FutureFuel Third Quarter Net Income of $9.4 Million

Reports Net Income of $9.4 Million or $0.22 per Diluted Share, and Adjusted EBITDA of $13.7 Million

CLAYTON, Mo., Nov. 09, 2018 (GLOBE NEWSWIRE) -- FutureFuel Corp. (NYSE:FF) (“FutureFuel”), a manufacturer of custom and performance chemicals and biofuels, today announced financial results for the third quarter and the nine months ended September 30, 2018.

Third Quarter 2018 Financial Highlights (all comparisons are with the third quarter of 2017)

  • Revenues were $81.4 million, up 4.9% from $77.6 million
  • Adjusted EBITDA was $13.7 million, up 43.0% from $9.6 million
  • Net income increased to $9.4 million, or $0.22 per diluted share, from $3.3 million, or $0.08 per diluted share.

Nine Month 2018 Financial Highlights (all comparisons are with the first nine months of 2017)

  • Revenues were $225.5 million, up 12.9% from $199.8 million
  • EBITDA was $62.9 million, up 265.8% from $17.2 million
  • Net income increased to $51.3 million, or $1.17 per diluted share, from $7.6 million, or $0.17 per diluted share.

“We saw strong demand across the board for our products and services in the third quarter. Combined with our solid operational performance, we were able to realize continued year on year growth in both our chemical and biodiesel segments. As we approach the end of the year, we remain in limbo with regard to reinstatement of the Blenders Tax Credit for 2018 and forward into 2019. Our entire industry would benefit from certainty over this issue,” said Tom McKinlay, Chief Operating Officer for FutureFuel Corp.

2018 Regular Cash Dividends

FutureFuel paid a normal quarterly dividend of $0.06 per share in the third quarter of 2018.  The remaining quarterly dividends of $0.06 per share will be paid in December.

Financial Overview and Key Operating Metrics

Financial and operating metrics, which include non-GAAP financial measures, include dollars in thousands, except per share amounts:

FutureFuel Corp.
Certain Financial and Operating Metrics

 Three months ended September 30,
     Dollar %
 2018 2017 Change Change
Revenues$  81,422 $  77,606 $  3,816  4.9%
Income from operations$  10,229 $  3,200 $  7,029  219.7%
Net income$  9,445 $  3,334 $  6,111  183.3%
Earnings per common share:       
Basic$  0.22 $  0.08 $  0.14  175.0%
Diluted$  0.22 $  0.08 $  0.14  175.0%
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)$  642 $  856 $  (214) (25.0%)
Adjusted EBITDA$  13,661 $  9,553 $  4,108  43.0%
 Nine months ended September 30,
     Dollar %
 2018 2017 Change Change
Revenues$  225,505 $  199,765 $  25,740  12.9%
Income from operations$  50,636 $  6,049 $  44,587  737.1%
Net income$  51,322 $  7,564 $  43,758  578.5%
Earnings per common share:       
Basic$  1.17 $  0.17 $  1.00  588.2%
Diluted$  1.17 $  0.17 $  1.00  588.2%
Capital expenditures and intangibles (net of customer reimbursements and regulatory grants)$  1,539 $  2,413 $  (874) (36.2%)
Adjusted EBITDA$  62,926 $  17,201 $  45,725  265.8%

Financial and Business Summary

Consolidated sales revenue in the three and nine months ended September 30, 2018 increased 4.9% or $3,816 and 12.9% or $25,740, compared to the three and nine months ended September 30, 2017. The current three-month period was benefited $6,086 from higher biofuel prices and unfavorably affected by a volume reduction in pipeline trades.  In the first nine months, sales revenue benefited from strong demand in the Ag chemical and energy markets with higher sales volumes and prices in both segments.  Within the chemical segment, sales volume/product mix improved 11.0% or $8,543 in addition to an increase of $2,212 from higher average selling prices.  The price increases were primarily from higher prices indexed to higher raw material prices.  Within the biofuel segment, sales revenue increased $9,745 in the nine-month period from improved sales volumes and product mix and $5,240 from higher average selling prices experienced in the fuel industry.  Negatively influencing this price effect was the retroactive reinstatement of the 2017 blenders’ tax credit (BTC) passed into law on February 9, 2018.
Gross profit in the three and nine months ended September 30, 2018 increased $7,127 and $44,977 compared to the three months and nine months ended September 30, 2017. The three-month increase was primarily from stronger margins in the biofuel segment.  The nine-month increase was primarily from improved margins in the biofuel segment from the BTC which expired on December 31, 2016 and was retroactively reinstated for 2017 (but, not beyond 2017) on February 9, 2018 resulting in the benefit being recognized in 2018. Also benefiting gross profit in the nine-month period was increased sales volumes in both the chemicals and biofuels segments.  

