Innospec Reports Third Quarter 2021 Financial Results
Innospec Inc. (NASDAQ: IOSP) reported strong Q3 2021 results, with total revenues reaching $376.1 million, a 42% increase year-over-year. GAAP EPS was 94 cents, while adjusted non-GAAP EPS hit $1.15, up from 71 cents the previous year. Operating income surged 44% to $23.4 million. The company declared a 12% increase in its annual dividend, totaling $1.16 per share. Performance Chemicals led growth with record sales of $132.8 million. However, cash flow was impacted by rising working capital needs due to supply chain disruptions.
- Total revenues increased by 42% year-over-year to $376.1 million.
- GAAP EPS rose to 94 cents, and adjusted non-GAAP EPS reached $1.15.
- Operating income grew 44% to $23.4 million.
- Dividend increased by 12%, totaling $1.16 annually.
- Performance Chemicals achieved record quarterly sales of $132.8 million.
- Cash flow was adversely affected, with net cash from operating activities of only $2.8 million due to increased working capital.
- Gross margins in Fuel Specialties declined by 2.2 percentage points to 31.4%.
Performance Chemicals achieves record quarterly sales with operating income up 44 percent
Strong sales and operating income growth in Fuel Specialties and Oilfield Services
GAAP EPS 94 cents and adjusted non-GAAP EPS of
Dividend for full year increased by 12 percent
ENGLEWOOD, Colo., Nov. 02, 2021 (GLOBE NEWSWIRE) -- Innospec Inc. (NASDAQ: IOSP) today announced its financial results for the third quarter ended September 30, 2021. At the same time, the Company announced that it has declared a semi-annual dividend of
Total revenues for the third 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 third quarter was
Cash generation for the quarter was impacted by an increase in working capital due to higher levels of trading and protective quantities of inventory to offset supply-chain disruption. This resulted in net 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 September 30, 2021 | Quarter ended September 30, 2020 | ||||||||||||||
| (in millions, except share and per share data) | Income before income taxes | Net income | Diluted share | Income before income taxes | Net income | Diluted share | |||||||||
| Reported GAAP amounts | $ | 30.8 | $ | 23.4 | $ | 0.94 | $ | 20.2 | $ | 12.7 | $ | 0.51 | |||
| Amortization of acquired intangible assets | 3.7 | 3.0 | 0.12 | 3.5 | 2.8 | 0.11 | |||||||||
| Foreign currency exchange losses/(gains) | 1.6 | 1.2 | 0.05 | (2.4 | ) | (1.8 | ) | (0.07 | ) | ||||||
| Legacy costs of closed operations | 1.1 | 0.9 | 0.04 | 1.1 | 0.9 | 0.04 | |||||||||
| Change in UK statutory tax rate | - | - | - | - | 2.6 | 0.11 | |||||||||
| Adjustment of income tax provisions | - | - | - | - | 0.3 | 0.01 | |||||||||
| 6.4 | 5.1 | 0.21 | 2.2 | 4.8 | 0.20 | ||||||||||
| Adjusted non-GAAP amounts | $ | 37.2 | $ | 28.5 | $ | 1.15 | $ | 22.4 | $ | 17.5 | $ | 0.71 | |||
Commenting on the third quarter results, Patrick S. Williams, President and Chief Executive Officer, said,
“Despite the extremely challenging supply chain and inflationary backdrop in the quarter, we held gross margins at historical levels and maintained an excellent standard of service for our customers. We expect these cost and supply chain headwinds to continue into 2022, and we anticipate that additional price actions may be required across all businesses as we maintain close coordination with our suppliers and customers.
Performance Chemicals again delivered excellent results with record quarterly sales and a 44 percent increase in operating income over the prior year. Gross margins and operating leverage both improved which drove an operating margin expansion. The multi-year outlook continues to be strong due to what we believe are secular shifts in consumer preferences towards clean and sustainable formulations and packaging. Our industry-leading technologies are direct enablers of those trends. The previously announced new global technology center and significant production capacity expansions are on track and expected to be online by the first quarter of 2022. Collectively these represent a material advance in our ability to support our customers’ global initiatives.
In Fuel Specialties sales continued to improve sequentially in all regions other than Asia where lingering effects of the Delta variant have slowed the economic recovery. Gross margins were slightly below our expected range due to a combination of below-average jet fuel additive demand and the timing lag of our on-going price actions. Global average diesel demand is now broadly similar to 2019 levels while jet fuel demand remains depressed due to the impact of COVID-19 related restrictions on global flight activity. We expect continued growth in both diesel and jet fuel consumption as economies fully reopen.
