Innospec Inc. (NASDAQ:IOSP) Q1 2023 Results Conference Call May 4, 2023 9:00 AM ET Company Participants David Jones - General Counsel and Chief Compliance Officer Patrick Williams - President and CEO Ian Cleminson - EVP and CFO Conference Call Participants Michael Harrison - Seaport Research Lee Jagoda - CGS Securities David Silver - CL King & Associates Operator Good day, ladies and gentlemen, and welcome to Innospec's First Quarter 2022 Earnings Release and Conference Call. [Operator's Instruction] I wo ...

PART I FINANCIAL INFORMATION [Item 1 Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements) This section presents the company's unaudited interim condensed consolidated financial statements for Q1 2023 - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, and should be read in conjunction with the 2022 Form 10-K[23](index=23&type=chunk)[24](index=24&type=chunk) - Results for the interim period are not necessarily indicative of the results to be expected for the full year[25](index=25&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) | Metric | 3 Months Ended March 31, 2023 (in millions) | 3 Months Ended March 31, 2022 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net sales | $509.6 | $472.4 | +$37.2 (+7.9%) | | Cost of goods sold | $(361.8) | $(333.1) | $(28.7) (-8.6%) | | Gross profit | $147.8 | $139.3 | +$8.5 (+6.1%) | | Operating income | $41.0 | $44.3 | -$3.3 (-7.4%) | | Net income | $33.2 | $36.5 | -$3.3 (-9.0%) | | Basic EPS | $1.34 | $1.47 | -$0.13 (-8.8%) | | Diluted EPS | $1.33 | $1.46 | -$0.13 (-8.9%) | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric | 3 Months Ended March 31, 2023 (in millions) | 3 Months Ended March 31, 2022 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net income | $33.2 | $36.5 | -$3.3 (-9.0%) | | Total other comprehensive income/(loss) | $4.4 | $(3.6) | +$8.0 | | Total comprehensive income | $37.6 | $32.9 | +$4.7 (+14.3%) | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | Change (QoQ) | | :--- | :--- | :--- | :--- | | Total current assets | $875.0 | $872.6 | +$2.4 (+0.3%) | | Total assets | $1,624.1 | $1,603.7 | +$20.4 (+1.3%) | | Total current liabilities | $381.6 | $405.8 | -$24.2 (-6.0%) | | Total liabilities | $543.5 | $563.3 | -$19.8 (-3.5%) | | Total equity | $1,080.6 | $1,040.4 | +$40.2 (+3.9%) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | 3 Months Ended March 31, 2023 (in millions) | 3 Months Ended March 31, 2022 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $21.8 | $(29.0) | +$50.8 | | Net cash used in investing activities | $(22.0) | $(8.4) | -$13.6 | | Net cash provided by/(used in) financing activities | $0.4 | $0.9 | -$0.5 | | Net change in cash and cash equivalents | $0.4 | $(36.2) | +$36.6 | | Cash and cash equivalents at end of period | $147.5 | $105.6 | +$41.9 (+39.7%) | [Condensed Consolidated Statements of Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) | Metric | Balance at Dec 31, 2022 (in millions) | Net Income (in millions) | Changes in CTA (in millions) | Treasury Stock Reissued (in millions) | Stock Option Comp (in millions) | Balance at Mar 31, 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Innospec stockholders' equity | $1,038.0 | $33.2 | $4.7 | $0.9 | $1.9 | $1,080.6 | [Notes To The Unaudited Interim Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20To%20The%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 – BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X[23](index=23&type=chunk) - These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[24](index=24&type=chunk) [NOTE 2 – SEGMENT REPORTING](index=10&type=section&id=NOTE%202%20%E2%80%93%20SEGMENT%20REPORTING) - The Company reports its financial performance based on three reportable segments: **Performance Chemicals, Fuel Specialties, and Oilfield Services**[26](index=26&type=chunk) - Segment performance is evaluated based on **operating income**[26](index=26&type=chunk) | Segment | Net Sales (3M Ended Mar 31, 2023) | Net Sales (3M Ended Mar 31, 2022) | Operating Income (3M Ended Mar 31, 2023) | Operating Income (3M Ended Mar 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | Performance Chemicals | $151.4 million | $167.1 million | $10.4 million | $25.3 million | | Fuel Specialties | $190.3 million | $191.8 million | $32.4 million | $35.5 million | | Oilfield Services | $167.9 million | $113.5 million | $15.9 million | $2.5 million | | Corporate costs | N/A | N/A | $(17.7) million | $(19.0) million | | Total | $509.6 million | $472.4 million | $41.0 million | $44.3 million | [NOTE 3 – EARNINGS PER SHARE](index=11&type=section&id=NOTE%203%20%E2%80%93%20EARNINGS%20PER%20SHARE) | Metric | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income per share, basic | $1.34 | $1.47 | | Net income per share, diluted | $1.33 | $1.46 | | Weighted average common shares outstanding (in thousands) | 24,801 | 24,791 | | Denominator for diluted EPS (in thousands) | 24,962 | 24,956 | [NOTE 4 – GOODWILL](index=11&type=section&id=NOTE%204%20%E2%80%93%20GOODWILL) - The exchange effect for the three months ended March 31, 2023, was **$1.4 million**, primarily relating to the Performance Chemicals segment[28](index=28&type=chunk) | (in millions) | 2023 | | :--- | :--- | | Gross cost at January 1 | $358.8 | | Exchange effect | $1.4 | | Gross cost at March 31 | $360.2 | [NOTE 5 – OTHER INTANGIBLE ASSETS](index=11&type=section&id=NOTE%205%20%E2%80%93%20OTHER%20INTANGIBLE%20ASSETS) - The Company capitalized **$4.3 million in Q1 2023** for internally developed software for a new Enterprise Resource Planning ("ERP") system covering EMEA and ASPAC regions[30](index=30&type=chunk) - Amortization expense for Q1 2023 was **$2.7 million**, compared to $4.0 million in Q1 2022[29](index=29&type=chunk) | (in millions) | 2023 | | :--- | :--- | | Net book amount at March 31 | $46.9 | | Additions | $4.3 | | Amortization expense | $(2.7) | [NOTE 6 – PENSION AND POST EMPLOYMENT BENEFITS](index=12&type=section&id=NOTE%206%20%E2%80%93%20PENSION%20AND%20POST%20EMPLOYMENT%20BENEFITS) - The Company maintains a defined benefit pension plan in the United Kingdom (UK Plan) and an unfunded defined benefit pension plan in Germany (German plan)[31](index=31&type=chunk)[32](index=32&type=chunk) - A liability of **$4.2 million** for post-employment benefits was recorded as of March 31, 2023[33](index=33&type=chunk) | (in millions) | 3 Months Ended March 31, 2023 | 3 Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net periodic benefit | $0.8 | $0.7 | [NOTE 7 – INCOME TAXES](index=13&type=section&id=NOTE%207%20%E2%80%93%20INCOME%20TAXES) - All **$13.7 million** of unrecognized tax benefits, interest, and penalties would impact the effective tax rate if recognized[34](index=34&type=chunk) - Potential additional tax liabilities include **$1.0 million** from a U.K. tax review, **$3.3 million** from an Italian tax audit (indemnified), and **$9.4 million** related to the U.S. Tax Cuts and Jobs Act of 2017[35](index=35&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) | (in millions) | Unrecognized Tax Benefits | Interest and Penalties | Total | | :--- | :--- | :--- | :--- | | Closing balance at March 31, 2023 | $10.3 | $3.4 | $13.7 | [NOTE 8 – LONG-TERM DEBT](index=14&type=section&id=NOTE%208%20%E2%80%93%20LONG-TERM%20DEBT) - The Company had **not drawn down** on its $250.0 million revolving credit facility as of March 31, 2023, or December 31, 2022[40](index=40&type=chunk) - The revolving credit facility is available until September 25, 2024, with an accordion feature to increase borrowings by up to **$125.0 million**[40](index=40&type=chunk) [NOTE 