Earnings call transcript Q1 2023

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Operator

Good day, ladies and gentlemen, and welcome to Innospec's First Quarter 2022 Earnings Release and Conference Call. [Operator's Instruction]

I would now like to turn the conference over to your speaker today, David Jones, General Counsel. Please go ahead, sir.

David Jones

Thank you. quarter first Innospec's to earnings call. Welcome release posted on earnings for the are presentation this and the quarter The company's website.

During statements These make projections current this with forward-looking are statements, uncertainties implied forward-looking risks statements. that assumptions filings which will call, are are expectations subject and The could and results about are statements differ SEC. to other events. and future based on and we to such that the Innospec's materially from XX-Qs and by uncertainties detailed cause actual the in XX-K, anticipated results risks other predictions,

is items better site Officer. results. a Please to President accordance With in see with GAAP. that Executive from to reconciliation events Ian that, Chief financial these to those on are impact Vice included and included substitute are it The and Executive release. Patrick the as these Innospec's measures the had SEC's President Innospec we've prepared to financial aid in turn our non-GAAP Cleminson, items and the Officer; the as understanding company's me the In Financial in to over most in and additional and addition related not earnings discussion performance also Chief contained today, be financial Williams, of and considered measure non-GAAP I'll for today documents. directly A for should And you, with superior comparable measures. or site financial GAAP They Patrick.

Patrick Williams

Innospec. to XXXX Call. welcome, David, I and Quarter am you, pleased for another results everyone, present Conference to First Innospec's [indiscernible] Thank

partially and lower improvement this million Fuel quarter. of a in inventory activity outlining in Our balance oilfield growth Sales results Chemicals portfolio and again $X.X Specialties. in misappropriation Performance strong margin offset services delivered

in demand a economic we expected, efforts customer the quarter. destocking to was will volumes soft Weaker Chemicals. remain and headwind. a uncertainty term, believe quarter continue this that negatively and the Performance impact In margins for As near

change in more no long-term see to we shift medium- and to plans our However, customers' mild formulations. to natural

improvement us short-term technology developing Our priorities position margin focused beyond on any and that opportunities will remain recessionary concerns. well

quarter, Specialties the sequential As contracts income Fuel take inflation where improved new personal targets sequentially gross In growth have the some for quarter. margin operating improvement. we combined strong with margin mix margin has to a and our The pace action improvement. continued of over begin contributed markets, sequential in prior slowed our to price required. This of and sales care third

by million indicated XX.X%. in to earnings by $X.X As our in Specialties' gross and inventory Fuel operating Specialties misappropriation Brazil. $XX.X Adjusting of release, for XX% expanded were impacted this, margin grew results Fuel million to [indiscernible]

business related margin our are event, We XXXX. Fuels improvement matter. legal opportunity this aggressively in to pursuing remains Despite Global and focus for isolated key a actions this

the margins segments We Chemicals, Oilfield improvement the Oilfield our efforts expect an at Production of to with growth Services in these range end of gross in target lower to end excellent year. support Strong year through and continued XXXX. deliver prior sequential our orders margins quarter. some further combined optimistic percentage had full we significant that for Despite drive points. gross income Chemicals feel potential activity, can growth Production the year over in six by was Operating operating expanded income order times in we the growth. X.X moderation

margin to pursue we addition, improvement across continue opportunities In the business.

results will questions. Ian that, I will Ian detail, to Cleminson, over in our then return will comments. call your the turn will financial and take us After to concluding more who I review I Now

Ian?

Ian Cleminson

Patrick. Thanks,

slightly Overall million percentage margin a in year gross seven company's the total was $XX.X from and decreased to points $XX.X quarter by million year million quarter year, the first the to revenues to Turning million an compared presentation, X% compared last net increase was the the for million for $XX were quarter EBITDA $XX.X million, year from last ago. ago. X.X slide income to a XX%. $XXX.X $XXX.X for

$X.XX, GAAP per ago, earnings reported were which share. impact per Our $X.XX of earnings share of A which items, our by earnings decreased we from including items share per of GAAP a $X.XX special per the year effect $X.XX, special included first negative quarter net share.

