Green Brick Partners Inc (GRBK) 2010 Q2 法說會逐字稿

Hello. Welcome to today's Biofuel Energy conference call hosted by Scott Pearce and Kelly Maguire, second-quarter 2010 earnings release. (Operator Instructions).

Please bear in mind that we will be making a number of forward-looking statements on today's call. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectation of Biofuel Energy's management, and there can be no assurance that such expectations will prove to be correct.

Because forward-looking statements involve risks and uncertainties, our actual results could differ materially from management's expectations. Information about the risk factors that could cause our results to differ from our expectations are also referred to in this morning's earnings press release and are described in greater detail in our Quarterly Report on Form 10-Q and in other periodic SEC filings.

Thank you for your attention. At this time, I would now like to turn the conference over to your host, Mr. Scott Pearce.

Thanks very much. Good morning and thanks, everyone, for joining us for our second-quarter earnings call.

The quarter was again impacted primarily by weak industry margins. Against this, though, the headline for the quarter really is that even though we suffered from the first quarter to the second a $0.10 contraction in commodity margin -- that's our revenue less cost of corn -- our loss attributable to common shareholders was only $1.2 million worse than in the first quarter, because we were successful in getting some real momentum and putting some points on the board in terms of driving out costs.

So, with that, a frustrating quarter, no doubt, as margins contracted faster than we were able to drive out costs. However, it clearly points to an ongoing focus on steady pace of improvement with our operations and our plans.

To this end, we had the best production month in the Company's history in June. Both plants ran at above 105% of nameplate capacity. Kelly is going to cover the results in more detail shortly, but with this, we had a net loss attributable to common shareholders of $9.4 million and revenue of $96 million for a net loss of $0.37 a share.

Against the poor financial outcome for the quarter, there are a number of operational bright spots that I want to point out and walk through. Specifically, as we covered on the last call, we had an aggressive schedule to complete a number of key reliability projects at our Fairmont, Minnesota, and Wood River, Nebraska, plants, respectively, in April and May. We complete these projects on schedule and within budget and believe we've now completed the major improvements to our original plant design.

With this and as we had committed by June, we've turned the corner on our operational reliability. Some of you may recall that our plants are the only 200-million-gallon plants of this type design that were able to overcome some of the challenges like we did and run reliably without a major operational interruption. Believe we have embraced and made some truly unique aspects of the Delta-T design work while at the same time dispensing with those elements that did not work to come up with two plants that are capable of being unit cost leaders in the industry.

One area that we remain concerned about in our plants is our centrifuges. We are working with the supplier on these large units for more permanent solutions to address this potential risk and are quite optimistic that we'll work through the remaining challenges in a timely fashion.

As far as another area of operations, we continued to maintain our safety and environmental compliance record throughout the quarter. Safety is critical, as I've said in the past, in a business like ours. We have a measurable change in the culture and improvement that has shown through year over year at both plants and have continued our streak of 308 days now without a recordable injury and 549 days without a lost-time incident at our Fairmont, Minnesota, plant.

Finally, and importantly, as I mentioned at the beginning of the call, we saw improvements throughout the quarter in several areas to drive out our quest -- in our quest to drive out costs. Though we are trending in the right direction on costs, I can assure you nobody at the Company is complacent.

Our plant operations teams are now highly focused on driving this cultural change and bringing the whole new focus to cost control to our plants. This effort encompasses all areas of operations and, as well, corporate. These efforts will be critical to getting to the next level of operational excellence and maintaining our quest to be a low-cost producer and realizing what we have as far as goals, some pretty tall goals by the end of the year. But we feel very good about being on track to meet those.

We are continuing to be very focused on our business plans for 2010. With what we've done, our ongoing work will continue to be to remove bottlenecks, and yet we also expect to consistently produce above nameplate during the second half of the year while continuing this quest to drive out costs.

The other key area of operations is risk management. And in parallel to operational excellence at our plants, we remain focused at making risk management a core competency in the business. As I've shared before, our risk management program built on having stable and reliable operations and being focused on being highly efficient at buying our key inputs and selling products at our facilities.

We did realize some of these goals during the quarter, but are limited due to not only our liquidity, but also the fact that forward margins have only offered limited windows to lock in positive margins.

Despite these challenges, we are working with Cargill to develop a plan to do better, and during the quarter, we were able to implement a proprietary means to hedge some of our production despite those challenges I mentioned earlier, leveraging the agreements we have in place with Cargill.

A related opportunity is being able to export ethanol and realize the premium to the US market that's ongoing. We have good progress in obtaining an export license and expect to take advantage of this starting next month and further expect exports to continue through the end of 2010.

Finally, as disclosed in our 10-Q, the Company faces a pending deadline with its working capital at the end of September. I believe we've covered the risks adequately in our filing. I can share this is a key focus, and we are continuing to negotiate a solution with our lenders, yet can make no assurances as to the outcome.

