Innospec Reports Fourth Quarter and Full Year 2023 Financial Results
- Operating income growth in Performance Chemicals and Fuel Specialties.
- QGP acquisition closed, generating $72.4 million cash.
- GAAP EPS $1.51, adjusted non-GAAP EPS $1.84.
- Total revenues for Q4 were $494.7 million, net income $37.8 million.
- For the full year, revenues were $1.95 billion, net income $139.1 million, EBITDA $210.6 million.
- Special items adjusted, non-GAAP EPS for the year $6.09.
- Strong performance across segments with strategic acquisitions and growth plans.
- None.
Insights
The reported financial results by Innospec Inc. indicate several key factors that can influence the company's valuation and investor sentiment. Notably, the sequential and year-over-year growth in operating income in specific segments like Performance Chemicals and Fuel Specialties is a positive signal. Furthermore, the acquisition of QGP Quimica Geral suggests strategic expansion, particularly in the South American market, which could enhance Innospec's competitive positioning and revenue diversification.
From a liquidity perspective, the generation of $72.4 million in cash from operations and a net cash position of $203.7 million showcase a strong balance sheet, which provides the company with the flexibility for future investments or shareholder returns. The semi-annual dividend payment also reflects a commitment to returning value to shareholders. However, the decline in total revenues and the 7 percent decrease in EBITDA for the year could be areas of concern, indicating potential challenges in operational efficiency or market demand.
Examining Innospec's performance within the industry context, the double-digit operating income growth in Performance Chemicals and Fuel Specialties is commendable, particularly given the overall revenue decline. This suggests effective cost management and margin enhancement strategies. The integration of QGP is expected to be immediately accretive to earnings, with an anticipated 8 cents increase in EPS for 2024, which could be an attractive point for investors looking at growth prospects.
Despite the positive performance in certain segments, the decline in gross margins in Oilfield Services and the overall decrease in EBITDA highlight the variability and potential volatility within the company's portfolio. The impact of foreign currency exchange and the adjustment of income tax provisions also underscore the complexity of managing a global operation and the associated financial risks.
The broader economic implications of Innospec's results can be linked to the current macroeconomic environment, which the CEO alludes to as a challenge. The company's ability to deliver growth in specific segments despite headwinds is a positive indicator of its resilience. However, the economic headwinds mentioned for the upcoming quarters suggest that the company and potentially the sector, may face continued pressure. The focus on technology-based organic opportunities and the emphasis on margin improvement are strategies that could help mitigate the impact of a slower economic growth environment.
The effective tax rate reduction from 28.0 percent to 20.2 percent year-on-year is significant and reflects the strategic tax management and the benefits of global operations. Yet, the reliance on foreign currency fluctuations and the changing profile of overseas taxable profits highlight the need for robust risk management strategies.
Operating income grew sequentially and versus prior year in Performance Chemicals and Fuel Specialties
Oilfield Services continued to deliver strong results completing an excellent year
QGP acquisition closed in the quarter; Excellent fit with Performance Chemicals
GAAP EPS
ENGLEWOOD, Colo., Feb. 13, 2024 (GLOBE NEWSWIRE) -- Innospec Inc. (NASDAQ: IOSP) today announced its financial results for the fourth quarter and full year ended December 31, 2023.
Total revenues for the fourth quarter were
Results for this quarter include some special items, which are summarized in the table below. Excluding these items, adjusted non-GAAP EPS in the fourth quarter was
Innospec generated cash from operating activities of
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 December 31, 2023 | Quarter ended December 31, 2022 | ||||||||||||||||
| (in millions, except share and per share data) | Income before income taxes | Net income | Diluted EPS | Income before income taxes | Net income | Diluted EPS | |||||||||||
| Reported GAAP amounts | $ | 45.3 | $ | 37.8 | $ | 1.51 | $ | 45.2 | $ | 25.5 | $ | 1.02 | |||||
| Legacy costs of closed operations | 3.7 | 2.8 | 0.11 | 0.9 | 0.7 | 0.03 | |||||||||||
| Amortization of acquired intangible assets | 2.6 | 2.0 | 0.08 | 2.6 | 2.0 | 0.08 | |||||||||||
| Foreign currency exchange losses | 2.6 | 2.0 | 0.08 | 2.9 | 1.7 | 0.07 | |||||||||||
| Acquisition related costs | 1.3 | 1.0 | 0.04 | - | - | - | |||||||||||
| Adjustment of income tax provisions | - | 0.5 | 0.02 | - | - | - | |||||||||||
| 10.2 | 8.3 | 0.33 | 6.4 | 4.4 | 0.18 | ||||||||||||
