Innospec Inc. Q3 FY2025 earnings call

• Mixed quarter: Fuel Specialties had strong operating income growth and margin expansion, offsetting lower results in Performance Chemicals and Oilfield Services. - Performance Chemicals had sales growth but gross margins declined due to higher costs, price management, and weaker product mix; actions started in Q3 showing positive impact, optimistic for Q4 improvement. - Fuel Specialties had double-digit operating income growth and improved margins, with margins tracking at upper end of expected range. - Oilfield Services operating income declined due to lower Middle East activity; optimistic for Q4 improvement with activity return and new DRA expansion. - Financial results: Total revenues $441.9 million, similar to prior year; gross margin 26.4%, down 1.6 percentage points; adjusted EBITDA $44.2 million, down from $50.5 million; net income $12.9 million, down from $33.4 million. - Prioritize gross margin and operating income actions, expect Q4 sequential growth; focus on sales, price, cost, technology, commercialization; Board approved 10% dividend increase, continued share repurchases.

Performance Chemicals: Revenues for the third quarter were $170.8 million, up 4% from last year. Volumes fell by 2%, offset by a positive price/mix of 3% and favorable currency impact of 3%. Gross margin was 15.1%, decreasing 7 percentage points compared to the same quarter in 2024. Operating income was $9.2 million, down 54% from last year. Fuel Specialties: Revenues were $172 million, up 4% from the prior year. Volumes were down 7% with price/mix up 7% and a positive currency impact of 4%. Gross margins were 35.6%, up 2 percentage points. Operating income was $35.3 million, up 14% from last year. Oilfield Services: Revenues were $99.1 million, down 13% from the third quarter last year. Gross margins were 30%, increasing 1.7 percentage points from last year. Operating income was $4.8 million, down 32% from last year.

• Expect sequential operating income and margin improvement in Performance Chemicals and Oilfield Services in Q4. - Fuel Specialties expected to have steady performance in Q4. - Adjusted EPS expected to be in the $1.20-$1.25 range.

• Charges of $42.9 million related to assets and intangible impairments and restructuring charges due to expected lack of near-term recovery in QGP business in Brazil, Mexican oilfield production business, and U.S. oilfield stimulation business. - Geopolitical and market timing risks affecting Oilfield Services. - Raw material and pricing risks impacting Performance Chemicals' margins.

Q: Could you give more color on the gross margin decline in Performance Chemicals, including oleo chemicals raw material headwinds, mix, and price management?

A: Continuing headwinds from oleo chemicals put pressure on pricing and pass-through; actions started in September/October are taking effect, expecting Q4 gross margin to be closer to 18%. Price management was an issue due to raw material spikes, lag in contracts, etc., but actions are being implemented to improve.

Q: Could you address the seasonality and outlook for Fuel Specialties, and EPS expectations?

A: Fuel Specialties had a strong year, gross margins at 35.6% in Q3, expected to be around that mark in Q4; operating income expected around $35 million in Q4. Adjusted EPS expected in $1.20-$1.25 range.

Q: Could you touch on the timing in the oilfield business related to Middle East clients and capital allocation?

A: Activity in oilfield services is timing-related, no loss of customers, just timing. On capital allocation, still a nice balance, continuing to buy back shares and increase dividend, with focus on having dry powder for next year.