Innospec Inc. (NASDAQ: IOSP) today announced its financial results
for the first quarter ended March 31, 2022. The Company also
announced the declaration of its semi-annual dividend of 63 cents
per common share for the first half of 2022, representing an
increase of 11 percent. This dividend will be paid on May 26, 2022,
to shareholders of record on May 17, 2022.
Total revenues for the first quarter were $472.4
million, an increase of 39 percent from $339.6 million in the
corresponding period last year. Net income for the quarter was
$36.5 million or $1.46 per diluted share compared to $23.4 million
or 94 cents per diluted share recorded last year. EBITDA for the
quarter was $59.0 million, a 43 percent increase from $41.4 million
reported in the same period a year ago.
Results for this quarter include some special
items, which are summarized in the table below. Excluding these
items, adjusted non-GAAP EPS in the first quarter was $1.53 per
diluted share, compared to $1.06 per diluted share a year ago.
Due to strong sequential sales growth, cash
generation for the quarter was impacted by an increase in working
capital which resulted in cash used in operations of $29.0 million
before capital expenditures of $8.4 million. We closed the quarter
with net cash of $105.6 million. In the first quarter, the Company
repurchased 10,000 of its common shares at a cost of $0.9 million
as part of the board-authorized share repurchase program.
EBITDA, income before income taxes and net
income excluding special items, and related per-share amounts, are
non-GAAP financial measures that are defined and reconciled with
GAAP results herein and in the schedules below.
|
|
Quarter ended March 31, 2022 |
|
|
|
|
Quarter ended March 31, 2021 |
|
|
|
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|
|
|
(in millions, except share and per share
data) |
|
Income beforeincome taxes |
|
|
Net income |
|
|
Diluted EPS |
|
|
Income beforeincome taxes |
|
|
Net income |
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP
amounts |
$ |
48.2 |
|
$ |
36.5 |
|
$ |
1.46 |
|
$ |
30.8 |
|
$ |
23.4 |
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired
intangible assets |
|
3.6 |
|
|
2.9 |
|
|
0.12 |
|
|
3.7 |
|
|
3.0 |
|
|
0.12 |
|
Foreign currency exchange
gains |
|
(3.1 |
) |
|
(2.3 |
) |
|
(0.09 |
) |
|
(1.6 |
) |
|
(1.2 |
) |
|
(0.05 |
) |
Legacy costs of closed
operations |
|
1.1 |
|
|
0.9 |
|
|
0.04 |
|
|
0.9 |
|
|
0.7 |
|
|
0.03 |
|
Acquisition related costs |
|
- |
|
|
- |
|
|
- |
|
|
0.8 |
|
|
0.6 |
|
|
0.02 |
|
|
|
1.6 |
|
|
1.5 |
|
|
0.07 |
|
|
3.8 |
|
|
3.1 |
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-GAAP
amounts |
$ |
49.8 |
|
$ |
38.0 |
|
$ |
1.53 |
|
$ |
34.6 |
|
$ |
26.5 |
|
$ |
1.06 |
|
Commenting on the first quarter results, Patrick
S. Williams, President and Chief Executive Officer, said,
“This was an excellent quarter for Innospec.
Despite sustained inflationary and supply-chain pressures, we
achieved 39 percent sales growth, maintained gross margins and
delivered a 57 percent increase in operating income. We anticipate
strong demand to continue in all end-markets, and in coordination
with our customers we are managing additional price actions as
required to offset inflationary impacts. Managing ongoing supply
and logistical challenges will continue to be a key focus for our
global team to meet customer requirements and ensure product
availability.
In Performance Chemicals, strong sales and
margins drove a 38 percent increase in operating income over the
prior year. The majority of this growth came from personal care
which now comprises over 75 percent of Performance Chemicals
operating income. We believe strong demand continues to support our
outlook for high single-digit volume growth.
