Innospec Inc (IOSP) 2025 Q4 法說會逐字稿

David Jones, General Counsel and Chief Financial Compliance Officer, Patrick Williams, President and CEO, and Ian Cleminson, executive Vice President and Chief Financial Officer. At this time, (Operator Instructions). I would now like to the conference over to your first speaker, Mr. David Jones, General Counsel and Chief Compliance Officer. Please go ahead.

Thank you. Welcome to Innospec's fourth quarter and full year earnings call. This is David Jones. I'm Innospec's general counsel and Chief Compliance Officer. 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 and projections about future events. These statements are based on current expectations and assumptions that are subject to risk and uncertainty that can cause actual results to differ materially from the anticipated results implied by such forward-looking statements.

The risks and uncertainties are detailed in respect to 10-k, 10-Q, and other filings with the SEC. Please see the SEC site and Infix site for these and related documents.

In today's presentation, we have 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 that.

They are included as additional items to aid investor understanding of the company's performance in addition to the impact that these items and events had on financial results. With me today from Innospec are Patrick Williams, President and Chief Executive Officer, Ian Clemenson, executive Vice President and Chief Financial Officer. And with that, I turn it over to you, Patrick.

Thank you, David. Welcome everyone to Innospec’s fourth quarter 2025 conference call. This was a good quarter for an inspect with continued strong operating income growth and margin expansion in fuel specialties combined with improving results in performance chemicals and oil field services.

In performance chemicals, marginal improvement actions and lower overheads drove strong sequential operating income growth. We continue to execute on price/cost management, manufacturing efficiencies, and new product commercialization actions over the short to medium term.

New products include the continued expansion of our industry leading sulfate and [1,4-dioxane-free] personal and home care portfolio. Additionally, we are accelerating our growth in new technologies for agriculture, mining, construction, and other diversified industrial markets.

We expect these combined efforts to drive further growth in 2026. In fuel specialties, sales growth and margin expansion drove a 7% increase in operating income over the prior year. As expected, the business has continued to deliver consistently strong results and has a diverse pipeline of fuel and non-fuel growth opportunities across all regions.

Oil field services operating income and margins improved on a richer sales mix and lower overheads. Sales were down on reduced activity in US completions and the Middle East. We remain focused on delivering operating income growth in 2026 as Middle East activity returns and our recent DRA expansion takes effect.

In parallel, we will continue to focus on marginal improvement. Our outlook does not assume any resumption of Mexico's sales in 2026.

Regarding our outlook for the first quarter of 2026, results in performance chemicals and oil field services will be negatively impacted by the historic winter storm which occurred in late January. Despite this, we are optimistic that we will drive full year improvements in both businesses in 2026.

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. Ian.

Thanks, Patrick. Turning to slide seven in the presentation, the company's total revenues for the fourth quarter were $455.6 million, a decrease of 2% from the $466.8 million reported a year ago. Overall, gross margin decreased by 1.2% points from last year to 28%.

Adjusted EBITDA for the quarter was $55.7 million compared to $56.6 million last year, and net income for the quarter was $47.4 million compared to a net loss of $70.4 million recorded last year, which was driven by the buyout of the UK pension scheme.

Our GAAP earnings per share were $0.191 , including special items, the net effect of which increased our fourth quarter earnings by $0.41 per share. A year ago, we reported a GAAP lost per share of $2.80 which included a negative impact on special items of $4.27.

Excluding special items in both years, our adjusted EPS for the quarter was $1.50 compared to $1.41 a year ago. For the full year, total revenues of $1.8 billion decreased 4% from 2024. Adjusted EBITDA for the year was $203 million compared to $225.2 million in 2024, and net income for 2025 was $116.6 million compared to the prior year net income of $35.6 million.

Our full year GAAP earnings per share were $4.67 including special items, which decreased our full year earnings by $0.60 per share. In 2024, we reported GAAP earnings of $1.42 per share, which included the negative impact from special items of $4.50. Excluding special items in both years, our adjusted EPS for 2025 was $5.27 compared to $5.92 a year ago.

Turning to slide eight, revenues in performance chemicals of $168.4 million were flat with the fourth quarter of last year. Volumes reduced by 7%, offset by a positive price mix of 3%, and favorable currency impact of 4%. Gross margins of 18.1% decreased 4.6% points compared to 22.7% in the same quarter in 2024 due to higher costs and a weaker product mix.