9 – PLANT CLOSURE PROVISIONS](index=14&type=section&id=NOTE%209%20%E2%80%93%20PLANT%20CLOSURE%20PROVISIONS) - Plant closure provisions include costs for environmental remediation liabilities and asset retirement obligations, primarily at the Ellesmere Port site in the UK[42](index=42&type=chunk)[43](index=43&type=chunk) - The charge for Q1 2023 was **$0.9 million**, representing accounting accretion only[44](index=44&type=chunk) | (in millions) | 2023 | | :--- | :--- | | Total at January 1 | $57.2 | | Charge for the period | $0.9 | | Utilized in the period | $(1.2) | | Total at March 31 | $57.0 | | Due within one year | $5.0 | | Due after one year | $52.0 | [NOTE 10 – FAIR VALUE MEASUREMENTS](index=15&type=section&id=NOTE%2010%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) - Fair values for cash and cash equivalents approximate carrying amounts due to short-term maturities[45](index=45&type=chunk) - Emissions Trading Scheme credits are valued at open market pricing, while foreign currency forward exchange contracts and stock equivalent units are valued using current settlement prices/comparable contracts and Black-Scholes/Monte Carlo methods, respectively[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) | (in millions) | March 31, 2023 Carrying Amount | March 31, 2023 Fair Value | | :--- | :--- | :--- | | Cash and cash equivalents | $147.5 | $147.5 | | Emissions Trading Scheme credits | $2.5 | $2.5 | | Foreign currency forward exchange contracts | $0.8 | $0.8 | | Stock equivalent units | $16.6 | $16.6 | [NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT](index=15&type=section&id=NOTE%2011%20%E2%80%93%20DERIVATIVE%20INSTRUMENTS%20AND%20RISK%20MANAGEMENT) - The Company uses foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows, with maturity dates up to twelve months[49](index=49&type=chunk) - These contracts are not designated as hedging instruments and resulted in a **$0.9 million loss in Q1 2023**, compared to a $0.8 million gain in Q1 2022[49](index=49&type=chunk) [NOTE 12 – CONTINGENCIES](index=16&type=section&id=NOTE%2012%20%E2%80%93%20CONTINGENCIES) - The Company has lodged a civil and criminal legal claim related to a **$7.4 million misappropriation of inventory** in Brazil, which has been written off to cost of goods sold[51](index=51&type=chunk) - Guarantees for certain obligations of affiliated companies amounted to **$7.1 million** as of March 31, 2023[53](index=53&type=chunk) [NOTE 13 – STOCK-BASED COMPENSATION PLANS](index=17&type=section&id=NOTE%2013%20%E2%80%93%20STOCK-BASED%20COMPENSATION%20PLANS) - Stock option compensation cost was **$1.9 million in Q1 2023** (Q1 2022: $1.7 million)[56](index=56&type=chunk) - Stock equivalent units compensation cost was **$3.2 million in Q1 2023** (Q1 2022: $7.1 million)[56](index=56&type=chunk) - Total unrecognized compensation cost related to nonvested share-based arrangements was **$32.5 million**, expected to be recognized over a weighted-average period of 2.2 years[58](index=58&type=chunk) [NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS](index=17&type=section&id=NOTE%2014%20%E2%80%93%20RECLASSIFICATIONS%20OUT%20OF%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) - Total reclassifications out of accumulated other comprehensive loss (AOCL), net of tax, were **$(0.3) million for Q1 2023**, primarily from defined benefit pension plan items[59](index=59&type=chunk) | (in millions) | Defined Benefit Pension Plan Items | Cumulative Translation Adjustments | Total | | :--- | :--- | :--- | :--- | | Balance at December 31, 2022 | $(58.4) | $(86.8) | $(145.2) | | Total other comprehensive income | $(0.3) | $4.7 | $4.4 | | Balance at March 31, 2023 | $(58.7) | $(82.1) | $(140.8) | [NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS](index=18&type=section&id=NOTE%2015%20%E2%80%93%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) - The Company reviewed recently issued accounting pronouncements and concluded there were **no matters relevant** to its financial statements[61](index=61&type=chunk) [NOTE 16 – RELATED PARTY TRANSACTIONS](index=18&type=section&id=NOTE%2016%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) - Purchases from AdvanSix (where Mr. Patrick S. Williams is a non-executive director) totaled **$0.1 million** in Q1 2023[62](index=62&type=chunk) - Fees incurred from Smith, Gambrell & Russell, LLP (where Mr. Robert I. Paller holds a position) were **$0.1 million** in Q1 2023[63](index=63&type=chunk) - Sales of scrap metal to European Metal Recycling Limited (where Mr. David F. Landless is a non-executive director of the parent company) were **$0.0 million** in Q1 2023[64](index=64&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 2023](index=19&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202023) Management discusses Q1 2023 financial performance, segment results, accounting estimates, and liquidity [Critical Accounting Estimates](index=19&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting estimates include environmental liabilities, pensions, income taxes, goodwill, property, plant and equipment, and other intangible assets, as discussed in the 2022 Form 10-K[66](index=66&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Net sales grew 8% YoY driven by Oilfield Services, though higher operating expenses led to a 7% drop in operating income | Metric | 3 Months Ended Mar 31, 2023 (in millions) | 3 Months Ended Mar 31, 2022 (in millions) | Change (YoY) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $509.6 | $472.4 | $37.2 | 8% | | Gross profit | $147.8 | $139.3 | $8.5 | 6% | | Operating income | $41.0 | $44.3 | $(3.3) | (7)% | | Total operating expenses | $(106.8) | $(95.0) | $(11.8) | 12% | [Performance Chemicals](index=20&type=section&id=Performance%20Chemicals) - Net sales **decreased by 9% YoY** to $151.4 million, primarily due to a 13% drop in sales volumes across all regions, driven by reduced consumer demand and customer destocking[68](index=68&type=chunk)[69](index=69&type=chunk) - Gross margin **decreased by 8.5 percentage points** due to an adverse sales mix, time lag in passing on higher raw material costs, and lower manufacturing efficiency from reduced production volumes[68](index=68&type=chunk)[70](index=70&type=chunk) - Operating expenses **decreased by $1.8 million** due to lower selling expenses, performance-related remuneration accruals, and amortization of acquired intangibles[68](index=68&type=chunk)[71](index=71&type=chunk) [Fuel Specialties](index=22&type=section&id=Fuel%20Specialties) - Net sales **decreased by 1% YoY** to $190.3 million, with a 20% reduction in sales volumes across all regions, mainly from lower margin, higher volume products[68](index=68&type=chunk)[73](index=73&type=chunk) - Price and product mix was **favorable (+22%)** due to increased sales of higher margin products and the impact of increased raw materials pricing being passed on through higher selling prices[73](index=73&type=chunk) - Gross margin **decreased by 1.4 percentage points**, impacted by a $7.4 million inventory misappropriation in Brazil, partly offset by a favorable sales mix[68](index=68&type=chunk)[74](index=74&type=chunk) [Oilfield Services](index=22&type=section&id=Oilfield%20Services) - Net sales **increased significantly by 48% YoY** to $167.9 million, driven by increased customer activity primarily in the Americas[68](index=68&type=chunk)[75](index=75&type=chunk) - Gross margin **increased by 6.2 percentage points** due to a favorable sales mix and improved pricing in a continuously competitive market[68](index=68&type=chunk)[75](index=75&type=chunk) - Operating