INNOSPEC INC

Working Capital

In the first three months of 2024 our working capital increased by $33.8 million, while our adjusted working capital decreased by $21.6 million. The difference is primarily due to the exclusion of increases in our cash balances from the adjusted working capital.

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.

We had a $41.6 million decrease in trade and other accounts receivable, driven primarily by the timing of trading activity in our Oilfield Services segment. Days’ sales outstanding decreased in our Performance Chemicals segment from 64 days to 61 days; increased from 55 days to 56 days in our Fuel Specialties segment; and decreased from 55 days to 48 days in our Oilfield Services segment.

We had a $4.2 million increase in inventories, including a $1.7 million decrease in allowances, primarily due to our continued approach of maintaining higher inventory levels in order to mitigate the risk of supply chain disruption for certain key raw materials, in particular for our Fuel Specialties segment. Days’ sales in inventory decreased in our Performance Chemicals segment from 62 days to 55 days; increased from 121 days to 133 days in our Fuel Specialties segment; and increased from 48 days to 55 days in our Oilfield Services segment.

Prepaid expenses decreased $3.7 million, from $18.7 million to $15.0 million, due to the normal expensing of prepaid invoices.

We had a $19.5 million decrease in accounts payable and accrued liabilities, due to the timing of production to align with customer demand in our Oilfield Services segment, and dependent on the timing of payments for each of our reporting segments. Creditor days (including goods received not invoiced) remained constant in our Performance Chemicals segment at 45 days; increased from 41 days to 45 days in our Fuel Specialties segment; and increased from 48 days to 51 days in our Oilfield Services segment.

Operating Cash Flows

We generated cash from operating activities of $80.6 million in the first three months of 2024 compared to $21.8 million in the first three months of 2023. The increase in cash generated from operating activities was related to reductions in our working capital for the first three months of 2024, together with the changes for income tax payments and the contribution from higher profitability.

Cash

At March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $270.1 million and $203.7 million, respectively, of which $72.6 million and $59.8 million, respectively, were held by non-U.S. subsidiaries principally in the United Kingdom.

The increase in cash and cash equivalents of $66.4 million for the first three months of 2024 was driven by the cash generated from operating activities together with decreased working capital requirements, being partly offset by our continued investments in capital projects.

Debt

At March 31, 2024, and December 31, 2023, we had no debt outstanding under the revolving credit facility and no obligations were outstanding under finance leases.