Welcome to NSFAC's quarterly earnings call. This is David Jones, and I'm NSFAC's General Counsel and Chief Compliance Officer. The earnings released for the quarter and this presentation are posted on the company's website. During this call, we will make forward-looking statements, which are predictions and predictions about future events. These statements are based on current expectations and assumptions that are subject to risk and uncertainties that can cause actual results to differ accurately from the anticipated results implied by such forward-looking statements. The risks and uncertainties are detailed in InnoSpec filings with the SEC. Please see the SEC site and InnoSpec site for these and related documents. In today's presentation, we've also included non-GAAP 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 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 NSPEC are Patrick Williams, President and Chief Executive Officer, and Ian Clementson, Executive Vice President and Chief Financial Officer. And with that, turn it over to you, Patrick.
Thank you, David, and welcome, everyone, to NSPEC's third quarter 2026 conference call. This was a strong quarter for the respect with all businesses delivering sales growth and operating income improvement. Performance chemical sales growth and gross margin improvement drove an 84% operating income increase over last year. The North Carolina plant efficiency upgrades discussed last quarter are scheduled to be completed by year end. These upgrades will increase capacity, productivity, and yield on a wide range of existing personal care and other products. In parallel, we will continue to focus on commercializing new products to drive further margin and operating income improvement in the coming quarters. Fuel Specialties had another strong quarter, delivering revenue and operating income growth with margins in our target range. Both volume and price mix improved as the business has continued to manage well against raw material volatility. We expect continued strong performance and seasonal demand in the coming quarters. Oil field services operating income grew 40%, and operating margins expanded, driven by improved volumes from our recent DRA plant expansion. Third-quarter results were lower than expected on activity delays in our Middle East legacy business, along with elevated raw material cost. We expect sequential improvement in the fourth quarter. Now, I will turn the call over to Ian Clemson, who will review our financial results in more detail. Then I will return to some concluding comments. After that, Ian and I will take your questions. Ian? Thanks, Patrick.
Turning to slide 7 in the presentation, the company's total revenues for the third quarter were $473.6 million, a 7% increase from $441.9 million a year ago. Overall gross margin increased by 0.9 percentage points from last year to 27.3%. Adjusted EBITDA for the quarter was £51.4 million compared to £44.2 million last year, and net income attributable to Inaspect for the quarter was £31.8 million compared to £12.9 million a year ago. Our gap earnings per share were $1.29, and there was no net impact of special items in the quarter. Last year, we reported gap earnings per share of $0.52, which included a negative impact from special items of $0.60 per share. Excluding special items in both years, our adjusted EPS for the quarter was $1.29 compared to $1.12 a year ago. Turning to slide 8, revenues in performance chemicals for the third quarter were $180.5 million, up 6% from last year's $170.8 million. Volume reductions of 5% and a negative currency impact of 1% were offset by a positive price mix of 12%, driven by higher raw material pricing. Gross margins of 18.8% increased 3.7 percentage points compared to 15.1% in the same quarter in 2025. Operating income of $16.9 million increased 84% from $9.2 million last year. We expect the fourth quarter results to be similar to this quarter, with the plant upgrades in North Carolina the key to unlocking growth in 2027. Moving on to slide 9, revenues in fuel specialties for the third quarter were £180.7 million, up 5% from £172 million reported a year ago. Volumes were up 3%, with price mix up 2%. Fuel specialties gross margins of 31.5% decreased half a percentage point compared to 35.6% in the same quarter last year. Operating income of £35.6 million was up 1% from £35.3 million a year ago. Moving on to slide 10, revenues in oilfield services for the quarter were £112.4 million, up 13% from the £99.1 million reported a year ago. Gross margins of 28.2% decreased 1.8 percentage points from last year's 30% on a weaker sales mix. Operating income of £6.7 million increased 40% from £4.8 million one year ago. Turn into slide 11. Corporate costs for the quarter were £18.6 million compared with £18.2 million a year ago. The adjusted effective tax rate for the quarter was 24.7% compared to 22.7% last year. Moving on to slide 12, cash from operating activities was $17.4 million before capital expenditures of $15.6 million. As of September the 30th, InnoSpec had $251.9 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. Again, this quarter, InnoSpec delivered strong sales and operating Income growth with higher margins. Performance chemicals and oil field services remain our key focus. We expect continued steady and strong results in fuel specialties. Operating cash generation was positive in the quarter, and our net cash position remained at over $250 million. We continue to focus on driving increased operating cash flow in the coming quarters with better working capital efficiency. We have significant balance sheet flexibility for organic investment, M&A, dividend growth, and buybacks. This quarter, our board approved a further increase in our semi-annual dividend at $0.94 per share, resulting in an annual dividend increase of 9%. Now I will turn the call over to the operator, and Ian and I will take your questions.
