Innospec Inc. (NASDAQ: IOSP) today announced its financial results
for the third quarter ended September 30, 2022. At the same time,
the Company announced that it has declared a semi-annual dividend
of 65 cents per common share for the second half of 2022 which will
be paid on November 28, 2022 to shareholders of record as of
November 21, 2022. This brings the annual dividend to $1.28 per
share, a 10 percent increase over 2021.
Total revenues for the third quarter were $513.0
million, an increase of 36 percent from $376.1 million in the
corresponding period last year. Net income for the quarter was
$38.7 million or $1.55 per diluted share compared to $23.4 million
or 94 cents per diluted share recorded last year. EBITDA for the
quarter was $59.2 million compared to $41.4 million reported in the
same period a year ago.
Results for this quarter include some special
items, which are summarized in the table below. Excluding these
items, adjusted non-GAAP EPS in the third quarter was $1.74 per
diluted share, compared to $1.15 per diluted share a year ago.
Innospec generated cash from operating
activities of $39.8 million before capital expenditures of $9.7
million in the quarter. We closed the quarter with net cash of
$100.5 million. In the third quarter, the Company repurchased
25,000 of its common shares at a cost of $2.3 million as part of
the board-authorized share repurchase program.
EBITDA, income before income taxes and net
income excluding special items, and related per-share amounts, are
non-GAAP financial measures that are defined and reconciled with
GAAP results herein and in the schedules below.
|
|
Quarter ended September 30, 2022 |
Quarter ended September 30, 2021 |
(in millions, except share and per share
data) |
|
Incomebeforeincometaxes |
|
Netincome |
|
DilutedEPS |
|
Incomebeforeincometaxes |
|
Netincome |
|
DilutedEPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP
amounts |
$ |
48.9 |
$ |
38.7 |
$ |
1.55 |
$ |
30.8 |
$ |
23.4 |
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired
intangible assets |
|
3.2 |
|
2.5 |
|
0.10 |
|
3.7 |
|
3.0 |
|
0.12 |
Foreign currency exchange
losses |
|
2.1 |
|
1.7 |
|
0.07 |
|
1.6 |
|
1.2 |
|
0.05 |
Legacy costs of closed
operations |
|
0.7 |
|
0.6 |
|
0.02 |
|
1.1 |
|
0.9 |
|
0.04 |
|
|
6.0 |
|
4.8 |
|
0.19 |
|
6.4 |
|
5.1 |
|
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-GAAP
amounts |
$ |
54.9 |
$ |
43.5 |
$ |
1.74 |
$ |
37.2 |
$ |
28.5 |
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenting on the third quarter results, Patrick
S. Williams, President and Chief Executive Officer, said,
“This was an outstanding quarter for Innospec.
Our balanced portfolio delivered strong sales growth, improved
gross margin and a 60 percent increase in operating income. In the
third quarter over 80 percent of our gross profit came from
business outside of Europe, where recessionary pressures are
greatest, and we believe we are well positioned from both an
end-market and geographic perspective to navigate market
uncertainty.
In Performance Chemicals, operating income
increased by over 40 percent as continued double-digit volume
growth in our industry-leading personal care technologies offset
the impact of volume declines in our European homecare and
industrial businesses. Our customers remain focused on
transitioning their product offerings to cleaner, higher
performance formulations over the medium to long-term. In support
of this secular trend and additional contracted demand scheduled
for 2023, the completion of our $70 million Performance Chemicals
capital expansion program remains a priority.
In Fuel Specialties, price/mix drove the 14
percent increase in sales versus the prior year. Gross margins
remained at the lower end of our expected range. In the short-term,
inflationary pressures are expected to persist with elevated energy
costs in Europe. However, we believe we will continue to see
potential for gross margin improvement over the medium-term as
inflation normalizes and demand for our higher margin jet fuel
additives recovers.
In Oilfield Services, operating income was
significantly up compared to the prior year driven by stronger than
expected orders in production chemicals and further sequential
improvements in our other oilfield segments. While we anticipate
that a portion of the above-average production sales will likely
recur, we expect reduced activity versus this extremely strong
third quarter as we move forward. In general, we continue to expect
the business to approach 2019 full-year operating income levels
within the next two years.”
In Performance Chemicals, revenues of $159.7
million were up 20 percent from $132.8 million in the third quarter
last year. Volume growth of 4 percent and a positive price/mix of
26 percent were partially offset by an adverse currency impact of
10 percent. Gross margins of 24.5 percent were unchanged versus
last year. Operating income for the quarter of $25.4 million was up
43 percent on the prior year.
