FutureFuel(FF) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Unaudited statements show decreased assets and equity from a large dividend, with a net loss driven by lower gross profit and negative operating cash flow Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | Metric | June 30, 2021 ($ in thousands) | Dec 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $97,594 | $198,122 | | Total current assets | $249,863 | $342,605 | | Total Assets | $342,420 | $441,304 | | Total current liabilities | $60,377 | $32,988 | | Total Liabilities | $85,006 | $69,421 | | Total stockholders' equity | $257,414 | $371,883 | - Total assets decreased by approximately $99 million, and stockholders' equity decreased by about $114 million from December 31, 2020, to June 30, 2021, largely driven by a significant reduction in cash used to pay a large special dividend[9][13] Consolidated Statements of Operations and Comprehensive Income Q2 2021 vs Q2 2020 Performance (Unaudited) | Metric | Three Months Ended June 30, 2021 ($ in thousands) | Three Months Ended June 30, 2020 ($ in thousands) | | :--- | :--- | :--- | | Revenue | $73,813 | $47,310 | | Gross (loss) profit | $(43) | $911 | | (Loss) income from operations | $(2,003) | $(1,139) | | Net income | $3,481 | $15,159 | | Diluted EPS | $0.08 | $0.35 | H1 2021 vs H1 2020 Performance (Unaudited) | Metric | Six Months Ended June 30, 2021 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | | :--- | :--- | :--- | | Revenue | $114,971 | $99,682 | | Gross (loss) profit | $(10,779) | $17,310 | | (Loss) income from operations | $(15,061) | $12,840 | | Net (loss) income | $(5,292) | $34,202 | | Diluted (Loss) EPS | $(0.12) | $0.78 | Consolidated Statements of Stockholders' Equity - A special cash dividend of $2.50 per share was declared, resulting in a payment of $109.4 million, which significantly reduced retained earnings in the second quarter of 2021[13] - Total stockholders' equity decreased from $371.9 million at the end of 2020 to $257.4 million at the end of Q2 2021, primarily due to the net loss and the large special dividend payment[13] Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Cash Flow Category | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,349) | $84,201 | | Net cash from (used in) investing activities | $16,248 | $(2,753) | | Net cash used in financing activities | $(114,427) | $(136,956) | | Net change in cash and cash equivalents | $(100,528) | $(55,508) | - Cash used in financing activities was primarily for dividend payments, totaling $114.7 million in the first six months of 2021, compared to $136.5 million in the same period of 2020[17] Notes to Consolidated Financial Statements - The company operates in two segments: chemicals (custom and performance chemicals) and biofuels (primarily biodiesel)[20][21][22] - The Biodiesel Blenders' Tax Credit (BTC) was retroactively reinstated for 2018/2019 and extended through 2022, with the benefit recorded as a reduction to cost of goods sold[25][26] - In April 2021, the company sold a portion of its pipeline line space and recorded an impairment charge of $1.315 million, reducing the intangible asset's carrying value to zero[63] - The company is disputing its February 2021 natural gas bill following an extraordinary price increase, which is under investigation by the Attorney General of Arkansas[91] Segment Revenue and Gross Profit (Six Months Ended June 30) | Segment | Revenue 2021 ($ in thousands) | Revenue 2020 ($ in thousands) | Gross Profit (Loss) 2021 ($ in thousands) | Gross Profit (Loss) 2020 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Chemicals | $31,657 | $50,531 | $2,984 | $15,591 | | Biofuels | $83,977 | $49,973 | $(13,763) | $1,719 | | Total | $115,634 | $100,504 | $(10,779) | $17,310 | Management's Discussion and Analysis (MD&A) Revenue grew 15% YoY due to higher biofuel prices, but gross profit turned negative due to high natural gas costs and derivative losses Results of Operations - Consolidated revenue for H1 2021 increased by $15.1 million (15.1%) YoY, driven by a $39.2 million positive price effect from the biofuels segment, partially offset by a negative volume effect from the chemicals segment[113] - Gross loss for H1 2021 was $10.8 million compared to a gross profit of $17.3 million in H1 2020, primarily caused by exorbitant natural gas prices, derivative losses, and unfavorable LIFO inventory adjustments[115] - Chemical segment revenue for H1 2021 decreased by 37.4% ($18.9 million) YoY, mainly due to the loss of two custom chemical products that contributed $15.6 million in revenue in the prior year period[124] - Biofuels segment revenue for H1 2021 increased by 68.0% ($34.0 million) YoY, driven by improved fuel and RIN prices; however, the segment recorded a gross loss of $13.8 million due to high natural gas costs and derivative losses[127][130] Liquidity and Capital Resources - Net cash used in operating activities was $2.3 million in H1 2021, a decrease of $86.6 million from the $84.2 million provided by operations in H1 2020, due to a swing to a net loss and negative changes in accounts receivable[140][141] - The company paid a special dividend of $2.50 per share ($109.4 million) in June 2021 and a regular quarterly dividend of $0.06 per share[147] - The company maintains a $100 million revolving credit facility that expires in March 2025, which was undrawn as of June 30, 2021[145] Quantitative and Qualitative Disclosures About Market Risk The company faces significant commodity price risk, particularly in biofuels, and uses non-hedge derivatives which create earnings volatility - The company's primary market risk is commodity price risk, which it attempts to mitigate in the chemicals segment through long-term contracts with price adjustment clauses[154][155] - The company uses derivative instruments to manage biofuels price risk, but immediate recognition of gains and losses can cause significant volatility in net income; the fair value of these instruments was a net liability of $1.1 million at June 30, 2021[156][157] Gross Profit Sensitivity to 10% Adverse Price Change in Key Commodities | Item | Decrease in Gross Profit ($ in thousands) | Percentage Decrease in Gross Profit | | :--- | :--- | :--- | | Biodiesel feedstocks | $8,388 | 77.8% | | Natural Gas | $898 | 8.3% | | Methanol | $619 | 5.7% | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period, June 30, 2021[165] - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[166] PART II OTHER INFORMATION Legal Proceedings The company is not party to any material legal proceedings beyond ordinary routine litigation - The company is not involved in any material pending legal proceedings outside of ordinary routine litigation[169] Risk Factors No material changes were reported to the risk factors previously disclosed in the annual Form 10-K - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[170] Other Part II Items The company reported no activity for unregistered equity sales, senior security defaults, or mine safety disclosures - The company reported 'None' for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[171][173][175][177]