Innospec (NASDAQ:IOSP) held its second-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.
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Summary
Innospec Inc reported a strong second quarter with total revenues of $491.4 million, marking a 12% increase from the previous year, with all business segments contributing to double-digit sales and operating income growth.
Performance Chemicals saw a 9% revenue increase to $190.3 million, with operating income rising by 15%, despite minor volume reductions. Efforts are ongoing to complete plant repairs and upgrades, expected by Q4 2026, to improve capacity and efficiency.
Fuel Specialties achieved a 12% revenue increase to $185.7 million, though gross margins decreased slightly due to a weaker sales mix. The company expects continued strong performance but anticipates some margin pressure due to pricing lags.
Oilfield Services revenue increased by 14% to $115.4 million, with operating income rising 40%, driven by recent plant expansions and opportunities in the Middle East.
The company maintains a strong balance sheet with $250.2 million in cash and no debt, supporting flexibility for future investments and shareholder returns, including a semiannual dividend and share repurchases.
Management expressed confidence in ongoing strategic initiatives, including new technology commercialization, and anticipates further operating income growth in the second half of 2026, especially in Performance Chemicals and Oilfield Services.
Full Transcript
David Jones, Senior Vice President, General Counsel, Chief Compliance Officer & Corporate Secretary
Thank you. 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 the 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. 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 adjust to 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, and with that I’ll turn it over to Patrick.
Patrick S. Williams — CEO
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 into 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 in March has improved sequentially and on the prior year, driven by 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. Now 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 Cleminson, Executive Vice President and Chief Financial Officer
Thanks, Patrick. Turning to Slide 7 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 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. Turning to Slide 8, 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 2020. Operating income of 16.4 million pounds increased 15% from 14.3 million pounds last year. Moving on to Slide 9, revenues in Fuel Specialties for the second quarter were 185.7 million, up 12% from the 165.1 million pounds 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 1.5 percentage points compared to 38.1% in the same quarter last year on a weaker sales mix. Operating income of 36.3 million pounds 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 pounds, 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 pounds increased 40% from 6.2 million pounds one year ago. Turning to Slide 11, corporate costs for the quarter were 21.6 million pounds compared with 20.9 million pounds 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 pounds before capital expenditures of 16.5 million pounds. In the second quarter, we bought back just over 87,000 shares at a cost of 6.4 million.
As of June 30, 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. Patrick.
Patrick S. Williams — CEO
Thanks, Ian. With our diversified global supply chain and manufacturing footprint, our teams continue to manage through the direct impacts of geopolitical disruption, 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. Now I will turn the call over to the operator, and Ian and I will take your questions.
OPERATOR (Operator)
Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1. 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, and the question comes from the line of Mike Harrison from Seaport Research Partners. Please ask your question.
Mike Harrison, Analyst at Seaport Research Partners
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. Would you say that that’s mostly complete at this point, or where do we stand on that?
Patrick S. Williams — CEO
Mike, 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, 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.
Mike Harrison, Analyst at Seaport Research Partners
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%. Did that keep pace with raw material cost inflation that you saw in the quarter? And I guess, you know, 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?
Ian Cleminson, Executive Vice President and Chief Financial Officer
Yeah, Mike, it’s Ian. The team has 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 set price action, they have. And you can see year over year that the margins are pretty comparable, and they’ve obviously been improved sequentially over Q1 as well. 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.
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.
Mike Harrison, Analyst at Seaport Research Partners
All right. And then 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. 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?
Ian Cleminson, Executive Vice President and Chief Financial Officer
Yeah, sure. Mike. You’re seeing again, as you know, in fuels we have the pricing lag up and down. Fuels is mostly crude-derivatives based. 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. 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.
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. 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.
Mike Harrison, Analyst at Seaport Research Partners
All right, thanks for that. And then last question for 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. 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?
Patrick S. Williams — CEO
Yeah, so we added capacity and 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 shifted a lot to the Middle East. More importantly, for the East-West Pipeline and other pipelines along that corridor. I’ve always said, and we said it in the last quarter, that where there’s chaos, there’s opportunity, 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 is open in the near term.
Our product is an extremely good product, and I think that it’s been taken very well in the Middle East, and we’ll continue to ship products as we go. There is another opportunity for us to do another expansion of DRA down the road, and that’s being discussed as we speak.
Mike Harrison, Analyst at Seaport Research Partners
All right, thanks very much.
Patrick S. Williams — CEO
Thank you.
OPERATOR (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. We are now going to proceed with our next question. And the question comes from the line of David Silver from Freedom Capital Markets. Please ask your question.
David Silver, Analyst at Freedom Capital Markets
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. So, Patrick, you did mention that the discretionary upgrading work should be done by the end of the year. You know, on a qualitative basis, have you guys kind of thought about what kind of benefits we should 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.