In Fuel Specialties, operating income grew by 49
percent over the prior year as recovering volumes and continued
price action drove strong quarterly sales. Gross margins improved
significantly over the fourth quarter and returned to the lower end
of our target 32 to 35 percent range. We expect gross margins to
remain on the lower end of our target range until cost inflation
moderates. We anticipate further gross margin improvement when
inflation slows, and activity increases in areas like jet travel
that still remain significantly below pre-pandemic levels.
In Oilfield Services, sales grew by 19 percent
sequentially. However, shipment delays led to a sequential quarter
decline in operating income. We expect sequential operating income
and margin improvement to resume in the coming quarters.”
In Performance Chemicals, revenues of $167.1
million were up 33 percent from $125.9 million in the first quarter
last year. Volume growth of 7 percent and a positive price/mix of
32 percent were partially offset by an adverse currency impact of 6
percent. Gross margins reduced by 0.5 percentage points from the
same quarter last year to 24.4 percent. Operating income for the
quarter of $25.3 million was up 38 percent on the prior year.
Revenues in Fuel Specialties were $191.8 million
for the quarter, a 38 percent increase from $139.3 million a year
ago. Volume growth of 23 percent and a positive price/mix of 21
percent were partially offset by an adverse currency impact of 6
percent. Gross margins of 31.6 percent were 0.6 percentage points
below the same quarter last year. Operating income for the quarter
of $35.5 million was up 49 percent on last year.
Revenues in Oilfield Services were $113.5
million for the quarter, up 53 percent from $74.4 million in the
first quarter last year. Gross margins improved by 0.4 percentage
points from the same quarter last year to 33.3 percent. Operating
income of $2.5 million was approximately double the $1.2 million in
the prior year.
Corporate costs for the quarter were $19.0
million, compared with $15.1 million a year ago, due mainly to
higher personnel-related expenses driven by increased share-based
compensation accruals.
The effective tax rate for the quarter was 24.3
percent compared to 24.0 percent in the same period last year.
Due to strong sequential sales growth, net cash
used in operating activities after capital expenditure was $37.4
million for the quarter, as net working capital increased. As of
March 31, 2022, Innospec had $105.6 million in cash and cash
equivalents and no debt.
Mr. Williams concluded,
“We are very pleased with our start to the year.
Volume growth and disciplined price management drove strong sales
and double-digit operating income increases in Performance
Chemicals and Fuel Specialties. Excellent results in these two
businesses more than offset the lagging results in Oilfield
Services. We expect Oilfield Services to resume its sequential
operating income improvement in the coming quarters. In all three
businesses, end-market demand continues to be strong.
We believe that our debt-free balance sheet,
broad mix of daily-use consumable products and relentless focus on
customer service positions us well for continued growth in all our
businesses.
We repurchased $0.9 million of stock in the
quarter under our previously announced $50.0 million share buyback
facility, and our Board has approved an 11 percent increase in our
semi-annual dividend to 63 cents per share, continuing our record
of returning value to shareholders.”
Use of Non-GAAP Financial
Measures
The information presented in this press release
includes financial measures that are not calculated or presented in
accordance with Generally Accepted Accounting Principles in the
United States (GAAP). These non-GAAP financial measures comprise
EBITDA, income before income taxes excluding special items, net
income excluding special items and related per share amounts
together with net cash. EBITDA is net income per our consolidated
financial statements adjusted for the exclusion of charges for
interest expense, net, income taxes, depreciation, and
amortization. Income before income taxes, net income and diluted
EPS, excluding special items, per our consolidated financial
statements are adjusted for the exclusion of amortization of
acquired intangible assets, foreign currency exchange gains, legacy
costs of closed operations and acquisition related costs. Net cash
is cash and cash equivalents less total debt. Reconciliations of
these non-GAAP financial measures to their most directly comparable
GAAP financial measures are provided herein and in the schedules
below. The Company believes that such non-GAAP financial measures
provide useful information to investors and may assist them in
evaluating the Company’s underlying performance and identifying
operating trends. In addition, these non-GAAP measures address
questions the Company routinely receives from analysts and
investors and the Company has determined that it is appropriate to
make this data available to all investors. While the Company
believes that such measures are useful in evaluating the Company’s
performance, investors should not consider them to be a substitute
for financial measures prepared in accordance with GAAP. In
addition, these non-GAAP financial measures may differ from
similarly-titled non-GAAP financial measures used by other
companies and do not provide a comparable view of the Company’s
performance relative to other companies in similar industries.
