What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-09 · 238 added, 724 removed, 195 unchanged (83% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 30, 2023

March 31, 2024

December 31, 2023

Cash and cash equivalents

$ 205,923  

$ 175,640  

Accounts receivable, inclusive of the blenders’

tax credit of $ 13,084 and $ 8,970 , and net of allowances for bad debt of $ 67 and $ 48 , respectively

29,493  

26,198  

Accounts receivable –

related parties

26,910  

26,761  

$ 201,122 $ 219,444

Accounts receivable, inclusive of the blenders’ tax credit of $ 8,294 and $ 11,381 , and net of allowances for expected credit losses of $ 41 and $ 55 , respectively

24,359 28,406

Accounts receivable – related parties

56,097 32,978

Income tax receivable

Prepaid expenses

Prepaid expenses –

related parties

Marketable securities

37,126  

Prepaid expenses – related parties

Other current assets

Total current assets

267,221  

273,776  

289,300 290,546

Property, plant and equipment, net

74,501  

76,941  

72,572 72,711

Total noncurrent assets

78,615  

82,193  

$ 345,836  

$ 355,969  

Liabilities and Stockholders’

Accounts payable, inclusive of the blenders’

tax credit rebates due customers of $ 890 and $ 890 , respectively

$ 13,946  

$ 28,546  

Accounts payable –

related parties

Deferred revenue –

76,085 76,535

$ 365,385 $ 367,081

Liabilities and Stockholders’ Equity

Accounts payable, inclusive of the blenders’ tax credit rebates due customers of $ 890 and $ 890

$ 16,628 $ 22,178

Accounts payable – related parties

Deferred revenue – current

Dividends payable

10,503  

117,285 10,503

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities –

related parties

Total current liabilities

32,133  

56,098  

Deferred revenue –

13,333  

15,079  

144,525 41,344

Deferred revenue – non-current

12,114 12,570

Noncurrent deferred income taxes

Other noncurrent liabilities

Total noncurrent liabilities

16,704  

16,871  

16,036 15,857

Total liabilities

48,837  

72,969  

160,561 57,201

Preferred stock, $ 0.0001 par value, 5,000,000 shares authorized, none issued and outstanding

Common stock, $ 0.0001 par value, 75,000,000 shares authorized, 43,763,243 and 43,763,243 issued and outstanding as of September 30, 2023 and December 31, 2022

Accumulated other comprehensive loss

Common stock, $ 0.0001 par value, 75,000,000 shares authorized, 43,763,243 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Additional paid in capital

282,489  

204,820 282,489

Retained earnings

14,506  

Total stockholders’

296,999  

283,000  

Total Liabilities and Stockholders’

$ 345,836  

$ 355,969  

Total stockholders’ equity

204,824 309,880

Total Liabilities and Stockholders’ Equity

$ 365,385 $ 367,081

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

$ 116,752  

$ 118,108  

$ 276,221  

$ 277,822  

Revenue –

related parties

Three Months Ended March 31,

$ 58,281 $ 74,161

Revenue – related parties

Cost of goods sold

113,328  

96,459  

257,890  

257,476  

Cost of goods sold –

related parties

( 728 )  

( 700 )  

Distribution –

related parties

19,985  

16,901  

13,807  

52,704 51,936

Cost of goods sold – related parties

Distribution – related parties

Selling, general, and administrative expenses

5 unchanged sentences

Income from operations

16,890  

Interest and dividend income

Interest expense

( 36 )  

( 32 )  

( 103 )  

(Loss) gain on marketable securities

( 590 )  

Other expense

Other income (expense)

( 35 ) ( 33 )

Gain on marketable securities

Other (expense) income

Other income (expense), net

Income before taxes

17,477  

14,032  

Income tax provision

$ 2,776  

$ 15,780  

$ 13,998  

$ 4,330 $ 21,081

Earnings per common share

$ 0.06  

$ 0.36  

$ 0.32  

$ 0.01  

$ 0.06  

$ 0.36  

$ 0.32  

$ 0.01  

$ 0.10 $ 0.48

Weighted average shares outstanding

43,763,243  

43,765,709  

43,763,243  

43,765,163  

43,763,243  

43,763,243 43,763,243

43,763,243 43,766,536

Comprehensive income

$ 2,776  

$ 15,780  

$ 13,998  

Other comprehensive (loss) income from unrealized net (losses) gains on available-for-sale debt securities

( 71 )  

$ 4,330 $ 21,081

Other comprehensive income from unrealized net gains on available-for-sale debt securities

Income tax effect

Total other comprehensive (loss) income, net of tax

( 56 )  

Total other comprehensive income, net of tax

Comprehensive income

$ 2,776  

$ 15,724  

$ 13,999  

$ 4,330 $ 21,098

The accompanying notes are an integral part of these consolidated financial statements.

FutureFuel Corp.

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands)

For the Nine Months Ended September 30, 2023

For the Three Months Ended March 31, 2024

Comprehensive

Stockholders’

(Loss) Income

Stockholders’

Income (Loss)

Balance - December 31, 2023

43,763,243  

$ ( 1 )  

$ 282,489  

$ 283,000  

Other comprehensive gain

21,081  

43,763,243 $ 4 $ - $ 282,489 $ 27,387 $ 309,880

Cash dividends declared, $ 2.50 per common share

- - - ( 77,691 ) ( 31,717 ) ( 109,408 )

Stock based compensation

- - - 22 - 22

- - - - 4,330 4,330

Balance - March 31, 2024

43,763,243  

$ 282,489  

$ 21,589  

$ 304,098  

Other comprehensive loss

( 16 )  

( 9,859 )  

Balance - June 30, 2023

43,763,243  

$ 282,489  

$ 11,730  

$ 294,223  

Balance - September 30, 2023

43,763,243  

$ 282,489  

$ 14,506  

$ 296,999  

For the Nine Months Ended September 30, 2022

43,763,243 $ 4 $ - $ 204,820 $ - $ 204,824

For the Three Months Ended March 31, 2023

Comprehensive

Stockholders’

Income (Loss)

Stockholders’

(Loss) Income

Balance - December 31, 2022

43,763,243  

$ 282,443  

$ 6,303  

$ 288,928  

Cash dividends declared, $ 0.24 per common share

( 10,503 )  

Other comprehensive loss

( 49 )  

( 12,398 )  

Other comprehensive income

Balance - March 31, 2023

43,763,243  

$ 282,443  

$ ( 16,598 )  

$ 265,978  

Other comprehensive loss

( 68 )  

( 3,104 )  

Balance - June 30, 2022

43,763,243  

$ 282,443  

$ ( 19,702 )  

$ 262,806  

Stock based compensation

Other comprehensive loss

( 56 )  

15,780  

Balance - September 30, 2022

43,763,243  

$ 282,489  

$ ( 3,922 )  

$ 278,576  

The accompanying notes are an integral part of these consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

(Unaudited) 

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

$ 13,998  

Adjustments to reconcile net income to net cash from operating activities:

$ 4,330 $ 21,081

Adjustments to reconcile net income to net cash used in operating activities:

