What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-08 · 68 added, 112 removed, 127 unchanged (59% of the section changed)

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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.

(“FutureFuel”, “the Company”, “we”, or “our”) should be read together with our consolidated financial statements, including the notes thereto, set forth herein and in our 2024 Annual Report on Form 10-K.

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

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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, 2024, we held 5.0 million D4 and D6 RINs with a fair market value of $2,556.

Comparatively, as of September 30, 2023, FutureFuel held 4.2 million RINs with a fair market value of $6,971, and at December 31, 2023, 4.3 million RINs were held with a fair market value of $6,567.

As of March 31, 2025, we held 2.3 million D4 RINs with a fair market value of $2,077.

Comparatively, as of March 31, 2024, we held 2.0 million RINs with a fair market value of $1,624, and at December 31, 2024, we held 3.1 million RINs with a fair market value of $1,831.

Summary of Financial Results

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

Three Months Ended September 30,

Three Months Ended March 31,

(Loss) income from operations

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Adjusted EBITDA

Nine Months Ended September 30,

Income from operations

Earnings per common share:

Adjusted EBITDA

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

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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.

We define adjusted EBITDA as net (loss) 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.

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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 nine months ended September 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 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 September 30,

Nine Months Ended September 30,

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

Three Months Ended March 31,

Net (loss) income

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Non-cash interest expense and amortization of deferred financing costs

Loss on disposal of property and equipment

Unrealized (gain) loss on derivative instruments

Gain on marketable securities

Gain on disposal of property and equipment

Unrealized loss on derivative instruments

Income tax (benefit) provision

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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

Three Months Ended March 31,

Net cash used in operating activities

Deferred income taxes, net

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Results of Operations

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Gross (loss) profit

Operating expenses

Other income, net

Income tax (benefit) provision

Income tax provision

Net (loss) income

Consolidated revenue in the three months ended September 30, 2024, decreased $65,612 compared to the three months ended September 30, 2023.

This decline was driven mostly by lower sales volumes in the biofuel segment of $41,015.

Production issues, primarily stemming from delays by equipment suppliers that created an extended service utility downtime, which prevented us from building the biodiesel inventories we would typically have available to sell in the three months ended September 30, 2024.

Also reducing sales revenue in the three-month period, were lower prices in the biofuel segment of $24,678 due to a decline in renewable fuel and RIN prices with market supply in excess of the EPA RIN mandate.

In our chemical segment, sales revenue increased $81 for the three months ended September 30, 2024, compared to the prior-year period, due primarily to stronger sales volumes in the coatings market of $1,457, but was mostly offset by reduced chemical sales prices, $1,376, from chemicals sold into the agricultural and energy markets.

Consolidated revenue in the nine months ended September 30, 2024, decreased $94,411 compared to the nine months ended September 30, 2023.

As noted above, this decline was driven mostly by lower sales volumes in the biofuel segment of $48,590 as production issues in the first three months of the year related to harsh winter weather and the production issues noted above in the three months ended September 30, 2024, prevented us from building the biodiesel inventories we would typically have available to sell during the current period.

Also reducing sales revenue in the nine-month period, were lower prices in the biofuel segment of $42,560 due to a decline in renewable fuel and RIN prices with market supply in excess of the EPA RIN mandate.

In our chemical segment, sales revenue declined a net $3,261 ($5,382 on reduced prices on chemicals sold into the agricultural and energy markets partially offset by increased volumes in the energy market, $2,121), compared to the prior-year period.

Gross profit in the three months ended September 30, 2024, decreased $3,487 as compared to the same period of 2023, due primarily to:

(i) lower sales prices in the chemical agricultural and energy markets and (ii) reduced throughput of biofuel segment volumes primarily due to the issues noted above.

Gross profit in the nine months ended September 30, 2024 decreased $2,854 as compared to the same period of 2023, primarily due to:

(i) a reduction of RIN sales in the current nine-month period and (ii) the change in the adjustment in the carrying value of our inventory as determined utilizing the Last In First Out (“LIFO”) method of inventory accounting.

This adjustment increased gross profit $2,885 in the nine months ended September 30, 2024, as compared to an increase of $6,023 in the same period of 2023.

