Green Brick Partners Inc (GRBK) 2008 Q4 法說會逐字稿

Welcome to today's BioFuel Energy Corp.'s fourth quarter and year end conference call hosted by President and CEO, Mr. Scott Pearce. During the presentation, all lines will be in a listen-only mode. A question-and-answer session will be performed after the presentation. And instructions for asking questions will be given at that time. Thank you for your attention.

I would now like to turn the conference over to your host, Mr. Scott Pearce.

Thank you. And thanks all of you for joining us this morning. We have, in addition to myself, Kelly Maguire, our Chief Financial Officer, on the call, also Tom Edelman, and for the question-and-answer session, we may have Dan Simon, our Chief Operating Officer join us.

I'm going to run through the agenda briefly and then turn this to Tom for a few comments about the transition the Company has under way. But we're going to give you an overview of fourth quarter results, Kelly will run through. We will then talk about the operating results, specifically how our plants are doing and the industry conditions. And I will cover both of those. And then finally we'll turn it over to you for some Q&A.

At this point, though, I would like to turn it over to Thomas Edelman and have him make a few comments about our new Chairman and the transition we're going through.

Thank you, Scott. Well, thank you all, as Scott said, for being with us. This is an unusual call for me because, as you know from our release, in the middle of the month I am now the ex Chairman and Chairman of the Board of BioFuel so I guess I'm a stockholder and guest, as we speak. Just to try and explain a little more fully what occurred, as many of you know, I, in association with Scott, Dan Simon, my good friend, Irik Sevin and Cargill, started BioFuel a little more than three years ago. And with the completion of construction that Scott will talk more about, as well as the defeasance of the obligation to Cargill left over from the hedging fiasco of last summer and the sub debt that we achieved where there really is no current claim on the Company or its shareholders by either Cargill or the sub debt holders, we're simply accruing interest at 5% until we're capable of paying it, that, in concert with the completion of construction really gave me the ability to feel I could step down as Chairman of the Board and Chairman.

I did it not as a matter of choice. I did it as an obligation. I had started a bit more than a year ago another business. We had assumed by now BioFuel would be going full force in any case, and in deference to the investors in that other business I had committed to turn my attention to that energy. The good news from the Company's perspective is that we got those two key milestones out of the way and that Mark Wong who is replacing me, who has been a director of the Company for the last year or so, is probably far better qualified than I to play this role for an ongoing operating Company. We have unfortunately been a construction and financing company for most of the last three years, and finally the challenges ahead will be challenges of operations and management in the biotech industry, which Mark has far more experience in than I.

So I think that it will be a positive for the Company. I am somewhat awkward in my new position as a helpful observer. I've committed to the Board and to the management that I will make myself available to the maximum extent possible on an unpaid and unofficial basis going forward for as long as I can be helpful to the Company and its shareholders, but I no longer hold any official position with the Company. And I want to thank you all for your tolerance of what has obviously been a very rough road for everyone. And as I say, to the extent I can be helpful to Scott and the Company overall, I will continue to do so.

Thank you, Scott.

Thanks, Tom. And to Tom's point on being available and helpful, case in point, as I think he got in at about 3 am last night and had looked at some of the comments we prepared and gave some helpful insight and perspective. So in any event we thank him very much for the work he's done, and as he said Mark Wong has very complementary operating experience and I think we will have, with Tom's offer to help and as well, what was just covered, transition.

As far as the fourth quarter goes, Kelly will go through the specific results in a moment. But just to recap, when we last spoke in November, we had made significant progress in stabilizing our operations and completing our plants, and at that time we expressed confidence that we had exhibited or heard from all ranks of the organization that we would meet our end of year goal, producing 100% for December. Given all that was going on, I must admit to being a little anxious about that. Nevertheless, we did and I'm pleased to report were able to reach that at the end of December. And when I come back, I will talk a little bit more about some of the details, just to give you color in some of the specifics on closing out with TIC.

But anyway, with that, Kelly, I'll turn it to you to go through the financial results.