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

in million, to were last down revenues the slide eight, Chemicals quarter $XXX.X year's $XXX.X X% for Turning from first Performance million.

a the Operating of mix to XXXX currency of from lower of income to decline mix and volumes. by from percentage manufacturing million. in adverse price was last production decreased due and points by Our X%. a X.X XX% impact XX% an XX.X positive year XX.X% same margins decreased volume quarter adverse sales variances to X% Gross compared offset of weaker resulting

income was prices, Moving richer material adverse same a for points offset and million on catch the in a reported $XXX.X up. misappropriation $X.X of reduction Adjusting the down percentage X%. Brazil, of stabilizing $XX.X million revenues down year. were XX% partially of nine, X.X gross Fuel the for margins margins inventory Specialties $XX.X ago. pricing adjusted of Fuel Operating $XXX.X was benefiting from volume income to quarter positive allowing sales currency A were Specialties ago. operating quarter of million million. from year raw Slide to the below last mix XX.X%, mix in price gross a Adjusted in from slightly XX%, first million million, impact from and year XX.X% $XX.X a

of was year. prior Revenues a percentage X.X of million $XX.X Operating quarter for were million $XX.X in the Gross Moving the last on million income $XXX.X $X.X quarter over margins XX. Slide million, increase the on year's $XXX.X up XX.X%. the from points Oilfield up were XX% third to in XX.X% in services last million year.

in million for tax Corporate share-based million XX. accruals. compared Slide the quarter profits compensation proportion being quarter $XX.X the year are effective increase ago. higher to to a in XX.X% rate to generated Turning mainly tax The rate due tax of higher because The year $XX a primarily was the costs ago, was company's compared the lower of jurisdictions. was effective XX.X% the for to

was free million with Slide generation comments. costs March for I'll now with cash for it capital XX, inflow million. to operating Moving cash some in back no broadly $XX.X of XXst, over an software Innospec had low developed and cash the $XXX.X $XX quarter And internally debt. on expenditures equivalents At million and of neutral cash Patrick and final to turn

Patrick Williams

Innospec. was fuel This Adjusting expansion. specialty and the start growth year inventory, Ian. the operating services achieved Thanks, our for margin and good oilfield income for both misappropriation one-off a to businesses

continue quarters. expect our to balanced We portfolio coming supporting our in results the

all value along with improvement operating sequential in cash pursue million, Our With potential on of net flexibility to while growth. in $XXX Performance income continue growth shareholders our maintaining focus margin businesses, to return to we M&A remains record invest deliver Chemicals. and in on over organic

semiannual share. This XX% approved $X.XX increase in our quarter, dividend per to a further board our

Our pristine we navigate sheet, over for balance well customer growth leadership, In through technical positions placed the to excellent and with and technical global our innovation us long footprint customers, to well volatility. remain term. any partnership economic medium service

take to call turn and I'm the will I Now Ian to questions. your operator, over the going

Operator

taking begin the question-and-answer are the session. We Ladies and [Operator's now gentlemen, now stand first by. we question, please Instruction]

Please Research Harrison from from Seaport The first Mike ahead. go Partners. question

Michael Harrison

Can you okay? good me Hi, morning. hear

Patrick Williams

Yes, morning good Mike.

Ian Cleminson

Morning Good Mike.

Michael Harrison

view issue. -- with strength Great. Fuel comment seeing? a margin you contractual we some terms the where your maybe now at How a point We're now are Are maybe Or exceeding if a input know costs. that in of very index you inventory of guys strength? you've moderated? do actually your pass-through interested caught input exclude lot are have been can up the of with the on business some sustainable with that that margin of in we Specialties the you to has you And your costs where I you've pricing pricing inflation

Ian Cleminson

let Mike, that me Yes, one. take

Specialties. We've really raw areas. we've pleased pricing environment little So are raw that. action the bit coming that to taken of in material stable, still from inflation needed some are with down, where we're parts seeing quarter a some material in on some the It's yes, and do patchy Fuel

uniform picture. not So it's a

the a volume, business, where mix in You're lower proportion high-margin business. our sold of we've much strong we've quarter, right in certainly ability quarter that more year. achieved a of lower our this It's pricing and [indiscernible]. really the first low-margin high-volume, the first a And sales seen also of of on to done we've lot

So there's for really strong a us. there in mix

we're going can the going So for we to the focused and working keep to think pace our underlying year If what aiming feel we XX% customers, achievable, good going shape. the gross to is for. very and full strong. we're full keep is year, be in at, be We with across that's pricing suppliers our we're and the margins still that XX% at

Michael Harrison

we're And can is there you that color occurred any of guess see mostly that curious the I if to recoup misappropriation take Brazil? any provide And you think that you in action inventory portion loss? right. All even that a can chance on I there is

Patrick Williams

it's Obviously, inventory, a dollars of but it's of to the but legal right under only are at full recovery fluid of the recovery situation, go we Mike. now, going lost. loss Yes, not the

out So it's we to under legal. $X.X that are there, There's go full charges. going civil criminal but after million. charges all definitely recoup be sitting It could

Michael Harrison

to patterns you've order weak, I I And like that question and right. do seen with guess, dynamics run business sense underlying now Chemical's you looking PC business? where are that the have is there customer destocking last still course? Performance destocking Has demand All Are the on, its are any then some going that what of for pockets started on the the have inventory within there.

