INNOSPEC INC

Working Capital

In the first nine months of 2024 our working capital increased by $78.3 million, while our adjusted working capital decreased by $12.0 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.

We had a $32.2 million decrease in trade and other accounts receivable driven by positive cash collections and lower sales in our Oilfield segment. Days’ sales outstanding decreased in our Performance Chemicals segment from 64 days to 61 days; increased from 55 days to 57 days in our Fuel Specialties segment; and increased from 55 days to 70 days in our Oilfield Services segment.

We had a $19.2 million increase in inventories, including a $6.8 million increase in allowances, driven primarily by higher levels of raw materials together with higher levels of finished goods in advance of the expected sales increases in the fourth quarter. 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. Days’ sales in inventory in our Performance Chemicals segment increased from 62 days to 64 days; increased from 121 days to 149 days in our Fuel Specialties segment; and increased from 48 days to 64 days in our Oilfield Services segment.

Prepaid expenses decreased $9.5 million, from $18.7 million to $9.2 million, primarily due to the normal expensing of prepaid invoices.

We had a $10.5 million decrease in accounts payable and accrued liabilities, which was dependent on the timing of payments for each of our reporting segments and combined with the lower sales in our Oilfield segment. Creditor days (including goods received not invoiced) have increased in our Performance Chemicals segment from 45 days to 48 days; increased from 41 days to 57 days in our Fuel Specialties segment; and increased from 48 days to 55 days in our Oilfield Services segment. The increases for creditor days have been impacted by the timing of sales and cost of sales in the quarter, when using a countback methodology.

Operating Cash Flows

We generated cash from operating activities of $158.8 million in the first nine months of 2024 compared to $134.9 million in the first nine months of 2023. The increase in cash generated from operating activities was related to increased operating income and favorable income tax changes year over year, being partly offset by less favorable working capital cash flows primarily related to the increased inventory levels needed to secure the supply of certain raw materials.

Cash

At September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $303.8 million and $203.7 million, respectively, of which $128.2 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 $100.1 million for the first nine months of 2024 was driven by our positive trading cash flow, being partly offset by our continued investments in capital projects and the payment of our semi-annual dividend.

Debt

We continue to have available a $250.0 million multicurrency revolving credit facility (the “Facility”), which contains an accordion feature whereby we may elect to increase the total available borrowings by an aggregate amount of up to $125.0 million. Effective as of May 20, 2024, the termination date of the Facility was extended from May 30, 2027 to May 31, 2028 in accordance with the terms of our multicurrency revolving facility agreement (the “Facility Agreement”). No other terms of the Facility Agreement or the Facility were modified. We paid a customary extension fee in connection with the extension of the Facility as contemplated by the Facility Agreement.

At September 30, 2024, and December 31, 2023, we had no debt outstanding under the revolving credit facility and no obligations were outstanding under finance leases. See Note 8 of the Notes to the Condensed Consolidated Financial Statements for additional information.