Innospec Inc (IOSP) 2013 Q1 法說會逐字稿

Good day and welcome to the Innospec Q1 earnings conference call. For your information, today's conference is being recorded.

At this time I would like to turn the conference over to Mr. David Williams, General Counsel. Please go ahead, sir.

Thank you, Lisa. Good day, everyone. My name is David Williams, and I am Vice President, General Counsel, and Chief Compliance Officer at Innospec, Inc. Thank you for joining our first quarter 2013, financial results conference call. Today's call is being recorded.

As you know, late yesterday we reported our financial results for the quarter ended March 31st, 2013. The press release is posted on the company's website at www.innospecinc.com. An audio webcast of the call and the slide preparation on the results are also now available and will be archived on the website.

Before we start, I would like to remind everyone that certain comments made during this call might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, any comments regarding management's beliefs, expectations, targets, or other predictions of the future are forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by those forward-looking statements. These risks and uncertainties are detailed in Innospec's most recent 10-K report as well as our filings we have with the SEC. We refer you to the SEC's website or our site for these and other documents.

In our discussions today, we have also included some non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release and in the presentation that follows, a copy of which is available on the Innospec website.

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 will turn it over to you, Patrick.

Thank you, David, and welcome, everyone, to Innospec's first quarter 2013 conference call.

We have started the year with good momentum and we have had a very good first quarter. We are particularly pleased with the continued strong performance in the key strategic sectors of our business globally, namely fuel specialties and personal care.

Thanks to our strong cash generation and management policies and attention to cost, we have maintained a very solid balance sheet position. This enables us to invest in our growth businesses as well as in new product development and technologies while continuing to evaluate external growth opportunities for the company.

We had a strong trading quarter in fuel specialties, registering 7% top-line growth, despite a continuing challenging market environment. New product development is still a priority for us in fuel specialties, as we remain very customer focused.

Her Avtel business had a strong quarter, benefiting from favorable order patterns, but we do expect this to normalize in the second quarter. Last year, as you know, we closed on the acquisition of Strata Control, whose products are designed to prevent and solve mud and fluid losses in oil and gas drilling.

Integration of Strata into our global business is proceeding reasonably well. Strata made top and bottom-line contributions to Innospec in the first quarter, and this deal is playing out as a good fit in our long-term growth profile. We expect Strata to be accretive for the full year 2013. We are investing significantly in the global rollout of this business and we expect these actions to deliver sustainable growth during 2014.

Importantly, gross margins continue to remain above the 30% level in our fuel specialties business. Performance Chemicals has performed inline with our expectations in terms of top-line performance, new product launches, and increased market penetration of some of our existing products.

We are particularly pleased with our performance in the Personal Care sector of this business group, which is the key area of focus for us long term. In the Americas, we delivered 9% top-line growth with corresponding strong margins during the quarter. This reinforces our continued confidence in our strategy in this sector.

At the same time, we continue to face difficult markets in the fragrance ingredients where markets -- where margins have been impacted by pricing pressures.

In our Polymers business, which is principally European, sluggish economies have softened demand at a time when competitors have to have brought additional capacity on stream. We continue to watch market dynamics in Polymers, striving to hold down inventory and maintain pricing policies.

Our octane additives business performed as expected in the first quarter, as a TEL business and motor gasoline continues to wind down. We have indications of an improved second quarter compared to Q1 2013, but visibility in this business will continue to be difficult.

EPS was impacted by costs relating to enhanced compliance, research and development, headcount expansion to further service our customers, and stock-based compensation, as a share price made substantial gains during the quarter.

I will now turn the call over to Ian Cleminson, and then return with some comments about our business and strategies going forward, then we will take your questions.

Thanks, Patrick. Turning to slide 6 in the presentation, the company's total revenues for the first quarter were $199.4 million, essentially stable from $200.8 million a year ago.

The overall gross margin increased slightly from last year to 32%, maintained by continued strong growth in fuel specialties and a solid performance in the personal care market of our Performance Chemicals segment. This was achieved on the back of a 51% debt in our Octane Additives business year-over-year.

There GAAP earnings were $0.75 per share, and on an adjusted basis, our earnings per share were $0.72. This year's first quarter reflected a $8.9 million more in SAR expenses over 2012, essentially growth-focused, research and development, new product testing, legal costs associated within [enhanced] compliance, costs of running the new Strata business, and the headcount additions as the company plans for the future.

