Sales up 22 percent; operating income up
30 percent; EBITDA up 35 percent First quarter
adjusted non-GAAP EPS of $0.91 Dividend increased
to $0.30 per share for the first half of 2015
Strong balance sheet with operating cash inflows of $18.2
million in the quarter
Innospec, Inc. (Nasdaq:IOSP) today announced its financial results
for the first quarter ended March 31, 2015. The Company also
announced an increase in its semi-annual dividend to $0.30 per
common share for the first half of 2015, which will be paid on May
27, 2015, to shareholders of record on May 18, 2015.
Total net sales for the quarter were $269.2 million, up 22
percent from the $220.7 million reported in the corresponding
quarter last year. Net income was $17.9 million, or $0.72 per
diluted share, compared to $16.9 million, or $0.69 per diluted
share, recorded a year ago. EBITDA (earnings before interest,
taxes, depreciation, amortization and fair value adjustments) for
the quarter was $36.7 million, a 35 percent increase from $27.1
million in 2014's first quarter.
Results for this quarter after-tax include amortization of
acquired intangible assets of $3.2 million, or $0.13 per diluted
share; an adjustment to the fair value of contingent consideration
of $2.6 million, or $0.10 per diluted share; and foreign currency
exchange gains of $1.1 million, or $0.04 per diluted share.
Excluding these items, adjusted non-GAAP EPS was $0.91 per diluted
share, compared to $0.65 per diluted share a year ago. Innospec
closed the quarter in a net debt position of $90.4 million, reduced
from the $95.3 million at the end of 2014. Cash generation for the
quarter was strong, with operating cash inflows of $18.2 million,
before capital expenditures of $6.1 million.
EBITDA and net income excluding special items, and related
per-share amounts, are non-GAAP financial measures that are defined
and reconciled with GAAP results herein and in the schedules
below.
|
Quarter ended
March 31, 2015 |
Quarter ended
March 31, 2014 |
(in millions, except share and per
share data) |
Income before
income taxes |
Net
Income |
Diluted EPS |
Income before
income taxes |
Net
income |
Diluted EPS |
|
|
|
|
|
|
|
Reported GAAP amounts |
$
23.9 |
$
17.9 |
$
0.72 |
$
19.0 |
$
16.9 |
$
0.69 |
|
|
|
|
|
|
|
Amortization of acquired intangible
assets |
4.3 |
3.2 |
0.13 |
3.5 |
2.7 |
0.11 |
Adjustment to fair value of contingent
consideration |
3.5 |
2.6 |
0.10 |
-- |
-- |
-- |
Foreign currency exchange gains |
(1.5) |
(1.1) |
(0.04) |
(1.9) |
(1.5) |
(0.06) |
Adjustment of income tax provisions |
0.1 |
0.1 |
-- |
(2.2) |
(2.2) |
(0.09) |
|
6.4 |
4.8 |
0.19 |
(0.6) |
(1.0) |
(0.04) |
|
|
|
|
|
|
|
Adjusted non-GAAP
amounts |
$
30.3 |
$
22.7 |
$
0.91 |
$
18.4 |
$
15.9 |
$
0.65 |
Commenting on the first quarter results, Patrick S. Williams,
President and Chief Executive Officer, said, "We maintained the
momentum from the fourth quarter and have started 2015 positively.
First quarter revenues and operating income are up 22 percent
and 30 percent, respectively, year over year. We are pleased that
our core businesses have held their own in a very tough market
environment, with a good contribution from our recent
acquisition.
"Adjusted earnings per share in the quarter were up 40 percent,
and EBITDA increased 35 percent, year over year. However, there is
no question that the lower price of crude oil has negatively
impacted our Oilfield Specialties customers, and therefore also our
business. We believe we are well positioned for an upturn in the
market, but we expect to have to deal with significant weakness in
Oilfield Specialties at least throughout the remainder of this year
and possibly into 2016. We are prudently monitoring this situation
but we remain in a very strong financial position.
