Green Brick Partners Inc (GRBK) 2010 Q3 法說會逐字稿

Welcome to today's BioFuel Energy Corp.'s third quarter release conference call. During the presentation, all lines will be in a listen-only mode. A question-and-answer session will follow the presentation and instructions for asking questions will be given at that time. Thank you all for your attention. I would now like the to turn the conference over to your host, Mr. Scott H. Pearce, President and Chief Executive Officer.

Good morning, everyone, or I guess afternoon East Coast Time. Thanks for joining us for our third quarter earnings call. With me today is Doug Anderson, Vice President and head of our Operations, and Kelly Maguire, our Chief Financial Officer.

First, going to cover a forward-looking statement and then we'll begin the presentation. 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 expectations 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 Annual Report on Form 10-K and in other periodic filings.

So we accomplished a lot during the quarter and continued to make good progress in a number of plant operational improvements that I've spoken to in the past several calls that showed through on our results this quarter. Industry margins rose during the quarter and this strength has continued. We remain very focused on being highly efficient at sourcing our inputs and selling our distillers grains and ethanol to achieve the best overall margin we can realize. This said, we have been disappointed with our distiller marketing results to date.

Finally, we secured a bridge loan to pay off our working capital facility and announced a rights offering that if successful will significantly delever the Company's balance sheet. First, recapping the results that Kelly's going to cover shortly, we had a net loss attributable to common shareholders of $1.4 million on revenue of $115 million, or a net loss of $0.05 a share. This is a $4 million improvement over the same period in 2009 and an $8 million improvement over the last quarter ending on June 30.

I'm going to first talk about the plants and then turn it over to Kelly to talk specifically about financials and then I'll come back and talk some on the industry and our outlook. Our assets performed quite well during the quarter. We produced from our two facilities 56 million gallons of ethanol, approximately 5 million gallons more than the same period in 2009. Other than an intense thunderstorm that caused a power outage at our Nebraska plant in July there was no unplanned down time.

As I mentioned on our last call, having achieved reliable production, our operations teams are focused on driving a cultural change to maintain their focus on cost control at our plants. We realized our main cost control goals for the quarter and are on track to drive out over $0.05 a gallon of production cost by the end of the year.

Last quarter I also mentioned an area we were concerned about around our centrifuges. We did during the quarter complete a top to bottom assessment of the performance of these units. Doug and his team did a great job and have work ongoing with the supplier of these units on a path we believe that has helped us identify several root causes of historical performance issues and that we are on a good path to put this risk behind us.

In other areas of operation, we continued our focus on safety and environmental compliance and continue to see improvement year-over-year in this area as well. Safety is critical in a business like ours as I've talked about before and adding to the measurable improvements we had in September a milestone for a full year without a recordable incident at our Fairmont, Minnesota plant. Great accomplishment for that team.

Wrapping up operations, we remain extremely focused on our target business plan for 2010. We're focused on operating efficiently and are turning our attention to further yield improvements, the amount of ethanol per bushel of corn, that we have realized year-over-year improvement in this area as well. Yield specifically, we believe there are further gains to be made and I think as you all appreciate, this is an area that provides significant return in operating leverage for even the slight increase in incremental improvement.

So turning to risk management, in addition to our operational focus, we remain focused on making risk management a core competency in the business. As shared before, our plan builds on having reliable operations, keeps us very focused on both the nearby and [forward] markets to be highly efficient at securing our inputs and selling our products to achieve the best margin we can. We did very little hedging during the quarter. Though we are limited by our liquidity to some degree, forward margins have only offered limited windows and we really haven't seen that to be a beneficial move coming into the fourth quarter as well.

We do continue to monitor the forward markets and hedge and lock margin when it makes sense. Even with the challenges of the margin, or the forward market, we did, as we I think mentioned last quarter, seek and in this instance obtained our export license for our Nebraska plant, as we see this as another tool to manage risk. And in September we took the first two unit trains from our Nebraska facility out of the US through the export market and continued this into October.

