Green Brick Partners Inc (GRBK) 2010 Q4 法說會逐字稿

Welcome to today's BioFuel Energy conference call entitled fourth-quarter and year-end earnings release. During the presentation, all lines will be in 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 for your attention. Now I would like to turn the conference over to your host Mr. Scott Pearce.

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.

Thank you, operator, and thanks, everyone, for joining us this morning for our fourth-quarter and year-end earnings call. I'm going to cover a brief overview of operations and talk a little bit about our results and then turn it over more specifically to let Kelly talk in detail about our financials for the fourth quarter as well as the full year. And then I will cover a few thoughts on the industry and the market before turning it over to your questions at the end of the call.

During the course of the year, we continued to make good progress towards driving down our unit production costs. We did this against the headwinds of contracting margins at certain times of the year we faced and specifically saw at the end of the fourth quarter. The result was this drove our net loss. We remain focused at being highly efficient at sourcing our inputs and selling our distillers and ethanol to achieve the best overall margin.

We think we've successfully positioned our assets to participate in the export market and also to the extent available, the California low-carbon fuel standard markets as we continue to seek out the best markets for our ethanol. In addition, and I think particularly during the fourth quarter, although a good portion of the second half of the year, we put a renewed focus on our distillers grain quality.

We think of this as a co-product not a byproduct, and with that focus and the quality that I did touch on -- we touched on on our last call, we have been looking at our program and we were disappointed at some of the specific marketing results. We evaluated a number of alternatives and in December, we changed from Cargill marketing the wet portion of our distillers and the results have been better than anticipated.

We also continue to look at other ways to improve how we manage our margins, have a number of initiatives that I'll cover later, some of which are made possible by our successful rights offering. And on that note, certainly a big improvement for the Company, we launched our rights offering during the end of the quarter.

We subsequently closed this $46 million offering on February 4. This significantly delevered the Company's balance sheet and we believe puts the Company in a stronger position as we look to the future. So as I said, I'm going to provide a little more detail on operations before letting Kelly dive into the financial results.

As far as our assets, we had a pretty good quarter. Plants ran at capacity. We also met this for the full year which is an improvement over 2009 and overcame what was a weak start for production during the first quarter of 2010.

As I mentioned on the last call, our operations teams remain focused on driving a cultural change to live and breathe controllable cost. We met our unit cost objectives for the year and this has provided good momentum as we looked at 2011.

I touched on this a little bit, but we set some very specific goals for the second half of the year from a cost perspective, and most of those were realized during the course of the second half of the year, but specifically in December. For 2011, we're keenly focused on two areas.

First is further yield improvements. We historically have met what our industry yields -- what we think we can do better than that. Each 1% increase in yield gives us about 2 million gallons of additional ethanol or $4.6 million at today's prices as far as a contribution to the bottom line.

The second is co-product revenue. We have now demonstrated through our focus on quality that we are among one of the highest quality distillers producers in the industry.

We have really turned that around from what we had been looked at historically. We believe this remains a main area of improvement not only for BioFuel Energy, but also the industry.

We as an industry historically are selling a product at a 15 to 20% discount to corn that has the same protein, fat, amino acid complex and that just doesn't make sense and remains an area that we're going to continue to focus on. As far as a couple other areas of operation, we continue to have a keen focus on safety and environmental compliance.

We saw year-over-year improvement, safety in particular, and adding to the measurable improvements noted on costs. We closed the year at Fairmont with 15 months without a reportable incident.

In parallel to operational excellence, we also remain focused on risk management, recognize this needs to be and is a core competency in a business like ours. Our risk management program built on the operational reliability we've now demonstrated keeps us focused on the nearby and forward markets. With respect to forward margin, our liquidity was a limiting factor to hedging production in 2010.

Through the rights offering completed, we believe that we will have an enhanced ability to manage our margins either via Cargill or other partners in 2011. At the same time, we think a key tenant of our risk management program is to continue to build out our export capability particularly with respect to ethanol.

We now have an export license at each facility. You may recall we had attained that in Wood River during the third quarter. And we do continue to look at this as a tool to manage the risk of the business.

Though the market for exports was oversupplied in the latter parts of 2010, in February of 2011 we shipped three unit trains to the export market and this continued in March. Continuing along the same theme of tapping higher value markets, we also shipped our first California unit train meeting the requirements of the low-carbon fuel standard with our relatively low carbon footprint Nebraska plant.

Premiums we are realizing from these markets is an improvement over what we can realize in the US. There is a risk in participating in these markets mainly due to the certifications that not just having an export license and meeting the requirements for the US, but also certain export market certifications, and also a higher quality ethanol, specifically lower moisture.