Gross profit was negatively impacted by the change in the activity of derivative instruments with a realized loss of $354 and unrealized loss of $1,696 in the nine months ended September 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 nine-month period ended September 30, 2024, by higher costs resulting from the impact of extreme winter weather and the production issues noted above.

Consolidated revenue in the three months ended March 31, 2025, decreased $40,743 compared to the three months ended March 31, 2024.

This decline was from lower sales volumes in the biofuel segment of $29,856 driven by the extended plant turnaround to improve plant reliability and product quality.

The turnaround, which was further extended by severe weather conditions, also reduced the chemical segment sales volumes by $7,949.

Sales revenue was also reduced $2,193 in the biofuel segment from lower prices.

The renewable fuel market continues to be negatively impacted by the expiration of the BTC and lack of clarity on the clean fuel production credit (CFPC).

Gross profit in the three months ended March 31, 2025, decreased $19,570 as compared to the same period of 2024, due primarily to:

(i) reduced throughput due to the issues noted above, (ii) increased spend on parts and contract labor for the turnaround and (iii) a reduced benefit from 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 $625 in the current three-month period as compared to an increase of $3,028 in the same period of the prior year.

Operating e xpenses

Operating expenses decreased $302 in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

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

Operating expenses decreased $650 in the nine months ended September 30, 2024, as compared to the same period of 2023.

This decrease also resulted from lower research and development and administrative expenses.

Operating expenses increased $1,466 in the three months ended March 31, 2025, as compared to the three months ended March 31, 2024.

The increase was from separation compensation expense in the current period, equity compensation issued in 2024, increased board fees, and higher research and development expenses.

Other income, net

Other income decreased a net $801 in the three months ended September 30, 2024, as compared to the same period of 2023 from lower interest income of $1,830 compared to $2,527 in the prior period.

Other income increased a net $1,513 in the nine months ended September 30, 2024, from the receipt of a legal settlement of $2,750 .

Partially offsetting this increase was lower interest income of $6,151 compared to dividend and interest income of $6,595 and a gain of $575 on marketable securities in the same period of 2023 .

Income tax (benefit) provision

The Company’s income tax benefit was insignificant in the three months ended September 30, 2024.

In the nine months ended September 30, 2024, the provision was comprised primarily of 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.

Other income decreased a net $1,563 in the three months ended March 31, 2025, as compared to the same period of 2024 from lower interest income of $1,237 compared to $2,800 in the prior period.

Income tax provision

The Company’s income tax provision for the three months ended March 31, 2025, is comprised of immaterial state taxes and miscellaneous items .

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

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.

During the quarter ended March 31, 2024, the Company evaluated the available evidence and determined a discrete adjustment was required to increase its valuation allowance, resulting in a net deferred tax liability of $626 as of March 31, 2024.

Chemical Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Chemical revenue in the three months ended September 30, 2024, increased 0.5% or $81 compared to the three months ended September 30, 2023.

Revenue from custom chemicals for the three months ended September 30, 2024 totaled $15,323, a net increase of $869 from the same period in 2023, resulting from higher sales volumes of $1,791 from products sold in the agricultural and energy markets, which were partially offset by lower prices of $1,204.

Performance chemicals revenue was $2,605, a decrease of $788 from the three months ended September 30, 2023 .

This decrease was mostly from lower sales volumes of glycerin due to reduced production resulting from the extended service utility downtime caused by equipment suppliers.

Chemical revenue in the nine months ended September 30, 2024, decreased 5.6% or $3,261 compared to the nine months ended September 30, 2023.

Revenue from custom chemicals for the nine months ended September 30, 2024, totaled $46,333, a decrease of $317 from the same period in 2023.

The sales revenue decline was from reduced sales prices of chemicals sold in 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.

Performa nce chemicals revenue was $8,890, a decrease of $2,944 from the nine months ended September 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 nine months ended September 30, 2024, decreased $3,471 and $9,812 when compared to the same periods of 2023.

This decrease was primarily from:

(i) reduced chemical sales prices in the agricultural and energy markets, (ii) reduced throughput as described above, 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 decreased gross profit $418 in the current three-month period as compared to an increase in gross profit of $234 in the same period of the prior year.

For the nine months, this adjustment increased gross profit $623 in the current period as compared to $1,105 in the same period of the prior year.