Operating income of $17.7 million decreased 14% from $20.6 million last year. As expected, our fourth quarter results improved sequentially over the third quarter as improvement actions took effect. Fourth quarter gross margins of 18.1% improved 3% points compared to the third quarter, and operating income of $17.7 million almost doubled from the $9.2 million recorded in the third quarter last year.

For the full year, revenues of $681.4 million were up 4% from last year's $653.7 million, and operating income decreased by 26% to $61 million. Moving on to slide nine, revenues in fuel specialties for the fourth quarter were $194.1 million, up 1% from the $191.8 million reported a year ago.

Volumes were up 8% with an adverse price mix of 10% and a positive currency impact of 3%. Fuel Specialty's gross margins of 34.7% were 0.3% points above the same quarter last year, benefiting from a stronger sales mix and disciplined pricing. Operating income of $37.2 million was up 7% from $34.9 million a year ago.

For the full year, revenues were unchanged at $701.5 million and operating income increased 12% to 144.8 million. Moving on to slide 10, revenues in oil field services for the quarter were $93.1 million, down 12% from $105.8 million in the fourth quarter last year.

Gross margins of 31.9% increased 1.8% points from last year's 30.1%. operating income of $8.2 million increased 9% from $7.5 million one year ago. For the full year, revenues of $395.1 million were down 19% from last year's $490.6 million, and operating income decreased 40% to $23.3 million.

Since the slide 11, corporate costs for the quarter of $16 million decreased by $4.6 million from a year ago, driven by lower personnel related costs. The full year adjusted effective tax rate for the quarter was 24.1% compared to 26.4% in the same period last year due to the geographical mix of taxable profits.

For 2026, we expect the full year effective tax rate to be around 26%. Moving on to slide 12, cash flow from operating activities was $61.4 million before capital expenditures of $20.5 million. In the quarter, we paid the previously announced semi annual dividend of $0.87 per share. This brought the total dividend for the full year to $1.71 per share, a 10% increase over 2024.

There were no share repurchases in the quarter, and for the full year we have repurchased a total of 247,000 shares at a cost of $22.2 million. For the full year, cash from operations after capital expenditures was $63.9 million compared to $122.7 million in 2024. As of December 31, NSBC had $292.5 million cash and cash equivalents and no debt. And now I'll turn it back over to Patrick for some final comments. Patrick.

Thanks, Ian. Entering 2026, our focus is unchanged. We will continue to deliver exceptional innovation, value and service to our global customers across all our end markets.

We will also continue to prioritize margin and operating income improvements in performance chemicals and oil field services. In addition, we expect field specialties to continue to deliver consistent results.

Operating cash generation was excellent in the quarter and our new cast position closed at over $292 million after making our semi annual dividend payment of $21.6 million.

We continue to have significant balance sheet flexibility for dividend growth, buybacks, organic investment, and M&A. Now I will turn the call over to the operator, and he and I will take your questions.

(Operator Instructions)

Jon Tanwanteng, CJS Securities

Hi guys, good morning and thank you for taking my questions and really nice job on the mix and margin there. I was wondering if you go a little bit into the oil field business and how you see the mix evolving there, especially in the coming quarters as, you continue to diversify that business.

Yeah, John, let me, start with that one. We're really pleased with the progress that we've seen, in the oil field business in Q4. We were with the team yesterday, and I've got to say, we're really encouraged by the activity levels that are going on, the creativity, the focus on technology. As we head into 2026, we're going to take a little tap on the brakes because of the weather impacts in Q1,

but beyond that, our DRA, expansion is coming online, and we're starting to ramp up volumes there, spreading the customer base and improving the profitability, and the gross margins in that business is critical for us. Also, the Middle East remains a real hotspot for us, we can see lots of opportunities there, advancing technologies,

and a real nice, opportunity for us to grow the business, above, average rates in the region. Outside of that, we've had a tough time in the US, but we've got lots of opportunities with new technologies and new ways of going to market starting to happen, so when we wrap all that together, we do feel confident that we'll be able to, outpace what we did in 2025.

The mix will be a little bit more towards the Middle East and DRA, and we feel that we can improve the profitability of those other core businesses in production in Steam as well.

Okay, great. You mentioned the impact of weather, a couple of times. I would, I guess that, less people driving, maybe there's some snarls with, production, but I would also expect probably maybe an offsetting impact from cold flow. Could you just quantify what you think the impact is going to be this quarter from cold weather and winter storms?

Yeah, I'll let you take the financial portion of the negative effects, but in the oil field it was, production activity, people couldn't get to the well sites, couldn't deliver product, there was a multitude of issues. If you look at North Carolina, I mean it was an extreme snow and ice event where our plants are located. Probably the biggest ice event in a century in that area.

