FutureFuel Corp. (FF)

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 2025 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.

In the first quarter of 2026, the Company elected to change its method of accounting for certain inventories in the U.S. from last in, first out ("LIFO") to weighted average cost. The Company believes the change to weighted average cost is preferable because it provides a better matching of costs and revenues, conforms the Company's inventory to a single method of accounting and improves comparability with the Company's peers. The Company retrospectively applied this change in accounting principle to all prior periods contained herein.

Unless otherwise stated, all dollar amounts are in thousands.

The designation “NA” (Not Applicable) in the tables below appears when a percentage change is calculated between a negative and a positive number (or positive and negative), rendering the result meaningless.

Overview

Our Company is managed and reported in two reportable 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 its ability to utilize resources and is committed to growing each segment.

The biodiesel segment was supported by 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 June 30, 2026, we held 0.1 million D4 RINs with a fair market value of $210. Comparatively, as of June 30, 2025, we held 0.5 million D4 RINs with a fair market value of $604.

On March 27, 2026, the EPA finalized the “Set 2” RFS volumes establishing the highest blending mandates in the program’s history targeting a 60% increase over 2025.  The EPA estimates the mandate will require roughly 5.3 to 5.4 billion physical gallons of biomass diesel in 2026 and 5.7 to 5.8 billion gallons in 2027. The rule reduced the RIN equivalency factor for renewable diesel from 1.7 to 1.6 (from a revenue advantage on every gallon sold of 13% to 6%) and further to 1.5 (the same as biodiesel) by 2027 which represents a fundamental shift in the competitive and structural landscape of biodiesel. To meet the 2027 volume targets, utilization of domestic capacity is expected to be 100%. The EPA delayed the implementation of the half RIN penalty for imported fuels and feedstocks until January 1, 2028.

On February 4, 2026, the Treasury Department and the Internal Revenue Service issued proposed regulations providing expanded guidance on the clean fuel production credit (“CFPC”) integrating changes from the Budget Reconciliation Act of 2025, which made modifications to the CFPC. The proposed rule is expected to help level the competitive environment for biodiesel by: (i) reducing the tax credit for sustainable aviation fuel from $1.75 per gallon to $1.00 per gallon effective January 1, 2026, and (ii) requiring that all feedstock be sourced from North America, as required for biomass-based diesel. On June 12, 2026, the Department of Energy released the updated 45ZCF-GREET model to help biofuel producers calculate carbon intensity for the CFPC.

On June 30, 2026, the Company contracted with Freepoint Commodities to sell its 2025 CFPC and Small Agri-Biodiesel Producer Tax Credits which were $2,725 net of fees. The Company recognized a receivable for the 2025 credits. The Company also committed to sell its 2026 credits which were $6,733 as of June 30, 2026. The 2026-2029 tax credits will be monetized at each fiscal year end with an early draw provision subject to financing fees.

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Summary of Financial Results

Set forth below is a summary of certain consolidated financial information for the periods indicated.

* Adjusted to reflect the change in accounting methodology from LIFO to moving average for inventory valuation.  See Note 1 to our consolidated financial statements for additional information.

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 maker 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).

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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 income (loss), the most directly comparable GAAP performance financial measure, with adjusted EBITDA.

The following table reconciles cash flows from operations, the most directly comparable GAAP liquidity financial measure, with adjusted EBITDA.

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Item 7. 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 should be read together with our consolidated financial statements, including the Notes thereto, set forth herein. Further, for additional discussion of our results for 2024, compared to 2023, please see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 31, 2025, which discussion is incorporated herein by reference and which is available through the SEC’s official website at www.sec.gov and through the “Investors” section of the Company’s website (https://futurefuel-corporation.ir.rdgfilings.com).

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

In General

Our company is managed and reported in two reporting segments: chemicals segment and biofuels segment. Within the chemicals segment are two product groups: custom chemicals and performance chemicals. The custom chemicals group is comprised of chemicals manufactured for a single customer, whereas the performance chemicals product group is comprised of chemicals manufactured for multiple customers. The biofuels segment is comprised of one product group. Management believes that the diversity of each segment strengthens the Company by better using resources and is committed to growing each segment.

Major products in the custom chemicals group include: (i) consumer products (cosmetics and personal care products, specialty polymers, and specialty products used in the fuels industry); (ii) chlorinated polyolefin adhesion promoters and antioxidant precursors for a customer; and (iii) a biocide intermediate.