Gross (loss) profit

Chemical revenue in the three months ended March 31, 2025, decreased 48.1% or $8,694 compared to the three months ended March 31, 2024.

This decline was from weather related issues that extended the downtime of the plant turnaround.

Revenue from custom chemicals for the three months ended March 31, 2025 totaled $8,409, a net decrease of $7,018 from the same period in 2024, resulting from lower sales volumes of $7,949 primarily from products sold in the energy markets, and lower prices of $745.

Performance chemicals revenue was $956, a decrease of $1,676 from the three months ended March 31, 2024 .

This decrease was mostly from lower sales volumes of glycerin due to reduced production resulting from the plant turnaround.

Gross loss for the chemical segment was $5,729 for the three months ended March 31, 2025, a decrease of $9,750 compared to the same period of 2024.

This decrease was primarily from reduced throughput as described above.

Biofuel Segment

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Volume/product mix effect

Gross (loss) profit

Biofuels revenue in the three months ended September 30, 2024, decreased $65,693 as compared to the same period of 2023.

This decrease resulted fro m a 42% or $41,015 reduction in sales volume and a 25% or $24,678 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 D4 RINs of the EPA's mandated volumes.

The volume reduction resulted from production issues, primarily stemming from delays by equipment suppliers that created an extended service utility downtime, which prevented us from building the biodiesel inventories we would typically have available to sell in the three months ended September 30, 2024.

Biofuels revenue in the nine months ended September 30, 2024, decreased $91,150 as compared to the same period of 2023 .

The decrease was primarily from a 22% or $48,590 reduction in sales volume and a 20% or $42,560 reduction in the average price of fuel sold.

Additionally, production and sales volumes for the nine months ended September 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 two and three majo r refiners/blenders in the three and nine months ended September 30, 2024, respectively, as compared to four and two in the three and nine months ended September 30, 2023, respectively.

Biofuels revenue in the three months ended March 31, 2025, decreased $32,049 as compared to the same period of 2024.

This decrease resulted fro m the extended plant turnaround to improve plant reliability and product quality which was further extended due to inclement weather.

The renewable fuel market continues to be negatively impacted by the expiration of the BTC and lack of clarity on the CFPC.

No significant customers existed in the three months ended March 31, 2025, as compared to four in the three months ended March 31, 2024.

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.

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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.

Biofuel gross loss was $3,024 in the three months ended September 30, 2024, a decrease in gross profit of $16 from the comparative period in 2023.

This decrease primarily resulted from reduced sales volumes, primarily stemming from delays by equipment suppliers that created an extended service utility downtime, which prevented us from building the biodiesel inventories we would typically have available to sell in the three months ended September 30, 2024.

Also reducing gross profit was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting.

This adjustment decreased gross profit $1,038 in the current three-month period as compared to an increase in gross profit of $2,294 in the same period of the prior year.

Partially increasing gross profit was:

(i) the change in the activity of derivative instruments with a realized gain of $1,691 and an unrealized gain of $256 in the current three-month period as compared to a realized loss of $7,286 and an unrealized loss of $6,782 in the same period of the prior year, and (ii) the change in the number of separated RINs held in inventory at September 30, 2024 with a fair market value of $2,556 as compared to $6,971 at September 30, 2023.

Biofuel gross profit was $1,942 in the nine months ended September 30, 2024, an increase of $6,958 from the comparative period of 2023.

This increase resulted from the change in the number of separated RINs held in inventory at September 30, for each year as noted above and the change in the activity of derivative instruments with an unrealized loss of $1,439 in the current nine-month period as compared to an unrealized loss of $3,523 in the same period of the prior year.

Partially reducing gross profit was the change in the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of accounting.

This adjustment increased gross profit $2,262 in the current nine-month period as compared to an increase in gross profit of $4,918 in the same period of the prior year, and the change in the activity of derivative instruments with a realized gain of $1,337 in the current nine-month period as compared to a realized gain of $2,150 in the same nine months of the prior year.

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

Biofuel gross loss was $8,834 in the three months ended March 31, 2025, a decrease in gross profit of $9,820 from the comparative period in 2024.

This decrease primarily resulted from reduced sales volumes, stemming from the extended plant turnaround mentioned above.

