Innospec Inc. (NASDAQ: IOSP) today announced its financial results
for the second quarter ended June 30, 2023.
Total revenues for the second quarter were
$480.4 million, an increase of 3 percent from $467.6 million in the
corresponding period last year. Net income for the quarter was
$28.9 million or $1.16 per diluted share compared to $32.3 million
or $1.29 cents per diluted share recorded last year. EBITDA for the
quarter was $46.2 million compared to $52.9 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 second quarter was $1.28 per
diluted share, compared to $1.58 per diluted share a year ago.
Innospec had strong cash generation in the
quarter with cash from operating activities of $55.0 million before
capital expenditures of $17.3 million. We closed the quarter with
net cash of $165.9 million, a substantial improvement on our
position of $147.5 million at the end of the first quarter. In the
second quarter, the Company paid its semi-annual dividend of 69
cents per common share and repurchased 5,887 of its common shares
at a cost of $0.6 million.
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 June 30, 2023 |
|
Quarter ended June 30, 2022 |
(in
millions, except share and per share data) |
|
Income beforeincome taxes |
|
Netincome |
|
Diluted EPS |
|
Income beforeincome taxes |
|
Net income |
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP amounts |
$ |
36.6 |
|
$ |
28.9 |
|
$ |
1.16 |
|
$ |
42.3 |
$ |
32.3 |
$ |
1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets |
|
2.6 |
|
|
2.0 |
|
|
0.08 |
|
|
3.6 |
|
2.9 |
|
0.12 |
Acquisition
related costs |
|
1.5 |
|
|
1.1 |
|
|
0.04 |
|
|
- |
|
- |
|
- |
Foreign currency
exchange (gains)/losses |
|
(1.2 |
) |
|
(0.9 |
) |
|
(0.04 |
) |
|
4.8 |
|
3.7 |
|
0.15 |
Legacy costs of
closed operations |
|
0.9 |
|
|
0.7 |
|
|
0.03 |
|
|
0.8 |
|
0.6 |
|
0.02 |
Adjustment of
income tax provisions |
|
- |
|
|
0.3 |
|
|
0.01 |
|
|
- |
|
- |
|
- |
|
|
3.8 |
|
|
3.2 |
|
|
0.12 |
|
|
9.2 |
|
7.2 |
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
non-GAAP amounts |
$ |
40.4 |
|
$ |
32.1 |
|
$ |
1.28 |
|
$ |
51.5 |
$ |
39.5 |
$ |
1.58 |
|
Commenting on the second quarter results,
Patrick S. Williams, President and Chief Executive Officer,
said,
“This was another good overall quarter for
Innospec. Sales grew and gross margins expanded on the prior year
as strong results in Oilfield Services continued to partially
offset weaker results in Performance Chemicals.
In Performance Chemicals, as expected,
destocking and the ongoing sale of higher cost inventories
negatively impacted volumes, mix and margins in the quarter.
Despite our expectation that destocking and higher cost inventory
headwinds will continue into the second half of 2023, we believe
our new Personal Care contracts which began in the third quarter
will support sequential improvement in operating income and
margins. We do not anticipate any change in our customers’
long-term objectives to move to cleaner, higher performance
chemistry, and we believe that our technology portfolio is well
placed for growth in this transition.
In Fuel Specialties, further price action and
slowing inflation offset the impact of lower volumes. The results
this quarter were negatively impacted by an $8.0 million charge as
we exited the Brazilian trading relationship where we previously
reported inventory misappropriation. We do not expect
any further costs related to this matter, and we continue to pursue
both legal and insurance recoveries. Excluding the Brazil charge,
gross margins were unchanged versus the same quarter last year and
remained in our target 32 to 35 percent range. We expect gross
margins to continue in this range through the balance of 2023.
In Oilfield Services, strength in production
chemicals and further sequential improvements in our other segments
drove excellent results in the quarter. In the third quarter, we
anticipate that sequential operating income will moderate, but we
expect to remain on track for significant full year growth in 2023.
We plan to continue pursuing topline and margin expansion
opportunities across all oilfield segments.”
Performance Chemicals revenues of $127.8 million
were down 24 percent from $169.0 million in the second quarter last
year driven by a negative mix of 8 percent and a volume decline of
16 percent. Gross margins reduced by 8.6 percentage points from the
same quarter last year to 17.2 percent. Operating income for the
quarter of $9.2 million decreased 68 percent on the prior year.
