IOSP - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the Innospec's First Quarter two018 Earnings Release and Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Jones, General Counsel, Chief Compliance Officer. Please go ahead, sir.

David Jones

you. Thank

Slide Results for is Conference with Quarter our being Thank Financial twoXXX Call. X. start joining you First recorded. Let's Today's call

archived results presentation on March and webcast know, the the six the release our on company's you late website, The we both will is on our As and months. slide now innospecinc.com. presentation on yesterday, is posted audio quarter results for the XXXX. XX, financial ended be website, The the slide press an website reported for available

reconciliation our to Officer. contained Patrick. you the Cleminson, it Executive with available SEC. are measures We Ian a or and and These expectations, by turn X. statements. actual Executive for cause Before we Securities anticipated like the over to our Williams, of most X. as site and us Innospec financial SEC's With to might forward-looking at risks copy refer and that directly of regarding the Patrick release involve of everybody Chief President targets, I'll forward-looking to report presentation forward-looking are and we that, during Innospec's GAAP remind future in Slide other that Chief number and our beliefs, speaking, today, Reform characterized as Litigation those that as made statements. today follows. this or are results statements to on the start, and you, other non-GAAP I Generally other from have be in Financial well could Private would we've uncertainties Vice risks the certain measures, filings most some comments website. XXXX. recent differ is uncertainties the implied financial website And discussion Innospec these comments A predictions the President Act comparable In Slide detailed from XX-K materially statements in under Officer; documents. any results call a These management's earnings also included

Patrick Williams

Thank Call. welcome to you, First Innospec's twoXXX Conference David, everyone and Quarter

to We are very strategic growth pleased excellent revenue businesses. our all core with in our XXXX with start

This notable our sales which in business. clear picture minimal, strength a provides Additives also the Octane were quarter of in future that is of

at adjusted our start Performance delivered set have X%, Although results XX%. if exclude Chemicals EPS was the only by three margin of adjusted both EPS division. Additives business the periods, am we When to was report we the strategy This of integration, from elements. of all strength on up underlines of ourselves am particularly this a XXXX, very excellent improvement. we underlying we Octane of our by business. encouraged clear the I up our that and acquired part then I delighted growth

of and is strategy ahead right Our track schedule. on

This being has As the components. driven referring very we as Chemicals is new a which we been crude acquired now Specialties a single than and of indicated, sustained driven commenting by complete, technologies. Performance solid by prices. our rather adoption materials, the that heritage integration higher to had by customer on quarter, will also raw business are tempered Fuel be

margins at we can there short can which be indicated, cycle, for point brief As the in lag this often have period. depress a a

to markets. challenging strong are Services and continues and reliable operate the very unchanged, in Our business. levels Oilfield this a this sustainable views remains business on for margin very

growing growth. margins. With and customer continue revenues to drive While XX% prices and need activity both obviously support growth, to of been materials a to there's year-on-year, working this impact raw capital for continues transportation additional availability

apparent in leverage trends drive of and profitability. confident improved this are towards business, end were we operational will which the the However, the that quarter,

Octane Additives on As last indicated minimal. sales in our the were call, we for quarter

order the an to received million, now deliver quarter. second of We we value $X.X in have which the expect to

indications customer this inventories. as manage play on point their our they We orders that from smaller may have

continue on will to We update you each call.

quarter, expected. was Our operating in in flow small cash resulted outflow the which a first

years, the in will improve while reducing previous flow year we that the believe leverage further year. as progresses cash As during

Now to questions. Cleminson, take we results detail. turn comments. will financial with Ian? I in review who'll I our the more After over that, call Then concluding return will will Ian some your

Ian Cleminson

Patrick. Thanks,

from Performance quarter the was the EBITDA compared in Slide Turning Chemicals ago. year overall a year higher revenues total a quarter effects for $XX.X and decreased mixed a by from of presentation. XX% to XX%, last points Additives. of $XXX.X to sales X.X by XX% first The margin The year. company's million, gross last primarily increase minimal X million, growth $XXX.X were percentage Octane Adjusted from to the driven the for increase million

earnings Our negative per a included net quarter share first special share items which by our of GAAP $X.XX, earnings of $X.XX, share. were per GAAP earnings reported special of impact items. we $X.XX per including decreased The which share. A ago, effect per from year $X.XX

a was items $X in special X% the EPS adjusted our Excluding a both year from $X.XX, increase ago. for years, quarter

As adjusted increased Patrick mentioned, EPS excluding XX% Octane year-over-year. Additives from by both years,

