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Innospec(IOSP) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1 Condensed Consolidated Financial Statements This section presents the unaudited interim condensed consolidated financial statements and accompanying detailed notes Condensed Consolidated Statements of Income (Three Months Ended June 30) | Metric | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 439.7 | 435.0 | 4.7 | 1.1% | | Gross profit | 123.2 | 126.9 | (3.7) | -2.9% | | Operating income | 34.3 | 40.7 | (6.4) | -15.7% | | Income before income tax expense | 31.9 | 43.7 | (11.8) | -27.0% | | Net income | 23.5 | 31.2 | (7.7) | -24.7% | | Basic EPS | 0.94 | 1.25 | (0.31) | -24.8% | | Diluted EPS | 0.94 | 1.24 | (0.30) | -24.2% | Condensed Consolidated Statements of Income (Six Months Ended June 30) | Metric | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 880.5 | 935.2 | (54.7) | -5.8% | | Gross profit | 248.3 | 282.6 | (34.3) | -12.1% | | Operating income | 76.8 | 91.2 | (14.4) | -15.8% | | Income before income tax expense | 76.3 | 99.0 | (22.7) | -22.9% | | Net income | 56.3 | 72.6 | (16.3) | -22.4% | | Basic EPS | 2.26 | 2.91 | (0.65) | -22.3% | | Diluted EPS | 2.24 | 2.89 | (0.65) | -22.5% | Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 (Millions $) | Dec 31, 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total current assets | 969.7 | 956.6 | 13.1 | 1.4% | | Total assets | 1,806.1 | 1,734.7 | 71.4 | 4.1% | | Total current liabilities | 337.4 | 371.4 | (34.0) | -9.2% | | Total liabilities | 504.6 | 518.6 | (14.0) | -2.7% | | Total equity | 1,301.5 | 1,216.1 | 85.4 | 7.0% | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 37.6 | 85.3 | (47.7) | -55.9% | | Net cash used in investing activities | (31.7) | (29.7) | (2.0) | 6.7% | | Net cash used in financing activities | (32.5) | (18.4) | (14.1) | 76.6% | | Net change in cash and cash equivalents | (22.6) | 36.5 | (59.1) | -161.9% | | Cash and cash equivalents at end of period | 266.6 | 240.2 | 26.4 | 11.0% | Condensed Consolidated Statements of Income Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Equity Notes To The Unaudited Interim Condensed Consolidated Financial Statements NOTE 1 – BASIS OF PRESENTATION The financial statements are prepared per GAAP, with reclassifications made to conform to the 2025 presentation - Reclassification of $3.8 million (2025 YTD) and $4.0 million (2024 YTD) from selling, general and administrative expenses to research and development expenses, with no impact on previously reported total net revenue, operating income, or net income24 NOTE 2 – SEGMENT REPORTING The company reports financial performance across its Performance Chemicals, Fuel Specialties, and Oilfield Services segments Net Sales by Segment (Three Months Ended June 30) | Segment | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Performance Chemicals | 173.8 | 160.1 | 13.7 | 8.6% | | Fuel Specialties | 165.1 | 166.6 | (1.5) | -0.9% | | Oilfield Services | 100.8 | 108.3 | (7.5) | -6.9% | | Total Net Sales | 439.7 | 435.0 | 4.7 | 1.1% | Net Sales by Segment (Six Months Ended June 30) | Segment | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Performance Chemicals | 342.2 | 320.9 | 21.3 | 6.6% | | Fuel Specialties | 335.4 | 343.5 | (8.1) | -2.4% | | Oilfield Services | 202.9 | 270.8 | (67.9) | -25.1% | | Total Net Sales | 880.5 | 935.2 | (54.7) | -5.8% | Operating Income by Segment (Six Months Ended June 30) | Segment | 2025 (Millions $) | 2024 (Millions $) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Performance Chemicals | 34.1 | 42.3 | (8.2) | -19.4% | | Fuel Specialties | 72.3 | 63.8 | 8.5 | 13.3% | | Oilfield Services | 10.3 | 24.2 | (13.9) | -57.4% | | Corporate costs | (38.6) | (37.8) | (0.8) | 2.1% | | Total Operating Income | 76.8 | 91.2 | (14.4) | -15.8% | NOTE 3 – EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share for the six months ended June 30 EPS Calculation (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net income available to common stockholders (millions $) | 56.3 | 72.6 | | Weighted average common shares outstanding (thousands) | 24,954 | 24,918 | | Dilutive effect of stock options and awards (thousands) | 143 | 173 | | Denominator for diluted EPS (thousands) | 25,097 | 25,091 | | Net income per share, basic ($) | 2.26 | 2.91 | | Net income per share, diluted ($) | 2.24 | 2.89 | NOTE 4 – GOODWILL Goodwill increased by $15.1 million in H1 2025, primarily due to foreign exchange rate effects - Goodwill increased from $382.5 million at January 1, 2025, to $397.6 million at June 30, 202533 - The increase was driven by a $15.1 million exchange effect, with $14.9 million related to Performance Chemicals and $0.2 million to Fuel Specialties33 NOTE 5 – OTHER INTANGIBLE ASSETS Other intangible assets increased, primarily from capitalized