Gross profit was additionally benefited in the three and nine months ended September 30, 2018, as compared to the prior year period, by the adjustment in the carrying value of our inventory as determined utilizing the LIFO method of inventory accounting.  The change in this adjustment decreased gross profit $443 in the three months ended September 30, 2018 and increased gross profit $2,708 in the nine months ended September 30, 2018 as compared to the three and nine months ended September 30, 2017.  This LIFO adjustment did not result in a lower of cost or market adjustment in the three and nine months ended September 30, 2018 and 2017.   Please see Note 3 for additional discussion.

Lastly, gross profit was favorably impacted by the change in the unrealized and realized activity in derivative instruments with a loss of $676 in the three months ended September 30, 2018, as compared to a loss of $3,314 in the prior year period.  In the nine-month period, gross profit was impacted negatively by the change in unrealized and realized activity in derivative instruments with a loss of $3,947, as compared to a loss of $1,511, in the prior year period. 

Net Income

Net income for the three and nine months ended September 30, 2018 increased $6,111 and $43,758 as compared to the same periods in 2017. The increase was from stronger sales volumes, a 14% reduction in the federal statutory tax rate, and biodiesel tax credits and incentives that were reinstated in the three months ended March 31, 2018 that were not in effect for 2017. 

Capital Expenditures

Capital expenditures and intangibles were $3,084 in the first nine months of 2018, compared with $2,614 in the same period in 2017. FutureFuel was reimbursed for a portion of these expenditures by certain customers as summarized in the following table.

 Nine months ended September 30,
 2018 2017
Cash paid for capital expenditures and intangibles$3,084  $2,614 
Cash received as reimbursement of capital expenditures$(1,545) $(201)
Cash paid, net of reimbursement, for capital expenditures$1,539  $2,413 

Cash and Cash Equivalents and Marketable Securities

Cash and cash equivalents and marketable securities totaled $302,450 as of September 30, 2018, compared with $235,326 as of December 31, 2017.

About FutureFuel

FutureFuel is a leading manufacturer of diversified chemical products, specialty chemical products, and biofuel products. In its chemicals business, FutureFuel manufactures specialty chemicals for specific customers (“custom chemicals”) as well as multi-customer specialty chemicals (“performance chemicals”). FutureFuel’s custom chemicals product portfolio includes a bleach activator for a major detergent manufacturer, proprietary herbicide and intermediates for major life sciences companies, and chlorinated polyolefin adhesion promoters and antioxidant precursors for a major chemical company. FutureFuel’s performance chemicals product portfolio includes polymer (nylon) modifiers and several small-volume specialty chemicals for diverse applications. FutureFuel’s biofuels segment primarily produces and sells biodiesel to its customers. Please visit www.futurefuelcorporation.com for more information.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements deal with FutureFuel’s current plans, intentions, beliefs,   and expectations, and statements of future economic performance. Statements containing such terms as “believe,” “do not believe,” “plan,” “expect,” “intend,” “estimate,” “anticipate,” and other phrases of similar meaning are considered to contain uncertainty and are forward-looking statements. In addition, from time to time FutureFuel or its representatives have made or will make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that the company makes with United States Securities and Exchange Commission (the “SEC”), in press releases, or in oral statements made by or with the approval of one of FutureFuel’s authorized executive officers.

These forward-looking statements are subject to certain known and unknown risks and uncertainties, as   well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause actual results to differ include, but are not limited to, those set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in FutureFuel’s Form 10-K Annual Report for the year ended December 31, 2017 and in its future filings made with the SEC. An investor should not place undue reliance on any forward-looking statements contained in this document, which reflect FutureFuel management’s opinions only as of their respective dates. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revisions to forward-looking statements. The risks and uncertainties described in this document and in current and future filings with the SEC are not the only ones faced by FutureFuel. New factors emerge from time to time, and it is not possible for the company to predict which will arise. There may be additional risks not presently known to the company or that the company currently believes are immaterial to its business. In addition, FutureFuel cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. If any such risks occur, FutureFuel’s business, operating results, liquidity, and financial condition could be materially affected in an adverse manner. An investor should consult any additional disclosures FutureFuel has made or will make in its reports to the SEC on Forms 10-K, 10-Q, and 8-K, and any amendments thereto. All subsequent written and oral forward-looking statements attributable to FutureFuel or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this document.

Non-GAAP Financial Measures

In this press release, FutureFuel used 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. FutureFuel defines adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization expenses, excluding, when applicable, non-cash share-based compensation expense, public offering expenses, acquisition-related transaction costs, purchase accounting adjustments, loss on disposal of property and equipment, gains or losses on derivative instruments, other non-operating income or expense. Information relating to adjusted EBITDA is provided so that investors have the same   data that management employs in assessing the overall operation and liquidity of FutureFuel’s business. FutureFuel’s calculation of adjusted EBITDA may be different from similarly titled measures used by other companies; therefore, the results of its calculation are not necessarily comparable to the results of other companies.

