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DATE
Wednesday, August 6, 2025, at 10 a.m. ET
CALL PARTICIPANTS
- President and Chief Executive Officer — Patrick Williams
- Executive Vice President and Chief Financial Officer — Ian Cleminson
- Operator
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RISKS
- Performance Chemicals gross margin decreased by 5.1 percentage points to 17.5% in Q2 2025, with management noting margins remained "below our expectations" and stating, "we have got a long way to go" in addressing internal pricing controls.
- Oilfield Services operating income declined 15% year over year, with continuing absence of orders from the Latin America customer and management stating, "Our outlook does not anticipate any resumption of Latin America activity for the remainder of the year."
- Adjusted EBITDA decreased to $49.1 million from $54.1 million in Q2 2024, and adjusted EPS declined to $1.26 from $1.39 in Q2 2024, reflecting year-over-year contraction in profitability (GAAP) despite modest revenue growth.
TAKEAWAYS
- Total Revenue-- $439.7 million in revenue for Q2 2025, a 1% increase over Q2 2024 due to mixed segment results.
- Gross Margin-- 28%, down 1.2 percentage points in overall gross margin, reflecting pressure from Performance Chemicals and Oilfield Services sales mix.
- Adjusted EBITDA-- Adjusted EBITDA was $49.1 million, down $5 million from last year's $54.1 million in Q2 2024.
- Adjusted Diluted EPS-- Adjusted EPS was $1.26 versus $1.39 in the prior year, excluding special items for both periods.
- Performance Chemicals Revenue-- $173.8 million in Q2 2025, up 9% compared to Q2 2024, with volume increases of 4%, positive price mix of 2%, and 3% positive currency impact.
- Performance Chemicals Gross Margin-- 17.5% gross margin for Performance Chemicals, down 5.1 percentage points compared to Q2 2024, attributed to lower sales pricing and a weaker product mix.
- Performance Chemicals Operating Income-- Operating income was $14.3 million, a 33% decrease from $21.2 million in Q2 2024.
- Fuel Specialties Revenue-- $165.1 million in revenue for Fuel Specialties in Q2 2025, a 1% decrease compared to Q2 2024, with 7% lower volumes offset by 4% positive price mix and 2% currency benefit.
- Fuel Specialties Gross Margin-- 38.1% gross margin for Fuel Specialties, up 3.5 percentage points, reflecting "stronger sales mix and disciplined pricing."
- Fuel Specialties Operating Income-- $35.4 million in operating income for Fuel Specialties, up 16% from $30.4 million in Q2 2024.
- Oilfield Services Revenue-- $101 million in oilfield services revenue in Q2 2025, a 7% decline compared to Q2 2024, impacted by weaker Latin American activity.
- Oilfield Services Gross Margin-- 29.6% gross margin for Oilfield Services, down 1 percentage point compared to Q2 2024 due to weaker sales mix.
- Oilfield Services Operating Income-- $6.2 million in operating income for Oilfield Services, down 15% from $7.3 million in Q2 2024, although sequentially improved from Q1 2025.
- Corporate Costs-- $20.9 million, up from $17.6 million in Q2 2024, including a $2.3 million legacy environmental provision.
- Effective Tax Rate-- 26.3%, improved from 28.6% last year, aided by geographic profit mix.
- Share Repurchases-- Nearly 90,000 shares repurchased for $8.2 million.
- Dividend Payment-- $20.8 million paid as a semiannual dividend.
- Cash and Debt-- $266.6 million in cash and cash equivalents as of June 30, 2025, with no debt on the balance sheet.
SUMMARY
Innospec (IOSP -6.20%) management identified margin improvement in Performance Chemicals and Oilfield Services as top priorities, with targeted actions underway, but noting that full margin normalization may not be achieved until Q4 2025. The Fuel Specialties segment demonstrated notable gross margin expansion in Q2 2025, attributed to disciplined pricing and a favorable sales mix, though management indicated this level may moderate in the coming quarters. Corporate cost inflation was partially driven by legacy environmental charges, and capital returns to shareholders included both increased dividends and opportunistic share repurchases.
- Patrick Williams said, "I do not think you are going to see performance chemicals go up at all. I think we have a full quarter to fix things before we get back to those normalized run rates in Q4."
- Ian Cleminson stated, "the dividend we have increased 10% in the first half of the year. You will likely see us do that again in the second half of the year."
