Paul M. Flynn - Executive Vice President, Business and Marketing, FutureFuel Corp. Rose M. Sparks - Chief Financial Officer and Principal Financial Officer.

Craig E. Irwin - ROTH Capital Partners LLC.

Ladies and gentlemen, thank you for standing by. Welcome to the FutureFuel 2015 First 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. As a reminder, this conference is being recorded today, May 12, 2015.

I'd like to turn the call over to Mr. Paul Flynn, Executive Vice President of Business & Marketing for FutureFuel Corp. Please go ahead, sir..

Hi. Good morning. This is Paul Flynn. Thank you for participating in today's call to review FutureFuel's first quarter financial results. Joining me on today's call is our CFO, Rose Sparks. I plan to cover some highlights of our first quarter and then turn the call over to Rose for a more detailed review of our financial results.

We have prepared a short slide deck, which should appear automatically with the webcast. For those of you who dialed in, the slide deck can be downloaded from the Investor Relations section of our website. Turning to slide 2, I would like to remind listeners that we're in the slide 2, please.

I would like to remind listeners that comments made during the call will would include forward-looking statements within the meaning of 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 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, May 12, 2015.

FutureFuel disclaims any intention or obligation to update, revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise. With that, I would like to turn our attention to our first quarter highlights on slide 3. We started off with a pretty good year.

Our earnings per share increased 27% to $0.19 per share. This was predominantly driven by improved operational execution in our chemical business segment and a favorable change in LIFO reserve. Despite some headwinds in our legacy chemical business, our chemicals segment's revenues grew 13% versus 2014.

This overcame (00:03:01) significant decline in our legacy bleach activator business and original herbicide business, the select business we used to produce. Q1 is typically the challenging quarter for our biofuels order. We had a 62% decline in biofuels driven by continual regulatory uncertainty and worldwide decline in energy prices.

On a more positive note, our biodiesel has been approved for California low-carbon fuel standard, which permits the sale of our product into California and avail (00:03:37) some additional credits. We also improved the quality of our glycerin production and it's commenced sales of refined glycerin to different parties.

We also have finalized a new $150 million credit facility after quarter end which positions us better to adopt the more complementary acquisitive growth strategy. With that, I'd like to turn it over to Rose for a more detailed review of our financial results..

Thank you, Paul, and welcome to today's call. Please turn to slide 4 for consolidated financial results.

For the first quarter of 2015 revenue was down 34.2% to $54.1 million from $82.2 million in the first quarter 2014, this reduction was driven by a $32 million decline in Biofuel revenue, which was slightly offset by a $3.9 million increase in Chemical revenue.

Net income was $8.1 million, an increase of 29.6% or $0.19 per diluted share versus $6.3 million or $0.14 per diluted share in the prior period. Turning to slide 5, for our Chemicals segment.

For the first quarter 2015, revenues increased 13% driven by increased sales volume across multiple product lines including our new herbicide intermediate, antimicrobials, other custom chemicals and performance chemicals, reducing revenue was a 27% decline in the bleach activator.

Our bleach activator customer informed us during the quarter that it would be terminating our supply contract at the end of the year while termination of our supply contract will adversely affect future revenue, discussions with our customer to extend our business relationship are ongoing.

Gross profit increased 20.1% or $1.9 million from the first quarter of 2014 to $10.9 million in the first quarter of 2015. This increase included a net benefit of $2.5 million from a favorable change in the LIFO – a net favorable change in the LIFO reserve for the first quarter of 2015.

This LIFO benefit was minimized by higher un-capitalized operating cost, stemming from reduced bleach activator and the biodiesel plant production rates in the first quarter of 2015. Also note from this slide that our Chemical sales revenue was 63% of consolidated revenue as compared to 37% in the prior year quarter.

Now turning to slide 6 for our Biofuel segment. First quarter 2015 revenue was $19.9 million versus $51.9 million in the first quarter of 2014.. Sales revenue was down on lower average selling prices and reduced sales volumes, driven by continued federal regulatory uncertainty and the worldwide decline in energy prices.

Gross profit was $2.5 million versus $0.6 million in the first quarter of 2014, of the $1.9 million improvement in gross profit, $0.5 million was from a favorable change in the LIFO reserve. This LIFO benefit was minimized by higher uncapitalized operating cost, stemming from reduced biodiesel plant production rates in the first quarter of 2015.

I would also like to point out that we have some other slides in our appendix, which you can refer to, but the one that I would like to mention is that our adjusted EBITDA was $12.8 million versus $10.1 million for the first quarter of 2014, that was 24% margin in the first quarter versus 12% margin on EBITDA in the prior year quarter.