expenses **increased by $15.1 million**, driven by higher customer service costs necessary to support the increase in demand[68](index=68&type=chunk)[76](index=76&type=chunk) [Other Income Statement Captions](index=22&type=section&id=Other%20Income%20Statement%20Captions) - Corporate costs **decreased by $1.3 million YoY**, primarily due to lower performance-related remuneration accruals[68](index=68&type=chunk)[77](index=77&type=chunk) - Interest income, net, was **$0.3 million in Q1 2023** (compared to an expense of $0.4 million in Q1 2022), benefiting from global increases in central bank interest rates[78](index=78&type=chunk) - The GAAP effective tax rate **increased to 26.2%** in Q1 2023 (from 24.3% in Q1 2022), and the adjusted effective tax rate increased to 25.8% (from 24.3%), mainly due to a higher proportion of profits generated in higher tax jurisdictions[79](index=79&type=chunk)[80](index=80&type=chunk) | (in millions) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Other net income/(expense) | $3.7 | $4.3 | $(0.6) | | Net pension credit | $1.7 | $1.3 | $0.4 | | Foreign exchange gains on translation | $2.9 | $2.2 | $0.7 | | Foreign currency forward contracts gains/(losses) | $(0.9) | $0.8 | $(1.7) | [Liquidity and Financial Condition](index=24&type=section&id=Liquidity%20and%20Financial%20Condition) Working capital increased, operating cash flow improved significantly, and the company remained debt-free [Working Capital](index=24&type=section&id=Working%20Capital) - Working capital **increased by $26.6 million**, and adjusted working capital increased by $28.7 million in Q1 2023[81](index=81&type=chunk)[83](index=83&type=chunk) - Trade and other accounts receivable **increased by $7.8 million**, driven primarily by increased trading activity in the Oilfield Services segment[83](index=83&type=chunk) - Inventories **decreased by $7.4 million** (net of allowances), primarily due to the misappropriation of $7.4 million of inventory in Brazil[84](index=84&type=chunk) | (in millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Working capital | $493.4 | $466.8 | | Adjusted working capital | $382.3 | $353.6 | [Operating Cash Flows](index=25&type=section&id=Operating%20Cash%20Flows) - The Company generated **$21.8 million cash from operating activities** in Q1 2023, a significant improvement from a $29.0 million cash outflow in Q1 2022[18](index=18&type=chunk)[87](index=87&type=chunk) - The increase in cash generated was principally related to **lower increases in working capital** in Q1 2023 compared to higher increases in Q1 2022[87](index=87&type=chunk) [Cash](index=25&type=section&id=Cash) - Cash and cash equivalents were **$147.5 million** at March 31, 2023, a slight increase of $0.4 million from the beginning of the period[18](index=18&type=chunk)[88](index=88&type=chunk) - **$57.3 million of cash** was held by non-U.S. subsidiaries, primarily in the United Kingdom[88](index=88&type=chunk) [Debt](index=25&type=section&id=Debt) - The Company had **no debt outstanding** under its revolving credit facility or finance leases at March 31, 2023[89](index=89&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=26&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages market risks from interest rates, foreign currency, and commodities using derivatives, with no material change in exposure - The Company is subject to market risks related to changes in interest rates and foreign currency exchange rates, as well as business risks inherent in non-U.S. activities[90](index=90&type=chunk) - Derivatives, including interest rate swaps, commodity swaps, and foreign currency forward exchange contracts, are used as risk management tools to manage market risks, **not for trading purposes**[91](index=91&type=chunk)[92](index=92&type=chunk) - There have been **no significant changes** in the Company's exposure to market risk since the 2022 Annual Report on Form 10-K[93](index=93&type=chunk) [Item 4 Controls and Procedures](index=26&type=section&id=Item%204%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **effective** as of March 31, 2023[94](index=94&type=chunk) - There were **no changes** to internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter[96](index=96&type=chunk) PART II OTHER INFORMATION [Item 1 Legal Proceedings](index=27&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in a legal claim regarding a $7.4 million inventory misappropriation in Brazil - A civil and criminal legal claim has been lodged related to a **$7.4 million misappropriation of inventory** in Brazil, which has been written off to cost of goods sold[98](index=98&type=chunk) - While the Company is confident the matter will not result in any significant further adverse impact, there is a possibility that **additional financial losses** will be incurred[98](index=98&type=chunk) [Item 1A Risk Factors](index=27&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes in the risk factors facing the Company as disclosed in its 2022 Form 10-K - **No material changes** in the risk factors facing the Company have occurred since those disclosed in Item 1A of Part I of the 2022 Form 10-K[100](index=100&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company repurchased 2,343 shares in February 2023, with $44.2 million remaining under its repurchase plan - There have been **no unregistered sales** of equity securities during the quarter ended March 31, 2023[101](index=101&type=chunk) - The Company announced a repurchase plan for up to **$50 million** of common stock over a three-year period commencing on February 16, 2022[103](index=103&type=chunk) | Period | Total number of shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased under the plans or programs | | :--- | :--- | :--- | :--- | | February 1, 2023 through February 28, 2023 | 2,343 | $110.09 | $44.2 million | [Item 3 Defaults Upon Senior Securities](index=27&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[104](index=104&type=chunk) [Item 4 Mine Safety Disclosures](index=28&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[105](index=105&type=chunk) [Item 5 Other Information](index=28&type=section&id=Item%205%20Other%20Information) There is no other information to report under this item - None[106](index=106&type=chunk) [Item 6 Exhibits](index=29&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications - Exhibits include Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[108](index=108&type=chunk) - XBRL Instance Document and Cover Page Interactive Data File are embedded within the inline XBRL document[108](index=108&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) The report is signed by the CEO and CFO on May 4, 2023 - The report was signed on **May 4, 2023**, by Patrick S. Williams, President and Chief Executive Officer, and Ian P. Cleminson, Executive Vice President and Chief Financial Officer[110](index=110&type=chunk)

Innospec Inc. (NASDAQ:IOSP) Q4 2022 Earnings Conference Call February 22, 2023 9:00 AM ET Company Participants David Jones - General Counsel and Chief Compliance Officer Patrick Williams - President and CEO Ian Cleminson - EVP and CFO Conference Call Participants Mike Harrison - Seaport Research Partners Stefanos Crist - CJS Securities David Silver - CL King & Associates Christopher Shaw - Monness, Crespi, Hardt Operator Good day, and thank you for standing by. Welcome to Innospec's Fourth Quarter 2022 earn ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13879 INNOSPEC INC. (Exact name of registrant as specified in its charter) DELAWARE 98-0181725 State or other jurisdiction of inco ...