Revenues in Fuel Specialties were $178.7 million
for the quarter, a 14 percent increase from $156.4 million a year
ago. A favorable price/mix of 30 percent offset a reduction in
volumes of 6 percent and a negative currency impact of 10 percent.
Gross margins of 29.9 percent were 1.5 percentage points below last
year. Operating income for the quarter of $27.9 million was up 5
percent on last year.
Revenues in Oilfield Services of $174.6 million
for the quarter were approximately double the $86.9 million in the
third quarter last year. Gross margins improved by 0.5 percentage
points from a year ago to 36.4 percent. Operating income of $14.2
million was up $11.5 million from $2.7 million last year.
Corporate costs for the quarter were $17.4
million, compared with $15.7 million a year ago, up due mainly to
higher performance related remuneration accruals.
The effective tax rate for the quarter was 20.9
percent compared to 24.0 percent last year as a consequence of the
geographical location of taxable profits.
Net cash from operating activities after capital
expenditures was $30.1 million for the quarter driven by a strong
trading performance. In addition, the Company repurchased 25,000 of
its common shares at a cost of $2.3 million. As of September 30,
2022, Innospec had $100.5 million in cash and cash equivalents and
no debt.
Mr. Williams concluded,
“Our businesses again achieved double-digit
sales and operating income growth this quarter. We are mindful that
recessionary pressures and European energy risks are expected to
increase through the coming quarters; however, we believe that we
are well positioned from an end-market and geographic perspective
to continue to deliver strong relative performance. Across our
businesses, our focus remains on providing reliable supply and
innovation to all our customers.
Disciplined working capital management and
strong trading performance drove excellent cash generation of
almost $30 million in the quarter, and our net cash position
returned to over $100 million. We expect cash generation to
continue in the fourth quarter. Against a backdrop of increasing
near-term global economic risk, our debt-free balance sheet gives
us the flexibility to complete our $70 million organic expansion
program, pursue complementary M&A and continue dividend growth
and share repurchases. In line with this, I am pleased to announce
that the Board has elected to increase our semi-annual dividend to
65 cents bringing our dividend to $1.28 for the full year, an
annual increase of 10 percent.”
Use of Non-GAAP Financial
Measures
The information presented in this press release
includes financial measures that are not calculated or presented in
accordance with Generally Accepted Accounting Principles in the
United States (GAAP). These non-GAAP financial measures comprise
EBITDA, income before income taxes excluding special items, net
income excluding special items and related per share amounts
together with net cash. EBITDA is net income per our consolidated
financial statements adjusted for the exclusion of charges for
interest expense, net, income taxes, depreciation, and
amortization. Income before income taxes, net income and diluted
EPS, excluding special items, per our consolidated financial
statements are adjusted for the exclusion of amortization of
acquired intangible assets, foreign currency exchange losses and
legacy costs of closed operations. Net cash is cash and cash
equivalents less total debt. Reconciliations of these non-GAAP
financial measures to their most directly comparable GAAP financial
measures are provided herein and in the schedules below. The
Company believes that such non-GAAP financial measures provide
useful information to investors and may assist them in evaluating
the Company’s underlying performance and identifying operating
trends. In addition, these non-GAAP measures address questions the
Company routinely receives from analysts and investors and the
Company has determined that it is appropriate to make this data
available to all investors. While the Company believes that such
measures are useful in evaluating the Company’s performance,
investors should not consider them to be a substitute for financial
measures prepared in accordance with GAAP. In addition, these
non-GAAP financial measures may differ from similarly titled
non-GAAP financial measures used by other companies and do not
provide a comparable view of the Company’s performance relative to
other companies in similar industries. Management uses adjusted EPS
(the most directly comparable GAAP financial measure for which is
GAAP EPS) and adjusted net income and EBITDA (the most directly
comparable GAAP financial measure for which is GAAP net income) to
allocate resources and evaluate the performance of the Company’s
operations. Management believes the most directly comparable GAAP
financial measure is GAAP net income and has provided a
reconciliation of EBITDA and net income excluding special items,
and related per share amounts, to GAAP net income herein and in the
schedules below.
About Innospec Inc.
