Green Brick Partners Inc (GRBK) 2011 Q3 法說會逐字稿

Welcome to today's BioFuel Energy conference call entitled Earnings Release for Third Quarter 2011.

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 for your attention.

I would now 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 expectation. 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.

Good morning everyone and thank you for joining us for our third-quarter earnings call.

With me on the call today are Kelly Maguire, our Chief Financial Officer, and Doug Anderson, our Executive Vice President of Operations.

We had a solid third quarter with strong margins, $2.5 million of net income, which represents an improvement of $4.3 million over the same period in 2010. This was driven mainly by the successful implementation of key deals and efficiency initiatives during the quarter with ongoing cost control.

In prior calls, we've discussed our plans to improve yields to maximize the return from our co-products. We made significant progress on these plans during the third quarter and have more to do over the major of the year. Doug is going to go over some of the details on these various initiatives and their associated benefits. Once completed, we feel confident that these improvements will continue to enhance our results and that these will position us well for 2012.

As you may have noted in our press release, industry supply and demand conditions showed continued improvement during the quarter and remain tighter than they've been for some time. These conditions held up through October as ethanol stocks remained low. At this point, we believe we are poised for a strong fourth quarter.

I'd really like to thank our employees for their contribution to our results this quarter. The entire team really came together to make this possible.

I'm going to now turn it over to Kelly to go through the financial results in detail, and then Doug will cover our operational update.

Thanks Scott. Good morning everyone.

As Scott noted earlier, the Company returned to profitability in the third quarter of 2011. Our net income attributable to common stockholders was $2.2 million or $0.02 of earnings per diluted share. We recorded revenues of $162.5 million for the quarter, including $137.7 million from the sale of ethanol and $24.8 million from the sale of distillers grain. This represents a 42% increase in revenues when compared to the same period in 2010, driven primarily by higher prices we received for our products.

Our cost of goods sold totaled $155.5 million, including $127 million for corn, which resulted in a gross profit of $7 million. In addition we incurred $2.5 million in G&A expenses resulting in operating income of $4.5 million for the quarter. Finally, we incurred $2 million in interest expense which resulted in net income of $0.5 million before (technical difficulty) interests.

The net income attributable to noncontrolling interest totaled $0.3 million. Therefore, the net income attributable to Biofuel common stockholders was $2.2 million, or $0.02 per diluted share, for the quarter.

Our depreciation expense was $6.7 million for the quarter, most of which, $6.5 million, is included in cost of goods sold with the remainder in G&A expense. In comparison, for the third quarter of 2010, revenues totaled $114.7 million, including $102.2 million from the sale of ethanol and $12.5 million from the sale of distillers grain.

Our cost of goods sold was $110 million while G&A expenses totaled $3.6 million and interest expense totaled $2.8 million, resulting in a net loss before noncontrolling interests of $1.8 million.

The net loss attributable to noncontrolling interest totaled $0.4 million. Therefore, the net loss attributable to Biofuel common stockholders was $1.4 million or $0.05 per share for the third quarter of 2010.

Briefly, for the first nine months of 2011, revenues totaled $489.1 million, including $411 million from the sale of ethanol and $78.1 million from the sale of distillers grain. Our cost of goods sold was $488 million while G&A expenses totaled $7.7 million and interest expense totaled $8.2 million, resulting in a net loss before noncontrolling interests of $14.8 million.

By comparison, for the same period of 2010, revenues totaled $312 million while our cost of goods sold was $318.3 million. G&A expenses totaled $9.8 million. Interest expense totaled $8.1 million, resulting in a net loss before noncontrolling interests of $24.2 million.

At September 30, the Company's cash and equivalents balance was $9.7 million while its term loans outstanding under its senior credit facility totaled $179.9 million.

At this time, I will turn it over to Doug to give his operations update.

Thanks Kelly. Good morning everyone.

The trends continue to head in the right direction, and I'm very pleased with progress our operations teams has made at both facilities. We sold 51 million gallons of ethanol, which was down compared our historical results due mainly to the production of low-moisture export spec, a reduced grind rate because of tight corn supply, and our fall shutdowns which we moved up in the case of our Minnesota facility to mitigate corn supply risk.

Against this, our risk management program, which focuses on efficiently sourcing our inputs while maximizing the outputs from our plants, performed well. As Scott noted earlier, yield and co-product optimization are key areas of our focus for 2011 after driving out substantial costs in 2010.

With respect to yield, we've seen improvement year-to-date. In September, during our planned shutdowns, we completed refinement to the front end of both of our plants. We expect this will deliver further improvement in yield. Each 1$ improvement in yield represents an additional 2.2 million gallons of ethanol from the same volume of corn, or a $0.03 per gallon improvement in unit production costs.

We also completed an energy reduction project at our Minnesota facility during a shutdown and through October have realized the expected improvement in lower BTUs per gallon of natural gas consumed.