Innospec Inc. (NASDAQ:IOSP) Q3 2022 Earnings Conference Call November 9, 2022 11:00 AM ET Company Participants David Jones - Senior Vice President, General Counsel and Chief Compliance Officer and Corporate Secretary Patrick Williams - President and Chief Executive Officer Ian Cleminson - Executive Vice President and Chief Financial Officer Conference Call Participants Michael Harrison - Seaport Research Partners Jonathan Tanwanteng - CJS Securities Christopher Shaw - Monness, Crespi, Hardt & Co., Inc. Davi ...

Q3 2022 Earnings 1 November 2022 innospec}» Forward Looking Statements This presentation 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 forwardlooking statements include statements (covered by words like "expects," "estimates," "anticipates," "may," "could," "believes," "feels," "plans," "intends" o ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13879 INNOSPEC INC. (Exact name of registrant as specified in its charter) DELAWARE 98-0181725 (State or other jurisdic ...

Innovating with Our Customers AUGUST 2022 innospec� General Disclosure Use of Non-GAAP Financial Measures The information presented in this presentation includes financial measures that are not calculated or presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP). These nonGAAP 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 ...

Innospec Inc. (NASDAQ:IOSP) Q2 2022 Earnings Conference Call August 3, 2022 10:00 AM ET Company Participants David Jones - General Counsel & Chief Compliance Officer Patrick Williams - President & Chief Executive Officer Ian Cleminson - Executive Vice President & Chief Financial Officer Conference Call Participants Mike Harrison - Seaport Research Partners Stefanos Crist - CJS Securities David Jones [Call starts abruptly] This is David Jones. I'm Innospec's General Counsel and Chief Compliance Officer. Late ...

PART I FINANCIAL INFORMATION [Item 1 Condensed Consolidated Financial Statements](index=4&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited interim condensed consolidated financial statements, including core financial statements and comprehensive notes on accounting policies and specific financial items [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income (Unaudited) - Three Months Ended June 30 | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net sales | $467.6 | $354.5 | +32% | | Gross profit | $139.8 | $108.3 | +29% | | Operating income | $46.3 | $37.0 | +25% | | Net income | $32.3 | $22.4 | +44% | | Basic EPS | $1.30 | $0.91 | +43% | | Diluted EPS | $1.29 | $0.90 | +43% | Condensed Consolidated Statements of Income (Unaudited) - Six Months Ended June 30 | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net sales | $940.0 | $694.1 | +35% | | Gross profit | $279.1 | $209.1 | +33% | | Operating income | $90.6 | $65.2 | +39% | | Net income | $68.8 | $45.8 | +50% | | Basic EPS | $2.77 | $1.86 | +49% | | Diluted EPS | $2.76 | $1.84 | +50% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended June 30 | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net income | $32.3 | $22.4 | +44% | | Total other comprehensive (loss)/income | $(16.6) | $4.4 | -477% | | Total comprehensive income | $15.7 | $26.8 | -41% | Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Six Months Ended June 30 | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net income | $68.8 | $45.8 | +50% | | Total other comprehensive (loss)/income | $(20.2) | $(6.2) | +226% | | Total comprehensive income | $48.6 | $39.6 | +23% | - Changes in cumulative translation adjustment significantly impacted other comprehensive income, resulting in a **loss of $16.9 million** for the three months ended June 30, 2022, compared to a gain of $3.8 million in the prior year[16](index=16&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (Unaudited) - As of June 30, 2022 vs. December 31, 2021 | Metric | June 30, 2022 (in millions) | December 31, 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | **Assets:** | | | | | Total current assets | $799.3 | $728.1 | +$71.2 | | Cash and cash equivalents | $71.4 | $141.8 | -$70.4 | | Trade and other accounts receivable | $339.9 | $284.5 | +$55.4 | | Total inventories | $362.2 | $277.6 | +$84.6 | | Total assets | $1,637.9 | $1,570.9 | +$67.0 | | **Liabilities & Equity:** | | | | | Total current liabilities | $369.2 | $336.6 | +$32.6 | | Accounts payable | $180.9 | $148.7 | +$32.2 | | Total liabilities | $569.3 | $537.9 | +$31.4 | | Total equity | $1,068.6 | $1,033.0 | +$35.6 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30 | Metric | 2022 (in millions) | 2021 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(36.5) | $21.6 | -$58.1 | | Net cash used in investing activities | $(17.4) | $(19.2) | +$1.8 | | Net cash used in financing activities | $(16.3) | $(13.3) | -$3.0 | | Net change in cash and cash equivalents | $(70.4) | $(10.9) | -$59.5 | | Cash and cash equivalents at end of period | $71.4 | $94.4 | -$23.0 | - The significant decrease in cash from operating activities in 2022 was primarily due to an increase in working capital required to support sales growth[25](index=25&type=chunk) [Condensed Consolidated Statements of Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Condensed Consolidated Statements of Equity (Unaudited) - Six Months Ended June 30, 2022 | Metric | Balance at Dec 31, 2021 (in millions) | Net Income (in millions) | Dividend Paid (in millions) | Changes in CTA (in millions) | Balance at Jun 30, 2022 (in millions) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Equity | $1,033.0 | $68.8 | $(15.6) | $(20.7) | $1,068.6 | - Total Innospec stockholders' equity increased from **$1,032.4 million** at December 31, 2021, to **$1,067.9 million** at June 30, 2022, driven by net income partially offset by dividends paid and negative cumulative translation adjustments[22](index=22&type=chunk)[27](index=27&type=chunk) [Notes To The Unaudited Interim Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20To%20The%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 – BASIS OF PRESENTATION](index=11&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) The interim condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial information and Form 10-Q instructions, and should be read in conjunction with the 2021 Annual Report on Form 10-K. All necessary adjustments have been made for fair presentation, and interim results are not necessarily indicative of full-year results - The unaudited interim condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial information and Form 10-Q, and do not include all information necessary for a comprehensive presentation[32](index=32&type=chunk) - All adjustments made are normal, recurring adjustments, and the statements should be read with the 2021 Form 10-K[33](index=33&type=chunk) [NOTE 2 – SEGMENT REPORTING](index=12&type=section&id=NOTE%202%20%E2%80%93%20SEGMENT%20REPORTING) The Company operates in three reportable segments: Performance Chemicals, Fuel Specialties, and Oilfield Services. Segment performance is evaluated based on operating income, with all segments showing increased net sales and gross profit for both the three and six months ended June 30, 2022, compared to the prior year - Innospec reports financial performance across three segments: Performance Chemicals, Fuel Specialties, and Oilfield Services[35](index=35&type=chunk) Segment Net Sales (in millions) - Three Months Ended June 30 | Segment | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Performance Chemicals | $169.0 | $128.2 | +32% | | Fuel Specialties | $176.4 | $143.1 | +23% | | Oilfield Services | $122.2 | $83.2 | +47% | | **Total Net Sales** | **$467.6** | **$354.5** | **+32%** | Segment Operating Income (in millions) - Three Months Ended