Patrick Williams

going high destocking at. some some There's still inventory there's Yes, sitting on. still guide

the consumer that signed to we erosion not we second We of the bit the that part with quarter, time. but volume the coming coming the that contracts half of of year, all of a see the second little see but are the during starting year, part into have from improvement the second

QX, quarter see So then improvement and first in saw in start a I we'll sequential QX. as in seeing you'll quarter QX, we similar think

Operator

question. your for you Thank

next And Please question, open. are from question please is from the go your John ahead, next standby. is We taking line now Tanwanteng CGS Securities. the

Lee Jagoda

Lee morning. actually Jagoda John It's this for

any then the weakness. us we today? consumer compare that the comes on know where versus you Just that normal to of to maybe some And But customers I amount are the take kind where contracts Performance at last new is Can on to mentioned Chemical's hoping you the and the speak down -- more inventory the period inventory today? kind customers remind of situation piggyback a at to question are sits your waiting piece. trying and there of for pricing and

Patrick Williams

No.

materials raw the material I get was of to in there think of raw preordering and time tightness the early the to locations. of lot a because on, length

there So of was preordering that during time. prepurchasing a lot

destock what two There's to had Now days obviously, as saw now we trying sitting where a of people little there. they've or had order market the starting slowed to three We're they're bit, instances again. inventory.

of last So everything the slow really to mix two quarters down. it's caused a that's

see bit again, earlier, quarter, which QX, we'll we'll company start as chemical and but really But a will and and in on process. I I the think seeing contracted everything, it and out, effect, and not second itself in said you're volume cause start throughout coming it's little the improvement then it's a our seeing that QX shaking this new industry throughout of the it's just

Lee Jagoda

the targets of you're at there, looking terms then you And all macro EBITDA level switching the how projections to speak and it. in that given environment. Got your to M&A things what together? uncertainty And your just those around and both you sort balance comfort the Can multiples? gears you're of out seeing then

Patrick Williams

market will and Yes. that or I multiples But mean fits seller, down. acquire a something not we'll acquire. still to months. at we portfolio look they the and the next come as think, three purchase itself volatility disconnect to don't there's it. some over seeing compression. that out, between multiple If we six timing shake look we're seeing good, is we our find think to buyer I need to We're but

wants and see - what looking should people are. and and portfolios could starting are needs to their they it's saying at We rationing

starting see come so to And more are we out. businesses

offered issue still that is one interest don't there again, are market by they is, or at with volatility, it's they x they think We're if time I We comes think should They be and we But sheet. a being still right at have there's where done have year. to see think looked a something with they looking the a we're lot. balance hoping this rates there. an it's getting multiple, disconnect. get opportunistic And and our lot. along, the disconnect

Operator

question. your for you Thank

is from the taking now next please The are next We Silver from ahead. Associates. question David King go standby. Please question, CL

Your line is open.

David Silver

few Yes, a Yes. hi. Morning. Good had questions. I

let's the the temporary follow like to been a guess, care more first share one of some background I the they'll customers. would from caution, And from up shampoo phase product? to variety. before that on a idea from shift your some you've higher that down trade particular, makers, personal Performance issue and in a and product maybe think was for But company cited. purchasing one Chemicals. by be economical the hoping of could trading customers' to is consumer, typical I perspective say, a that other I value, kind sulfate-free Is back of surfactants I'd you their the a feedback that your follow thing? related to Is that's mentioned And from is down. I

personal recessionary consumer their from is move by trade stickier more of Or kind situation maybe thing. the passes? last once know, if don't period or your a longer or a perspective, down I

of tend some terms of down that it other if a you. of thinking here How some to there your planned expansion So formulations. sticky or of those and Thank trade economic that does business that customers' is ramp-up course, down perspective? decision lasting in period And I'm in -- and additives words, on is in higher-value is going your from be? about long how in uncertainty, trading

Patrick Williams

been Yes, it's through interesting. We've before. this

point of high time. things And the in was had the recessionary inflation went when and found in in our be of through first this Performance at time and some diversifying we low out process One we that Chemicals we is portfolio mid end, to about a end.

