Q2 2026 Innospec Inc Earnings Call

August 5, 2026

Speaker #2: Thank you. Welcome to INNOSPEC Q2 earnings call. This is David Jones, and I'm INNOSPEC's General Counsel and Chief Compliance Officer. The earnings are released for the quarter in this presentation are posted on the company's website.

David Jones: Thank you. Welcome to INNOSPEC's Q2 earnings call. This is David Jones, and I'm INNOSPEC's General Counsel and Chief Compliance Officer. The earnings release for the quarter in this presentation are posted on the company's website. During this call, we will make forward-looking statements which are predictions and projections 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 the anticipated results implied by such forward-looking statements. The risks and uncertainties are detailed in INNOSPEC's filings with the SEC. Please see the SEC site and INNOSPEC site for these and related documents. In today's presentation, we've also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release.

Speaker #2: During this call, we will make forward-looking statements which are predictions and projections 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 the anticipated results implied by such forward-looking statements.

Speaker #2: The risk and uncertainties are detailed in the INNOSPEC spellings with the SEC. Please see the SEC site and INNOSPEC site for these and related documents.

Speaker #2: In today's presentation, we've also included non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release.

Speaker #2: The non-GAAP financial measure should not be considered as a substitute for or superior to those provided in accordance with GAAP. They are included as additional items to aid investor understanding of the company's performance and to see the impact these items and events had on financial results.

David Jones: The non-GAAP financial measures should not be considered as a substitute for or superior to those prepared in accordance with GAAP. They are included as additional items to aid investor understanding of the company's performance and to show the impact these items and events had on financial results. With me today from INNOSPEC are Patrick Williams, President and Chief Executive Officer, and Ian Cleminson, Executive Vice President and Chief Financial Officer. With that, I turn it over to you, Patrick.

Speaker #2: With me today from INNOSPEC are Patrick Williams, President and Chief Executive Officer, and Ian Cleminson, Executive Vice President and Chief Financial Officer. And with that, I'll turn it over to you, Patrick.

Speaker #3: Thank you, David. And welcome, everyone, to INNOSPEC's Q2 2026 conference call. This was a strong quarter for INNOSPEC, with all businesses contributing to double-digit sales and operating income growth.

Patrick Williams: Thank you, David. Welcome everyone to INNOSPEC's Q2 2026 conference call. This was a strong quarter for INNOSPEC, with all businesses contributing to double-digit sales and operating income growth. Performance Chemicals operating leverage drove a 15% operating income increase over last year. In North Carolina, we continue to prioritize plant repairs and process improvements, which will drive long-term benefits. In parallel, we are commercializing new technologies in all end markets and targeting further margin improvement opportunities across the business. We expect these combined efforts to drive further improvement in H2 2026. Fuel Specialties had another strong quarter, delivering revenue and operating income growth with margins in our target range. Volume and price mix improved as the business continued to achieve consistently strong results through a range of economic cycles.

Patrick Williams: Thank you, David. Welcome everyone to INNOSPEC's Q2 2026 Conference call. This was a strong quarter for INNOSPEC, with all businesses contributing to double-digit sales and operating income growth. Performance Chemicals operating leverage drove a 15% operating income increase over last year. In North Carolina, we continue to prioritize plant repairs and process improvements, which will drive long-term benefits. In parallel, we are commercializing new technologies in all end markets and targeting further margin improvement opportunities across the business. We expect these combined efforts to drive further improvement in H2 2026. Fuel Specialties had another strong quarter, delivering revenue and operating income growth with margins in our target range. Volume and price mix improved as the business continued to achieve consistently strong results through a range of economic cycles.

Speaker #3: Performance Chemicals' operating leverage drove a 15% operating income increase over last year. In North Carolina, we continue to prioritize plant repairs and process improvements, which will drive long-term benefits.

Speaker #3: In parallel, we are commercializing new technologies in all end markets and targeting further margin improvement opportunities across the business. We expect these combined efforts to drive further improvement in the second half of 2026.

Speaker #3: Fuel specialties had another strong quarter, delivering revenue and operating income growth with margins in our target range. Volume and price mix improved as the business continued to achieve consistently strong results through a range of economic cycles.

Speaker #3: While there may be some margin headwind in the sequential quarter because of the lag between pricing and cost inflation, we expect continued strong performance.

Patrick Williams: While there may be some margin headwind in the sequential quarter because of the lag between pricing and cost inflation, we expect a continued strong performance. Oilfield Services operating income and margins improved sequentially and on the prior year, driven by a recent DRA plant expansion and growing opportunities for this technology in the markets we serve. However, performance is below our expectations in our completions and production business where opportunities remain for growth and margin improvement. Furthermore, our Middle East business is positioned for growth as onshore completions activity levels recover. We are confident that these combined efforts will drive further sequential improvements in the H2 of 2026. I will turn the call over to Ian Cleminson, who will review our financial results in more detail. I will return with some concluding comments. Ian and I will take your questions. Ian?

Speaker #3: Oil field services operating income and margins improved sequentially and on the prior year, driven by a recent DRA plant expansion and growing opportunities for this technology in the markets we serve.

Speaker #3: However, performance is below our expectations and our completions and production business where opportunities remain for growth and margin improvement. Furthermore, our Middle East business is positioned for growth as onshore completions activity levels recover.

Speaker #3: We are confident that these combined efforts will drive further sequential improvements in the second half of 2026. Now, I will turn the call over to Ian Cleminson, who will review our financial results in more detail.