June 30 | Segment | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Performance Chemicals | $28.8 | $17.9 | +61% | | Fuel Specialties | $31.5 | $28.5 | +11% | | Oilfield Services | $4.5 | $2.2 | +105% | | Corporate costs | $(18.5) | $(11.6) | +59% | | **Total Operating Income** | **$46.3** | **$37.0** | **+25%** | [NOTE 3 – EARNINGS PER SHARE](index=13&type=section&id=NOTE%203%20%E2%80%93%20EARNINGS%20PER%20SHARE) Basic EPS is calculated based on weighted average common shares outstanding, while diluted EPS includes the effect of dilutive stock options and awards. Both basic and diluted EPS increased significantly for the three and six months ended June 30, 2022, compared to the prior year Earnings Per Share (Unaudited) - Three Months Ended June 30 | Metric | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net income available to common stockholders (in millions) | $32.3 | $22.4 | +44% | | Weighted average common shares outstanding (in thousands) | 24,805 | 24,628 | +0.7% | | Diluted effect of stock options and awards (in thousands) | 166 | 241 | -31% | | Net income per share, basic | $1.30 | $0.91 | +43% | | Net income per share, diluted | $1.29 | $0.90 | +43% | Earnings Per Share (Unaudited) - Six Months Ended June 30 | Metric | 2022 | 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net income available to common stockholders (in millions) | $68.8 | $45.8 | +50% | | Weighted average common shares outstanding (in thousands) | 24,798 | 24,615 | +0.7% | | Diluted effect of stock options and awards (in thousands) | 169 | 241 | -30% | | Net income per share, basic | $2.77 | $1.86 | +49% | | Net income per share, diluted | $2.76 | $1.84 | +50% | [NOTE 4 – GOODWILL](index=13&type=section&id=NOTE%204%20%E2%80%93%20GOODWILL) Goodwill decreased by $7.3 million from January 1, 2022, to June 30, 2022, primarily due to exchange rate effects Goodwill Movements (in millions) | Metric | Amount | | :--- | :--- | | Opening balance at January 1, 2022 | $364.3 | | Exchange effect | $(7.3) | | Closing balance at June 30, 2022 | $357.0 | [NOTE 5 – OTHER INTANGIBLE ASSETS](index=14&type=section&id=NOTE%205%20%E2%80%93%20OTHER%20INTANGIBLE%20ASSETS) Other intangible assets, net of accumulated amortization, decreased to $48.1 million at June 30, 2022, from $295.2 million gross cost at January 1, 2022, primarily due to amortization expense of $7.8 million and negative exchange effects Other Intangible Assets Movements (in millions) - Six Months Ended June 30, 2022 | Metric | Amount | | :--- | :--- | | Gross cost at January 1 | $295.2 | | Exchange effect | $(3.6) | | Gross cost at June 30 | $291.6 | | Accumulated amortization at January 1 | $(237.7) | | Amortization expense | $(7.8) | | Exchange effect | $2.0 | | Accumulated amortization at June 30 | $(243.5) | | Net book amount at June 30 | $48.1 | - Amortization expense for the six months ended June 30, 2022, was **$7.8 million**, slightly lower than $8.0 million in the prior year[38](index=38&type=chunk) [NOTE 6 – PENSION AND POST EMPLOYMENT BENEFITS](index=14&type=section&id=NOTE%206%20%E2%80%93%20PENSION%20AND%20POST%20EMPLOYMENT%20BENEFITS) The Company maintains defined benefit pension plans in the UK and Germany, reporting net periodic benefit credits for the periods, and in May 2022, the UK Plan entered a 'buy-in' agreement to mitigate risk - The Company maintains defined benefit pension plans in the United Kingdom (UK Plan) and Germany (German plan), both closed to future accrual or new entrants[39](index=39&type=chunk) Net Periodic Benefit (in millions) - Three Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net periodic benefit | $0.6 | $0.9 | Net Periodic Benefit (in millions) - Six Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net periodic benefit | $1.3 | $1.7 | - In May 2022, the UK Plan entered a 'buy-in' agreement with Legal and General Assurance Society Limited to match future cash flows from pension liabilities, reducing the UK Plan's value at risk[42](index=42&type=chunk) [NOTE 7 – INCOME TAXES](index=15&type=section&id=NOTE%207%20%E2%80%93%20INCOME%20TAXES) Unrecognized tax benefits, including interest and penalties, totaled $16.3 million at June 30, 2022, while the Company is undergoing tax reviews in the UK and Italy and faces a potential adjustment related to the 2017 Tax Act Unrecognized Tax Benefits and Associated Accrued Interest and Penalties (in millions) | Metric | January 1, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Unrecognized Tax Benefits | $13.2 | $12.9 | | Interest and Penalties | $3.1 | $3.4 | | **Total** | **$16.3** | **$16.3** | - All **$16.3 million** of unrecognized tax benefits, interest, and penalties would impact the effective tax rate if recognized[43](index=43&type=chunk) - The Company has ongoing tax reviews in the UK (Profit Diversion Compliance Facility) and Italy (tax audit for 2011-2014), and a potential **$12.3 million** adjustment related to the 2017 Tax Act[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) [NOTE 8 – LONG-TERM DEBT](index=16&type=section&id=NOTE%208%20%E2%80%93%20LONG-TERM%20DEBT) As of June 30, 2022, the Company had no outstanding debt under its $250.0 million revolving credit facility, which remains available until September 25, 2024, and includes an accordion feature for an additional $125.0 million - The Company had not drawn down on its **$250.0 million** revolving credit facility as of June 30, 2022, which is available until September 25, 2024[49](index=49&type=chunk) - The revolving credit facility includes an accordion feature allowing for an increase of up to **$125.0 million** in total available borrowings[49](index=49&type=chunk) [NOTE 9 – PLANT CLOSURE PROVISIONS](index=16&type=section&id=NOTE%209%20%E2%80%93%20PLANT%20CLOSURE%20PROVISIONS) Plant closure provisions, encompassing environmental remediation and asset retirement obligations, totaled $55.8 million at June 30, 2022, with a $1.9 million accounting accretion charge for the six-month period - The Company has continuing plans to remediate manufacturing facilities and decommission sites, incurring liabilities for environmental remediation and asset retirement obligations[51](index=51&type=chunk) Plant Closure Provisions Movements (in millions) - Six Months Ended June 30, 2022 | Metric | Amount | | :--- | :--- | | Total at January 1 | $56.5 | | Charge for the period | $1.9 | | Utilized in the period | $(1.9) | | Exchange effect | $(0.7) | | **Total at June 30** | **$55.8** | | Due within one year | $(6.6) | | Due after one year | $49.2 | [NOTE 10 – FAIR VALUE MEASUREMENTS](index=17&type=section&id=NOTE%2010%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) The Company's recurring fair value measurements for financial assets and liabilities, including cash, ETS credits, leases, and derivatives, are determined using market pricing or valuation methods such as Black-Scholes or Monte Carlo Fair Value Measurements (in millions) - June 30, 2022 | Item | Carrying Amount | Fair Value | | :--- | :--- | :--- | | Cash and cash equivalents | $71.4 | $71.4 | | Emissions Trading Scheme credits | $3.3 | $3.3 | | Finance leases | $0.0 | $0.0 | | Foreign currency forward exchange contracts | $1.6 | $1.6 | | Stock equivalent units | $24.4 | $24.4 | - Fair values for Emissions Trading Scheme credits are based on open market pricing, while derivatives use current settlement prices and comparable contracts. Stock equivalent units are valued using Black-Scholes or Monte Carlo methods[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) [NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT](index=18&type=section&id=NOTE%2011%20%E2%80%93%20DERIVATIVE%20INSTRUMENTS%20AND%20RISK%20MANAGEMENT) The Company utilizes foreign currency forward exchange