# Innospec Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Innospec Inc.](/companies/iosp.md) (CIK 1054905)
- Form: 10-Q
- Filed: 2023-11-08
- Accepted by EDGAR: Nov 8, 2023, 10:32 ET
- Period: 2023-09-30
- Accession: 0000950170-23-060765
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1054905/000095017023060765/iosp-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1054905/000095017023060765/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $464.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.45bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $326.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.02bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $137.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $435.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $11.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $32.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $83.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $285.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $41.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $117.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $8.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $27.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $39.2m | us-gaap:ProfitLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $101.3m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.57 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $1.58 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $4.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 25,006,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 25,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $134.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $17.2m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $1.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $207.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $863.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.62bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $344.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $490.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $1.13bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,508 characters.

This discussion should be read in conjunction with our unaudited interim condensed consolidated financial statements and the notes thereto.

### CRITICAL ACCOUNTING ESTIMATES

The policies and estimates that the Company considers the most critical in terms of complexity and subjectivity of assessment are those related to environmental liabilities, pensions, income taxes, goodwill, property, plant and equipment and other intangible assets (net of depreciation and amortization). These policies have been discussed in the Company’s 2022 Form 10-K.

### RESULTS OF OPERATIONS

The Company reports its financial performance based on three reportable segments, which are Performance Chemicals, Fuel Specialties and Oilfield Services.

The following table provides sales, gross profit and operating income by reporting segment:

*(in millions)*

| Net sales: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Performance Chemicals | $145.2 | $159.7 | $424.4 | $495.8 |
| Fuel Specialties | 169.3 | 178.7 | 513.8 | 546.9 |
| Oilfield Services | 149.6 | 174.6 | 515.9 | 410.3 |
|  | $464.1 | $513.0 | $1,454.1 | $1,453.0 |
| **Gross profit:** |  |  |  |  |
| Performance Chemicals | $30.3 | $39.1 | $76.4 | $123.5 |
| Fuel Specialties | 53.0 | 53.4 | 155.2 | 171.0 |
| Oilfield Services | 53.9 | 63.5 | 203.8 | 140.6 |
|  | $137.2 | $156.0 | $435.4 | $435.1 |
| **Operating income/(loss):** |  |  |  |  |
| Performance Chemicals | $16.9 | $25.4 | $36.5 | $79.5 |
| Fuel Specialties | 27.6 | 27.9 | 77.1 | 94.9 |
| Oilfield Services | 16.4 | 14.2 | 60.3 | 21.2 |
| Corporate costs | (19.0) | (17.4) | (56.8) | (54.9) |
| Total operating income | $41.9 | $50.1 | $117.1 | $140.7 |

18

### Three Months Ended September 30, 2023

The following table shows the changes in sales, gross profit and operating expenses by reporting segment for the three months ended September 30, 2023 and the three months ended September 30, 2022:

*(in millions, except ratios)*

| Net sales: | Three Months Ended September 30, 2023 | 2022 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Performance Chemicals | $145.2 | $159.7 | $(14.5) | (9)% |
| Fuel Specialties | 169.3 | 178.7 | (9.4) | (5)% |
| Oilfield Services | 149.6 | 174.6 | (25.0) | (14)% |
|  | $464.1 | $513.0 | $(48.9) | (10)% |
| **Gross profit:** |  |  |  |  |
| Performance Chemicals | $30.3 | $39.1 | $(8.8) | (23)% |
| Fuel Specialties | 53.0 | 53.4 | (0.4) | (1)% |
| Oilfield Services | 53.9 | 63.5 | (9.6) | (15)% |
|  | $137.2 | $156.0 | $(18.8) | (12)% |
| **Gross margin (%):** |  |  |  |  |
| Performance Chemicals | 20.9 | 24.5 | (3.6) |  |
| Fuel Specialties | 31.3 | 29.9 | 1.4 |  |
| Oilfield Services | 36.0 | 36.4 | (0.4) |  |
| **Aggregate** | **29.6** | **30.4** | **(0.8)** |  |
| **Operating expenses:** |  |  |  |  |
| Performance Chemicals | $(13.4) | $(13.7) | $0.3 | (2)% |
| Fuel Specialties | (25.4) | (25.5) | 0.1 | (0)% |
| Oilfield Services | (37.5) | (49.3) | 11.8 | (24)% |
| Corporate costs | (19.0) | (17.4) | (1.6) | 9% |
|  | $(95.3) | $(105.9) | $10.6 | (10)% |