In Oilfield Services sequential sales, operating income and operating margin continued to improve. While our growth rate this quarter lagged behind our internal expectations, we have been disciplined with our pricing, maintained our gross margins and continue to see significant potential for operating income growth and margin expansion in the coming quarters. We believe that overall activity levels and market conditions will continue to improve and support our execution of this plan.”
Revenues in Performance Chemicals reached a quarterly record of
Revenues in Fuel Specialties were
Revenues in Oilfield Services for the quarter were
Corporate costs for the quarter were
The effective tax rate for the quarter was 24.0 percent compared to 37.1 percent last year which included the adverse impact of the change in the UK tax rate. The adjusted effective tax rate was 22.3 percent compared to 23.0 percent a year ago.
For the quarter, net cash provided by operating activities was
Mr. Williams concluded,
“Innospec’s third quarter performance was very pleasing given the significant supply chain and inflation challenges. We believe we are well positioned to navigate the expected continuation of these conditions.
In Performance Chemicals, we recently raised our medium-term volume growth outlook from mid single to high single-digits. We expect to further step-up organic growth capital expenditures in 2022 to support increasing demand for our industry leading mild, sustainable and natural personal care and home care technologies.
In Fuel Specialties, we believe that our medium term outlook for global diesel, jet and sustainable fuel demand is for growth above 2019 levels. In the shorter-term, the on-going relaxation of travel restrictions is expected to support above average sales growth for our higher margin jet fuel additives.
In Oilfield Services, while we have delivered sequential improvements since the second quarter of last year, the rate of these improvements is below our internal expectations. We remain focused on driving further growth in operating income and margin improvement as we move through year-end and the first half of 2022.
Our balance sheet remains strong, and we believe that we have the capacity to support both our organic growth strategies and meaningful targeted acquisitions. I am delighted the Board has decided to again increase our semi-annual dividend to
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 losses/(gains), legacy costs of closed operations, change in the UK statutory tax rate 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. 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 1900 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 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. The Performance Chemicals business creates innovative technology-based solutions for our customers in the Personal Care, Home Care, Agrochemical, Mining and Industrial markets.
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 effectiveness, acceptance and distributions of COVID-19 vaccines and the manner in which the pandemic 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, 2020 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 September 30 | Nine Months Ended September 30 | |||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||
| Net sales | $ | 376.1 | $ | 265.1 | $ | 1,070.2 | $ | 882.3 | |||||
| Cost of goods sold | (263.2 | ) | (186.4 | ) | (748.2 | ) | (630.6 | ) | |||||
| Gross profit | 112.9 | 78.7 | 322.0 | 251.7 | |||||||||
| Operating expenses: | |||||||||||||
| Selling, general and administrative | (71.2 | ) | (54.2 | ) | (197.5 | ) | (182.1 | ) | |||||
| Research and development | (10.3 | ) | (7.7 | ) | (27.9 | ) | (24.4 | ) | |||||
| Restructuring charge | - | - | - | (21.1 | ) | ||||||||