Stock based compensation also increased significantly as a result of the 28% increase in our share price during the quarter. EBITDA for the quarter was $27.9 million, and net income for the quarter was $18 million, down $6.6 million from 2012's first quarter.

Moving on to slide 7, revenues in Fuel Specialties for the first quarter were $140 million, up 7% from the year-ago period. The increase was primarily driven by a richer sales mix and improved pricing [to] 5%, offset by 1% lower volumes.

Recently acquired Strata business contributed an additional 3% to revenues. By region, revenues increased 2% in the Americas and 3% in EMEA, but were down 1% in Asia Pacific due to reduced volumes.

The Avtel business more than doubled compared to a year ago as a result of the timing of shipments. Margins in this segment increased by 4 percentage points in the last year, to 33.6%, partly driven by the higher margin Strata and Avtel businesses. Gross profit was $47 million, and operating income was $24.9 million, a 15% increase from a year ago.

Turning to slide 8, Performance Chemicals revenues in the first quarter increased 3% from last year, to $47.8 million, driven entirely by improved volumes across our core markets. By region, revenues increased 9% in the Americas driven by a particularly strong growth in the personal care market. Sales decreased 2% in EMEA, despite some improvements in volumes, and 3% in Asia specific.

Gross margins fell slightly to 23%, a result of lower fragrance ingredient selling prices and a weaker polymer sales mix.

Performance Chemicals operating income for the quarter was $5 million, down from the $6 million reported in last year's first quarter.

Moving on to slide 9, revenues in Octane Additives for the quarter were $11.6 million, compared with the strong comparative of $23.6 million a year ago. Segments gross margin of 54.3% was down from last year's first quarter, which benefited from the sale of lower cost inventory.

Gross profits were $6.3 million in quarter. Segments operating income for the quarter was $4.8 million compared to $12.4 million last year. This segment has started the year as we forecast on the last call, and the early indications are that Q2 will be slightly better.

For the second half of the year (inaudible) remains uncertain, and we will update you on the next call when we have better visibility.

Moving to slide 10, corporate costs for the quarter were $11.5 million, compared with $8.6 million a year ago. The increase is primarily due to increases in enhanced compliance legal costs and stock based compensation.

As expected, the quarterly pension charge was $0.7 million. compared to a $0.1 million pension credit a year ago.

Our effective tax rate for the quarter was 21.4%, compared to 23.1% 2012's first quarter.

Moving on to slide 11, cash flow from operations remained strong in the first quarter as we generated $17.9 million operating cash flow, essentially the same as the $18 million recorded a year ago reflecting the stabilization and working capital requirements since December 2012. This is particularly pleasing given the substantially lower octane additive sales year-over-year.

As of March 31st, we have cash and cash equivalents of $48.2 million and debt of $37 million.

And now I'll turn it back over to Patrick for some concluding comments.

Thanks, Ian. Summing up, we feel that we are off to a good start in 2013, and our businesses are broadly on track with our expectations.

Or Fuel Specialties business continues to perform quite well, despite global economic challenges, and continues to deliver good margins.

Our Personal Care business is in very good shape with particularly good sales and margin growth in the Americas. We are closely monitoring the remainder of our Performance Chemicals businesses in Fragrance Ingredients and Polymers.

We continue to evaluate external growth opportunities that are complementary to our global growth model. As discussed in previous quarters, we hope to finalize a second acquisition in the Oilfield Specialties in the second or early third quarter. This would create critical mass in this business group and allow us to report this as a separate segment. After this, we will move our acquisition focus to Personal Care business opportunities.

We are managing our businesses and finances well. We have a strong balance sheet and continue to generate good cash flow, which allows us the flexibility we need to deal with economic and market influences. We are investing in our businesses, driving new products and technologies to better serve our customers, implementing a new global ERP system, and continuing to enhance our compliance process.

We continue to have positive feedback from our investors and from the market. Transparency is an important objective for us, and we will strive to maintain an open and effective dialogue with all stakeholders.

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

Thank you. (Operator Instructions) We will pause for a moment to allow everyone to signal. We will now take our first question from John Tanwanteng of CJS Securities. Please go ahead.