XX.X% were the by XX% Slide currency In compared augmented to XX% points. margins and price Performance Gross impact a increase. of adjustments. X.X favorable $XXX mix Volume Chemicals quarter for were by XX%. in inventory X. impacted value the of first up quarter million to fair $XX.X percentage Revenues last year, a growth XXXX, positive a million Turning were first X% of a of of were margins

However, of was $X the quarter for adjusting percentage Operating the up underlying business. is this, even for income million, comparative XXX% quarter. margins ahead the in on expectations $XX.X were X million up this for points, which our just

currency Americas for positive to impact. X% strong by the mix effects first particularly by and price increase million X%, Volumes Fuel XX% backed ago. on quarter the were Revenues Specialties the Revenue year positive in up Slide $XXX.X a X% a and reported X. million, were and Moving a $XXX.X was Fuel growth both same This year. from of customer up in an by for increasing margin $XX.X Operating quarter a is demand. points the in material our down close segment quarter healthy for Specialties first to softer last product despite gross little million XX.X%, was $XX was at of up million, quarter raw the from expected costs. income XXXX. X% driven range X.X percentage from EMEA, the the

margins the over to activity drove Strong XX. Services the increased XX% a XXXX. Revenues Slide fourth on in Moving sequentially of increase in over increased XX% customer Oilfield Americas year by quarter quarter and volume last the same of quarter percentage materials impacted and this XX%, as the continue Gross of were X%. points to XX.X% be raw X.X positive transportation price issues. we mix the impact comparative and by down combined to with in

was were flat to in improvements year, of signs there the $X up of XXXX. late However, but income period $X Operating last of over quarter. compared some million the quarter the same fourth million

to Slide XX. Moving on

the minimal expected, sales year Additives in first Octane ago. of quarter, we million there $X.X As were a impacted

$X.X the during an the we of profit a compared products of As this, million operating of quarter. result order year. to loss last Subject $X the million $X.X million business deliver the will second operating for in logistics, an latest quarter of made to

magnitude indications Beyond at orders have as that be are their although this, inventories. limited future our this we customer manages visibility, may

and year the was year the year, quarterly enlarged required million be range increased compared higher Corporate reflecting expect we ago, costs personnel-related was quarter to than mainly corporate to expenses $XX be additional to the On $XX our Slide effective to compared the and to by to up last XX.X% The rate million expected, slightly basis, driven in costs effective rate million support quarter XX.X% million. full of for approximately we group. business, to tax services geographical the the of XX. XX%. $XX a for expect the Turning mix $XX.X a

on XX. Slide Moving to

small expected, outflow in a the $X the an million quarter last of of operating to As million business year. experienced outflow $XX.X compared cash

requirements we of was revenue outflow driven and support the quarter, $X.X working the capitalized million Capital million businesses. increased software. $X.X small quarter's by for capital core the all in expenditure was growth This to

the positive position in near expect to to as We return term capital generation stabilizes. cash working the

million. cash have total Innospec As over of and to in $XXX.X and cash comments. back Patrick $XXX.X in of some now it million, million equivalents of $XX.X I'll for March resulting net final debt XX, debt turn

Patrick Williams

on has our long a growing company specialty Innospec of current chemical portfolio strategic journey been to balanced businesses. from a single-product and Ian. Thanks,

as with This further XX% market did enhance profitability improvement achievement. in of by Additives coming quarter could We shareholder the the quality flow. the our pleased announce and which sales a has absorb the in perform quarters, have been business M&A very of in of increase improve Octane further we businesses to we our have capacity terms a place, contribution minimal EPS acquisitions, have business increase both plans our further increased board of the to remain has a only Additives from the believe a portfolio of semi-annual in is segment. am To reflection well, of cash landmark future the Not capability adjusted in shape the number underlying Innospec without will and active that but our Octane and a approved in dividend. we value. I which

annualized profitability positioned our Over to we per months shareholders. of which a six all with in later well our semi-annual XXXX to has The year. businesses $X.XX dividend the payable XX% that improve have further and be returning we every dividend four to throughout value this rest month, increase share, and the board years, every beyond. continue payment and an We of XX% will of increased grow last believe approved between strategic are

then turn now will I will Ian take Now call I over questions. and the to and operator, the your

Operator

Instructions]. [Operator

question take will We Sean our from first Milligan.