So we did have a lot of plant downtime, couldn't get raw materials in, and then obviously, John, when you start the plant back up, you're going to have a lot of issues, and that's what we've done in conjunction with that though, being that we've had these issues with cold weather and hit us, we've also decided at the same time to really work on the plant's inefficiencies.

To make the plant more efficient, get better yields, better product quality, work on some of the manufacturing processes that we probably would have had done at some point in time, so we're going to go ahead and do it all since we had the plant issue and had the cold weather issue, just knock it all out at once,

so No, I think it's, I wouldn't say it's a blessing in disguise by any means because I think we would have had a really strong first quarter, so we would have backed up the fourth quarter with another strong quarter, but it is something that has to be done. It's a, it's an event that was unexpected. We'll get it fixed. It won't happen again because it will, we will prepare for it, but we'll also make that plant in much better condition to move forward for growth.

Yeah, just to add to that, John, when you roll that into our expectations for Q1, within the oil field business, we're probably going to be posting operating income round about $5 million to $6 million. That's probably a couple of million below where we would have liked to have been, and that's for the reasons Patrick explained. In performance chemicals,

it's a bigger impact because we've obviously got quite a large manufacturing footprint down there, which was closed for an extended period. And there's been some damage to the site as well, so it's going to take a little time for us to build that back up.

So we're expecting the Performance chemicals Q1 operating income to be close to $10 million to $11 million. Again, that's probably $5 million to $6 million below where we would have liked to have been. So it's quite a significant impact from the weather in Q1, both of those businesses.

Got it. And just to follow-up on that, do you expect to make that up in the following quarters for the whole year, or is that something that gets lost, as you look at the whole 26'?

It's slightly different in both businesses. The oil field business potentially could make up some of that, John, but it's going to be a tough ask for them because, their customers have closed down, and if they come back and come back strong, we may make up some of it. Performance chemicals cos it's production based,

we've lost that production time, we will not be able to make that back up, and it's going to take us a quarter or two for the reasons Patrick was explaining some of the additional efficiencies that we're going to be looking for on that site, we won't be able to make up that volume of production,

so with those sales and those costs. Will be lost to us. What we do expect is as we exit Q2, is that the Q3 numbers, will be shown much stronger benefits of the changes that we're making and a much stronger benefit from the direction and the discipline the business is driving into customer contracts, pricing, and general efficiencies.

Yeah, it's just unfortunate timing, John. It's, we, our expectations were rolling into a nice Q4 rolling into a really strong. 2026 and we're just going to take advantage of it now that it's that it did happen we're going to make it even better coming out of Q2.

Got it. Thank you. I'll jump back in the queue.

Thanks, John.

Mike Harrison, Seaport Research Partners.

Hi, good morning.

Morning, Mike.

Good morning Mike.

I had a, just a couple of questions on the performance chemicals business. Can you talk a little bit about what drove, the volume decline that you saw in Q4? I assume that was not weather related. Was that customers taking inventory down or what else is going on there?

And then I guess just in terms of the price, specific to the pricing actions you need to take in order to cover the higher cost of chemicals and maybe other raw material inputs, are those prices in place and where you need them to be, or are there going to be some additional actions that may contribute to better kind of price versus raw material cost margin contribution as we get into 26'.

Yeah, we'll hit your questions by both of us. I think to start with Q4 volumes, Mike, a lot of it was just uncertainty in the marketplace, I think tariffs in general just have put a down tone on any kind of inventory build. I think that was part of it. Typically, Q4 is a little slower in the business by nature, but I think overall if you look at the quality of business that we have, moving into the year, we felt very strong.

I think for us there is, we, we've done a lot of price action around margins and around raw materials. A lot of our national contracts and international contracts with multinationals. It has price mechanisms built into the contract so we had to go back and just make sure we're following those guidelines that have set forth in the contracts in other areas where we saw price spikes around Olios, etc.

We have finally gotten out in front of those, and that therefore you saw the margin increase. I do think over time, probably more towards the middle of this year, you'll start to see us even get ahead of that. But because of the weather event that we had, I think first quarter is going to affect us a little bit and a little bit into Q2, but overall, I think we're heading in the right direction with margins.

The volume is there, the sales are there, the revenue is there, the business is there. We're increasing, our output on new products in the portfolio which is going to build upon throughout. The year as well, and those are higher margin products too,

so, if you look at the overall business, I would say it's not a negative, it's a positive. I think it's the weather event that's going to affect us up front, but we're starting to really manage these processes the way they should have been, but additionally to that, the pipeline is full of new products which will benefit us moving forward. I think that probably covered all of it.