- On Latin American Oilfield Services, Williams said, "I do not see any orders coming through in Q3. There is a lot of talk going on, but I do, Jon, think they will come back. We do not see anything in Q3 and potentially Q4."
INDUSTRY GLOSSARY
- Oleochemicals: Chemical compounds derived from plant and animal fats, commonly used as raw materials in specialty chemicals for personal care and cleaning products.
- DRA: Drag Reducing Agent, a chemical additive used in pipelines to reduce friction and improve flow efficiency for oilfield applications.
Full Conference Call Transcript
With me today from Innospec Inc. are Patrick Williams, president and chief executive officer, and Ian Cleminson, executive vice president and chief financial officer. And with that, I turn it over to you, Patrick.
Patrick Williams: Thank you, David. Welcome, everyone, to Innospec Inc.'s second quarter 2025 conference call. This was a good quarter for Innospec Inc. Our balanced portfolio benefited from strong growth in fuel specialties operating income, which offset lower results in Performance Chemicals and oilfield services. Performance Chemicals delivered strong high single-digit sales growth, but gross margins remained below our expectations. We are focused on delivering sequential gross margin improvement and operating growth in the second half of the year. This is a priority for the business, and we are cautiously optimistic that we can achieve these results through a broad range of opportunities that have been identified and actioned by the team. Fuel specialties had another strong quarter.
Operating income grew by double digits, and margins expanded. The business benefited from good performance across all regions and end markets, including nonfuel applications. Our outlook continues to be for steady performance in this business with a focus on operating income growth and margin improvement. Oilfield Services operating income improved on a sequential basis due to our focus on margin improvement as discussed last quarter. Our medium-term operating income margin target is above 10%, and our teams will continue to drive sales technology and cost management actions to meet these objectives. We remain focused on delivering further operating income and margin improvement through the second half of this year.
Our outlook does not anticipate any resumption of Latin America activity for the remainder of the year. 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: Thanks, Patrick. Turning to slide seven in the presentation. The company's total revenues for the second quarter were $439.7 million, a 1% increase from $435 million a year ago. Overall gross margin decreased by 1.2 percentage points from last year to 28%. Adjusted EBITDA for the quarter was $49.1 million compared to $54.1 million last year, and net income for the quarter was $23.5 million compared to $31.2 million a year ago. Our GAAP earnings per share were $0.94, including special items, the net effect of which decreased our second-quarter earnings. A year ago, we reported GAAP earnings per share of $1.24, which included the negative impact from special items of $0.15 per share.
Excluding special items in both years, our adjusted EPS for the quarter was $1.26 compared to $1.39 a year ago. Turning to slide eight. Revenues in Performance Chemicals for the second quarter were $173.8 million, up 9% from last year's $160.1 million. Volumes grew 4% driven by lower margin products, with a positive price mix of 2% and a positive currency impact of 3%. Gross margins of 17.5% decreased 5.1 percentage points compared to the same quarter in 2024, due to lower sales pricing and a weaker sales mix. Operating income of $14.3 million decreased 33% from $21.2 million last year.
Moving on to slide nine, revenues in fuel specialties for the second quarter were $165.1 million, down 1% from the $166.6 million reported a year ago. Volumes were down 7% with price mix up 4% and a positive currency impact of 2%. Fuel specialties gross margins of 38.1% were three and a half percentage points above the same quarter last year, benefiting from a stronger sales mix and disciplined pricing. Operating income of $35.4 million was up 16% from $30.4 million a year ago. Moving on to slide 10, revenues in oilfield services for the quarter were $101 million, down 7% from $108.3 million in the second quarter last year.
Gross margins of 29.6% decreased one percentage point from last year on a weaker sales mix. Operating income of $6.2 million improved sequentially helped by cost control measures, but decreased 15% from $7.3 million one year ago. Turning to Slide 11, corporate costs for the quarter of $20.9 million compared with $17.6 million a year ago and included a $2.3 million legacy environmental provision. The effective tax rate for the quarter was 26.3% compared to 28.6% a year ago, benefiting from the geographical location of profits. Moving on to slide 12, cash from operating activities was $9.3 million before capital expenditures of $16.2 million.
In the second quarter, we bought back almost 90,000 shares at a cost of $8.2 million and paid a semiannual dividend of $20.8 million.
David Jones: As of June 30, Innospec Inc. had $266.6 million in cash and cash equivalents and no debt. And now I'll turn it back over to Patrick for some final comments.