Sean Milligan

side mentioned prices. Fuel Specialties crude some in headwinds you to the Just relative

you you the you much around cost XQ, think we effect of that, what Just should XQ. lag be put operating margin trying numbers see to as if how that some roll and sort through could

Patrick Williams

Yes, Sean.

at that - if X% raw about in transportation. probably was costs, rise think transportation a look of material you I cost and the there

it down, So really probably it point. break if full a was you percentage

Sean Milligan

late-quarter a settle to environment trying some margins customer out in guessing, on Okay. think for Oilfield you trends, operating Services this higher relative year in sense where get on But then of business activity levels. you side, you I'm And mentioned can that the kind all. to

Patrick Williams

inflection talked on Yes. an We getting more same point where to we for volume some about that SAR cost. have about the quite asset, time

SAR the scenes input our of as output costs adjusting well we've a for So the as of at material the and been behind a doing all raw looking business what from costs. for fit is standpoint, lot

then turn QX. we that focus QX lot have and now It's growth of And getting starting in start line improve, the and that's this think into the see profitability done, should - margins, we've to of focus work the we benefit the we've I part the which of see into seeing bottom making the growth business. we not help the but profitable and been a sales latter that quarter, that's this sales now. It's started gross And really only benefits. that there. we'll growth, sure growth. it We're behind think scenes, operational had, to I the the

see quarter. I second it of the some think you'll in

in benefit full the see should of You that QX.

Sean Milligan

I to upper mean, about of kind talking mid-single of are sort margins in mid-single-digit able or EBIT get the we range? digits being the

Patrick Williams

mid-single would I digits. say above a little bit

to a double get area. is of X%, X% that period mid-single on goal focusing but Our probably time, in over we'll digits that to be into

Sean Milligan

kind talked changes gasoline Okay, terms some points, great. the longer-term And you of all then in at initiatives market. of additive some about in

new the adoption kind in understand where could we and of outlook when to additives Just of that you impactful there, your all. to you trying of potentially are kind be think

Patrick Williams

on a process, market, the new coming in direct fluid fact, specifically lot injection. GDI, out Sean, it's a to I A almost talking about the of and all matter value engines the too GDI. it. still gasoline put you're still new think - engines It's are a early Yes. And of

and PFI GDI So a is to timing going when be. that you of it's blend function really how in with

give We to general don't really, more would adoption of so it's that us, We moving Again, And to the it's know timing start much know us, GDI, mass oil timing. it'll don't of going idea at and us give issue, better the point. which to opportunity treating a a of some major much a better be. a how when visibility. size market companies

Operator

from Dezellem We Bill Capital will take from Mgt. our next question Tieton

William Dezellem

lag other Bill anything other to with margins is the that factors entered impactful impacted Capital. business Dezellem with were there that the the Specialty Tieton Or This margins? pricing also? Did in equation that were Fuel than change

Patrick Williams

it as say would margins. Typically, I we And pricing it's to X Bill. to, No, was material. alluded a it's month XX% X raw lag.

oil lag business. we've gotten little jump think between. see got just lag That's I jump raw months, When materials of up, six typical crude lag a in you it's our any that a chemical when you've up, but in see better down pricing. than you

product a XX% it it's - had XX% is a a low-margin you goes back. recall, probably product. we we other cetane commodity. volumes, of is but The And product. and That's if in more came mix. a That had It comes

William Dezellem

then take helpful. margins, And quarter. you effect that referenced That's the relative to to the quite those Oilfield, like some it to programs started sounds already in have of late improve

I'm And that you you there detail of the that can hoping some is business. the things had benefiting so done

Patrick Williams

companies Yes. tackling. it's look and market, I companies general making effect. the years mean, it's and I you oilfield service typical look you just E&P money in at companies blocking a of service and and if suffering, it's lag mean, oilfield today's at primarily

pass-through. your manufacturing material It's just blocking not general that over getting control So and of tackling raw It's transportation efficiencies. it's neglected. control costs, for it's your that internal - been getting control of us, getting

this that think so lot that rolling had fast crude a that we with. so up and elements deal of I grew ran business prices had we to fast

I there's benefits direct a of think a focus, it. focus all and We're to team good the now. has see we're think our make that's directly that starting around getting to the involved hands sure I management

William Dezellem

Great. up talk Would that please? to And $XX-or-so million then inventories sequentially. were you

Ian Cleminson

across businesses. Sure, mix Bill. the our all That's real

Performance know, build Oilfield growth you the some Chemicals quarter had in but As expected inventories well. higher ahead levels Additives a bit no little and two. shipments quarter of then in sales the we in as one, built And in have Octane of