### Performance Chemicals

*Net sales:* the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:

| Change (%) | Three Months Ended September 30, 2023 Americas | EMEA | ASPAC | Total |
| --- | ---: | ---: | ---: | ---: |
| Volume | +11 | +5 | -16 | +7 |
| Price and product mix | -22 | -17 | -9 | -19 |
| Exchange rates | - | +6 | +2 | +3 |
|  | -11 | -6 | -23 | -9 |

Higher sales volumes for the Americas and EMEA was due to increased demand from consumers, while ASPAC suffered from weaker demand. All our regions were negatively impacted by an adverse price and product mix primarily due to an adverse sales mix with the greater proportion of sales from lower priced products.

*Gross margin:* the year over year decrease of 3.6 percentage points was due to an adverse sales mix from reduced sales of higher margin products and the adverse impact of reduced manufacturing efficiency resulting from lower production volumes.

*Operating expenses:* decreased $0.3 million year over year, due to lower acquired intangibles amortization following the end of the expected life of the assets together with lower performance related remuneration accruals, being partly offset by higher research and development expenditure.

### Fuel Specialties

*Net sales:* the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:

| Change (%) | Three Months Ended September 30, 2023 Americas | EMEA | ASPAC | AvGas | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Volume | -3 | -11 | -5 | +20 | -4 |
| Price and product mix | -3 | -2 | -9 | -6 | -4 |
| Exchange rates | - | +8 | +2 | - | +3 |
|  | -6 | -5 | -12 | +14 | -5 |

Sales volumes in all our regions have decreased year over year due to a reduction in the sales of lower margin higher volume products. Price and product mix was adverse, with a favorable sales mix being offset by lower pricing. AvGas volumes were higher than the prior year due to variations in the demand from customers, being partly offset by an adverse price and product mix with a higher proportion of sales to lower margin customers.

*Gross margin*: the year over year increase of 1.4 percentage points was driven by an improved sales mix from increased sales of higher margin products, partially offset by the continued impact of raw material and other inflationary pressures.

*Operating expenses:* the year over year decrease of $0.1 million was primarily due to lower provisions for doubtful debts and lower performance related remuneration accruals, being partly offset by higher research and development expenditure.

### Oilfield Services

*Net sales:* have decreased year over year by $25.0 million, or 14 percent, with the majority of our customer activity concentrated in the Americas region. We believe that customer demand remains strong despite operating income growth beginning to moderate as we expected for the second half of the year. We remain on track for significant full year growth in 2023.

*Gross margin:* the year over year decrease of 0.4 percentage points was due to an unfavorable sales mix when compared to a strong prior year comparative.

*Operating expenses:* the year over year decrease of $11.8 million was driven by the lower customer service costs and commissions related to the lower demand from certain customers.

### Other Income Statement Captions

*Corporate costs:* the year over year increase of $1.6 million was due to one-off acquisition related costs together with revaluation charges relating to our United Kingdom Emission Trading Scheme credits driven by the open market pricing.

*Other net income/(expense):* for the third quarter of 2023 and 2022, included the following:

*(in millions)*

|  | 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net pension credit | $1.8 | $1.2 | 0.6 |
| Foreign exchange gains/(losses) on translation | 2.6 | (6.2) | 8.8 |
| Foreign currency forward contracts gains/(losses) | 0.4 | 4.1 | (3.7) |
|  | $4.8 | $(0.9) | $5.7 |

20

*Interest income/(expense), net:* was income of $0.8 million in the third quarter of 2023 compared to an expense of $0.3 million in the third quarter of 2022, driven by the higher interest income being earned in 2023 for our increasing cash balances.

