FutureFuel Corp. (FF) Earnings

Management highlights

### Business Overview & Competitive Positioning - FutureFuel is a 100% U.S.-based chemical and biofuel manufacturer with an integrated 2,200-acre production complex in Batesville, Arkansas, a 50-year-old site with existing permits, infrastructure, and scale that is difficult to replicate today. - The company's core value proposition is a one-stop integrated manufacturing solution for complex, technically demanding custom chemical projects, with low execution risk, lower capital costs for customers, and a strong fit for reshoring demand to avoid overseas supply chain risk. - Customer relationships are long-term and sticky: average tenure of top customers is 15-20 years, as switching manufacturers requires costly requalification and production transfer risk. ### Past Challenges & Recent Improvements - Over the past two years, management prioritized improving plant reliability, safety, and utilization through targeted high-impact capital projects, resulting in higher utilization across the Batesville complex in H1 2026. - The biofuels segment has received meaningful regulatory clarity: the EPA issued the highest ever RFS blending mandates in June 2026 (a 60% increase over 2025 targets), and updated 45Z tax credit guidance from the IRS/Treasury levels the competitive playing field for biodiesel and extends credits through 2029. - Elevated raw material input costs remain an ongoing area of focus. ### Strategic Value Creation Roadmap - **Commercial Growth**: Prioritize increasing penetration of existing accounts, expanding the specialty chemicals project pipeline, converting development projects to commercial production, and shifting the sales mix to higher value-add products to drive margin growth with durable recurring revenue. Commercial discipline is used to prioritize opportunities with the strongest profitable growth potential. - **Operational Excellence**: Continue improving safety, reliability, cost efficiency, utilization, and productivity across the complex. Track and disclose key operational metrics (capacity utilization, uptime, safety, unit cost) to drive accountability for improvement. - **Capital Allocation**: Organic reinvestment for customer-backed projects is the top priority, with a focus on customer-funded capacity expansions that strengthen long-term relationships. Complementary acquisitions that add IP, proprietary products, or specialized capabilities will be evaluated only if they meet disciplined financial return requirements. Cash dividends and opportunistic share repurchases will be considered for returning excess capital to shareholders.

Guidance

- Management reaffirmed its full-year 2026 guidance of positive adjusted EBITDA, maintaining prior guidance with no upward or downward revision. - Biodiesel production is expected to continue ramping in Q3 2026, with production rates exceeding Q2 levels, and sales volumes are expected to improve further in H2 2026 due to improved regulatory clarity. - Management expects soybean oil and other biofuel input costs (currently at all-time highs) will likely revert to historical mean levels over time, which would create upside to biofuel gross margins, though this upside is not included in current baseline projections. - $22 million in gross proceeds from 45Z tax credit monetization is expected in H2 2026: ~$3 million in Q3 and $19 million in Q4.

Segment performance

FutureFuel operates two core segments: Specialty Chemicals and Biofuels. Total company revenue was $78.7 million in Q2 2026, up 120.7% year-over-year (YoY) from $35.7 million, with total gross profit of $15 million (versus a gross loss of $12.4 million YoY). 1. **Specialty Chemicals Segment**: Revenue was $25.8 million in Q2 2026, up from $16.6 million YoY, contributing ~32.8% of total company revenue. Production increased 34% YoY, with capacity utilization rising to 65% from 54% YoY. Gross profit was $5 million, improving from $1.1 million YoY. Within the segment, custom chemical revenue was $18.5 million (up 30% YoY, driven by higher energy customer volumes), and performance/proprietary chemical revenue was $7.3 million (up $2.4 million YoY, driven by new customer volumes launched in Q4 2025). 2. **Biofuels Segment**: Revenue was $52.9 million in Q2 2026, up from $19.1 million YoY, contributing ~67.2% of total company revenue. Production increased 21% YoY despite a 3+ week plant outage, with capacity utilization reaching 56% in the quarter. Gross profit was $10.1 million, improving from a gross loss of $13.5 million YoY. The segment saw a $9.1 million hedging benefit in Q2 from recovering prior Q1 hedging losses, plus $3.2 million in unrealized derivative gains.

Risks & headwinds

- Elevated raw material input costs, particularly for soybean oil and other biofuel feedstocks, remain a near-term headwind that will continue to pressure per-unit gross profit in the biofuel segment. - FutureFuel is exposed to macroeconomic shocks and volatility in commodity pricing: sharp spikes in soybean oil prices could negatively impact results, while a large drop in oil and gas prices could reduce demand for specialty chemical products serving the energy end market. - Custom chemical manufacturing projects have long lead times (1.5 to 2 years from initiation to commercial production), which delays revenue and profit generation from new projects in the product pipeline.

Analyst Q&A

• Q: Where does the company stand in its multi-year plant reliability and improvement cycle, and what work remains to be done? /

  A: Management estimates the company is 60-70% complete with the most critical infrastructure upgrades needed to secure reliable operations at the $1 billion replacement value Batesville site. The next phase of work will focus on investing in operational efficiency projects, prioritized by projected payback period. The site has significant existing capacity and capabilities, with upgrades focused on supporting core customer production cells and shared infrastructure.

• Q: What core competencies allow FutureFuel to take on complex, high-risk chemistry projects that other manufacturers will not accept, and how does the company monetize this capability? /

  A: The Batesville site has a 50-year history of producing complex and dangerous chemistries, originally for Kodak and Eastman, with existing permits and permit headspace that are difficult to obtain for new sites today. The large 2,200-acre integrated site includes all required in-house R&D, testing, waste treatment and infrastructure to support these projects safely. The long-term sticky customer relationships that result from the high cost of switching producers deliver stable, recurring high-margin revenue for the business.

• Q: Can the company elaborate on the model of customer-funded production capacity, and how much pipeline exists for similar projects? /

  A: FutureFuel's core custom chemical business model relies on customers building small production cells on the Batesville site, leveraging the company's existing infrastructure, permits and expertise to reduce their capital outlay and risk. The $40 million multi-year customer-funded capacity expansion referenced is a standard example of this model. The company currently has a healthy pipeline of similar customer-backed projects in the engineering phase, which will deliver revenue once completed.

• Q: What is the gross margin outlook for the remainder of 2026, and can we expect sequential improvement from Q2 levels? /

  A: Current biofuel margins are higher than management anticipated, and there are no expected near-term disruptions to current margin levels. Upcoming additions to U.S. soybean crush capacity and projected record soybean harvests are expected to eventually lower elevated soybean oil input costs, which would drive further margin upside, though this is not built into current projections.