contracts with maturities up to twelve months to mitigate currency exchange rate exposure, which are not designated as hedging instruments and generated a $2.4 million gain for the first six months of 2022 - The Company uses foreign currency forward exchange contracts to minimize currency exchange rate exposure from expected future cash flows, with maturities up to twelve months[61](index=61&type=chunk) - These derivative instruments are not designated as hedging instruments and generated a **gain of $2.4 million** for the first six months of 2022, compared to a gain of $0.2 million in the prior year[61](index=61&type=chunk) [NOTE 12 – CONTINGENCIES](index=18&type=section&id=NOTE%2012%20%E2%80%93%20CONTINGENCIES) The Company is involved in various claims and legal proceedings incidental to its business, with no material pending cases, and holds $6.0 million in guarantees for affiliated companies' non-U.S. excise taxes and customs duties - There are no material pending legal proceedings to which the Company or its subsidiaries are a party[62](index=62&type=chunk) - The Company is contingently liable for **$6.0 million** in guarantees for affiliated companies' obligations, primarily non-U.S. excise taxes and customs duties, as of June 30, 2022[63](index=63&type=chunk) [NOTE 13 – STOCK-BASED COMPENSATION PLANS](index=19&type=section&id=NOTE%2013%20%E2%80%93%20STOCK-BASED%20COMPENSATION%20PLANS) Total unrecognized compensation cost for nonvested share-based arrangements was $26.8 million at June 30, 2022, to be recognized over 1.98 years, with compensation costs for stock options and equivalent units increasing for both the three and six months ended June 30, 2022 Stock-Based Compensation Cost (in millions) - Three Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Stock options | $1.5 | $1.3 | | Stock equivalent units | $7.0 | $(1.5) | Stock-Based Compensation Cost (in millions) - Six Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Stock options | $3.2 | $2.9 | | Stock equivalent units | $14.1 | $2.9 | - As of June 30, 2022, there was **$26.8 million** of total unrecognized compensation cost related to nonvested share-based compensation, expected to be recognized over a weighted-average period of **1.98 years**[70](index=70&type=chunk) [NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS](index=20&type=section&id=NOTE%2014%20%E2%80%93%20RECLASSIFICATIONS%20OUT%20OF%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Reclassifications out of accumulated other comprehensive loss (AOCL) totaled $0.5 million net of tax for the first six months of 2022, primarily from pension items, leading to an AOCL balance of $(67.1) million at June 30, 2022, mainly due to negative cumulative translation adjustments Reclassifications out of AOCL (in millions) - Six Months Ended June 30, 2022 | Details about AOCL Components | Amount Reclassified from AOCL | | :--- | :--- | | Amortization of prior service cost | $0.3 | | Amortization of actuarial net losses | $0.3 | | Total before tax | $0.6 | | Income tax expense | $(0.1) | | **Total reclassifications (Net of tax)** | **$0.5** | Changes in Accumulated Other Comprehensive Loss (in millions) - Six Months Ended June 30, 2022 | Metric | Balance at Dec 31, 2021 | Total Other Comprehensive Income/(Loss) | Balance at Jun 30, 2022 | | :--- | :--- | :--- | :--- | | Total AOCL | $(46.9) | $(20.2) | $(67.1) | [NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS](index=22&type=section&id=NOTE%2015%20%E2%80%93%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) The Company has reviewed recently issued accounting pronouncements and determined that none are relevant to its financial statements - The Company concluded that no recently issued accounting pronouncements were relevant to its financial statements[75](index=75&type=chunk) [NOTE 16 – RELATED PARTY TRANSACTIONS](index=22&type=section&id=NOTE%2016%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) The Company engaged in transactions with related parties, including purchasing products from AdvanSix ($0.3 million) where Mr. Patrick S. Williams is a director, incurring legal fees from SGR ($0.1 million) where Mr. Robert I. Paller is associated, and selling scrap metal to EMR ($0.1 million) where Mr. David F. Landless is a director - Purchased **$0.3 million** in products from AdvanSix in the first six months of 2022, a company where Mr. Patrick S. Williams (Innospec's executive director) is a non-executive director[76](index=76&type=chunk) - Incurred **$0.1 million** in fees from Smith, Gambrell & Russell, LLP (SGR) in the first six months of 2022, a law firm with which Mr. Robert I. Paller (Innospec's non-executive director) holds a position[77](index=77&type=chunk) - Sold **$0.1 million** in scrap metal to European Metal Recycling Limited (EMR) in the first six months of 2022, a company where Mr. David F. Landless (Innospec's non-executive director) is a non-executive director[78](index=78&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended June 30, 2022](index=23&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202022) This section provides management's discussion and analysis of the Company's financial condition and results of operations, covering critical accounting estimates, segment performance, and liquidity for the three and six months ended June 30, 2022 [Critical Accounting Estimates](index=23&type=section&id=Critical%20Accounting%20Estimates) The Company's most critical accounting estimates, in terms of complexity and subjectivity, relate to environmental liabilities, pensions, income taxes, goodwill, property, plant and equipment, other intangible assets, and the impact of the COVID-19 pandemic and current economic environment - Critical accounting estimates include environmental liabilities, pensions, income taxes, goodwill, property, plant and equipment, other intangible assets, and the impact of the COVID-19 pandemic and current economic environment[81](index=81&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) The Company's results of operations are reported across three segments: Performance Chemicals, Fuel Specialties, and Oilfield Services. All segments experienced significant net sales growth for both the three and six months ended June 30, 2022, driven by favorable price and product mix, and increased volumes in most regions, despite adverse exchange rate movements in EMEA and ASPAC Net Sales by Segment (in millions) - Three Months Ended June 30 | Segment | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Performance Chemicals | $169.0 | $128.2 | +32% | | Fuel Specialties | $176.4 | $143.1 | +23% | | Oilfield Services | $122.2 | $83.2 | +47% | | **Total** | **$467.6** | **$354.5** | **+32%** | Net Sales by Segment (in millions) - Six Months Ended June 30 | Segment | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Performance Chemicals | $336.1 | $254.1 | +32% | | Fuel Specialties | $368.2 | $282.4 | +30% | | Oilfield Services | $235.7 | $157.6 | +50% | | **Total** | **$940.0** | **$694.1** | **+35%** | [Three months Ended June 30, 2022](index=24&type=section&id=Three%20months%20Ended%20June%2030%20%2C%202022) For the three months ended June 30, 2022, net sales increased by 32% to $467.6 million, and gross profit increased by 29% to $139.8 million. Operating income rose by 25% to $46.3 million. All segments contributed to sales growth, primarily driven by favorable price and product mix, and increased volumes in Americas for Performance Chemicals and Fuel Specialties, and overall Oilfield Services demand Operating Income by Segment (in millions) - Three Months Ended June 30 | Segment | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Performance Chemicals | $28.8 | $17.9 | +61% | | Fuel Specialties | $31.5 | $28.5 | +11% | | Oilfield Services | $4.5 | $2.2 | +105% | | Corporate costs | $(18.5) | $(11.6) | +59% | | **Total Operating Income** | **$46.3** | **$37.0** | **+25%** | [Performance Chemicals (3 months)](index=25&type=section&id=Performance%20Chemicals) Performance Chemicals net sales increased by 32% to $169.0 million, driven by a 6% increase in volume and a 34% increase in price and product mix. Americas saw significant volume growth, while EMEA and ASPAC experienced demand reductions and adverse exchange rate impacts. Gross margin improved by 1.2 percentage points due to a favorable sales mix Performance Chemicals Net Sales Change (%) - Three Months Ended June 30, 2022 | Component | Americas | EMEA | ASPAC | Total | | :--- | :--- | :--- | :--- | :--- | | Volume | +32 | -7 | -19 | +6 | | Price and product mix | +26 | +38 | +34 | +34 | | Exchange rates | — | -13 | -7 | -8 | | **Total Change** | **+58** | **+18** | **+8** | **+32** | - Gross margin for Performance Chemicals increased by **1.2 percentage points**, primarily due to a favorable sales mix from higher margin products[86](index=86&type=chunk) [Fuel Specialties (3 months)](index=25&type=section&id=Fuel%20Specialties) Fuel Specialties net sales increased by 23% to $176.4 million, with a 3% volume increase and a 27% favorable price and product mix. Americas and ASPAC volumes grew due to increased global demand, while EMEA volumes were lower. Gross margin decreased by 2.7 percentage points due to the time lag in passing on higher raw material costs Fuel Specialties Net Sales Change (%) - Three Months Ended June 30, 2022 | Component | Americas | EMEA | ASPAC | AvGas | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Volume | +22 | -12 | +35 | -32 | +3 | | Price and product mix | +38 | +32 | +7 | +2 | +27 | | Exchange rates | — | -15 | -3 | — | -7 | | **Total Change** | **+60** | **+5** | **+39** | **-30** | **+23** | - Gross margin for Fuel Specialties decreased by **2.7 percentage points**, mainly due to the time lag in passing higher raw material costs to selling prices[89](index=89&type=chunk) [Oilfield Services (3 months)](index=26&type=section&id=Oilfield%20Services) Oilfield Services net sales increased by 47% to $122.2 million, driven by continued increase in customer demand, primarily in the Americas. Gross margin slightly increased by 0.2 percentage points due to a favorable sales mix, despite a competitive market - Oilfield Services net sales increased by **$39.0 million**, or **47%**, driven by increased customer demand, primarily in the Americas region[91](index=91&type=chunk) - Gross margin increased by **0.2 percentage points** due to a favorable sales mix, with management maintaining prices in a competitive market[91](index=91&type=chunk) [Other Income Statement Captions (3 months)](index=26&type=section&id=Other%20Income%20Statement%20Captions) Corporate costs increased by $6.9 million due to higher personnel expenses, while other net expense was $(3.6) million, a $7.0 million decrease primarily from foreign exchange losses, and the adjusted effective tax rate decreased to 22.8% due to a lower proportion of profits from higher tax jurisdictions - Corporate costs increased by **$6.9 million**, primarily due to higher personnel-related expenses, including share-based compensation and performance-related remuneration accruals[93](index=93&type=chunk) Other Net (Expense)/Income (in millions) - Three Months Ended June 30 | Item | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net pension credit | $1.2 | $1.4 | $(0.2) | | Foreign exchange (losses)/gains on translation | $(6.4) | $2.9 | $(9.3) | | Foreign currency forward contracts gains/(losses) | $1.6 | $(1.1) | $2.7 | | **Total** | **$(3.6)** | **$3.4** | **$(7.0)** | Effective Tax Rate - Three Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | GAAP effective tax rate | 23.6% | 44.1% | | Adjusted effective tax rate | 22.8% | 24.2% | [Six months Ended June 30, 2022](index=28&type=section&id=Six%20months%20Ended%20June%2030%20%2C%202022) For the six months ended June 30, 2022, net sales increased by 35% to $940.0 million, and gross profit increased by 33% to $279.1 million. Operating income rose by 39% to $90.6 million. All segments showed strong sales growth, driven by increased volumes and favorable price/product mix, despite negative foreign exchange impacts Operating Income by Segment (in millions) - Six Months Ended June 30 | Segment | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Performance Chemicals | $54.1 | $36.2 | +49% | | Fuel Specialties | $67.0 | $52.3 | +28% | | Oilfield Services | $7.0 | $3.4 | +106% | | Corporate costs | $(37.5) | $(26.7) | +40% | | **Total Operating Income** | **$90.6** | **$65.2** | **+39%** | [Performance Chemicals (6 months)](index=29&type=section&id=Performance%20Chemicals) Performance Chemicals net sales increased by 32% to $336.1 million, with a 6% volume increase and a 33% favorable price and product mix. Americas experienced higher demand for personal care products, while EMEA and ASPAC saw reduced demand and adverse exchange rate impacts. Gross margin slightly increased by 0.3 percentage points due to a favorable sales mix Performance Chemicals Net Sales Change (%) - Six Months Ended June 30, 2022 | Component | Americas | EMEA | ASPAC | Total | | :--- | :--- | :--- | :--- | :--- | | Volume | +33 | -8 | -9 | +6 | | Price and product mix | +28 | +36 | +26 | +33 | | Exchange rates | — | -11 | -6 | -7 | | **Total Change** | **+61** | **+17** | **+11** | **+32** | - Gross margin for Performance Chemicals increased by **0.3 percentage points**, primarily due to a favorable sales mix from higher margin products[100](index=100&type=chunk) [Fuel Specialties (6 months)](index=29&type=section&id=Fuel%20Specialties) Fuel Specialties net sales increased by 30% to $368.2 million, driven by a 14% volume increase and a 23% favorable price and product mix. Americas and ASPAC volumes increased due to global demand for refined fuel products. Gross margin decreased by 1.7 percentage points due to the time lag in passing higher raw material costs to selling prices Fuel Specialties Net Sales Change (%) - Six Months Ended June 30, 2022 | Component | Americas | EMEA | ASPAC | AvGas | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Volume | +34 | — | +15 | +8 | +14 | | Price and product mix | +30 | +29 | +10 | -21 | +23 | | Exchange rates | — | -14 | -3 | — | -7 | | **Total Change** | **+64** | **+15** | **+22** | **-13** | **+30** | - Gross margin for Fuel Specialties decreased by **1.7 percentage points**, primarily due to the time lag for passing higher raw material costs through to selling prices[103](index=103&type=chunk) [Oilfield Services (6 months)](index=30&type=section&id=Oilfield%20Services) Oilfield Services net sales increased by 50% to $235.7 million, primarily in the Americas, reflecting increased customer demand. Gross margin increased by 0.3 percentage points due to a favorable sales mix, with management maintaining prices in a competitive market - Oilfield Services net sales increased by **$78.1 million**, or **50%**, driven by increased customer activity, primarily in the Americas region[104](index=104&type=chunk) - Gross margin increased by **0.3 percentage points** due to a favorable sales mix, while management continued to maintain prices in a competitive market[104](index=104&type=chunk) [Other Income Statement Captions (6 months)](index=30&type=section&id=Other%20Income%20Statement%20Captions) Corporate costs increased by $10.8 million due to higher personnel expenses, while other net income was $0.7 million, a $5.7 million decrease primarily from foreign exchange losses, and the adjusted effective tax rate slightly decreased to 