Also reducing gross profit was a reduced benefit from 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 $339 in the current three-month period as compared to an increase in gross profit of $2,276 in the same period of the prior year.

Partially increasing gross profit was the change in the activity of derivative instruments with a realized gain of $93 and an unrealized loss of $259 in the current three-month period as compared to a realized loss of $1,190 and an unrealized loss of $2,274 in the same period of the prior year.

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

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Asset (Liability)

September 30, 2024

March 31, 2025

December 31, 2024

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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, 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 months ended March 31, 2025 and 2024 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.

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

Revenues under bill-and-hold arrangement s were $10,211 and $32,875 for t he three and nine months ended September 30, 2024, respectively.

As of September 30, 2024 and December 31, 2023, $4,482 and $4,317 of bill-and-hold revenue had not shipped, respectively.

Revenues under bill-and-hold arrangement s were $4,590 and for t he three months ended March 31, 2025.

As of March 31, 2025 and December 31, 2024, $5,628 and $7,301 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 nine months ended September 30, 2024 and 2023 is set forth in the following table.

Nine Months Ended September 30,

Net cash provided by operating activities

Net cash (used in) provided by investing activities

Our net cash from operating activities, investing activities, and financing activities for the three months ended March 31, 2025 and 2024 is set forth in the following table.

Three Months Ended March 31,

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

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Operating Activities

Cash provided by operating activities was $41,415 in the nine months ended September 30, 2024, as compared to $8,458 in the same period of 2023.

This increase in cash was primarily attributable to the change in accounts receivable, including accounts receivable - related parties, demonstrating a cash inflow of $15,729.

Also contributing to the current period increase in cash was the change in inventory of $8,249, the change in accrued expenses and other current liabilities of $6,466, and the change in accounts payable, including accounts payable - related parties, of $4,749.

Partially offsetting these cash inflows was the change in the fair value of derivative instruments of $2,084, and the change in net income of $1,292.

Cash used in operating activities was $5,395 in the three months ended March 31, 2025, as compared to $12,211 in the same period of 2024.

This decrease in cash used was primarily attributable to the change in inventory of $16,737 and the change in accounts receivable, including accounts receivable - related parties, demonstrating a cash inflow of $9,928.

Also contributing to the current period decrease in cash used was the change in accounts payable, including accounts payable - related parties, of $2,255, and the change in accrued expenses of $1,262.

Partially offsetting these cash inflows was the change in net (loss) income of $21,973 and the change in the fair value of derivative instruments of $2,015.

Investing Activities

Cash used in investing activities was $10,176 in the nine months ended September 30, 2024, as compared to cash provided by investing activities of $29,716 in the nine months ended September 30, 2023.

This $39,892 decrease in cash was primarily due to the change in proceeds from the sale of marketable securities of $37,701 and included an increase in capital expenditure of $5,611.

Partially offsetting these reductions in cash was the change in the collateralization of derivative instruments of $3,414.

Cash used in investing activities was $4,082 in the three months ended March 31, 2025, as compared to $3,485 in the three months ended March 31, 2024.

This $597 increase in cash used was primarily due to an increase in capital expenditure of $1,730 partially offset by the change in the collateralization of derivative instruments of $1,102.

Financing Activities

Cash used in financing activities was $117,285 and $7,891 in the nine months ended September 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 nine-month period.

Cash used in financing activities was $2,993 and $2,626 in the three months ended March 31, 2025 and 2024, 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.

We have a credit agreement, as amended on February 21, 2025, with a syndicated group of commercial banks for $75,000.

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.

The facility terminates on February 21, 2030.

See Note 7 to our consolidated financial statements for additional information regarding our credit agreement.

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

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.

Regular cash dividends of $0.06 per share were paid on our common stock in each quarter of 2025 and 2024.

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

The regular cash dividend amounted to $2,628 and $2,626 in 2025 and 2024, respectively.

The declaration of these regular quarterly cash dividends was made in the three months ended December 31, 2024, and December 31, 2023, respectively.

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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 September 30, 2024, and December 31, 2023 as derivative instruments recorded in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”).

This activity was captured in our consolidated balance sheets at March 31, 2025, and December 31, 2024 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 September 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.

These transactions are recognized in earnings and were not recorded in our consolidated balance sheets at March 31, 2025, or December 31, 2024 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