Management uses adjusted EPS (the most directly comparable GAAP
financial measure for which is GAAP EPS) and adjusted net income
and EBITDA (the most directly comparable GAAP financial measure for
which is GAAP net income) to allocate resources and evaluate the
performance of the Company’s operations. Management believes the
most directly comparable GAAP financial measure is GAAP net income
and has provided a reconciliation of EBITDA and net income
excluding special items, and related per share amounts, to GAAP net
income herein and in the schedules below.
About Innospec Inc.
Innospec Inc. is an international specialty
chemicals company with approximately 1,900 employees in 24
countries. Innospec manufactures and supplies a wide range of
specialty chemicals to markets in the Americas, Europe, the Middle
East, Africa and Asia-Pacific. The Performance Chemicals business
creates innovative technology-based solutions for our customers in
the Personal Care, Home Care, Agrochemical, Mining and Industrial
markets. The Fuel Specialties business specializes in manufacturing
and supplying fuel additives that improve fuel efficiency, boost
engine performance and reduce harmful emissions. Oilfield Services
provides specialty chemicals to all elements of the oil and gas
exploration and production industry.
Forward-Looking Statements
This press release 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 similar words or expressions, for example)
which relate to earnings, growth potential, operating performance,
events or developments that we expect or anticipate will or may
occur in the future. Although forward-looking statements are
believed by management to be reasonable when made, they are subject
to certain risks, uncertainties and assumptions, including, the
effects of the COVID-19 pandemic, such as its duration, its unknown
long-term economic impact, measures taken by governmental
authorities to address it, the rise of variants, the effectiveness,
acceptance and distributions of COVID-19 vaccines and the effects
of any sanctions, export restrictions, supply chain disruptions or
increased economic uncertainty related to the ongoing conflict
between Russia and Ukraine and the manner in which the pandemic
and/or such conflict may precipitate or exacerbate other risks
and/or uncertainties, and our actual performance or results may
differ materially from these forward-looking statements. Additional
information regarding risks, uncertainties and assumptions relating
to Innospec and affecting our business operations and prospects are
described in Innospec’s Annual Report on Form 10-K for the year
ended December 31, 2021 and other reports filed with the U.S.