All right, thanks for that. And then, a couple on oil fields, I, I'm just curious, this was a year, 2025 was a year when you guys again saw some further declines, in revenue.

Obviously, you didn't see any recovery from the Latin American customer, but I'm just curious as you're starting to think about what top-line growth could look like next year, it sounds like you're really encouraged by, what you're seeing in the Middle East, some contribution from DRAs, it.

Is it your view that as we think about the entire year, we could see some maybe mid to high single-digit type of top-line growth? And then the second piece of that question is, as we're talking about Latin America, is it possible that we see any, business opportunities, start to show up in Venezuela?

Yes, a good questions. I do think you're going to start seeing that probably between 5% to 7% revenue growth in that in in oil field needs consolidation in the marketplace, at least in North America.

And there's also a need for technology. And as Ian alluded to earlier in the conversation, there's been a big emphasis and a big push to bring new technologies to the marketplace that really this market hasn't seen in quite some time. And I do think that we're on the edge of that happening. As you said, I think the Middle East will start to really pull its weight in Q2, Q3, Q4, and it's not just with Saudi Aramco,

it's in the general market area. The regional area of the Middle East. In regards to Latin America, I do think we're going to start seeing sales in Mexico again. I think it's a function of how we're going to get paid. We're not going to sell products for free, but I do think that they, well, we do know they need the technology.

We know our technology works, it's proven, so I do think Mexico at some point in time we will see something not to the magnitude we've had in the past. And in regards to Venezuela, it's a very heavy crude. We know that crude up there very well, Chevron's operated in that region for quite some time.

So as soon as you start getting some stability, political stability in that area, and you start seeing international investment primarily from the US, that is definitely an open market for oil field where I think we can make a big difference. So there's a lot of positives there.

We've got to extract those and the market's got to come our way, and I think it's up for our guys to really push the envelope and make it happen.

All right. One of the special items, that you guys, called out in the quarter referred to the tax impact from an internal reorganization. I was wondering if you could explain what that reorganization entails and, what impacts that could have on the P&L going forward.

Yeah, I'll take that one, Mike. It was a reorganization we did over a year ago, at the top end of the organization just to simplify the structure. And allow us to move cash overseas into the US in a much more tax efficient way. There was a deferred tax impact, to that reorganization.

That has a, I think it's a 15 year benefit to tax. It'll be about $600,000 a year for the next 15 years in cash taxes, Mike. So it's all below operating income, there's no business benefit, but it does simplify our operations that the way we are able to move cash around, the way we are able to file tax returns in the US, and it gives us a little bit of benefit to the tax line as well.

All right, last one for me is just on corporate costs. They were quite a bit lower in Q4. I was just curious, was that, some incentive concept that was lower or what drove that? And, if you can give any kind of, an outlook or guidance for corporate costs in the first quarter and for 2026, that would be very helpful. Thank you.

Yeah, you spot on market was personnel related costs. As we look forward to 26', that's sort of $20 million per quarter, $80 million for the full year, that's the level that we're expecting for 2026.

Thankyou So much. Bye.

Thanks, man. Thank.

David Silver, Freedom Capital Markets

Yeah, hi, good morning. Thank you.

Good Morning, David.

Morning David.

Good morning. So, I would like to start with maybe just a question or two on the fuel, specialties, and firstly on the quarter, if I'm not mistaken, my model goes back about, I don't know, 10 years or so. I believe the revenues in the quarter were your highest ever and your, operating profit $37 million was, I think your second. Highest ever,

so obviously the business is functioning pretty well and I know that, your view is that it's a very stable business, low single-digit, grower, from year to year, but it does seem like, you're shaking things up a little bit or operating the business a little bit differently.

So, what maybe led to the record, revenue near record, operating profit this quarter? In other words, did you have some incremental success?

With new products or just a richer mix overall, but just maybe some thoughts about that and then why that strength, on an annual basis, let's say couldn't continue on into 2026.

Yeah David, they've really done a really good job in that business. I think you're spot on. It was a record revenue. It was very close to a record opening.

A lot of it was product mix, but a lot of it is outside of even fields. I think they've done a really good job of expanding their portfolio, getting out there with new technologies, making sure that we've got the right costing in place.

Making sure that we're staying up on innovation and it was a good overall effort globally by all parts. It is a business that's typically a 2% to 3%, growth business and occasionally we see those spikes like when you went to ULSD.

