Q2 2022 Innospec Inc Earnings Call

Please be advised to this conference has been recorded. I would not like to hand a conference over to a Facebook today, David Jones. Please go ahead.

Thank you. This is David Jones. I'm Inesbeck's General Counsel and Chief Compliance Officer. Late yesterday, we reported our financial results for the quarter ended June 30, 2022. The earnings released in this presentation are posted on the company's website.

During this call, we will make forward-looking statements which are predictions, projections, and other statements about future events. These statements are based on current expectations and assumptions that are subject to risk and uncertainties that could cause actual results to differ materially from anticipated results implied by forward-looking statements.

The risk and uncertainties are detailed in the health specs, 10K, 10Qs, and other following of the FCC.

Please see the SEC side or NSPEC side for these other documents.

In our discussions today, we've also included non- GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release.

The non- GAAP financial measures should not be considered as a substitute for or superior to those prepared in accordance with GAP. They are included as additional items to aid investor understanding of the company's performance. In addition to the impact of these items, the end-of-the-vent have on financial results. The end-of-the-vent have on financial results.

With me today from Minnesota Tech are Patrick Williams, President and Chief Executive Officer, and Ian Clemenson, Executive Vice President and Chief Financial Officer. And with that, I turn it over to you Patrick.

Thank you, David, and welcome everyone to the Innisfec's second quarter, 2022 Conference Call.

This was another very good quarter for MSBAC.

volume, price, and mix improvements drove double-digit increases in sales and operating income in all businesses.

Our manufacturing supply chain teams have remained extremely resourceful through these ongoing global imbalances, and we continue to build on a reputation that they consistent and reliable partner to our customers. For the consistent and reliable partner to our customers.

Performance chemical cells grew in all-end markets.

Operating income was up 61% over last year and EBITDA margin surpassed 20%.

Personal care demands drove most of the margin in operating income improvement over the prior year and more than offset weaker demand from small segments like European home care.

To support personal care growth, we are adding capacity under our current two-year, $70 billion organic investment program. In addition, this quarter we opened our new 20,000 square foot Global Technology Center, which supports R&D and technical services across all our performance chemicals business segments.

To further position for long-term growth, last week we closed on the purchase of significant additional land adjacent to our primary U.S. performance chemicals manufacturing facility in North Carolina. The manufacturing facility in North Carolina.

Field specialties delivered an 11% increase in operating income over a strong compared quarter last year.

Gross margins remain to the lower end of our target range. However, we expect improvement as inflation normalizes in higher margin and markets like Jeff Feele fully recovered.

We continue to have success in introducing our innovative technologies into new applications and in markets. We continue to have success in introducing our innovative technologies into new applications

Several of these segments, like low-sulfur marine fuel, renewable fuels, and non-fuel application areas have delivered double-digit growth over the past several years.

These opportunities have exciting growth potential and are aligned with global sustainability objectives.

Oilfield Services operating income approximately doubled versus the prior year.

Despite continues growth in our production chemical segment, recovering our completion's business and overall performance is still below our internal expectations. There's still below our internal expectations.

We expect sequential operating income and margin expansion to continue in the coming quarters.

Now I will turn the call over to Ian Clemenson who will review our financial results in more detail. Then I will return with some concluding comments.

After that, Ian and I will take your questions.

Thanks Patrick. Turning to slide 7 in the presentation, the company's total revenues for the second quarter were 467.6 million, a 32% increase from 354.5 million a year ago.

Overall gross margin decreased slightly by 0.7 percentage points from last year to 29.9%.

EBITDA for the quarter was 52.9 million compared to 50.6 million last year, and net income for the quarter was 32.3 million compared to 22.4 million a year ago.

Our gap earnings per share will $1.29 including special items. S

the net effect of which decreased our second quarter earnings by 29 cents per share.

A year ago we reported gap earnings per share of 90 cents which included a negative impact on special items of 40 cents per share.

Excluding special items in both years, our adjusted EPS for the quarter was $1.58 compared to $1.30 a year ago.

