FF - NYSE

Lee Mikles – President Rose Sparks – Principal Financial Officer

Jon Tanwanteng – CJS Securities Craig Irwin – Wedbush Securities

Welcome to the FutureFuel 2013 Fourth Quarter conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a question and answer session. To ask a question at that time, you may press star followed by one on your touchtone phone. If you have any difficulty hearing the conference today, please press star then zero on your touchtone telephone for an audio operator. As a reminder, this conference is being recorded today, March 18, 2014. I’d now like to turn the call over to Mr. Lee Mikles, President of FutureFuel Corporation. Please go ahead, sir.

Good morning. This is Lee Mikles with FutureFuel. Thank you for participating in today’s call to discuss the FutureFuel 2013 fourth quarter financial results and business progress. Joining me from FutureFuel today is Rose Sparks, our Chief Financial Officer. I like to remind listeners that comments made during the call will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a list and description of those risks and uncertainties please review FutureFuel’s filings with the Securities and Exchange Commission. Please note that the content of this call contains time-sensitive information that is accurate only as of today, March 18, 2014. FutureFuel disclaims any intention or obligation to update or revise any financial projection or forward-looking statement whether as a result of new information, future events or otherwise. With that out of the way, I’d like to turn our attention to our fourth quarter results. The fourth quarter 2013 results were much improved over fourth quarter 2012. On a consolidated basis, net income increased 327% to $26.5 million. This increase was primarily from improved biodiesel market conditions with the reinstatement of the $1 blenders credit and a continued RSS2 mandate. Revenues increased 68% from the fourth quarter of 2012 and adjusted EBITDA was $28.2 million compared with $6 million in the fourth quarter of 2012. Rose will walk you through some details and will be available for questions afterwards. Rose?

Thank you Lee, and thank you everyone for joining us this morning. For the fourth quarter ended December 31, 2013 and with all comparisons against the fourth quarter of 2012, sales revenue increased 68% to $125.6 million from $74.6 million, a new record quarter. Biofuels revenue increased 166% or $89.9 million as compared to $33.8 million on stronger sales volumes and sales price with the blenders credit in effect this year and not in effect last year. Chemical revenues decreased 13% to $35.7 million from $40.8 million. Revenues from the bleach activator decreased on reduced sales volume, and the proprietary herbicides sales volume was significantly less quarter-over-quarter with the cancellation of the contract on September 1, 2013, when we began selling this product on a purchase order total conversion basis. Slightly offsetting these reductions was sales revenue from other custom products, two of which are new products in addition to increased sales volume of two existing products. Gross profit improved from $8 million to $25.1 million. Biofuel gross profit increased from a loss of $2.3 million to a profit of $12.1 million. This increase resulted from improved market conditions with the dollar blenders credit in effect, again which was not in effect last year, and a continued demand for biodiesel in the United States given the government-mandated renewable fuel standards. Further improving gross profit was an adjustment in our inventory carrying value as determined utilizing the LIFO method of inventory accounting. Partially offsetting these improvements was a hedging loss of $0.6 million this quarter as compared to a hedging gain of $1.5 million in the fourth quarter of 2012. Chemical segment gross profit increased to $13 million from $10.4 million in part from increased sales volumes from the two new products and two existing products, and from an adjustment in our inventory carrying value as determined utilizing the LIFO method of inventory accounting. Income before interest and taxes increased 385% to $22.8 million from $4.7 million. Net income totaled $26.5 million for the quarter or $0.61 per diluted share. This compares against $6.2 million for the fourth quarter of 2012 or $0.15 per diluted share. For the fourth quarter of 2012, we had a provision for income taxes of $3.6 million. For the fourth quarter of 2013, we had an income tax provision benefit of $2.6 million as a result of recently issued technical guidance from the United States Internal Revenue Service that resulted in a change in our tax (indiscernible) related to excluding the dollar blenders credit from taxable income for the years 2010 through the current year, reducing the provision for income taxes by $11.6 million, with $7.8 million related to 2010 through 2012, and $3.9 million related to the current year. This benefit is not expected to recur in the future as the blenders credit expired December 31, 2013 and has not been renewed. For the 12 months ended December 31, 2013 and with all comparisons against the 12 months of 2012, revenues increased 26% to $444.9 million from $351.8 million, a record year. Biofuels revenue increased 48% from $191.4 million to $283.4 million. Gallons sold increased as did the average selling price. Chemicals revenue increased from $160.5 million to $161.5 million. Revenues from the bleach activator decreased 7% and revenues from the proprietary herbicide decreased 35%. This decrease was attributed to reduced volumes for both products and was partially offset by increased sales prices. As previously noted, the proprietary herbicide contract ended September 1. We are unable to predict with any certainty the revenues we will receive from these products in the future. Revenues from other custom chemical products continued strong with a 36% increase year-over-year with the addition of two new products and the volume growth of three existing products. Also improving sales revenue was the recognition of a shortfall payment from the anode battery material. Slightly offsetting the increase was reduced sales from two products we no longer make. Biofuel segment gross profit increased to $45.5 million in 2013 from $8.6 million in ’12. Market conditions were more favorable partly as a result again of the dollar blenders credit in effect for ’13 and not in effect last year, and a continued renewable fuel mandate. Further improvements in gross profit resulted from adjustments in our inventory carrying value as determined utilizing the LIFO method of inventory accounting and increased hedging gains. Chemical segment gross profit increased 12% from $48.7 million to $54.7 million. This improvement was from, one, the change in product mix as the proprietary herbicide contract ended and we sold increased volumes of other custom chemicals throughout the year and added two new products; two, the recognition of a shortfall payment from the anode battery material; and three, adjustments in our inventory carrying value as determined utilizing the LIFO method of inventory accounting and increased hedging gains. These improvements were slightly offset by an impairment charge we took in the third quarter 2013 on the anode battery material and a loss on two chemicals we no longer produce. Income before interest and taxes increased to $90.3 million from $46.1 million. Net income totaled $74 million or $1.71 per diluted share for 2013 as compared to $34.3 million for 2012 or $0.83 per diluted share. Lee, that concludes my remarks and I’ll turn the call back over to you.