Securities and Exchange Commission. You are urged to review our
discussion of risks and uncertainties that could cause actual
results to differ from forward-looking statements under the heading
"Risk Factors” in such reports. Innospec undertakes no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Contacts:
Corbin BarnesInnospec
Inc.+44-151-355-3611corbin.barnes@innospecinc.com
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
INCOME
Schedule 1
(in
millions, except share and per share data) |
|
Three Months EndedMarch 31 |
2022 |
|
|
2021 |
|
|
|
|
|
|
Net sales |
$ |
472.4 |
|
$ |
339.6 |
|
Cost of goods sold |
|
(333.1 |
) |
|
(238.8 |
) |
Gross profit |
|
139.3 |
|
|
100.8 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling, general and administrative |
|
(84.9 |
) |
|
(63.6 |
) |
Research and development |
|
(10.1 |
) |
|
(9.0 |
) |
Total operating expenses |
|
(95.0 |
) |
|
(72.6 |
) |
Operating income |
|
44.3 |
|
|
28.2 |
|
Other income, net |
|
4.3 |
|
|
3.0 |
|
Interest expense, net |
|
(0.4 |
) |
|
(0.4 |
) |
Income before income
taxes |
|
48.2 |
|
|
30.8 |
|
Income taxes |
|
(11.7 |
) |
|
(7.4 |
) |
Net income |
$ |
36.5 |
|
$ |
23.4 |
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
Basic |
$ |
1.47 |
|
$ |
0.95 |
|
Diluted |
$ |
1.46 |
|
$ |
0.94 |
|
|
|
|
|
|
Weighted average shares
outstanding (in thousands): |
|
|
|
|
Basic |
|
24,791 |
|
|
24,601 |
|
Diluted |
|
24,956 |
|
|
24,840 |
|
INNOSPEC INC. AND
SUBSIDIARIES
Schedule 2A
SEGMENTAL ANALYSIS OF
RESULTS |
|
Three Months Ended March 31 |
(in millions) |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
Net sales: |
|
|
|
|
Performance Chemicals |
$ |
167.1 |
|
$ |
125.9 |
|
Fuel Specialties |
|
191.8 |
|
|
139.3 |
|
Oilfield Services |
|
113.5 |
|
|
74.4 |
|
|
|
472.4 |
|
|
339.6 |
|
|
|
|
|
|
Gross profit: |
|
|
|
|
Performance Chemicals |
|
40.8 |
|
|
31.4 |
|
Fuel Specialties |
|
60.7 |
|
|
44.9 |
|
Oilfield Services |
|
37.8 |
|
|
24.5 |
|
|
|
139.3 |
|
|
100.8 |
|
|
|
|
|
|
Operating income: |
|
|
|
|
Performance Chemicals |
|
25.3 |
|
|
18.3 |
|
Fuel Specialties |
|
35.5 |
|
|
23.8 |
|
Oilfield Services |
|
2.5 |
|
|
1.2 |
|
Corporate costs |
|
(19.0 |
) |
|
(15.1 |
) |
Total operating income |
$ |
44.3 |
|
$ |
28.2 |
|
Schedule 2B
NON-GAAP
MEASURES |
|
Three Months Ended March 31 |
(in millions) |
|
2022 |
|
|
2021 |
|
|
|
|
|
|
Net income |
$ |
36.5 |
|
$ |
23.4 |
|
Interest expense, net |
|
0.4 |
|
|
0.4 |
|
Income taxes |
|
11.7 |
|
|
7.4 |
|
Depreciation and
amortization: |
|
|
|
|
Performance Chemicals |
|
5.4 |
|
|
5.4 |
|
Fuel Specialties |
|
1.6 |
|
|
1.3 |
|
Oilfield Services |
|
2.9 |
|
|
3.1 |
|
Corporate costs |
|
0.5 |
|
|
0.4 |
|
EBITDA |
|
59.0 |
|
|
41.4 |
|
|
|
|
|
|
EBITDA: |
|
|
|
|
Performance Chemicals |
|
30.7 |
|
|
23.7 |
|
Fuel Specialties |
|
37.1 |
|
|
25.1 |
|
Oilfield Services |
|
5.4 |
|
|
4.3 |
|
Corporate costs |
|
(18.5 |
) |
|
(14.7 |
) |
|
|
54.7 |
|
|
38.4 |
|
Other income, net |
|
4.3 |
|
|
3.0 |
|
EBITDA |
$ |
59.0 |
|
$ |
41.4 |
|
EBITDA by segment includes operating income
relating to the segments, excluding depreciation and
amortization.