So top growth be But though, we good careful. it's do a sign. have supporting really line it's that to so

inventories, flow manage manage to have our off to We and have that. we cash back the of

mindful we've of are what we done. So

William Dezellem

you you please? like I mentioned may. M&A would you Great. that in as one on the I front. are will, opening ask more, much remarks the M&A active And that color provide Can to Relative as front, the if around to you

Patrick Williams

the acquisition. Huntsman integrated We've Yes.

we to be done a think job going good and we proven I it. was said there. It to did what business. were that we've set We - strategic the do, we've we very to

we are we We the just portions that are going now that of similar add price want of business that we our selling in to Xx stewards to The XXx in portfolio. our need multiples are so those right Bill, years that in XXx is areas be And get money, ago businesses of have now, to paid two not very good we're looking to we're that EBITDA. at high for that to at shareholder EBITDA into issue or this look going we into some get might market. have just a buy EBITDA

not our all it's more place only looking. We're looking what at in strategically for not we product the we're at prime businesses. It's We've have technology but today. looking world. It's So looked leg. geographic expansion in expansion, necessarily and another looking over really

William Dezellem

three place and today, businesses Or So Chemicals presumably with the Oilfield. think in that's really, see primarily Performance edges Specialties? the in you Fuel are filling that and your tuck-ins it's, or businesses, term, two I do around opportunity using in

Patrick Williams

only, lot and not or as Fuel like actives Fuel see Care, Personal buys mean, probiotic there a well in Don't a some plays manufacturing but could type asset Oilfield. be technology regional site in geographic consolidation somewhere. you're Specialties. technology expansion, technology in probably primarily, Home I as agriculture, But Specialties and right, or plays it's Care, primarily plays a expansion some

Operator

from our Securities. Jon question take from will We next Tanwanteng CJS

Jonathan Tanwanteng

Specialties, repeating margins on start, I recovering about do as a talk apologize things. what's to in I input the Fuel you there? you of can spank catches But pricing And if going the so costs? the Sorry see bit you're of call, to beginning missed you're just

Patrick Williams

in the catch a we've said range XX% said range. XX%, to margins in you most raw We mean, typically - normalize in XX% into said drop high that it think I business, at of That's that down we back get would the Yes. a and were lag always beginning, materials. back I There's part as of at up you'll that We're earlier. in And really if XX%. XX.X%. that first increase drastic There 'XX. across-the-board is look XX% this was chemicals. see into

we past. have So again, seen lag the haven't that there's catch on. It's that we to nothing abnormal back up just in it's that -

Jonathan Tanwanteng

it. million on got chemical Okay, $XXX side. in just the And then revenue.

us you 'XX. and I think beyond you - modeled business any by in tell even that? - we But it's far 'XX behind had in run you sustainable? Or the far from XXXX. quarter for can future Do that that as see rate how see build that

Patrick Williams

behind sure a where Yes. cases, strategic And the than spent I of making gates lot was lot time goes were. that inputs when strategy in we your I it's fit. the announced rarity, better what of think a acquisition, mean, strategy a we that the really

growth. I this think that the acquired a definitely The this we'll think to it business, that's a that the very from integrating a It's don't team business, well. to we'll know I not have I the but done adding this functioning from individuals the see there. model It's only great over see it model. appropriately. We're - working. job is extent. business and But managing phenomenal heritage

X, is view growth little anticipated. that every going have But to growth this into temper I single don't expect better I want bit think of a than X, So my we going quarter. type we're X to high and

plays next out it quarters. how few the over see Let's itself

Jonathan Tanwanteng

you QX? you big on that Did the the how octane in fair. was all that's you order side. shipped Okay, that do received? finally, expect And then mention just And

Patrick Williams

Yes. million It's in QX. $X.X

Jonathan Tanwanteng

do all? see rest the the of orders more And in you Okay. at year

Patrick Williams

Yes.

probably to they alluded cash in manage the flow. and smaller we see I some that as text we'll as inventory think orders we'll see - is

you'll $X the this lot in range. at that a of of we million smaller get once, million large orders instead orders to all $X see So

Operator

We go our from next Crespi. to Shaw Chris Monness, will question from

Christopher Shaw

on the be impact just Services. production. exposed even I sort cold you of business. I the question, more quarter? the know more impacted might First guys some might've snow first thought Oilfield had to curiously there in weather read the I That space any other are that drilling weather guys the Was in some on side.

there any impact? was So

Patrick Williams

volume interesting, are It's have where that sites yet. Hurricane there No, up you a max impact, to still had not you was. too, Chris, a of their lot and coming Harvey just because

lag from cold got you a yes, only So have of with impact. weather hurricane, not some the the hit you then

really double a got you So whammy.

it affect didn't really Now us.