That is the recap I wanted to give. I'll talk a little more about the industry in a second. But I'm going to turn it over now for Kelly to go through the detailed financial results.

Thank you, Scott, and good morning, everyone. As Scott mentioned earlier, we had a challenging quarter due to ongoing weak industry margins. For the second quarter of 2010, our net loss attributable to common shareholders was $9.4 million or $0.37 per share.

We recorded revenue of $96.4 million for the quarter, which included $83.8 million from the sale of ethanol and $12.6 million from the sale of distillers' grains.

Our cost of goods sold totaled $102.6 million for the quarter, including $70.3 million for corn, which resulted in gross loss of $6.2 million for the quarter. In addition, we incurred $3.2 million in general and administrative expenses during the quarter, which resulted in an operating loss of $9.4 million for the quarter. Finally, we incurred $2.6 million in interest expense.

This resulted in a $12 million net loss before noncontrolling interests. The net loss attributable to noncontrolling interests was $2.6 million. Therefore, the net income attributable to Biofuel common shareholders was $9.4 million or the $0.37 per share.

Our depreciation expense was $6.7 million for the quarter, of which most of it, $6.4 million, is included in cost of goods sold, with the remainder in G&A expense.

In comparison, for the second quarter of 2009, revenues totaled $106.5 million, including $88.3 million from ethanol sales and $18.2 million from the sale of distillers' grains. Our cost of goods sold was $107.3 million, while G&A expenses totaled $4.3 million and interest expense totaled $3.9 million, resulting in a net loss before noncontrolling interests of $9 million for the first quarter of 2009.

Our net loss attributable to noncontrolling interests was $2.5 million. Therefore, the net loss attributable to Biofuel common shareholders was $6.5 million or $0.28 a share for the first quarter of 2009.

From a gallons sold perspective, we sold just about 56 million gallons of ethanol in the second quarter of 2009 versus just about 57 million gallons of ethanol in the second quarter of 2009. So our sales, gallons of ethanol sold, was up 1.4% quarter over quarter.

The Company's cash and equivalents balance was $12.3 million at June 30, 2010. Also as of June 30, 2010, the Company had $2.6 million of borrowing availability under its working capital facility and may extend payment terms for corn, which would provide approximately another $7 million of liquidity.

Thanks for that recap, Kelly. Well, as to the industry, it certainly remains tough times, with margins being weak during the quarter. They continued to be weak through July, but we have since seen margins be stronger, with about a $0.10 pickup in August month to date.

With the supply of ethanol being what it is, we are carefully monitoring the supply/demand balance through the summer. We were surprised at how weak July was in particular. We attribute this primarily to gasoline demand remaining weak in this summer as compared to others and the ongoing weak recovery that we are experiencing.

We are quite cautious about the fourth quarter, with the new ADM plant that's up now in [Evantine] planning to put another 200 million gallons on by year end. However, balancing this risk is the prospect of the EPA approving the increase in blend wall from E10 to E12 or E15. That would add somewhere between 2.5 billion and 7.5 billion gallons of future demand.

What we hear is that we'll likely see something on this in September. But nothing can be assured. And for now, we are monitoring that carefully.

Rain is another matter, and it's a concern, given the changes we've experienced not only from the USDA report at the end of June showing a lower carryout, but also the ongoing drought, particularly in Russia -- or drought in Europe that's particularly affecting Russia.

This said, with the corn futures expected to stay in ranges higher than previously expected, we do believe we'll realize the benefit of our plant locations by layering on the ability to source cheap corn during the upcoming harvest and are already realizing some of the benefits of that.

More broadly, barring any abrupt change in the current policies and deviation from the course we're on to help relieve the United States of its dependence on foreign oil, we expect to see several good years starting sometime in 2011, with it increasingly balanced to [tight SMD] year over year, when you take into consideration it's an 18- to 24-month time people before any new production will come onstream and nothing other than the plants I mentioned we are aware of is being built or even slated to be built.

So, in summary, if I can recap where the industry and operations are, we are in a difficult period that is continuing with an oversupply in the US of ethanol. However, our operations team have really performed remarkably well. So we're not counting on a lot of help from margins, but we are on ongoing cost savings and revenue-maximizing initiatives that we have underway we believe will allow us to squeeze out slightly better results than otherwise would be possible.

And again, I can't understate the importance of what I think the momentum at our plants and morale is overall towards operational excellence, with some real points on the board in terms of driving out cost savings, if you compare our first and second quarter of this year. With that, and some very positive improvements to our team, I'm quite confident this will lead to a better future for the Company, its employees, its lenders and its shareholders. Thanks to each of you for your continued support.

I'll now turn it back to you, operator, for any questions that folks may have.

(Operator Instructions).

It doesn't look like we have any questions. So, again, thank you very much. We are optimistic with operational improvements and look forward to hopefully some help from the EPA with ruling on the waiver. And in the meantime, we'll keep our noses to the grindstone and continue to drive out costs and operate reliably. Thanks again.

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