Adjusted EBITDA allows FutureFuel’s chief operating decision makers to assess the performance and liquidity of FutureFuel’s business on a consolidated basis to assess the ability of its operating segments to produce operating cash flow to fund working capital needs, to fund capital expenditures, and to pay dividends. In particular, FutureFuel management believes that adjusted EBITDA permits a comparative assessment of FutureFuel’s operating performance and liquidity, relative to a performance and liquidity based on GAAP results, while isolating the effects of depreciation and amortization, which may vary among its operating segments without any correlation to their underlying operating performance, and of non-cash stock-based compensation expense, which is a non-cash expense that varies widely among similar companies, and gains and losses on derivative instruments, whose immediate recognition can cause net income to be volatile from quarter to quarter due to the timing of the valuation change in the derivative instruments relative to the sale of  biofuel.

A table included in this earnings release reconciles adjusted EBITDA with net income, the most directly comparable GAAP performance financial measure, and a table reconciles adjusted EBITDA with cash flows from operations, the most directly comparable GAAP liquidity financial measure.

FutureFuel Corp.
Condensed Consolidated Balance Sheets
(Dollars in thousands) 

 September 30, 2018 December 31, 2017
Cash and cash equivalents$199,348 $114,627
Accounts receivable, net of allowances for bad debt of $0 and $0, at September 30, 2018 and December 31, 2017, respectively 21,489  22,138
Inventory 48,005  43,754
Marketable securities 103,102  120,699
Other current assets 1,782  9,140
Total current assets 373,726  310,358
Property, plant and equipment, net 104,254  109,735
Other assets 5,225  5,470
Total noncurrent assets 109,479  115,205
Total Assets$483,205 $425,563
Liabilities and Stockholders’ Equity   
Accounts payable$34,546 $19,579
Dividends payable 2,626  10,498
Other current liabilities 14,967  5,204
Total current liabilities 52,139  35,281
Deferred revenue – long-term 14,651  16,522
Other noncurrent liabilities 18,567  22,164
Total noncurrent liabilities 33,218  38,686
Total liabilities 85,357  73,967
Commitments and contingencies:   
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, 43,743,243 and 43,741,670, issued and outstanding as of September 30, 2018 and December 31, 2017, respectively 4  4
Accumulated other comprehensive income 124  8,433
Additional paid in capital 282,109  281,964
Retained earnings 115,611  61,195
Total Stockholders’ Equity 397,848  351,596
Total Liabilities and Stockholders’ Equity$483,205 $425,563

FutureFuel Corp.
Condensed Consolidated Statements of Operations
and Comprehensive Income
(Dollars in thousands, except per share amounts)

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
Revenue$  81,422  $  77,606  $  225,505  $  199,765 
Cost of goods sold and distribution   68,769     72,080     167,074     186,311 
Gross profit   12,653     5,526     58,431     13,454 
Selling, general, and administrative expenses   1,547     1,391     4,952     4,870 
Research and development expenses   877     935     2,843     2,535 
    2,424     2,326     7,795     7,405 
Income from operations   10,229     3,200     50,636     6,049 
Other income, net   3,228     1,864     3,022     4,890 
Income before income taxes   13,457     5,064     53,658     10,939 
Provision for income taxes   4,012     1,730     2,336     3,375 
Net income$  9,445  $  3,334  $  51,322  $  7,564 
Earnings per common share       
Basic$  0.22  $  0.08  $  1.17  $  0.17 
Diluted$  0.22  $  0.08  $  1.17  $  0.17 
Weighted average shares outstanding       
Basic   43,724,195     43,705,234    43,719,215    43,662,672 
Diluted   43,732,920     43,714,753    43,725,370    43,671,420 
Comprehensive Income       
Net income$  9,445  $  3,334  $  51,322  $  7,564 
Other comprehensive income from unrealized               
net gain on available-for-sale securities   (27)    1,006     (19)    7,102 
Income tax effect   6     (353)    4     (2,490)
Total unrealized (loss)/gain, net of tax   (21)    653     (15)    4,612 
Comprehensive income$  9,424  $  3,987  $  51,307  $  12,176 

FutureFuel Corp.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2017 and 2016
(Dollars in thousands)