Thank you, Scott. For the three months ended December 31st, 2008, BioFuel Energy recorded $89 million of revenues, which included $73.6 million of ethanol sales and $15.4 million from the sales of distillers grains. Our cost of goods sold for that period totaled $95.1 million, which included $65.7 million for the cost of corn. In addition to that, we incurred $2.1 million of G&A expenses, which resulted in an $8.2 million operating loss for the quarter. We also incurred $4.2 million in interest expense for the quarter, which resulted in a $12.3 million loss before minority interest. It should be noted that in these numbers, $6.7 million of depreciation expense was incurred, so in effect the operating loss of $8.2 million was $1.5 million before depreciation expense.

Just to give you a brief summary for the year end, we had $179.8 million of revenues, of which $151.2 million was ethanol sales. We also had cost of goods sold of $199.1 million. G&A expenses of about $17 million, which resulted in an operating loss of $37.7 million. In addition to that, we had non-operating expenses of interest expense of about $6 million, our hedging losses of just about $40 million, to result in a loss before minority interest for the year ended of $84.1 million.

The Company's cash position at the end of the year, we had $12.3 million of cash and equivalents, $16.7 million of accounts receivable and $14 million of inventory. So we still did have a significant amount of cash at the end of the year. In addition to that, we had $3 million of availability under our working capital line. And $28.8 million available on our construction line, which is being utilized to pay construction retainage which we did in February of this year. We paid $9.4 million to TIC to close out the contracts. We have to fund around $10.8 million to a reserve account when the construction loans are termed out to term loans, which is anticipated to occur here in the second quarter. And then in addition to that, we've got about $3 million or $4 million of additional costs to incur on construction, which will leave us with about $4 million of availability on the construction loan at the time the conversion happens.

Scott, with that, I will turn it back over to you and you can go through operations.

Thanks, Kelly. Well, as I said, we did meet our end of year production goals. Specifically, going back to the hedging challenges and then the overall result, a gut wrenching year in terms of the actual financials, given where the industry is. I'll come back to that in a minute. But as far as the plants go, and specifically with the transition from running a construction to an operational company, if you were to walk out on the site today, you'd see that virtually all the construction personnel are gone. There's a small crew working on the reliability projects or remaining construction that Kelly just mentioned. But really, all you've got is the operations team, the five folks that run the plant day-to-day and another five or seven material handlers that are receiving corn and loading ethanol and shipping distillers grain.

I'm going to cover some of the key operational results or events of the quarter, share a few things that are still not going well and then we'll touch on how things are going between Cargill, our banks and our monitoring our position. Though I'll get to the industry situation a bit later, poor margins facing the industry is the real story here and because of that we're likely going to need some help from our banks if we're going to be able to continue to operate as planned. And again, I'll spend some time on that specifically with how things are going with our banks and try to provide you a road map for the Company between here and the end of June. Key date at the end of June being what Kelly mentioned with conversion of our loan. That is the deadline by which we need to meet that and at the same time or coincident with that our first principal payment of $3.2 million is due.

But at the end of the quarter, our construction contract or TIC was able to complete the final performance test at both sites. These were a series of tests where the plant had to demonstrate it could run seven days, continuously, while meeting the design capacity of 110 million gallons anhydrous while also meeting the efficiency and performance guarantees. Finally, also demonstrating compliance with our environmental permits. I know that that is quite a lot, but the fact is that by the time we entered the holidays, we had looked at all the data and confirmed that those tests had been met successfully. I will note that it wasn't until the early part of February that we had final approval and signup from our banking syndicate on those tests.

During that time, we negotiated a final agreement with TIC in which we agreed to pay them, of the amount that we were holding back, $9.4 million, which was $4 million less than the original amount we set aside. This was agreed in exchange for us taking on roughly $2 million of remaining construction work which we commonly refer to as punch list items. Therefore, the only thing that remains with TIC at this point is warranty items. So for all practical purposes, though we are working on warranty items with TIC on a weekly basis, construction and the startup is complete.

I will note that having worked on about eight projects of similar scope and size over the last 15 years, this was one of the most challenging that I have encountered. And I would cite specifically that Dan Simon, our Chief Operating Officer, and Tim Morris, our Vice President of Operations and the entire operations team did a solid job of working through the issues. Though we were three months later and, again, that certainly didn't help with respect to our losses, this team managed to complete the plants within 1% of our original $310 million capital budget, and in the environment that we were working in with a period of extremely high construction escalation, I think that is something to be pointed out.

