Innospec Inc.

Good day and thank you for standing by. Welcome to the Inespec's fourth quarter 2025 earnings release conference call and webcast. Speakers on the call today are David Jones, General Counsel and Chief Financial Compliance Officer, Patrick Williams, President and CEO, and Ian Clevenson, Executive Vice President and Chief Financial Officer. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please note that today's conference is being recorded. I would now like to have the conference over to your first speaker, Mr. David Jones, General Counsel and Chief Compliance Officer. Please go ahead.

Thank you. Welcome to Inispec's fourth quarter and full year earnings call. This is David Jones. I'm Inispec'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 InnoSpec's 10-K, 10-Qs, and other filings with the SEC. Please see the SEC site and InnoSpec site for these and related documents. In today's presentation, we have also included non-debt financial measures. A reconciliation to the most directly comparable GAAP financial measure is contained in the earnings release. The non-GAAP financial measure 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 in addition to the impact that these items and events had on financial results. With me today from Innispec are Patrick Williams, President and Chief Executive Officer, and Ian Clementson, Executive Vice President and Chief Financial Officer. And with that, I turn it over to you, Patrick.

Thank you, David. Welcome everyone to Innispec's fourth quarter 2025 conference call. This was a good quarter for Innispec with continued strong operating income growth and margin expansion in fuel specialties combined with improving results in performance chemicals and oilfield services. in-performance chemicals, margin 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. Oilfield services operating income and margins improved on a richer sales mix and lower overheads. Sales were down on reduced activity in U.S. 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 margin improvement. Our outlook does not assume any resumption of Mexico sales in 2026. Regarding our outlook for the first quarter of 2026, results of 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 Clemson, 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 percentage 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 gap earnings per share were $1.91, including special items, the net effect of which increased our fourth quarter earnings by 41 cents per share. A year ago, we reported a gap loss per share of $2.80, which included a negative impact from special items of $4.20. 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 gap earnings per share were $4.67 including special items which decreased our full year earnings by 60 cents per share In 2024, we reported gap 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 impacts of 4%. Gross margins of 18.1% decreased 4.6 percentage 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 three percentage 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 9, 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 percentage 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 oilfield 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 percentage points from last year's 30.1%, operating income of 8.2 million increased nine percent from 7.5 million one year ago for the full year revenues of 395.1 million were down 19 percent from last year's 490.6 million and operating income decreased 40 percent to 23.3 million turn to 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 re-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, NSBEC had 292.5 million in 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 oilfield services. In addition, we expect fuel specialties to continue to deliver consistent results. Operating cast generation was excellent in the quarter, and our new cast position closed at over $292 million after making our semi-annual dividend payment $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 Ian and I will take your questions.

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 11 again. 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 questions come from the line of John Tanuantang from CJS Securities. Please answer the question.

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'd 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 oilfield 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 hot spot 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 and STEM as well.

Okay, great. You mentioned the impact of weather a couple times. I guess that, you know, less people driving, maybe there's some snarls with production, but I would also expect probably maybe an offsetting impact on 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 Ian take the financial portion of the negative effects, but You know, in oil field, it was production activity. You know, 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, you know, 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 an event that was unexpected. We'll get it fixed. It won't happen again because 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 around about $5 million to $6 million. That's probably a couple of million below where we would like 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 while. time for us to build that back up. So we're expecting the performance chemicals Q1 operating income to be close to $10 to $11 million. Again, that's probably $5 to $6 million below where we would have liked to have been. So it's quite a significant impact from the weather in Q1 in 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 26th?

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, because 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. Our expectations were rolling into a nice Q4 to roll into a really strong And we're just going to take advantage of it now 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 queue. Thanks, Jim.

We are now going to proceed with our next question. The next questions come from the line of Mark Harrison from Seaport Research Partners. Please ask your question.

Hi, good morning. Morning, Mike.

Good morning, Mike. Had just a couple 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 was 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 oleochemicals 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 price versus raw material cost margin contribution as we get into 26th?

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. You know, I think tariffs in general just have put a downturn on any kind of inventory build. I think that was part of it. Typically, Q4 is a little slower in the business by nature. You know, 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, we've done a lot of price action around margins and around raw materials. A lot of our national contracts and international contracts and multinationals 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 oleos, etc., We have finally gotten out in front of those, and 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, you know, 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, you know, 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'm just curious, you know, 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. 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, you know, as we're talking about Latin America, is it possible that we see any business opportunities start to show up in Venezuela?

Yes, good questions. I do think you're going to start seeing that probably between five to seven percent revenue growth in that oil field. You know, oilfield 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 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, you know, 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. You know, 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. You know, 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 U.S., 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 uh to that reorganization um 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 comp 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're spot on, Mike. It was personnel-related costs. As we look forward into 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. Thanks very much.

Thanks, Matt. Thank you.

We are now going to proceed with our next question.

And the questions come from the line of David Silva from Freedom Capital Markets. Please ask your question.

Yeah. Hi. Good morning. Thank you. Good morning, David. Good morning, David. Good morning. So I would like to start with maybe just a question or two on fuel specialties. And firstly, on the quarter, you know, 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, you know, obviously the business is functioning pretty well. And I know that You know, your view is that it's a very stable business, low single-digit, you know, grower from year to year. But it does seem like, you know, you're shaking things up a little bit or operating the business a little bit differently. So, you know, 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, you know, just maybe some thoughts about that and then why that strength, you know, 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. I think A lot of it was product mix, but a lot of it is outside of even fuels. 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%. um you know 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 after markets and europe um 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, you know, the group who manages that division 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, you know, 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'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, you know, are your customers kind of indicating that that's, you know, 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, you know, grower over the longer term. Is that still kind of your thinking for next year or whether it's due to mix or other factors, you know, 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 up 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 push down to more commoditized products. But again, David, you'll see that. That's very typical in markets like this where there's uncertainty or coming out of inflationary markets. You know, 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, you know, yeah, consumer trends have sent us that way. 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 know, you cited in performance chemicals in the oil field, you said new technology commercializations and other opportunities for 2026. In particular, on the new technology commercialization, I mean, you focused on kind of some of your functional surfactant products for mining and agrochemical and whatnot. But I was just wondering, are those the recent commercializations? Are those the products you're talking about, maybe expanding the role 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 products

product introductions we should be thinking about and you know qualitatively maybe could you point us to where those might be yeah these you know these are a series of products and let's talk performance chemicals specifically there are a series of products that go in multiple applications You know, they're not mass markets where you're going into a multibillion-dollar industry and capturing $200 to $300 million of business. They're more specialized. So we will typically launch two, three, or four 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 buildup over time where you start seeing the big changes in margin profile and in revenue. And it's the same in oil field. You know, we've got a lot of creativity in the group. They're finally starting to come together and bring new ideas and creativity market. Sometimes it's not necessarily just products. It could be market approach. And so there's a lot of different reality going. We have to be 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 organizations.

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 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 first quarter 2026 results in May.

Have a great day.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a great day.