23.6% - Corporate costs increased by **$10.8 million**, primarily due to higher personnel-related expenses, including share-based compensation and performance-related remuneration accruals[106](index=106&type=chunk) Other Net Income (in millions) - Six Months Ended June 30 | Item | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net pension credit | $2.5 | $2.6 | $(0.1) | | Foreign exchange (losses)/gains on translation | $(4.2) | $3.4 | $(7.6) | | Foreign currency forward contracts gains | $2.4 | $0.2 | $2.2 | | **Total** | **$0.7** | **$6.4** | **$(5.7)** | Effective Tax Rate - Six Months Ended June 30 | Metric | 2022 | 2021 | | :--- | :--- | :--- | | GAAP effective tax rate | 24.0% | 35.4% | | Adjusted effective tax rate | 23.6% | 23.8% | [Liquidity and Financial Condition](index=32&type=section&id=Liquidity%20and%20Financial%20Condition) The Company's working capital increased by $38.6 million, and adjusted working capital by $116.0 million, driven by higher receivables and inventories, while operating activities used $36.5 million in cash, resulting in a $70.4 million reduction in cash and cash equivalents [Working Capital](index=32&type=section&id=Working%20Capital) Working capital increased by $38.6 million, and adjusted working capital by $116.0 million, in the first six months of 2022, primarily due to increases in trade receivables and inventories, partially offset by higher accounts payable - Working capital increased by **$38.6 million**, and adjusted working capital increased by **$116.0 million** in the first six months of 2022[111](index=111&type=chunk) Working Capital Reconciliation (in millions) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $799.3 | $728.1 | | Total current liabilities | $(369.2) | $(336.6) | | **Working capital** | **$430.1** | **$391.5** | | **Adjusted working capital** | **$380.9** | **$264.9** | - Trade and other accounts receivable increased by **$55.4 million**, and inventories increased by **$84.6 million**, in anticipation of further demand and to manage supply chain risks[113](index=113&type=chunk)[114](index=114&type=chunk) [Operating Cash Flows](index=33&type=section&id=Operating%20Cash%20Flows) The Company used $36.5 million in cash for operating activities in the first six months of 2022, a significant reduction from the $21.6 million cash inflow in the prior year, primarily due to increased working capital to support sales growth - Net cash used in operating activities was **$36.5 million** in the first six months of 2022, compared to cash inflows of $21.6 million in the prior year[117](index=117&type=chunk) - The reduction in cash from operating activities was principally related to the increase in working capital required to support sales growth[117](index=117&type=chunk) [Cash](index=33&type=section&id=Cash) Cash and cash equivalents decreased by $70.4 million to $71.4 million at June 30, 2022, driven by increased working capital, capital investments, and dividend payments Cash and Cash Equivalents (in millions) | Date | Amount | | :--- | :--- | | June 30, 2022 | $71.4 | | December 31, 2021 | $141.8 | | **Net Change** | **$(70.4)** | - The decrease in cash was driven by increased working capital levels, continued investments in capital projects, and the payment of semi-annual dividends[119](index=119&type=chunk) [Debt](index=33&type=section&id=Debt) As of June 30, 2022, the Company had no debt outstanding under its revolving credit facility and no obligations under finance leases, a reduction from $0.1 million at December 31, 2021 - As of June 30, 2022, the Company had no debt outstanding under its revolving credit facility and no obligations under finance leases[120](index=120&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Company faces market risks from floating rate debt, non-U.S. operations, and fluctuations in interest and foreign currency exchange rates, which are managed using derivative instruments like interest rate and foreign currency forward exchange contracts, not for trading purposes - The Company is subject to market risks from floating rate debt, non-U.S. activities (political/economic uncertainty, import/export limitations), and changes in interest rates and foreign currency exchange rates[122](index=122&type=chunk) - Derivatives, such as interest rate swaps, commodity swaps, and foreign currency forward exchange contracts, are used as risk management tools to manage market risks and are not for trading purposes[123](index=123&type=chunk)[124](index=124&type=chunk) - There have been no significant changes to the Company's exposure to market risk since the 2021 Annual Report on Form 10-K[125](index=125&type=chunk) [Item 4 Controls and Procedures](index=35&type=section&id=Item%204%20Controls%20and%20Procedures) The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022, ensuring timely and accurate reporting, with no material changes to internal control over financial reporting during the period - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[126](index=126&type=chunk) - No material changes to internal control over financial reporting were identified during the period[128](index=128&type=chunk) PART II OTHER INFORMATION [Item 1 Legal Proceedings](index=36&type=section&id=Item%201%20Legal%20Proceedings) The Company is involved in various claims and legal proceedings incidental to its business, with no material pending cases, though an adverse resolution of numerous individual claims could significantly impact results - The Company is involved in claims and legal proceedings incidental to its business, but there are no material pending legal proceedings[129](index=129&type=chunk) [Item 1A Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes in the risk factors facing the Company since those disclosed in the 2021 Form 10-K and the Form 10-Q for the quarter ended March 31, 2022 - No material changes in risk factors have occurred since the 2021 Form 10-K and the Form 10-Q for the quarter ended March 31, 2022[130](index=130&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities, and the Company repurchased 18,700 common shares during the quarter ended June 30, 2022, as part of a $50 million program with $47.3 million remaining - No unregistered sales of equity securities occurred during the period[131](index=131&type=chunk) Issuer Purchases of Equity Securities - Quarter Ended June 30, 2022 | Period | Total shares purchased | Average price paid per share | | :--- | :--- | :--- | | April 1, 2022 through April 30, 2022 | 10,000 | $94.2 | | May 1, 2022 through May 31, 2022 | 8,700 | $94.0 | | **Total** | **18,700** | **$94.1** | Share Repurchase Program Status | Metric | Amount | | :--- | :--- | | Total announced plan | $50 million | | Approximate dollar value remaining | $47.3 million | [Item 3 Defaults Upon Senior Securities](index=37&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities - No defaults upon senior securities were reported[136](index=136&type=chunk) [Item 4 Mine Safety Disclosures](index=37&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[137](index=137&type=chunk) [Item 5 Other Information](index=37&type=section&id=Item%205%20Other%20Information) No other information was reported under this item - No other information was disclosed under this item[138](index=138&type=chunk) [Item 6 Exhibits](index=37&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL-related documents - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL instance and cover page interactive data files (101, 104)[141](index=141&type=chunk) SIGNATURES - The report was signed on August 3, 2022, by Patrick S. Williams, President and Chief Executive Officer, and Ian P. Cleminson, Executive Vice President and Chief Financial Officer[142](index=142&type=chunk)