Operator
Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are now going to take our first question. And this one comes from John Tawanteng from GGS Securities. Please go ahead.
Hi, good morning. Thank you for taking my questions. I was wondering if you don't quantify it. Good morning. I was wondering if you could quantify the impact in the oil field business from delays in the Mideast, and I'm assuming that that was pipeline attacks in Saudi, number one, in the quarter, and number two, how you expect that business to trend in Q4, assuming a recovery there and the underlying inflation dynamics.
Yeah, John, Patrick, it wasn't necessarily impacting the DRA business. More of the impact was on production in STEM. And, you know, it's just the fact of getting people out in the fields to work while you're having drones bombing over the top of you has been a very difficult situation for that whole area. And the key for us, it really is, is making sure that we're back on these rigs when they go back out and that we're servicing the way they need to be serviced. The impact, you know, is probably, it was probably a, you know, not a significant percentage, but big enough to make a difference in oil field. And the hope is, from what we're seeing, as long as we service the customers as we expect and we have the technology, is that we're starting to see some return in business in the fourth quarter, which should really help us out moving forward.
Got it. And as you head into 27, could you just update us on the outlook for the segment in the coming year, especially if you have potential customers coming in from Latin America and as the dynamic evolves? From pipelines to, you know, maybe a reopening of the strait or some other, you know, condition change in the Mideast.
Yeah, so I'll work backwards. If we just stick with the Middle East for a minute, I think that, you know, with everything that's going on in that area and other businesses that we're going after, our DRA should remain strong, even if the straits and we have settlements for the straits are removed and we move forward. If you look at the general business, we're still waiting to see things move in Latin America, specific to Mexico. I think you've seen some announcements by President Schenbaum about opening up and putting more money into petrochemicals and petrochemical facilities. To do that, they've got to fix their crude issue. We're hoping at some time that that turns, but we have not had any sales into Mexico to date. So, it's, you know, if we had the crystal ball, if all these things came into place, it would obviously look a lot different than it is today, but we still see significant growth, sequential growth as well, moving forward in not the quarter, but in the quarters moving forward in 2027.
Okay, great. Next for me, could you just update us on your expectations for cash and cash flow? You've come down on your net cash balance over the past year, and recognizing you've returned a lot of cash to shareholders, so great job there. But I was wondering if you had any thoughts on where your net cash balance is going to be over the coming year, and how do you expect the spending priorities to change, if at all?
Yeah, let me take that one, John. It's Ian. What we've seen so far year to date is quite a large investment in our working capital. That's expanded by about 80 million since the start of the year. In the fourth quarter, we expect some of that to reverse. And what's driven that is partly the expansion of the business and partly some of the inflation that we've seen coming through the supply chain in terms of raw materials and freight. And that's what sort of works itself through. But no doubt we're probably carrying a little bit too much inventory. We can be a little bit tighter on some of those receivables. So we've got some work to do in the fourth quarter. Our view is that we will be... Much more cash generated in the fourth quarter to the region of about $40 to $50 million at the free cash flow level. So that takes care of this year. And as we roll into next year, our expectation is that we won't need, on a stable background with raw materials, relatively stable, we won't need the same level of working capital investment. So we would imagine that we'll be hitting closer to $55 to $60 million free cash flow next year. And that's based on a pretty similar level of capital expenditure, around about 60 million last year, and we expect about 60 million this year as well. Okay, great. Thank you, Ian.