| Adjusted non-GAAP amounts | $ | 55.5 | $ | 46.1 | $ | 1.84 | $ | 51.6 | $ | 29.9 | $ | 1.20 | |||||
For the full year, total revenues of
Results for the full year include some special items, which are summarized in the table below. Excluding these items, adjusted non-GAAP EPS for the full year was
| Year ended December 31, 2023 | Year ended December 31, 2022 | ||||||||||||||
| (in millions, except share and per share data) | Income before income taxes | Net income | Diluted EPS | Income before income taxes | Net income | Diluted EPS | |||||||||
| Reported GAAP amounts | $ | 174.4 | $ | 139.1 | $ | 5.56 | $ | 184.6 | $ | 133.0 | $ | 5.32 | |||
| Amortization of acquired intangible assets | 10.5 | 8.0 | 0.32 | 13.0 | 10.3 | 0.41 | |||||||||
| Legacy costs of closed operations | 6.1 | 4.6 | 0.18 | 3.5 | 2.8 | 0.11 | |||||||||
| Foreign currency exchange (gains)/losses | (3.8 | ) | (2.9 | ) | (0.12 | ) | 6.7 | 4.9 | 0.20 | ||||||
| Acquisition related costs | 3.1 | 2.4 | 0.10 | - | - | - | |||||||||
| Adjustment of income tax provisions | - | 1.2 | 0.05 | - | - | - | |||||||||
| 15.9 | 13.3 | 0.53 | 23.2 | 18.0 | 0.72 | ||||||||||
| Adjusted non-GAAP amounts | $ | 190.3 | $ | 152.4 | $ | 6.09 | $ | 207.8 | $ | 151.0 | $ | 6.04 | |||
Commenting on the fourth quarter results, Patrick S. Williams, President and Chief Executive Officer, said,
“This was another very good quarter for Innospec. Performance Chemicals and Fuel Specialties both delivered double digit operating income growth and improved margins over the comparative prior year quarter, while Oilfield Services maintained a strong performance.
I was very pleased to announce our acquisition of QGP in December. QGP gives us a strong strategic position in Brazil and will be integrated into our Performance Chemicals business. We believe that QGP adds meaningful strength to our manufacturing, customer service and product development base in South America, with capabilities that compliment most end-markets that we serve. We expect this transaction to be accretive immediately and add approximately 8 cents of EPS in 2024 with further growth thereafter.
Performance Chemicals achieved double-digit operating income growth over the prior year as margin expansion more than offset the impact of lower sales. In addition, the business continued to deliver sequential operating income growth and margin improvement. While the economic environment remains a challenge, we expect further improvement in this business in 2024 as activity levels recover.
Fuel Specialties achieved double-digit operating income growth in the quarter and gross margins were within our target range of 32 to 35 percent. Adjusting for the Brazil inventory charges incurred in the first half of 2023, full-year operating income grew by 3 percent and operating margins improved to 18 percent. Our target for operating margins continues to be 19 to 21 percent. Sales growth combined with further margin improvement is a key focus and opportunity for the global Fuel Specialties team in 2024.
Oilfield Services had another excellent quarter and for the full year, operating income approximately doubled, and operating margins expanded above our 10 percent target. While we expect production chemicals activity to remain at moderate levels in the coming quarters, we plan to pursue further sales growth and margin improvement in our other segments.”
In Performance Chemicals, revenues of
In Fuel Specialties, revenues of
Revenues in Oilfield Services of
Corporate costs of
The full year effective tax rate was 20.2 percent compared to 28.0 percent in 2022. The adjusted effective tax rate was 23.0 percent compared to 27.0 percent last year. The decrease is primarily a consequence of having operations outside of the U.S., which exposes the Company to foreign currency fluctuations, together with the change in profile of our overseas taxable profits by territory year on year.
For the quarter, cash from operations after capital expenditures was
Mr. Williams concluded,
“Our business teams delivered a strong overall result in the quarter and full year. Despite our expectation for continued economic headwinds in the coming quarters, we enter 2024 with optimism. Our growing pipeline of technology-based organic opportunities will continue to advance in parallel with our integration of the QGP acquisition.
Cash generation was again excellent in the quarter, and our debt-free, net cash position remained over
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, legacy costs of closed operations, foreign currency exchange (gains)/losses, acquisition related costs and adjustment of income tax provisions. 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. Also, 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 2,400 employees in 22 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, 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, 2022, Innospec’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 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 Barnes
Innospec Inc.
