Future Fuel Corporation 2026 Q2 Earnings Call

Good morning and welcome to the FutureFuel second quarter 2026 results conference call. Leading the call today are our Chairman and CEO, Roeland Polet, and I am Rose Sparks, the company's Chief Financial Officer. After the close of U.S. trading yesterday, we issued a press release detailing our second quarter operational and financial results. This release is publicly available in the investor relations section of our corporate website at www.futurefuelcorporation.com. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest reports filed with the SEC.

Additionally, please note that you can find reconciliations of all historical non-GAAP financial measures mentioned on this call in the press release issued this morning. Today's call will begin with prepared remarks from Roeland Polet, who will provide a business update, followed by my review of our second quarter financial performance. At the conclusion of these prepared remarks, we will open the line for questions. With that, I will turn the call over to Roeland.

Thank you, Rose, and good morning, everyone. Thank you for joining our call today. Again, I am Roeland Polet, Chairman and Chief Executive Officer of FutureFuel. I joined the company nearly two years ago, following more than 35 years in the specialty chemicals industry, including senior leadership roles at global manufacturing companies such as Valspar, Celanese, and DHM Furmanesh. Since joining FutureFuel in late 2024, I have had the privilege of working alongside more than 500 dedicated employees to position the business for a new chapter of profitable growth and long-term value creation. Over that period, we have strengthened the foundation of the company, sharpened our strategic priorities, and developed a clear roadmap for the future, which I will be discussing in greater detail today. This is FutureFuel's first quarterly results conference call with investors in more than a decade.

With that in mind, my remarks today will serve as a reintroduction of the company, who we are, what we do, how we are competitively differentiated, and the opportunities we see to create meaningful shareholder value over time. Going forward, our leadership team is committed to providing shareholders with greater access, transparency, and insight into our business. The resumption of quarterly investor conference calls is an important step in that commitment and reflects our intention to engage more consistently with the investment community. With that introduction, and given that this is our first conference call together, let's begin with a high-level overview of our business for those less acquainted with us. FutureFuel is a 100% U.S.-based manufacturer operating through two distinct businesses, specialty chemicals and biofuels.

Both are supported by our approximately 2,200-acre manufacturing complex in Batesville, Arkansas, where we combine product development, engineering, and commercial production on one integrated campus. The Batesville site has supported complex chemical manufacturing for approximately 50 years and represents an established operating platform that would be difficult to replicate were it built today, given factors of scale, permitting, and production unit complexity. Our chemicals business has two primary areas of focus, custom chemicals manufacturing for third parties together with proprietary specialty chemicals manufacturing. In custom manufacturing, we work closely with customers to develop, scale, and commercially produce specialized products under long-term production agreements. Our proprietary portfolio involves the production of our formulations using our own IP, which are then sold into a variety of different applications. The total production capacity of our chemicals operations is approximately 250 million pounds annually.

Our biofuels business manufactures biodiesel from the same Batesville complex, which has approximately 60 million gallons of annual biodiesel production capacity. The business benefits from significant feedstock optionality, which allows us to optimize production economics. While biodiesel economics differ from those of our specialty chemicals segments and are more influenced by commodity and regulatory conditions, the biofuels segment serves as a complementary business to our core specialty chemicals focus, serving to further optimize the Batesville complex while facilitating economies of scale. Next, let's walk through our unique value proposition and why we win in the markets we serve. Our primary competitive advantage is the scale, integration, and technical depth of our Batesville complex. When a chemical customer comes to us, we provide them with one integrated site that includes state-of-the-art laboratories, engineering resources, flexible manufacturing units, wastewater treatment, logistic infrastructure, permits, and experienced technical teams.

Our platform allows customers to move from development to commercial production with fewer handoffs, lower execution risk, and more capital-efficient production options. We offer a one-stop-shop solution that is difficult to replicate within the continental U.S., positioning us as an attractive reshoring play for chemicals customers who want to avoid supply chain risk associated with sourcing key formulations from overseas partners. While the integration of the Batesville asset is itself a major draw for customers, our deep technical expertise and experienced, skilled workforce are another integral piece of our overall value proposition. At Batesville, our teams manage production, raw material procurement, production quality, and formulation consistency across batch and continuous processes. We have built a strong reputation for being the go-to production partner on complex, technical, demanding programs that customers may not be able to manufacture efficiently themselves.