Your SAR was pretty high compared to on a sequential and year-over-year basis. Can you break down what was due to the stock based comp and increased compliance led to [that] cost? And what portion of that was devoted to M&A expenses, if any.

Sure, John. This is Ian. I'll start that one off. Yes, our SG&A costs were about $9 million higher year-over-year. And to a degree, we expected about $4 million of that based on our internal forecast. The remaining $5 million, and really breaks down about $3 million on stock based compensation and about $2.5 million on enhanced compliance costs and legal costs. So that's where the bulk of that comes through.

And, obviously, the enhanced compliance costs, we think will be carried in Q2, and possibly also in Q3, as we build out our compliance procedures. And that's an area that we need to focus on and we will continue to focus on. The [SCU] cost is driven by share price. And, obviously, after a [$0.28] increase in stock price over the quarter, we've obviously taken a higher charge there.

Got it. Thanks. And then the gross margins were actually very good in fuel and in TEL. What portion of that do you expect to be sustainable going to the next quarter and the rest of the year?

John, I would think right now the situation that we're in with raw materials and pricing to the actual consumer and customer is that we'll be able to sustain those going into Q2. And I think we'll give you further guidance in regards to margins after the Q2 call.

Okay. Got it. And then are you still on track to do a personal care acquisition by the end of Q3, or is that more of a Q4 event now?

It's in the Oilfield Specialties is where that acquisition is probably going to be latter part of Q2, first part of Q3.

I meant the one following that.

That is -- we'll be working on that latter part of the year going into next year. We've got to make sure, John, that when we do these acquisitions that we properly integrate these acquisitions and we don't overwhelm people, we expand it into our global markets properly so that we have sustainability long term. So we want to make sure that we don't over do it and we spend our investors' money wisely.

Okay, great. Thank you very much.

We will now take our next question from Chris Shaw of Monness, Crespi. Please go ahead.

I was curious about the volumes in Fuel Specialties. I think you quoted them as down 1%. Was there any impact from, I know I think some customers, at least in the refinery business, were down in Q1. I mean, is there any suggestion that Q2 volumes could be better?

Chris, right now, I'd probably leave Q2 where it is. From the economic outlook that we're looking at right now, not only just in the Americas, but I would say EMEA and ASPAC, there are just a little bit of uncertainty sitting in the marketplace.

We talked about the business closures that we had in Q4 of 2012, which would obviously carry over into '13, and give us some promising volumes, end margins moving into '13. We still feel that way. The business performed extremely well. But I wouldn't jump up and say that the volumes are going to increase substantial. I think that I would keep the volumes about where they are right now.

And then in terms of, I mean you've got Strata onboard now for, I guess 4 or 5 months. Are you finding anything there that's -- I mean, is there any potential -- is anything more encouraging than you might have thought initially? Is the integration going well?

Yes, Chris. I mean, it takes time to get the integration, especially when you're primarily a regionally focused business, to implement and get global -- get into your global network.

It is taking some time, as we anticipated. It's got great technology. We really have stepped up our game into not only new technologies, but also making sure that all of our sales force have these technologies in their portfolio. And we're expanding our horizons on the customer focus space.

So I think it's going well. I think you'll see a lot of benefits from Strata in the latter part of this year, especially going into 2014, I think is where you're really going to see a very substantial jump in revenue.

Okay. Then just one last one on performance. I guess I was a little surprised by the gross margin being down 200 to basis points. I would think that having less -- maybe I got the mix wrong in that business. But I would think that the Personal Care had higher margins than the other businesses, so a greater percentage of that I thought might keep them at least flat.

Yes, Chris. This is Ian. You're right, the Personal Care [product] business has gone extremely well. We're pleased with the top-line growth and we're also pleased with the gross margins in personal care.

What we said on the call earlier was that we have taken slightly lower pricing in our Fragrance business, which has impacted the margins there, and that was pretty much expected. Also in Q1, the Polymers business, the mix in that business has been towards lower margin business and that's impacted it as well.

So we've taken a little bit of a hit in the Polymers on the Fragrance business, but the Personal Care side has been extremely strong for us.

But I am right to believe that the Personal Care has probably the highest margins of those 3?

That's correct.

Okay. Thank you.

We will now take care next question from Christopher Butler of Sidoti and Company. Please go ahead.