Innospec Inc. is an international specialty
chemicals company with approximately 1,900 employees in 24
countries. Innospec manufactures and supplies a wide range of
specialty chemicals to markets in the Americas, Europe, the Middle
East, Africa and Asia-Pacific. The Performance Chemicals business
creates innovative technology-based solutions for our customers in
the Personal Care, Home Care, Agrochemical, Mining and Industrial
markets. The Fuel Specialties business specializes in manufacturing
and supplying fuel additives that improve fuel efficiency, boost
engine performance and reduce harmful emissions. Oilfield Services
provides specialty chemicals to all elements of the oil and gas
exploration and production industry.
Forward-Looking Statements
This press release contains certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than
statements of historical facts included or incorporated herein may
constitute forward-looking statements. Such forward-looking
statements include statements (covered by words like “expects,”
“estimates,” “anticipates,” “may,” “could,” “believes,” “feels,”
“plans,” “intends” or similar words or expressions, for example)
which relate to earnings, growth potential, operating performance,
events or developments that we expect or anticipate will or may
occur in the future. Although forward-looking statements are
believed by management to be reasonable when made, they are subject
to certain risks, uncertainties and assumptions, including, the
effects of the COVID-19 pandemic, such as its duration, its unknown
long-term economic impact, measures taken by governmental
authorities to address it, the rise of variants, the effectiveness,
acceptance and distributions of COVID-19 vaccines and the effects
of any sanctions, export restrictions, inflation, supply chain
disruptions or increased economic uncertainty related to the
ongoing conflict between Russia and Ukraine and the manner in which
the pandemic and/or such conflict may precipitate or exacerbate
other risks and/or uncertainties, and our actual performance or
results may differ materially from these forward-looking
statements. Additional information regarding risks, uncertainties
and assumptions relating to Innospec and affecting our business
operations and prospects are described in Innospec’s Annual Report
on Form 10-K for the year ended December 31, 2021, Innospec’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2022
and other reports filed with the U.S. Securities and Exchange
Commission. You are urged to review our discussion of risks and
uncertainties that could cause actual results to differ from
forward-looking statements under the heading "Risk Factors” in such
reports. Innospec undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Contacts:
Corbin BarnesInnospec
Inc.+44-151-355-3611corbin.barnes@innospecinc.com
|
INNOSPEC INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF INCOME |
|
Schedule 1 |
|
(in
millions, except share and per share data) |
|
Three Months EndedSeptember
30 |
|
Nine Months EndedSeptember 30 |
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Net sales |
$ |
513.0 |
|
$ |
376.1 |
|
$ |
1,453.0 |
|
$ |
1,070.2 |
|
Cost of goods sold |
|
(357.0 |
) |
|
(263.2 |
) |
|
(1,017.9 |
) |
|
(748.2 |
) |
Gross profit |
|
156.0 |
|
|
112.9 |
|
|
435.1 |
|
|
322.0 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
(95.8 |
) |
|
(71.2 |
) |
|
(264.1 |
) |
|
(197.5 |
) |
Research and development |
|
(10.1 |
) |
|
(10.3 |
) |
|
(30.3 |
) |
|
(27.9 |
) |
Total operating expenses |
|
(105.9 |
) |
|
(81.5 |
) |
|
(294.4 |