"Overall our Fuel Specialties business delivered a 21 percent
increase in sales in the first quarter, despite the very
challenging market. Operating income for this business was off
slightly year over year, principally from an unfavourable phasing
of AvTel sales and reduced profitability in our existing Oilfield
Specialties business.
"Fuel Specialties' strategy in the Americas has benefited from
solid economic growth and continues to deliver good results. EMEA
sales were negatively impacted by foreign exchange and the
Ukraine-Russia situation, although we have seen some improvement in
gross margins. Meanwhile, Asia-Pacific operations showed signs of
continued improvement, with sales growth, year over year. Sales of
AvTel were lower in the quarter, on a sequential basis, however
this was due to buying patterns, and our order book suggests a much
stronger second quarter.
"As we signalled in our last call, sales in Performance
Chemicals rebounded from Q4 and were up on last year, driven by our
Personal Care business. Sales in Personal Care in both the Americas
and EMEA grew significantly, year over year. Our R&D
pipeline of new products in skin care and hair care continues to
deliver significant sales growth. It is very clear that our
Personal Care strategy is delivering to plan, and this market
remains a focus for further acquisitions."
Net sales in Fuel Specialties for the quarter were $199.4
million, a 21 percent increase from $164.2 million in last year's
first quarter, driven by a strong contribution from our recent
acquisition. Excluding the Independence acquisition, volumes
increased by 4 percent offset by the adverse currency impact of 7
percent in the quarter. Revenues in the Americas grew by 8
percent and Asia-Pacific by 11 percent, driven by increased volumes
in both regions. Sales in EMEA declined by 12 percent
primarily due to the adverse currency impact in the quarter and the
ongoing sanctions in Ukraine and Russia. AvTel volumes were down 53
percent from the year-ago period, largely due to order phasing, and
we expect a strong AvTel performance in the second
quarter. The segment's gross margin was 30.8 percent, down
from 31.7 percent recorded a year ago, a reflection of the lower
margins currently achieved in the Oilfield Specialties business.
Operating income for the quarter was $23.5 million, down 9
percent from last year's $25.8 million.
In Performance Chemicals, net sales of $57.6 million improved by
3 percent from 2014's first quarter, driven by volume growth of 16
percent focused in the core Personal Care business, partially
offset by an 8 percent adverse currency impact and 5 percent weaker
pricing in our other markets. By region, sales increased 10 percent
in the Americas and 3 percent in EMEA, driven by continued growth
in Personal Care volumes, but fell by 20 percent in Asia-Pacific.
The segment's gross margin was 25.2 percent, up 1.0 percentage
point from 24.2 percent in the year-ago period. This is primarily a
result of increased sales of higher-margin Personal Care products
during the quarter. Operating income of $6.4 million for the
quarter was slightly lower than the $6.5 million reported in 2014's
first quarter.
Octane Additives net sales for the quarter were $12.2 million
compared to $0.4 million a year ago. The segment's gross margin was
47.5 percent. Octane Additives reported operating income of $5.1
million during the quarter, compared to an operating loss of $1.2
million in last year's first quarter. Sales in the quarter were
higher than anticipated, but sales for the first half of 2015 are
expected to come in as previously indicated.
Corporate costs for the quarter were $8.1 million, compared with
$12.3 million a year ago. The decrease was primarily due to lower
legal and compliance expenses. The quarterly pension charge was
nil, being $0.8 million less than the year-ago period. The
effective tax rate for the quarter was 25.1 percent.
Net cash generated from operations was $18.2 million, compared
to the $20.9 million reported a year ago. As of March 31, 2015,
Innospec had $51.7 million in cash, cash equivalents and short-term
investments, and total debt of $142.1 million. In the first
quarter, the Company retired 111,000 shares at a cost of $4.9
million as part of the board-authorized share repurchase
program.
Mr. Williams concluded, "We are actively managing our way
through the challenges and opportunities presented by the lower
crude oil price. It is also important to note that we have
maintained a very solid balance sheet and strong operating cash
flows. We continue our stock buyback program and at the same
time are pleased to announce an increase in our semi-annual
dividend. We believe we are well positioned and have the
financial flexibility to take advantage of business opportunities,
when we feel it is appropriate. We look forward to the future
with confidence."
