Innospec(US:IOSP)2021-08-04 15:31PART I FINANCIAL INFORMATION Item 1 Condensed Consolidated Financial Statements The company's financial statements for the period ended June 30, 2021, show a significant turnaround from the prior year, with positive net income and comprehensive income driven by strong net sales recovery and increased assets and equity, despite a decrease in operating cash flow due to working capital investments Condensed Consolidated Statements of Income The company reported a net income of $22.4 million for Q2 2021 and $45.8 million for the first six months of 2021, a significant improvement from prior-year net losses, primarily driven by a 45% year-over-year increase in net sales for the quarter, reflecting a recovery from the pandemic's impact | Financial Metric (in millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $354.5 | $244.9 | $694.1 | $617.2 | | Gross profit | $108.3 | $59.1 | $209.1 | $173.0 | | Operating income/(loss) | $37.0 | $(53.4) | $65.2 | $(12.5) | | Net income/(loss) | $22.4 | $(39.7) | $45.8 | $(6.6) | | Diluted EPS | $0.90 | $(1.62) | $1.84 | $(0.27) | Condensed Consolidated Balance Sheets As of June 30, 2021, total assets increased to $1,461.8 million from $1,397.4 million at year-end 2020, primarily driven by increases in trade receivables and inventories, while total equity also rose to $974.2 million from $944.9 million over the same period, supported by net income | Balance Sheet Item (in millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $643.1 | $566.2 | | Total assets | $1,461.8 | $1,397.4 | | Total current liabilities | $291.0 | $252.4 | | Total liabilities | $487.6 | $452.5 | | Total equity | $974.2 | $944.9 | Condensed Consolidated Statements of Cash Flows For the first six months of 2021, net cash provided by operating activities was $21.6 million, a decrease from $32.2 million in the prior-year period, mainly due to significant cash usage for increased trade receivables and inventories as business activity recovered, with cash and cash equivalents ending the period at $94.4 million | Cash Flow Activity (in millions) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21.6 | $32.2 | | Net cash used in investing activities | $(19.2) | $(14.6) | | Net cash used in financing activities | $(13.3) | $(34.6) | | Net change in cash and cash equivalents | $(10.9) | $(17.5) | | Cash and cash equivalents at end of period | $94.4 | $58.2 | Notes To The Unaudited Interim Condensed Consolidated Financial Statements The notes provide detailed information on the company's financial performance by segment, debt structure, and other key accounting items, showing revenue growth across all three reportable segments, no outstanding borrowings under its $250 million revolving credit facility, and a significant tax charge of $7.4 million due to an increase in the UK corporation tax rate | Segment Performance (Net Sales in millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Fuel Specialties | $143.1 | $107.4 | $282.4 | $254.4 | | Performance Chemicals | $128.2 | $95.7 | $254.1 | $208.8 | | Oilfield Services | $83.2 | $41.8 | $157.6 | $154.0 | - As of June 30, 2021, the company had repaid all borrowings under its $250.0 million revolving credit facility, which remains available until September 25, 202450 - The Octane Additives segment ceased trading in Q2 202036 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the strong Q2 2021 performance to a broad-based recovery from the COVID-19 pandemic across all segments, with net sales increasing 45% YoY for the quarter and Oilfield Services showing a 99% jump, leading to improved gross margins and a strong liquidity position despite decreased operating cash flow due to working capital investment Results of Operations For Q2 2021, net sales rose 45% to $354.5 million, and operating income was $37.0 million, reversing a $53.4 million loss in Q2 2020, with Fuel Specialties sales growing 33%, Performance Chemicals sales increasing 34%, and Oilfield Services sales nearly doubling, while H1 2021 net sales grew 12% to $694.1 million, with operating income reaching $65.2 million | Segment Net Sales Change (Q2 2021 vs Q2 2020) | Net Sales (in millions) | % Change | | :--- | :--- | :--- | | Fuel Specialties | $143.1 | +33% | | Performance Chemicals | $128.2 | +34% | | Oilfield Services | $83.2 | +99% | | Total | $354.5 | +45% | - The aggregate gross margin for Q2 2021 improved to 30.6% from 24.1% in Q2 2020, driven by favorable pricing, sales mix, and recovery from pandemic impacts86 - A charge of $7.4 million was recognized in Q2 2021 due to the enacted increase in the UK corporation tax rate from 19% to 25%, effective April 2023, increasing the GAAP effective tax rate for the quarter to 44.1%100115 Liquidity and Financial Condition The company's liquidity remains strong, with cash and cash equivalents of $94.4 million and no debt outstanding under its revolving credit facility as of June 30, 2021, despite operating cash flow decreasing to $21.6 million due to a $38.3 million increase in working capital, driven by higher receivables and inventories reflecting business recovery - Cash from operating activities decreased to $21.6 million in H1 2021 from $32.2 million in H1 2020, primarily due to increased working capital needs as demand recovered from the pandemic121 - As of June 30, 2021, the company had cash and cash equivalents of $94.4 million and no outstanding debt under its revolving credit facility122124 | Working Capital (in millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Working capital | $352.1 | $313.8 | | Adjusted working capital | $277.9 | $227.8 | Quantitative and Qualitative Disclosures about Market Risk The company's exposure to market risks, including interest rates and foreign currency exchange rates, has not materially changed since its 2020 Annual Report on Form 10-K, and it continues to use derivative instruments, such as foreign currency forward contracts, for hedging purposes and not for trading - There have been no significant changes in the company's exposure to market risk since the 2020 Annual Report on Form 10-K129 - The company uses derivatives, including foreign currency forward exchange contracts, to manage market risks in the normal course of business, not for trading purposes127 Controls and Procedures Based on an evaluation as of June 30, 2021, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, with no material changes to the company's internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021130 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting132 PART II OTHER INFORMATION Legal Proceedings The company reports that it is not a party to any material pending legal proceedings - There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party133 Risk Factors There have been no material changes in the risk factors facing the company since the filing of its 2020 Form 10-K - Management's view is that there have been no material changes in the risk factors facing the Company since the 2020 Form 10-K134 Unregistered Sales of Equity Securities and Use of Proceeds The company did not make any open market repurchases of its common stock during the quarter, but did purchase 1,247 shares at an average price of $101.3 per share in connection with employee stock option exercises - During the quarter ended June 30, 2021, the Company made no open market repurchases of its common stock136 | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | May 1, 2021 - May 31, 2021 | 1,247 | $101.3 |