Innospec Inc. Q1 2023 Earnings Call

<unk> achieved a lot more of our lower volume high margin business is a really strong mixing that Bruce so the underlying 34% is very strong we still feel that for the full year, 33% gross margins across the full year is achievable.

Patrick or.

Kind of business.

That may be.

Hemp rarely boosted sales volumes.

Looking at this second consecutive quarter of kind of historically very extremely attractive.

Attractive growth and margins.

Is that still the case is this still the blush of kind of early fill her first Phil by your customers or might there be something else going on or are there some incremental share gains from your new the new suite of water based products that you've introduced or or is it not.

Other factor thank you.

Little bit of both David I think it was a pleasant.

I wouldn't say surprise, maybe a little bit of expectations internally.

But there was still some first Phil.

But there was also expansion of business and volume growth.

We've picked up new customers, we've grown new technologies all of that balanced out with some large customers expanding into offshore and other areas.

Have really delivered strong growth for the business.

I think that Youll see a similar quarter as you saw in Q1, you'll probably see a similar quarter in Q2.

It's been pretty strong and we're very happy where we are there is 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 this high inflationary times.

But we're very pleased with where oilfield is and as we continue to diversify that portfolio.

Hopefully we continue on this quest of long term growth.

And if I could just follow up on that please.

I hope this doesn't sound too naive but.

Maybe if you could just highlight.

The value proposition from the customer's perspective, or how your new suite of water based products or other new products are being marketed so effectively here. So in other words.

Im not an energy expert, but I don't really recall.

The need to shift drilling fluids and whatnot to a water based.

Formulation coming up much in the past. So is this the case where its really.

<unk> environmental.

The basis for the formulations that are driving the growth or is it superior performance or is it both or.

Or is there another factor, but what what would you attribute this kind of outsized recent success.

These with your suite of products for your traditional shale basin customers.

Yes, it's all the above.

Excellent customer service its onsite customer service.

It's changing and acts selling in technology.

And it's the ESG footprint.

And so it's 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.

And that's provided obviously many opportunities to the company and its given us the growth that we've expected and we're looking for and we're finally getting now 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, and just one last one I appreciate it.

Again building on oilfield, but from an M&A perspective, I mean, I think you've kind of.

Excluded.

The oilfield from.

It was kind of not considered to be.

Meriting, a tremendous amount of discretionary capital from an M&A perspective, regardless of what the opportunities are.

With this last kind of couple of quarters of record earnings first best quarter last year second best this quarter I mean, I am assuming there are some targets in there I'm, assuming there's some people who are less attached to the business, but is this kind of an opportunity for you to.

Use this gateway or this.

Product advancement that you're you've implemented are commercialized maybe.

Do some opportunistic M&A and maybe get some additional cross sell or.

Just strength in your overall product offering.

Yes.

Yes.

I think David it's more of geographical growth organic growth.

For US right now because that's what's enabled to growth where we're at today.

We're not necessarily we don't necessarily need to go out and acquire even though multiples as you said are very depressed in the oilfield market.

I think theres going to be some shake out, especially with crude prices falling theres going to be quite a bit of a shake out over the next six to 12 months now could there be an opportunity at that time it picks up something for pennies on the dollar or very low price absolutely.

But as of right now our focus is probably on M&A more on that side of performance chemicals and fuel specialties and again, if there is something in the oilfield that comes up that makes a lot of sense, we would look at it but right now the focus in oilfield is organic growth diversification either product diversification or geographical diverse.

Suffocation.

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.

Okay.

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.

Hi.

Wanted to ask about the performance chemicals pricing.

That came in kind of a weaker than where it's been trending.

And I know you mentioned that mix was lower so it is the peer pricing still pretty strong in performance chemicals or maybe give us some color on what youre seeing on the price mix front there.

Yes, Mike.

The sales mix it hasn't helped us this quarter that we show a lot of our higher value products and performance chemicals Havent performed as well as we would like.

We are mixing.

Pricing is generally holding up pretty well in performance chemicals.

I would say, it's not easy, but under a lot of pressure to reduce prices.

We are having with customers and we're having to work with suppliers to work our way through that.

Generally pricing is holding go at this.

Sales mix in the first quarter in the second quarter, certainly isn't helping us.

Yes, I think theres still some there's still some higher priced inventory that we are still sitting there too so.

So thats as Ian said that Hasnt helped us we need to get rid of that and Thats where.

We're pretty close to that happening as we speak.

Alright, and then.

I guess.

Just looking for maybe some guidance on either either next quarter or full year as we're thinking about earnings.

Yes.

My sense is that next quarter, probably looks a little bit similar to this quarter, maybe if if we kind of add back the inventory issue.

And as we get into the second half with the improvement you're expecting in performance chemicals.

It seems like when you add that all up you get to an EPS number for the full year that could approach.

$6 50 level, just kind of curious if you think there's any issues with my math there.

I think I'll just set up.

By quarter market, that's okay. So according to <unk>.

<unk> heard yourself from Patrick's day up broadly the.

The performance chemicals in the oilfield business will be the same as the first quarter.

In fuel specialties, we do expect the business to be.

Appropriately in the ground about about $30 million to $32 million of operating income.

So remember that we.

We usually say 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 two things. One is are we going to see performance chemicals bounce back in the middle of the year like we expect it to and how long.

We retained the oilfield business at the current levels on our expectations are absolutely that so I would say that $6 50 is probably towards the top end of your range.

Certainly a target that we will be aiming for.

Probably we'll 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 <unk> employees for your interest and support.

You have any further questions about <unk> or matters discussed today. Please give us a call we look forward to being with you again to discuss our second quarter 2023 results in August .

Dave.

That does conclude the conference for today. Thank you for participating you may hold this.

Okay.

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