We had the big spike. You're starting to see some regulatory movement. You're starting to see GDI take effect in some aftermarkets in Europe, our marine business, all the businesses that we've been talking about for quite some time are starting to come along and as expected, and the group who manages that division have really stepped it up, and you got to give them credit.

I think that it's always been our stable business. It's a light on CapEx. It's got great free cash flow, and we'll continue to push it there. I think it's also an area, just to expand a little bit off your question, it's an area we'd love to acquire into, if we found something that was worth purchasing, the team deserves it.

They've built it. They, they're ready for it. We've just got to find the right thing to buy, but overall, great job. I do expect them to have another strong, consistent year.

You poached with that M&A comment, you poached one of my questions for the follow-up discussion. Next question, I wanted to maybe switch over to performance chemicals and maybe. I don't know, come at it just a little bit different, but revenue wise,

I mean, I think it was a record or near record year, and there's a number of issues involving kind of the lower operating profit year over year, but in general, there's a lot of chatter about, the strained kind of middle income or consumer and things like that, and I did note, I believe it's like two or three quarters in a row where you cited kind of a weaker mix within performance chemicals.

And I'm just wondering, is trading down kind of, an issue that you're seeing, are your customers kind of, indicating that that's, part, a bigger part of their business with you, and then more to the point, I mean, I guess, this business has been a mid to high single-digit, grower over a longer-term.

Is that still kind of your thinking for next year or whether it's due to mix or other factors, that maybe the growth potential might be a little slower over the medium term.

Yeah, I mean, if you consumer trends right now they are trading down to a lower price commoditized, type products, so we have definitely seen that now that moves in that ebb and flows, once you take that market uncertainty out.

And people see more spending capabilities in their pockets; they'll go out and start spending more on high-end products. So we have seen that pushed down to more commoditized products. But again, David, you'll see that that that's very typical in markets like this where there's uncertainty or coming out of inflationary markets.

For us it's the continuance on innovation, right, and to get better manufacturing processes and efficiencies so that we can better prepare for that commoditized market where we're making better margins than we have to date is something we're doing at some of our plants right now which will benefit us towards the latter part of the year.

But yeah, consumer trends have sent us that way. We, the way I look at growth in that area is I think you're probably looking at it a little bit flat this year.

And then I think you'll start seeing it spike back up probably towards the latter part of this year, but I would probably hold it flat.

Okay, last one for me, I did want to go to your, concluding remarks in your earnings release, and in particular, you. Cited in performance chemicals in the oil field, you said new technology commercialization's and other opportunities for 2026, in particular on the new technology commercialization.

I mean, you've focused on kind of Some of your functional, surfactant products for mining and agrochemical and whatnot, but I was just wondering, is that, are those the recent commercialization's, are those the products you're talking about, maybe, expanding, the roll out there, or.

You haven't been shy about rolling out new products over a longer period of time. Is there another, new crop of, product introductions we should be thinking about? And, qualitatively maybe could you point us to where those might be?

Yeah, these are a series of products and let's talk performance, chemicals specifically. They're a series of products that go in multiple applications; they're not mass markets where you're going into a multi-billion-dollar industry and capturing $200 million to $300 million.

They're more specialized, so we will typically launch 23', or 24' of these throughout the year. Which is just a nice build on upon our business in which over time we'll start increasing that margin. And as I said earlier, I think that you'll start seeing the impact of those probably more in the Q3, Q4 range.

So there was a nice pipeline of portfolio of products that will be hitting the market throughout the year, but I think it's a build up over time where you start seeing the big changes in margin profile and in revenue. And it's the same in the oil field, we've got a lot of creativity in the group.

They're finally starting to come together and bring new ideas and creativity market and sometimes it's not necessarily just products, it could be market approach and so there's a lot of differentially going. We have to be different. Different than other people whether it's technology or whether it's service or whether it's any kind of innovation that's attached to both and that's really where we're pushing our group

and that's why we feel pretty confident that we'll overcome the barriers that we have in Q1 and Q2 manufacturing barriers. We'll overcome those in Q3, Q4 by all the things that we have going on internally with the organization.

Okay, great. Thank you very much.

Thank you.

We have no further questions at this time, so I'll hand back to the President and CEO Patrick Williams for closing remarks.

Thank you for joining us today and thanks to all our shareholders, customers, and Inspec 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 first quarter 2026 results in May. Have a great day.

This concludes today's conference call. Thank you all for participating. Yena Dischena Airlines. Thank you and have a great day.