Just staying with Performance, could you talk about the Fragrances side of that business and what's changed there? I think we're all familiar with the Polymers and Europe being weak. But this seems to be a bit of a shift.

Yes, Chris, it's a combination of things. Combination of raw materials and it's a combination of competition and weak prices in the marketplace. We see this on occasion and it typically rebounds. But this is just a situation where you have a soft market and you have 2 main suppliers, where one main supplier tends to use us as a secondary byproduct and they sell it out in the marketplace.

I think it's a situation that will work itself out over time, but it there was definitely some weakness in that fragrance market this quarter.

And looking at your Avtel business, can you quantify the shift that took place? And should we be thinking about this as something that might hurt you as we move forward here a bit?

Yes, Chris. What happened in Avtel business was that we pulled some volume from Q4 last year into Q1. I think we talked about that a little bit on our last conference call. We also benefited from a little bit of Q2 volume that was pulled forward.

Our view of that business is that it's unchanged for the full year. We've probably doubled what we did last year or more than doubled what we did at this time last year. But the long-term prognosis is about the same year-over-year for the full year. So we'll probably see a lower Q2 and Q3 in that business as it normalizes back to its normal run rate.

And on the Octane Additives, you had mentioned sequential improvement. Do we, on a year-over-year basis, do we approach what was a pretty strong second quarter in 2012?

Again, Chris, we expect a slightly better second quarter. So you've seen what we've done in Q1. It's probably going to be $1 million or $2 million better on the revenue line, but not much more than that.

The visibility we have right now for the second half is pretty unclear. We'll update you on the next call. But I think as we sit here right now, it's going to be difficult for us to match where we were last year in the Octane Additives business.

And just to clarify unclear, I guess. Is that truly unclear or is that a slightly negative unclear?

I wouldn't say it's a negative unclear, Chris. I think it's just truly unclear. I mean, we're in market dynamics right now. You guys know the countries that we deal in, and, obviously, communication is, at best, difficult, to say the least. But we're not negatively unclear. I think we're just unclear as we sit here today.

And we've been very transparent about this business. Will it look like third and fourth quarter last year? We sure hope so. Do we have any clarity? We have no clarity whatsoever.

And just finally, Innospec is a company that spent a lot to ramp up its compliance a few years ago. Why are we seeing additional expenses now? What needed to be done in order to upgrade your legal and compliance now?

Sure. I think a couple things. One thing is putting the moneys in up front to get your compliance program up to speed and up to pars where it should be. I think the second is to make sure it's sustainable long term with, A, acquisition growth, and, B, organic growth. And that's really where we have focused on is to make sure we put money into compliance that really help us sustain future growth in this business.

What we don't want to do, Chris, is make a couple of acquisitions and not have compliance as our primary to make sure this is sustainable long term, and this company doesn't go back in history where it came from.

So we have focused on compliance. We're making sure we're putting the appropriate dollars into compliance, so that when we make acquisitions it's just a plug-and-play at that point in time.

I appreciate your time.

We will now take our next question from Andrew Dunn of KeyBanc Capital Markets. Please go ahead.

Thanks for taking my question. Just real quickly, I was wondering if you would give us a little more color on what's in the pipeline for that second oilfield specialties acquisition, if we can kind of expect it to look similar to Strata. And then also, I just want to make sure I understood you correctly in your earlier comments. When that is complete, whether it's 2Q or 3Q, should we then expect the separate segment to be broken out in that quarter is?

Sure, Andrew, it's Patrick. I think you're pretty close to what we were talking about in the size. I think the size will be probably similar to the size of the Strata acquisition. It's more on the production side. So we have balanced out the drilling side with the production side, and then that was the strategy that we put forth in the beginning.

So you're right, probably latter part of Q2 end of Q3. At that point, it will give us the revenue and the breadth and girth to move that into its separate segment and report that as a separate segment.

Further from there, we will shift our focus away from oilfield to give it time to breathe, to integrate, not only from a compliance, but from [accounting] and from a global structure and strategy, and move our focus into the Personal Care side. And that's really a strategy we've had for quite some time, and that's what we're doing today.

Great. And then secondly, I was hoping maybe you could just give us a little more detail on the new product pipeline and kind of what we might be able to expect to see there versus what we see in the first quarter.

