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)

Innospec Inc. (NASDAQ:IOSP) Q1 2022 Earnings Conference Call May 4, 2022 9:00 AM ET Company Participants Patrick Williams - President and Chief Executive Officer Ian Cleminson - Executive Vice President and Chief Financial Officer David Jones - Senior Vice President and Chief Compliance Officer Conference Call Participants Mike Harrison - Seaport Research Partners Jon Tanwanteng - CJS Securities David Silver - CL King & Associates Chris Shaw - Monness, Crespi, Hardt & Co. David Jones Thank you. Late yesterd ...

Q1 2022 Earnings 1 May 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 forward-looking statements include statements (covered by words like "expects," "estimates," "anticipates," "may," "could," "believes," "feels," "plans," "intends" or sim ...

[PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited interim financial statements, management's analysis, market risk disclosures, and internal controls [Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements) The company reported significant year-over-year growth in net sales and net income for Q1 2022, with total assets increasing to **$1.62 billion**, despite negative operating cash flow due to working capital increases Condensed Consolidated Statements of Income (Q1 2022 vs Q1 2021) | (in millions, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net sales** | $472.4 | $339.6 | | **Gross profit** | $139.3 | $100.8 | | **Operating income** | $44.3 | $28.2 | | **Net income** | $36.5 | $23.4 | | **Diluted EPS** | $1.46 | $0.94 | Condensed Consolidated Balance Sheet Highlights | (in millions) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total current assets** | $778.6 | $728.1 | | **Total assets** | $1,623.8 | $1,570.9 | | **Total current liabilities** | $352.3 | $336.6 | | **Total liabilities** | $554.9 | $537.9 | | **Total equity** | $1,068.9 | $1,033.0 | Condensed Consolidated Statements of Cash Flows (Q1 2022 vs Q1 2021) | (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net cash (used in)/provided by operating activities** | $(29.0) | $22.7 | | **Net cash used in investing activities** | $(8.4) | $(10.3) | | **Net cash provided by/(used in) financing activities** | $0.9 | $(0.3) | | **Net change in cash and cash equivalents** | $(36.2) | $11.7 | [Notes To The Unaudited Interim Condensed Consolidated Financial Statements](index=11&type=page&id=Notes%20To%20The%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes reveal strong segment revenue growth, an undrawn **$250 million** credit facility, **$16.3 million** in unrecognized tax benefits, and **$8.8 million** in share-based compensation costs Segment Net Sales and Operating Income (Q1 2022 vs Q1 2021) | (in millions) | Net Sales 2022 | Net Sales 2021 | Operating Income 2022 | Operating Income 2021 | | :--- | :--- | :--- | :--- | :--- | | **Performance Chemicals** | $167.1 | $125.9 | $25.3 | $18.3 | | **Fuel Specialties** | $191.8 | $139.3 | $35.5 | $23.8 | | **Oilfield Services** | $113.5 | $74.4 | $2.5 | $1.2 | | **Corporate costs** | - | - | $(19.0) | $(15.1) | - The company has an available **$250.0 million** revolving credit facility expiring in September 2024, which was undrawn as of March 31, 2022[46](index=46&type=chunk) - Total unrecognized tax benefits, including interest and penalties, amounted to **$16.3 million** as of March 31, 2022, covering potential liabilities from a UK PDCF review, an Italian tax audit, and a 2017 U.S. Tax Act adjustment[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Share-based compensation costs for Q1 2022 totaled **$8.8 million**, consisting of **$1.7 million** for stock options and **$7.1 million** for stock equivalent units[62](index=62&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&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%202022) Management attributes **39%** revenue growth to strong segment performance and favorable pricing, with increased working capital leading to negative operating cash flow, while maintaining strong liquidity Overall Performance Change (Q1 2022 vs Q1 2021) | (in millions) | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $472.4 | $339.6 | $132.8 | 39% | | **Gross profit** | $139.3 | $100.8 | $38.5 | 38% | | **Operating income** | $44.3 | $28.2 | $16.1 | 57% | - Adjusted working capital increased by **$79.9 million** in Q1 2022, primarily due to a **$53.2 million** increase in trade receivables and a **$30.6 million** increase in inventories to support higher sales and mitigate supply chain risks[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Operating activities used **$29.0 million** in cash in Q1 2022, a significant decrease from the **$22.7 million** generated in Q1 2021, mainly due to the increase in working capital needed to support sales growth[98](index=98&type=chunk) [Results of Operations](index=23&type=page&id=Results%20of%20Operations) All segments achieved substantial year-over-year net sales growth driven by volume and price/mix, with gross margins stable and operating expenses rising in line with business activity - Performance Chemicals sales grew **33%** YoY, driven by a **7%** volume increase (led by the Americas) and a **32%** improvement in price/mix, partially offset by a **6%** negative currency impact[79](index=79&type=chunk)[80](index=80&type=chunk) - Fuel Specialties sales increased **38%** YoY, fueled by a **23%** volume growth as global fuel demand recovered and a **21%** positive price/mix effect, partially offset by a **6%** negative currency impact[79](index=79&type=chunk)[82](index=82&type=chunk) - Oilfield Services sales surged **53%** YoY to **$113.5 million**, driven by increased customer demand in the Americas amid high crude oil prices[79](index=79&type=chunk)[85](index=85&type=chunk) - The adjusted effective tax rate for Q1 2022 was **24.3%**, up from **23.2%** in Q1 2021, primarily because a higher proportion of profits were generated in higher tax jurisdictions[90](index=90&type=chunk)[91](index=91&type=chunk) [Liquidity and Financial Condition](index=28&type=page&id=Liquidity%20and%20Financial%20Condition) Despite a decrease in cash to **$105.6 million** due to increased working capital for sales support, the company maintains a solid liquidity position with no outstanding debt on its revolving credit facility Working Capital Analysis | (in millions) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Working capital** | $426.3 | $391.5 | | **Adjusted working capital** | $344.8 | $264.9 | - Cash and cash equivalents decreased by **$36.2 million** during the quarter to **$105.6 million**, primarily due to increased working capital levels[99](index=99&type=chunk) - As of March 31, 2022, the company had no debt outstanding under its revolving credit facility[100](index=100&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=30&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages market risks from interest rates, foreign currency, and commodity prices using derivatives for hedging, with no significant changes in exposure since the 2021 Form 10-K - The company uses derivatives, including interest rate swaps, commodity swaps, and foreign currency forward contracts, to manage market risks in the normal course of business[102](index=102&type=chunk) - The objective of managing foreign currency exchange rate exposure is to reduce earnings and cash flow volatility[102](index=102&type=chunk) - There have been no significant changes in the company's market risk exposure since the 2021 Form 10-K[104](index=104&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[105](index=105&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[107](index=107&type=chunk) [PART II OTHER INFORMATION](index=32&type=section&id=PART%20II%20OTHER%20INFORMATION) This section covers legal proceedings, updated risk factors, equity security sales, and required exhibits [Legal Proceedings](index=32&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in various incidental legal claims, but there are no material pending legal proceedings against the company or its subsidiaries - There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party[108](index=108&type=chunk) [Risk Factors](index=32&type=page&id=Item%201A%20Risk%20Factors) New material risks from the Russian invasion of Ukraine, impacting raw materials, sales, distribution, and energy costs, have emerged, with no other significant changes since the 2021 Form 10-K - A new material risk factor has emerged from the Russian invasion of Ukraine, which could potentially affect raw material imports, product sales, and distribution costs[109](index=109&type=chunk) - Wider implications of the conflict include higher energy and utility costs, especially in Europe, and other negative impacts such as supply chain disruptions, currency volatility, and heightened cybersecurity threats[109](index=109&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company had no unregistered equity sales but repurchased **10,237** shares under a new **$50 million** program, with **$49.1 million** remaining for future repurchases - On February 15, 2022, the Company announced a new share repurchase plan for up to **$50 million** of its common stock over a three-year period[113](index=113&type=chunk) Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid | Approx. Dollar Value Remaining | | :--- | :--- | :--- | :--- | | **Total** | 10,237 | $93.27 | $49.1 million | [Exhibits](index=33&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[120](index=120&type=chunk)

innospec� chemistry matters Q4 2021 Earnings FEBRUARY 2022 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 forward-looking statements include statements (covered by words like "expects," "estimates," "anticipates," "may," "could," "believes," "feels," "pla ...

Financial Data and Key Metrics Changes - Total revenues for Q4 2021 were $413.2 million, a 33% increase from $310.8 million in Q4 2020, driven by recovering demand across all businesses [8] - Full-year total revenues reached $1.5 billion, up 24% from $1.2 billion in 2020 [9] - EBITDA for Q4 was $44.8 million, compared to $40.2 million in the previous year [8] - Net income for Q4 was $23.9 million, up from $22.6 million a year ago [8] - Full-year net income was $93.1 million, significantly higher than $28.7 million in 2020 [9] - GAAP earnings per share for the full year were $3.75, including special items that decreased earnings by $1.05 per share [9] Business Line Data and Key Metrics Changes - Performance Chemicals revenues for Q4 were $138.4 million, up 21% from $114.6 million in Q4 2020 [9] - Fuel Specialties revenues for Q4 were $179.5 million, a 30% increase from $138.3 million a year ago [10] - Oilfield Services revenues for Q4 were $95.3 million, up 65% from $57.9 million in the same quarter last year [11] - Full-year revenues for Performance Chemicals were $525.3 million, a 23% increase from $425.4 million [10] - Full-year revenues for Fuel Specialties were $618.3 million, up 21% from the previous year [11] - Full-year revenues for Oilfield Services were $339.8 million, a 33% increase from $255 million in 2020 [12] Market Data and Key Metrics Changes - Gross margins for Q4 decreased to 27.3%, down 2 percentage points from the previous year [8] - Performance Chemicals gross margins were 21.4%, down 2.4 percentage points compared to 23.8% in Q4 2020 [10] - Fuel Specialties gross margins were 27.4%, compared to 31.4% in the same quarter last year [11] - Oilfield Services gross margins improved to 35.9%, up 0.8 percentage points from 35.1% a year ago [11] Company Strategy and Development Direction - The company is focused on innovation and growth across all business lines, with a $70 million organic growth investment plan in place [5][15] - A new $50 million share repurchase program has been approved to enhance shareholder value [4][15] - The company aims to address sustainability and high-performance demands in its technology offerings [6][14] - Continued emphasis on cash management and working capital efficiency is noted, with a net cash position of $141.7 million [12][15] Management's Comments on Operating Environment and Future Outlook - Management expects tight supply chain conditions and elevated cost inflation to persist into 2022 [14] - There is cautious optimism that these conditions will moderate in the coming quarters [14] - The company is well-positioned for continued growth and margin expansion across all businesses [14] - Further price increases have been announced across all business lines for Q1 2022 [14] Other Important Information - The adjusted effective tax rate for the full year was 22.7%, with an expectation of 24% for 2022 [13] - Cash generated from operations for Q4 was $68.8 million, with a total dividend for the full year of $1.16 per share, a 12% increase over 2020 [12][13] Q&A Session Summary Question: Expectations for pricing versus volume in revenue growth - Management expects high single-digit growth in Performance Chemicals primarily from volume, while Fuel Specialties may see low single-digit growth with some price inflation [18][19] Question: Operating expenses and wage inflation - The company is experiencing wage inflation and is taking actions to attract and retain talent, which will add pressure on operating margins [21] Question: Buyback authorization strategy - The buyback program is both opportunistic and a measure to prevent dilution, with a balanced capital allocation strategy in place [22][23] Question: Breakdown of the $70 million investment - The investment will focus on personal care markets, with additional capacity expansions in home care, agriculture, and industrial sectors [24][25]

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, 2021 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 othe ...

Innospec Inc. (NASDAQ:IOSP) Q3 2021 Earnings Conference Call November 3, 2021 10:00 AM ET Company Participants David Jones - VP, General Counsel, Chief Compliance Officer and Corporate Secretary Patrick Williams - President and CEO Ian Cleminson - EVP and CFO Conference Call Participants Stefanos Crist - CJS Securities David Silver - CL King & Associates David Jones Hello, this is David Jones and I'm Innospec's General Counsel and Chief Compliance Officer. Yesterday, we reported our financial results for th ...

[Cautionary Statement Relative to Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20STATEMENT%20RELATIVE%20TO%20FORWARD-LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements, emphasizing that actual results may differ due to various risks - This section outlines the nature of forward-looking statements, emphasizing that actual results may differ due to various risks, including the effects of the COVID-19 pandemic. It advises reviewing the 'Risk Factors' section in the Annual Report on Form 10-K for further details[11](index=11&type=chunk) [PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited interim condensed consolidated financial statements and management's discussion and analysis [Item 1 Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements) This section presents Innospec Inc.'s unaudited interim condensed consolidated financial statements, highlighting significant improvements in net income and EPS [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This statement details the company's revenues, costs, and net income for the three and nine months ended September 30, 2021 and 2020 Condensed Consolidated Statements of Income (Three Months Ended September 30) | (in millions, except share and per share data) | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $ 376.1 | $ 265.1 | | Cost of goods sold | (263.2) | (186.4) | | Gross profit | 112.9 | 78.7 | | Operating income | 31.4 | 16.8 | | Income before income tax expense | 30.8 | 20.2 | | Net income | $ 23.4 | $ 12.7 | | Basic EPS | $ 0.95 | $ 0.52 | | Diluted EPS | $ 0.94 | $ 0.51 | Condensed Consolidated Statements of Income (Nine Months Ended September 30) | (in millions, except share and per share data) | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $1,070.2 | $ 882.3 | | Cost of goods sold | (748.2) | (630.6) | | Gross profit | 322.0 | 251.7 | | Operating income | 96.6 | 4.3 | | Income before income tax expense | 101.7 | 10.6 | | Net income | $ 69.2 | $ 6.1 | | Basic EPS | $ 2.81 | $ 0.25 | | Diluted EPS | $ 2.78 | $ 0.25 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components, showing total comprehensive income for the periods Condensed Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $ 23.4 | $ 12.7 | | Total other comprehensive income/(loss) | (6.4) | 12.1 | | Total comprehensive income | $ 17.0 | $ 24.8 | Condensed Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net income | $ 69.2 | $ 6.1 | | Total other comprehensive income/(loss) | (12.6) | 10.1 | | Total comprehensive income | $ 56.6 | $ 16.2 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (as of September 30, 2021 and December 31, 2020) | (in millions) | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets:** | | | | Cash and cash equivalents | $ 89.2 | $ 105.3 | | Trade and other accounts receivable | 302.8 | 221.4 | | Total inventories | 274.1 | 220.0 | | Total current assets | 683.0 | 566.2 | | Total assets | $ 1,492.4 | $ 1,397.4 | | **Liabilities & Equity:** | | | | Accounts payable | $ 137.1 | $ 98.7 | | Accrued liabilities | 147.6 | 129.8 | | Total current liabilities | 308.3 | 252.4 | | Total liabilities and equity | $ 1,492.4 | $ 1,397.4 | | Total Innospec stockholders' equity | 992.5 | 944.4 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30 Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 24.4 | $ 87.7 | | Net cash used in investing activities | (27.0) | (21.7) | | Net cash used in financing activities | (13.2) | (74.8) | | Net change in cash and cash equivalents | (16.1) | (9.1) | | Cash and cash equivalents at end of period | $ 89.2 | $ 66.6 | [Condensed Consolidated Statements of Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This statement outlines changes in Innospec stockholders' equity, including net income and dividends, for the nine months ended September 30 Condensed Consolidated Statements of Equity (Nine Months Ended September 30, 2021) | (in millions) | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non Controlling Interest | Total Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2020 | $ 0.3 | $ 336.1 | $ (93.3) | $ 758.6 | $ (57.3) | $ 0.5 | $ 944.9 | | Net income | | | | 69.2 | | | 69.2 | | Dividend paid | | | | (14.0) | | | (14.0) | | Balance at Sep 30, 2021 | $ 0.3 | $ 341.3 | $ (93.0) | $ 813.8 | $ (69.9) | $ 0.6 | $ 993.1 | Condensed Consolidated Statements of Equity (Nine Months Ended September 30, 2020) | (in millions) | Common Stock | Additional Paid-In Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Loss | Non Controlling Interest | Total Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2019 | $ 0.3 | $ 330.4 | $ (93.3) | $ 755.5 | $ (74.4) | $ 0.4 | $ 918.9 | | Net income | | | | 6.1 | | | 6.1 | | Dividend paid | | | | (12.8) | | | (12.8) | | Balance at Sep 30, 2020 | $ 0.3 | $ 334.4 | $ (93.7) | $ 748.8 | $ (64.3) | $ 0.5 | $ 926.0 | [Notes To The Unaudited Interim Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20To%20The%20Unaudited%20Interim%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes supporting the unaudited interim condensed consolidated financial statements [NOTE 1 – BASIS OF PRESENTATION](index=12&type=section&id=NOTE%201%20%E2%80%93%20BASIS%20OF%20PRESENTATION) This note clarifies that the interim financial statements are prepared under GAAP and should be read with the 2020 Annual Report - The unaudited interim condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and should be read in conjunction with the Company's 2020 Annual Report on Form 10-K[33](index=33&type=chunk)[34](index=34&type=chunk) [NOTE 2 – SEGMENT REPORTING](index=13&type=section&id=NOTE%202%20%E2%80%93%20SEGMENT%20REPORTING) This note details financial performance across Fuel Specialties, Performance Chemicals, and Oilfield Services segments, noting the Octane Additives cessation - The Company reports financial performance across three segments: Fuel Specialties, Performance Chemicals, and Oilfield Services. The Octane Additives segment ceased trading in Q2 2020[36](index=36&type=chunk) Segment Net Sales (Three Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Fuel Specialties | $ 156.4 | $ 120.0 | | Performance Chemicals | 132.8 | 102.0 | | Oilfield Services | 86.9 | 43.1 | | **Total Net Sales** | **$ 376.1** | **$ 265.1** | Segment Operating Income (Nine Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Fuel Specialties | $ 78.9 | $ 59.0 | | Performance Chemicals | 54.0 | 40.2 | | Oilfield Services | 6.1 | (9.7) | | Octane Additives | 0.0 | (2.8) | | Corporate costs | (42.4) | (41.5) | | **Total Operating Income** | **$ 96.6** | **$ 4.3** | [NOTE 3 – EARNINGS PER SHARE](index=14&type=section&id=NOTE%203%20%E2%80%93%20EARNINGS%20PER%20SHARE) This note provides the calculation of basic and diluted earnings per share for the nine months ended September 30 Earnings Per Share Calculation (Nine Months Ended September 30) | (in millions, except per share data) | 2021 | 2020 | | :--- | :--- | :--- | | Net income available to common stockholders | $ 69.2 | $ 6.1 | | Weighted average common shares outstanding (in thousands) | 24,624 | 24,555 | | Dilutive effect of stock options and awards (in thousands) | 248 | 203 | | Diluted EPS denominator (in thousands) | 24,872 | 24,758 | | Net income per share, basic | $ 2.81 | $ 0.25 | | Net income per share, diluted | $ 2.78 | $ 0.25 | [NOTE 4 – GOODWILL](index=14&type=section&id=NOTE%204%20%E2%80%93%20GOODWILL) This note details the movements in goodwill, including the opening balance, exchange effects, and closing balance Goodwill Movements (in millions) | | Gross Cost | | :--- | :--- | | Opening balance at January 1, 2021 | $ 371.2 | | Exchange effect | (5.2) | | Closing balance at September 30, 2021 | $ 366.0 | [NOTE 5 – OTHER INTANGIBLE ASSETS](index=15&type=section&id=NOTE%205%20%E2%80%93%20OTHER%20INTANGIBLE%20ASSETS) This note presents the gross cost, accumulated amortization, and net book amount of other intangible assets by category Other Intangible Assets Movements (in millions) | | 2021 | | :--- | :--- | | Gross cost at January 1 | $ 298.9 | | Exchange effect | (2.8) | | Gross cost at September 30 | 296.1 | | Accumulated amortization at January 1 | (223.6) | | Amortization expense | (12.0) | | Exchange effect | 1.4 | | Accumulated amortization at September 30 | (234.2) | | Net book amount at September 30 | $ 61.9 | Net Book Amount by Category of Other Intangible Assets (in millions) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Product rights | $ 3.5 | $ 6.3 | | Brand names | 1.8 | 2.3 | | Technology | 18.0 | 19.8 | | Customer relationships | 36.9 | 44.2 | | Internally developed software | 1.7 | 2.7 | | **Total** | **$ 61.9** | **$ 75.3** | [NOTE 6 – PENSION AND POST EMPLOYMENT BENEFITS](index=16&type=section&id=NOTE%206%20%E2%80%93%20PENSION%20AND%20POST%20EMPLOYMENT%20BENEFITS) This note describes the company's defined benefit pension plans and the net periodic benefit for the nine months - The Company maintains defined benefit pension plans in the UK and Germany, both closed to future accrual or new entrants[42](index=42&type=chunk)[43](index=43&type=chunk) - The net periodic benefit for the nine months ended September 30, 2021, was **$2.5 million**, down from **$3.2 million** in 2020[44](index=44&type=chunk) Net Periodic Benefit (Nine Months Ended September 30) | (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Service cost | $ (1.4) | $ (1.0) | | Interest cost on projected benefit obligation | (5.7) | (8.5) | | Expected return on plan assets | 11.7 | 13.3 | | Amortization of prior service credit/(cost) | (0.2) | 0.6 | | Amortization of actuarial net losses | (1.9) | (1.2) | | **Net periodic benefit** | **$ 2.5** | **$ 3.2** | [NOTE 7 – INCOME TAXES](index=17&type=section&id=NOTE%207%20%E2%80%93%20INCOME%20TAXES) This note details unrecognized tax benefits, associated interest and penalties, and their potential impact on the effective tax rate Unrecognized Tax Benefits and Associated Accrued Interest and Penalties (in millions) | | Unrecognized Tax Benefits | Interest and Penalties | Total | | :--- | :--- | :--- | :--- | | Opening balance at January 1, 2021 | $ 13.6 | $ 2.4 | $ 16.0 | | Net change for tax positions of prior periods | (0.2) | 0.6 | 0.4 | | Closing balance at September 30, 