Turning to slide eight, revenues in performance chemicals for the second quarter were 169 million, up 32% from last year's 128.2 million. Up 32% from last year's 128.2 million.

Volumes grew 6% with a positive price mix of 34% Offsetting an adverse currency impact of 8%

Gross margins of 25.8% were up by 1.2% points compared to 24.6% in the same quarter in 2021, benefiting from the growth in higher margin personal care business.

Operating income increased 61% from last year to £28.8m.

Moving on to slide 9, revenues in fuel specialties for the second quarter were 176.4 million, 23% higher than the 143.1 million reported a year ago.

Volumes grew by 3% and there was a positive price mix effect of 27%, offsetting a negative currency impact of 7%.

Fuel Specialties gross margins are 32.3% with 2.7 percentage points below a relatively strong quarter last year and will remain at the lower end of our expected range until inflation moderates.

Operating income increased 11% from last year to 31.5 million.

Moving on to slide 10, revenues and oil field services for the quarter were 122.2 million, up 47% from 83.2 million in the second quarter last year.

Gross margins of 32.2% were broadly the same as last year and operating income of 4.5 million was a 2.3 million improvement from a year ago.

Turning to slide 11, corporate costs for the quarter were 18.5 million compared to the 11.6 million a year ago, due mainly to higher personnel related expenses driven by increased sharebase compensation and performance related accruals.

The effective tax rate for the quarter was 23.6% compared to 44.1% a year ago, which included the enacted change in the United Kingdom tax rate impacting the third tax.

The adjusted effective tax rate for the quarter was 22.8% compared to 24.2% last year.

Move on to slide 12.

Cash generation for the quarter was impacted by a 43.7 million cash outflow for working capital. We resulted in operating cash outflow with 7.5 million before capital expenditures of 9 million.

As of June 30th, Innisfek has 71.4 million cash and cash equivalents and no debt.

And now I'll turn it back over to Patrick for some final comments.

Thanks Ian.

Global economic and supply chain uncertainty is expected to continue in the coming quarters.

This will not distract our focus from safe operations, product innovation with exceptional customer service and support.

Although we are seeing some signs that cost and place could begin to moderate parts of our business. We could begin to moderate parts of our business.

We continue to manage price actions in close collaboration with our customers.

Coming into the third quarter, we see strong demand across all our businesses.

Personal Care volumes, which drive over 75% of Performance Chemical's operating income, are supported by multi-year contracts with recent capacity additions sold out as they come online.

Fuel specialties have historically been a relatively steady business during solar economic periods due to our chemistry's critical performance in our customers products.

We build oil-filled services continue to have significant growth potential with the target returns and pre-COVID operating income levels over the medium term. The pre-COVID operating income levels over the medium term.

This quarter we continue to return value to shareholders with our $15.6 million semi-annual dividend and $1.8 million of share repurchases.

Despite any near economic volatility, we will be at our strong balance sheet positions as for further dividend growth and share repurchases while funding our organic investment priorities and eliminate.

Now I will turn the call over to the operator and Ian and I will take your questions.

Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please, then, by all will become public and I will start. Please, we'll take a few moments.

Now we're going to take our first question.

And it comes from the line of Mike Harrison from Seaport Research Partners. Your line is open. Please ask your question.

Hi, good morning and congratulations on a strong quarter. Thanks Mike, thank you back.

I was wondering if you could walk through the trends that you're seeing in Europe in both your performance chemicals business and fuel specialties. Where are you seeing pockets that are softening and where are you seeing some pockets that might be more resilient?

Yeah, Mike Patrick. In Europe we're seeing steel strong personal care, and that's globally.

The weaknesses that we're seeing in Europe are strictly in the home care area.

Now it's a smaller part of our business.

Therefore, we're still seeing SNP can growth in that region.

I think we're seeing the same and feel specialties. We have nice growth in Europe . We're seeing really good growth in the United States and South America. We're seeing South America. We're seeing South America. We're seeing South America.

You know, it's still a little slow and as-pack due to some of the Asian countries still shut down due to COVID.

But overall, we're really still seeing strong, strong growth in most of our markets. Sounds like?