Amortization of deferred financing costs

Benefit for deferred income taxes

Provision (benefit) for deferred income taxes

Change in fair value of equity securities

( 3,117 )  

Change in fair value of derivative instruments

Loss on the sale of investments

2,274 ( 4,902 )

Stock based compensation

Loss on disposal of property and equipment

Noncash interest expense

1 unchanged sentence

Accounts receivable

( 3,295 )  

Accounts receivable –

related parties

(149 )  

Accounts receivable – related parties

(23,119 ) ( 42,473 )

Income tax receivable

Prepaid expenses

Prepaid expenses - related parties

( 5,019 )  

Accounts payable

( 14,910 )  

Accounts payable –

related parties

( 800 )  

( 5,753 ) 413

Accounts payable – related parties

Accrued expenses and other current liabilities

( 404 )  

Accrued expenses and other current liabilities –

related parties

2,354 ( 270 )

Accrued expenses and other current liabilities – related parties

Deferred revenue

( 2,030 )  

( 861 ) ( 1,274 )

Other noncurrent liabilities

Net cash provided by operating activities

44,127  

Net cash used in operating activities

( 12,211 ) ( 29,810 )

Cash flows from investing activities

Collateralization of derivative instruments

Proceeds from the sale of marketable securities

37,701  

Proceeds from the sale of property and equipment

( 1,212 ) 4,327

Capital expenditures

( 4,994 )  

Net cash provided by (used in) investing activities

35,698  

( 2,273 ) ( 2,459 )

Net cash (used in) provided by investing activities

( 3,485 ) 1,868

Cash flows from financing activities

Payment of dividends

( 7,877 )  

( 2,626 ) ( 2,626 )

Deferred financing costs

( 14 )  

Net cash used in financing activities

( 7,891 )  

( 2,626 ) ( 2,640 )

Net change in cash and cash equivalents

30,283  

33,747  

( 18,322 ) ( 30,582 )

Cash and cash equivalents at beginning of period

175,640  

137,521  

219,444 175,640

Cash and cash equivalents at end of period

$ 205,923  

$ 171,268  

Cash paid for income taxes

$ 201,122 $ 145,058

Cash dividends declared in the current period, not paid

$ 109,408 $ 7,877

Noncash investing and financing activities:

2 unchanged sentences

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except per share and per gallon amounts)

SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

The accompanying unaudited consolidated financial statements have been prepared by FutureFuel Corp.

("FutureFuel" or "the Company") in accordance and consistent with the accounting policies stated in the Company's 

2022 Annual Report on Form 10 -K, inclusive of the audited consolidated financial statements and should be read in conjunction with these consolidated financial statements.

(“FutureFuel” or “the Company”) in accordance and consistent with the accounting policies stated in the Company's 2023 Annual Report on Form 10 -K, inclusive of the audited consolidated financial statements and should be read in conjunction with these consolidated financial statements.

In the opinion of FutureFuel, all normal recurring adjustments necessary for a fair presentation have been included in the unaudited consolidated financial statements.

The unaudited consolidated financial statements have been prepared in compliance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with instructions to Form 10 -Q adopted by the Securities and Exchange Commission (“SEC”).

Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements, and do include amounts that are based upon management estimates and judgments.

Future actual results could differ from such current estimates. The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries;

Future actual results could differ from such current estimates.

The unaudited consolidated financial statements include assets, liabilities, revenues, and expenses of FutureFuel and its direct and indirect wholly owned subsidiaries;

namely, FutureFuel Chemical Company;

3 unchanged sentences

Intercompany transactions and balances have been eliminated in consolidation.

Recent Accounting Standards

Recently Adopted Accounting Standards

No new accounting standards have been adopted recently.

Proposed Accounting Standards   

March 2023, the Financial Accounting Standards Board (the "FASB") issued Proposed Accounting Standards Update (ASU) No.

2023 - ED100 Income Taxes (Topic 740 ):

Issued Accounting Standards Not Yet Adopted

In December 2023 , the FASB issued Accounting Standards Update (ASU) No.

2023 - 09 Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures, which aims to address requests for improved income tax disclosures from investors that use the financial statements to make capital allocation decisions.

The amendments in this Proposed ASU, if adopted, would address the investor requests for more transparency of income tax information and would apply to all entities that are subject to income taxes.

The Company is in the process of evaluating this proposed accounting standard.

In July 2023, the FASB issued Proposed Accounting Standards Update (ASU) No.

2023 - ED500 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220 - 40 ):

Disaggregation of Income Statement Expenses, which aims to provide investors with more useful information about an entity’s expenses by improving disclosures on income statement expenses. 

The amendments in this Proposed ASU would require public business entities to disclose disaggregated information about specific categories underlying certain income statement expense line items.

The Company is evaluating this proposed accounting standard.

The amendments in this ASU address the investor requests for more transparency of income tax information and apply to all entities that are subject to income taxes.

The ASU is effective for years beginning after December 15, 2024, but early adoption is permitted.

This ASU should be applied on a prospective basis, although retrospective application is permitted.

Management is currently evaluating the impact of the changes required by the new standard on the Company's financial statements and related disclosures.

In November 2023 , the FASB issued ASU No.

2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which aims to improve disclosures about a public entity’s reportable segments.

This update addresses requests from investors for more detailed information about a reportable segment’s expenses in order to improve understanding of a public entity’s business activities, overall performance, and potential future cash flows.

The amendments in this ASU require public business entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and are included within each reported measure of segment profit or loss.

This update does not change how an entity identifies or aggregates its reportable segments or how it applies the quantitative thresholds to determine them.

This update is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years starting after December 15, 2024.

This ASU must be applied retrospectively to all prior periods presented.

Management is currently evaluating the impact of the changes required by this new standard on the Company's financial statements and related disclosures for the year ending December 31, 2024.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share and per gallon amounts)

GOVERNMENT TAX CREDITS

BIODIESEL BLENDERS ’

TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

The biodiesel Blenders’

Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel. 

The BTC will expire December 31, 2024 

based on current law. 

BIODIESEL BLENDERS ’ TAX CREDIT AND SMALL AGRI-BIODIESEL PRODUCER TAX CREDIT

The biodiesel Blenders’ Tax Credit (“BTC”) provides a one dollar per gallon tax credit to the blender of biomass-based diesel with at least 0.1% petroleum-based diesel fuel.

The BTC will expire December 31, 2024 based on current law.

The Company records this credit as a reduction to cost of goods sold.

Within the law of the BTC, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”).

The Company was eligible for this credit as part of the tax provision.

CARES ACT –

EMPLOYEE RETENTION TAX CREDIT

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll through, among other things, an available employee retention tax credit. 

The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit. 

FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit. 

Additionally, small agri-biodiesel producers with production capacity not in excess of 60 million gallons are eligible for an additional tax credit of $0.10 per gallon on the first 15 million gallons of agri-biodiesel sold (the “Small Agri-biodiesel Producer Tax Credit”).

The Company is eligible for this credit as part of the tax provision.

CARES ACT – EMPLOYEE RETENTION TAX CREDIT

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), was enacted on March 27, 2020, to encourage eligible employers to retain employees on their payroll through, among other things, an available employee retention tax credit.

