Item 2. Management’s Discussion and Analysis
Item 2. 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 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. 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.
Overview
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 within the EPA moderated transaction system. 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, 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.
14
Summary of Financial Results
Set forth below is a summary of certain consolidated financial information for the periods indicated.
Three Months Ended March 31,
Dollar
%
2025
2024
Change
Change
Revenue
$
17,538
$
58,281
$
(40,743
)
(70
)%
(Loss) income from operations
$
(18,838
)
$
2,198
$
(21,036
)
na
Net (loss) income
$
(17,643
)
$
4,330
$
(21,973
)
na
(Loss) earnings per common share:
Basic
$
(0.40
)
$
0.10
$
(0.50
)
na
Diluted
$
(0.40
)
$
0.10
$
(0.50
)
na
Adjusted EBITDA
$
(16,057
)
$
7,108
$
(23,165
)
na
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 (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. 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 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).
15
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, 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 to adjusted EBITDA as we believe it provides a relevant indicator of the underlying performance of our business in a given period.
The following table reconciles net (loss) income, the most directly comparable GAAP performance financial measure, with adjusted EBITDA.
Three Months Ended March 31,
2025
2024
Net (loss) income
$
(17,643
)
$
4,330
Depreciation
2,328
2,615
Non-cash stock-based compensation
226
22
Interest and dividend income
(1,237
)
(2,800
)
Non-cash interest expense and amortization of deferred financing costs
35
35
Gain on disposal of property and equipment
(31
)
-
Unrealized loss on derivative instruments
259
2,274
Income tax (benefit) provision
6
632
Adjusted EBITDA
$
(16,057
)
$
7,108
The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.
Three Months Ended March 31,
2025
2024
Net cash used in operating activities
$
(5,395
)
$
(12,211
)
Deferred income taxes, net
-
(626
)
Interest and dividend income
(1,237
)
(2,800
)
Income tax provision
6
632
Change in operating assets and liabilities, net
(9,431
)
22,113
Adjusted EBITDA
$
(16,057
)
$
7,108
16
Results of Operations
Consolidated
Three Months Ended March 31,
Change
2025
2024
Amount
%
Revenues
$
17,538
$
58,281
$
(40,743
)
(70
)%
Volume/product mix effect
(37,805
)
(65
)%
Price effect
(2,938
)
(5
)%
Gross (loss) profit
(14,563
)
5,007
(19,570
)
na
Operating expenses
(4,275
)
(2,809
)
(1,466
)
(52
)%
Other income, net
1,201
2,764
(1,563
)
(57
)%
Income tax provision
6
632
(626
)
(99.1
)%
Net (loss) income
$
(17,643
)
$
4,330
$
(21,973
)
na
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 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 $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.
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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 March 31,
Change
2025
2024
Amount
%
Revenues
$
9,365
$
18,059
$
(8,694
)
(48
)%
Volume/product mix effect
(7,949
)
(44
)%
Price effect
(745
)
(4
)%
Gross (loss) profit
$
(5,729
)
$
4,021
$
(9,750
)
na
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.
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Biofuel Segment
Three Months Ended March 31,
Change
2025
2024
Amount
%
Revenues
$
8,173
$
40,222
$
(32,049
)
(80
)%
Volume/product mix effect
(29,856
)
(74
)%
Price effect
(2,193
)
(6
)%
Gross (loss) profit
$
(8,834
)
$
986
$
(9,820
)
na
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. 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.
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. 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 ASC Topic 815, Derivatives and Hedging. None of the derivative instruments are designated and accounted for as hedges.
The volumes and carrying values of our derivative instruments included in other current assets were as follows:
Asset (Liability)
March 31, 2025
December 31, 2024
Contract Quantity
Fair Value
Contract Quantity
Fair Value
Regulated fixed price future commitments (in thousand barrels)
120
$
(494
)
100
$
(235
)
*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.
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Critical Accounting Estimates
Revenue Recognition
The Company recognizes revenue under ASC 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. Estimated amortization is 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 additional information.
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 and we typically do not offer rebates.
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” basis. 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 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. 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 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.
20
Liquidity and Capital Resources
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,
2025
2024
Net cash used in operating activities
$
(5,395
)
$
(12,211
)
Net cash used in investing activities
(4,082
)
(3,485
)
Net cash used in financing activities
(2,993
)
(2,626
)
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 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 $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 $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.
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Credit Facility
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 February 21, 2030. See Note 7 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.
Dividends
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 $2,628 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.
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. Third parties have not placed significant restrictions on our working capital management decisions.
A significant portion of these funds were held in cash or cash equivalents at multiple financial institutions such as depositary accounts, money market accounts, and other similar accounts at selected financial institutions.
Off- Balance Sheet Arrangements
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 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 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: 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.
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