Speaker #3: Then I will return with some concluding comments. After that, Ian and I will take your questions. Ian?

Speaker #2: Thanks, Patrick. Turning to slide 7 in the presentation, the company's total revenues for the second quarter were $491.4 million. At 12% increase, from $439.7 million a year ago.

Ian Cleminson: Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the Q2 were $491.4 million, a 12% increase from $439.7 million a year ago. Overall gross margin increased by 0.1 percentage points from last year to 28.1%. Adjusted EBITDA for the quarter was $50.1 million compared to $49.1 million last year, and net income attributable to INNOSPEC for the quarter was $30.8 million compared to $23.5 million a year ago. Our GAAP earnings per share were $1.25, including special items, the net effect of which decreased our Q2 earnings by $0.02 per share. A year ago, we reported GAAP earnings per share of $0.94, which included the negative impact from special items of $0.32 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.27 compared to $1.26 a year ago.

Speaker #2: Overall gross margin increased by 0.1 percentage points from last year to $28.1%. Adjusted EBITDA for the quarter was $50.1 million compared to $49.1 million last year and net income attributed to INNOSPEC for the quarter was $30.8 million compared to $23.5 million a year ago.

Speaker #2: Our GAAP earnings per share were $1.25, including special items, the net effect of which decreased our Q2 earnings by $0.02 per share. A year ago, we reported GAAP earnings per share of $0.94, which included a negative impact from special items of $0.32 per share.

Speaker #2: Excluding special items in both years, our adjusted EPS for the quarter was $1.27 compared to $1.26 a year ago. Turning to slide 8, revenues in performance chemicals for the Q2 were $190.3 million, up 9% from last year's $173.8 million.

Ian Cleminson: Turning to slide eight, revenues in Performance Chemicals for the Q2 were $190.3 million, up 9% from last year's $173.8 million. Volume reductions of 2% were offset by a positive price mix of 8% and a favorable currency impact of 3%. Gross margins of 17.3% decreased 0.2 percentage points compared to 17.5% in the same quarter in 2025. Operating income of $16.4 million increased 15% from $14.3 million last year. Moving on to slide nine. Revenues in Fuel Specialties for the Q2 were $185.7 million, up 12% from the $165.1 million reported a year ago. Volumes were up 7%, with the price mix up 3% and a positive currency impact of 2%. Fuel Specialties gross margins of 36.6% decreased one and a half percentage points compared to 38.1% in the same quarter last year on a weaker sales mix.

Speaker #2: Volume reductions of 2% were offset by a positive price mix of 8% and a favorable currency impact of 3%. Gross margins of 17.3% decreased by 0.2 percentage points compared to 17.5% in the same quarter in 2025.

Speaker #2: Operating income of $16.4 million increased 15% from $14.3 million last year. Moving on to slide 9, revenues in fuel specialties for the Q2 were $185.7 million up 12% from the $165.1 million reported a year ago.

Speaker #2: Volumes were up 7%, with the price mix up 3% and a positive currency impact of 2%. Fuel specialties gross margins of $36.6% decreased 1.5 percentage points compared to 38.1% in the same quarter last year, on a weaker sales mix.

Speaker #2: Operating income of $36.3 million was up 3% from $35.4 million a year ago. Moving on to slide 10, revenues in Oilfield Services for the quarter were $115.4 million, up 14% from the $100.8 million reported a year ago.

Ian Cleminson: Operating income of $36.3 million was up 3% from $35.4 million a year ago. Moving on to slide 10, revenues in Oilfield Services for the Q2 were $115.4 million, up 14% from the $100.8 million reported a year ago. Gross margins of 32.3% increased 2.7 percentage points from last year's 29.6% on an improved sales mix. Operating income of $8.7 million increased 40% from $6.2 million one year ago. Turning to slide 11, corporate costs for the Q2 were $21.6 million, compared with $20.9 million a year ago. The effective tax rate for the Q2 was 25% compared to last year's 26%. Moving on to slide 12, cash from operating activities was $7.2 million, before capital expenditures of $16.5 million. In the Q2, we bought back just over 87,000 shares at a cost of $6.4 million.

Speaker #2: Gross margins of 32.3% increased 2.7 percentage points from last year's 29.6%, driven by an improved sales mix. Operating income of $8.7 million increased 40% from $6.2 million one year ago.

Speaker #2: Turning to slide 11, corporate costs for the quarter were $21.6 million compared with $20.9 million a year ago. The effective tax rate for the quarter was 25% compared to last year's 26%.

Speaker #2: Moving on to slide 12, cash from operating activities was $7.2 million before capital expenditures of $16.5 million. In the Q2, we bought back just over $87,000 shares at a cost of $6.4 million.

Speaker #2: As of June 30th, INNOSPEC had $250.2 million in cash and cash equivalents and no debt. And now I'll turn it back over to Patrick for some final comments.

Ian Cleminson: As of 30 June, Innospec had $250.2 million in cash and cash equivalents and no debt. Now I'll turn it back over to Patrick for some final comments. Patrick?

Speaker #2: Patrick?

Speaker #3: Thank you, Ian. Without diversified global supply chain and manufacturing footprint, our teams continue to manage through the direct impacts of geopolitical disruptions delivering sales, margin, and operating income improvements.