| Impairment of intangible assets | - | - | - | (19.8 | ) | ||||||||
| Total operating expenses | (81.5 | ) | (61.9 | ) | (225.4 | ) | (247.4 | ) | |||||
| Operating income | 31.4 | 16.8 | 96.6 | 4.3 | |||||||||
| Other (loss)/income, net | (0.2 | ) | 3.8 | 6.2 | 7.8 | ||||||||
| Interest expense, net | (0.4 | ) | (0.4 | ) | (1.1 | ) | (1.5 | ) | |||||
| Income before income taxes | 30.8 | 20.2 | 101.7 | 10.6 | |||||||||
| Income taxes | (7.4 | ) | (7.5 | ) | (32.5 | ) | (4.5 | ) | |||||
| Net income | $ | 23.4 | $ | 12.7 | $ | 69.2 | $ | 6.1 | |||||
| Earnings per share: | |||||||||||||
| Basic | $ | 0.95 | $ | 0.52 | $ | 2.81 | $ | 0.25 | |||||
| Diluted | $ | 0.94 | $ | 0.51 | $ | 2.78 | $ | 0.25 | |||||
| Weighted average shares outstanding (in thousands): | |||||||||||||
| Basic | 24,643 | 24,570 | 24,624 | 24,555 | |||||||||
| Diluted | 24,864 | 24,720 | 24,872 | 24,758 | |||||||||
INNOSPEC INC. AND SUBSIDIARIES
Schedule 2A
| SEGMENTAL ANALYSIS OF RESULTS | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Net sales: | ||||||||||||
| Fuel Specialties | $ | 156.4 | $ | 120.0 | $ | 438.8 | $ | 374.4 | ||||
| Performance Chemicals | 132.8 | 102.0 | 386.9 | 310.8 | ||||||||
| Oilfield Services | 86.9 | 43.1 | 244.5 | 197.1 | ||||||||
| 376.1 | 265.1 | 1,070.2 | 882.3 | |||||||||
| Gross profit/(loss): | ||||||||||||
| Fuel Specialties | 49.1 | 40.3 | 144.1 | 116.9 | ||||||||
| Performance Chemicals | 32.6 | 24.0 | 95.6 | 76.5 | ||||||||
| Oilfield Services | 31.2 | 14.4 | 82.3 | 60.5 | ||||||||
| Octane Additives | - | - | - | (2.2 | ) | |||||||
| 112.9 | 78.7 | 322.0 | 251.7 | |||||||||
| Operating income/(loss): | ||||||||||||
| Fuel Specialties | 26.6 | 22.2 | 78.9 | 59.0 | ||||||||
| Performance Chemicals | 17.8 | 12.4 | 54.0 | 40.2 | ||||||||
| Oilfield Services | 2.7 | (4.5 | ) | 6.1 | (9.7 | ) | ||||||
| Octane Additives | - | - | - | (2.8 | ) | |||||||
| Corporate costs | (15.7 | ) | (13.3 | ) | (42.4 | ) | (41.5 | ) | ||||
| 31.4 | 16.8 | 96.6 | 45.2 | |||||||||
| Restructuring charge | - | - | - | (21.1 | ) | |||||||
| Impairment of intangible assets | - | - | - | (19.8 | ) | |||||||
| Total operating income | $ | 31.4 | $ | 16.8 | $ | 96.6 | $ | 4.3 | ||||
Schedule 2B
| NON-GAAP MEASURES | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | ||||||||
| Net income | $ | 23.4 | $ | 12.7 | $ | 69.2 | $ | 6.1 | ||||
| Interest expense, net | 0.4 | 0.4 | 1.1 | 1.5 | ||||||||
| Income taxes | 7.4 | 7.5 | 32.5 | 4.5 | ||||||||
| Depreciation and amortization: | ||||||||||||
| Fuel Specialties | 1.5 | 1.0 | 4.1 | 3.0 | ||||||||
| Performance Chemicals | 5.2 | 5.3 | 15.9 | 15.4 | ||||||||
| Oilfield Services | 3.1 | 3.2 | 9.3 | 11.8 | ||||||||
| Octane Additives | - | - | - | 0.6 | ||||||||
| Corporate costs | 0.4 | 1.4 | 1.3 | 4.0 | ||||||||
| Impairment of intangible assets | - | - | - | 19.8 | ||||||||
| Impairment of tangible assets | - | - | - | 2.0 | ||||||||
| EBITDA | 41.4 | 31.5 | 133.4 | 68.7 | ||||||||
| EBITDA: | ||||||||||||
| Fuel Specialties | 28.1 | 23.2 | 83.0 | 62.0 | ||||||||
| Performance Chemicals | 23.0 | 17.7 | 69.9 | 55.6 | ||||||||
| Oilfield Services | 5.8 | (1.3 | ) | 15.4 | 2.1 | |||||||
| Octane Additives | - | - | - | (2.2 | ) | |||||||
| Corporate costs | (15.3 | ) | (11.9 | ) | (41.1 | ) | (37.5 | ) | ||||
| 41.6 | 27.7 | 127.2 | 80.0 | |||||||||
| Restructuring excluding impairment of tangible assets | - | - | - | (19.1 | ) | |||||||
| Other (loss)/income, net | (0.2 | ) | 3.8 | 6.2 | 7.8 | |||||||
| EBITDA | $ | 41.4 | $ | 31.5 | $ | 133.4 | $ | 68.7 | ||||
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) | September 30, 2021 | December 31, 2020 | ||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 89.2 | $ | 105.3 |
| Trade and other accounts receivable | 302.8 | 221.4 | ||
