Growth Catalysts

• Biofuel revenue growth driven by higher sales volumes (+$36.6M / +63%) partially offset by lower selling prices (-33% / -$19.4M); petroleum volumes increased (+$16.5M)
• Extension of P&G bleach activator agreement through 2016 (and later extended to 2018) supporting longer-term chemical demand and enabling monetization of acquired detergent formulation IP
• Gross profit/volume stabilization in chemicals supported by increased volumes from other custom chemical and performance products (offsetting bleach activator declines)

Business Development

• Procter & Gamble (P&G): amended agreement extending bleach activator sales through 2016 and acquiring IP rights for laundry detergent formulations; management described development of sales to third-party detergent companies
• Third-party detergent/“charging” companies: qualification efforts for “Knobs in Future Field” bleach activator product across consumer product applications
• Acquisitions: management stated they increased acquisition activity and hired a full-time acquisitions-focused person (no specific targets disclosed); “indications of value” and “synergy phase” were mentioned, but no formal bids detail provided

Financial Highlights

• Consolidated revenue: $107.1M (+4% YoY from $103.1M) driven by higher petroleum volumes offset by lower biofuel prices and lower chemical segment volumes/product mix
• Net income: $4.9M ($0.11 diluted EPS) vs $11.5M ($0.26 diluted EPS) YoY (-57% net income); gross profit declined 58% to $8.7M from $20.9M
• Gross profit decline explained by: (1) $8.8M one-time contract termination payment (graphite material contract) recognized in Q3 2014 but not repeated in 2015, (2) LIFO inventory carrying-value adjustments increasing cost of goods sold, and (3) biofuel profitability pressure
• Chemical segment revenue: -30% / -$13.3M to $26.7M custom chemicals (vs $40.6M prior period); custom chemicals were the main driver of the decline
• Chemical gross profit: -59% / -$10.5M; attributed to contract termination anniversary effect plus bleach activator additive decline and +$0.9M LIFO-related COGS
• Chemical mix shift: chemical revenue fell from ~44% of consolidated revenue in Q3 2014 to ~30% in Q3 2015 (slide chart referenced a correction from 48% to 44%)
• Biofuel segment revenue: +30% to $75.4M; driven by volume +$36.6M (+63%) offset by price -33% (-$19.4M); gross profit $1.4M (down $1.6M YoY)
• Biofuel profitability headwinds: reduced profitability in nationwide energy markets; lower rent prices due to continued strain on biodiesel industry; LIFO-related +$1.3M COGS adjustment
• Sequential gross margin check in Q&A (chemical segment): gross margin fell to 23.1% from 30.6% in Q2 (gross profit $7.3M vs $10.0M); attributed to bleach activator volume declines and ag-market challenges

Capital Funding

Strategy & Ops

• Chemicals: management emphasized work to grow beyond legacy products (P&G bleach activator and herbicide-related legacy product); new custom chemical product lines expected to support growth but dampened by softness in Ag chemistry and energy exploration markets
• Product qualification constraint: development/qualification for new consumer detergent markets described as time- and effort-intensive (specific operational hurdle repeatedly emphasized as a gating factor)
• Biofuel: industry producing in anticipation of possible reinstatement of the blenders tax credit; management waiting on governmental action on retroactive implementation

Market Outlook

• Biofuels tax credit: management referenced anticipation of reinstatement of the $1 blenders tax credit and whether it will be retroactive; explicitly stated they are “waiting on governmental action” to see outcome and timing
• No explicit numeric Q4 guidance provided in transcript; only qualitative outlook (retroactive credit hope; near-term pressure from energy prices and feedstock not dropping as fast)

Risks & Headwinds

• Ag chemistry and energy exploration market softness dampening chemical growth projections (explicitly called out as not short-term fix)
• Macro trend shift away from powder detergents toward liquid detergents, described as a challenge to scaling bleach activator product sales outside P&G
• Biofuel profitability pressured by energy price declines not matched by feedstock declines; biodiesel industry strain leading to lower rent prices and slower selling pace
• Industry relies on reinstatement of $1 blenders tax credit; uncertainty around governmental action; management did not quantify a retroactive payment in this quarter but noted they are awaiting outcome
• Inventory accounting impact: LIFO inventory carrying-value adjustments increased cost of goods sold (chemical +$0.9M; biofuel +$1.3M), contributing materially to gross profit compression
• RIN inventory effect acknowledged: carryover of 2M RINs sold in Q3; implies profit impacted by timing of RIN release/sale (management stated Q3 RIN inventory size wasn’t materially different YoY)