2021 | $ 13.4 | $ 3.0 | $ 16.4 | - All **$16.4 million** of unrecognized tax benefits, interest, and penalties would impact the effective tax rate if recognized[46](index=46&type=chunk) - The Company is subject to ongoing tax audits and potential adjustments related to the Tax Cuts and Jobs Act[47](index=47&type=chunk)[48](index=48&type=chunk) [NOTE 8 – LONG-TERM DEBT](index=18&type=section&id=NOTE%208%20%E2%80%93%20LONG-TERM%20DEBT) This note confirms no drawdowns on the revolving credit facility and details deferred finance costs as of September 30, 2021 - As of September 30, 2021, the Company had not drawn down on its **$250.0 million** revolving credit facility, which is available until September 25, 2024[50](index=50&type=chunk) - Deferred finance costs were **$1.1 million**[51](index=51&type=chunk) [NOTE 9 – PLANT CLOSURE PROVISIONS](index=18&type=section&id=NOTE%209%20%E2%80%93%20PLANT%20CLOSURE%20PROVISIONS) This note outlines provisions for plant closure and environmental remediation, primarily at the Ellesmere Port site - The Company has provisions for plant closure and environmental remediation, primarily at its Ellesmere Port site[52](index=52&type=chunk)[53](index=53&type=chunk) - Total provisions at September 30, 2021, were **$56.5 million**, with **$5.7 million** due within one year[54](index=54&type=chunk) Movements in Plant Closure Provisions (in millions) | | 2021 | | :--- | :--- | | Total at January 1 | $58.5 | | Charge for the period | 2.8 | | Utilized in the period | (4.3) | | Exchange effect | (0.5) | | Total at September 30 | 56.5 | | Due within one year | (5.7) | | Due after one year | $50.8 | [NOTE 10 – FAIR VALUE MEASUREMENTS](index=19&type=section&id=NOTE%2010%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS) This note presents the fair values of financial assets and liabilities, including cash, derivatives, and stock equivalent units Fair Values of Financial Assets and Liabilities (in millions) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $ 89.2 | $ 105.3 | | Foreign currency forward exchange contracts | 0.4 | 0.0 | | **Liabilities** | | | | Finance leases | 0.0 | 0.6 | | Foreign currency forward exchange contracts | 0.0 | 0.5 | | Stock equivalent units | 17.9 | 17.2 | [NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT](index=20&type=section&id=NOTE%2011%20%E2%80%93%20DERIVATIVE%20INSTRUMENTS%20AND%20RISK%20MANAGEMENT) This note explains the use of foreign currency forward exchange contracts to manage currency risk, not for hedging - The Company uses foreign currency forward exchange contracts to minimize currency exchange rate exposure, with maturities up to twelve months[60](index=60&type=chunk) - These contracts are not designated as hedging instruments and resulted in a gain of **$0.9 million** for the first nine months of 2021[60](index=60&type=chunk) [NOTE 12 – CONTINGENCIES](index=20&type=section&id=NOTE%2012%20%E2%80%93%20CONTINGENCIES) This note states the company is involved in routine legal claims but has no material pending legal proceedings - The Company is involved in incidental legal proceedings but has no material pending legal proceedings[61](index=61&type=chunk) - Guarantees of affiliated companies' obligations amounted to **$8.6 million** as of September 30, 2021[62](index=62&type=chunk) [NOTE 13 – STOCK-BASED COMPENSATION PLANS](index=21&type=section&id=NOTE%2013%20%E2%80%93%20STOCK-BASED%20COMPENSATION%20PLANS) This note details transactions and compensation costs related to stock option and stock equivalent unit plans Stock Option Plan Transactions (Nine Months Ended September 30, 2021) | | Number of Options | Weighted Average Exercise Price | Weighted Average Grant-Date Fair Value | | :--- | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 442,893 | $ 32.49 | $ 45.31 | | Granted | 92,284 | $ 10.85 | $ 85.90 | | Exercised | (56,508) | $ 34.57 | $ 37.45 | | Forfeited | (19,023) | $ 20.46 | $ 63.56 | | Outstanding at September 30, 2021 | 459,646 | $ 28.44 | $ 53.64 | - Stock option compensation cost for the first nine months of 2021 was **$4.6 million**[68](index=68&type=chunk) - Total intrinsic value of options exercised was **$1.8 million**[68](index=68&type=chunk) - Unrecognized compensation cost is **$8.8 million**, to be recognized over **2.02 years**[68](index=68&type=chunk) Stock Equivalent Units (SEUs) Transactions (Nine Months Ended September 30, 2021) | | Number of SEUs | Weighted Average Exercise Price | Weighted Average Grant-Date Fair Value | | :--- | :--- | :--- | :--- | | Outstanding at December 31, 2020 | 390,164 | $ 4.35 | $ 63.96 | | Granted | 97,954 | $ 0.00 | $ 90.00 | | Exercised | (35,384) | $ 13.93 | $ 45.20 | | Forfeited | (25,290) | $ 2.40 | $ 66.53 | | Outstanding at September 30, 2021 | 427,444 | $ 3.57 | $ 71.22 | - SEU compensation for the first nine months of 2021 was a **$3.4 million** charge (compared to a **$4.9 million** credit in 2020)[71](index=71&type=chunk) - The total intrinsic value of SEUs exercised was **$1.6 million**[72](index=72&type=chunk) - The weighted-average remaining vesting period is **1.89 years**[72](index=72&type=chunk) [NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS](index=23&type=section&id=NOTE%2014%20%E2%80%93%20RECLASSIFICATIONS%20OUT%20OF%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This note details reclassifications from accumulated other comprehensive loss, primarily related to pension plan items Reclassifications from AOCL (Nine Months Ended September 30, 2021) | Details about AOCL Components | Amount Reclassified from AOCL (in millions) | | :--- | :--- | | Amortization of prior service cost | $ 0.2 | | Amortization of actuarial net losses | 1.9 | | **Total reclassifications (Net of tax)** | **$ 1.9** | Changes in Accumulated Other Comprehensive Loss (Nine Months Ended September 30, 2021) | (in millions) | Defined Benefit Pension Plan Items | Cumulative Translation Adjustments | Total | | :--- | :--- | :--- | :--- | | Balance at December 31, 2020 | $ (19.9) | $ (37.4) | $ (57.3) | | Total other comprehensive income | 1.9 | (14.5) | (12.6) | | Balance at September 30, 2021 | $ (18.0) | $ (51.9) | $ (69.9) | [NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS](index=25&type=section&id=NOTE%2015%20%E2%80%93%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) This note confirms that recently issued accounting pronouncements have no relevant impact on the company's financial statements - The Company reviewed recently issued accounting pronouncements and concluded there were no matters relevant to its financial statements[76](index=76&type=chunk) [NOTE 16 – RELATED PARTY TRANSACTIONS](index=25&type=section&id=NOTE%2016%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with related parties, including purchases, fees, and sales involving company directors - The Company engaged in transactions with AdvanSix (**$0.3 million** purchases), Smith, Gambrell & Russell, LLP (**$0.1 million** fees), and European Metal Recycling Limited (**$0.5 million** scrap metal sales), all involving directors[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Nine Months Ended September 30, 2021](index=26&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20for%20the%20Three%20and%20Nine%20Months%20Ended%20September%2030%2C%202021) This section provides a detailed analysis of Innospec's financial performance, condition, and critical accounting estimates [Critical Accounting Estimates](index=26&type=section&id=Critical%20Accounting%20Estimates) This section identifies key critical accounting estimates, including environmental liabilities, pensions, income taxes, and goodwill - Key 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[82](index=82&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's net sales and gross profit performance across segments for the three and nine months ended September 30 - The Company's financial performance is reported across three segments: Fuel Specialties, Performance Chemicals, and Oilfield Services[83](index=83&type=chunk) - The Octane Additives segment ceased trading in Q2 2020[83](index=83&type=chunk) [Three Months Ended September 30, 2021](index=27&type=section&id=Three%20Months%20Ended%20September%2030%2C%202021) This section details the financial performance of each segment for the three months ended September 30, 2021 Net Sales and Gross Profit by Segment (Three Months Ended September 30) | (in millions, except ratios) | 2021 | 2020 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net sales:** | | | | | | Fuel Specialties | $ 156.4 | $ 120.0 | $ 36.4 | +30% | | Performance Chemicals | 132.8 | 102.0 | 30.8 | +30% | | Oilfield Services | 86.9 | 43.1 | 43.8 | +102% | | **Total** | **$ 376.1** | **$ 265.1** | **$111.0** | **+42%** | | **Gross profit:** | | | | | | Fuel Specialties | $ 49.1 | $ 40.3 | $ 8.8 | +22% | | Performance Chemicals | 32.6 | 24.0 | 8.6 | +36% | | Oilfield Services | 31.2 | 14.4 | 16.8 | +117% | | **Total** | **$ 112.9** | **$ 78.7** | **$ 34.2** | **+43%** | [Fuel Specialties](index=28&type=section&id=Fuel%20Specialties) Net sales increased by 30% YoY, driven by volume growth, though gross margin decreased due to mix and raw material costs - Net sales increased by **30% YoY**, driven by a **17% increase in volume** as global demand for refined fuel products returned to near pre-pandemic levels[85](index=85&type=chunk)[86](index=86&type=chunk) - Gross margin decreased by **2.2 percentage points** due to an adverse sales mix and a time lag in passing on higher raw material costs[87](index=87&type=chunk) [Performance Chemicals](index=28&type=section&id=Performance%20Chemicals) Net sales increased by 30% YoY, with volumes up 10%, and gross margin improved due to higher volumes and favorable mix - Net sales increased by **30% YoY**, with volumes up **10%** driven by increased demand for Personal Care products in the Americas and recovery in EMEA[85](index=85&type=chunk)[89](index=89&type=chunk) - Gross margin increased by **1.0 percentage point** due to higher volumes and a favorable sales mix[91](index=91&type=chunk) [Oilfield Services](index=29&type=section&id=Oilfield%20Services) Net sales surged by 102% YoY due to increased customer demand, with gross margin improving from favorable mix and maintained prices - Net sales surged by **102% YoY**, driven by continued customer demand growth in the Americas as pandemic impacts lessened[85](index=85&type=chunk)[92](index=92&type=chunk) - Gross margin increased by **2.5 percentage points** due to a favorable sales mix and maintained prices[93](index=93&type=chunk) [Other Income Statement Captions](index=29&type=section&id=Other%20Income%20Statement%20Captions) This section details changes in corporate costs, other net income, and the effective tax rate for the three-month period - Corporate costs increased by **$2.4 million** due to higher personnel-related expenses[95](index=95&type=chunk) - Other net income decreased by **$4.0 million**, primarily due to foreign exchange losses on translation[96](index=96&type=chunk) Other Income/(Expense), Net (Three Months Ended September 30) | (in millions) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net pension credit | $ 1.3 | $ 1.4 | (0.1) | | Foreign exchange gains/(losses) on translation | (2.2) | 3.5 | (5.7) | | Foreign currency forward contracts gains/(losses) | 0.7 | (1.1) | 1.8 | | **Total** | **$ (0.2)** | **$ 3.8** | **$ (4.0)** | - The GAAP effective tax rate was **24.0%** in Q3 2021, down from **37.1%** in Q3 2020[98](index=98&type=chunk) - The adjusted effective tax rate decreased to **22.3%** from **23.0%**, mainly due to a lower proportion of profits from higher tax jurisdictions[98](index=98&type=chunk) [Nine Months Ended September 30, 2021](index=31&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202021) This section details the financial performance of each segment for the nine months ended September 30, 2021 Net Sales and Gross Profit by Segment (Nine Months Ended September 30) | (in millions, except ratios) | 2021 | 2020 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Net sales:** | | | | | | Fuel Specialties | $ 438.8 | $ 374.4 | $ 64.4 | +17% | | Performance Chemicals | 386.9 | 310.8 | 76.1 | +24% | | Oilfield Services | 244.5 | 197.1 | 47.4 | +24% | | **Total** | **$1,070.2** | **$ 882.3** | **$187.9** | **+21%** | | **Gross profit:** | | | | | | Fuel Specialties | $ 144.1 | $ 116.9 | $ 27.2 | +23% | | Performance Chemicals | 95.6 | 76.5 | 19.1 | +25% | | Oilfield Services | 82.3 | 60.5 | 21.8 | +36% | | Octane Additives | 0.0 | (2.2) | 2.2 | +100% | | **Total** | **$ 322.0** | **$ 251.7** | **$ 70.3** | **+28%** | [Fuel Specialties](index=32&type=section&id=Fuel%20Specialties) Net sales increased by 17% YoY, driven by volume growth, and gross margin improved due to a favorable sales mix - Net sales increased by **17% YoY**, driven by an **8% increase in volume**[100](index=100&type=chunk)[101](index=101&type=chunk) - Gross margin increased by **1.6 percentage points** due to a favorable sales mix compared to the prior year's pandemic impact[102](index=102&type=chunk) [Performance Chemicals](index=32&type=section&id=Performance%20Chemicals) Net sales increased by 24% YoY, with volumes up 12%, and gross margin slightly improved due to sales mix - Net sales increased by **24% YoY**, with volumes up **12%** due to increased demand for Personal Care products[100](index=100&type=chunk)[103](index=103&type=chunk) - Gross margin increased by **0.1 percentage points**, primarily due to sales mix[104](index=104&type=chunk) [Oilfield Services](index=33&type=section&id=Oilfield%20Services) Net sales increased by 24% YoY due to continued customer demand, with gross margin improving from favorable sales mix - Net sales increased by **24% YoY**, driven by continued customer demand growth[100](index=100&type=chunk)[106](index=106&type=chunk) - Gross margin increased by **3.0 percentage points** due to a favorable sales mix and maintained prices[107](index=107&type=chunk) [Octane Additives](index=33&type=section&id=Octane%20Additives) This business ceased trading from July 1, 2020, with legacy costs now recorded as corporate operating expenses - The Octane Additives business ceased trading from July 1, 2020, with legacy costs now recorded as corporate operating expenses[109](index=109&type=chunk) - In the first six months of 2020, it incurred a gross loss of **$2.2 million** and operating expenses of **$0.6 million**[109](index=109&type=chunk) [Other Income Statement Captions](index=33&type=section&id=Other%20Income%20Statement%20Captions) This section details changes in corporate costs, interest expense, other net income, and the effective tax rate for the nine-month period - Corporate costs increased by **$0.9 million** due to higher personnel-related expenses and adverse foreign currency translation[110](index=110&type=chunk) - Interest expense decreased to **$1.1 million** from **$1.5 million** due to revolving credit facility repayment[112](index=112&type=chunk) Other Income/(Expense), Net (Nine Months Ended September 30) | (in millions) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net pension credit | $3.9 | $4.2 | (0.3) | | Profit on disposal of assets | 0.2 | 0.0 | 0.2 | | Foreign exchange gains on translation | 1.2 | 2.9 | (1.7) | | Foreign currency forward contracts gains | 0.9 | 0.7 | 0.2 | | **Total** | **$6.2** | **$7.8** | **$ (1.6)** | - The GAAP effective tax rate was **32.0%** in the first nine months of 2021, down from **42.5%** in 2020[113](index=113&type=chunk) - The adjusted effective tax rate decreased to **23.3%** from **24.7%**, primarily due to a lower proportion of profits from higher tax jurisdictions[113](index=113&type=chunk) [Liquidity and Financial Condition](index=35&type=section&id=Liquidity%20and%20Financial%20Condition) This section discusses changes in working capital, operating cash flows, cash, and debt, highlighting impacts on liquidity [Working Capital](index=35&type=section&id=Working%20Capital) Working capital and adjusted working capital increased significantly due to higher accounts receivable and inventories - Working capital