And with that, Paul, I'll turn the call back over to you..

Thanks, Rose, really nice job covering that. I just wanted to close with a couple of points as we wait for additional questions. The first one is the bleach activator. As you know, bleach activator is a key differentiated product used in dry powder laundry detergent.

When the site was acquired from Eastman, this represented approximately half the company's – 50% of the company's sales. We have been on record repeatedly communicating our anticipation that this volume will continue to decline, driven by customer – consumers preference for liquids over powders.

Our contract with P&G was due to expire at the end of 2016, and had contract minimums in excess of what our customer could use in 2015, this is what resulted them in exercising the early term – provision term of the contract.

As a long time supplier with P&G, we have a very good relationship and we continue to explore opportunity to extend this business beyond 2015 more aligned to the market conditions of this market. In closing out on Chemicals, we are very pleased with the 13% growth.

We had a lot of headwinds, managing through the decline of our bleach activator business and also the other legacy business we had when the company was acquired, one of our herbicide business which we have discontinued producing and selling this quarter.

And so overall, we're very pleased with the performance in the first quarter of our Chemicals business.

Turning over to Biofuels, Q1 is typically our most challenging quarter for the biodiesel industry, continued regulatory uncertainty around the RVO, softened market conditions in the early part of the year, margins were tied over raw materials even with FutureFuel's advanced – advantaged flexible feedstock capabilities.

It's a tough environment for just about every one of the biodiesel producers with the industry noting numerous plant idling capacity (00:09:43). We anticipate, you know, just like other years, an improvement in our biofuel industry, our conditions later in the year. So having that, I turn it back to the operator to facilitate Q&A..

We have a question from Craig Irwin of ROTH Capital Partners. Your line is open..

Good morning, and congratulations on the strong result. Rose, I wanted to ask a little bit about the costing of overhead between the segments, the 60% drop in Biofuels revenue in the quarter, is a material swing, and I know that you cost your overhead based on revenue.

Can you maybe quantify for us what the incremental overhead was in the Chemicals segment, so that we can better understand the operating performance X this short-term headwind, and then, obviously, X the LIFO reserve?.

Yes. Hi, Craig. Actually, let me correct you, our overhead is not strictly allocated off of just revenue. Our overhead is allocated based off of the usage of the equipment to the plant. Now having said that, the excess overhead, the auto capacity overhead is allocated based on revenue.

So first and foremost, as I mentioned in my script, the biodiesel plant did not operate the entire quarter. And so, we did have some allocated costs that did swing to the chemical plant for the first quarter. The magnitude of that, we have never disclosed what the magnitude of that dollar amount is, I'll just have to leave it there..

Okay.

Is it fair to say that it was actually a real contribution to – as far as a headwind in the quarter?.

Absolutely, Craig. It was a real contribution and I will also remind you that we had volume in tanks that we shipped in the first quarter of 2015.

So we did give the benefit of the dollar credit on the volume that we shipped in the first quarter?.

Okay. Excellent.

My next question is related to your herbicide intermediate business, really nice growth there, up 125% year-over-year, can you comment whether or not you're meeting the full demands of this customer yet or whether the debottlenecking that's been going on over the last couple of quarters, the challenges that have impeded the delivery of this product are behind you and we might be looking at something more consistent with what the natural run rate of that demand for that product would be?.

I can address that, Craig, and thanks for the question. Some of these herbicide intermediates are complicated chemistries. Obviously, we were a little bit surprised and anticipated we've come up little bit quicker. Today we're at around 95% of design rate and we're continuing to explore areas to even exceed design rate..

Okay.

So, it sounds like there is potential for growth in that product line, is that fair? I mean, am I looking at that correctly?.

I think that's a fair statement..

Okay. Excellent. And then Paul, from your prepared remarks, it sounds like you have a degree of optimism that there could be further sales of your knobs or the bleach activator product to P&G, I know you were also pursuing sales of this product to other potential customers in 2016, obviously.

Can you frame out for us the approximate number of alternative customers that you're speaking to and whether or not you see anything fundamental changing as far as P&G's actual sales of powder detergent using this, if you're concerned that maybe you would be dropped from the products that they've been selling, or if we see those continue to be on the shelf, that there would be an expected FutureFuel component?.

That's a great question, unfortunately I don't have all the answers, but I can frame it up in a couple of ways just to give you a little bit better insight. I think the first and important one is that on a macro level, consumers are driving towards liquid detergents.

So, the likely (00:14:43) convenience and the industry has shifted from hardcore detergent cleaners to more components like fabric softeners and scented detergents. So, it's kind of the industry will continue to move that direction and everybody anticipates it to continue to do that. So the overall pie will be continue to decline.

