What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-10 · 115 added, 82 removed, 128 unchanged (61% of the section changed)

16 unchanged sentences

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

As of March 31, 2024, we held 2.0 million D4 and D6 RINs with a fair market value of $1,624.

Comparatively, as of March 31, 2023, FutureFuel held no inventory.

As of June 30, 2024, we held 2.1 million D4 and D6 RINs with a fair market value of $1,055.

Comparatively, as of June 30, 2023, FutureFuel held 11.8 million RINs with a fair market value of $19,461, and at December 31, 2023 4.3 million RINs were held with a fair market value of $6,567.

Summary of Financial Results

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

Three Months Ended March 31,

Three Months Ended June 30,

Income (loss) from operations

Net income (loss)

Earnings (loss) per common share:

Adjusted EBITDA

Six Months Ended June 30,

Income from operations

1 unchanged sentence

Adjusted EBITDA

* Adjusted EBITDA for the three months of 2023 has been restated to be consistent with 2024 reporting.

Adjusted EBITDA in both years excludes the impact from unrealized gains or losses on derivatives.

Realized gains and losses are included in Adjusted EBITDA in both 2023 and 2024.

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

9 unchanged sentences

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.

We utilize commodity derivative instruments primarily to attempt to mitigate the effect of commodity price volatility and to provide greater certainty of cash flows associated with sales of our commodities.

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 three months ended March 31, 2023, but sold all marketable security investments during the three months ended June 30, 2023.

We include the mark-to-market or non-cash portion of this item as an adjustment to adjusted EBITDA 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 six months ended June 30, 2023, but sold all marketable security 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 in the prior year period as we believed it provided a relevant indicator of the underlying performance of our business.

We included this item as an adjustment to adjusted EBITDA in the prior year period as we believed it provided a relevant indicator of the underlying performance of our business.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

Non-cash stock-based compensation

1 unchanged sentence

Non-cash interest expense and amortization of deferred financing costs

Unrealized loss (gain) on derivative instruments

Loss on disposal of property and equipment

Unrealized (gain) loss on derivative instruments

Gain on marketable securities

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

Three Months Ended March 31,

Net cash used in operating activities

Six Months Ended June 30,

Net cash provided by (used in) operating activities

Deferred income taxes, net

3 unchanged sentences

Adjusted EBITDA

* Adjusted EBITDA restated for the three months of 2023 has been restated to be consistent with 2024 reporting.

Adjusted EBITDA in both years excludes the impact from unrealized gains or losses on derivatives.

Realized gains and losses are included in Adjusted EBITDA in both 2023 and 2024.

Results of Operations

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Volume/product mix effect

Gross profit (loss)

Operating expenses

1 unchanged sentence

Income tax provision

Consolidated revenue in the three months ended March 31, 2024 decreased $15,900 compared to the three months ended March 31, 2023.

Relative to the three-month comparative period, net sales decreased $11,942 in the biofuel segment on lower average prices.

Largely contributing to this reduced price was a significant drop in RIN prices following the EPA’s renewable fuel volume requirements release in the second quarter of 2023.

Sales revenue was also lower in the chemical segment on both sales volumes and price from chemicals used in the industrial intermediate and additives for energy markets.

Production and sales volumes were negatively impacted by extreme winter weather experienced during the three-month period ended March 31, 2024.

Partially improving chemical sales was favorable product mix and revenue from new custom chemical contracts.

Gross profit in the three months ended March 31, 2024 decreased $16,616 as compared to the same period of 2023, from:

Net income (loss)

Consolidated revenue in the three months ended June 30, 2024 decreased $12,899 compared to the three months ended June 30, 2023.

This decline was driven mostly by lower sales volumes in the biofuel segment of $7,439.

Production issues, primarily stemming from extreme winter weather experienced during the three-month period ended March 31, 2024, prevented us from building the biodiesel inventories we would typically have available to sell in the three months ended June 30, 2024.