software development for a new ERP system - Net book amount of other intangible assets was $78.3 million at June 30, 2025, up from $65.4 million at December 31, 20241734 - Additions of $10.8 million in 2025 were capitalized for internally developed software for a new Enterprise Resource Planning ("ERP") system, expected to complete in 20263435 - Amortization expense for the six months ended June 30, 2025, was $5.9 million34 NOTE 6 – PENSION AND POST EMPLOYMENT BENEFITS The UK defined benefit pension plan was wound up, leaving only a German unfunded defined benefit plan - The UK defined benefit pension plan was bought out in Q4 2024 and fully wound up on July 29, 2025, eliminating future obligations37 - The German unfunded defined benefit pension plan liability was $10.1 million at June 30, 2025, an increase from $9.0 million at December 31, 202438 - Net periodic benefit cost for the six months ended June 30, 2025, was $(2.5) million, compared to $1.6 million in the prior year38 NOTE 7 – INCOME TAXES The company had no unrecognized tax benefits and expects no significant changes in the next twelve months - No unrecognized tax benefits as of January 1, 2025, and no change during the six months ended June 30, 202540 - U.S. subsidiaries are open to examination by the IRS for years 2021 onwards; foreign jurisdictions like Brazil (2020 onwards), Germany (2020 onwards), and the U.K. (2023 onwards) are also open41 NOTE 8 – LONG-TERM DEBT The company had no outstanding debt under its $250.0 million multicurrency revolving credit facility - A $250.0 million multicurrency revolving credit facility is available until May 30, 202842 - No debt was drawn down or repaid on the revolving credit facility during the first six months of 2025 or 202442 NOTE 9 – PLANT CLOSURE PROVISIONS Plant closure provisions increased by $8.5 million, primarily for legacy operations in the United States - Total plant closure provisions increased to $68.8 million at June 30, 2025, from $60.3 million at January 1, 202545 - The charge for the six months ended June 30, 2025, was $4.1 million, including a $2.3 million increase for legacy operations in the United States45 NOTE 10 – FAIR VALUE MEASUREMENTS This note details the fair value measurements for various financial assets and liabilities Fair Value of Financial Instruments (June 30, 2025) | Instrument | Carrying Amount (Millions $) | Fair Value (Millions $) | | :--- | :--- | :--- | | Emissions Trading Scheme credits | 2.2 | 2.2 | | Foreign currency forward exchange contracts | 1.7 | 1.7 | | Acquisition-related contingent consideration | 24.5 | 24.5 | NOTE 11 – DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT The company uses foreign currency forward exchange contracts to manage currency exposure, resulting in a loss in H1 2025 - Foreign currency forward exchange contracts resulted in a loss of $6.4 million for the first six months of 2025, compared to a gain of $1.6 million in the first six months of 202449 NOTE 12 – CONTINGENCIES The company is involved in various legal proceedings and has issued guarantees for affiliated companies - An ongoing civil and criminal legal claim related to inventory misappropriation in Brazil has seen no significant developments52 - Guarantees for certain obligations of affiliated companies amounted to $8.3 million as of June 30, 2025, up from $6.8 million at December 31, 202454 NOTE 13 – STOCK-BASED COMPENSATION PLANS Stock-based compensation expense decreased in H1 2025, with $25.3 million in unrecognized costs remaining - Total stock-based compensation expense for the six months ended June 30, 2025, was $4.6 million, compared to $8.2 million in the prior year57 - As of June 30, 2025, there was $25.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements, expected to be recognized over a weighted-average period of 2.1 years60 NOTE 14 – RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS This note details reclassifications out of accumulated other comprehensive loss, primarily from translation adjustments - Changes in Accumulated Other Comprehensive Loss (AOCL) for the first six months of 2025, net of tax, were $57.6 million, primarily due to cumulative translation adjustments62 NOTE 15 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The company reviewed and found no recently issued accounting pronouncements relevant to its financial statements - No recently issued accounting pronouncements were deemed relevant to the Company's financial statements64 NOTE 16 – RELATED PARTY TRANSACTIONS This note discloses transactions with entities affiliated with company directors, which were minimal in H1 2025 - No product purchases from AdvanSix Inc (where Mr Patrick S Williams is a director) in the six months ended June 30, 2025 or 202465 - Incurred $0.2 million in fees from Smith, Gambrell & Russell, LLP (where