If the transportation rate. raw Where tight were it just you prices, high look was at great revenue affected revenue materials material a rate, standpoint. we And only to a standpoint from but is slow and from a us raw it not react.

were than that think reactive proactive. I we more

the to in now be planning on so And mindset we're marketplace, mentality the proactive that's doing. and more is

Christopher Shaw

remind Got great team it. remember then job. is you - me And is Performance Chemicals, Huntsman The good. deal, I really you the - that acquisition margin. when Can did business the obviously, lower

think what's you existing little and the new in growth run your buying make had through Just product things some done to a bit of there. - some more been give like - high-margin that? there. have of in - it you how Europe for of a capacity achievement chance sort - been that the I you've put your some into that driving the already to to you Europe happening Is you're primarily Like get that maybe higher-margin is sense exactly? products

Patrick Williams

the it well margins. is the only but lot across-the-board with as also, not we acquired parts that we was components capabilities talked other well we What's as acquired could lot dissected our that about assets the a that just put making for multiple of had, And quarter those heritage strong the was up a pleasing other really things had on business. that improving as up of strong we that assets business the about, business Sure. globally, of when we

fit exactly looking for. were it strategically, really So what we

of think coming that are I business opportunities abound. that out

been into the and capacity really already. we it's almost that moving added dry and rest been one almost But of the confident It's Chris, We been XXX% solid year put and We 'XX, across-the-board. fly, It footing. very function. business. feel on it's this across-the-board that have we - very it's the is to hasn't full assets asset full. a So in,

have lot of us. So future done there's of looking that business we've that things for at a the panned out this well really very in

as So said I part it's think sustainable. earlier, and I the across-the-board it's pleasing of this,

Christopher Shaw

you And that buying sort project get capacity what mean don't soon? something - something that add I larger of it needs undertake? possibly a for Does would would know that guys the you like Is would to CapEx be. or

Patrick Williams

capacity Yes, really In minor. it's some CapEx. Chemicals, areas, but a adding it's question. in not you're mostly Performance lot Yes, of good

coming we've - plans CapEx what coming Oilfield products plans. business. You'll talking - to that in see with out that business. the have not had some the out we've had and support Chemicals, Performance we've of of some of not large our And But been in newer done are other only in larger the had that all potential to areas add not growth But CapEx. growth CapEx we've that's obviously in you're the our

Operator

We Sean Milligan final question our will Rice. from Johnson from take

Sean Milligan

focus chemicals because been follow-up. but all production the sell relative One know a to I blowing some takeaway market, levels into a midstream of out lot of recently when big portion be pipeline capacity. of you Permian of differentials - And on energy There's of it midstream kind business. doesn't within a the with at revenue conversations in seem like doesn't your - overall least or your you percentage to you all,

see if understand what like kind you growth products you if what would there of second customers look to to products, and opportunities are 'XX? this trying those kind just in half year new of sell of - midstream that and So think

Patrick Williams

side, we're meet is drilling, on in about the is the of Fuel stimulation XX% that's production. frac and to rest breakdown, between probably then we distillate pipeline And Yes. side pipeline. Specialties at and I X% you if look mean, the on the XX% crude between where pipeline

set really for whole model. ourselves we've us, for up So the

and product is, in the opportunities new you'll for see products a But as core in all new see our these Oilfield, of new in of and businesses a in those that have I near really, yes, to of hopefully, about. announcements we in Oilfield, technology here that we is of function three will we're the see And what some it's future what exactly you really some and technology. talking think will technology into had that's that's to company focus the differentiate ourselves And view a past. ourselves with haven't technologies bringing markets lot service us, market.

Operator

further no are questions. There

it So Patrick or I'd like turn President over Williams, to back Mr. additional to remarks. and CEO, for closing any

Patrick Williams

all Thank thanks customers their all you support. for Innospec joining today, to shareholders, and employees interest for our and us and

and have further our you forward call. or any If XXXX Innospec a us discussed a We meeting again give day. questions Have results August. please in QX look great about to you matters today, discuss

Operator

today's that gentlemen, and concludes call. Ladies

disconnect. now may You

Innospec (IOSP) 9 May 182018 Q1 Earnings call transcript