*Income taxes:* the effective tax rate was 17.5% and 20.9% in the third quarter of 2023 and 2022, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 17.6% in 2023 compared with 20.1% in 2022. The 2.5% decrease in the adjusted effective rate was primarily due to foreign currency fluctuations arising in the Company's non-U.S. operations and a lower proportion of the Company’s profits being generated in higher tax jurisdictions. The Company believes that this adjusted effective tax rate, a non-GAAP financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses this non-GAAP financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.

The following table shows a reconciliation of the GAAP effective tax charge to the adjusted effective tax charge:

*(in millions)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Income before income taxes | $47.5 | $48.9 |
| Indemnification asset regarding tax audit | 0.1 | 0.2 |
| Adjustment for stock compensation | 2.0 | 1.5 |
| Acquisition costs | 0.3 | — |
| Legacy costs of closed operations | 0.7 | 0.7 |
| Adjusted income before income taxes | $50.6 | $51.3 |
| Income taxes | $8.3 | $10.2 |
| Tax on stock compensation | 0.2 | — |
| Adjustment of income tax provision | 0.1 | — |
| Tax on acquisition costs | 0.1 | — |
| Tax on legacy cost of closed operations | 0.2 | 0.1 |
| Adjusted income taxes | $8.9 | $10.3 |
| GAAP effective tax rate | 17.5% | 20.9% |
| Adjusted effective tax rate | 17.6% | 20.1% |

21

### Nine Months Ended September 30, 2023

The following table shows the changes in sales, gross profit and operating expenses by reporting segment for the nine months ended September 30, 2023 and the nine months ended September 30, 2022:

*(in millions, except ratios)*

| Net sales: | Nine Months Ended September 30, 2023 | 2022 | Change |  |
| --- | ---: | ---: | ---: | ---: |
| Performance Chemicals | $424.4 | $495.8 | $(71.4) | (14)% |
| Fuel Specialties | 513.8 | 546.9 | (33.1) | (6)% |
| Oilfield Services | 515.9 | 410.3 | 105.6 | 26% |
|  | $1,454.1 | $1,453.0 | $1.1 | 0% |
| **Gross profit:** |  |  |  |  |
| Performance Chemicals | $76.4 | $123.5 | $(47.1) | (38)% |
| Fuel Specialties | 155.2 | 171.0 | (15.8) | (9)% |
| Oilfield Services | 203.8 | 140.6 | 63.2 | 45% |
|  | $435.4 | $435.1 | $0.3 | 0% |
| **Gross margin (%):** |  |  |  |  |
| Performance Chemicals | 18.0 | 24.9 | (6.9) |  |
| Fuel Specialties | 30.2 | 31.3 | (1.1) |  |
| Oilfield Services | 39.5 | 34.3 | 5.2 |  |
| **Aggregate** | **29.9** | **29.9** | **0.0** |  |
| **Operating expenses:** |  |  |  |  |
| Performance Chemicals | $(39.9) | $(44.0) | $4.1 | (9)% |
| Fuel Specialties | (78.1) | (76.1) | (2.0) | 3% |
| Oilfield Services | (143.5) | (119.4) | (24.1) | 20% |
| Corporate costs | (56.8) | (54.9) | (1.9) | 3% |
|  | $(318.3) | $(294.4) | $(23.9) | 8% |

### Performance Chemicals

*Net sales:* the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:

| Change (%) | Nine Months Ended September 30, 2023 Americas | EMEA | ASPAC | Total |
| --- | ---: | ---: | ---: | ---: |
| Volume | -11 | -3 | -21 | -8 |
| Price and product mix | -10 | -5 | +3 | -6 |
| Exchange rates | - | - | - | - |
|  | -21 | -8 | -18 | -14 |

Lower sales volumes for all our regions were primarily driven by reduced demand for our personal care products resulting from cautious consumer demand together with the impact of destocking by our customers. The Americas and EMEA were impacted by an adverse price and product mix due to a higher proportion of lower priced products being sold. ASPAC benefited from a favorable price and product mix due to a higher proportion of higher priced products being sold.