Patrick Williams: Thanks, Ian. With our diversified global supply chain and manufacturing footprint, our teams continue to manage through the direct impacts of geopolitical disruptions, delivering sales, margin, and operating income improvements. We remain focused on security of supply and innovative solutions for our customers. We will continue to implement improvements across all our businesses that will position us for further growth and margin improvement. Our short-term expectations are for further operating income growth in Performance Chemicals and Oilfield Services in H2 2026 and steady performance in Fuel Specialties. Our strong, debt-free balance sheet continues to allow for significant flexibility in the current environment to pursue further organic investment, M&A, dividend growth, and buybacks. Operating cash generation was again positive in the quarter, and our net cash position closed at over $250 million.

Speaker #3: We remain focused on security of supply and innovative solutions for our customers. We will continue to implement improvements across all our businesses that will position us for further growth and margin improvement.

Speaker #3: Our short-term expectations are for further operating income growth and performance chemicals and oil field services in the second half of 2026, and steady performance in fuel specialties.

Speaker #3: Our strong debt-free balance sheet continues to allow for significant flexibility in the current environment to pursue further organic investment, M&A, dividend growth, and buybacks.

Speaker #3: Operating cash generation was again positive in the quarter, and our net cash position closed at over $250 million. Our teams are focused on opportunities to improve working capital efficiency and we expect these actions will support increased operating cash flow in the second half of 2026.

Patrick Williams: Our teams are focused on opportunities to improve working capital efficiency, and we expect these actions will support increased operating cash flow in H2 2026. This quarter, we continued our record of returning value to shareholders with our semiannual dividend of $0.92 per share and $6.4 million in share repurchases. Now I will turn the call over to the operator, and Ian and I will take your questions.

Speaker #3: This quarter, we continued our record of returning value to shareholders with our semi-annual dividend of $0.92 per share and $6.4 million in share repurchases.

Speaker #3: Now I will turn the call over to the operator, and Ian and I will take your questions.

Speaker #4: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Once again, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. We are now going to proceed with our first question. The question comes from the line of Michael Harrison from Seaport Research Partners. Please ask your question.

Speaker #4: Once again, please press star 11 and wait for your name to be announced. To withdraw your question, please press star 11 again. We are now going to proceed with our first question.

Speaker #4: And the next question comes from the line of Mike Harrison from Seaport Research Partners. Please go ahead.

Michael Harrison: Hi. Good morning.

Speaker #3: Hi, good morning. First question is on the performance chemicals business. I was hoping you could give us an update on the repair and upgrading process at your facilities.

Patrick Williams: Good morning.

Michael Harrison: First question is on the Performance Chemicals business. I was hoping you could give us an update on the repair and upgrading process at your facilities. Would you say that that's mostly complete at this point, or where do we stand on that?

Speaker #3: Would you say that that's mostly complete at this point, or where do we stand on that?

Patrick Williams: Mike, it's Patrick. I would say we're probably about 60% of the way through it. We've still got some minor repairs, and now it's doing a little more pipe work for more expansion, but we're getting close. I think by the end of Q4, we should be fully repaired and fully optimized at that point.

Speaker #2: Mike, I would say it's Patrick. I would say we're probably about 60% of the way through it. We've still got some minor repairs, and now it's due for a little more pipe work for more expansion.

Speaker #2: But we're getting close. I think by the end of Q4, we should be fully repaired and fully optimized at that point.

Speaker #3: All right. And then in terms of just what you're seeing in the pricing versus raw material realm on performance chemicals, the price mix there was up 8%.

Michael Harrison: All right. In terms of just what you're seeing in the pricing versus raw material realm on Performance Chemicals, the price mix there was up 8%. Did that keep pace with raw material cost inflation that you saw in the quarter? I guess, it looks like some of the oleochemicals are coming a little bit lower. Is that something that's helping to maybe provide a little bit of margin benefit?

Speaker #3: Did that keep pace with raw material cost inflation that you saw in the quarter? And I guess it looks like some of the oleochemicals are coming a little bit lower.

Speaker #3: Is that something that's helping to maybe provide a little bit of margin benefit?

Speaker #2: Yeah, Mike, you're seeing. It seemed to have done a really good job, actually, with keeping up with the price increases. They've been pretty creative around the edges as well about putting new formulations into customers' hands.

Ian Cleminson: Yeah, Michael, it's Ian. The team have done a really good job, actually, with keeping up with the price increases. They've been pretty creative around the edges as well about putting new formulations into customers' hands. Where we've needed to take price action, we have. You can see year-over-year that the margins are pretty comparable, and they've obviously improved sequentially over Q1 as well. We are seeing price inflation. We're handling it pretty well at the moment, and we continue to expect to be able to handle it, and we'll pass through where we need to. The markets are pretty choppy at the moment. Prices are moving up and down pretty rapidly, but we've got a good handle on it and the team are doing well.

Speaker #2: Where we've needed to set price action, they have. And you can see year over year that the margins are pretty comparable, and they've obviously improved sequentially over Q1 as well.

Speaker #2: So we are seeing price inflation, we're handling it pretty well at the moment, and we continue to expect to be able to handle it, and we'll pass through where we need to.

Speaker #2: So, the markets are pretty choppy at the moment. Prices are moving up and down pretty rapidly. But we've got a good handle on it, and the team are doing well.

Speaker #3: All right. And then a similar question on fuel specialties. I think that gross margin number for Q2 came in maybe a little bit better than you had anticipated, but it sounds like maybe you're anticipating some margin pressure sequentially into Q3.