Patrick Williams: Thanks, Ian. Our immediate priority is margin improvement in Performance Chemicals and Oilfield Services. These improvements are expected to come from sales, cost actions, new technology, and other opportunities across all regions and end markets. Fuel Specialties has delivered strong results year to date and is expected to remain steady. Overall, our balanced portfolio is well-positioned for growth and improved margins as our business teams deliver on these objectives. This quarter, we paid our semiannual dividend of $0.84 per share and repurchased $8.2 million in shares. With over $266 million in net cash, we have significant balance for further organic investment, complementary M&A, and shareholder returns through dividend growth and buybacks.
Now I will turn the call over to the operator, and Ian and I will take your questions.
Operator: Thank you, sir. As a reminder to ask a question, please press 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1 and 1 again. We are now going to proceed with our first question. And the questions come from the line of Mike Harrison from Seaport Research Partners. Please ask your question.
Mike Harrison: Hi. Good morning. I had a handful of questions here on the Performance Chemicals business. First of all, you noted that you were seeing higher volumes of some lower margin products and that mix was a drag on margin. Can you give us a little more color on what those products were? And is this something you guys are doing internally, or is this more of a customer shift or trading down? And I guess the end question is, do you expect that trend of weaker mix to continue into the second half? Or was it more isolated in the second quarter?
Patrick Williams: I think there's a little bit of hesitancy in the market, Mike. I think that with all the tariff talk and geopolitics going on, there's been a little bit of a consumer shift to a lower commoditized product. We do not give actual products out on the phone calls, but that's what we have generally seen in markets. Additionally, when you start looking at the recovery in pricing, you know, there's always a lag going up as oil chemicals go up, the lag going up takes considerable time. You get the benefit as raw materials come up on the back end. But right now, we are still climbing that ladder.
I think for us as a company, it sits on us that we need to control pricing a little better. And that is going to be our focus in Q3, not only from procurement but pricing to the customers. So we have got a long way to go. There is a minor shift in the market, but it is not the market that is causing this. We need to take care of this internally.
Mike Harrison: Alright. So you mentioned the oleochemicals there, and we have heard that there's kind of a spike going on in those raw material costs. Is that the bigger driver then that we need to be thinking about and that the key to margin improvement in the second half is more of a pricing versus raw material cost issue?
Patrick Williams: Yeah. I would probably say that's the bigger driver at this point. I think the other drivers are things internally that we need to do a better job of. And we are on top of it. I think you are going to see, unfortunately, a little bit of that lag in Q3. I do not see us coming out of this until the oleos come off a little bit, but it is or until we get to the spike of the or the height of the increase, which I think you will see in probably Q4.
Mike Harrison: Alright. Thanks for that. And then I guess on the more positive side, the strength that you saw in fuel specialties margin was pretty impressive. Maybe almost seemed a little bit unusual. Can you help us understand what drove strong gross margin performance in fuel specialties? And what aspects of that strength could be sustainable going forward?
Patrick Williams: Yeah. I mean, quite frankly, it is price discipline. It is product mix. It is nonfuel applications. They have done a really good job in moving this business forward in a market that is somewhat stagnant. And, you know, I think the nonfuel applications have been a big benefit. And as I said earlier, disciplined pricing. We have got great technology. We have got great people. You know, I do see that coming off a bit. And it is going to be tough to sustain that in Q3, Q4. You know, when we say that 32 to 34 percent of margin, I think we will still stay on that high end.
But should come up a little bit probably in Q3.
Mike Harrison: Alright. Thank you. And then I guess, just kind of bringing it all together as we are trying to think about what earnings could look like in the third quarter. Sounds like Performance Chemicals and Oilfield should both show a little bit of sequential improvement from Q2 earnings levels. Maybe fuel specialties comes off a little bit and net-net, any other color around earnings guide Q3 should look pretty similar to Q2 is always helpful. Thanks.
Patrick Williams: Mike, I think what you will see is fuel specialties may be coming off a little bit, not much. I think you will see oilfield services probably about the same as it was this quarter. Could have a chance to go up. But I do not think you are going to see performance chemicals go up at all. I think we have a full quarter to fix things before we get back to those normalized run rates in Q4.
Mike Harrison: Alright. Very helpful. Thank you.
Operator: Star 1 and 1 on your telephone and wait for your name to be announced. We are now going to proceed with our next question. And the questions come from the line of Jon Tanwanteng from CJS. Please ask your question.