Also reducing sales revenue in the three-month period, was lower prices in the biofuel segment of $5,940 due to a decline in RIN prices with market supply in excess of the EPA RIN mandate.

In our chemical segment, sales revenue increased $1,980 for the three months ended June 30, 2024, compared to the prior-year period, due primarily to stronger sales volumes in the agricultural market, but was mostly offset by reduced sales prices in chemicals sold into the agricultural and energy markets and from product mix ($1,500).

Consolidated revenue in the six months ended June 30, 2024 decreased $28,799 compared to the six months ended June 30, 2023.

This decline was driven mostly by lower prices in the biofuel segment of $17,882 due to a decline in RIN prices with market supply in excess of the EPA RIN mandate.

As noted above, production issues in the first three months of 2024, prevented us from building the biodiesel inventories we would typically have available to sell in the six months ended June 30, 2024.

In our chemical segment, sales revenue declined a net $3,342 ($4,006 on reduced prices on chemicals sold into the agricultural and energy markets partially offset by increased volume, $664), compared to the prior-year period.

Gross profit in the three months ended June 30, 2024 increased $17,249 as compared to the same period of 2023, due primarily to:

(i) the benefit of not holding significant inventory of RINs at the end of the current three-month period ($1,055 as compared to $19,461 at June 30, 2023);

separated RINs are recognized when transferred;

(ii) the change in the mark-to-market derivative position which was an unrealized gain of $578 as compared to an unrealized loss of $1,643 in the three months ended June 30, 2024 and 2023, respectively;

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 $1,313 in the three months ended June 30, 2024 and decreased gross profit $288 in the same period of the prior year.

Partially offsetting these benefits were:

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

(ii) the change in the activity in derivative instruments with a realized loss of $1,190 in the current three-month period as compared to a realized gain of $3,405 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 $2,274 as compared to an unrealized gain of $4,902 in the three months ended March 31, 2024 and 2023, respectively;

and (iv) 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 (iv) increased gross profit $3,027 in the three months ended March 31, 2024 as compared to $3,783 in 2023.

The 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 addition, gross profit was negatively impacted in the three-month period ended March 31, 2024 by higher costs resulting from the impact of extreme winter weather.

and (ii) the change in the activity in derivative instruments with a realized gain of $835 in the current three-month period as compared to a realized gain of $6,032 in the prior year period.

The contrasting results in the offsetting 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.

Gross profit in the six months ended June 30, 2024 increased $633 as compared to the same period of 2023, primarily due to:

(i) the benefit of not holding significant inventory of RINs at the end of the current six-month period as noted above 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 $4,341 in the six months ended June 30, 2024 as compared to an increase of $3,495 in the same period of 2023.

These improvements were mostly offset by the change in the activity of derivative instruments with a realized loss of $354 and unrealized loss of $1,696 in the six months ended June 30, 2024 as compared to a realized gain of $9,437 and unrealized gain of $3,259 in the same period of 2023.

Gross profit was also negatively impacted in the six-month period ended June 30, 2024 by higher costs resulting from the impact of extreme winter weather.

Operating e xpenses

Operating expenses decreased $563 in the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

This decrease was from reduced compensation, legal, and research and development expenses.

Operating expenses increased $215 in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

The increase was from increased compensation and administrative expenses.

Operating expenses decreased $348 in the six months ended June 30, 2024 as compared to the same period of 2023.

The decrease was from lower research and development and compensation expenses.

Other income (expense), net

Other income (expense) decreased income a net $73 in the three months ended March 31, 2024, as compared to the same period of 2023.

In the current three-month period, interest income was $2,800 as compared to dividend and interest income of $2,336 and a gain of $533 on marketable securities in the same period of 2023.

Other income (expense) increased income a net $2,387 and $2,314 in the three and six months ended June 30, 2024, as compared to the same periods of 2023.

The increase was from the receipt of a legal settlement of $2,750 in the current three-month period.