+44-151-355-3611
corbin.barnes@innospecinc.com
INNOSPEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Schedule 1
| (in millions, except share and per share data) | Three Months Ended December 31 | Twelve Months Ended December 31 | ||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Net sales | $ | 494.7 | $ | 510.7 | $ | 1,948.8 | $ | 1,963.7 | ||||
| Cost of goods sold | (339.0 | ) | (359.1 | ) | (1,357.7 | ) | (1,377.0 | ) | ||||
| Gross profit | 155.7 | 151.6 | 591.1 | 586.7 | ||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | (102.3 | ) | (96.6 | ) | (387.8 | ) | (360.7 | ) | ||||
| Research and development | (8.9 | ) | (8.4 | ) | (41.7 | ) | (38.7 | ) | ||||
| Total operating expenses | (111.2 | ) | (105.0 | ) | (429.5 | ) | (399.4 | ) | ||||
| Operating income | 44.5 | 46.6 | 161.6 | 187.3 | ||||||||
| Other (expense)/income, net | (0.7 | ) | (1.4 | ) | 10.5 | (1.6 | ) | |||||
| Interest income/(expense), net | 1.5 | - | 2.3 | (1.1 | ) | |||||||
| Income before income taxes | 45.3 | 45.2 | 174.4 | 184.6 | ||||||||
| Income taxes | (7.5 | ) | (19.7 | ) | (35.3 | ) | (51.6 | ) | ||||
| Net income | $ | 37.8 | $ | 25.5 | $ | 139.1 | $ | 133.0 | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 1.52 | $ | 1.03 | $ | 5.60 | $ | 5.37 | ||||
| Diluted | $ | 1.51 | $ | 1.02 | $ | 5.56 | $ | 5.32 | ||||
| Weighted average shares outstanding (in thousands): | ||||||||||||
| Basic | 24,867 | 24,766 | 24,851 | 24,787 | ||||||||
| Diluted | 25,030 | 24,958 | 25,022 | 24,982 | ||||||||
INNOSPEC INC. AND SUBSIDIARIES
Schedule 2A
| SEGMENTAL ANALYSIS OF RESULTS | Three Months Ended December 31 | Twelve Months Ended December 31 | ||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net sales: | ||||||||||||
| Performance Chemicals | $ | 137.2 | $ | 143.9 | $ | 561.6 | $ | 639.7 | ||||
| Fuel Specialties | 182.1 | 183.3 | 695.9 | 730.2 | ||||||||
| Oilfield Services | 175.4 | 183.5 | 691.3 | 593.8 | ||||||||
| 494.7 | 510.7 | 1,948.8 | 1,963.7 | |||||||||
| Gross profit: | ||||||||||||
| Performance Chemicals | 29.2 | 26.5 | 105.6 | 150.0 | ||||||||
| Fuel Specialties | 59.9 | 50.9 | 215.1 | 221.9 | ||||||||
| Oilfield Services | 66.6 | 74.2 | 270.4 | 214.8 | ||||||||
| 155.7 | 151.6 | 591.1 | 586.7 | |||||||||
| Operating income: | ||||||||||||
| Performance Chemicals | 18.0 | 15.8 | 54.5 | 95.3 | ||||||||
| Fuel Specialties | 32.6 | 26.8 | 109.7 | 121.7 | ||||||||
| Oilfield Services | 18.3 | 20.5 | 78.6 | 41.7 | ||||||||
| Corporate costs | (24.4 | ) | (16.5 | ) | (81.2 | ) | (71.4 | ) | ||||
| Total operating income | $ | 44.5 | $ | 46.6 | $ | 161.6 | $ | 187.3 | ||||
Schedule 2B
| NON-GAAP MEASURES | Three Months Ended December 31 | Twelve Months Ended December 31 | ||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Net income | $ | 37.8 | $ | 25.5 | $ | 139.1 | $ | 133.0 | ||||
| Interest (income)/expense, net | (1.5 | ) | - | (2.3 | ) | 1.1 | ||||||
| Income taxes | 7.5 | 19.7 | 35.3 | 51.6 | ||||||||
| Depreciation and amortization: | ||||||||||||
| Performance Chemicals | 4.7 | 4.0 | 17.4 | 19.6 | ||||||||
| Fuel Specialties | 1.7 | 1.5 | 6.2 | 6.1 | ||||||||
| Oilfield Services | 3.2 | 3.0 | 12.4 | 11.9 | ||||||||
| Corporate costs | 0.6 | 0.6 | 2.5 | 2.1 | ||||||||
| EBITDA | 54.0 | 54.3 | 210.6 | 225.4 | ||||||||
| EBITDA: | ||||||||||||
| Performance Chemicals | 22.7 | 19.8 | 71.9 | 114.9 | ||||||||
| Fuel Specialties | 34.3 | 28.3 | 115.9 | 127.8 | ||||||||
| Oilfield Services | 21.5 | 23.5 | 91.0 | 53.6 | ||||||||
| Corporate costs | (23.8 | ) | (15.9 | ) | (78.7 | ) | (69.3 | ) | ||||
| 54.7 | 55.7 | 200.1 | 227.0 | |||||||||
| Other (expense)/income, net | (0.7 | ) | (1.4 | ) | 10.5 | (1.6 | ) | |||||
| EBITDA | $ | 54.0 | $ | 54.3 | $ | 210.6 | $ | 225.4 | ||||
EBITDA by segment includes operating income relating to the segments, excluding depreciation and amortization.