Jon Tanwanteng: Patrick, I was just wondering if you could help us understand the state of progress in diversifying your oilfield customer base. And if there's any update and I know you did not include your guidance, but if there's any update on the LATAM customer and if they may come back at some point in the future.
Patrick Williams: Yeah. I do not see it happening this year. I mean, everybody has seen what is going on with that customer. Let's just call it out specific to Mexico. They are trying to float $10 billion of bonds. They have got some real big issues internally that they have to overcome and payment issues as well. But there is no doubt that crude oil drives their revenue base in Mexico. So they are kind of caught right now. I do not see any orders coming through in Q3. There is a lot of talk going on, but I do, Jon, think they will come back. We do not see anything in Q3 and potentially Q4.
It is just a function of timing. And, you know, we are risk-averse when it comes to payment terms. They have to be able to pay for us to ship product. And that is kind of where we sit right now. So in answering the rest of your question, I think the oilfield has done a better job diversifying in other countries. Middle East, you are seeing growth. I think you are seeing good growth in DRA and other areas. But the Latin American customer is going to take some time.
Jon Tanwanteng: Okay. Great. Thank you. And just to rehash the fuel specialties margin question, you mentioned a number of drivers to get you that really impressive 38% level in Q2. Which specifically is not repeating in Q3 that maybe gets you back to the normal range that you are in even if it is at the high end?
Ian Cleminson: Yeah. It is really product mix, Jon. You know, we landed some real nice sales mix this quarter. That will come off a little bit in Q3. And along with the solid pricing discipline the business has got, our expectations are that we will be at the high end of that 32 to 34 range that we normally quote. That is the normalized business going into Q3. And as we head into Q4, again, dependent on sales mix, we will stay within that range, maybe come off a little bit from 34. Well, let's say we will update you on the next call, but certainly Q3 will be at the high end of the normalized range.
Jon Tanwanteng: Okay. Great. And then any update on capital allocation? I know you bought back some shares in the quarter, which traditionally, you have done opportunistically, but not a very heavy component of your capital allocation plan. Just wondering if there are any changes that are going on. Obviously, the stock has been lower. But if there are any M&A updates or other things you would like to do.
Patrick Williams: Once you start in, then I will add to it.
Ian Cleminson: Sure. On the capital allocation side, Jon, you have seen us in the market with the buyback, and we have been a little bit opportunistic there. We have got a $50 million authority, and we are chewing our way through that. But, you know, we are just looking at the market carefully. We do not want to chase it down, and we do not want to chase the market up. But we will set the opportunities as and when they arise. The focus really for us is on this longer-term shareholder value, and that comes out of the dividend. And that comes out of the business performance.
So the dividend we have increased 10% in the first half of the year. You will likely see us do that again in the second half of the year. We think we have got the cash flow and we have got the cash reserves to do that. So no real changes on the capital allocation from that respect. M&A, I will pass it over to Patrick.
Patrick Williams: Yeah. We are still looking at M&A. I would probably tell you nothing in Q3 until I get this margin issue fixed in Performance Chemicals. But, you know, we will always look. We will continue to look. There are some things coming on the market at the end of this year that have some excitement. But, again, we are not looking until I get these margins approved and fixed in Performance Chemicals, and I guarantee it will be fixed.
Jon Tanwanteng: Great. Thank you.
Operator: As a final reminder to ask a question, please press 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1 and 1 again. We are now going to take our next question. The questions come from the line of Jon Tanwanteng from CJS. Please ask your question. Hello, Jon. Your line is opened.
Jon Tanwanteng: Hi, Ian. Just a quick follow-up if possible. I know you mentioned that the geographic mix is a little bit better from a tax perspective. Any thoughts on that going forward and for the rest of the year?
Ian Cleminson: Yeah. I think sort of 26% is probably the right number, Jon. Obviously, things can change as the business evolves. But right now, that is our sort of full-year estimate.
Jon Tanwanteng: Okay. Great. Thank you.
Ian Cleminson: No problem.
Operator: We have no further questions at this time. I will hand back to Patrick Williams for closing remarks.
Patrick Williams: Thank you all for joining us today, and thanks to all our shareholders, customers, and Innospec Inc. employees for your interest and support. If you have any further questions about Innospec Inc. or matters discussed today, please give us a call. Look forward to meeting up with you again and discussing our third quarter 2025 results in November. Have a great day.
Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a great day.