In regard to our value proposition, it centers on reducing technical, operational, and supply chain risk for the customer. A typical relationship begins with customer bringing us a molecule, process, or manufacturing challenge. We then evaluate the chemistry, safety requirements, production economics, and equipment needs, then work through development and scale-up before entering commercial production. As we demonstrate value, the relationship may expand through additional volumes, longer contracts, new products, or customer-funded capacity. Because changing manufacturers can require requalifications, audits, process transfer, and production risk, customer programs are often multi-year engagements, creating long-term stickiness within the customer base. To that end, the average relationship of our top customers in 2025 was more than 15-20 years, highlighting the long-term nature and stickiness of our customer relationships.

Before I walk us through what's next for FutureFuel, it is important to provide some perspective around the challenges we faced over the last several years, how we've responded to those challenges, and why we were excited about what comes next for the organization. In the years leading up to 2026, there were three primary factors that impacted our operational and financial performance: plant and production reliability, regulatory uncertainty around biofuels economics, and elevated raw material input costs. Beginning with plant reliability, over the past two years, we have made strides to improve the plant process, enhancing the site safety, and driving higher site utilization through executing on a number of high-impact capital projects. As I'll discuss shortly, we're encouraged by the improvement utilization of Batesville in the first half of the year.

Second, with respect to the regulatory environment, we, together with the broader biofuels industry, were granted much-needed relief with a new set of two RFS volume mandates issued by the EPA in March of 2026. Under the new mandates, the EPA established the highest blending mandates in the program's history, targeting a 60% increase over 2025. To meet the 2027 volume targets, existing U.S. domestic biofuels production levels are expected to reach peak capacity, which we expect will benefit us. Further, also during the first quarter of 2026, the U.S. Department of the Treasury and the Internal Revenue Service issued regulations providing expanded guidance on the 45Z credit, integrating changes from the Budget Reconciliation Act of 2025.

The rule is expected to help level the competitive environment for biodiesel by reducing the tax credit for SAF from $1.75 per gallon to $1 per gallon, effective January 1st, 2026, requiring that all feedstocks be sourced from North America, and requiring for biomass-based diesel, and extending the 45Z credit for additional two years through year-end 2029. Rose will speak more on how this benefits our business model shortly. Finally, while both plant reliability and regulatory environment have improved meaningfully for us, raw material input costs remain elevated, which remains an area of focus for us. Looking ahead, our value creation roadmap centers on three key pillars, including commercial growth, operational excellence, and a return-centric approach to capital allocation. Within our commercial growth pillar, our first priority is to increase penetration of key existing accounts, as well as scale production volumes across the Batesville complex.

We are focused on expanding the specialty chemicals pipeline, converting development products into commercial production, and securing additional volumes from existing customers. We will also pursue new custom manufacturing contracts and expand our proprietary chemicals portfolio into adjacent products and end markets, where our technical capabilities and our existing infrastructure provide a clear advantage. Our objective is not simply to add volume. We intend to pursue programs that accelerate our shift towards higher value add sales mix, whereby we capture ratable growth in margin realization within durable reoccurring revenue streams. By applying greater commercial discipline, we can concentrate our resources on the customers and opportunities which strongest potential to deliver profitable growth through this cycle. Within our operational excellence pillar, we will seek to improve cost efficiency, utilization, safety, reliability across the Batesville complex.

Higher sales volumes create value only when we can manufacture those volumes safely, consistently, and an appropriate unit cost. We are therefore focused on plant reliability, production scheduling, procurement, energy efficiency, maintenance practices, and process productivity. We also intend to make operating performance more measurable and transparent by tracking metrics such as capacity utilization, plant uptime, safety performance, and unit product costs. We can and will identify opportunities for improvement and hold our organization accountable for those improvement results. Finally, with respect to our capital allocation pillar, organic reinvestment will remain the top priority where products are supported by identifiable customer demand, including contractual commitments. Where appropriate, we will continue to seek customer-funded capacity expansions while strengthening long-term commercial relationships. We will also evaluate complementary acquisitions, particularly opportunities to add intellectual property, proprietary products, or specialized capabilities that can be integrated into our Batesville platform.