The Consolidated Appropriations Act, effective January 1, 2021 broadened the eligibility of the credit.

FutureFuel has applied for this credit and will recognize the benefit of the credit once reasonable assurance can be made as to the retention of the credit.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except per share and per gallon amounts)

REVENUE RECOGNITION

The majority of revenue is from short term contracts with revenue recognized when a single performance obligation to transfer product under the terms of a contract with a customer are satisfied.

Certain of the Company's custom chemical contracts within the chemical segment contain a material right as defined by ASC Topic 606, from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers.

Certain of the Company's custom chemical contracts within the chemical segment contain a material right as defined by ASC Topic 606, from the provision of a customer option to purchase future goods or services at a discounted price as a result of upfront payments provided by customers.

Each contract also has a performance obligation to transfer products with 30 -day payment terms.

The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up.

The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up.

If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with ASC Topic 606.

The Company applies the renewal option approach in allocating the transaction price to these material rights and transfer of product.

As a basis for allocating the transaction price to the material right and transfer of product, the Company estimates the expected life of the contract, the expected contractual volumes to be sold over that life, and the most likely expected sales price.

The Company applies the renewal option approach in allocating the transaction price to these material rights and transfer of product.

As a basis for allocating the transaction price to the material right and transfer of product, the Company estimates the expected life of the contract, the expected contractual volumes to be sold over that life, and the most likely expected sales price.

Each estimate is updated quarterly on a prospective basis.

1 unchanged sentence

Contract assets consist of unbilled amounts typically resulting from revenue recognized through bill-and-hold arrangements.

The contract assets at 

September 30, 2023 and 

December 31, 2022 consist of unbilled revenue from one customer and cash due from another customer and are recorded as accounts receivable in the consolidated balance sheets.

Contract liabilities consist of advance payment arrangements related to material rights recorded as deferred revenue in the consolidated balance sheets.

Increases to contract liabilities from cash received or due for a performance obligation of chemical segment plant expansions were $ 506  and $ 733  for the three months and $ 538  and $ 733  for the nine months ended September 30, 2023 and 2022 , respectively.

The contract assets at March 31, 2024 and December 31, 2023 consist of unbilled revenue from one customer and cash due from another customer and are recorded as accounts receivable in the consolidated balance sheets.

Contract liabilities consist of advance payment arrangements related to material rights recorded as deferred revenue in the consolidated balance sheets.

Increases to contract liabilities from cash received or due for a performance obligation of chemical segment plant expansions were $ 0 for the three months ended March 31, 2024 and 2023 .

Contract liabilities are reduced as the Company transfers product to the customer under the renewal option approach.

Revenue recognized in the chemical segment from the contract liability reductions was $ 444  and $ 2,037  for the three months and $ 2,402  and $ 5,211  for the nine months ended September 30, 2023 and 2022 , respectively.

Revenue recognized in the chemical segment from the contract liability reductions was $ 806 and $ 1,219 for the three months ended March 31, 2024 and 2023 , respectively.

These contract asset and liability balances are reported on the consolidated balance sheets on a contract-by-contract basis at the end of each reporting period.

1 unchanged sentence

Contract Assets and Liability Balances

September 30, 2023

March 31, 2024

December 31, 2023

Trade receivables, included in accounts receivable*

$ 15,432  

$ 16,459  

$ 14,521 $ 15,897

Contract assets, included in accounts receivable

Contract liabilities, included in deferred revenue - short-term

$ 3,281  

$ 3,565  

Contract liabilities, included in deferred revenue - long-term

$ 10,025  

$ 11,605  

* Exclusive of the BTC of $ 13,084  and $ 8,970 , respectively, and net of allowances for bad debt of $ 67  and $ 48 , respectively, as of the dates noted.

* Exclusive of the BTC of $ 8,294 and $ 11,381 , respectively, and net of allowances for expected credit losses of $ 41 and $ 55 , respectively, as of the dates noted.

Transaction price allocated to the remaining performance obligations:

At September 30, 2023 , approximately $ 13,306  of revenue is expected to be recognized from remaining performance obligations.

FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts which range from three  to five  years.

Approximately 25 % of this revenue is expected to be recognized over the next 12 months, and 75 % is expected to be recognized over the subsequent 45  months.

At March 31, 2024 , approximately $ 12,168 of revenue is expected to be recognized from remaining performance obligations.

FutureFuel expects to recognize this revenue ratably over expected sales over the expected term of its long-term contracts ranging from two to four years.

Approximately 27 % of this revenue is expected to be recognized over the next 12 months, and 73 % is expected to be recognized over the subsequent 33 months.

These amounts are subject to change based upon changes in the estimated contract life and estimated quantities to be sold over the contract life.

2 unchanged sentences

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except per share and per gallon amounts)

The following tables provide revenue from customers disaggregated by the type of arrangement and by the timing of the recognized revenue.

Disaggregation of revenue - contractual and non-contractual:

Three Months Ended September 30,

Nine Months Ended September 30,

Contract revenue from customers with > 1-year arrangements

$ 8,291  

$ 9,762  

$ 28,318  

$ 26,052  

Contract revenue from customers with < 1-year arrangements

108,406  

108,324  

247,757  

251,980  

Three Months Ended March 31,

Contract revenue from customers with > one-year arrangements

$ 9,240 $ 10,465

Contract revenue from customers with < one-year arrangements

48,986 63,661

Revenue from non-contractual arrangements

Total revenue

$ 116,752  

$ 118,141  

$ 276,241  

$ 278,198  

$ 58,281 $ 74,181

Timing of revenue :

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Bill-and-hold revenue

$ 10,149  

$ 9,713  

$ 31,504  

$ 26,960  

$ 11,644 $ 10,590

Non-bill-and-hold revenue

106,603  

108,428  

244,737  

251,238  

46,637 63,591

Total revenue

$ 116,752  

$ 118,141  

$ 276,241  

$ 278,198  

As of September 30, 2023 and 

December 31, 2022 , $ 4,010  and $ 4,473  of bill-and-hold revenue had not shipped, respectively. 

$ 58,281 $ 74,181

As of March 31, 2024 and December 31, 2023 , $ 3,291 and $ 4,317 of bill-and-hold revenue had not shipped, respectively.

The carrying values of inventory were as follows as of:

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Finished goods

$ 11,959  

$ 11,719  

$ 18,057 $ 16,235

Work in process

Raw materials and supplies

27,740  

33,897  

40,621  

46,495  

( 13,711 )  

43,680 25,532

62,470 42,378

( 6,373 ) ( 9,400 )

Total inventory

$ 26,910  

$ 26,761  

A LIFO liquidation of $151and  $ 2,124  occurred in the nine and twelve months ended September 30, 2023 and December 31, 2022, respectively.

The liquidation in 2023 related to the reduction of biodiesel inventory and the liquidation in 2022 related to the exit from pipeline business.

$ 56,097 $ 32,978

No liquidation occurred in the three months ended March 31, 2024 and 2023.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except per share and per gallon amounts)

DERIVATIVE INSTRUMENTS

1 unchanged sentence

Fair value is determined by using the closing prices of the derivative instruments on the New York Mercantile Exchange at the end of an accounting period.

Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statement of income as a component of cost of goods sold.

Changes in the fair value of derivative instruments are recognized at the end of each accounting period and recorded in the statements of operations and comprehensive income as a component of cost of goods sold.

These instruments use inputs considered Level 1 holdings.

Fair value accounting pronouncements include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel.

Unobservable inputs are inputs that reflect FutureFuel’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.

The hierarchy is broken down into three levels.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs are unobservable inputs for the asset or liability.

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

In order to manage commodity price risk caused by market fluctuations in biofuel prices, future purchases of feedstock used in biodiesel production, physical feedstock, finished product inventories attributed to the process, and other petroleum products purchased or sold, the Company may enter into exchange-traded commodity futures and options contracts.

The Company accounts for these derivative instruments in accordance with ASC 815 - 20 - 25,  Derivatives and Hedging.

The Company accounts for these derivative instruments in accordance with ASC 815 - 20 - 25, Derivatives and Hedging.

Under this standard, the accounting for changes in the fair value of a derivative instrument depends upon whether it has been designated as an accounting hedging relationship and, further, on the type of hedging relationship.

To qualify for designation as an accounting hedging relationship, specific criteria must be met and appropriate documentation maintained.

The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 

2023 or 2022 .

The Company had no derivative instruments that qualified under these rules as designated accounting hedges in 2024 or 2023 .

The Company has elected the normal purchase and normal sales exception for certain feedstock purchase contracts and supply agreements.

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $ 14,068  and $ 1,373  (realized loss of $ 7,286  and gain of $ 2,150 ) for the three and nine months ended September 30, 2023 , respectively, and a gain of $ 4,688  and loss of $ 21,917  (realized gain of $ 4,023  and loss of $ 24,970 ) for the three and nine months ended September 30, 2022 , respectively.

The volumes and carrying values of FutureFuel’s derivative instruments were as follows at: 

Asset (Liability)

September 30, 2023

Realized gains and losses on derivative instruments and changes in fair value of the derivative instruments are recorded in the consolidated statements of operations as a component of cost of goods sold and amounted to a loss of $ 3,464 (realized loss of $ 1,190 ) for the three months ended March 31, 2024 , and a gain of $ 8,307 (realized gain of $ 3,405 ) for the three months ended March 31, 2023 .

The volumes and carrying values of FutureFuel’s derivative instruments were as follows at:

(Liability) Asset

March 31, 2024

December 31, 2023

2 unchanged sentences

Regulated fixed price future commitments, included in other current assets (in thousand barrels)

$ ( 3,665 )  

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 5,079  and $ 2,088  at September 30, 2023 and 

December 31, 2022 , respectively, and was classified as other current assets in the consolidated balance sheets.

232 $ ( 538 ) 354 $ 1,736

The margin account maintained with a broker to collateralize these derivative instruments carried an account balance of $ 1,957 and $ 745 at March 31, 2024 and December 31, 2023 , respectively, and was classified as other current assets in the consolidated balance sheets.

The carrying values of the margin account and of the derivative instruments are included net, in other current assets.

MARKETABLE SECURITIES

During the three months ended 

September 30, 2023 , FutureFuel held no  marketable equity and trust preferred (debt) securities.

The previous sale of these securities was recorded as a component of net income with a gain of $ 575 in the 

nine months ended September 30, 2023. 

At December 31, 2022 , FutureFuel had investments in certain marketable equity and trust preferred (debt) securities which had a fair market value of $ 37,126 . 

These investments were classified as current assets in the consolidated balance sheet. 

The trust preferred securities held at December 31, 2022 were designated as being available-for-sale. 

Accordingly, these securities were recorded at fair value of $ 3,675 .

In accordance with ASC 321, the change in the fair value of marketable equity securities (preferred and other equity instruments) is reported as a component of net income.

The change in the fair value of marketable equity securities (preferred and other equity instruments) for the three and nine months ended September 30, 2022 was a loss of $ 602 and $ 7,940 , respectively.

The aggregate fair value of debt securities with unrealized losses totaled $ 2,627  at 

December 31, 2022 .

Sales of debt securities were $ 0  in the nine months ended September 30, 2022 .

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

 FAIR VALUE MEASUREMENTS

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

Fair value accounting pronouncements also include a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of FutureFuel.

The hierarchy is broken down into three levels.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 3 inputs are unobservable inputs for the asset or liability.

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following tables provide information by level for assets and liabilities that are measured at fair value, on a recurring basis, at September 30, 2023 and 

December 31, 2022 . 

Asset (Liability)

Fair Value Measurements Using

Fair Value at

Inputs Considered as:

September 30, 2023

Derivative instruments

$ ( 3,665 )  

Asset (Liability)

Fair Value Measurements Using

Fair Value at

Inputs Considered as:

December 31, 2022

Derivative instruments

$ ( 142 )  

Preferred stock and other equity instruments

$ 33,450  

Trust preferred stock

$ 3,676  

(Dollars in thousands, except per share and per gallon amounts)

MARKETABLE SECURITIES

At March 31, 2024 and December 31, 2023, FutureFuel held no marketable equity and trust preferred (debt) securities.

The change in the fair value of marketable equity securities (preferred and other equity instruments) for the three months ended March 31, 2023 was a gain of $ 533 , in accordance with ASC 321.

There was no change for the three months ended March 31, 2024.

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following at:

September 30, 2023

March 31, 2024

December 31, 2023

Refundable deposit

Accrued employee liabilities

$ 3,444  

$ 3,287  

Accrued property, franchise, motor fuel and other taxes

Lease liability, current

$ 5,073  

$ 5,477  

$ 7,112 $ 4,758

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 ( as amended, the “Prior Credit Agreement”) with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent.

The Credit Agreement consists of a five -year revolving credit facility in a dollar amount of up to $100,000, which includes a sublimit of $ 30,000 for letters of credit and $ 15,000 for swingline loans (collectively, the “Credit Facility”).

(Dollars in thousands, except per share and per gallon amounts)

On March 30, 2020, the Company, with FutureFuel Chemical Company as the borrower and certain of the Company’s other subsidiaries as guarantors, amended and restated its credit agreement (the “Credit Agreement”) originally entered into on April 16, 2015 ( as amended, the “Prior Credit Agreement”) with the lenders party thereto, Regions Bank as administrative agent and collateral agent, and PNC Bank, N.A., as syndication agent.

The Credit Facility expires on March 30, 2025.

March 1, 2023 ,  the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”).

The First Amendment primarily amends the Credit Agreement to transition the Credit Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”) and other conforming changes, in each case as more specifically set forth in the First Amendment.

The First Amendment does 

not  modify the aggregate amount, or expiration date, of the Credit Facility.

not  expect the transition from LIBOR to have a material impact on the Credit Facility.

On March 1, 2023 , the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”).

The First Amendment does not modify the aggregate amount, or expiration date, of the Credit Facility.

We do not expect the transition from LIBOR to have a material impact on the Credit Facility.

Pursuant to the First Amendment, the interest rate floats at the following margins over SOFR or base rate based upon our leverage ratio.