*Gross margin:* the year over year decrease of 6.9 percentage points was due to an adverse sales mix from reduced sales of higher margin products and the adverse impact of reduced manufacturing efficiency resulting from lower production volumes.

*Operating expenses:* decreased $4.1 million year over year, due to lower selling expenses including commissions, lower performance-related remuneration accruals and lower acquired intangibles amortization following the end of the expected life of the assets.

### Fuel Specialties

*Net sales:* the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:

| Change (%) | Nine Months Ended September 30, 2023 Americas | EMEA | ASPAC | AvGas | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Volume | -14 | -15 | -22 | +6 | -14 |
| Price and product mix | +9 | +10 | +6 | -12 | +8 |
| Exchange rates | - | - | - | - | - |
|  | -5 | -5 | -16 | -6 | -6 |

Sales volumes in all our regions have decreased year over year, primarily due to a reduction in the sales of lower margin higher volume products. Price and product mix was favorable in all our regions due to an increased proportion of higher margin products being sold. AvGas volumes were higher than the prior year due to variations in the demand from customers, being offset by an adverse price and product mix due to a higher proportion of sales to lower margin customers.

*Gross margin*: the year over year decrease of 1.1 percentage points was primarily due to the impact of the Brazil inventory misappropriation and the ending of that trading relationship, being partly offset by a favorable sales mix from increased sales of higher margin products.

*Operating expenses:* the year over year increase of $2.0 million includes higher provisions for doubtful debts related to the ending of the Brazilian trading relationship, being partly offset by lower performance-related remuneration accruals.

### Oilfield Services

*Net sales:* have increased year over year by $105.6 million, or 26 percent, with the majority of our customer activity concentrated in the Americas region. We believe that customer demand remains strong despite operating income growth beginning to moderate as expected for the second half of the year, and we remain on track for significant full year growth in 2023.

*Gross margin:* the year over year increase of 5.2 percentage points was due to a favorable sales mix and the benefit of improved pricing.

*Operating expenses:* the year over year increase of $24.1 million was driven by higher customer service costs which are necessary to support the increase in demand with certain customers, together with higher performance related remuneration accruals.

### Other Income Statement Captions

*Corporate costs:* the year over year increase of $1.9 million was primarily due to one-off acquisition related costs.

*Other net income/(expense):* for the first nine months of 2023 and 2022, included the following:

*(in millions)*

|  | 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net pension credit | $5.2 | $3.7 | $1.5 |
| Foreign exchange gains/(losses) on translation | 7.2 | (10.4) | 17.6 |
| Foreign currency forward contracts gains/(losses) | (1.2) | 6.5 | (7.7) |
|  | $11.2 | $(0.2) | $11.4 |

23

*Interest income/(expense), net:* was income of $0.8 million in the first nine months of 2023 compared to an expense of $1.1 million in the first nine months of 2022. Interest income from our cash balances has increased in recent periods due to global increases in central bank interest rates. Interest expenses in the current and the prior year relate to the ongoing commitment fee the Company pays to retain the revolving credit facility during the term of the agreement.

*Income taxes:* the effective tax rate was 21.5% and 22.9% in the first nine months of 2023 and 2022, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 21.4% in 2023 compared with 22.4% in 2022. The 1.0% decrease in the adjusted effective rate was primarily due to a lower proportion of the Company's profits being generated in higher tax jurisdictions, in addition to foreign currency fluctuations arising in the Company's non-U.S. operations which had a greater positive impact in the third quarter of 2023. The Company believes that this adjusted effective tax rate, a non-GAAP financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends. In addition, management uses this non-GAAP financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.