For the quarter, our plants averaged 84% of capacity. That was up from 62% during the third quarter. We did make or have several planned extended shutdowns where we completed repairs and prepared for or TIC was allowed to prepare for the performance test. During the quarter we produced 47 million-gallons of ethanol and approximately 200,000-tons of wet and dry distiller grains. With our major focus on reliability, we did through the quarter, so October, November, December and as mentioned for December, see demonstrable progress in attaining our production and, hence, meeting the 100% capacity in December.

We finished the year on a strong note. We hit our average production target of 100% in January, 103% in February, and we will likely finish March short of our goal, somewhere in the 95% to 97% of capacity range. The main issues that we continue to struggle with are the dryers and related system reliability, so particularly the conveyors that take the wet or partially dried by the centrifuge's distillers grain to the dryers and then also the dry grains from the dryers. That area continues to be a problem for us, although for the most part, since the December time frame, we've been pleased with the way the plants have run.

As to the balance of operations, we've also largely completed all the integration of our logistics, risk management and accounting between Denver, the plants and Cargill's headquarters. We continue to review our risk positions daily but for the time being, wouldn't really say that we were doing much with respect to risk management because between our liquidity position and the poor to negative margins that we've seen really since December, there's not much to do, other than stay very close to home.

Finally, Tom mentioned this, but again, an accomplishment for the quarter, we were able to successfully negotiate settlement of the outstanding hedging losses with Cargill and our mezz lenders and if you would compare to what we talked about in our last call, and ultimately the press release, we reached a beneficial settlement to the Company of what previously was $17.5 million owed to Cargill, now being $11.4 million, and then also being able to on that, in our remaining mezz, have our interest accrue at 5% going forward. Again, these are at the parent company, so really have no, nor did they have any material effect on our operating subs.

So as we start to talk in terms of the market, I'm sure you're all aware, we have a very challenging situation before us. This is probably the biggest issue facing the Company and its stakeholders at the moment. As noted in our press release and I covered earlier, we have our first principal payment due at the end of June. The operating subs have continued to meet all of their obligations. However, where we had previously hoped to at least be starting to chip away at our debt, via cash flow from operations, the market conditions have just not allowed us to get to that point.

Many of you may be familiar, but to be clear, we've got a $210 million senior debt facility that was funded under a traditional project finance structure. It's a bank loan that was secured or is secured by our plants and essentially the assets at the operating subsidiaries. As Kelly covered, we have not converted this to a term loan which we will do so or have to do so per the current agreement by the end of June. You also may have noted that this facility has or will have $10.8 million for funding a debt service reserve at the term conversion. Thus, at that point, we would have a full amount of $11.8 million funded in a debt service reserve.

Between this reserve fund and several industry comparables or data points that we have, where waivers have been granted, allowing borrowers to delay principal payments, we think that there are ample ways that the banks can and will likely help. We have a very diverse lending syndicate that has some strong European banks as well as US national agriculture banks. We believe that while we cannot report anything on it at the moment, but that we have an opportunity before us that we will likely be able to work something out, but again, we certainly have nothing we can share on this subject at the present time. What I can share is that Kelly and I visited with several of the key banks in our syndicate in late January. The general feedback was that they were interested in helping but wanted to see continuous progress on our plants. And that we were also doing our part in cutting costs.

The fact is, starting just before the Christmas holidays, we developed a broad business optimization plan. We rolled this out in January. We've scoured our P&L. We have focused on the main levers for the business and between our internal efforts to wring out costs and working with key vendors, we have made significant reductions. We believe that we have clear visibility to $10 million to $15 million out of our annual cost structure. Some of this is being realized now but the full impact will not be realized on a go-forward basis until July of this year. You also may have noted that we have made reductions in our corporate overhead, as noted in the press release, of about 20% or $1.5 million of that total amount that I just referred to.