Michael Harrison: All right, Similar question on Fuel Specialties. I think that gross margin number for Q2 came in maybe a little bit better than you had anticipated. It sounds like maybe you're anticipating some margin pressure sequentially into Q3. Can you just give us a little bit of sense of how you're seeing the raw material flow through and that contractual pricing pass-through mechanism?

Speaker #3: Can you just give us a little bit of a sense of how you're seeing the raw material flow through, and that contractual pricing pass-through mechanism?

Speaker #2: Yeah, sure. Mike, you're seeing again. As you know, in fuels we have the sort of pricing lag up and down. Fuels is mostly crude derivatives-based.

Ian Cleminson: Yeah, sure, Mark. You can see it again. As you know, in fuels, we have the pricing lag up and down. Fuels is mostly crude derivatives based. The team, again, are chasing prices up at the moment. You've seen a little bit of margin compression in Q2. Some of that is pricing, but some of that is also sales mix in the quarter. We're actually quite pleased with what the team have done there. They're on top of it. As we move into Q3, I would expect a little bit more pressure on the gross margins because of the lag. Again, there's nothing here that is really concerning us. It's a well-trodden path. The team are well-versed in what they need to do, and the market is responding correctly to our actions. We're in good shape.

Speaker #2: So the team, again, are chasing prices up at the moment. You've seen a little bit of margin compression in Q2. Some of that is pricing, but some of that is also sales mix in the quarter.

Speaker #2: We're actually quite pleased with what the team have done there. They're on top of it. As we're moving to Q3, I would expect a little bit more pressure on the gross margins because of the lag.

Speaker #2: But again, there's nothing here that is really concerning us. It's a well-trodden path the team are well-versed in what they need to do, and the market is responding correctly to our actions.

Speaker #2: So we're in good shape. I think as we move through Q3 and into Q4, we're hopeful that if we get stability in prices, we'll start to see some stability in margins.

Ian Cleminson: I think as we move through Q3 and into Q4, we're hopeful that if we get stability in prices, we'll start to see some stability in margins.

Speaker #3: All right. Thanks for that. And then last question for me is just on the oil field business. I was hoping you could give some additional detail on what you're seeing in the drag-reducing agent portion of that business.

Michael Harrison: All right. Thanks for that. Last question from me is just on the oilfield business. I was hoping you could give some additional detail on what you're seeing in the drag-reducing agent portion of that business. It sounds like you guys have added capacity, and you've started to see some good uptake of that additional capacity. How much growth are you seeing in that business overall? How much of that is coming in the Middle East as a result of some of the, I guess, crude logistics issues they're facing in the wake of the Iran war?

Speaker #3: It sounds like you guys have added capacity and you've started to see some good uptake of that additional capacity. But how much growth are you seeing in that business overall, and how much of that is coming in the Middle East as a result of some of the, I guess, crude logistics issues they're facing in the wake of the Iran war?

Speaker #2: Yeah. So we added capacity in the majority of that capacity is almost sold out. We added new customers in North America, but again, as you just alluded to, we have shipped a lot to the Middle East.

Patrick Williams: Yeah. We added capacity, and the majority of that capacity is almost sold out. We added new customers in North America, again, as you just alluded to, we have shipped a lot to the Middle East, more importantly for the East-West Pipeline and other pipelines that go along that corridor. I've always said, and we said it in the last quarter, that where there's chaos, there's opportunity. We see this as not just a short-term fix. We think that they're going to move more products to that pipeline over time, even if the Strait of Hormuz are open in the near term. Our product is extremely good product. I think that it's been taken very well in the Middle East, we'll continue to ship products as we go.

Speaker #2: More importantly, for the East-West pipeline and other pipelines that go along that corridor. I've always said, and we said it in the last quarter, that where there's chaos, there's opportunity.

Speaker #2: And we see this as not just a short-term fix. We think that they're going to move more products to that pipeline over time, even if the Strait of Hormuz or open in the near term.

Speaker #2: And so our product is an extremely good product, and I think that it's been taken very well in the Middle East. We'll continue to ship products as we go.

Speaker #2: There is another opportunity for us to do another expansion of DRA down the road, and that's being discussed as we speak.

Patrick Williams: There is another opportunity for us to do another expansion of DRA down the road, that's being discussed as we speak.

Speaker #3: All right. Thanks very much.

Michael Harrison: All right. Thanks very much.

Speaker #2: Thank you.

Ian Cleminson: Thank you.

Patrick Williams: Thank you.

Speaker #1: Thank you, Mike.

Ian Cleminson: Thank you, Mark.

Speaker #4: As a reminder to ask a question, please press the 11 on your telephone and wait for your name to be announced. To withdraw your question, please press the 11 again.

Operator: As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We are now going to proceed with our next question. The question's come from the line of David Silver from Freedom Capital Markets. Please ask your question.

Speaker #4: We are now going to proceed with our next question. And the questions come from the line of David Silver from Freedom Capital Markets. Please ask your question.

Speaker #5: Yeah, hi. Good morning. Thanks very much. I'll apologize. I think my feed was cutting in and out just a little bit. So apologies if I make you repeat yourself here.

David Silver: Yeah. Hi, good morning. Thanks very much. I'll apologize. I think my feed was cutting in and out just a little bit, so apologies if I make you repeat yourself here. I'd like to go back to Mike's question about the work done with your Performance Chemicals facilities in the wake of the unplanned outages and the disruptions earlier this year. Patrick, you did mention that the discretionary upgrading work should be done by the end of the year. In a qualitative basis, have you guys thought about what kind of benefits could we expect to result from the project once it's complete? Is it capacity related? Is it efficiency related? Just what kind of benefits, and if you could ballpark them, that'd be great. Thank you.