Revenues in Fuel Specialties of $154.2 million
for the quarter were down 13 percent from $176.4 million a year
ago. A positive price/mix of 3 percent was offset by a 16 percent
reduction in volumes. Gross margins of 29.1 percent were 3.2
percentage points below last year. Operating income of $17.1
million was down from $31.5 million a year ago. Adjusting for the
$8.0 million impact of the Brazil charge, gross margins were 32.3
percent and operating income was $25.1 million in the quarter.
Revenues in Oilfield Services were $198.4
million for the quarter, up 62 percent from $122.2 million in the
second quarter last year. Gross margins improved by 9.9 percentage
points from the same quarter last year to 42.1 percent. Operating
income of $28.0 million was a $23.5 million increase over the $4.5
million in the prior year.
Corporate costs for the quarter were $20.1
million, compared with $18.5 million a year ago, as
acquisition-related and other costs were partially offset by lower
share-based compensation accruals.
The effective tax rate for the quarter was 21.0
percent compared to 23.6 percent in the same period last year as a
consequence of the geographical location of taxable profits.
For the quarter, cash provided by operating
activities was $55.0 million compared to an outflow of $7.5 million
a year ago. As of June 30, 2023, Innospec had $165.9 million in
cash and cash equivalents and no debt.
Mr. Williams concluded,
“Our diversified business portfolio continued to
perform very well against a backdrop of persistent destocking,
higher cost inventory and conservative customer order
patterns. Excluding the $8.0 million Brazil charge
which reduced our EPS by 21 cents, sales and EBITDA grew and gross
margins improved on the prior year.
We remain excited by the medium to long-term
opportunities in all our businesses. Our teams are focused on
executing a variety of margin and efficiency improvement actions
that we expect will benefit our performance.
Cash generation was excellent in the quarter,
and our net cash position strengthened to over $165 million. With
our debt-free balance sheet we continue to invest in organic
growth, pursue complimentary M&A and return value to
shareholders through dividend growth and share repurchases.”
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, acquisition related costs, foreign
currency exchange (gains)/losses, legacy costs of closed operations
and adjustment of income tax provisions. 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. Also, 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 2,100 employees in 25
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, 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, 2022,
Innospec’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2023 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 SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
|
Schedule 1 |
|
(in
millions, except share and per share data)
|
|
Three Months
Ended June
30 |
|
Six Months Ended June 30 |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
Net sales |
$ |
480.4 |
|
$ |
467.6 |
|
$ |
990.0 |
|
$ |
940.0 |
|
Cost of goods sold |
|
(330.0 |
) |
|
(327.8 |
) |
|
(691.8 |
) |
|
(660.9 |
) |
Gross profit |
|
150.4 |
|
|
139.8 |
|
|
298.2 |
|
|
279.1 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
(105.6 |
) |
|
(83.4 |
) |
|
(201.8 |