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Commitment Fee

1.00 %  

0.00 %  

1.00 % 0.00 % 0.15 %

≥ 1.00:1.0 And < 1.50:1.0

1.25 %  

0.25 %  

1.25 % 0.25 % 0.15 %

≥ 1.50:1.0 And < 2.00:1.0

1.50 %  

0.50 %  

1.50 % 0.50 % 0.20 %

≥ 2.00:1.0 And < 2.50:1.0

1.75 %  

0.75 %  

2.00 %  

1.00 %  

1.75 % 0.75 % 0.20 %

2.00 % 1.00 % 0.25 %

The terms of the Credit Facility contain certain negative covenants and conditions including a maximum consolidated leverage ratio and a consolidated minimum interest coverage ratio.

There were no borrowings under the Credit Agreement at September 30, 2023  or December 31, 2022 .

There were no borrowings under the Credit Agreement at March 31, 2024 or December 31, 2023 .

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share and per gallon amounts)

INCOME TAX PROVISION

The following table summarizes the income tax provision.  

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes the income tax provision.

Three Months Ended March 31,

Income tax provision

$ 1,697  

Effective tax rate

The Company’s income tax provision for the three and nine months ended September 30, 2023  comprises only small amounts of current state taxes. 

No deferred tax benefits on ongoing tax losses have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized. 

The three -month period in 2022 similarly reflected immaterial state taxes and miscellaneous items, while the nine -month period included the cumulative impact of valuation allowances recorded against certain existing deferred tax assets.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

The Company’s income tax provision for the three months ended March 31, 2024 comprises primarily an increase in the valuation allowance against net deferred assets, plus immaterial state taxes and miscellaneous items.

No deferred tax benefits on ongoing tax losses have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on the Company's 2023 tax losses are more likely than not to be realized.

The three -month period in 2023 similarly reflected immaterial state taxes and miscellaneous items.

EARNINGS PER SHARE

In the three and nine months ended September 30, 2023 and 2022 , FutureFuel used the treasury method in computing earnings per share.

Basic and diluted earnings per common share were computed as follows:  

Three Months Ended September 30,

Nine Months Ended September 30,

$ 2,776  

$ 15,780  

$ 13,998  

Weighted average shares outstanding –

43,763,243  

In the three months ended March 31, 2024 and 2023 , FutureFuel used the treasury method in computing earnings per share.

Basic and diluted earnings per common share were computed as follows:

Three Months Ended March 31,

$ 4,330 $ 21,081

Weighted average shares outstanding – basic

43,763,243 43,763,243

Effect of dilutive securities:

Stock options and other awards

Weighted average shares outstanding –

43,765,709  

43,763,243  

43,765,163  

43,763,243  

Weighted average shares outstanding – diluted

43,763,243 43,766,536

Basic earnings per share

$ 0.06  

$ 0.36  

$ 0.32  

$ 0.01  

$ 0.10 $ 0.48

Diluted earnings per share

$ 0.06  

$ 0.36  

$ 0.32  

$ 0.01  

For the three and nine months ended September 30, 2023 , 41,534  and 42,080  options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive.

In the three and nine months ended September 30, 2022 , 44,000  and 30,667  options were excluded, respectively.

$ 0.10 $ 0.48

For the three months ended March 31, 2024 and 2023, 44,000 and 40,707 options to purchase FutureFuel’s common stock were excluded, respectively, in the computation of diluted earnings per share as all were anti-dilutive.

RELATED PARTY TRANSACTIONS

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Related party revenues are the result of sales of biodiesel, petrodiesel, blends, other petroleum products, and other similar or related products to these related parties.

Related party cost of goods sold and distribution are the result of sales and purchases of biodiesel, petrodiesel, blends, and other petroleum products with these related parties along with the associated expense from storage and terminalling services provided by these related parties.

During the three months ended September 30, 2023, a settlement was reached on the previously disclosed natural gas dispute. 

See Note 14 Legal Matters.

Related party cost of goods sold and distribution are the result of sales and purchases of biodiesel, petrodiesel, blends, and other petroleum products with these related parties along with the associated expense from storage and terminalling services provided by these related parties.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

(Dollars in thousands, except per share and per gallon amounts)

SEGMENT INFORMATION

FutureFuel has two reportable segments organized along similar product groups –

chemicals and biofuels.

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers.

FutureFuel has two reportable segments organized along similar product groups – chemicals and biofuels.

FutureFuel’s chemical segment manufactures diversified chemical products that are sold externally to third party customers.

This segment is composed of two components:

“custom manufacturing”

(manufacturing chemicals for specific customers) and “performance chemicals”

(multi-customer specialty chemicals).

FutureFuel’s biofuel segment primarily manufactures and markets biodiesel.

Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at the Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks.

Biofuel revenues also include the sale of biodiesel blends with petrodiesel;

“custom manufacturing” (manufacturing chemicals for specific customers) and “performance chemicals” (multi-customer specialty chemicals).

FutureFuel’s biofuel segment primarily manufactures and markets biodiesel.

Biodiesel revenues are generated through the sale of biodiesel to customers through FutureFuel’s distribution network at its Batesville Plant, through distribution facilities available at leased oil storage facilities, and through a network of remotely located tanks.

Biofuel revenues also include the sale of biodiesel blends with petrodiesel;

petrodiesel with no biodiesel added;

internally generated, separated Renewable Identification Numbers (“RINs”);

and biodiesel production byproducts. Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs.

FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free”

basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale.

internally generated, separated Renewable Identification Numbers (“RINs”);

and biodiesel production byproducts.

Biodiesel selling prices and profitability can at times fluctuate based on the timing of unsold, internally generated RINs.

FutureFuel does not allocate production costs to internally generated RINs, and, from time to time, can enter into sales of biodiesel on a “RINs-free” basis, resulting in FutureFuel maintaining possession of the applicable RINs from the sale.

The benefit derived from the eventual sale of the RINs is not reflected in results of operations until such time as the RINs sale has been completed, which may lead to variability in reported operating results.

As of September 30, 2023 , FutureFuel held 4.2  million of RINs in inventory with a fair market value of $ 6,971  and no cost.

Comparatively, at September 30, 2022 , FutureFuel held 8.1  million of RINs in inventory with a fair market value of $ 12,752  

As of March 31, 2024 , FutureFuel held 2.0 million of RINs with a fair market value of $ 1,624 and no cost.

Comparatively, at March 31, 2023 , FutureFuel held no RINs.

These fair values are considered Level 1 inputs.

Summary of business by segment

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Custom chemicals

$ 14,454  

$ 16,047  

$ 46,650  

$ 44,028  

$ 15,427 $ 16,620

Performance chemicals

11,834  

17,233  

Chemical revenue

17,847  

21,506  

58,484  

61,261  

18,059 21,881

Biofuel revenue

98,905  

96,635  

217,757  

216,937  

40,222 52,300

Total Revenue

$ 116,752  

$ 118,141  

$ 276,241  

$ 278,198  

$ 58,281 $ 74,181

Segment gross profit

$ 6,878  

$ 8,362  

$ 21,917  

$ 17,976  

( 3,008 )  

11,623  

( 5,016 )  

$ 4,021 $ 8,623

Total gross profit

$ 3,870  

$ 19,985  

$ 16,901  

$ 13,807  

$ 5,007 $ 21,623

Depreciation is allocated to segment cost of goods sold based on plant usage.