 Nine months ended September 30,
 2018 2017
Cash flows provided by operating activities   
Net income$  51,322  $  7,564 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation   8,244     8,735 
Amortization of deferred financing costs   108     109 
Benefit for deferred income taxes   (3,609)    (1,303)
Change in fair value of equity securities   5,597     - 
Change in fair value of derivative instruments   (2,290)    (60)
Other than temporary impairment of marketable securities   -     177 
Impairment of fixed assets   258     28 
(Gain)/loss on the sale of investments   (2,324)    366 
Stock based compensation   321     878 
Loss on disposal of fixed assets   41     145 
Noncash interest expense   22     20 
Changes in operating assets and liabilities:   
Accounts receivable   3,031     3,081 
Accounts receivable – related parties   (2,382)    (1,181)
Inventory   (4,251)    8,570 
Income tax receivable   6,458     5,546 
Prepaid expenses   1,190     1,152 
Prepaid expenses – related parties   -     (4)
Accrued interest on marketable securities   9     22 
Other assets   (256)    37 
Accounts payable   13,018     1,425 
Accounts payable – related parties   1,949     2,780 
Accrued expenses and other current liabilities   5,385     1,587 
Accrued expenses and other current liabilities – related parties   -     (142)
Deferred revenue   (2,672)    (3,220)
Other noncurrent liabilities   -     128 
Net cash provided by operating activities   79,169     36,440 
Cash flows from investing activities   
Collateralization of derivative instruments 2,384   (760)
Purchase of marketable securities (19,664)  (25,795)
Proceeds from the sale of marketable securities 33,942   14,913 
Proceeds from the sale of fixed assets 22   4 
Capital expenditures (3,084)  (2,614)
Net cash provided by/(used in) investing activities 13,600   (14,252)
Cash flows from financing activities   
Minimum tax withholding on stock options exercised and awards vested (176)  (121)
Excess tax benefits associated with stock options and awards -   (31)
Payment of dividends (7,872)  (108,063)
Net cash used in financing activities (8,048)  (108,215)
Net change in cash and cash equivalents 84,721   (86,027)
Cash and cash equivalents at beginning of period 114,627   199,272 
Cash and cash equivalents at end of period$199,348  $113,245 
Cash paid for interest$-  $- 
Cash paid for income taxes$1,506  $55 

FutureFuel Corp.
Reconciliation of Non-GAAP Financial Measure to Financial Measure
(Dollars in thousands)

Reconciliation of Adjusted EBITDA to Net Income

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
Adjusted EBITDA$13,661  $9,553  $62,926  $17,201 
Depreciation (2,732)  (2,927)  (8,244)  (8,735)
Non-cash stock-based compensation (107)  (128)  (321)  (878)
Interest and dividend income 2,543   1,965   6,688   5,679 
Non-cash interest expense (including amortization of deferred financing costs) (43)  (43)  (130)  (129)
Losses on disposal of property and equipment (4)  (68)  (41)  (145)
Losses on derivative instruments (676)  (3,314)  (3,947)  (1,511)
Gains/(losses) on marketable securities 815   26   (3,273)  (543)
Provision for income taxes (4,012)  (1,730)  (2,336)  (3,375)
Net income$9,445  $3,334  $51,322  $7,564 

Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities

 Nine months ended September 30,
 2018 2017
Adjusted EBITDA$62,926  $17,201 
Benefit for deferred income taxes (3,609)  (1,303)
Impairment of fixed assets 258   28 
Interest and dividend income 6,688   5,679 
Provision for income taxes (2,336)  (3,375)
Losses on derivative instruments (3,947)  (1,511)
Change in fair value of derivative instruments (2,290)  (60)
Changes in operating assets and liabilities, net 21,479   19,781 
Net cash provided by operating activities$79,169  $36,440 

FutureFuel Corp.
Condensed Consolidated Segment Income
(Dollars in thousands)

 Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017
Custom chemicals$  23,973  $  23,593  $  74,465  $  65,189 
Performance chemicals   4,049     4,574     14,165     12,686 
Chemicals revenue   28,022     28,167     88,630     77,875 
Biofuels revenue   53,400     49,439     136,875     121,890 
Total Revenue$  81,422  $  77,606  $  225,505  $  199,765 
Segment gross profit/(loss)       
Chemicals$  8,898  $  8,060  $  24,470  $  20,401 
Biofuels   3,755     (2,534)    33,961     (6,947)
Total gross profit   12,653     5,526     58,431     13,454 
Corporate expenses   (2,424)    (2,326)    (7,795)    (7,405)
Income before interest and taxes   10,229     3,200     50,636     6,049 
Interest and other income   3,358     1,965     6,688     5,679 
Interest and other expense   (130)    (101)    (3,666)    (789)
Provision for income taxes   (4,012)    (1,730)    (2,336)    (3,375)
Net income$  9,445  $  3,334  $  51,322  $  7,564 

Depreciation is allocated to segment costs 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.

FutureFuel Corp.
Tom McKinlay