The premium we expected to realize in the US market did not materialize due to the monthly index, CVOT, that these sales were made and the ongoing discount that it's trading compared to cash settlements. However, we have identified a better pricing mechanism to take advantage of the premium and expect to continue to leverage this as a way for us to manage the risk in our business.

Finally, as noted, we mitigated the risk of our working capital deadline by securing a bridge loan that was used to pay down this facility on September 24. Subsequently, we have filed an S-1 with the SEC related to our planned rights offering which we cannot discuss while we're in registration with the SEC. As mentioned earlier, I'm going to turn it to Kelly to go through our financial results for the quarter and then I will come back and share our perspective on the industry before turning it over to your questions. Kelly?

Thank you, Scott, and good morning, everyone. As Scott mentioned earlier, continued cost reductions in addition to margin improvements during the quarter showed through in our results for this quarter. For the third quarter of 2010, our net loss attributable to common shareholders was $1.4 million, or $0.05 per share. We recorded revenues of $114.7 million for the quarter, including $102.2 million from the sale of ethanol, and $12.5 million from the sale of distillers grains. Cost of goods sold totaled $110.1 million, including $78.2 million for corn, which resulted in a gross profit of $0.6 million for the quarter.

In addition, we incurred $3.6 million in general and administrative expenses during the quarter which resulted in operating income of $1 million. Finally, we incurred $2.8 million in interest expense for the quarter which resulted in $1.8 million net loss before noncontrolling interests. The net loss attributable to noncontrolling interest totaled $0.4 million, therefore, our net loss attributable to BioFuel common shareholders was $1.4 million. Depreciation expense was $6.8 million for the quarter, of which most of it, $6.5 million, is included in cost of goods sold, with the remainder in G&A expense.

In comparison for the third quarter of 2009, revenues totaled $91.1 million including $79.8 million from the sale of ethanol and $11.3 million from the sale of distillers grains. Our cost of goods sold was $89 million while G&A expenses totaled $5.9 million, and interest expense totaled $4.6 million resulting in a net loss before noncontrolling interests of $8.4 million. The net loss attributable to noncontrolling interest totaled $2.2 million, therefore, the net loss attributable to BioFuel common shareholders was $6.2 million or $0.26 per share for the third quarter of 2009.

As previously discussed and disclosed, the Company entered into a bridge loan on September 24, of which the proceeds were used to repay in full the working capital loans under our senior debt facility which totaled $17.9 million. The bridge loan facility matures on March 24, 2011. The Company's cash and equivalents balance was $10.9 million as of September 30, 2010. Also as of September 30 the Company has the ability to extend payment terms for corn which provides approximately another $3.2 million of additional liquidity.

Finally, concerning our rights offering, on October 18 we filed a registration statement with the SEC for our previously announced rights offering. We expect to use the proceeds of this offering to repay in full our bridge loan facility which we entered into on September 24 in order to repay our working capital loans under our bank facility. We also intend to use proceeds from the rights offering to repay our subordinated debt and to make certain payments to Cargill.

Thanks, Kelly. So I'll wrap up just talking a little about our industry and, again, open it up to your questions. There are a couple major themes that I think should be noted. First, today US corn ethanol remains the cheapest alternative to motor fuel in the world. We are exporting ethanol into a global market for biofuels, something that many thought it would take a whole lot longer to see than the year 2010.

Secondly, public policy in the United States and abroad continues to be very supportive of the biofuel industry. This base of support has always seemed pretty logical to us given the political and economic realities of the United States. We enjoy a competitive advantage as a nation in our agricultural core and efficient production of low cost light corn that we produce in the Midwest. Against these two factors, we have a current margin environment and forward curve that does not appear to be indicative of the future of this industry.