Turning to co-products, this is the first quarter in which we saw the full benefit of a series of improvements that included changing marketers and that now provides us with the same optionality to serve the end customer in the feed markets as we had historically with ethanol. You may recall that, for each additional $5 per ton we realize in improved [ethylene] values for DDGs represents approximately $0.01 a gallon improvement. We produced a historically high amount of wet distillers during the summer that, in combination with assessing better dry distillers' end markets to our new distribution network, supported a higher relative value to corn year-over-year and a further reduction in our unit cost of producing ethanol.

As to the remaining plant improvement project for 2011, we are on track to complete the corn oil extraction project at each plant by the end of the year and expect to realize a full quarter of incremental revenue in the first quarter of 2012 following a traditional startup and debottlenecking process.

We closed financing on an operating lease last month, [and though we're] experiencing some of the typical construction and procurement issues, are pleased with our progress and how well the team has executed since making the decision go forward with this project in May. We remain excited about the benefits we expect to derive from this additional co-product.

Finally, ass mentioned in previous calls, safety is of paramount importance for a business like ours. We remind our associates each and every day, there is nothing we do that's worth getting hurt over. We finished the quarter with no lost time or recordable incidents, something that both Scott and I are extremely proud, especially concerning the amount of work that was completed in a very tight window during our outages.

With that, I'm going to turn it back to Scott and thank you.

Thanks very much Doug.

As you can see, our assets performed quite well during the quarter with ethanol and co-product production lining up well against the market opportunity that presented itself.

We look forward to the end of the year when I'll give some comments on the industry. I'd say the ethanol market feels like it's in balance with many of our counterparts in the industry running smart and focusing on optimizing yield as opposed to running as fast as possible. Production has been up in recent weeks since the period of September when there were a lot of shutdowns, but stocks remain at historically low levels, from the low $20s. This was due probably in large part to continued strength in the (technical difficulty) market and the fact that favorable global economics for corn ethanol remain, at least as compared to sugar.

I'd also like to touch on the corn market tightness some. We saw a tight carry-out in 2011 and we've got current expectations for the same in 2012. Against that, one thing worth noting with respect to our facilities, we believe that we have a competitive advantage in being located in historically strong production regions for corn. This is an example despite the less favorable weather this crop year and the really high temperatures in July, corn production around our plants and in Nebraska as we saw the outcome of the 2011 crop stood out on both a per-acre yield as well as quality perspective.

As we look further beyond the demand drivers for ethanol in 2012, we know we've got the RFS and we also expect that there's others that are going to be supportive, but we do envision exports tailing off at the second half of the year. If this holds up against gasoline demand also dropping over the course of 2012, we'll increasingly face the risk of the blend wall.

As far as VEETC and its importance, we have said before and will just reiterate we do not expect this to have an impact on margins as it goes away at the end of the year. We believe the market is anticipated and fully priced in this exploration.

Coming back to corn, I think another area of focus for us is whether the premiums that have been paid for physical corn, that is local basis, which are historically high, is that going to be reflected in ethanol pricing? There is I think, in addition to the point I mentioned about our facilities and their comparative advantage, some in the industry that are turning away from corn and using feedstock like wheat, so we believe that will provide some relief. Yet at this point, we really don't expect to see a lot of farmers selling until we get into 2012 and through this current tax year.

So in wrapping up industry comments, we do reiterate that ethanol remains the best alternative that we have today to fossil fuels, at least in the United States. Therefore, it provides both an energy security and environmental solution that has added some significant jobs in the US.

As far as an industry goes, we believe we'll continue to see innovation with things like corn oil that drive down unit production costs and should provide support to (technical difficulty).

So wrapping up our remarks for this morning and presentation, you can see that things came together quite nicely for the Company in the third quarter. I would reiterate though this was hard earned and that the entire team can be very proud of the outcome, given all the hard work that was put into it. We've also made good progress thus far in the fourth quarter. As noted earlier, industry margins remained strong. We believe that this gives us very good momentum towards delivering on our 2011 plan, finishing out the quarter strong, and looking to carrying that momentum into the new year.

I would now like to turn it over to any questions that you all may have.

(Operator Instructions). [Maceus Gevedas], Goldman Sachs.

Thank you very much are taking my question. I want to ask you, first of all, regarding margins, clearly a strong quarter. You also commented in your press release that (inaudible) seems to be shaping up nicely as well. Yesterday you had some of your competitors stating that they are seeing $0.30 to $0.35 plant level margins, i.e. pre G&A costs. Can you give us some sense of what you're seeing in the fourth quarter?

I would say that sounds a little rich on your upper end, but as far as the fourth quarter goes, that's pretty consistent with where spot margins are right now.

Then a follow-up on that specific margin point. What are you seeing with respect to a corn basis which has obviously been extremely high throughout the third quarter? In specifically in your locations, is that easing and can you give us an indication of levels relative to Chicago?