Thank you, Rose. I appreciate it very much. We had felt that 2013 would be a good year for biodiesel with the reinstatement of the $1 blenders credit, and we were able to capture the value that our quality operation brings to the marketplace. We also knew that 2013 would be challenging as the life cycle of a couple of our products ended, but we were successful in picking up a couple of new contracts. That’s just the reality of the specialty chemical business. We did sign a new contract with another herbicide intermediate customer, completing construction and repurposing of that portion of our plant in the fourth quarter. Sales will begin with that customer in the first quarter of 2014. We will continue to work to utilize the plant’s equipment, evaluate opportunities for new products and acquisitions to optimize the value of our shareholders, and I think that there are numerous opportunities that continue to present themselves on that front. The biodiesel industry continues to be somewhat uncertain with the expiration of the blenders tax credit and continued pressure on the UPA to modify the renewable volume mandate. With those comments, I’d like to open up the call to questions. Operator?

Yes, Mr. Mikles. [Operator instructions]

Just a couple more comments as we wait for people to queue up. The bill has been introduced in committee, or it’s in committee in the Senate. Maria Cantwell has introduced it – she’s a Democrat from Washington State. Her co-sponsor is Chuck Grassley from Iowa. Co-sponsors additionally continue to be two other senators, Jeanne Shaheen and Amy Klobuchar from Minnesota. The changes that are proposed in committee that are being talked about have to do with it being changed from the credit going from a blenders credit to a producer credit, which would actually be great for us. It addresses some of the issues with imports and some of the funny business played there, so I think that’s a positive as well, and furthermore it extends it out to 2017 which is something we’ve long argued if you’re going to have a credit, you’ve got to have some visibility to it. So I think all those things are positive. But my comment really is we don’t have any insight any better than anybody else on whether this is actually going to be reinstated. We operate our business day to day as if it’s not, and if it does we’ll respond accordingly. But again, that’s where that bill stands as of today, and I wanted to head that off early because I’m sure that’s going to be one of the concerns.

Thank you, Jon.

I think that was a third quarter event, was it not, Rose?

I’m going to ask Rose to answer the math, but again we’ve never disclosed who that customer was or who their customers are, because we don’t know who their customers were. But again, Rose, why don’t you run through the math on that and as—I think most of that has already run through, other than the payment coming in August of this year.

Thank you, Craig.

Again, I think glycerin at the end of the day – and I’m going to let Rose, maybe she’s got more current information than I do – that’s in process of completing for us. We’re not complete on that project, and again that will take glycerin from basically being marginally revenue enhancing. It’s certainly not the tail wagging the dog, but it takes a—it’s something that at times kind of doesn’t produce any cash to very small to up-charging that business pretty dramatically. But again, remember the math, everyone – for every gallon of biodiesel that you produce, you produce a pound of glycerin roughly, and what you do with that can have an effect on your profitability and we’re in the construction phase of that. But Rose, anything you want to add to that?

Thank you, sir. Again ladies and gentlemen, if you would like to ask a question, you may press star then one on your touchtone phone. Again, star, one to queue up for a question. One moment for possible additional questions. At this time, I’m currently showing no additional phone questions in the queue. I’d like to turn the program back over to Mr. Mikles for any additional or closing remarks.

Thank you very much. Obviously it was a very exciting year for the transition of the business. All businesses are in transition, but I think our team has done an extraordinary job on the chemical side. I think we continue to perform exceedingly well on the biodiesel side, so I’m very, very pleased and want to congratulate our team for all the efforts that they’ve done. Thank you all for joining us this morning and expressing your interest in FutureFuel. We look forward to keeping you appraised of our progress and talking to you at the end of next quarter. Thank you.