) |
|
(168.3 |
) |
Research and development |
|
(10.6 |
) |
|
(10.1 |
) |
|
(21.2 |
) |
|
(20.2 |
) |
Total operating expenses |
|
(116.2 |
) |
|
(93.5 |
) |
|
(223.0 |
) |
|
(188.5 |
) |
Operating income |
|
34.2 |
|
|
46.3 |
|
|
75.2 |
|
|
90.6 |
|
Other income/(expense),
net |
|
2.7 |
|
|
(3.6 |
) |
|
6.4 |
|
|
0.7 |
|
Interest expense, net |
|
(0.3 |
) |
|
(0.4 |
) |
|
- |
|
|
(0.8 |
) |
Income before income
taxes |
|
36.6 |
|
|
42.3 |
|
|
81.6 |
|
|
90.5 |
|
Income taxes |
|
(7.7 |
) |
|
(10.0 |
) |
|
(19.5 |
) |
|
(21.7 |
) |
Net income |
$ |
28.9 |
|
$ |
32.3 |
|
$ |
62.1 |
|
$ |
68.8 |
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
$ |
1.16 |
|
$ |
1.30 |
|
$ |
2.50 |
|
$ |
2.77 |
|
Diluted |
$ |
1.16 |
|
$ |
1.29 |
|
$ |
2.48 |
|
$ |
2.76 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding (in thousands): |
|
|
|
|
|
|
|
|
Basic |
|
24,868 |
|
|
24,805 |
|
|
24,835 |
|
|
24,798 |
|
Diluted |
|
24,980 |
|
|
24,971 |
|
|
25,010 |
|
|
24,967 |
|
INNOSPEC INC. AND SUBSIDIARIES |
|
Schedule 2A |
|
SEGMENTAL ANALYSIS OF
RESULTS |
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(in millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
Performance Chemicals |
$ |
127.8 |
|
$ |
169.0 |
|
$ |
279.2 |
|
$ |
336.1 |
|
Fuel Specialties |
|
154.2 |
|
|
176.4 |
|
|
344.5 |
|
|
368.2 |
|
Oilfield Services |
|
198.4 |
|
|
122.2 |
|
|
366.3 |
|
|
235.7 |
|
|
|
480.4 |
|
|
467.6 |
|
|
990.0 |
|
|
940.0 |
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
22.0 |
|
|
43.6 |
|
|
46.1 |
|
|
84.4 |
|
Fuel Specialties |
|
44.8 |
|
|
56.9 |
|
|
102.2 |
|
|
117.6 |
|
Oilfield Services |
|
83.6 |
|
|
39.3 |
|
|
149.9 |
|
|
77.1 |
|
|
|
150.4 |
|
|
139.8 |
|
|
298.2 |
|
|
279.1 |
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
9.2 |
|
|
28.8 |
|
|
19.6 |
|
|
54.1 |
|
Fuel Specialties |
|
17.1 |
|
|
31.5 |
|
|
49.5 |
|
|
67.0 |
|
Oilfield Services |
|
28.0 |
|
|
4.5 |
|
|
43.9 |
|
|
7.0 |
|
Corporate costs |
|
(20.1 |
) |
|
(18.5 |
) |
|
(37.8 |
) |
|
(37.5 |
) |
Total operating income |
$ |
34.2 |
|
$ |
46.3 |
|
$ |
75.2 |
|
$ |
90.6 |
|
Schedule 2B |
|
NON-GAAP
MEASURES |
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(in
millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
28.9 |
|
$ |
32.3 |
|
$ |
62.1 |
|
$ |
68.8 |
|
Interest expense, net |
|
0.3 |
|
|
0.4 |
|
|
- |
|
|
0.8 |
|
Income taxes |
|
7.7 |
|
|
10.0 |
|
|
19.5 |
|
|
21.7 |
|
Depreciation and
amortization: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
4.2 |
|
|
5.3 |
|
|
8.3 |
|
|
10.7 |
|
Fuel Specialties |
|
1.4 |
|
|
1.5 |
|
|
2.9 |
|
|
3.1 |
|
Oilfield Services |
|
3.1 |
|
|
3.0 |
|
|
6.1 |
|
|
5.9 |
|
Corporate costs |
|
0.6 |
|
|
0.4 |
|
|
1.2 |
|
|
0.9 |
|
EBITDA |
|
46.2 |
|
|
52.9 |
|
|
100.1 |
|
|
111.9 |
|
|
|
|
|
|
|
|
|
|
EBITDA: |
|
|
|
|
|
|
|
|
Performance Chemicals |
|
13.4 |
|
|
34.1 |
|
|
27.9 |
|
|
64.8 |
|
Fuel Specialties |
|
18.5 |
|
|
33.0 |
|
|
52.4 |
|
|
70.1 |
|
Oilfield Services |
|
31.1 |
|
|
7.5 |
|
|
50.0 |
|
|
12.9 |
|
Corporate costs |
|
(19.5 |
) |
|
(18.1 |
) |
|
(36.6 |
) |
|
(36.6 |
) |
|
|
43.5 |
|
|
56.5 |
|
|
93.7 |
|
|
111.2 |
|
Other income/(expense),
net |
|
2.7 |
|
|
(3.6 |
) |
|
6.4 |
|
|
0.7 |
|
EBITDA |
$ |
46.2 |
|
$ |
52.9 |
|
$ |
100.1 |
|
$ |
111.9 |
|
|
EBITDA by segment includes operating income
relating to the segments, excluding depreciation and
amortization.