Sure. We went into harvest, and would tell you that we were probably about -- we thought we were going to end up about half what our plan was, and we picked up a good bit of corn at what I would say were a little tighter than historical levels but still mid 35% under Chicago range. By the time the harvest was wrapped up and in fact Nebraska drug on a lot longer, I'd say we ended up getting closer to 65%, 70% what our plan was for harvest, so we did not see the kind of historical deliveries. At that time, there was a lot of pressure or movement in looking at November and December basis levels (inaudible) [over the] Chicago Board. But at this point in time, we've got pretty good coverage on for the balance of the quarter at levels that are not over Chicago. I can just share that, if that helps.

That's very helpful. Then how much have of your fourth quarter would you say is done by now, like in terms of locking in margin, hedging out?

We're probably approaching 60%, 65%. Would you agree with that Kelly? As far as both what was hedged and what we've realized. Have a pretty -- I would say wide position as far as maybe I've heard others talk about, but we like the spot and ultimately having that amount of production hedged.

Okay. Then a last question, you obviously mentioned corn oil extraction and your confidence in that being kind of fully implemented by the end of the year. What sort of incremental EBITDA are you expecting from that business?

Kelly, do want to take that?

Yes. Obviously, it depends upon what the pricing is for the product at the time we start to do that.

(multiple speakers) pricing.

Yes, but I think on a -- from an EBITDA perspective, really looking to probably get somewhere in the $5 million per year range after all of our costs, lease costs and everything (technical difficulty) it.

So that's post leased (inaudible) okay.

Yes.

That's very helpful. Thank you very much for taking the questions.

Bruce Galloway, Galloway Capital.

Congratulations guys. That's a terrific quarter. It looks like you made about $10 million on an EBITDA basis. Why don't you use that as a metric, number one?

Number two, could you comment on the import-export market? The Brazilians have been typically exporting a lot with their sugarcane. Ethanol and obviously sugarcane prices have increased about 150% over the last 10 months. Are you seeing a lot of export opportunities?

My third question is Cargill Biofuel seems to be selling their stock. Why is that and why aren't some of your large shareholders picking it up with this exceptional performance that you've had?

Let me just, as far as touch on the first part, we do not, as you can see in our financial results, we do not publish and EBITDA number. But what you've suggested is consistent with I think what one would calculate if you went through that.

The second, as far as exports go, Bruce, we've seen very strong demand for exports because of the factors that you cite, even though there's been I would say a level of inconsistent policy in terms of raising and lowering [lime] levels to try to take the demand that ultimately is flowing to Brazil off at points in the year. But we, for instance, this quarter, I would say, as a percent of our production through the course of the year, will probably ship the highest percent of our production in the fourth quarter.

Where is that going to mostly? Europe?

Actually probably mixed between Europe and Brazil. I would say it's split about equally. Prior to prior quarters, we might've seen Europe be more like 20%, 30%, but it's pretty equal this quarter. (technical difficulty)

Go ahead.

No, no, go ahead. I was just going to touch on my third question.

As far as the sale that you note, we do not have insight to Cargill's investment decisions. You might have seen or if you recall they acquired a good number of shares in the rights offering early this year in exchange for the note payable from us. Beyond that, we don't have any insight that we can share other than what I've said and they remain a strong commercial partner of ours and our relationship is strong in the areas we continue to work with them, which is corn procurement and ethanol.

Again, congratulations. Terrific quarter and looking forward to continued progress.

Thank you very much.

[George Herbert].

Good morning and congratulations. I'm just a shareholder. I was wondering if you're going to have any more Investors Relations now that you've gotten the number out and promote your Company.

We have -- thanks, first of all, George. Then as far as that goes, we are, I think all throughout the Company, focused on improving. I'm sure there are things we can continue to do on that front as you note, given where we are. We will be looking to initiatives specifically in 2012 that we can undertake to support Investor Relations.

Thank you. The next question is are you going to buy back any of your own stock if it comes on the market?

I don't have any comment on that at this time.

Okay. Congratulations once again.

Thank you very much.

(Operator Instructions).

It looks like we're set, Samantha.

There are no further questions at this time.

Great. Thanks, everybody, for joining us this morning.

In summary, we believe we'll continue to see policy that is supportive of the industry and against that the Company remains on track to operate a strong plan for 2011 and 2012. We've reiterated that before on the policy front but just feel like it's worth restating.

We've shared our improvements that we've seen as far as the Company and supply/demand. As we look to 2012, we do expect that overall the year may be more supportive with producers getting an opportunity to be rewarded for the risks they have taken in running through some of these times of surplus capacity.

Finally, we remain focused. Our priority one is on delivering on our 2011 plan. As we've covered, good momentum to that, but we're also beginning to look to the future and how best we can leverage our strategically located and well-performing assets.

Thanks to each of you for your support and to each of our employees for a safe and productive quarter.

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