Yes. I mean, I think if you've looked at the sales growth in Fuel Specialties and in Personal Care in the Performance business, a lot of that domestic growth, or I shouldn't say domestic growth -- organic growth is based off a lot of new product technologies that were introduced either last year or even as recently as this year.

We continuously strive to do 45% to 50% of new products over 5 years in sales revenue. And that's our -- that's really what we're striving for. The key in Personal Care really is to introduce products annualized because it's a longer term from product technology to market, and in Fuel Specialties, it's obviously watching a lot of key factors and make sure that we're on top of those. But the timeframe of introduction in Fuel Specialties is a lot shorter than it is in Performance Chemicals.

We're continuously putting out new products and we continuously have a change in market and we're addressing those for our customers.

Great. And then just one last question, more of a housekeeping issue. But for the tax rate going forward, should we expect that to be a little lower, again around that 21%, 21.5%, or is that going to be going up again for the remainder of the year?

Yes, Andrew, I think it's about 22 percentage point mark, and it's going to bounce around 1 percentage point around that, but I think 22% is a good place to model them.

Great. Thanks again, guys.

We will now take our next question from [Alec Rackworth] of [Sunfire]. Please go ahead.

I had a question around the cost increases, particularly the $2.5 million of compliance and legal fees that you mentioned. Why was that unexpected? I mean, what suddenly caused you to have to make that investment? I know you said it's going to carry on into Q2 and Q3. I mean, that's a $7 million, 8 million unexpected expense that you suddenly thought of in the last 3 months. Just wondering what happened, please.

Sure, Alec. This is Ian. (Inaudible) about 6, 7 months ago, as Patrick said earlier on, we've taken a different approach to our compliance. We want to keep (inaudible) and we want to make sure that we're absolutely ready for all the acquisitions that we make, that we've got the correct resources in the right places in our business. So that's why we're putting a lot of effort into this area, it's important to us.

Okay. And then one follow-up, please. You said it's going to continue to Q2 and Q3. How much of it is going to drop out afterwards? I guess some of it will be replaced by some full-time headcount additions that you'll be making. How much can we -- is kind of nonrecurring and how much will recur in the future?

Yes, we expect a similar number in Q2. At the moment, we think possibly Q3 as well, but we'll wait and see. And our expectation's that once we get through this period, the vast majority of that will drop away.

[So it's] purely a third-party growth helping you in the company? I would've thought maybe you have to make some full-time additions, and, therefore, it would be recurring.

Yes, we have made some full-time additions, but they were already into the Q. Most of those will be third-party expense.

Okay, perfect. Thank you. Oh, and, sorry. Am I still online?

Yes, you are.

Yes.

Sorry if I missed it. My line is pretty bad today. What was the share comp in Q1 last year?

I don't have that number at hand, Alec. I don't think the stock price moved as high. But if you go offline and you e-mail me, I'll get that number for you.

Okay. Thanks a lot.

We will now take your next question from Paul Svetz, investor. Please go ahead.

Yes, thank you. Two questions, please. Patrick, could I ask you to articulate somewhat the strategy or vision you have for the Oil Services business in the long term?

Sure.

And the second question is, over time I've been conditioned to think of the lead tetra ethyl business as some day having a floor driven by things like aircraft fuels, et cetera, and at that point maybe sustainable by whatever you have for capital invested in it. Is that still the expectation?

Yes, Paul. Let me take the first question. And, obviously, I'll try to keep it as short as possible. It's probably a question that we actually do when we go on the road show to more give you a better feel for the business.

What the thought process on the Oilfield Specialties is obviously a spinoff of Fuel Specialties due to the fact that a lot of the products that we have in Fuel Specialties, and, quite frankly, in Personal Care, from a surfactant standpoint, have application [in] fuels and crude.

The thought process is that we'd like to treat the crude down hole through the pipeline through the refinery to the consumer, and we've got a few of those, a few of those business segments that we still have to fill in.

If you look at the drilling side on the [loss] circulation, when you have crude sitting at $75 above, that's a good business. If you get [that] gas around $4.25 in MMBTU on dry gas, you'll see an uptick in rig count on dry gas, which inherently will move this business up significantly.

The protection that we've put in place is on the production side of the chemicals. If rig count drops off, you still have to produce wells because you still have to produce revenue, you still have [builds] within E&P companies. And so that gives you some protection on the production side of the business.