But our plant design is unique compared to the majority of the dry mills and our ability to meet this, and we think the back-office capabilities we have as far as tracking and measuring are also things that are well within our control as far as managing that risk. So with those points made on operations, I'm going to turn it over to Kelly to review our financial results and then as I said, I'll come back and talk a little bit about our perspective on the industry before turning it over to your questions.

Thanks, Scott, and good morning, everyone. As Scott mentioned earlier, continued cost reduction improvements during the quarter showed through with our improved results for the quarter. In addition, we successfully launched our rights offering during the quarter which was completed in February.

For the fourth quarter of 2010, our net loss attributable to common shareholders was $1 million or $0.04 per share. We recorded revenue of $141.4 million for the quarter including $121 million from the sale of ethanol and $20 million from the sale of distillers grain. In addition, our cost of goods sold totaled $136.3 million for the quarter including $104.8 million for corn which resulted in a gross profit of $5.1 million for the quarter.

We incurred $2.6 million in general and administrative expenses during the quarter which resulted in operating income of $2.5 million for the quarter. And finally, we incurred $3.5 million in interest expense for the quarter.

This resulted in $1.1 million of a net loss before noncontrolling interests, the net loss attributable to noncontrolling interest was $100,000 and therefore the net loss attributable to BioFuel's common shareholders was $1 million or $0.04 per share. Depreciation expense for the quarter was $6.8 million, most of which $6.5 million is included in cost of goods sold with the remainder in G&A.

By comparison for the fourth quarter of 2009, our revenues totaled $120.4 million with $14.6 million from the sale of distillers grains and $105 million from the sale of ethanol.

Our cost of goods sold was $105.8 million while G&A expenses totaled $2.9 million and interest expense totaled $2.9 million, resulting in net income before controlling interest of $8.8 million for the fourth quarter of 2009. Our net income attributable to noncontrolling interest totaled $2 million, therefore the net income attributable to biofuel common shareholders was $6.8 million or $0.21 per share for the fourth quarter of 2009.

Briefly for the full year of 2010, revenues totaled $453.4 million including $394 million from the sale of ethanol and $60 million from the sale of distillers grain. Our cost of goods sold was $454.6 million while G&A expenses totaled $12.4 million. Interest expense for the year totaled $11.6 million resulting in our net loss before non-controlling interest of $25.2 million. Our net loss attributable to noncontrolling interest totaled $5.2 million, therefore the net loss attributable to BioFuel common shareholders for the full year of 2010 was $20 million or $0.79 per share.

As previously announced, the Company completed its rights offering and concurrent LLC private placement on February 4 of this year which generated aggregate proceeds of $46 million. The Company used the proceeds to repay in full its bridge loan facility of $20.3 million, its subordinated debt facility of $21.5 million and to make certain other payments. The Company's cash and equivalents balance was $7.4 million at December 31 and remains approximately at that level today.

Thanks, Kelly. So as far as the industry goes, the biggest change since we spoke last quarter has been the tightness in the global grain supply, and that has certainly found its way to corn with the historically low stocks use that we have seen.

As I mentioned before, the other two I think ongoing themes are that US ethanol remains the cheapest alternative to motor fuel around the world. We believe that we'll continue to see the export market be strong and plan to play in this global market for biofuels.

Second, public policy, I think you might have picked up or may have seen the news like the attempt to sooner than the end of this year cancel the [Vtech] program, may distract or otherwise make it look like there's not good support, but my sense is its focus on the bigger themes, the RFS in particular, the industry continues to have supportive policy in the US and abroad. I think the events that have taken place in the last month particularly in the Middle East will certainly not have an impact as far as any waning of that support.

So with those factors noted, a couple of things I wanted to touch on. Current margins [that we had] a pretty challenging period in the beginning of the year, particularly in February as far as margins go, have come back to a point that we are currently seeing pretty much breakeven cash margins.

So when I say that, I mean positive or breakeven from a -- being able to pay overhead and debt service. We still have a big inverse and with that, into the second quarter, it's $0.10 to $0.15, but it's like it has been in the past, even worse than that, going into the summer.

With that as far as the rest of 2011, Q2 and Q3 are going to be challenges with the corn supply, we think. Against that though, ethanol remains quite cheap compared to RBOB and the RBOB/ethanol blend margin remains very positive.

So people have a strong incentive to continue to use ethanol. The other factor I think that has maybe been overlooked as we do have and share the concern with corn prices being high, but the ethanol supply and demand this year as compared to 2009 and 2010 is much more balanced than it has been.

