-term hit, but long-term value, we'll make that move. And we're continuously looking at acquisitions. We won't stop looking at them. And when we find the right one, you'll see us jump on it again. I think we're in a great position with the balance sheet. We're in a great position with our strategy. All of our businesses are coming back strong. We see really good room to move forward in the next two years, and I think that a nice strategic acquisition is going to fit well. So we're going to continue on the road that we've promised. We've stuck to our guns to be disciplined, and we're going to still do that.

Okay. Great. And then I do have one last question. And again, kind of a teaser in your prepared remarks. But in Oilfield Services, you talked about some incremental opportunities to drive near-term incremental margin improvement. I'm just wondering if you might be able to provide a little more color on those initiatives that you expect to execute on in the back half of the year.

Yes. The first part of it is operating leverage, and we're starting to see that due to revenue increase. But just as important is simple blocking and tackling. It's getting a handle on equipment. It's getting a handle on price increases where needed. It's moving to more sustainable products for our customers. It's technology innovation, and it's controlling costs. And all of those combined, which we expect to see in Q3 and Q4, should really move us forward to move that operating income line to a much higher number. And that's our expectations, and I think we're going to see it.

I'm going to just throw in a quick one, additional one on the Oilfield Services business. But the oil price has risen, but the regulatory environment and maybe the risk appetite among the capital providers has probably shifted since pre-pandemic. And at your $83 million quarterly level, you would have to go up, I don't know, roughly 50% to get to the revenue level that was prevalent during much of 2019. And I'm just wondering, Patrick, this is your territory from way back. Could you share your thoughts on how you expect production activity or E&P activity in our major shale basins to develop, let's say, over the next six to nine months? Thank you.

Sure, David. It's interesting, because typically when you see a depressed oil price, when that market in a depressed oil price turns, you see activity turn at the same level. We really haven't seen that. This is for the first time in many, many years where it's been a much more disciplined approach. I think shareholders from E&P companies are expecting companies to pay down debt, return value to shareholders, and not throw it in the ground. And so it's been a more disciplined approach to the market which, quite frankly, long-term, behooves well for everybody because you'll have sustainability and pricing. And so you might not have that short-term jump, but I think you'll have that long-term gain, and that's what we're starting to see in the marketplace. For us to get to those levels that you're talking about, you're correct. We'll see those, but it's going to take some time. And I think as DRA expands its horizons, I think as we get more business in the Middle East and in other parts of that, in Saudi and other areas of the world, and the shale basins come back as we're starting to see them, you'll see that jump. It's just not going to be as fast as we expected. It's going to be a lot more controlled. And that's what we want to see. You don't want to see a big jump, big spike up, and then two years later a big spike down. You would rather see in this market a nice controlled increase, and I think you'll see that run right along with our numbers as well.

Okay. Great. And I would just say I'm happy to get back in the queue, but is there another call waiting? I'm just afraid the call might end if there isn't.

You have to ask the operator. We don't see it on our end.

Okay. All right. I'm going to get back in queue. Thank you very much.

Our next question is from the line of Chris Shaw from Moness Crespi.

Good morning, everyone. David addressed a few of my questions, but I would like to clarify. In relation to the oilfield, and thank you for your earlier response, recovering to previous revenue levels will naturally take some time. However, can you achieve the income levels you've experienced in the past sooner or more quickly than anticipated? Has there been a significant improvement in cost management or margin enhancement that would make this possible?

Yes. Chris, it's going to take time. I think if we do the things that the managers have enacted in oilfield, you should see OI improvement. As you see our expansion of our global business, you should see OI improvement. So I think we can get there as we start creeping up to that top line revenue number. We could get there faster with OI than we could revenue, but it's going to take some time to get there.

Got it. And then just back on Performance Chemicals. I was always under the impression that was a more European business for you. Is that not right? Because I'm just impressed, again, like David, impressed how much it's been growing and how quickly. So I thought Europe was coming sort of rebounding slowly, but maybe I'm wrong.

No. It's very well balanced between the Americas and Europe and probably a little higher in the Americas. And then As-Pac is a very small proportionate share of it. But it's pretty balanced between EMEA and the Americas and then a very small portion in Asia.

Was the Huntsman acquisition primarily based in the U.S.? Am I remembering that correctly?

No, that was mostly Europe. That was mostly Europe.

Maybe that's what I'm thinking of. All right.

Our core business is growing extremely well, and the Huntsman business is growing well along with it.

We're going to go back to David Silver from CLK. Please go ahead.

Thank you very much. Patrick, could you provide some insights into your recent product launches and their progress? Specifically, I'm referring to the fuel additives area. A few years ago, you had high expectations for initiatives like the DRA business, the IMO 2020 suite of additives, and the additive potential from the transition to GDI engine designs. In my view, the pandemic has caused delays in these areas, but as things start to reopen, I'm curious about the current status of the DRA business in response to rising crude oil prices. Have you seen any developments in the discussions and testing with major shipping operators that may have initiated some IMO 2020 related business? Thank you.

The DRA business is currently positioned within the oilfield sector, primarily focused on oil treatments. In the near future, we plan to introduce a DRA specifically for fuels, which will likely generate revenue within the fuels specialties division. Our DRA technology is performing well and aligning with our expectations. We've expanded our facilities, leading to increased volume and a growing customer base, which will also benefit the oilfield sector. Additionally, we are witnessing an uptick in business for GDI and IMO, particularly in the marine sector, with GDI gaining more visibility. As more people return to work, technical teams are increasingly evaluating our products and recognizing their performance value. Provided there are no significant disruptions like the delta variant, we anticipate that Fuel Specialties will benefit from the IMO and GDI products. We are also exploring various opportunities within this sector that will enhance our performance in the coming years.

Thank you. I'd like to get some insight into your AvGas business. I'm not focusing on the unusual order phasing issue this quarter, but I'm curious about the general state of that business, which seems to have remained stable or stagnant while regulatory authorities consider potential alternatives. Has your perception of the total addressable market for AvGas changed? Do you think the market has evolved in a way that could allow you to capture additional market share? It would be helpful to understand your overall outlook for the development of your AvGas business over the next few years. Thank you.

No, the market really hasn't gone up or down 5%. There are no other players in the market but us. And there's nothing from the FAA that sits there right now in the next few years that tells us that it's going to change at all. So, same market share might go up or down 5%. No changes whatsoever in the AvGas market.

All right. And then just, if you don't mind, could you maybe posit why you think the order phasing was so heavily front-loaded or concentrated in this quarter? What was unusual about the business environment that led to that unusually concentrated order for the AvGas?

Sure. Ian, why don't you take that one and I'll add to it.

We observed that several customers moved their orders earlier than expected. This was primarily due to supply chain disruptions, challenges with shipping, and concerns about product availability. To ensure they had the necessary products when required, customers advanced their orders into the second quarter, as well as the third and fourth quarters.

No, I think Ian covered it well. Thank you.

Thank you, everyone, for your questions. I will now hand back to Patrick Williams for any closing comments.

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 third quarter 2021 results in November. Have a great day.

Thank you everyone for your participation. You may now disconnect your line.