The following table shows a reconciliation of the GAAP effective tax charge to the adjusted effective tax charge:

*(in millions)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Income before income taxes | $129.1 | $139.4 |
| Indemnification asset regarding tax audit | — | 0.4 |
| Adjustment for stock compensation | 5.9 | 4.7 |
| Acquisition costs | 1.8 | — |
| Legacy cost of closed operations | 2.4 | 2.6 |
| Adjusted income before income taxes | $139.2 | $147.1 |
| Income taxes | $27.8 | $31.9 |
| Tax on stock compensation | 0.2 | 0.5 |
| Adjustment of income tax provision | 0.7 | — |
| Tax on acquisition costs | 0.5 | — |
| Tax on legacy cost of closed operations | 0.6 | 0.5 |
| Adjusted income taxes | $29.8 | $32.9 |
| GAAP effective tax rate | 21.5% | 22.9% |
| Adjusted effective tax rate | 21.4% | 22.4% |

24

### LIQUIDITY AND FINANCIAL CONDITION

### Working Capital

In the first nine months of 2023 our working capital increased by $52.7 million, while our adjusted working capital decreased by $20.4 million. The difference is primarily due to the exclusion of the increases for cash and cash equivalents, together with the changes for prepaid income taxes and the current portion of accrued income taxes.

The Company believes that adjusted working capital, a non-GAAP financial measure (defined by the Company as trade and other accounts receivable, inventories, prepaid expenses, accounts payable and accrued liabilities rather than total current assets less total current liabilities) provides useful information to investors in evaluating the Company’s underlying performance and identifying operating trends. Management uses this non-GAAP financial measure internally to allocate resources and evaluate the performance of the Company’s operations. Items excluded from working capital in the adjusted working capital calculation are listed in the table below and represent factors which do not fluctuate in line with the day to day working capital needs of the business.

*(in millions)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Total current assets | $863.7 | $872.6 |
| Total current liabilities | (344.2) | (405.8) |
| Working capital | 519.5 | 466.8 |
| Less cash and cash equivalents | (207.2) | (147.1) |
| Less prepaid income taxes | (10.7) | (3.3) |
| Less other current assets | (1.4) | (0.4) |
| Add back current portion of accrued income taxes | 15.2 | 18.4 |
| Add back current portion of plant closure provisions | 4.7 | 5.3 |
| Add back current portion of operating lease liabilities | 13.1 | 13.9 |
| Adjusted working capital | $333.2 | $353.6 |

We had a $29.4 million decrease in trade and other accounts receivable driven by positive cash collections. Days’ sales outstanding decreased in our Performance Chemicals segment from 60 days to 54 days; increased from 54 days to 55 days in our Fuel Specialties segment; and increased from 54 days to 62 days in our Oilfield Services segment.

We had a $41.6 million decrease in inventories, net of a $0.3 million increase in allowances, partially driven by lower production volumes in our Performance Chemicals segment together with the misappropriation of $7.4 million of inventory in Brazil during the first quarter of 2023. The Company continues to maintain inventory levels necessary to manage the risk of potential supply chain disruption for certain key raw materials, especially in our Fuel Specialties segment, despite some easing of the pressures during the year. Days’ sales in inventory decreased in our Performance Chemicals segment from 78 days to 60 days; increased from 138 days to 146 days in our Fuel Specialties segment; and increased from 58 days to 64 days in our Oilfield Services segment.

Prepaid expenses decreased $6.4 million, from $14.1 million to $7.7 million, primarily due to the normal expensing of prepaid invoices.

We had a $57.0 million decrease in accounts payable and accrued liabilities, which was dependent on the timing of payments for each of our reporting segments. Creditor days (including goods received not invoiced) decreased in our Performance Chemicals segment from 42 days to 34 days; increased from 45 days to 46 days in our Fuel Specialties segment; and decreased from 54 days to 47 days in our Oilfield Services segment.