Speaker #5: I'd like to go back to Mike's question about the work done in your with your performance chemicals facilities in the wake of the unplanned outages and the disruptions earlier this year.

Speaker #5: So Patrick, you did mention that the work, the discretionary upgrading work should be done by the end of the year. In a qualitative basis, I mean, have you guys kind of thought about what or what kind of benefits should we expect to result from the project once it's complete?

Speaker #5: Is it capacity-related? Is it efficiency-related? Just what kind of benefits and if you could ballpark them, that'd be great. Thank you.

Speaker #3: Yeah, David, sure, David. The number one priority was to get the plant repairs up and moving so we could provide products to our customers.

Patrick Williams: Yeah. Sure, David. The number one priority was to get the plant repairs up and moving so we could provide products to our customers. That was the number one priority on our list, and we've accomplished that. We still have a ways to go. We're still tight. I think as these efficiencies come on, it will give us more capacity. It'll give us better yield rates, and it also improved safety, everything along that plant that we needed to improve. It's hard to put a number on yet on how much volume it's going to help increase, but it is a pretty good number that we're looking at, probably north of 10% at least moving forward for next year.

Speaker #3: That was the number one priority on our list. And we've accomplished that. We still have a ways to go. We're still tight. But I think as these efficiencies come on, it will give us more capacity.

Speaker #3: It'll give us better yield rates. And it also improved safety, everything along that plant that we needed to improve. It's hard to put a number on yet, on what it's going to how much volume it's going to help increase.

Speaker #3: But it is a pretty good it is a pretty good number that we're looking at, probably north of 10% at least, moving forward for next year.

Speaker #5: 10% on capacity, that is.

David Silver: 10% on capacity, that is. Is that correct?

Speaker #3: On capacity, yeah.

Patrick Williams: On capacity, yeah.

David Silver: Okay, great. Thank you for that. I did want to go back to Oilfield Services and maybe just pick your brain, Patrick, for your approach to investing and taking advantage of some opportunities. You certainly touched on the DRA opportunity emerging in the Middle East. What do you sense the opportunities are or how you want to be positioned in the shale basins here? In other words, will production be structurally higher for some period of time because of the geopolitics, as you mentioned, or are we still in a phase where the industry is a little more careful with their CapEx than maybe they have been in the past? What are the broader opportunities in the global oil market beyond DRAs in the Middle East?

Speaker #5: Okay, great. Thank you. And I did want to kind of go back to oil field and maybe just pick your brain, Patrick, for your approach to investing and taking advantage of some opportunities.

Speaker #5: So you certainly touched on the DRA opportunity emerging in the Middle East. What do you sense the opportunities are or how you want to be positioned in the shale basins here?

Speaker #5: In other words, will production be structurally higher for some period of time because of the geopolitics, as you mentioned? Or are we still in a phase where the industry is a little more careful with their CapEx than maybe they have been in the past?

Speaker #5: But what are the broader opportunities in the global oil market beyond DRAs in the Middle East?

Speaker #3: Yeah. I mean, you can follow the rig count and see it hasn't spiked like you thought it would. And we've always said that E&P companies are taking a more disciplined approach now.

Patrick Williams: Yeah, you can follow the rig count and see it hasn't spiked like you thought it would. We've always said that E&P companies are taking a more disciplined approach now. You have to remember, you have longer laterals, more stages, so you're getting more volume of oil through wells than you have in the past. There's really not a need to have a large uptick on drilling. What we're seeing is still a very disciplined approach by E&P companies, and we just have to be prepared with new technologies, which we should be launching here within the next 6 months, that'll help us propel in that area, as well as other areas like South America and Mexico. We're watching things over in Mexico. We're seeing some things starting to turn, and hopefully we'll have some opportunities there over the next 6 months.

Speaker #3: But you have to remember, you have longer laterals, more stages, so you're getting more volume of oil through wells than you have in the past.

Speaker #3: So there's really not a need to have a large uptick on drilling. But what we're seeing is still a very disciplined approach by E&P companies.

Speaker #3: And we just have to be prepared with new technologies, which we should be launching here within the next six months. That'll help us propel in that area, as well as other areas like South America and Mexico.

Speaker #3: And we're watching things over in Mexico. We're seeing some things starting to turn. And hopefully, we'll have some opportunities there over the next six months.

David Silver: Oh, wow. Mexico. I wasn't expecting that. Okay, interesting. Maybe just to go back to Fuel Specialties. The revenues were up double-digits. Operating income was up 3%. There was some margin effect there. Was that all due to raw material costs, or was there kind of a notable mix effect? More broadly, it seems like that segment is on track for another record year. Just wondering if you had any thoughts about that record revenue and operating income. Thank you.

Speaker #5: Oh, wow. Mexico. I wasn't expecting that. Okay. Interesting. Maybe just to go back to fuel specialties, I mean, the revenues were up double digits.

Speaker #5: Operating income was up 3%. So there was some margin effect there. Was that all due to raw material costs, or was there kind of a notable mixed effect?

Speaker #5: And then more broadly, it seems like that segment is on track for another record year. Just wondering if you had any thoughts about that record revenue and operating income.

Speaker #5: Thank you.

Speaker #2: Yeah, let me set that one, David. Let's see. So as we said, previously to Mike, the gross margin compression that we saw year over year most of that was from sales mix.