Patrick S. Williams — CEO
Yeah. David, sure. Dave, the number one priority was to get the plant repairs up and moving so we could provide products to our customers. That was 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, it’ll give us better yield rates, and it will also improve safety — everything along that plant that we needed to improve.
It’s hard to put a number 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.
David Silver, Analyst at Freedom Capital Markets
10% on capacity?
Patrick S. Williams — CEO
That is on capacity, yeah.
David Silver, Analyst at Freedom Capital Markets
Okay, great. Thank you for that. And I did want to kind of go back to oilfield and maybe just pick your brain, Patrick, for your approach to investing and taking advantage of some opportunities. 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? 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 kind of 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?
Patrick S. Williams — CEO
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. But you have to remember, you have longer laterals, more stages, so you’re getting more volume of oil through a well than you have in the past. So there’s really not a need to have a large uptick in drilling, but 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 six months, that’ll help us propel in that area as well as other areas like South America and Mexico. And, you know, 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, Analyst at Freedom Capital Markets
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%. So there was some margin effect there. Was that all due to raw material costs, or was there a notable mix effect? 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.
Thank you.
Ian Cleminson, Executive Vice President and Chief Financial Officer
Yeah, let me take that one, Dave. So, 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 the mix at the top line. And the business is progressing really nicely, as you said. So at the half-year 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. 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, 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.
David Silver, Analyst at Freedom Capital Markets
Okay, and then last question from me, and this is kind of a big-picture question. Your results were very strong here in absolute terms, but 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 the first quarter. Maybe just comment on how you were able to 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.
So, broadly speaking, is there a lot of flexibility inherent in your system? 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?
Patrick S. Williams — CEO
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. 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 loads to customers. 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 through now that will hit the fourth quarter are going to give us additional capacity without more CapEx once we spend this original CapEx. 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. 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, 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. 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, and we’re very confident moving forward.
David Silver, Analyst at Freedom Capital Markets
Okay, great. I appreciate all the color. Thank you.
Patrick S. Williams — CEO
Thanks, David.
Ian Cleminson, Executive Vice President and Chief Financial Officer
Thanks, David.
OPERATOR (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. And the question comes from the line of John Tang from CJS Securities. Please ask your question.
John Tang, Analyst at CJS Securities
Hi, good morning. Thank you for taking my questions and really nice quarter.
Patrick S. Williams — CEO
Morning, John.
John Tang, Analyst at CJS Securities
Thank you. 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. What do you think you might be leaving on the table 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?
Ian Cleminson, Executive Vice President and Chief Financial Officer
Yeah, let me set that first, John, and 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. That additional volume, additional capacity won’t really come on until Q4 at the earliest — probably more likely into Q1 next year.
So 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. 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.
Patrick S. Williams — CEO
Yeah, I think, as we said, John, the number one priority was to get that plant up and running to meet the contractual volumes that we had in place, 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 the latter part of Q4 and then for sure in Q1. So we have missed some volume. Will we pick some of that back up in Q4, Q1 next year?
Yes, but you won’t pick it up in Q3.
John Tang, Analyst at CJS Securities
Okay, great. Thank you. And then I was wondering if you could go into a little bit more detail on just the improved price and mix in this segment. I think you called out that you’re doing a good job in getting new formulations customers, but 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?
Ian Cleminson, Executive Vice President and Chief Financial Officer
Are you asking about the future, or are you asking about Q2, John? Okay. So, 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 the back part of Q4, early 2025, 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, 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 — responsibly manage it through our customers and through our supply chains.
Patrick S. Williams — CEO
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. You know, there’s been force majeure on some raw materials we’ve had to reformulate away. There’s been a tightness in the market in general and timing of shipments has been extremely difficult. 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. So 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.
Joe, Analyst
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’s.
Patrick S. Williams — CEO
Yeah, it’s, you know, it’s interesting. There’s, you know, they’ve had some public announcements about spending capital in certain areas. Some’s on polyethylene, some was on crude, some was on nat gas plants, petrochemical plants. That’s filtering through now to saying that they realize they actually need, now’s the time that the country needs to get more crude out of the system. 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. 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. 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. 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. And that’s what we’re doing, but we are just seeing. We’re seeing more activity and having more conversations.
Joe, Analyst
Got it. No, that’s helpful. And just to be clear, they’re now reaching out to you as opposed to, you know, just waiting for something to happen. Got it. Thank you.
Patrick S. Williams — CEO
Thank you.
OPERATOR (Operator)
Thanks, Joe. We have no further questions at this time, so I’ll now hand back to you to Patrick Williams for closing remarks. Thank you.
Patrick S. Williams — CEO
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 third quarter 2026 results in November. Have a great day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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