### Operating Cash Flows

We generated cash from operating activities of $134.9 million in the first nine months of 2023 compared to cash outflows of $3.3 million in the first nine months of 2022. The increase in cash generated from operating activities was principally related to decreases in working capital in the first nine months of 2023, compared to increases in working capital in the first nine months of 2022. The increases in 2022 were driven by higher trade receivables linked with revenue growth, together with the need to secure the supply of certain raw materials at that time.

### Cash

At September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $207.2 million and $147.1 million, respectively, of which $76.4 million and $76.4 million, respectively, were held by non-U.S. subsidiaries principally in the United Kingdom.

The increase in cash and cash equivalents of $60.1 million for the first nine months of 2023 was driven by our positive trading cash flow generation, being partly offset by the timing of tax payments, our continued investments in capital projects and the payment of our semi-annual dividend.

### Debt

At September 30, 2023, and December 31, 2022, we had no debt outstanding under the revolving credit facility and no obligations were outstanding under finance leases.

On May 31, 2023, Innospec Inc. and certain subsidiaries of the Company entered into a Multicurrency Revolving Facility Agreement with various lenders, providing for a $250,000,000 four-year multicurrency revolving loan facility. The termination date of the facility is May 30, 2027, but the Company has an option to request an extension of the facility for a further year. This agreement replaced the Company’s credit facility agreement dated September 26, 2019. See Note 8 of the Notes to the Condensed Consolidated Financial Statements for additional information.

## Market risk

As filed, 2,084 characters.

The Company uses floating rate debt to finance its global operations. The Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations, and market risk related to changes in interest rates and foreign currency exchange rates. The political and economic risks are mitigated by the stability of the major countries in which the Company’s largest operations are located. Credit limits, ongoing credit evaluation and account monitoring procedures are used to minimize bad debt risk. Collateral is not generally required.

From time to time, the Company uses derivatives, including interest rate swaps, commodity swaps and foreign currency forward exchange contracts, in the normal course of business to manage market risks. The derivatives used in hedging activities are considered risk management tools and are not used for trading purposes. In addition, the Company enters into derivative instruments with a diversified group of major financial institutions in order to manage the exposure to non-performance of such instruments. The Company’s objective in managing the exposure to changes in interest rates is to limit the impact of such changes on earnings and cash flows and to lower overall borrowing costs. The Company’s objective in managing the exposure to changes in foreign currency exchange rates is to reduce volatility on earnings and cash flows associated with such changes.

The Company offers fixed prices for some long-term sales contracts. As manufacturing and raw material costs are subject to variability, the Company, from time to time, uses commodity swaps to hedge the cost of some raw materials thus reducing volatility on earnings and cash flows. The derivatives are considered risk management tools and are not used for trading purposes. The Company’s objective is to manage its exposure to fluctuating costs of raw materials.

The Company’s exposure to market risk has been discussed in the Company’s 2022 Form 10-K and there have been no significant changes since that time.

## Controls and procedures

As filed, 1,580 characters.

### Evaluation of Disclosure Controls and Procedures

Based on an evaluation carried out as of the end of the period covered by this report, under the supervision and with the participation of our management, our Chief Executive Officer and our Chief Financial Officer concluded that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) were effective as of September 30, 2023, to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

The Company is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal control over financial reporting. This is intended to result in refinements to processes throughout the Company.

There were no changes to our internal control over financial reporting which were identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 331 characters.

Information regarding risk factors that could have a material impact on our results of operations or financial condition are described under “Risk Factors” in Item 1A of Part I of our 2022 Form 10-K. In management’s view, there have been no material changes in the risk factors facing the Company as disclosed in those SEC filings.

Filed Nov 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-060765. Last ingested by Listed: Nov 4, 2026, 09:32 ET. No prices; not investment advice.