Ian Cleminson: Yeah, let me take that one, David, Ian. As we said previously to Mike, the gross margin compression that we saw year-over-year, most of that was from sales mix. There was a little bit of pricing in there, but most of it was to the mix at the top line. The business is progressing really nicely, as you said. At the H1 point, it's pretty much where we expected it to be. We expect the business in Q3 to be a very similar set of results to what we did in Q2, and then we're into the winter season. The business is very well set for a very strong H2 of the year.

Speaker #2: There was a little bit of pricing in there. But most of it was the mix at the top line. And the business is progressing really nicely, as you said.

Speaker #2: So, at the half-year point, it's pretty much where we expected it to be. We expect the business in Q3 to deliver a very similar set of results to what we did in Q2.

Speaker #2: And then we're into the winter season. So the business is very well set for a very strong second half of the year. And that is built on great technology, great service to the customers, a really dedicated team that's out there executing day in, day out.

Ian Cleminson: That is built on great technology, great service to the customers, a really dedicated team that's out there executing day in, day out, and we're really pleased with where they've got to. Yeah, they're all well set. It's not easy, but they will drive really hard for a record year.

Speaker #2: And we're really pleased with where they've got to. So yeah, they're all well set. It's not easy, but they will drive really hard for a record year.

Speaker #5: Okay. And then last question from me, and this is kind of a big picture question, but your results were very strong here in absolute terms, but I think even in relative terms, you surprised me.

David Silver: Okay, last question from me, and this is kind of a big-picture question, but your results were very strong here in absolute terms. I think even in relative terms, you surprised me, and I guess the consensus a little bit in terms of your ability to produce and ship in the wake of the disruptions that you suffered in Q1. Maybe just a comment on how you were able to kind of reposition or react so effectively and seemingly not miss a beat in terms of shipments and driving revenue growth, I think across your businesses, several of which did suffer some mechanical disruptions. Just broadly speaking, is there a lot of flexibility inherent in your system?

Speaker #5: And I guess the consensus a little bit in terms of your ability to produce and ship in the wake of the disruptions that you suffered in the first quarter.

Speaker #5: Maybe just a comment on how you were able to kind of reposition or react so effectively and seemingly not miss a beat in terms of shipments and driving revenue growth.

Speaker #5: I think across your businesses, several of which did suffer some mechanical disruptions. So just broadly speaking, is there a lot of flexibility inherent in your system?

David Silver: Just broadly speaking, is there a lot of flexibility inherent in your system? Is there still a lot of flexibility assuming you're producing at the Q2 level, or is that something that incremental growth might have to be addressed through additional CapEx or other types of resourcing?

Speaker #5: And is there still a lot of flexibility assuming you're producing at the 2Q level, or is that something that incremental growth might have to be addressed through additional capex or other types of resourcing?

David Silver: Is there still a lot of flexibility assuming you're producing at the Q2 level, or is that something that incremental growth might have to be addressed through additional CapEx or other types of resourcing?

Speaker #3: No, I think we first have to give credit to the management team and the individuals at the plant. I mean, this has been a very, very difficult process for us to go through.

Patrick Williams: No, I think we first have to give credit to the management team and the individuals at the plant. This has been a very difficult process for us to go through. You had the winter storm hit. We found out a lot of weaknesses within the system. We worked night and day, seven days a week to get it fixed, to make sure we're not missing load to customers, and that's been very difficult without claiming a force majeure. We fought our way through that. I think as I said earlier, the efficiencies that are coming about and coming through now, and that'll hit the Q4, is going to give us additional capacity without more CapEx once we spend this original CapEx. We're in a really good position. I think that you'll see over the coming quarters, you'll see improvements.

Speaker #3: You had the winter storm hit. We found out a lot of weaknesses within the system. We've worked night and day, seven days a week to get it fixed, to make sure we're not missing load to customers.

Speaker #3: And that's been very difficult. Without claiming a force majeure, so we fought our way through that. I think, as I said earlier, the efficiencies that are coming about and coming through now that'll hit the fourth quarter is going to give us additional capacity without more capex once we spend this original capex.

Speaker #3: So we're in a really good position. I think that over the coming quarters, you'll see improvements. We could have had some nice volume improvement in the quarter, but we just couldn't make it.

Patrick Williams: We could have had some nice volume improvement in the quarter, but we just couldn't make it. We were at capacity. I think we will start seeing volume improvements as the quarters come. It's been a lot of work, David, and I got to give credit to credit due is we put ourself in this position, but we fought like hell to get out of it. We're not going to ever go there again. We're sitting in a good spot where we can see the light at the end of the tunnel, and we're very confident moving forward.

Speaker #3: We were at capacity. So I think we will start seeing volume improvements as the quarters come. But it's been a lot of work, David.

Speaker #3: And I’ve got to give credit where credit is due. We put ourselves in this position, but we fought like hell to get out of it.

Speaker #3: And we're not going to ever go there again. But we're sitting in a good spot. We can see the light at the end of the tunnel.

Speaker #3: And we're very confident moving forward.

Speaker #5: Okay, great. I appreciate all the color. Thank you.

David Silver: Okay, great. I appreciate all the color. Thank you.

Speaker #3: Thanks, David.

Patrick Williams: Thanks, David.

Speaker #2: Thanks, David.

Operator: Thank you. As a reminder, to ask a question, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. We are now going to proceed with our next question. The question's come from the line of Jon Tanwanteng from CJS Securities. Please ask your question.