Pricing for the other custom manufacturing products is negotiated directly with the customer. Some, but not all, of these products have pricing mechanisms and/or protections against raw material, energy, or conversion cost changes.

Performance chemicals consist of specialty chemicals that are manufactured to general market-determined specifications and are sold to a broad customer base. A major product line in the performance chemicals group is SSIPA/LiSIPA, a polymer modifier that aids the properties of nylon and polyesters. This group of products also includes other sulfonated monomers and hydrotropes, specialty solvents, polymer additives, and chemical intermediates, such as glycerin.

SSIPA/LiSIPA revenues are generated from a diverse customer base of nylon and polyester fiber manufacturers and other customers that produce condensation polymers. Contract sales are, in certain instances, indexed to key raw materials for inflation; otherwise, there is no pricing mechanism or specific protection against raw material or conversion cost changes.

Pricing for the other performance chemical products is established based upon competitive market conditions. Some, but not all, of these products have pricing mechanisms and/or specific protections against raw material or conversion cost changes.

For our biofuels segment, we procure all of our own feedstock and only sell biodiesel for our own account. We have the capability to process multiple types of feedstocks including vegetable oils, animal fats, and separated food waste oils. We can receive feedstock by rail or truck, and we have substantial storage capacity to acquire feedstock at advantaged prices when market conditions permit. Our annual biodiesel production capacity is 59 million gallons per year.

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There remains significant uncertainty regarding our future biodiesel production volumes. This outlook is primarily driven by the volatility of feedstock prices relative to finished biodiesel market prices and a systemic lack of permanency in critical government mandates. Our operational strategy is heavily dependent on federal and state incentive structures, which are subject to legislative change or expiration. Key factors contributing to this uncertainty include:

Furthermore, government mandates have increasingly strengthened competing sectors, creating headwinds for our biodiesel operations. These include:

For a detailed analysis of these variables, please refer to "Risk Factors" and Note 3 of our consolidated financial statements.

While biodiesel is the principal component of the biofuels segment, we also generate revenue from the sale of petrodiesel both in blends with our biodiesel and, from time to time, with no biodiesel added. We have both truck and rail access at our Batesville facility. In addition, we deliver blended product to a small group of customers within our region, and from time to time, sell D4 and D6 RINs. At December 31, 2025, we held 0.4 million RINs with a market value of $379 and at December 31, 2024, we held 3.1 million RINs in inventory with a market value of $1,831.

Most of our sales are FOB the Batesville plant, although some transfer points are in other states or foreign ports. Many of our chemicals are used to manufacture products that are shipped, further processed, and/or consumed throughout the world, and we are not always aware of the exact quantities of our products that are moved into foreign markets by our customers. We do track the addresses of our customers for invoicing purposes and use this address to determine whether a particular sale is within or outside the United States. Our revenue for the last three fiscal years attributable to the United States and foreign countries (based upon the billing addresses of our customers) is set forth in the following table.

The majority of our expenses are cost of goods sold. Cost of goods sold includes raw material costs as well as both fixed and variable conversion costs, such conversion costs being those expenses that are directly or indirectly related to the operation of our plant. Significant conversion costs include labor, benefits, energy, supplies, depreciation, and maintenance and repair. In addition to raw material and conversion costs, cost of goods sold includes environmental reserves and costs related to idle capacity. Finally, cost of goods sold includes hedging gains and losses recognized by us related to our biofuels segment. Cost of goods sold is allocated to the Chemicals and Biofuels segments based on equipment and resource usage for most conversion costs and based on revenue for most other costs.

Operating costs include selling, general and administrative, and research and development expenses.

The discussion of results of operations that follows is based on revenue and expenses in total and for individual product lines and does not differentiate related party transactions.

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Fiscal Year Ended December 31, 2025 Compared to Fiscal Year Ended December 31, 2024

Set forth below is a summary of certain financial information for the periods indicated.

(Dollars in thousands other than per share amounts)

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 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, unrealized 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 maker 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 a performance and liquidity based on GAAP results, while isolating the effects of depreciation and amortization, which may vary among our operating segments without any correlation to their underlying operating performance, and of non-cash stock-based compensation expense, which is a non-cash expe

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