Schedule 3
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions) |
|
March 31,2022 |
|
December 31,2021 |
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
105.6 |
$ |
141.8 |
Trade and other accounts receivable |
|
337.7 |
|
284.5 |
Inventories |
|
308.2 |
|
277.6 |
Prepaid expenses |
|
17.2 |
|
18.0 |
Prepaid income taxes |
|
9.5 |
|
5.8 |
Other current assets |
|
0.4 |
|
0.4 |
Total current assets |
|
778.6 |
|
728.1 |
|
|
|
|
|
Net property, plant and
equipment |
|
213.7 |
|
214.4 |
Operating lease right-of-use
assets |
|
42.3 |
|
35.4 |
Goodwill |
|
362.0 |
|
364.3 |
Other intangible assets |
|
53.0 |
|
57.5 |
Deferred tax assets |
|
6.2 |
|
6.4 |
Pension asset |
|
160.8 |
|
159.8 |
Other non-current assets |
|
7.2 |
|
5.0 |
Total assets |
$ |
1,623.8 |
$ |
1,570.9 |
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
161.8 |
$ |
148.7 |
Accrued liabilities |
|
156.5 |
|
166.5 |
Current portion of finance leases |
|
- |
|
0.1 |
Current portion of operating lease liabilities |
|
14.1 |
|
12.4 |
Current portion of plant closure provisions |
|
6.2 |
|
5.2 |
Current portion of accrued income taxes |
|
13.7 |
|
3.7 |
Total current liabilities |
|
352.3 |
|
336.6 |
|
|
|
|
|
Operating lease liabilities,
net of current portion |
|
28.3 |
|
23.1 |
Plant closure provisions, net
of current portion |
|
50.1 |
|
51.3 |
Accrued income taxes, net of
current portion |
|
27.8 |
|
30.6 |
Unrecognized tax benefits |
|
16.3 |
|
16.3 |
Deferred tax liabilities |
|
61.3 |
|
60.8 |
Pension liabilities and
post-employment benefits |
|
17.4 |
|
17.8 |
Other non-current
liabilities |
|
1.4 |
|
1.4 |
Equity |
|
1,068.9 |
|
1,033.0 |
Total liabilities and
equity |
$ |
1,623.8 |
$ |
1,570.9 |
Schedule 4
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in
millions) |
|
Three Months EndedMarch 31 |
|
|
2022 |
|
|
2021 |
|
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
36.5 |
|
$ |
23.4 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
10.5 |
|
|
10.3 |
|
Deferred taxes |
|
0.9 |
|
|
0.1 |
|
Non-cash movements on defined benefit pension plans |
|
(0.7 |
) |
|
(0.8 |
) |
Stock option compensation |
|
1.7 |
|
|
1.6 |
|
Changes in working capital |
|
(79.3 |
) |
|
(13.6 |
) |
Movements in accrued income taxes |
|
3.4 |
|
|
3.7 |
|
Movements in plant closure provisions |
|
- |
|
|
(0.2 |
) |
Movements in other assets and liabilities |
|
(2.0 |
) |
|
(1.8 |
) |
Net cash (used in)/provided by
operating activities |
|
(29.0 |
) |
|
22.7 |
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(8.4 |
) |
|
(10.3 |
) |
Net cash used in investing
activities |
|
(8.4 |
) |
|
(10.3 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
Repayment of finance
leases |
|
(0.1 |
) |
|
(0.2 |
) |
Issue of treasury stock |
|
1.9 |
|
|
0.5 |
|
Repurchase of common
stock |
|
(0.9 |
) |
|
(0.6 |
) |
Net cash provided by/(used in)
financing activities |
|
0.9 |
|
|
(0.3 |
) |
Effect of foreign currency
exchange rate changes on cash |
|
0.3 |
|
|
(0.4 |
) |
Net change in cash and cash
equivalents |
|
(36.2 |
) |
|
11.7 |
|
Cash and cash equivalents at
beginning of period |
|
141.8 |
|
|
105.3 |
|
Cash and cash equivalents at
end of period |
$ |
105.6 |
|
$ |
117.0 |
|
Amortization of deferred finance costs of $0.1
million (2021 - $0.1 million) are included in depreciation and
amortization in the condensed consolidated statements of cash flows
and in interest expense, net in the condensed consolidated
statements of income.
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