Against all of this, I think a question we've certainly wrestled with is what else should we do? We are still very focused on working through the current situation before us, which means running our plants well, optimizing them and wringing out every dollar, or frankly, penny, of cost that we can, and ultimately working something out with the banks and Cargill. That being said, the focus we have is to be one of the last standing in this industry. The three fundamentals that brought us here -- the opportunity to earn a decent return for shareholders, an alternative for energy security and to foreign oil, and an environmental benefit -- sadly the first is badly compromised at the moment. However, we're still mid-to long-term believers in the industry, and though our focus is on our current assets, we are also looking at ways to offer asset management services to the industry as an alternative way to grow. We are also increasingly going to pursue consolidation opportunities, either merging with or acquiring some of the smaller players in the industry that we may be able to extend our overhead and reduce our per unit cost.

So with that, I will just touch briefly on the industry and then turn it over for questions and answers. Many of you have watched the corn ethanol spread like we have, but the biggest driver of our business that we look at day-to-day is the difference between corn and ethanol or the crush spread. And while with some of the plant shutdowns through the end of February, we started to see improvements, in fact, though that crush spread had been largely below $0.20 to $0.25 a gallon, which resulted in us having negative $0.05 to negative $0.10 cash margins, so those would be margins after overhead and servicing our debt, they improved to a point that we were at somewhere close to $0.30 crush margins, or about breakeven cash margins. And yet from the early part of March, and it's started to get a little bit better, but we've pretty much gone back to the negative $0.10 and in fact maybe even negative $0.15 cash margins by virtue of corn running up at a time when ethanol has really not kept up on a corresponding basis.

The reason that corn ran up initially was, at least as we talked with the industry and Cargill, mostly related to the weather in South America, and the overall concern about the bean crop there and therefore the overall grain complex, and then more recently with the overall run-up in the markets, commodities in general and perhaps as an inflation hedge, some money running into corn. We thought that corn was over-bought on specific advice from Cargill, more than really the general industry and today, at least when I came in here, corn was down $0.06 or $0.08 a bushel and we wouldn't be surprised, especially with the market, to see it retreat some. However, with the wet weather currently in the corn belt there will be a bottom or a floor, so-to-speak, with respect to prices coming down we believe because of that until planting starts in earnest which will not be for another two weeks here.

In the questions and answers, I will talk through the VeraSun auction, but certainly with that news, pending court approvals, and Valero's bid, that does establish a clearing price for assets in the ethanol industry. We are still doing the work to analyze fully, and understand that, as we think about how best to position ourselves in this marketplace.

With that, Operator, if we could, that will conclude our prepared remarks, and I'd like to turn it over to the audience for questions and answers.

Thank you. At this time, we will begin the question-and-answer session. (Operator Instructions).

Tom, I think this may be a first, to not have any questions.

Mr. Pearce, it appears that there are no questions at this time.

Okay. Very well. Tom, is there anything that would you like to add?

I think the only thing, just to reemphasize, is that there are all kinds of important things, as Scott has alluded to, that needs to be done, first to get these plants to the level of efficiency, I think all of us have from the beginning strived for. And two, to reduce costs and expenses to the maximum possible extent in what's obviously a very, very tough market. But other than those things, which are going to be a continuing project, I think it's important to recognize that we're very cognizant that this is unlikely to be a two plant operating company long-term. And that, therefore, Mark and Scott and, to the extent I can, I will be seeking opportunities to pursue cost effective and profitable consolidation, be it someone or one's consolidating into BioFuel or vice versa.

But I think in the absence of that, Scott, I think to my knowledge, with whatever concluding comments you may have, we've covered the required waterfront.

Great. Well, again, thank you for your attention this morning. I think that between the transition which we've talked about, the plants, and as Tom rightly focuses on,day-to-day we are driving both the remaining work for reliability, as well as now really being able to dial in and evaluate what we call conversion efficiency here, which you broadly think of the main levers I'm talking about, but making sure we get as much ethanol as we can per bushel of corn while using the minimal amount of chemicals, enzymes and energy.

That remains our main focus and yet we're certainly now looking at the alternatives for what we do in this environment and we'll look forward to keeping you apprised of that as we make progress, both on our plants, with our banking group, and ultimately on what or how we may consolidate in or out of the present situation we're in. Thanks again for your time.

Thank you all for your attention. This concludes today's conference call. All participants may now disconnect.