Margins are 60 to 90 days out and are at about a $0.30 inverse and basically flat for 2011. I think one may cite this discount as anticipating a delay in passing the [blenders] credit but that really does not make a lot of sense to us given the current blend margins and our understanding that most of the majors passed this through to retail customers at least historically. So first, let me touch on the margin environment for the US, what that means for a producer like us, and then I'll talk about some of the ongoing policies that are continuing to evolve and what those might mean for our industry and business.

Margins began to show strength in early August and this strength has continued with about a $0.20 a gallon pickup since that time. Corn market has also shown a lot of strength, not in this period entirely, but particularly since the end of September, and yet ethanol has throughout the whole period more than kept up on tight supply and rising gasoline prices. We carefully monitor the supply and demand balance on a regular basis as part of our risk management process.

We were surprised at how weak margins were in the middle part of the month and suspect that there may have been an inherent demand lag against what we saw as a reasonably tight S&D at the time and that might partially explain the firmness of ethanol prices we've seen over the last 90 days. We are cautious about the inverse rolling forward and particularly mindful of the winter months during the first quarter when motor fuel demand typically wanes. However, balancing this risk is a prospect for continued exports as every day sugar seems to rise and our assets are well positioned to continue to participate in this market.

On the policy front, we believe if you work through all the noise and often the press against the ethanol industry, particularly corn ethanol, and by the way we don't see any reason this will abate any time soon, but we think if you do sort through all that ethanol and biofuels will continue to play a keel role in the ongoing evolution of the country and world's future energy plans. We believe this is the case even giving consideration to the recent changes from the election in the United States.

This allows for leveraging our core agricultural competencies and today is the only existing alternative to rid us of our future dependence on foreign oil. The announcement in the early part of October of the EPA approving an increase to E-15 for newer model cars is an example of this which we view as supportive to the industry in the mid to longer term.

We are watching the extension of the VTech, or Blenders' Tax Credit, carefully and importantly note the initiatives underway for potential for changes in this credit that may see it reduced or phased out over time. But in turn, initiatives like the Freedom Fuel legislation providing funding necessary for infrastructure investments that are necessary to continue to increase market access for E-15. So if you take all of this together, in summary, we see a policy that is net positive and supportive to the industry and the Company remaining on track to execute a very solid plan for 2010 with even more momentum going into 2011.

We were not counting on a lot of help from margins and with more help than expected and our ongoing cost saving and revenue maximizing initiatives, we're quite optimistic about the future. We're very appreciative for the continued support from our shareholders, and at this point I'm going to open it up for any questions you may have of Doug, Kelly or myself.

Thank you. At this time, we will begin the question-and-answer session. (Operator Instructions) Please hold for a moment while our system compiles your responses. And our first question comes from [Zoltan Bernock.] You are live. Go ahead.

Yes, hello, gentlemen. Thank you for taking my call here. I have a couple questions. First of all, I was wondering as an organization do you guys give guidance?

We do not.

You do not. Okay. Can you speak to -- speak a little bit about the improvements you're making in terms of getting better yields from your productions or what that's going to be like moving forward?

Sure. Doug, you want to talk to that?

Yes, on the operations front we're continuing to work on optimization of our plants from the front end to the back end and putting full emphasis on the fermentation piece. We're looking at everything from overall chemical usage, operational improvements, yield sizing, enzyme dosage improvements and just overall better utilization of the corn in general.

Now, will these improvements require any sort of capital expenditures?

Everything that we've done in-house so far has been minimal in nature. We're utilizing, with the help of our vendors and our own expertise in-house, we're making these improvements and minimizing the starts that we're passing out the back end and we feel we have continued things that we can work on with minimal capital.

Okay. Excellent. Thank you.

Thanks, Zoltan.

(Operator Instructions) And gentlemen, we have no more questions.

Okay. Well, again, thank you for your continued support. We feel very good about where we are for finishing 2010 on a positive note and like the momentum we have going into 2011. Thank you.

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