Speaker #1: Thank you. As a reminder to ask a question, please press star 11 and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker #1: We are now going to proceed with our next question. And the questions come from the line of John 10, 110 from CJS Securities. Please ask your question.

Speaker #5: Hi. Good morning. Thank you for taking my questions and really nice quarter.

Jon Tanwanteng: Hi. Good morning. Thank you for taking my questions and really nice quarter.

Speaker #2: Good morning, John. Thank you.

Patrick Williams: Good morning, Jon.

Ian Cleminson: Thank you. Good morning.

Speaker #5: Good morning. I was wondering if you could quantify the impact in Q2 from the repair and upgrade activity? And it sounds like you're taking a little bit longer to get back where you want to be.

Jon Tanwanteng: I was wondering if you could quantify the impact in Q2 from the repair and upgrade activity. It sounds like you're taking a little bit longer to get back where you want to be. What do you think you might be leaving on the table in heading into Q3 and maybe Q4, and do you make it up on the back end when things are up and running, or are those sales gone?

Speaker #5: What do you think you might be leaving on the table and heading into Q3 and maybe Q4 and do you make it up on the back end when things are up and running, or are those still gone?

Speaker #2: Yeah, let me set that first, John, and then Patrick will come over to talk a little bit. As Patrick alluded to on previous questions, we were really supply constrained in Q2.

Ian Cleminson: Yeah, let me take that first, Jon, then Patrick will come over the top a little bit. As Patrick alluded to on previous questions, we were really supply constrained in Q2. We got as much volume out of North Carolina as we could. There could have been more in there. Our expectation is that broadly, Q3 will be very similar to Q2 across Performance Chemicals. The additional volume, the additional capacity won't really come on till Q4 at the earliest, probably more likely into Q1 next year. I think you're going to see us, I don't mean plateaued is probably the wrong word, but I think we're probably operating towards the top end of what we're capable of now. I think Q3 will be very similar. Q4 might see a little bit more of an uptick sequentially, that's sort of how we see it right now.

Speaker #2: We got as much volume out of North Carolina as we could. There could have been more in there. Our expectation is that broadly Q3 will be very similar to Q2 across performance chemicals.

Speaker #2: That volume and the additional volume, the additional capacity won't really come on until Q4 at the earliest. Probably more likely, into Q1 next year.

Speaker #2: So I think you're going to see us I don't mean plateaued. It's probably the wrong word, but I think we're probably operating towards the top end of what we're capable of now.

Speaker #2: So, I think Q3 will be very similar. Q4 might see a little bit more of an uptick sequentially, but that's sort of how we see it right now.

Speaker #3: Yeah, I think as we said, John, it's the number one priority was to get that plant up and running to meet the volumes and fractional volumes that we had in place.

Patrick Williams: Yeah. I think as we said, Jon, the number one priority was to get that plant up and running to meet the contractual volumes that we had in place, we've done that. Now it's more putting better efficiencies in place so that we can increase yield and increase volume moving forward. As Ian said, I think you'll see that towards the latter part of Q4 and then for sure in Q1. We have missed some volume. Will we pick some of that back up in Q4, Q1 next year? Yes, you won't pick it up in Q3.

Speaker #3: And we've done that. And now it's more putting better efficiencies in place so that we can increase yields and increase volume moving forward. And as Ian said, I think you'll see that towards a lot of part of Q4.

Speaker #3: And then for sure in Q1. So we have missed some volume. Will we pick some of that back up in Q4 or Q1 next year?

Speaker #3: Yes. But you won't pick it up in Q3.

Speaker #5: Okay. Great. Thank you. And then I was wondering if you could go into a little bit more detail on just the improved pricing mix in this segment.

Jon Tanwanteng: Okay, great. Thank you. Then I was wondering if you could go into a little bit more detail on just the improved pricing mix in this segment. I think you called out that you're doing a good job in getting new formulations to customers. Could you go into a little more detail of where exactly you're winning, what's driving that, and how sustainable that is as you get more capacity online?

Speaker #5: I think you called out that you're doing a good job in getting new formulations to customers. But could you go into a little more detail on where exactly you're winning what's driving that and kind of how sustainable that is as you get more capacity online?

Ian Cleminson: Are you asking, Jon, about in the future or are you asking about Q2?

Speaker #3: Are you asking, John, about in the future or are you asking about Q2?

Speaker #5: Both.

Jon Tanwanteng: Both.

Speaker #3: Both. Okay. So yeah, we did a good job on pricing in Q2 and performance chemicals. The mix was pretty flat year over year. And I think sequentially, obviously, the winter storm impacts at Q1.

Ian Cleminson: Both. Okay. Yeah, we did a good job on pricing in Q2 in Performance Chemicals. The mix was pretty flat year-over-year, and I think sequentially, obviously, the winter storm impacted Q1, so it's not a really good comparison because of the volume interruptions that we had. As we move into Q3, our expectation is that the business will continue to manage pricing, potentially swap out some formulations with customers where we can, but where we can't, we'll take pricing action. I don't think we'll really see the benefit of the improvements that we're making until back part of Q4, early 2027, because we just won't have the capacity, Jon, to change the sales mix and the profile there. Additionally to that, we're also expecting new products to come online as well, which will help the margin profile.

Speaker #3: So it's not a really good comparison. Because the volume interruptions that we had. As we move into Q3, our expectation is that the business will continue to manage pricing.