) |
|
(225.4 |
) |
Operating income |
|
50.1 |
|
|
31.4 |
|
|
140.7 |
|
|
96.6 |
|
Other (expense)/income,
net |
|
(0.9 |
) |
|
(0.2 |
) |
|
(0.2 |
) |
|
6.2 |
|
Interest expense, net |
|
(0.3 |
) |
|
(0.4 |
) |
|
(1.1 |
) |
|
(1.1 |
) |
Income before income
taxes |
|
48.9 |
|
|
30.8 |
|
|
139.4 |
|
|
101.7 |
|
Income taxes |
|
(10.2 |
) |
|
(7.4 |
) |
|
(31.9 |
) |
|
(32.5 |
) |
Net income |
$ |
38.7 |
|
$ |
23.4 |
|
$ |
107.5 |
|
$ |
69.2 |
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
$ |
1.56 |
|
$ |
0.95 |
|
$ |
4.34 |
|
$ |
2.81 |
|
Diluted |
$ |
1.55 |
|
$ |
0.94 |
|
$ |
4.30 |
|
$ |
2.78 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding (in thousands): |
|
|
|
|
|
|
|
|
Basic |
|
24,786 |
|
|
24,643 |
|
|
24,794 |
|
|
24,624 |
|
Diluted |
|
24,965 |
|
|
24,864 |
|
|
24,976 |
|
|
24,872 |
|
INNOSPEC INC. AND SUBSIDIARIES |
|
Schedule 2A |
|
SEGMENTAL ANALYSIS OF
RESULTS |
|
Three Months EndedSeptember 30 |
|
Nine Months EndedSeptember 30 |
(in
millions) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
Performance Chemicals |
$ |
159.7 |
|
$ |
132.8 |
|
$ |
495.8 |
|
$ |
386.9 |
|
Fuel Specialties |
|
178.7 |
|
|
156.4 |
|
|
546.9 |
|
|
438.8 |
|
Oilfield Services |
|
174.6 |
|
|
86.9 |
|
|
410.3 |
|
|
244.5 |
|
|
|
513.0 |
|
|
376.1 |
|
|
1,453.0 |
|
|
1,070.2 |
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
39.1 |
|
|
32.6 |
|
|
123.5 |
|
|
95.6 |
|
Fuel Specialties |
|
53.4 |
|
|
49.1 |
|
|
171.0 |
|
|
144.1 |
|
Oilfield Services |
|
63.5 |
|
|
31.2 |
|
|
140.6 |
|
|
82.3 |
|
|
|
156.0 |
|
|
112.9 |
|
|
435.1 |
|
|
322.0 |
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
25.4 |
|
|
17.8 |
|
|
79.5 |
|
|
54.0 |
|
Fuel Specialties |
|
27.9 |
|
|
26.6 |
|
|
94.9 |
|
|
78.9 |
|
Oilfield Services |
|
14.2 |
|
|
2.7 |
|
|
21.2 |
|
|
6.1 |
|
Corporate costs |
|
(17.4 |
) |
|
(15.7 |
) |
|
(54.9 |
) |
|
(42.4 |
) |
Total operating income |
$ |
50.1 |
|
$ |
31.4 |
|
$ |
140.7 |
|
$ |
96.6 |
|
Schedule 2B |
|
NON-GAAP
MEASURES |
|
Three Months EndedSeptember 30 |
|
Nine Months EndedSeptember 30 |
(in
millions) |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
38.7 |
|
$ |
23.4 |
|
$ |
107.5 |
|
$ |
69.2 |
|
Interest expense, net |
|
0.3 |
|
|
0.4 |
|
|
1.1 |
|
|
1.1 |
|
Income taxes |
|
10.2 |
|
|
7.4 |
|
|
31.9 |
|
|
32.5 |
|
Depreciation and
amortization: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
4.9 |
|
|
5.2 |
|
|
15.6 |
|
|
15.9 |
|
Fuel Specialties |
|
1.5 |
|
|
1.5 |
|
|
4.6 |
|
|
4.1 |
|
Oilfield Services |
|
3.0 |
|
|
3.1 |
|
|
8.9 |
|
|
9.3 |
|
Corporate costs |
|
0.6 |
|
|
0.4 |
|
|
1.5 |
|
|
1.3 |
|
EBITDA |
|
59.2 |
|
|
41.4 |
|
|
171.1 |
|
|
133.4 |
|
|
|
|
|
|
|
|
|
|
EBITDA: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
30.3 |
|
|
23.0 |
|
|
95.1 |
|
|
69.9 |
|
Fuel Specialties |
|
29.4 |
|
|
28.1 |
|
|
99.5 |
|
|
83.0 |
|
Oilfield Services |
|
17.2 |
|
|
5.8 |
|
|
30.1 |
|
|
15.4 |
|
Corporate costs |
|
(16.8 |
) |
|
(15.3 |
) |
|
(53.4 |
) |
|
(41.1 |
) |
|
|
60.1 |
|
|
41.6 |
|
|
171.3 |
|
|
127.2 |
|
Other (expense)/income,
net |
|
(0.9 |
) |
|
(0.2 |
) |
|
(0.2 |
) |
|
6.2 |
|
EBITDA |
$ |
59.2 |
|
$ |
41.4 |
|
$ |
171.1 |
|
$ |
133.4 |
|
EBITDA by segment includes operating income relating to the
segments, excluding depreciation and amortization. |
INNOSPEC INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS |
|
Schedule 3 |
|
(in
millions) |
|
September 30,2022 |
|
December 31,2021 |
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
100.5 |
|
$ |
141.8 |
|
Trade and other accounts receivable |
|
342.5 |
|
|
284.5 |
|
Inventories |
|
381.8 |
