Innospec Inc. 2026 Q2 Earnings Call

Welcome to Innospec's second quarter earnings call. This is David Jones, and I'm Innospec's General Counsel and Chief Compliance Officer. The earnings release for the quarter and 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 risks 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 those 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 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.

Thank you, David, and welcome everyone to Innospec's second quarter 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 the second half of 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.

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 second half of 2026. I will turn the call over to Ian Cleminson, 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.

Ian? Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the second quarter 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 second quarter earnings by $0.02 per share. A year ago, we reported GAAP earnings per share of $0.94, which include 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.

Turning to slide eight, revenues in Performance Chemicals for the second quarter 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 second quarter 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.

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

As of June 30th, 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? 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 the second half of 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.

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