|
Schedule 3 |
INNOSPEC INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
(in millions) |
|
June 30,2023 |
|
December 31,2022 |
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
165.9 |
$ |
147.1 |
Trade and other accounts receivable |
|
310.9 |
|
334.6 |
Inventories |
|
356.7 |
|
373.1 |
Prepaid expenses |
|
10.5 |
|
14.1 |
Prepaid income taxes |
|
9.8 |
|
3.3 |
Other current assets |
|
0.7 |
|
0.4 |
Total current assets |
|
854.5 |
|
872.6 |
|
|
|
|
|
Net property, plant and
equipment |
|
242.3 |
|
220.9 |
Operating lease right-of-use
assets |
|
45.9 |
|
45.3 |
Goodwill |
|
360.6 |
|
358.8 |
Other intangible assets |
|
46.7 |
|
45.0 |
Deferred tax assets |
|
5.9 |
|
5.9 |
Pension asset |
|
49.1 |
|
48.1 |
Other non-current assets |
|
5.8 |
|
7.1 |
Total assets |
$ |
1,610.8 |
$ |
1,603.7 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
157.9 |
$ |
165.3 |
Accrued liabilities |
|
174.7 |
|
202.9 |
Current portion of operating lease liabilities |
|
14.3 |
|
13.9 |
Current portion of plant closure provisions |
|
4.3 |
|
5.3 |
Current portion of accrued income taxes |
|
13.7 |
|
18.4 |
Total current liabilities |
|
364.9 |
|
405.8 |
|
|
|
|
|
Operating lease liabilities,
net of current portion |
|
31.6 |
|
31.4 |
Plant closure provisions, net
of current portion |
|
52.6 |
|
51.9 |
Accrued income taxes, net of
current portion |
|
11.6 |
|
21.0 |
Unrecognized tax benefits |
|
14.0 |
|
13.4 |
Deferred tax liabilities |
|
27.3 |
|
26.2 |
Pension liabilities and
post-employment benefits |
|
12.4 |
|
12.2 |
Other non-current
liabilities |
|
1.6 |
|
1.4 |
Equity |
|
1,094.8 |
|
1,040.4 |
Total liabilities and
equity |
$ |
1,610.8 |
$ |
1,603.7 |
Schedule 4 |
INNOSPEC INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
|
|
Six Months EndedJune 30 |
(in
millions) |
|
2023 |
|
2022 |
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
62.1 |
|
$ |
68.8 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
19.2 |
|
|
20.8 |
|
Deferred taxes |
|
1.1 |
|
|
1.0 |
|
Non-cash movements on defined benefit pension plans |
|
(1.7 |
) |
|
(1.3 |
) |
Stock option compensation |
|
3.9 |
|
|
3.2 |
|
Changes in working capital |
|
11.5 |
|
|
(123.0 |
) |
Movements in plant closure provisions |
|
(0.5 |
) |
|
- |
|
Movements in accrued income taxes |
|
(21.6 |
) |
|
(4.2 |
) |
Movements in unrecognized tax benefits |
|
0.6 |
|
|
- |
|
Movements in other assets and liabilities |
|
2.2 |
|
|
(1.8 |
) |
Net cash provided by/(used in)
operating activities |
|
76.8 |
|
|
(36.5 |
) |
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(32.6 |
) |
|
(17.4 |
) |
Internally developed
software |
|
(6.7 |
) |
|
- |
|
Net cash used in investing
activities |
|
(39.3 |
) |
|
(17.4 |
) |
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
0.2 |
|
|
- |
|
Repayment of finance
leases |
|
- |
|
|
(0.1 |
) |
Refinancing costs |
|
(1.5 |
) |
|
- |
|
Dividend paid |
|
(17.2 |
) |
|
(15.6 |
) |
Issue of treasury stock |
|
0.7 |
|
|
2.1 |
|
Repurchase of common
stock |
|
(1.0 |
) |
|
(2.7 |
) |
Net cash used in financing
activities |
|
(18.8 |
) |
|
(16.3 |
) |
|
|
|
|
|
Effect of foreign currency
exchange rate changes on cash |
|
0.1 |
|
|
(0.2 |
) |
Net change in cash and cash
equivalents |
|
18.8 |
|
|
(70.4 |
) |
Cash and cash equivalents at
beginning of period |
|
147.1 |
|
|
141.8 |
|
Cash and cash equivalents at
end of period |
$ |
165.9 |
|
$ |
71.4 |
|
|
Amortization of deferred finance costs of $0.7
million (2022 - $0.2 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.
Innospec (NASDAQ:IOSP)
Historical Stock Chart
From Apr 2024 to May 2024
Innospec (NASDAQ:IOSP)
Historical Stock Chart
From May 2023 to May 2024