|
|
277.6 |
|
Prepaid expenses |
|
7.4 |
|
|
18.0 |
|
Prepaid income taxes |
|
13.8 |
|
|
5.8 |
|
Other current assets |
|
0.4 |
|
|
0.4 |
|
Total current assets |
|
846.4 |
|
|
728.1 |
|
|
|
|
|
|
|
|
Net property, plant and
equipment |
|
206.6 |
|
|
214.4 |
|
Operating lease right-of-use
assets |
|
45.9 |
|
|
35.4 |
|
Goodwill |
|
351.7 |
|
|
364.3 |
|
Other intangible assets |
|
43.6 |
|
|
57.5 |
|
Deferred tax assets |
|
5.7 |
|
|
6.4 |
|
Pension asset |
|
162.7 |
|
|
159.8 |
|
Other non-current assets |
|
6.6 |
|
|
5.0 |
|
Total assets |
$ |
1,669.2 |
|
$ |
1,570.9 |
|
Liabilities and Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
$ |
173.6 |
|
$ |
148.7 |
|
Accrued liabilities |
|
173.9 |
|
|
166.5 |
|
Finance leases |
|
- |
|
|
0.1 |
|
Current portion of operating lease liabilities |
|
13.6 |
|
|
12.4 |
|
Current portion of plant closure provisions |
|
5.6 |
|
|
5.2 |
|
Current portion of accrued income taxes |
|
14.7 |
|
|
3.7 |
|
Total current liabilities |
|
381.4 |
|
|
336.6 |
|
|
|
|
|
|
|
|
Operating lease liabilities,
net of current portion |
|
32.1 |
|
|
23.1 |
|
Plant closure provisions, net
of current portion |
|
50.0 |
|
|
51.3 |
|
Accrued income taxes, net of
current portion |
|
20.8 |
|
|
30.6 |
|
Unrecognized tax benefits |
|
16.3 |
|
|
16.3 |
|
Deferred tax liabilities |
|
59.7 |
|
|
60.8 |
|
Pension liabilities and
post-employment benefits |
|
15.6 |
|
|
17.8 |
|
Other non-current
liabilities |
|
1.4 |
|
|
1.4 |
|
Equity |
|
1,091.9 |
|
|
1,033.0 |
|
Total liabilities and
equity |
$ |
1,669.2 |
|
$ |
1,570.9 |
|
INNOSPEC INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
Schedule 4 |
|
|
|
Nine Months EndedSeptember
30 |
(in
millions) |
|
2022 |
|
2021 |
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
107.5 |
|
$ |
69.2 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
30.9 |
|
|
30.9 |
|
Deferred taxes |
|
0.6 |
|
|
8.0 |
|
Non-cash movements on defined benefit pension plans |
|
(1.9 |
) |
|
(2.4 |
) |
Stock option compensation |
|
4.7 |
|
|
4.6 |
|
Changes in working capital |
|
(132.6 |
) |
|
(82.6 |
) |
Movements in accrued income taxes |
|
(4.0 |
) |
|
(3.8 |
) |
Movements in plant closure provisions |
|
0.3 |
|
|
(1.5 |
) |
Movements in unrecognized tax benefits |
|
- |
|
|
0.4 |
|
Movements in other assets and liabilities |
|
(2.2 |
) |
|
1.6 |
|
Net cash provided by operating
activities |
|
3.3 |
|
|
24.4 |
|
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(27.1 |
) |
|
(27.4 |
) |
Proceeds on disposal of
property, plant and equipment |
|
0.1 |
|
|
0.4 |
|
Net cash used in investing
activities |
|
(27.0 |
) |
|
(27.0 |
) |
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
1.9 |
|
|
0.1 |
|
Repayment of finance
leases |
|
(0.1 |
) |
|
(0.5 |
) |
Dividend paid |
|
(15.6 |
) |
|
(14.0 |
) |
Issue of treasury stock |
|
2.1 |
|
|
2.0 |
|
Repurchase of common
stock |
|
(5.0 |
) |
|
(0.8 |
) |
Net cash used in financing
activities |
|
(16.7 |
) |
|
(13.2 |
) |
Effect of foreign currency
exchange rate changes on cash |
|
(0.9 |
) |
|
(0.3 |
) |
Net change in cash and cash
equivalents |
|
(41.3 |
) |
|
(16.1 |
) |
Cash and cash equivalents at
beginning of period |
|
141.8 |
|
|
105.3 |
|
Cash and cash equivalents at
end of period |
$ |
100.5 |
|
$ |
89.2 |
|
|
|
|
|
|
|
|
Amortization of deferred finance costs of $0.3
million (2021 - $0.3 million) are included in depreciation and
amortization in the condensed consolidated statements of cash flows
and in interest expense, net in the condensed consolidated
statements of income.
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