Operator
Thank you. We are now going to take our next question. And this one is from Mike Harrison from Seaport Research Partners. Please go ahead.
Hi, good morning. Good morning, Mike.
Apologies if I missed it, but a couple questions on personal care. It sounds like you're expecting the North Carolina plant upgrades to be complete by year-end. I'm just wondering, has the timing moved? Uh, later there, and if so, what's causing, uh, the delays? Uh, and I guess the other piece of that question is, is there a requalification process that you need to go through with your customers, or should we see, uh, sales volumes, uh, kind of getting back to normal, uh, by, by Q1?
Yeah, Mike, it's Patrick. We haven't really... The timing has been about what we expected. The number one priority was to get plants up and running so that we could provide products to our customers. And that's what we did. The secondary part of the plan was to make sure that we concluded and finished the efficiencies of the plan to make it better, better yields, providing more volume because you have better yields, et cetera, winterizing it, all the things that we had to do. But number one priority was to give product to our customers. And so the timing of that is exactly what we thought, that we would complete all of this by the fourth quarter, and that should happen. So in regards to recapturing more products or lost sales, I should say, it's going to take some time.
We don't have to requalify.
But it is going to take some time to go back and recapture some of that business, and that's why we see this, you know, we do see sequential growth moving forward, but it's just, it's not going to be that big spike. It's going to be a nice, slow curve upwards. And I think the other thing that we're focusing on, too, is the product mix that we put on that plant. You know, we don't want to just load it up with commodity products. We want new products, new technologies that require or we get higher margins from, and that's really the plan moving forward. So it's a plan we've had in place. We're sticking to it. I think the strategy is working, and it should work moving forward in 2027.
All right. Very helpful. And then my other question is on the fuel specialties business. You guys have these contractual pricing pass-throughs. It looks like price was only up about 2% year-on-year, despite what I assume was pretty meaningful raw material inflation. I was just hoping you could talk a little bit about the timing of that pricing pass-through and how that's impacting the margins, either gross margin or operating margin, as you look at fuel specialties for Q3 and Q4.
Yeah, Matt, I'll take that one. We think the fuel specialties team have done a good job, actually, and they've been battling against some really volatile raw material pricing and freight. Pricing as well. We have managed the gross margins in that business really well. We are half a percentage point down year over year. And as you know, we've got all the mechanisms in place as raw materials come through, and there's a little bit of a lag in there. So the level we're at in the fourth quarter is the level we expect to be at the fourth quarter. We don't see much change there. We think the business has got a handle on it, and we're in control of all of that. So I take your point that the price mix is not up that much, but it's certainly at the gross margin level and the gross profit dollars and the operating income level and the operating margin levels, we're happy with where the business is at.
Yeah, I think, Mike, just to add a little color to what he had said, you know, I started out with this business and ran this business for quite some time, and we have seen these markets up and down. We've seen high inflation. We've seen recessions. We've seen, you know, mega. We've seen market movements, and it's never been these big run-ups on margins or big run-down on margins. It's always a very well-managed, and, you know, a lot of it's contracts, but it's a very well-managed margin business. So you're never going to see these big spikes in that business. It's just a very stable business, and we've seen that for as long as we've been in it.
All right. Thanks very much.
Operator
Thank you. There are no further questions for today. I will now hand the call back to Patrick Williams for closing remarks.
Thank you all for joining us today, and thanks to all our shareholders, customers, and InDespect employees for your interest and support. If you have any further questions about INISPEC or matters discussed today, please give us a call. We look forward to meeting up with you again to discuss our fourth quarter 2026 results in February. Have a great day.