Speaker #3: Potentially, swap out some formulations with customers where we can. But where we can't, we'll set pricing action. I don't think we'll really see the benefit of the improvements that we're making until back part of Q4, early 2027.

Speaker #3: Because we just won't have the capacity, John, to change the sales mix and the profile there. Additionally to that, we're also expecting new products to come online as well.

Speaker #3: Which will help the margin profile. But I think, overall, the way we're managing raw materials—you'll see us do the same again in Q3 as we did in Q2.

Ian Cleminson: I think overall, the way we're managing raw materials, you'll see us do the same again in Q3 to what we've done in Q2. That's responsibly manage it through our customers and through our supply chains.

Speaker #3: That's responsibly manage it through our customers and through our supply chains.

Speaker #2: Yeah, just to add a little color to Ian's comments. In all of our businesses, we've had to manage extremely tight timelines on raw materials.

Patrick Williams: Yeah, just to add a little color to Ian's comments. In all of our businesses, we've had to manage extremely tight timelines on raw materials. There's been force majeure on some raw materials, so we've had to reformulate a way. There's been a tightness in the market in general, and timing of shipments has been extremely difficult. Our supply chain, our management team, and all the businesses have done a really good job dealing with not only the inflationary pricing, but obviously the tightness of the market. We feel confident that we have a handle on it, and I think that we'll just continue to see those general improvements as we move forward.

Speaker #2: There's been force majeure on some raw materials. So we've had to reformulate away. There's been a tightness in the market in general. In timing of shipments has been extremely difficult.

Speaker #2: So our supply chain, our management team, and all the businesses have done a really good job dealing with not only the inflationary pricing, but obviously the tightness of the market.

Speaker #2: So we're we feel confident that we have a handle on it. And I think that we'll just continue to see those general improvements as we move forward.

Speaker #5: Great. Thank you. And then I think you mentioned earlier that you have some confidence that Mexico might come back later this year. I was wondering if you could just talk about what's going on there and if you can size or time the ramp up of potential return of business there.

Jon Tanwanteng: Great. Thank you. I think you mentioned earlier that you have some confidence that Mexico might come back later this year. I was wondering if you could just talk about what's going on there, and if you can size or time the ramp-up of potential return of business there.

Speaker #3: Yeah, it's interesting. There's they've had some public announcements about spending capital in certain areas. Some's on polyethylene. Some was on crude. Some was on that gas plants.

Patrick Williams: Yeah. It's interesting. They've had some public announcements about spending capital in certain areas. Some was on polyethylene, some was on crude, some was on nat gas plants, petrochemical plants. That's filtering through now to saying that they realize that they actually need, now's the time that the country needs to get more crude out of the systems. It's never going to be what it was. I think technology's changing a little bit, but it's going to be a slow process. As we always told you, we're not going to sell products that we're not going to get paid on for six months to a year. Until that environment changes, we're just going to slow play it. In saying that there's opportunities, we have had some people come to us and said, "We've got opportunities. Here's our payment." It's not large volumes.

Speaker #3: Petrochemical plants. That's filtering through now to saying that they realize that they actually need now's the time that the country needs to get more crude out of the system.

Speaker #3: It's never going to be what it was. I think technology's changing a little bit. But it's going to be a slow process. As we always told you, we're not going to sell products that we're not going to get paid on for six months to a year.

Speaker #3: And so until that environment changes, we're just going to slow play it. But in saying that there's opportunities, we have had some people come to us and said, we've got opportunities.

Speaker #3: Here's our payment. It's not large volumes. I don't think you'll see any effect this year. We're not counting on it even for next year.

Patrick Williams: I don't think you'll see any effect this year. We're not counting on it even for next year. If it comes, it comes. It's more putting ourselves in a position that when they have to return back to using chemicals, that we're one of their first choice, and that's what we're doing. We're seeing more activity and having more conversations.

Speaker #3: If it comes, it comes. So it's more putting ourselves in a position that when they have to return back to using chemicals that were one of their first choice.

Speaker #3: And that's what we're doing. But we are just seeing we're seeing more activity and having more conversations.

Speaker #5: Got it. No, that's helpful. And just to be clear, they're now reaching out to you as opposed to just waiting for something to happen.

Jon Tanwanteng: Got it. That's helpful. Just to be clear, they're now reaching out to you as opposed to just waiting for something to happen.

Speaker #3: Correct.

Patrick Williams: Correct.

Speaker #5: Got it. Thank you.

Jon Tanwanteng: Got it. Thank you.

Speaker #3: Thank you.

Patrick Williams: Thank you.

Speaker #2: Thanks, John.

Ian Cleminson: Thanks, Joe.

Speaker #1: We have no further questions at this time. So I'll now hand back to you to Patrick Williams for closing remarks. Thank you.

Operator: We have no further questions at this time, so I'll now hand back to you, to Patrick Williams, for closing remarks. Thank you.

Speaker #3: Thank you all for joining us today. And thanks to all our shareholders, customers, and INNOSPEC employees for your interest and support. If you have any further questions about INNOSPEC or matters discussed today, please give us a call.

Patrick Williams: Thank you all for joining us today, and thanks to all our shareholders, customers, and Innospec employees for your interest and support. If you have any further questions about Innospec or matters discussed today, please give us a call. We look forward to meeting up with you again to discuss our Q3 2026 results in November. Have a great day.

Speaker #3: We look forward to meeting up with you again to discuss our third quarter 2026 results in November. Have a great day.

Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.

Q2 2026 Innospec Inc Earnings Call

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