Innospec Inc. (NASDAQ:IOSP) Q3 2023 Earnings Call Transcript
Innospec Inc. (NASDAQ:IOSP) Q3 2023 Earnings Call Transcript November 8, 2023
Operator: Good day, and thank you for standing by. Welcome to the Innospec's Third Quarter 2023 Earnings Release and Conference Call. [Operator Instructions].§ I would now like to hand the conference over to your first speaker today, David Jones, General Counsel and Compliance Officer. Please go ahead.
David Jones: Thank you. Welcome to Innospec's earnings call. This is David Jones, I'm Innospec's General Counsel and Chief Compliance Officer. The earnings release for the quarter and this presentation are posted on the company's website. During this call, we will make forward-looking statements which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by such forward-looking statements. The risks and uncertainties are detailed in Innospec's 10-K, 10-Q and other filings with the SEC. Please see the SEC site and Innospec's site for these and related documents.
We've also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. The non-GAAP financial measures should not be considered as a substitute for, or compared to, those prepared in accordance with GAAP. They are included as additional items to aid investor understanding of the company's performance in addition to the impact that these items and events had on financial results. With me 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'll turn it over to you, Patrick.
Patrick Williams: Thank you, David, and welcome, everyone, to Innospec's Third Quarter 2023 Conference Call. Innospec delivered another set of good results. We are well positioned for continued organic growth through innovation and customer partnerships across all our businesses. Performance Chemicals delivered strong sequential operating income growth, along with margin expansion as new personal care contracts commenced and volumes from our existing business improved. While destocking remains a headwind, we believe that it has peaked. We are cautiously optimistic that we will achieve further sequential operating income growth and margin improvement in the coming quarters. In addition, we believe that our continued investments in technologies like our industry-leading 1,4-Dioxane-free and sulfate-free chemistries are well aligned with ongoing consumer and regulatory trends.
In Fuel Specialties, operating income was broadly similar to last year as improved margins offset lower sales volumes. These results were below our internal targets but we expect sequential margin improvement and operating income growth with our chemistries into the winter quarters. Margin improvement remains a key medium-term focus and opportunity for our Fuel Specialties business. Oilfield Services had another strong quarter with double-digit operating income growth and margin expansion over the prior year. As expected, activity levels moderated on a sequential basis but remained on track for significant full year improvement in 2023. In the fourth quarter, we anticipate similar results to this quarter as we continue to have a strong pipeline of opportunities across all our oilfield segments and geographies.
Now I will turn the call over to Ian Cleminson, who will review our financial results in more detail, then I will return with some concluding comments. After that, Ian and I will take your questions. Ian?
Ian Cleminson: Thanks, Patrick. Turning to Slide 7 in the presentation. The company's total revenues for the third quarter were $464.1 million, a 10% decrease from $513 million a year ago. Overall, gross margin decreased slightly by 0.8 percentage points last year to 29.6%. EBITDA for the quarter was $56.5 million compared to $59.2 million last year, and net income for the quarter was $39.2 million compared to $38.7 million a year ago. . Our GAAP earnings per share were $1.57 including special items, the net effect of which decreased our third quarter earnings by $0.02 per share. A year ago, we reported GAAP earnings per share of $1.55, which included a negative impact from special items of $0.19 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.59 compared to $1.74 a year ago.
Turning to Slide 8. Revenues in Performance Chemicals for the third quarter were $145.2 million, down 9% from last year's $159.7 million, driven by a negative price mix of 19% being partially offset by higher volumes of 7% and a positive currency impact of 3%. Gross margins of 20.9% decreased by 3.6 percentage points compared to 24.5% in the same quarter in 2022 due to a weaker sales mix and higher cost inventory. Operating income decreased 33% from last year to $16.9 million. Moving on to Slide 9, revenues in Fuel Specialties for the third quarter were $169.3 million, down 5% from the $178.7 million reported a year ago. Volume reductions of 4% and a negative price/mix of 4% were partially offset by a positive currency impact of 3%. Fuel Specialties gross margins are 31.3% or 1.4 percentage points above the same quarter last year due to a richer sales mix.
Operating income of $27.6 million was down slightly from $27.9 million a year ago. Moving on to Slide 10. Revenues in Oilfield Services for the quarter were $149.6 million, down 14% from $174.6 million in the third quarter last year. Gross margins of 36% were down 0.4 percentage points from last year's 36.4%. Operating income of $16.4 million was up 15% over the prior year. Turning to Slide 11. Corporate costs for the quarter were $19 million and within our expected range compared with $17.4 million a year ago. The effective tax rate for the quarter was 17.5% compared to 20.9% a year ago due mainly to the favorable geographical split of our profits. Moving on to Slide 12. Cash generation for the quarter was very strong with an operating cash inflow of $58.1 million before capital expenditures of $16.7 million.
As of September 30, 2023, Innospec had $207.2 million in cash and cash equivalents and no debt. And now, I'll turn it back over to Patrick for some final comments.
Patrick Williams: Thanks, Ian. We are entering the fourth quarter with good momentum in all businesses, and we expect our balanced portfolio to deliver sequential improvement. We continue to execute on a diverse pipeline of organic growth opportunities. Cash generation was again excellent this quarter, and our net cash position strengthened to over $207 million. This quarter, we increased our semiannual dividend of $0.72 per share, bringing our full year dividend to $1.41, representing a 10% annual increase. With our extremely strong balance sheet and a history of disciplined cash management, we are positioned to continue consistent shareholder returns, invest in organic growth and pursue complementary M&A. With our foundation of world-class innovation and customer service, we remain well placed for long-term growth. Now, I will turn the call over to the operator, and Ian and I will take your questions.
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