The total assets and capital expenditures of FutureFuel have not been allocated to individual segments as large portions of these assets are shared to varying degrees by each segment, causing such an allocation to be of little value.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share and per gallon amounts)

LEGAL MATTERS

From time to time, FutureFuel and its operations are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business.

From time to time, FutureFuel and its subsidiaries are parties to, or targets of, lawsuits, claims, investigations, regulatory matters, and proceedings, which are being handled and defended in the ordinary course of business.

While FutureFuel is unable to predict the outcomes of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations, or cash flows.

During the three months ended September 30, 2023, the parties to the previously disclosed natural gas dispute and the Company entered into a settlement agreement to resolve the matter completely .

Based on such settlement, the Company released $ 882 of the previously accrued expense.

Notes to Consolidated Financial Statements of FutureFuel Corp.

(Dollars in thousands, except per share amounts)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of FutureFuel Corp.

(“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein.

This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance.

Actual results may differ materially from those anticipated in these forward-looking statements.

See “Forward-Looking Information”

below for additional discussion regarding risks associated with forward-looking statements. 

Unless otherwise stated, all dollar amounts are in thousands.

Our Company is managed and reported in two reporting segments:

chemicals and biofuels.

Within the chemical segment are two product groupings:

custom chemicals and performance chemicals.

The custom product group is composed of specialty chemicals manufactured for a single customer whereas the performance product group is composed of chemicals manufactured for multiple customers.

The biofuel segment is composed of one product group.

Management believes that the diversity of each segment strengthens the company in the ability to utilize resources and is committed to growing each segment.

Within the United States Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS), we generate 1.5 Renewable Identification Numbers (RINs) for each gallon of biodiesel sold in the United States with a classification of a D4 or D6 RIN.

RINs are used to monitor the level of renewable fuel traded in a given year in accordance with RFS 2 within the EPA moderated transaction system (EMTS). 

We do not assign cost of goods sold to the generation of RINs as the physical fuel generates the full cost.

As of September 30, 2023, we held 4.2 million D4 and D6 RINs with a fair market value of $6,971.

Comparatively, as of September 30, 2022, we held 8.1 million RINs with a fair market value of $12,752. 

Summary of Financial Results

Set forth below is a summary of certain consolidated financial information for the periods indicated.

Three Months Ended September 30,

Income from operations

Earnings (loss) per common share:

Adjusted EBITDA*

Nine Months Ended September 30,

Income from operations

Earnings per common share:

Adjusted EBITDA*

* Adjusted EBITDA restated for the three and nine months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.

We use adjusted EBITDA as a key operating metric to measure both performance and liquidity.

Adjusted EBITDA is a non-GAAP financial measure.

Adjusted EBITDA is not a substitute for operating income, net income, or cash flow from operating activities (each as determined in accordance with GAAP) as a measure of performance or liquidity.

Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP.

We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash stock-based compensation expenses, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, losses on disposal of property and equipment, non-cash gains or losses on derivative instruments, and other non-operating income or expenses.

Information relating to adjusted EBITDA is provided so that investors have the same data that we employ in assessing the overall operation and liquidity of our business.

Our calculation of adjusted EBITDA may be different from similarly titled measures used by other companies;

therefore, the results of our calculation are not necessarily comparable to the results of other companies.

Adjusted EBITDA allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends.

In particular, our management believes that adjusted EBITDA permits a comparative assessment of our operating performance and liquidity, relative to a performance and liquidity based on GAAP results.

This measure isolates the effects of certain items, including depreciation and amortization (which may vary among our operating segments without any correlation to their underlying operating performance), non-cash stock-based compensation expense (which is a non-cash expense that varies widely among similar companies), and non-cash gains and losses on derivative instruments (which can cause net income to appear volatile from period to period relative to the sale of the underlying physical product).

We utilize commodity derivative instruments primarily to protect our operations from downward movements in commodity prices, and to provide greater certainty of cash flows associated with sales of our commodities.

We enter into hedges, and we utilize mark-to-market accounting to account for these instruments.

Thus, our results in any given period can be impacted, and sometimes significantly, by changes in market prices relative to our contract price along with the timing of the valuation change in the derivative instruments relative to the sale of biofuel.

We include the mark-to-market or non-cash portion of this item as an adjustment as we believe it provides a relevant indicator of the underlying performance of our business in a given period.

Additionally, we held marketable securities of certain debt securities (trust preferred stock) and in preferred stock and other equity instruments during the nine months ended September 30, 2023, (but sold all investments during the three months ended June 30, 2023).

The realized and unrealized gains and losses on these marketable securities fluctuated from period to period.

We included this item as an adjustment as we believed it provided a relevant indicator of the underlying performance of our business in a given period.

The following table reconciles net income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA. 

Three Months Ended September 30,

Nine Months Ended September 30,

Non-cash stock-based compensation

Interest and dividend income

Non-cash interest expense and amortization of deferred financing costs

Loss on disposal of property and equipment

Unrealized loss (gain) on derivative instruments

Loss (gain) on marketable securities

Income tax provision

Adjusted EBITDA*

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.

Nine Months Ended September 30,

Net cash provided by operating activities

Benefit for deferred income taxes

Interest and dividend income

Income tax provision

Change in operating assets and liabilities, net

Adjusted EBITDA*

* Adjusted EBITDA restated for the three and nine months of 2022 consistent with 2023 reporting to exclude cash (realized) gains and losses on derivative instruments.

Results of Operations  

Three Months Ended September 30,

Nine Months Ended September 30,

Volume/product mix effect

Operating expenses

Other income (expense)

Income tax provision

Consolidated revenue in the three and nine months ended September 30, 2023 decreased $1,389 and $1,957 compared to the three and nine months ended September 30, 2022, respectively.

In the three- and nine-month periods ended September 30,2023, chemical segment sales volumes declined $3,763 and $2,294, respectively, on weakened glycerin markets and the timing of recognition of capital recovery. 

Partially improving chemical sales in both the three- and nine-month comparison periods was a favorable product mix and revenue from new custom chemical contracts. 

Biofuel segment net sales increased $2,270 and $820, respectively, in the three- and nine-month comparison periods on higher sales volumes mostly offset by lower average prices. 

D4 RIN prices dropped significantly during the quarter as renewable diesel volumes increased in the market.

Gross profit in the three months ended September 30, 2023 decreased $16,115 as compared to the same period of 2022, from:

(i) the spread in biofuel price and feedstock price narrowed (inclusive of the effect of the D4 RIN price decline);

(ii) the change in the activity in derivative instruments with a realized loss of $7,286 in the current three-month period as compared to a realized gain of $4,023 in the same three-months of the prior year;

(iii) the change in the mark-to-market derivative position which was an unrealized loss of $6,782 as compared to an unrealized gain of $665 in the three months ended September 30, 2023 and 2022, respectively;

(iv) the reduction from the timing of recognition of capital recovery; and (v) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. The adjustment in item (v) increased gross profit $2,528 in the three months ended September 30, 2023 as compared to $6,133 in 2022. These contrasting results in items (i) and (ii) reflect the impact of price movements in the biodiesel market during the course of each year compared to when we committed to our feedstock acquisition. 