But if you get the growth model where you have gas at $4.25 and above and crude's staying above $70 to $75, you get the benefit of both. Again, a lot of similar technologies that are used in fuels and in personal care are similar technologies that are used down hole in the oilfield business.

So that's kind of giving you a short version of why we venture into this business and what our thoughts are of this business. We will report it separately if we get the second acquisition done at the latter part of this quarter. And we feel very strongly this is the business that we should be in. It's got great margins. It's vary technology driven and it really fits our portfolio.

In regards to your second question, if you look at MOGAS, there's only a few countries left in motor gasoline for tetra ethyl lead. You are correct in a portion of what you've said that you have the aviation portion. But if you recall, Avtel sits in Fuel Specialties. And you are correct that Avtel will not go away for a period of time. The view right now is that potentially you will see Avtel go away in 2018. I think it could be longer due to the fact that there is not a replacement product for Avtel right now.

So that benefit is, yes, we will have Avtel business, it does sit in Fuel Specialties, it won't go away for a significant period of time. The only issue we have is where MOGAS sits, and that's the unknown.

Thank you. That's very helpful. Now I understand why you put it where you did.

You're welcome.

(Operator Instructions) We will not take our next question from Gregg Hillman of First Wilshire Security Management. Please go ahead.

Just continuing along with Fuel Specialties, Patrick. Can you talk about how some of your products are differentiated relative to the competition, your surfactants and some of the other categories?

Yes, Gregg. Without getting technical over the telephone, we've talked about this in other quarterly conference calls. And with the changes in engine technology and the changes in fuel tech -- and the changes in fuel, obviously, you have to have a change in additive technology.

And every time you change fuels, whether it's hydrotreating or hydrocracking, whether it's a sweet crude or whether it's heavy crude, you have to change the fuel, you have to change the additives because the engine technology has changed.

So we're continuously looking at high-pressure fuel injection, gasoline direct injection. There's a lot of different really mechanisms that are driving this business.

Everything that we've done, Gregg, from a technology standpoint, is not a here-today/gone-tomorrow. It's something that's sustainable, it's long term. We've planned on this market being the way it is. That's why you've seen Fuel Specialties grow the way it has grown from organic growth because there's been no acquisitions in Fuel Specialties. It's all been organic growth. That does not happen unless you have technology.

So as you can see, some of the increase in spend that we had in Q1, was based around technology as well. And we will continuously focus on technology.

I don't know if you understood me. But I was asking specifically about Oilfield Specialties and how you're differentiated.

Sorry. One of the keys there, Gregg, is that we have different products that do different things. Again, as you said, we have surfactants that go down hole that we think are different than the competition. We have lost circulation material, which we think is a great technology that Strata brings to the table, that we really just need to refine and roll it out globally.

To us, that is going to be a technology play. But quite frankly, it's also going to be a service play. We have to make sure that our customer's number one and that we take applicable technologies to that customer base. And so we are focusing on surfactants. We are focused on asphalting [dispersions net] H2S, and LCM, which are really the forefront of the oilfield business.

Okay, that's fine. Well, maybe just one last question in Oilfield Specialties. Just in terms of channels and whether you need to have alliances to get [to] the customer. Could you address that point, channels of distribution and possible alliances for distribution?

Yes, sure. A lot of it, Gregg, is we already sell to a lot of the companies that actually have E&P divisions. So it's a benefit for us, being a public company that has a lot of exposure in fuel specialties that we can back integrate into the oilfield sector.

But the other half of that is you have a lot of small to midsize E&P companies that we have to make a product and customer entry into. And we rely on some of the relationships that the acquisitions that we've made and/or some of our product portfolio and technologies have provided us to get into.

So there is 2 different ways, Gregg. You hit the market from a small to midsize E&P with those who have refineries and pipelines, we're typically already doing business with them. And so we utilize those relationships to help us in the Oilfield sector.

Okay. And then, but how do you get to the smaller E&P companies? I mean, how -- do you need to deliver it in the field and do you have to partner with somebody?

We can deliver it in the field, some we'll apply ourselves, some we'll partner with somebody, that's correct.

okay, fine. Thank you.

As there are no further questions, I would like to turn the call back to the speakers for any additional or closing remarks.

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 on this call, please give us a call. We look forward to meeting up again with you next quarter. Thank you have a great day.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.