| Inventories | 274.1 | 220.0 | ||
| Prepaid expenses | 12.3 | 14.9 | ||
| Prepaid income taxes | 3.8 | 4.2 | ||
| Other current assets | 0.8 | 0.4 | ||
| Total current assets | 683.0 | 566.2 | ||
| Net property, plant and equipment | 213.0 | 210.8 | ||
| Operating lease right-of-use assets | 33.4 | 40.1 | ||
| Goodwill | 366.0 | 371.2 | ||
| Other intangible assets | 61.9 | 75.3 | ||
| Deferred tax assets | 7.3 | 7.6 | ||
| Pension asset | 122.8 | 118.0 | ||
| Other non-current assets | 5.0 | 8.2 | ||
| Total assets | $ | 1,492.4 | $ | 1,397.4 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 137.1 | $ | 98.7 |
| Accrued liabilities | 147.6 | 129.8 | ||
| Current portion of finance leases | - | 0.5 | ||
| Current portion of operating lease liabilities | 13.3 | 11.3 | ||
| Current portion of plant closure provisions | 5.7 | 6.6 | ||
| Current portion of accrued income taxes | 4.6 | 5.5 | ||
| Total current liabilities | 308.3 | 252.4 | ||
| Finance leases, net of current portion | - | 0.1 | ||
| Operating lease liabilities, net of current portion | 20.2 | 28.9 | ||
| Plant closure provisions, net of current portion | 50.8 | 51.9 | ||
| Accrued income taxes, net of current portion | 27.8 | 32.4 | ||
| Unrecognized tax benefits | 16.4 | 16.0 | ||
| Deferred tax liabilities | 54.4 | 46.9 | ||
| Pension liabilities and post-employment benefits | 19.1 | 20.5 | ||
| Other non-current liabilities | 2.3 | 3.4 | ||
| Equity | 993.1 | 944.9 | ||
| Total liabilities and equity | $ | 1,492.4 | $ | 1,397.4 |
Schedule 4
INNOSPEC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30 | ||||||
| (in millions) | 2021 | 2020 | ||||
| Cash Flows from Operating Activities | ||||||
| Net income | $ | 69.2 | $ | 6.1 | ||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||
| Depreciation and amortization | 30.9 | 35.3 | ||||
| Impairment of intangible assets | - | 19.8 | ||||
| Impairment of tangible assets | - | 2.0 | ||||
| Deferred taxes | 8.0 | (3.3 | ) | |||
| Non-cash movements on defined benefit pension plans | (2.4 | ) | (3.3 | ) | ||
| Stock option compensation | 4.6 | 4.4 | ||||
| Changes in working capital | (82.6 | ) | 30.9 | |||
| Movements in accrued income taxes | (3.8 | ) | (12.9 | ) | ||
| Movements in plant closure provisions | (1.5 | ) | 8.2 | |||
| Movements in unrecognized tax benefits | 0.4 | (0.9 | ) | |||
| Movements in other assets and liabilities | 1.6 | 1.4 | ||||
| Net cash provided by operating activities | 24.4 | 87.7 | ||||
| Cash Flows from Investing Activities | ||||||
| Capital expenditures | (27.4 | ) | (21.7 | ) | ||
| Proceeds on disposal of property, plant and equipment | 0.4 | - | ||||
| Net cash used in investing activities | (27.0 | ) | (21.7 | ) | ||
| Cash Flows from Financing Activities | ||||||
| Non-controlling interest | 0.1 | 0.1 | ||||
| Net repayment of revolving credit facility | - | (60.0 | ) | |||
| Repayment of finance leases | (0.5 | ) | (0.9 | ) | ||
| Refinancing costs | - | (0.3 | ) | |||
| Dividend paid | (14.0 | ) | (12.8 | ) | ||
| Issue of treasury stock | 2.0 | 1.2 | ||||
| Repurchase of common stock | (0.8 | ) | (2.1 | ) | ||
| Net cash used in financing activities | (13.2 | ) | (74.8 | ) | ||
| Effect of foreign currency exchange rate changes on cash | (0.3 | ) | (0.3 | ) | ||
| Net change in cash and cash equivalents | (16.1 | ) | (9.1 | ) | ||
| Cash and cash equivalents at beginning of period | 105.3 | 75.7 | ||||
| Cash and cash equivalents at end of period | $ | 89.2 | $ | 66.6 | ||
Amortization of deferred finance costs of
FAQ
What were Innospec's Q3 2021 earnings results?
What is the dividend declared by Innospec for 2021?
How did Innospec's revenue perform compared to last year?
What were the challenges faced by Innospec in Q3 2021?