Schedule 3
INNOSPEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, 2023 | December 31, 2022 | ||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 203.7 | $ | 147.1 |
| Trade and other accounts receivable | 359.8 | 334.6 | ||
| Inventories | 300.1 | 373.1 | ||
| Prepaid expenses | 18.7 | 14.1 | ||
| Prepaid income taxes | 2.8 | 3.3 | ||
| Other current assets | 0.6 | 0.4 | ||
| Total current assets | 885.7 | 872.6 | ||
| Net property, plant and equipment | 268.3 | 220.9 | ||
| Operating lease right-of-use assets | 45.1 | 45.3 | ||
| Goodwill | 399.3 | 358.8 | ||
| Other intangible assets | 57.3 | 45.0 | ||
| Deferred tax assets | 10.4 | 5.9 | ||
| Pension asset | 35.1 | 48.1 | ||
| Other non-current assets | 6.2 | 7.1 | ||
| Total assets | $ | 1,707.4 | $ | 1,603.7 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 163.6 | $ | 165.3 |
| Accrued liabilities | 185.9 | 202.9 | ||
| Current portion of operating lease liabilities | 13.6 | 13.9 | ||
| Current portion of plant closure provisions | 4.6 | 5.3 | ||
| Current portion of accrued income taxes | 2.6 | 18.4 | ||
| Current portion of unrecognized tax benefits | 1.2 | - | ||
| Total current liabilities | 371.5 | 405.8 | ||
| Operating lease liabilities, net of current portion | 31.6 | 31.4 | ||
| Plant closure provisions, net of current portion | 57.0 | 51.9 | ||
| Accrued income taxes, net of current portion | 11.6 | 21.0 | ||
| Unrecognized tax benefits, net of current portion | 13.6 | 13.4 | ||
| Deferred tax liabilities | 33.5 | 26.2 | ||
| Pension liabilities and post-employment benefits | 13.3 | 12.2 | ||
| Acquisition-related contingent deferred consideration | 23.4 | - | ||
| Other non-current liabilities | 2.3 | 1.4 | ||
| Equity | 1,149.6 | 1,040.4 | ||
| Total liabilities and equity | $ | 1,707.4 | $ | 1,603.7 |
Schedule 4
INNOSPEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Twelve Months Ended December 31 | ||||||
| (in millions) | 2023 | 2022 | ||||
| Cash Flows from Operating Activities | ||||||
| Net income | $ | 139.1 | $ | 133.0 | ||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||
| Depreciation and amortization | 39.3 | 40.1 | ||||
| Deferred taxes | 3.6 | (5.5 | ) | |||
| Non-cash movements on defined benefit pension plans | (3.3 | ) | (2.5 | ) | ||
| Stock option compensation | 8.0 | 6.7 | ||||
| Changes in working capital | 39.3 | (95.2 | ) | |||
| Movements in plant closure provisions | 4.0 | 1.1 | ||||
| Movements in accrued income taxes | (25.9 | ) | 9.4 | |||
| Movements in unrecognized tax benefits | 1.4 | (2.9 | ) | |||
| Movements in other assets and liabilities | 1.8 | (2.5 | ) | |||
| Net cash provided by operating activities | 207.3 | 81.7 | ||||
| Cash Flows from Investing Activities | ||||||
| Capital expenditures | (62.1 | ) | (39.6 | ) | ||
| Proceeds on disposal of property, plant and equipment | 0.1 | 0.2 | ||||
| Business combinations, net of cash acquired | (34.7 | ) | - | |||
| Internally developed software | (15.1 | ) | (2.7 | ) | ||
| Net cash used in investing activities | (111.8 | ) | (42.1 | ) | ||
| Cash Flows from Financing Activities | ||||||
| Non-controlling interest | - | 1.8 | ||||
| Repayment of acquired term loan | (2.3 | ) | - | |||
| Repayment of finance leases | - | (0.1 | ) | |||
| Refinancing costs | (1.4 | ) | - | |||
| Dividend paid | (35.1 | ) | (31.7 | ) | ||
| Issue of treasury stock | 0.9 | 2.2 | ||||
| Repurchase of common stock | (1.1 | ) | (5.9 | ) | ||
| Net cash used in financing activities | (39.0 | ) | (33.7 | ) | ||
| Effect of foreign currency exchange rate changes on cash | 0.1 | (0.6 | ) | |||
| Net change in cash and cash equivalents | 56.6 | 5.3 | ||||
| Cash and cash equivalents at beginning of year | 147.1 | 141.8 | ||||
| Cash and cash equivalents at end of year | $ | 203.7 | $ | 147.1 | ||
Amortization of deferred finance costs of
FAQ
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