Partially offsetting this increase in the current three-month period was lower interest income of $1,521 as compared to dividend and interest income of $1,732 and a gain of $42 on marketable securities in the same period of 2023.

For the six-month period, interest income was $4,321 as compared to dividend and interest income of $4,068 and a gain of $575 on marketable securities in the same period of 2023.

Income tax provision

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 Company’s income tax provision for the three and six months ended June 30, 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 or other deferred tax assets have been recognized, reflecting management’s determination that none of the net deferred tax assets are more likely than not to be realized.

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

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Chemical Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Volume/product mix effect

Chemical revenue in the three months ended March 31, 2024 decreased 17.5% or $3,822 compared to the same period of 2023.

Revenue for our custom chemicals for the three months ended March 31, 2024 totaled $15,427, a decrease of $1,193 from the same period in 2023 from reduced sales volumes of chemicals sold into the energy market.

Partially offsetting these reductions were sales from increased volumes of chemicals sold into the automotive coatings marke t as well as sales of two new contracts in the agricultural market.

Performance chemicals revenue was $2,632, a decrease of $2,629 from the three months ended March 31, 2023.

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

Production and sales volumes for the segment were negatively impacted by extreme winter weather experienced during the three-month period ended March 31, 2024.

Gross profit for the chemical segment for the three months ended March 31, 2024, decreased $4,602 when compared to the same period of 2023.

This decrease was primarily from:

(i) reduced sales volumes as noted above, and (ii) impact of higher costs from extreme winter weather experienced in the current period.

Chemical revenue in the three months ended June 30, 2024 increased 2.6% or $480 compared to the three months ended June 30, 2023.

Revenue from custom chemicals for the three months ended June 30, 2024 totaled $15,583, a net increase of $7 from the same period in 2023, from reduced prices $532, which were offset by increased sales volumes $539.

Performance chemicals revenue was $3,653, an increase of $473 from the three months ended June 30, 2023.

This improvement was from $1,441 higher sales volumes of polymer modifier chemicals and chemicals sold into the agricultural market partially offset by price reductions of $968 from chemicals in the agricultural and energy markets.

Chemical revenue in the six months ended June 30, 2024 decreased 8.2% or $3,342 compared to the six months ended June 30, 2023.

Revenue from custom chemicals for the six months ended June 30, 2024 totaled $31,010, a decrease of $1,186 from the same period in 2023.

The sales revenue decline was from reduced sales prices of chemicals sold into the agricultural and energy markets.

Partially offsetting these reductions were sales from increased volumes of chemicals sold into the automotive coatings market as well as sales of one new product into the coatings market.

Performance chemicals revenue was $6,285, a decrease of $2,156 from the six months ended June 30, 2023.

The decrease was mostly from lower sales volumes and price of glycerin from reduced production.

Gross profit for the chemical segment for the three and six months ended June 30, 2024, decreased $1,739 and $6,341 when compared to the same periods of 2023.

This decrease was primarily from reduced sales prices as noted above, and partially offset by increased sales volumes from the automotive and coatings markets.

Biofuel Segment

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Volume/product mix effect

Biofuels revenue in the three months ended March 31, 2024 decreased $12,078 as compared to the same period of 2023.

This decrease primarily resulted from a 23% reduction in the average price of fuel sold.

The lower prices were driven in part by the reduction in D4 RIN prices which fell following the EPA’s proposed rule issued June 21, 2023.

In addition, production and sales volumes were negatively impacted by extreme winter weather experienced during the three-month period ended March 31, 2024.

A significant portion of our biodiesel sold was to four major refiners/blenders in the three months ended March 31, 2024 and 2023.

Gross profit (loss)

Biofuels revenue in the three months ended June 30, 2024 decreased $13,379 as compared to the same period of 2023.

This decrease resulted fro m an 11% or $7,439 reduction in sales volume and a 9% or $5,940 reduction in the average price of fuel sold.