Use of Non-GAAP Financial Measures
The information presented in this press release includes
financial measures that are not calculated or presented in
accordance with Generally Accepted Accounting Principles in the
United States (GAAP). These non-GAAP financial measures comprise
EBITDA, income before income taxes excluding special items and net
income excluding special items and related per share amounts.
EBITDA is net income per our consolidated financial statements
adjusted for the exclusion of charges for interest expense, net,
income taxes, depreciation, amortization and adjustment to fair
value of contingent consideration. Income before income taxes,
net income and diluted EPS, excluding special items, per our
consolidated financial statements are adjusted for the exclusion of
amortization of acquired intangible assets, adjustment to fair
value of contingent consideration, foreign currency exchange gains
and adjustment of income tax provisions. Reconciliations of these
non-GAAP financial measures to their most directly comparable GAAP
financial measures are provided herein and in the schedules
below. The Company believes that such non-GAAP financial
measures provide useful information to investors and may assist
them in evaluating the Company's underlying performance and
identifying operating trends. In addition, management uses
these non-GAAP financial measures internally to allocate resources
and evaluate the performance of the Company's
operations. While the Company believes that such measures are
useful in evaluating the Company's performance, investors should
not consider them to be a substitute for financial measures
prepared in accordance with GAAP. In addition, these non-GAAP
financial measures may differ from similarly-titled non-GAAP
financial measures used by other companies and do not provide a
comparable view of the Company's performance relative to other
companies in similar industries. Management believes the most
directly comparable GAAP financial measure is GAAP net income and
has provided a reconciliation of EBITDA and net income excluding
special items, and related per share amounts, to GAAP net income
herein and in the schedules below.
About Innospec Inc.
Innospec Inc. is an international specialty chemicals company
with approximately 1300 employees in 20 countries. Innospec
manufactures and supplies a wide range of specialty chemicals to
markets in the Americas, Europe, the Middle East, Africa and
Asia-Pacific. The Fuel Specialties business specializes in
manufacturing and supplying the fuel additives that help improve
fuel efficiency, boost engine performance and reduce harmful
emissions. This business also contains Oilfield Specialties which
provides specialty chemicals for oil & gas drilling and
production operations. Innospec's Performance Chemicals business
provides effective technology-based solutions for our customers'
processes or products focused in the Personal Care; Polymers; and
Fragrance Ingredients markets. Innospec's Octane Additives
business is the world's only producer of tetra ethyl lead.
Forward-Looking Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical
facts included or incorporated herein may constitute
forward-looking statements. Such forward-looking statements
include statements (covered by words like "expects," "estimates,"
"anticipates," "may," "believes," "feels" or similar words or
expressions), for example, which relate to earnings, growth
potential, operating performance, events or developments that we
expect or anticipate will or may occur in the future. Although
forward-looking statements are believed by management to be
reasonable when made, they are subject to certain risks,