In 2022, prices rose sharply as a consequence of the conflict in Ukraine and we recorded mark-to-market losses on the derivative instruments we use to hedge our biodiesel margins.

The losses were then offset by significant gains in physical sales in the period. 

In 2023, biodiesel prices fell in the first half of the year and then rose in the third quarter. 

This generated derivative gains for the first half of the year and now mark-to-market losses in the third quarter against committed sales in the fourth quarter.

Gross profit for the nine months ended September 30, 2023 was $16,901 as compared to $13,807 in the nine months ended September 30, 2022. 

This increase resulted from (i) the change in our realized derivative gains of $2,150 in the current nine-month period as compared to realized losses of $24,970 in the prior nine-month period given the explanation noted in the three-month comparative period, and (ii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. 

This adjustment increased gross profit $6,023 in the current nine-month period as compared to $1,308 in the prior nine-month period.

Operating  e xpenses

Operating expenses increased $478 and $1,897 in the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022.

This increase was primarily from increased compensation and legal expense.

Other income (expense)

Other income (expense) increased income $1,904 and $12,502 in the three and nine months ended September 30, 2023, respectively, as compared to the same periods of 2022. In the current three-month period interest income was $2,527 as compared to dividend and interest income of $1,210 and a loss of $590 on marketable securities in the same period of 2022. In the current nine-month period, marketable securities were sold with realized gains of $575 and interest income was $6,595 as compared to unrealized losses on marketable securities of $7,366 and interest and dividends income of $2,621, in the same period of 2022.

Income tax provision (benefit)

The Company’s income tax provision for the three and nine months ended September 30, 2023 comprises only small amounts of current state taxes.

No deferred tax benefits on ongoing tax losses have been recognized, reflecting management’s determination that none of the net deferred tax assets generated on its 2023 tax losses are more likely than not to be realized. 

The three-month period in 2022 similarly reflected immaterial state taxes and miscellaneous items, while the nine-month period included the cumulative impact of valuation allowances recorded against certain existing deferred tax assets.

The Company evaluates its deferred tax assets quarterly and records a valuation allowance to reduce these assets to the amount that is more likely than not to be realized.

Chemical Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Volume/product mix effect

Chemical revenue in the three and nine months ended September 30, 2023 decreased 17.0% or $3,659 and 4.5% or $2,777, respectively, compared to the same comparative periods of 2022.

Revenue for our custom chemicals (unique chemicals produced under contract for specific customers) for the three and nine months ended September 30, 2023 totaled $14,454 and $46,650, a decrease of $1,593 and an increase of $2,622 from the same periods in 2022, respectively.

Custom chemicals sales revenue was reduced in the current reporting periods as compared to the prior year periods from the timing of recognition of upfront capital reimbursements from customers.

The reduction in sales revenue from the recognition of deferred revenue was $1,978 and $3,174 in the three and nine months ended September 30, 2023 as compared to the same periods of 2022.

(See Note 3 to our consolidated financial statements).

Also reducing sales revenue were lower volumes of chemicals sold into the energy market.

Partially offsetting these reductions were sales from two new contracts in the agricultural market. Performance chemicals (composed of multi-customer products which are sold to the open market based on specification) revenue was $3,393 and $11,834, a decrease of $2,066 and $5,399 from the three and nine months ended September 30, 2022, respectively.

This decrease was mostly from lower sales of glycerin as markets softened on increased imports.  

Gross profit for the chemical segment for the three months ended September 30, 2023, decreased $1,484 when compared to the same period of 2022.

This decrease was primarily from:

t he timing of recognition of upfront capital payments as noted above;

(ii) reduced glycerin sales;

and (iii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. 

This adjustment increased gross profit $234 as compared to $710 in the same period of 2022.

Gross profit for the chemical segment for the nine months ended September 30, 2023 increased $3,941 when compared to the same period of 2022 from: 

(i) product mix, and (ii) the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting. This adjustment increased gross profit $1,105 in the nine months ended September 30, 2023 as compared to a decrease in gross profit of $463 in the same comparative period of 2022. 

Partially reducing this increase in gross profit was the timing of recognition of upfront capital payments as noted above.

Biofuel  

Three Months Ended September 30,

Nine Months Ended September 30,

Volume/product mix effect

Gross (loss) profit

Biofuels revenue in the three and nine months ended September 30, 2023 increased $2,270 and $820, respectively, as compared to the same periods of 2022.

These increases resulted from increased sales volumes of 14% and 21%, mostly offset by reduced average prices of 12% and 21%, respectively.

The lower prices were driven in part by the reduction in D4 RIN prices which according to S&P Global (September 29, 2023 authored by Phillip Herring and Melvin Lee), dropped 44.5% in 2023 due to an increase of renewable diesel production and a decline in biodiesel margins. 

A significant portion of our biodiesel sold was to four major refiners/blenders in the three months ended September 30, 2023 and to two major refiners in the three months ended September 30, 2022 and in the nine months ended 2023 and 2022. No assurances can be given that we will continue to sell to such major refiners, or, if we do sell, the volume we will sell or the profit margin we will realize.

We do not believe that the loss of these customers would have a material adverse effect on our biofuels segment or on us as a whole because:

(i) we believe that we could readily sell our biodiesel to other customers on equivalent terms as potential demand from other customers for biodiesel exceeds our production capacity;

(ii) our sales to these customers are not under fixed terms and the customers have no fixed obligation to purchase any minimum quantities except as stipulated by short-term purchase orders;

and (iii) the prices we receive from these customers are based upon then-market rates, as would be the case with sales of this commodity to other customers.

Biofuels gross loss was $3,008 and $5,016 in the three and nine months ended September 30, 2023, respectively, a decrease in gross profit of $14,631 in the three-month comparative period, and an increased loss of $847 in the nine-month comparative period of 2022. In the current three months of 2023, the change in the activity in derivative instruments was a realized loss of $7,286 as compared to a realized gain of $4,023 in the same three months of the prior year.

Also increasing gross losses was the change in the mark-to-market derivative position which was an unrealized loss of $6,782 as compared to an unrealized gain of $665 in the three months ended September 30, 2023 and 2022, respectively. As described previously, heating oil futures prices rose in the three months ended September 30, 2023 whereas they had fallen overall for the first six months of the year. This moved our derivatives position from a gain to a loss position that will be offset by sales later in the year. 

In addition to this, there has been a decline in margins driven by the effect of the D4 RIN price decline as previously noted and increases in feedstock prices.

Reducing gross profit in the three months ended September 30, 2023 was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting.

This adjustment increased gross profit $2,294 in the three months ended September 30, 2023 as compared to $5,423 in the same comparative period of 2022. 

For the nine months ended September 30, 2023, the change increased gross profit $6,023 as compared to $1,771 in the same comparative period of 2022. 

