FutureFuel(FF) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the period ended June 30, 2022, including the balance sheets, statements of operations, stockholders' equity, and cash flows Consolidated Balance Sheets As of June 30, 2022, total assets were $337.4 million, a slight decrease from $344.3 million at year-end 2021, while total liabilities increased to $74.6 million from $55.4 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $252,843 | $255,833 | | Total Assets | $337,386 | $344,330 | | Total Current Liabilities | $60,816 | $35,056 | | Total Liabilities | $74,580 | $55,402 | | Total Stockholders' Equity | $262,806 | $288,928 | Consolidated Statements of Operations and Comprehensive Income For the six months ended June 30, 2022, the company reported a net loss of $15.5 million, or ($0.35) per share, a significant increase from the $5.3 million net loss in the prior-year period Six Months Ended June 30, (in thousands, except per share amounts) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Revenue | $159,714 | $114,971 | | Gross Profit (Loss) | $(6,178) | $(10,779) | | Loss from Operations | $(11,122) | $(15,061) | | Net Loss | $(15,502) | $(5,292) | | Diluted Loss Per Share | $(0.35) | $(0.12) | Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $288.9 million at the end of 2021 to $262.8 million at June 30, 2022, primarily due to a net loss of $15.5 million and cash dividends declared of $10.5 million Changes in Stockholders' Equity (Six Months Ended June 30, 2022, in thousands) | Description | Amount | | :--- | :--- | | Balance - December 31, 2021 | $288,928 | | Cash dividends declared | $(10,503) | | Net loss (Q1 + Q2) | $(15,502) | | Other comprehensive loss | $(117) | | Balance - June 30, 2022 | $262,806 | Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $1.9 million, resulting in a net decrease in cash and cash equivalents of $8.4 million Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,910) | $(2,349) | | Net cash (used in) provided by investing activities | $(1,206) | $16,248 | | Net cash used in financing activities | $(5,251) | $(114,427) | | Net change in cash and cash equivalents | $(8,367) | $(100,528) | Notes to Consolidated Financial Statements The notes detail the company's accounting policies and financial components, including segment performance, revenue recognition, tax credits, and derivative instrument losses - The company operates in two segments: chemicals (custom manufacturing and performance chemicals) and biofuels (primarily biodiesel production and sales)[19][20] - The Biodiesel Blenders' Tax Credit (BTC) provides a $1.00 per gallon credit, which the company records as a reduction to cost of goods sold. The credit is set to expire on December 31, 2022[23] - Losses on derivative instruments, recorded in cost of goods sold, amounted to $26.6 million for the six months ended June 30, 2022, compared to a loss of $8.0 million in the same period of 2021[43] Segment Performance (Six Months Ended June 30, in thousands) | Segment | Revenue 2022 | Revenue 2021 | Gross Profit (Loss) 2022 | Gross Profit (Loss) 2021 | | :--- | :--- | :--- | :--- | :--- | | Chemicals | $39,755 | $31,657 | $9,614 | $2,984 | | Biofuels | $120,302 | $83,977 | $(15,792) | $(13,763) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial results, highlighting a 38% revenue increase for the first six months of 2022, offset by significant losses on derivative instruments and unfavorable LIFO inventory adjustments, leading to a wider net loss Results of Operations Consolidated revenue for the six months ended June 30, 2022, increased by 38.4% to $160.1 million, primarily due to higher sales prices, but the net loss widened to $15.5 million from $5.3 million in the prior-year period Consolidated Results Summary (Six Months Ended June 30) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $160,057 | $115,634 | 38.4% | | Gross Profit (Loss) | $(6,178) | $(10,779) | 42.7% | | Net Loss | $(15,502) | $(5,292) | (192.9%) | - The increase in gross profit for the six months ended June 30, 2022 was mostly offset by a significant loss of $26.6 million from derivative instruments, compared to an $8.0 million loss in the same period of 2021[117] - The Chemical segment's gross profit increased by 222.2% to $9.6 million for the first six months of 2022, driven by higher sales and the absence of unusually high natural gas prices seen in the prior year[125][126] - The Biofuels segment's gross loss increased to $15.8 million in the first six months of 2022 from $13.8 million in 2021, primarily due to larger losses on derivative instruments[128][131] Liquidity and Capital Resources The company maintained a strong liquidity position with $129.2 million in cash and cash equivalents and no outstanding debt as of June 30, 2022, with sufficient resources to fund operations and capital requirements Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,910) | $(2,349) | | Net cash (used in) provided by investing activities | $(1,206) | $16,248 | | Net cash used in financing activities | $(5,251) | $(114,427) | - The company has a $100 million revolving credit facility that terminates on March 30, 2025, with no borrowings outstanding as of June 30, 2022[146][66] - Financing activities in the first six months of 2021 included a special cash dividend payment of $109.4 million, compared to regular dividend payments in 2022[144][148] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to commodity price risk for raw materials and finished products in its chemicals and biofuels segments, mitigated by contracts and derivatives, with no interest rate risk as of June 30, 2022 - The company uses exchange-traded commodity futures and options contracts to manage price risk from market fluctuations in biofuels prices[157] Sensitivity Analysis: Impact of a 10% Adverse Price Change on Gross Profit | Item | Decrease in Gross Profit (in thousands) | Percentage Decrease in Gross Profit | | :--- | :--- | :--- | | Biodiesel feedstocks | $10,533 | 170.5% | | Methanol | $524 | 8.5% | | Natural gas | $449 | 7.3% | - The company had no borrowings at June 30, 2022, and therefore was not exposed to interest rate risk[164] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of the end of the period due to a material weakness in internal control over financial reporting related to an income tax valuation allowance calculation - A material weakness was identified in internal control over financial reporting related to an error in the income tax valuation allowance calculation that was not identified upon review[166] - To remediate the deficiency, the company plans to utilize a third party to review the valuation allowance for the life of the net operating losses[168] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not a party to any material pending legal proceedings, other than routine litigation incidental to its business, and does not expect any current matters to have a material adverse effect on its financial condition or results of operations - The company is not involved in any material legal proceedings beyond ordinary routine litigation incidental to its business[173] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors disclosed in the 2021 Form 10-K were reported[174] Other Items (Items 2, 3, 4, 5, 6) This section confirms there were no unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, or other material information to report for the quarter, and lists the exhibits filed with the report - The company reported "None" for Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information), indicating no reportable events in these categories[176][178][181][183]