uncertainties and assumptions, and our actual performance or
results may differ materially from these forward-looking
statements. Additional information regarding risks,
uncertainties and assumptions relating to Innospec and affecting
our business operations and prospects are described in Innospec's
Annual Report on Form 10-K for the year ended December 31, 2014,
and other reports filed with the U.S. Securities and Exchange
Commission. You are urged to review our discussion of risks
and uncertainties that could cause actual results to differ from
forward-looking statements under the heading "Risk Factors" in such
reports. Innospec undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
|
Schedule 1 |
INNOSPEC INC. AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF INCOME |
|
|
Three Months
Ended March 31 |
(in millions, except share and per
share data) |
2015 |
2014 |
|
|
|
Net sales |
$ 269.2 |
$ 220.7 |
Cost of goods sold |
(187.4) |
(155.0) |
Gross profit |
81.8 |
65.7 |
|
|
|
Operating expenses: |
|
|
Selling, general and
administrative |
(48.7) |
(42.0) |
Research and development |
(6.2) |
(5.7) |
Adjustment to fair value of
contingent consideration |
(3.5) |
-- |
Total operating expenses |
(58.4) |
(47.7) |
Operating income |
23.4 |
18.0 |
Other net income |
1.5 |
1.9 |
Interest expense, net |
(1.0) |
(0.9) |
Income before income taxes |
23.9 |
19.0 |
Income taxes |
(6.0) |
(2.1) |
Net income |
$ 17.9 |
$ 16.9 |
|
|
|
Earnings per share: |
|
|
Basic |
$ 0.74 |
$ 0.69 |
Diluted |
$ 0.72 |
$ 0.69 |
|
|
|
Weighted average shares outstanding (in
thousands): |
|
|
Basic |
24,301 |
24,362 |
Diluted |
24,808 |
24,635 |
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES |
Schedule 2A |
|
SEGMENTAL ANALYSIS OF
RESULTS |
Three Months
Ended March 31 |
(in millions) |
2015 |
2014 |
|
|
|
Net sales: |
|
|
Fuel Specialties |
$ 199.4 |
$ 164.2 |
Performance
Chemicals |
57.6 |
56.1 |
Octane Additives |
12.2 |
0.4 |
|
269.2 |
220.7 |
|
|
|
Gross profit: |
|
|
Fuel Specialties |
61.5 |
52.0 |
Performance
Chemicals |
14.5 |
13.6 |
Octane Additives |
5.8 |
0.1 |
|
81.8 |
65.7 |
|
|
|
Operating income: |
|
|
Fuel Specialties |
23.5 |
25.8 |
Performance
Chemicals |
6.4 |
6.5 |
Octane Additives |
5.1 |
(1.2) |
Pension charge |
-- |
(0.8) |
Corporate costs |
(8.1) |
(12.3) |
|
26.9 |
18.0 |
Adjustment to fair value of contingent
consideration |
(3.5) |
-- |
Total operating income |
$ 23.4 |
$ 18.0 |
|
|
Schedule 2B |
|
NON-GAAP MEASURES |
Three Months
Ended March 31 |
(in millions) |
2015 |
2014 |
|
|
|
Net income |
$ 17.9 |
$ 16.9 |
Interest expense, net |
1.0 |
0.9 |
Income taxes |
6.0 |
2.1 |
Depreciation and amortization |
8.3 |
7.2 |
Adjustment to fair value of contingent
consideration |
3.5 |
-- |
EBITDA |
36.7 |
27.1 |
|
|
|
Fuel Specialties |
28.6 |
29.2 |
Performance Chemicals |
8.2 |
8.7 |
Octane Additives |
5.2 |
(1.1) |
Pension charge |
-- |
(0.8) |
Corporate costs |
(6.8) |
(10.8) |
|
35.2 |
25.2 |
Other net income |
1.5 |
1.9 |
EBITDA |
$ 36.7 |
$ 27.1 |
|
|
Schedule 3 |
INNOSPEC INC. AND
SUBSIDIARIES |
CONSOLIDATED BALANCE
SHEETS |
|
(in
millions) |
March 31,
2015 |
December 31,
2014 |
Assets |
|
|
|
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 46.5 |
$ 41.6 |
Short-term investments |
5.2 |
4.7 |
Trade and other accounts
receivable |
147.7 |
164.3 |
Inventories |
176.0 |
184.9 |
Current portion of deferred tax
assets |
8.4 |
8.4 |
Prepaid expenses |
6.6 |
8.3 |
Prepaid income taxes |
1.0 |
2.0 |
Total current assets |
391.4 |
414.2 |
|
|
|
Net property, plant and equipment |
80.0 |
80.8 |
Goodwill |
275.9 |
276.1 |
Other intangible assets |
178.6 |
181.1 |
Deferred finance costs |
0.9 |
1.1 |
Deferred tax assets, net of current
portion |
0.7 |