And we've the really We've portion that. good diversifying portfolio. of done so a done job of that

go once is So moving what of do mid-tier you high But back towards see out coming recession, the you low moving end. to the you start and end. see the right they end mid-tier a towards do high a

for And so we've been it. through We prepared it.

portfolio in well I we're our balanced think in Performance Chemicals.

you times I contract the out start couple from of in just uncertainty that you as see buy think so uptick work we these us the And the that QX, - next mild And think over will you'll the cetera. to quarters, natural, to start see uncertain see back in QX. would up of had more I coming the consumer et

David Silver

we project software capitalizing perspective a some in Could What's it's outlays the your now shift -- me that that you what anticipating? budget? for about quarters. starting over so meaningful how of for Actually, actually, hopefully. spending year, I'm They going or just noticed that can in model, amounts, here. fourth a capital costs. investing last the two only you're long, I total going hold give software out to question to little the you're portion. maybe And now let is? And about to you're on the think us should think each quarter addition CapEx normal my booking But a portion in the amount last forward

Ian Cleminson

David. Yes,

roll off three but be that over total, consolidate to about lot then APAC and embarked preparing our probably XXXX Americas We've project what implementation business, our spread done we'll next preparation work XXXX, into a $XX we'll of of systems. and the also around years. roll most will is million, to the 'XX. will ERP So business. of be global to SAP a and over In all put that EMEA our upon the and in we throughout

business, to more so in shape. profitable early global of business system our here we're is can and that pretty track. Everything make that simplifies have a insight stages we decisions. we're target leverage us of lots and better, So fairly in our gives on design, And is good

David Silver

Services have end thank where to really then is I you. quarter or swing probably characterized temporarily this the Oilfield this and results. over want being kind recall But do it, And Got and two-parter. lot And to income may you've will up Corbin top of line boosted fill outstanding operating a had consecutive a I second I first business might that mean, ago, I Patrick quarter one volumes. if sales think it of be as correctly,

else on? might your -- new there there consecutive share you've your of, introduced? new margins. case? customers? attractive first this incremental that from Or quarter still at you very that Is of factor? fill Is still gains Looking be second the kind by suite early of, the going know it you. Are something some of extremely and is blush or fill growth kind historically Or the this water-based Thank of another products

Patrick Williams

a It's bit David. little of both,

still little all were but see also and out think up as surprise, some expansion I pleasant, delivered areas growth. for customers, fill, you'll you We into business think strong in say quarter, there first grown picked of balanced there other probably the new I a growth saw volume but a bit business. large new that customers of And wouldn't with of a really some as and internally, technologies, I expectations working quest we during maybe was it continue this But sure have offshore on very It's in expanding that some QX, see inflationary you'll times. are. we've pleased similar of continue best we're Oilfield similar There's in with margin And improvement a in QX. businesses quarter customers where our very make all we to long-term growth. we the pretty there areas, with that like that is where on just working happy strong, and some our as we're still high diversify we're of portfolio, technology of been to and those this is. hopefully, that

David Silver

highlight just products of water-based from your follow I doesn't being customer's marketed value products on naive, just other how or sound the or new are here. effectively new too so please. could this you hope maybe perspective could But I if the if suite that, And but up proposition

not I'm don't know, the in past. and you energy words, a fluids the to formulation, shift know, whatnot up you coming need but expert, an other in really much I to drilling So recall, water-based

what the it environmental another you is traditional both? you outsized factor? suite Or, So driving that this it basis the -- is know, success, are you case you customers? your But what, you Or basin superior Or is of there you really would recent your of growth? with where kind the products, shale you know, the know, know, this know, for the it's, with formulations attribute, is performance? know,

Patrick Williams

above. It's service. the of footprint. all the in onsite Yes, customer excelling and it's ESG technology, changing customer and It's It's excellent service.