As we look towards current driving season and demand for gasoline picking up, unlike where we have seen in the past there was 1 billion gallons of excess capacity, there's just not -- there not plans slated to come up other than a couple hundred million gallons, and that against the RFS is quite different than what we've seen in the past years. In sum, I think 2011 will present its challenges and yet as you look beyond again without any new plants coming online, strong global markets, continue to believe (inaudible) good promise in particularly the US.

So in summary, I think we'll continue to see policy that is net positive and supportive to the industry. We're very focused on our plan for 2011. As I mentioned during the second quarter, we made some operational changes that I think have had a great benefit.

Doug Anderson, our Vice President of Operations, is with us to answer any questions. So with that, I'm not expecting we're going to get a lot of help from margins this year, but we are expecting that our ongoing cost saving and revenue maximizing initiatives will play out and help us.

In addition to this focus at least as the base for 2011, we're beginning to look towards the future and what may be possible to smartly bridge one or two of the advanced biofuel technologies back to our strategically located and now well-performing assets. So with those comments made about operations, Kelly covering financials and the industry, I want to say thanks to each of you for your continued support and we will open it up to any questions you may have and turn it back to the operator to field any of those please.

We do have one question in queue. It comes from Mr. Greg Badishkanian.

I was just wondering, do you have any concern over funding working capital if the cost of corn increases to maybe $8 like it did in 2008?

I'm going to let Kelly touch on that one.

You know, I think right now, we're in a pretty good position on that. Obviously we buy all of our corn from Cargill. They been a good partner with us and continued to work with us, being at the point of being able to do that, I think we are also doing a very good job at both of the plants with managing our inventory levels as far as the amount of corn we've got along with the amount of ethanol that we do have and make sure we do timely shipments of our products. And so I think at this point in time from that perspective, we feel pretty comfortable with where we are at.

Okay, and then maybe about the export market, could you kind of compare that to the domestic demand situation and maybe how margins compare?

Sure, I want to be a little careful on margins since that moves around quite a bit. But if you look at the supply and demand (inaudible) RFS, $13.2 billion of mandated demand, you then have the installed capacity in the US that I think everybody's gotten pretty comfortable is close to $14 billion.

And so maybe as I said earlier, a couple hundred million gallons gets added, so it's 14.2. The export market has been pegged historically -- let me rephrase that -- pegged sense of the new norm of global market in the 600 to 800 million gallon range. Right now, Brazil is working to modify its standards to be able to take more US ethanol which I think is bullish against that 600 to 800 million gallons.

So while it's not a big market compared to the US, it is sizable, especially considering that imports to the US that used to be in that range have all but been shut off. And so with respect to the margins that you can see compared to the US, it's a pretty wide range, but it's been anywhere from a couple pennies to upwards to $0.10 per gallon from the US market over the course of what has been the last let's call it year; again, it's pretty new.

But there was a brief time in October when that almost went away and you didn't have much of a [premium] at all. But historically -- and again, it's a new norm, so I'm talking about the course of the last year, you've seen margins improvement on that incremental demand in that range that I just mentioned.

Okay, and then last question. After having strengthened the balance sheet with the rights offering, do you plan to undertake some more hedging opportunities? And just for my own knowledge, do you sell on a spot crush basis or do you have some sort of contracts? Also maybe do you have contract corn buying from Cargill?

Well, let me -- the answer to whether we are going to be able to hedge or increase that activity is yes. Because of the improvement, we have been able to set up some of the more traditional means for being able to participate either on the cash forward or futures market for selling forward our ethanol and then against that buying corn. We -- with your second question, I'm not sure I understood what your -- the spot versus the contract selling from -- or contract buying of corn from Cargill?

Right, I was just wondering is your selling price still on the -- is it on the spot price of ethanol and therefore your margins also come out from the spot crush margin? Or do you have -- I mean is it affected by contract corn buying which would take it away from the spot crush margin?

So I think what you're asking is as far as our ability to buy corn or at least establish the basis, we do have that ability and have done that historically. That doesn't take a lot of margin.

With respect to then hedging that, with locations that are in historically large areas of corn supply, so we tend to have a discount to the market or compared to specialty plants that are not in the center of the corn belt, we are either forward selling in the market which has a limited amount of cash forward selling (inaudible) and so by that, it means I guess you would say we are working what the market offers us on the forward curve, which is not necessarily spot pricing, although a lot of our sales do go off of what are spot in the event that we haven't forward sold any of our ethanol.

Thank you. We have no additional questions at this time.

Well again, thanks for the continued support. As I mentioned, I think with a combination of what we were able to do operationally with changes in 2010, our plants running well, distillers quality, being able to participate in some of the export markets and then looking at the outlook for 2011 with a tight corn S&D in particular, perhaps challenges for the middle part of the year, but long term continue to be optimistic and appreciate your continued support. Thanks for joining us.

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