The lower prices were driven in part by the reduction in D4 RIN prices as a result of the excess of the EPA's mandated volumes.

Biofuels revenue in the six months ended June 30, 2024 decreased $25,457 as compared to the same period of 2023.

The decrease was primarily from a 15% or $17,882 reduction in the average price of fuel sold and a 6% or $7,575 reduction in sales volume.

Additionally, production and sales volumes for the six months ended June 30, 2024, were impacted by the extreme winter weather experienced in the first quarter of 2024.

A significant portion of our biodiesel sold was t o three majo r refiners/blenders in the three and six months ended June 30, 2024 and 2023.

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.

3 unchanged sentences

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 profit was $986 in the three months ended March 31, 2024, a decrease in gross profit of $12,014 from the comparative period.

This decrease primarily resulted from the change in the activity of derivative instruments with a realized loss of $1,190 as compared to a realized gain of $3,405 in the same three months of the prior year.

Also decreasing gross losses was the change in the mark-to-market derivative position which was an unrealized loss of $2,274 as compared to an unrealized gain of $4,902 in the same three months of the prior year.

In addition, gross profit was negatively impacted in the three-month period ended March 31, 2024 by lower RIN prices and higher costs resulting from extreme winter weather.

Biofuels gross profit was $3,980 in the three months ended June 30, 2024, an increase of $18,988 from the comparative period in 2023.

This increase primarily resulted from:

(i) the change in the number of separated RINs held in inventory at June 30, 2024 with a fair market value of $1,055 as compared to $19,461 at June 30, 2023;

(ii) the change in the activity of derivative instruments with an unrealized gain of $578 as compared to an unrealized loss of $1,643;

and (iii) reduced sales volumes.

Partially reducing gross profit was the change in the activity of derivative instruments with a realized gain of $835 in the current three-month period as compared to a realized gain of $6,032 in the same period of the prior year.

Biofuel gross profit was $4,966 in the six months ended June 30, 2024, an increase of $6,974 from the comparative period of 2023.

This increase resulted from the change in the number of separated RINs held in inventory at June 30 for each year as noted above.

Partially reducing gross profit was the change in the activity of derivative instruments with a realized loss of $354 and an unrealized loss of $1,696 in the current six-month period as compared to a realized gain of $9,437 and an unrealized gain of $3,259 in the same six months of the prior year.

In addition, gross profit was negatively impacted by lower RIN prices and in the six-month period ended June 30, 2024, from higher costs resulting from extreme winter weather in the first quarter of 2024.

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

3 unchanged sentences

The volumes and carrying values of our derivative instruments included in other current assets were as follows:

(Liability) Asset

March 31, 2024

Asset (Liability)

June 30, 2024

December 31, 2023

16 unchanged sentences

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.

All of our products are tested for quality before shipment, and historically returns have been inconsequential and we typically do not offer rebates.

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

3 unchanged sentences

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 months ended March 31, 2024 and 2023 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.

Bill-and-hold transactions for the three and six months ended June 30, 2024 and 2023 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.

1 unchanged sentence

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

Revenues under bill-and-hold arrangements were $11,644 and $10,590 for the three months ended March 31, 2024 and 2023, respectively.

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

Revenues under bill-and-hold arrangement s were $11,020 and $22,664 for t he three and six months ended June 30, 2024, respectively.

As of June 30, 2024 and December 31, 2023, $3,651 and $4,317 of bill-and-hold revenue had not shipped, respectively.

Liquidity and Capital Resources

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2024 and 2023 are set forth in the following table.

Three Months Ended March 31,

Net cash used in operating activities

Our net cash from operating activities, investing activities, and financing activities for the six months ended June 30, 2024 and 2023 are set forth in the following table.