former director Mr Robert I Paller held a position) in the six months ended June 30, 202466 - Sold less than $0.1 million of scrap metal to European Metal Recycling Limited (where Mr David F Landless is a director) in the six months ended June 30, 2025 and 202467 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six months ended June 30, 2025 Management discusses the company's financial performance, condition, and critical accounting estimates for the reporting periods Critical Accounting Estimates The company's most critical accounting estimates relate to plant closure provisions, income taxes, and goodwill - The most critical accounting estimates are related to plant closure provisions, income taxes, and goodwill70 Results of Operations Net sales increased for Q2 2025 but decreased for H1 2025, with declines in gross profit and operating income for both periods Three Months Ended June 30, 2025 Net sales increased 1% to $439.7 million, while gross profit and operating income decreased by 3% and 16% respectively Performance Chemicals Net sales increased 9% to $173.8 million, driven by higher volumes, though gross margin decreased due to pricing erosion - Net sales increased by $13.7 million (+9%) to $173.8 million72 - Higher sales volumes in the Americas (+11%) and ASPAC (+13%) were key drivers73 - Gross margin decreased by 5.1 percentage points, primarily due to pricing erosion and higher demand for lower-priced products74 Fuel Specialties Net sales decreased 1% to $165.1 million due to lower volumes, but gross margin improved significantly - Net sales decreased by $1.5 million (-1%) to $165.1 million72 - Sales volumes decreased in the Americas (-5%), ASPAC (-21%), and AvGas (-19%)76 - Gross margin increased by 3.5 percentage points, driven by an improved sales mix, disciplined pricing, and reduced raw material costs77 Oilfield Services Net sales decreased 7% to $100.8 million, and gross margin also declined due to reduced demand and a weaker sales mix - Net sales decreased by $7.5 million (-7%) to $100.8 million7278 - Sales in EMEA were lower due to reduced demand, outweighing higher sales in the Americas78 - Gross margin decreased by 1.0 percentage point due to a weaker sales mix78 Other Income Statement Captions Corporate costs rose, other net expense increased due to currency losses, and the adjusted effective tax rate decreased - Corporate costs increased by $3.3 million (+19%) due to increased provisions for environmental remediation and additional investment in IT infrastructure7280 - Other net income/(expense) shifted from a $0.9 million income in Q2 2024 to a $(5.1) million expense in Q2 2025, primarily due to foreign currency forward contract losses of $(4.1) million81 - Adjusted effective tax rate decreased to 23.5% in Q2 2025 from 28.4% in Q2 2024, primarily due to a higher proportion of profits being generated in lower tax jurisdictions82 Six Months Ended June 30, 2025 Net sales decreased 6% to $880.5 million, with gross profit and operating income declining 12% and 16% respectively Performance Chemicals Net sales increased 7% to $342.2 million driven by higher volumes, while gross margin decreased due to pricing erosion - Net sales increased by $21.3 million (+7%) to $342.2 million84 - Higher sales volumes in the Americas (+11%) and ASPAC (+21%) were key drivers85 - Gross margin decreased by 3.8 percentage points, primarily due to pricing erosion and higher demand for lower-priced products86 Fuel Specialties Net sales decreased 2% to $335.4 million on lower volumes, but gross margin improved due to better sales mix and pricing - Net sales decreased by $8.1 million (-2%) to $335.4 million84 - Sales volumes decreased in the Americas (-2%), ASPAC (-19%), and AvGas (-8%)88 - Gross margin increased by 2.5 percentage points, driven by an improved sales mix, disciplined pricing, and reduced raw material costs89 Oilfield Services Net sales significantly decreased 25% to $202.9 million, primarily due to the absence of activity in Latin America - Net sales decreased by $67.9 million (-25%) to $202.9 million8490 - Sales volumes were adversely impacted by the absence of production chemical activity in Latin America90 - Gross margin decreased by 4.4 percentage points due to an unfavorable sales mix91 Other Income Statement Captions Corporate costs rose slightly, other net expense increased due to currency losses, and the adjusted tax rate decreased - Corporate costs increased by $0.8 million (+2%) due to increased provisions for environmental remediation and additional investment in IT infrastructure8492 - Other net income/(expense) shifted from a $3.6 million income in H1 2024 to a $(5.6) million expense in H1 2025, primarily due to foreign currency forward contract losses of $(6.4) million93 - Adjusted effective tax rate decreased to 24.0% in H1 2025 from 26.2% in H1 2024, primarily due to a higher proportion of profits being generated in lower tax jurisdictions94 Liquidity and Financial Condition Working capital increased, while operating cash flows and total cash decreased in the first six months of 2025 Working Capital Working capital increased, driven by higher inventories and lower accounts payable, partially offset by lower receivables - Working capital increased by $47.1 million, and adjusted working capital by $42.9 million, in the six months ended June 30, 202596 - Inventories increased by $35.8 million, including a $3.1 million increase in allowances, driven by higher finished goods and raw materials in the Fuel Specialties segment99 - Accounts payable and accrued liabilities decreased by $20.0 million, related to lower activity in the Oilfield Services segment101 Operating Cash Flows Net cash from operating activities decreased by $47.7 million due to lower operating income and unfavorable working capital changes - Net cash provided by operating activities decreased to $37.6 million in the six months ended June 30, 2025, from $85.3 million in the prior year period102 - The decrease was primarily related to decreased operating income, less favorable working capital cash flows, and increased income tax payments102 Cash Cash and cash equivalents decreased by $22.6 million due to capital investments, dividends, and stock repurchases - Cash and cash equivalents at June 30, 2025, were $266.6 million, down from $289.2 million at December 31, 2024103 - The decrease was primarily driven by continued investments in capital projects, the payment of semi-annual dividends, and repurchases of common stock104 Debt The company maintains a $250.0 million credit facility but had no outstanding debt as of June 30, 2025 - The company has a $250.0 million multicurrency revolving credit facility available105 - No debt was outstanding under the revolving credit facility at June 30, 2025, or December 31, 2024105 Item 3 Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rates, currency exchange, and commodity prices using derivatives - The company uses derivatives, including interest rate swaps, commodity swaps, and foreign currency forward exchange contracts, as risk management tools, not for trading purposes108109 - There have been no significant changes in the company's exposure to market risk since the 2024 Form 10-K110 Item 4 Controls and Procedures Disclosure controls were deemed effective, and the ongoing ERP system implementation has led to updated internal controls - The company's disclosure controls and procedures were effective as of June 30, 2025111 - The ongoing development and implementation of a new, company-wide, information system platform (ERP system) has led to updated internal controls over financial reporting113 - No material changes to internal control over financial reporting were identified in connection with the evaluation114 PART II OTHER INFORMATION Item 1 Legal Proceedings The company is involved in various legal claims, with no significant new developments in the Brazil inventory case - An ongoing civil and criminal legal claim related to a misappropriation of inventory in Brazil has had no significant developments to report117 Item 1A Risk Factors There have been no material changes in the company's risk factors since the 2024 Form 10-K filing - No material changes in the risk factors facing the Company have occurred since those disclosed in the 2024 Form 10-K119 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 93,353 shares in Q2 2025 under a new $50 million stock repurchase program - No unregistered sales of equity securities occurred120 - A new $50 million stock repurchase program was announced on March 10, 2025, allowing for repurchases over a three-year period121 Stock Repurchases (Three Months Ended June 30, 2025) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Approximate Dollar Value Remaining Under Program (Millions $) | | :--- | :--- | :--- | :--- | | April 1, 2025 through April 30, 2025 | 22,178 | 92.7 | 44.6 | | May 1, 2025 through May 31, 2025 | 48,575 | 91.8 | 40.5 | | June 1, 2025 through June 30, 2025 | 22,600 | 87.1 | 38.5 | | Total | 93,353 | 90.9 | 38.5 | Item 3 Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported123 Item 4 Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company124 Item 5 Other Information No other information was reported under this item for the period - No other information was reported under this item125 Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002127 - XBRL Instance Document and Cover Page Interactive Data File are embedded within the inline XBRL document127 SIGNATURES The report is duly signed by the President and CEO, and the Executive Vice President and CFO - 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 August 6, 2025129