So conjunction of the company, enabled this obviously, given all it's and three that expected, dynamics us this the over literally, business the many to it's and opportunities to those growth for of grow we're have the year. looking in that's that and provided, us And business change [indiscernible]. last we

Now sure sustainable, is key the the - to and our long-term it's for make management key and key for team. that's focus

David Silver

one I just And appreciate Okay. last one. it.

some targets maybe, additional some implemented advancement assuming M&A that the M&A But or an the or I attached use Oilfield. people in tremendous excluded not on some perspective, assuming commercialized amount Thanks. I'm of you M&A do know, considered cross-sell was I again, be Oilfield from business. discretionary there. kind to are I an product Just to you've this think I are from get an perspective a of there kind meriting building from you've strengthen opportunities what record is of offering? for guess, you kind or opportunity it quarter. kind your are. just there's who of mean, kind of overall and of last quarter year, couple maybe the product of, to With -- of less to last this second quarters mean, this But best gateway some regardless capital this opportunistic I'm this best of earnings first

Patrick Williams

Yes.

depressed of even for don't we at multiples, need market. what's acquire, it's as right Dave, more the we're oilfield to now growth not and where growth, think I organic go in We're today. the us that's said, you enabled because growth geographical are -- necessarily very out though

XX going be months. falling, the going six there's there's quite shakeout to to crude be to when think next a of bit shakeout, I some especially a prices over

is the something for low a or Absolutely. be more very pennies up, diversification focus fuel And oilfield chemicals there M&A, But But something on that right diversification, growth, sense, is time as oilfield and dollar the of the could lot at or in would comes our it on an opportunity now, performance on the it. if pick organic specialties. makes again, of product now, either Now in to side of that right look up geographical focus is there we price? diversification. a probably at

Operator

you question. for Thank your

taking are the We next now question.

Partners. question the of Research Harrison go Seaport We ahead. Mike taking Please line are the now from from

line Your is open.

Michael Harrison

more kind was couple been you a about I lower. to That where me. it's of Just mentioned pricing. And Chemical's Hi, that for in I than came ask wanted Performance weaker mix the trending. know

there? Performance So is us still give on what strong pricing the seeing mix the pure some on you're price Or color pretty Chemicals? maybe front in

Ian Cleminson

Yes, helped hasn't lot A products well sales Chemicals us Performance for higher-value haven't Mike, mix we our and sure. of would the like. this as quarter. performed That's as

the generally, Pricing third is So certainly to sales work with in well it's prices. work quarter isn't having Chemicals. in the would Performance helping to having pretty and We're of of, say impact there. the reduce mix What is that. easy. there's our not But customers under to mix through with holding we're in to suppliers pressure lot pricing a second And a way quarter generally work holding I certainly us. and up

Patrick Williams

there, too. Yes, that I inventory have think there's we sitting still some still higher-priced

that close Ian get that's us. as said, happening to that's So helped We -- that that, pretty we need as to of hasn't and rid we're speak.

Michael Harrison

that all is $X.XX Chemicals, the sense next kind as issue. inventory expecting just for in to And with And of up, you bit half EPS seems guidance I a like improvement full for then little if either quarter, number this probably add the maybe level. guess full could that year some year approach you're the maybe the similar that to Performance quarter an looks on we you about earnings. into next looking we're right. or second as get thinking the back add quarter All My it when we get

if Just my kind issues any curious there's with of think you math there?

Ian Cleminson

quarter I'll that's of by Mark, I up just think set quarter, sort if okay.

about for as the you've in will the Oilfield be expect quarter. the we do to business the the probably the round million million yourself Patrick that we we you the first $XX a quarter all QX see Chemicals business and that to So Performance because performance In be usually Specialties, winter and that to say two, remember better. QX heard period do operating perform of $XX stronger broadly, and same of in tend Fuel where income. And a bit little

to out to a bounce look it Chemicals year, expectations really see we and how are we middle the our is going things. depends two lot full on think As level. I absolutely -- the current will Performance like retain to that. back are we the expect at year that long oilfield And business of of it we and in One the the

range. now. be probably your we'll We towards that's end probably bit $X.XX top guiding than little but for. of say at a right would target that certainly the aiming I So be a lower that will

Operator

your questions are for I the There go conference further the no Thank remarks. Please hand ahead. Williams closing you to will for moment. back Patrick question. at

Patrick Williams

Thank to support. And interest shareholders, you your all us our Innospec joining customers employees for and today. for thanks and

to again Have day. about great a question call. look discuss XXXX further in give our or have forward August. If us second please a quarter We you with any results matters you to being today, discussed up Innospec

Operator

you for conference participating. Thank for concludes today. the That

Innospec (IOSP) 4 May 232023 Q1 Earnings call transcript