Having said that, the product within the powder detergent market is a premium differentiating product. So there are other Tier-1 companies that really would like to use the product and are evaluating it. So that's all I can say at this time.

So, we probably open it up and we're probably – we're much more aggressively pushing it into the hands of other companies to use. We had some challenges that prevented us from moving into other customers that we're actively working through..

Excellent. And then last question before I jump back in the queue. More than $240 million in cash in the balance sheet is a fantastic position for any company to be in, in the small cap space particularly, you're new $150 million credit facility just gives you even more firepower. What's the appetite for acquisitions right now.

How should we look at the new credit facility.

I mean it seems you almost didn't need it, given the cash position?.

So, a couple of comments on that, Craig, is our primary focus over the last six months has really been internally focused on executing better. The $150 million secured credit facility positions us better to really go after a more complementary acquisitive growth strategy.

So I think we're prepared and we've got everything when we find a right opportunity, but we don't want to rush into not finding the right opportunity. We want to find something that's complementary to our existing business, preferably downstream, we're looking for near-term accretive type companies that complement within the chemical sector.

Now there are distressed assets in the biofuel industry that might be opportunistic fits that we could maybe convert to something else and make them much more viable. But we don't want to rush into something and make, you know a lot of the acquisitions that are made in the industry are not successful, so we want to do the right one.

But we are positioned very well and with a strong balance sheet and this additional secured credit facility to make a play..

Great. Thanks again for taking my questions..

Thank you..

Craig Irwin is back in the queue. Your line is open..

I know there's been a lot of different reports about what to expect now that OMB is reviewing a role for approval, hopefully, final approval.

Can you share with us what FutureFuel is looking for in the renewable fuel standard, the RVO's that we are hopefully going to see, whether or not you believe we're going to see some significant growth in the biodiesel volume mandates and if you can comment about whether or not you've been participating in the lobbying process?.

Craig, I'm not sure of the first part of your question came through.

Do you mind repeating it?.

Sorry. I guess the line is a little choppy. So the renewable fuel standard. The rule is now at the office of management and budget according to several sources and I think it's been there since the seventh and the expectation is that we're going to see some fairly significant volume growth in the mandate levels for biodiesel.

Grundler, a key executive in EPA has said in public that we could see 2014 volumes based on 2014 production, which would be very nice.

I was hoping if you could share with us your perspective about what you would like to see in the rule, what you expect to see in the rule and how you've participated in the lobbying process?.

We would fully support the requested National Biodiesel Board RVOs of $2.1 billion, $2.4 billion. $ 2.1 billion in 2015, $2.4 billion in 2016 and $2.7 billion in 2017, but having said that, it's like we'll just have to wait to what the government and the EPA firm up. This industry has been disappointed a lot over the last couple of years in mandates.

So don't want to speculate what the EPA will do.

We'll obviously be fully supportive for whatever lobbying efforts we can do to advance these mandates, so it would really be helpful for the industry, because there are a lot of companies who are not feedstock flexible and don't have off take markets for their glycerin that are really struggling right now..

Great. Then my second question is your biodiesel gallons that you produce, historically FutureFuel has not structured its contracts in a way that had a clawback, if the blandish credit is reinstated.

Now some of us that follow this industry very closely look at the blandish credit in a very similar way to the R&D tax credit, where the R&D tax credit is going to be back pretty much every year, you're going to hear a lot of noise from all the big technology companies out there, I know the blandish credit is tiny in comparison, it sits in the exact same bucket.

So from my perspective its logical to expect it to be reinstated pretty much every year.

Can you share with us what FutureFuel has been doing to increase the share of gallons where you have clawback on the blandish credit if and when it is reinstated, this year and in the future?.

Rose, do you want to take that. I can't comment on that..

Sure. FutureFuel has positioned itself well with every contract that we have for a callback provision. Keep in mind also, the FutureFuel sales are fueled (00:21:43) on a retail basis and so there are several instances where we will maintain the benefit of the blend credit as well as the value that they're in..

Okay, excellent. Thanks again for taking my questions..

Thank you. There are no further questions at this time. I'd like to turn the conference over to Mr. Paul Flynn for any closing remarks..

Well, I'd like to thank everybody for participating in today's call and, overall, we're very pleased with how the quarter ended. We had some headwinds to contend with in both our Chemicals and our Biofuels business, but I think we ended up in a really good place.

And our operations teams really worked hard to kind of come through this quarter, and we're looking forward to having a good year..

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day..

Thank you..