Six Months Ended June 30,

Net cash provided by (used in) operating activities

Net cash (used in) provided by investing activities

2 unchanged sentences

Operating Activities

Cash used in operating activities was $12,211 in the three months ended March 31, 2024 as compared to $29,810 in the same period of 2023.

This decrease in cash used was primarily attributable to the change in inventory resulting in less cash used of $19,354, the change in the fair value of derivative instruments of $7,176, and the change in other assets of $5,237.

Partially offsetting these cash inflows was the reduction in net income of $16,751, and the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $6,191, primarily from the timing of vendor payments.

Cash provided by operating activities was $15,588 in the six months ended June 30, 2024 as compared to cash used in operating activities of $40,665 in the same period of 2023.

This increase in cash was primarily attributable to a $40,601 build of inventory in the prior year, primarily biodiesel and related feedstock, whereas this build of inventory did not occur in the current period.

Also contributing to the current period increase in cash was the change in accrued expenses and other current liabilities of $6,389, the change in other assets of $5,057, the change in the fair value of derivative instruments of $4,955, and the change in net income of $2,679.

Partially offsetting these cash inflows was the change in accounts payable, including accounts payable - related parties, demonstrating a cash outflow of $5,404, primarily from the timing of vendor payments, and the change in accounts receivable, including accounts receivable - related parties, of $2,617.

Investing Activities

Cash used in investing activities was $3,485 in the three months ended March 31, 2024 as compared to cash provided by investing activities of $1,868 in the three months ended March 31, 2023.

This $5,353 decrease in cash was primarily due to an increase in the collateralization of derivative instruments of $5,539.

Cash used in investing activities was $5,312 in the six months ended June 30, 2024 as compared to cash provided by investing activities of $36,980 in the six months ended June 30, 2023.

This $42,292 decrease in cash was primarily due to the change in proceeds from the sale of marketable securities of $37,701, and an increase in the collateralization of derivative instruments of $3,196.

Financing Activities

Cash used in financing activities was $2,626 and $2,640 in the three months ended March 31, 2024 and 2023, respectively, primarily for payments of dividends on our common stock.

Cash used in financing activities was $114,660 and $5,265 in the six months ended June 30, 2024 and 2023, respectively, primarily for payments of dividends on our common stock inclusive of a special dividend of $109,408 paid in the current three-month period.

Credit Facility

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

In the first quarter of 2024 we declared a special dividend of $2.50 per share on our common stock which amounted to $109,408.

The special dividend had a record date of March 26, 2024 and a payment date of April 9, 2024.

In the first quarter of 2024 and 2023, we paid a regular quarterly cash dividend of $0.06 per share on our common stock.

On April 9, 2024, we paid a special dividend of $2.50 per share on our common stock which amounted to $109,408.

The declaration of this special dividend was made in the first quarter of 2024.

In the first two quarters of 2024 and 2023, we paid a regular quarterly cash dividend of $0.06 per share on our common stock.

The regular cash dividend amounted to $2,626 in each of the quarters of 2024 and 2023.

7 unchanged sentences

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 March 31, 2024 and December 31, 2023.

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 Topic 815, Derivatives and Hedging.

These hedging transactions are recognized in earnings and were not recorded in our consolidated balance sheets at March 31, 2024 or December 31, 2023 because they do not meet the definition of a hedge instrument as defined under GAAP.

We engage in two types of transactions to mitigate the impacts of changes in prices for both commodity sales and purchases.

First, for our biofuel sales, we enter into 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 June 30, 2024 and December 31, 2023 as derivative instruments recorded in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”).

Second, for our biofuel feedstocks, we execute purchase contracts and supply agreements with certain vendors that may meet the normal purchase and normal sales exception of ASC 815.

These transactions are recognized in earnings and were not recorded in our consolidated balance sheets at June 30, 2024 or December 31, 2023 to the extent that we are able to apply the normal purchase and normal sales exception of ASC 815.

The purchase of biofuels feedstock generally involves two risk components:

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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 2. Management’s Discussion and Analysis