increased by **$60.9 million**, and adjusted working capital increased by **$76.7 million** in the first nine months of 2021[115](index=115&type=chunk)[117](index=117&type=chunk) - This was driven by an **$81.4 million** increase in trade and other accounts receivable and a **$54.1 million** increase in inventories[117](index=117&type=chunk)[118](index=118&type=chunk) Adjusted Working Capital (in millions) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $ 683.0 | $ 566.2 | | Total current liabilities | (308.3) | (252.4) | | Working capital | 374.7 | 313.8 | | Less cash and cash equivalents | (89.2) | (105.3) | | Less prepaid income taxes | (3.8) | (4.2) | | Less other current assets | (0.8) | (0.4) | | Add back current portion of accrued income taxes | 4.6 | 5.5 | | Add back current portion of finance leases | 0.0 | 0.5 | | Add back current portion of plant closure provisions | 5.7 | 6.6 | | Add back current portion of operating lease liabilities | 13.3 | 11.3 | | **Adjusted working capital** | **$ 304.5** | **$ 227.8** | [Operating Cash Flows](index=36&type=section&id=Operating%20Cash%20Flows) Net cash provided by operating activities decreased, primarily due to increases in working capital - Net cash provided by operating activities decreased to **$24.4 million** in the first nine months of 2021 from **$87.7 million** in 2020, primarily due to increases in working capital (higher accounts receivable and inventories)[122](index=122&type=chunk) [Cash](index=36&type=section&id=Cash) Cash and cash equivalents decreased due to increased working capital, capital investments, and dividend payments - Cash and cash equivalents decreased by **$16.1 million** to **$89.2 million** at September 30, 2021, mainly due to increased working capital, capital investments, and dividend payments[123](index=123&type=chunk) [Debt](index=36&type=section&id=Debt) The company had no outstanding debt under its revolving credit facility or finance leases as of September 30, 2021 - The Company had no debt outstanding under its revolving credit facility or finance leases as of September 30, 2021[124](index=124&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses the company's exposure to market risks and its strategies for managing them through derivatives - The Company is exposed to market risks including interest rate, foreign currency exchange rate, and commodity price fluctuations[126](index=126&type=chunk) - It uses derivatives like interest rate swaps, commodity swaps, and foreign currency forward exchange contracts to manage these risks, not for trading[127](index=127&type=chunk)[128](index=128&type=chunk) - No significant changes in market risk exposure since the 2020 Form 10-K[129](index=129&type=chunk) [Item 4 Controls and Procedures](index=38&type=section&id=Item%204%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and reports no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021, ensuring timely and accurate reporting[130](index=130&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to internal control over financial reporting occurred during the period - 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 period[132](index=132&type=chunk) [PART II OTHER INFORMATION](index=39&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits [Item 1 Legal Proceedings](index=39&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in routine legal claims but has no material pending legal proceedings - The Company is involved in routine legal claims but has no material pending legal proceedings that would, in aggregate, have a material adverse effect on results of operations[133](index=133&type=chunk) [Item 1A Risk Factors](index=39&type=section&id=Item%201A%20Risk%20Factors) This section refers to the 2020 Form 10-K for risk factors and confirms no material changes since that filing - There have been no material changes in the risk factors facing the Company since its 2020 Annual Report on Form 10-K[134](index=134&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or open market repurchases of common stock occurred during the quarter - There were no unregistered sales of equity securities or open market repurchases of common stock during the quarter ended September 30, 2021[135](index=135&type=chunk)[136](index=136&type=chunk) [Item 3 Defaults Upon Senior Securities](index=39&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - The Company reported no defaults upon senior securities[137](index=137&type=chunk) [Item 4 Mine Safety Disclosures](index=39&type=section&id=Item%204%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the Company[138](index=138&type=chunk) [Item 5 Other Information](index=39&type=section&id=Item%205%20Other%20Information) The company reported no other information required to be disclosed - The Company reported no other information[139](index=139&type=chunk) [Item 6 Exhibits](index=40&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act) and XBRL instance and cover page interactive data files[142](index=142&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) The report was signed by the President and CEO and the Executive Vice President and CFO on November 3, 2021 - The report was signed by Patrick S. Williams, President and Chief Executive Officer, and Ian P. Cleminson, Executive Vice President and Chief Financial Officer, on November 3, 2021[144](index=144&type=chunk)