Innospec(US:IOSP)2025-05-09 13:46PART I Condensed Consolidated Financial Statements In Q1 2025, Innospec reported decreased net sales and net income, with a significant decline in operating cash flow, while total assets increased Condensed Consolidated Statements of Income (Q1 2025 vs Q1 2024) | Financial Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $440.8 | $500.2 | -11.9% | | Gross Profit | $125.1 | $155.7 | -19.7% | | Operating Income | $42.5 | $50.5 | -15.8% | | Net Income | $32.8 | $41.4 | -20.8% | | Diluted EPS | $1.31 | $1.65 | -20.6% | Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $299.8 | $289.2 | | Total current assets | $977.1 | $956.6 | | Total assets | $1,774.6 | $1,734.7 | | Total current liabilities | $357.6 | $371.4 | | Total liabilities | $508.9 | $518.6 | | Total equity | $1,265.7 | $1,216.1 | Condensed Consolidated Statements of Cash Flows (Q1 2025 vs Q1 2024) | Cash Flow Activity | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $28.3 | $80.6 | | Net cash used in investing activities | $(15.5) | $(14.3) | | Net cash provided by/(used in) financing activities | $(3.8) | $0.5 | | Net change in cash and cash equivalents | $10.6 | $66.4 | Segment Reporting - The company operates through three reportable segments: Performance Chemicals, Fuel Specialties, and Oilfield Services, with performance evaluated by the CODM based on gross profit and operating income2829 Segment Performance (Q1 2025 vs Q1 2024) | Segment | Net Sales (Q1 2025) | Net Sales (Q1 2024) | Operating Income (Q1 2025) | Operating Income (Q1 2024) | | :--- | :--- | :--- | :--- | :--- | | Performance Chemicals | $168.4M | $160.8M | $19.8M | $21.1M | | Fuel Specialties | $170.3M | $176.9M | $36.9M | $33.4M | | Oilfield Services | $102.1M | $162.5M | $4.1M | $16.9M | Goodwill & Intangible Assets - Goodwill increased to $388.4 million as of March 31, 2025, from $382.5 million at year-end 2024, with the change attributed to foreign exchange effects34 - The company capitalized $7.2 million in Q1 2025 for internally developed software related to a new Enterprise Resource Planning (ERP) system, which is expected to be completed in 202636 Long-Term Debt - As of March 31, 2025, the company had no outstanding borrowings on its $250.0 million multicurrency revolving credit facility, which is available until May 30, 202844 Contingencies - The company is pursuing a civil and criminal legal claim related to a misappropriation of inventory in Brazil, with no significant developments having occurred and no asset for potential recovery recorded55 Management's Discussion and Analysis (MD&A) The company experienced an overall decline in net sales and gross profit in Q1 2025, primarily driven by the Oilfield Services segment, while maintaining a strong liquidity position Overall Performance Summary (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $440.8M | $500.2M | -12% | | Gross Profit | $125.1M | $155.7M | -20% | | Gross Margin | 28.4% | 31.1% | -2.7 p.p. | | Operating Income | $42.5M | $50.5M | -16% | Results of Operations by Segment - Performance Chemicals: Net sales grew 5% to $168.4 million, driven by an 11% volume increase in the Americas and 31% in ASPAC for personal care products, though gross margin decreased by 2.4 percentage points to 21.0% due to pricing pressure and an adverse product mix7576 - Fuel Specialties: Net sales decreased 4% to $170.3 million, with increased volumes in the Americas and EMEA offset by lower volumes in ASPAC and adverse price/mix effects, while gross margin improved by 1.4 percentage points to 35.7% due to a better sales mix and lower raw material costs7879 - Oilfield Services: Net sales fell sharply by 37% to $102.1 million, primarily due to significantly lower production chemical activity in Latin America, and gross margin contracted by 6.9 percentage points to 28.4% because of an unfavorable sales mix from weakened customer demand80 - The adjusted effective tax rate was 24.4% in Q1 2025, slightly down from 24.5% in Q1 2024, mainly because a higher proportion of profits were generated in lower-tax jurisdictions8485 Liquidity and Financial Condition - Adjusted working capital increased by $27.1 million during the quarter, primarily driven by a $14.4 million increase in inventories to manage supply chain risks and prepare for planned maintenance868789 - Cash from operating activities decreased to $28.3 million in Q1 2025 from $80.6 million in Q1 2024, due to lower operating income and less favorable working capital cash flows, particularly from increased inventory levels92 - The company ended the quarter with $299.8 million in cash and cash equivalents and no outstanding debt under its $250.0 million revolving credit facility9395 Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure, including interest rates, foreign currency, and commodity prices, remains consistent with its 2024 Form 10-K, utilizing derivatives for hedging purposes - There have been no significant changes in the Company's exposure to market risk since the 2024 Form 10-K100 - The company uses derivatives, including foreign currency forward exchange contracts and commodity swaps, to manage market risks related to currency fluctuations and raw material costs9899 Controls and Procedures Management concluded that disclosure controls were effective as of March 31, 2025, with ongoing ERP system implementation and no material changes to internal controls over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025101 - The company is continuing the implementation of a new ERP system and has updated its internal controls over financial reporting to accommodate the changes, with no material changes to internal controls reported in the quarter103104 PART II Legal Proceedings The company is involved in routine legal proceedings, including an ongoing civil and criminal claim in Brazil regarding inventory misappropriation, with no significant new developments - The company continues to pursue legal claims regarding a misappropriation of inventory in Brazil, with no significant new developments reported107 Risk Factors No material changes in the company's risk factors have occurred since its 2024 Annual Report on Form 10-K filing - No material changes in risk factors have occurred since the company's 2024 Form 10-K filing109 Share Repurchases The company initiated a new $50 million stock repurchase program on March 10, 2025, repurchasing 48,050 shares during the quarter, with $46.7 million remaining available - A new stock repurchase program was announced on March 10, 2025, allowing for up to $50 million in common stock repurchases over a three-year period111 Share Repurchases (Q1 2025) | Period | Total Shares Purchased | Average Price Paid | Value Remaining in Program | | :--- | :--- | :--- | :--- | | Feb 1 - Feb 28, 2025 | 1,227 | $105.1 | $50.0M (New program not yet started) | | Mar 1 - Mar 31, 2025 | 46,823 | $99.0 | $46.7M | | Total | 48,050 | $99.1 | $46.7M |