0.7 |
Pension asset |
48.9 |
45.2 |
Other non-current assets |
0.4 |
0.7 |
Total assets |
$ 976.8 |
$ 999.9 |
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
Current liabilities: |
|
|
Accounts payable |
$ 59.4 |
$ 87.6 |
Accrued liabilities |
71.9 |
77.2 |
Current portion of long-term
debt |
0.2 |
0.4 |
Current portion of finance
leases |
0.6 |
0.5 |
Current portion of plant
closure provisions |
4.9 |
5.7 |
Current portion of accrued
income taxes |
4.8 |
5.6 |
Current portion of
acquisition-related contingent consideration |
47.3 |
45.7 |
Current portion of deferred
income |
0.2 |
0.2 |
Total current liabilities |
189.3 |
222.9 |
|
|
|
Long-term debt, net of current portion |
139.0 |
139.0 |
Finance leases, net of current portion |
2.3 |
1.7 |
Plant closure provisions, net of current
portion |
29.4 |
28.4 |
Unrecognized tax benefits, net of current
portion |
6.3 |
6.2 |
Deferred tax liabilities, net of current
portion |
25.3 |
23.0 |
Pension liabilities |
9.3 |
10.4 |
Acquisition-related contingent consideration,
net of current portion |
51.4 |
49.5 |
Deferred income, net of current portion |
0.8 |
0.9 |
Other non-current liabilities |
1.6 |
2.0 |
Total stockholders' equity |
522.1 |
515.9 |
Total liabilities and stockholders'
equity |
$ 976.8 |
$ 999.9 |
|
|
Schedule 4 |
INNOSPEC INC. AND
SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF CASH FLOWS |
|
|
Three Months
Ended March 31 |
(in millions) |
2015 |
2014 |
Cash Flows from Operating Activities |
|
|
|
|
|
Net income |
$ 17.9 |
$ 16.9 |
Adjustments to reconcile net income to cash
provided by operating activities: |
|
|
Depreciation and
amortization |
8.5 |
7.4 |
Adjustment to fair value of
contingent consideration |
3.5 |
-- |
Deferred taxes |
1.1 |
0.4 |
Changes in working capital |
(11.1) |
(6.8) |
Excess tax benefit from
stock-based payment arrangements |
(0.7) |
(0.2) |
Accrued income taxes |
0.2 |
8.0 |
Movement on plant closure
provisions |
0.5 |
0.3 |
Cash contributions to defined
benefit pension plans |
(2.7) |
(2.9) |
Non-cash expense of defined
benefit pension plans |
0.2 |
1.0 |
Stock option compensation |
0.9 |
0.6 |
Movements on unrecognized tax
benefits |
0.1 |
(4.0) |
Movements on other non-current
assets and liabilities |
(0.2) |
0.2 |
Net cash provided by operating
activities |
18.2 |
20.9 |
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
Capital expenditures |
(3.4) |
(2.3) |
Internally developed software |
(2.7) |
(1.5) |
Purchase of short-term investments |
(1.8) |
(1.2) |
Sale of short-term investments |
1.1 |
2.0 |
Net cash used in investing activities |
(6.8) |
(3.0) |
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
Net repayment of revolving credit
facility |
-- |
(8.0) |
Repayment of term loans |
(0.2) |
(0.3) |
Excess tax benefit from stock-based payment
arrangements |
0.7 |
0.2 |
Issue of treasury stock |
0.7 |
0.3 |
Repurchase of common stock |
(6.3) |
(0.2) |
Net cash used in financing activities |
(5.1) |
(8.0) |
Effect of foreign currency exchange rate
changes on cash |
(1.4) |
-- |
Net change in cash and cash equivalents |
4.9 |
9.9 |
Cash and cash equivalents at beginning of
period |
41.6 |
80.2 |
Cash and cash equivalents at end of
period |
$ 46.5 |
$ 90.1 |
Amortization of deferred finance costs of $0.2 million (2014 -
$0.2 million) are included in depreciation and amortization in the
cash flow statement but in interest expense in the income
statement.
CONTACT: Brian Watt
Innospec Inc.
+44-151-356-6241
Brian.Watt@innospecinc.com
Robert D. Ferris
RF|Binder Partners
+1-212-994-7505
Robert.Ferris@RFBinder.com
Chloe Miller
RF|Binder Partners
+1-212-994-7636
Chloe.Miller@RFBinder.com
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