In regards to our derivative activity, we recognize all derivative instruments as either assets or liabilities at fair value in our consolidated balance sheets.

The realized and unrealized derivative gains and losses are recorded as cost of goods sold.

Our derivative instruments do not qualify for hedge accounting under the specific guidelines of Topic 815, Derivatives and Hedging.

None of the derivative instruments are designated and accounted for as hedges primarily due to the extensive record keeping requirements.  

The volumes and carrying values of our derivative instruments were as follows:

Asset (Liability)

September 30, 2023

December 31, 2022

Contract Quantity

Regulated fixed price future commitments (in thousand barrels)

*All derivative instruments are entered into with the standard contract terms and conditions in accordance with major trading authorities of the New York Mercantile Exchange.

Critical  

Accounting  

Revenue Recognition

The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers.

Certain long-term contracts had upfront non-cancellable payments considered material rights.

The Company applied the renewal option approach in allocating the transaction price to the material rights.

For each of these contracts, the Company estimated the expected contractual volumes to be sold at the most likely expected sales price as a basis for allocating the transaction price to the material right.

Estimates are updated quarterly on a prospective basis.

These custom chemical contracts have payment terms of 30 days.

See Note 3 to our consolidated financial statements.

For most product sales, revenue is recognized when product is shipped from our facilities and risk of loss and title have passed to the customer, which is in accordance with our customer contracts and the stated shipping terms.

Nearly all custom manufactured products are manufactured under written master service agreements.

Performance chemicals and biodiesel are generally sold pursuant to the terms of written purchase orders.

In general, customers do not have any rights of return, except for quality disputes.

All of our products are tested for quality before shipment, and historically returns have been inconsequential.

We do not offer rebates, except those related to the BTC.

Biodiesel selling prices can at times fluctuate based on the timing of unsold, internally generated RINs.

From time to time, sales of biodiesel are on a “RINs-free”

Such method of selling results in applicable RINs being held.

The value of the RINs is not reflected in revenue until such time as the RIN sale has been completed.

Revenue from bill-and-hold transactions in which a performance obligation exists is recognized when the total performance obligation has been met and control of the product has transferred.

Bill-and-hold transactions for the three and nine months ended September 30, 2023 and 2022 were related to custom chemicals customers whereby revenue was recognized in accordance with contractual agreements based upon product being produced and ready for use by the customer.

These sales were subject to written monthly purchase orders with agreement that production was reasonable.

The product was custom manufactured and stored at the customer’s request and could not be sold to another buyer.

Credit and payment terms for bill-and-hold customers are similar to other custom chemicals customers.

Revenues under bill-and-hold arrangements were $10,149 and $31,504 for the three and nine months ended September 30, 2023, respectively.

Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the nine months ended September 30, 2023 and 2022 are set forth in the following table.

Nine Months Ended September 30,

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

We believe that existing cash balances and cash flow to be generated from operating activities and borrowing capacity under the amended and restated credit agreement will be sufficient to fund operations, product development, cash dividends, and capital requirements for the foreseeable future.

Operating Activities

Cash provided by operating activities was $2,476 in the nine months ended September 30, 2023 as compared to $44,127 in the same period of 2022.

This decrease in cash was primarily attributable to the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $25,771, primarily from the timing of vendor payments, the change in fair value of equity securities of $11,057, the change in inventory demonstrating a cash outflow of $10,939, and the change in accounts receivable, including accounts receivable - related parties, demonstrating a cash outflow of $8,933.  

Partially offsetting these cash outflows was the change in net income of $14,965.

Investing Activities

Cash provided by investing activities was $35,698 in the nine months ended September 30, 2023 as compared to cash used in investing activities of $2,503 in the nine months ended September 30, 2022.

Of the $38,201 change, $37,438 was the result of increased proceeds from the sale of marketable securities. 

Cash was also provided by a decrease in the collateralization of derivative instruments of $2,126. Offsetting these increases in cash was an increase of capital expenditures of $1,302. 

Financing Activities

Cash used in financing activities was $7,891 and $7,877 in the nine months ended September 30, 2023 and 2022, respectively, primarily for payments of dividends on our common stock. 

Credit Facility

We have a credit agreement, as amended on March 30, 2020, with a syndicated group of commercial banks for $100,000.

The loan is a revolving facility, the proceeds of which may be used for our working capital, capital expenditures, and general corporate purposes.

The facility terminates on March 30, 2025.

See Note 9 to our consolidated financial statements for additional information regarding our credit agreement.

We intend to fund future capital requirements for our businesses from cash flow as well as from existing cash, cash investments, and, if the need should arise, borrowings under our credit facility.

We do not believe there will be a need to issue any securities to fund such capital requirements.

In the first three quarters of 2023 and 2022, we paid a regular quarterly cash dividend in the amount of $0.06 per share on our common stock.

The regular cash dividend amounted to $2,626 in each of the quarters of 2023 and 2022.

The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2022 and March 31, 2022, respectively.

Capital Management

As a result of our initial equity offering, our subsequent positive operating results, the exercise of warrants, and the issuance of shares in our at-the-market offering, we accumulated excess working capital.

Some of this excess working capital has been paid out as special and regular cash dividends.

Additionally, regular dividends will be paid in 2023, as previously reported.

Third parties have not placed significant restrictions on our working capital management decisions.

A significant portion of these funds was held in cash or cash equivalents at multiple financial institutions.

In the period ended December 31, 2022, we also had investments in certain preferred stock, debt securities, and other equity instruments.

We classified these investments as current assets in the accompanying consolidated balance sheets and designated the debt securities as being “available-for-sale.”

Accordingly, the debt securities were recorded at fair value, with the unrealized gains and losses, net of taxes, reported as a component of stockholders’

We also held equity securities with readily available market values.

These equity instruments were recorded at fair value, with the unrealized gains and losses reported as a component of net income.

We sold all marketable securities in the nine months ended September 30, 2023.

The fair value of the debt securities and equity instruments totaled $0 and $37,126 at September 30, 2023 and December 31, 2022, respectively.

Lastly, we maintain depositary accounts such as checking accounts, money market accounts, and other similar accounts at selected financial institutions.

Off- Balance Sheet Arrangements

We engage in two types of hedging transactions.

First, we hedge our biofuels sales through the purchase and sale of futures contracts and options on futures contracts of energy commodities.

This activity was captured in our consolidated balance sheets at September 30, 2023 and December 31, 2022.

Second, we hedge our biofuels feedstock through the execution of purchase contracts and supply agreements with certain vendors or they meet the normal purchase and normal sales exception of ASC 815 Derivatives and Hedging.

These hedging transactions are recognized in earnings and were not recorded in our consolidated balance sheets at September 30, 2023 or December 31, 2022 because they do not meet the definition of a hedge instrument as defined under GAAP.

The purchase of biofuels feedstock generally involves two risk components:

basis and price.

Basis covers any refining or processing required as well as transportation.

Price covers the purchases of the actual agricultural commodity.

Both basis and price fluctuate over time.

A supply agreement with a vendor constitutes a hedge when we have committed to a certain volume of feedstock in a future period and have fixed the basis for that volume.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements