FF - NYSE

Lee Mikles – President Rose Sparks – Chief Financial Officer

Jon Tanwanteng – CJS Securities Craig Irwin – Wedbush Securities David Windish (ph) – Newton (ph) Management

Ladies and gentlemen, thank you for standing by. Welcome to FutureFuel 2014 Second Quarter conference call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a question and answer session. To ask a question at that time, please press star followed by the one on your touchtone phone. If anyone has difficulty hearing the conference, please press star, zero for operator assistance. As a reminder, this conference is being recorded today, August 8, 2014. I’d now like to turn the call over to Mr. Lee Mikles, President of FutureFuel Corp. Please go ahead, sir.

Good morning. This is Lee Mikles from FutureFuel. Thank you for participating in today’s call to discuss FutureFuel’s 2014 second quarter financial results and business progress. Joining me today from FutureFuel today is our Chief Financial Officer, Rose Sparks. I like to remind listeners that comments made during this 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 meaningfully different from any anticipated results. For a list and description of these 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, August 8, 2014. FutureFuel disclaims any intention or obligation to update or revise any financial projections or forward-looking statements 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 second quarter results. Q2 ’14 financial results were weak compared to our record quarter in the prior year. Revenues were down 24% from Q2 2013. Adjusted EBITDA totaled $6.7 million, down 74%. Net income decreased to $5.3 million or $0.12 per diluted share from $18.2 million or $0.42 per diluted share. Rose will walk us through the details and then we’ll be available for questions. Rose?

Thank you, Lee. Good morning everyone and thank you for joining us. For the second quarter, revenue decreased 36% to $68 million from $106.1 million in the prior year quarter. Biofuels revenue decreased 45% to $35.4 million. We experienced biodiesel sales volumes with a lower average selling price. Chemical revenues decreased 22% to $32.6 million. Revenues decreased primarily on sales volumes for the following: our bleach activator was down 19%, proprietary herbicide intermediates was down 51%, antimicrobial intermediates and other custom products was down 38%. Partially offsetting these decreases was increased sales volumes from other performance chemicals of 33% from an existing product line and from a new product, and DIPB and CPOs were up 7%. Within the other custom chem product portfolio, we lost sales of a product to a substantial customer that was sold on a purchase order basis and we had reduced sales volumes from discontinued production of another custom chemical product due to lack of demand. We also experienced reduced sales of a product due to timing of shipments. Gross profit for the second quarter decreased 76% to $6.6 million from $27.6 million. Biofuels gross profit decreased to a loss of $0.6 million as compared to income of $12.8 million in the second quarter of 2013. This difference resulted from, one, severely weakened marketing conditions for biodiesel largely as a result of the absence of the dollar blender’s credit and the absence of a final mandate from the EPA for the 2014 RVO. Secondly, impacting it was the inventor of unsold internally generated RINs. We do not allocate production costs to internally-generated RINs, and from time to time we enter into sales of biodiesel on a RINs-free basis. We had minimal RINs at June 30, 2013. Thirdly, we had hedging losses this quarter of $0.3 million as compared to hedging gains of $2.3 million in the prior year period. Fourthly, partially offsetting these reductions in gross profit was a shift of fixed costs to chemicals during the quarter. Chemical segment gross profit decreased 52% to $7.1 million. The reduction in gross profit was primarily attributed to the change in sales volumes and the shift to fixed costs, as previously mentioned. In addition, the reduction was somewhat attributed to yield losses which are being resolved but did slow our production and sales volume. To a lesser extent, higher raw material costs were incurred during the quarter, part of which will be recovered in the third quarter. Earnings from operations decreased 83% to $4.2 million. Net income totaled $5.3 million for the second quarter of 2014 or $0.12 per diluted share. This compares against $18.2 million for the second quarter of 2013 or $0.42 per diluted share. For the six months ended June 30, 2014, revenues decreased 24% to $150.2 million as compared to $198.2 million in the first half of 2013. Biofuels revenue decreased 25% to $87.4 million. Gallons sold decreased, as did the average selling price of V100 given weak biodiesel market conditions. Revenues from chemical sales decreased 23% to $62.9 million. Revenues for each product line changed as follows and were primarily attributed to reduced sales volumes: the bleach activator decreased 21%, proprietary herbicide intermediate decreased 57%, other custom chemicals, including the antimicrobial industrial intermediate decreased 37%. Slightly offsetting these decreases was a 12% increase in revenue for CPOs and DIPB and a 30% increase in revenue from performance chemicals from a new product. Gross profit for the first half of 2014 was $16.2 million, down from $49 million in 2013. Gross profit for biodiesel decreased 74% to $15,000 for the six months ended June 30, 2014 as compared to $43.9 million in the same period of 2013. The significant reduction was largely the result of a combination of the following: the expiration of the dollar per gallon blender’s tax credit on December 31, 2013; the first six months of 2013 included the benefit of the retroactive reinstatement of the 2012 blender’s tax credit of $2.5 million. We also had hedging losses which totaled $294,000 in the first six months of 2014 as compared to hedging gains of $3.7 million in the same period of 2013; and last, the establishment of an inventory of biodiesel RINs at June 30, 2014 when no such inventory was present in the prior year. Chemical gross profit decreased 42% to $16.2 million, down from $27.9 million in 2013. This reduction was largely the result of reduced sales volumes, particularly for again the proprietary herbicide intermediate, two other custom chemicals we no longer sell, the bleach activator, and the timing of shipments of a product we sell. Also impacting gross profit was lower production yields for certain chemicals which are not expected to continue but did delay the quantity of product shipped to our customer. Earnings from operations was $11.6 million in the first half of the year as compared to $43.9 million in the first half of 2013. Net income totaled $11.6 million for the first half of the year or $0.27 per diluted share. This compares against $32.2 million for the first half of 2013 or $0.75 per diluted share. Lee, that concludes my remarks. I’ll turn the call back over to you.

Thank you, Rose. This time last year, I commented that I hoped that the EPA would continue to support the growth of biofuels as they considered their proposals as it relates to the RVO, the Required Volume Obligation. But a year has passed and we’re still awaiting the final numbers on those 2014 volumes. Meanwhile, the industry is severely suffering from that lack of clarity, not just us but the whole industry. From a value perspective, the RIN – the Renewable Identification Number – and you’ll recall that that equals 1.5 times for biodiesel for gallon, is worth less than half of what it was at the end of this quarter a year ago. In addition to that, we have the absence of the $1 tax credit per gallon, so you can see the economics of the business are substantially different than they were a year ago. Again, those are things that are completely out of our control or out of the control of anybody else within the industry. It is clear without the volume mandate that there is no incentive for the obligated parties, and think of the obligated parties as refiners typically, to use renewable energy to displace foreign oil, so that’s really the disruption in the industry. Until we get some clarity out of the government, it probably continues to be a difficult spot. That aside, we are a chemical plant and our efforts to implement new chemical growth has not been what we’d hoped for. We’ve really struggled to bring up a new proprietary herbicide intermediate plant and in executing sales for new customers – not existing, new customers on the laundry detergent additive. These have terrific potential, but we have not delivered on them so far. In addition, we had hoped to have a refined glycerin plant operating in the second quarter, but we were not able to make that happen. The expectation, though, is that that plant will be ready in the not-too-distant future. The timing of that is really uncertain, but I can say that it is progressing positively at this point. So we continue to see declines in our larger contracts – that’s not anything new, that’s continued to press forward, but we endeavor to replace that, those reductions, and to build our product portfolio. We do remain optimistic about the future prospects. In the third quarter, we will realize deferred revenues related to the shortfall fees received from the intermediate anode powder customer that gave notice of contract a year ago, the expiration which is actually tomorrow. We have made improvements in the proprietary herbicide intermediate in the third quarter, and we’re not up to full rate yet on that new plant and you have a lot of timing issues with this stuff when you bring up something new, because you never know the problems you’re going to hit, but we have made significant progress vis-à-vis the prior quarter. We have started to see a meaningful reduction just recently in the feedstock prices for biodiesel. We’ll continue to buy up opportunistically and hope that the EPA’s final RVO, which is eight months behind schedule by the way, and hopefully a reinstatement of the dollar per gallon that’s yet to be seen. We have added Mr. Paul Flynn to our team and are excited about his experience and knowledge. He comes from Monsanto, was a senior executive there, so we’re very excited to have Paul on board and continuing to build our management team. With those comments, I’ll open the call up to questions. Operator?

[Operator instructions]

Just a couple of final comments to clarify what I said before we take the first question. Biodiesel is what it is. The marketplace is challenged for us and for our competitors. I think we’ve done as well or better than virtually anybody out there. On the chemical side, it’s been mostly self-inflicted. You’ve got a couple of projects coming up at the same time, they’re difficult to do. We’ve been a little bit disappointed with both of them in terms of getting them up to rate; but again, it’s within our control and again it’s about execution, and unfortunately that was not probably our finest hour. So we’ll endeavor to do better and we’re up against some pretty hard comparables last year, so it probably just magnifies those challenges.

Again, I don’t know how granular you want to get, but Rose, you want to handle that?

Thank you, Jon.

I tend to believe it’s biodiesel, but Rose, could you take that?

Thank you, Craig. Operator? I guess there’s no more questions at this time?

We do have one more question – sorry about that.

We do have one more? Okay.

Could you give us a breakdown on that roughly, Rose?

Thank you very much.

Thank you. I’m not showing any further questions at this time.

Thank you all very much for your interest in the company. I appreciate it, and we’ll endeavor to do better in the next quarter and get back on track to the execution level that you’ve come to expect. Thank you all very much and we’ll look forward to talking to you next quarter.