Green Brick Partners Inc (GRBK) 2011 Q4 法說會逐字稿

Welcome to today's Biofuel Energy conference call entitled earnings release for fourth-quarter and year-end 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 all for your attention. I would now like to turn the conference over to Mr. Scott Pearce after a brief comment on forward-looking statements.

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 on our annual report on Form 10-K and other periodic filings.

Good morning everybody. Thanks for joining us for our fourth-quarter and year-end earnings call. We had another strong quarter finishing the year nicely while also completing the planned improvements that we havd talked with you about in prior calls and over the course of 2011. We look forward to sharing some of these details with you.

Joining me on the call today are Kelly Maguire, our Chief Financial Officer, and Doug Anderson, our Executive Vice President of Operations. We plan to cover our financial results, and then once Kelly is done, we will share some insights on our plan for 2012 use of the industry.

Before turning it over to Kelly, however, I like to start by just giving a recap of the quarter and our progress to date as far as the key initiatives we've talked about before.

During 2011 you may recall our plan was to focus on yield & co-product returns while continuing to be disciplined on costs and, of course, operating safely. During the year we implemented a series of planned improvements that resulted in an uptick of yield of approximately 1% and an improvement in co-product recovery of 2%. We measured co-product recovery as a percent of corn costs.

Taken together this delivered approximately a $0.07 a gallon incremental improvement over the course of the year. In addition, when it became clear to us that corn oil recovery was a strong opportunity and we were able to stare down some of the details like the best choice of technology, as well as project costs, we completed this installation at both plants.

All of this we completed after starting the year with a successful rights offering that we from that point in time subsequently proceeded to pay down additional debt and significantly delevered our balance sheet during the course of 2011.

With respect to the fourth quarter we had $4.5 million of net income, which represents an improvement of $2 million over the third quarter and improvement of $5.6 million over the fourth quarter of 2010.

Key initiatives that I have pointed to all came together nicely and our entire team contributed to the recent results, but I would point out that these results did not include any contribution from corn oil, as we had not yet begun selling this product.

However, again, this was a combination of improvements in our operational efficiencies, particularly yield and co-product returns, aided by stronger commodity margins that prevailed for at least the first two months of the quarter.

With this shared, let me touch on the Company's operations before Kelly talks about our financial results and shares some of those details. Our assets performed quite well during the quarter with our plants producing in-line with plan. We were also quite active in the export market.

Overall during the quarter our risk management program also performed well as it supported our results particularly against the steep drop we experienced in commodity margins that prevailed during the first week of -- or that occurred during the first week of December.

And then finally importantly, as noted earlier, we completed the construction and commissioning of corn oil recovery at our Nebraska plant in late December, and this set the stage for the successful commissioning of the system at our Minnesota plant in January. Both of these units are now on stream.

At our Nebraska plant we are currently realizing yields above plan and look forward to having this contribution in our first quarter of 2011 results, which will diversify our operating income and continue to raise our co-product recovery as a percent of corn costs.

Now I'm going to turn it over to Kelly and let him take you through the financial results.

Thank you, Scott, and good morning everyone. As Scott mentioned earlier, the Company had a strong fourth quarter of $4.5 million of net income, which represents an improvement of $2 million over the third quarter of 2011 and a $5.6 million improvement over the $1.1 million net loss in the fourth quarter of 2010.

Let me start by giving you a comparison of our financial results for the fourth quarter of 2011 as compared to the fourth quarter of 2010. We recorded revenues of $164 million for the quarter. This represents a 16% increase in revenues when compared to the same period in 2010, driven primarily by higher prices we received from our products.

Our cost of goods sold was $154.6 million, an increase of 13%, primarily due to higher corn costs, which on a per bushel basis were 20% higher in the fourth quarter of 2011 versus the same period in 2010.

We generated $9.4 million of gross profit for the fourth quarter, which was a $4.4 million, or 86%, improvement over the same period in 2010. Our operating income increased to $6.4 million for the fourth quarter of 2011 as compared to $2.5 million last year.

In addition, our interest expense was $1.9 million during the quarter or $1.6 million lower as compared to last year. This reduction in interest expense resulted from the Company paying off its subordinated debt and bridge loan in February of this year as a result of the successful rights offering.

Our depreciation expense was $6.8 million for the quarter, most of which is included in cost of goods sold, which with the remainder in G&A expense. The end result of this strong quarter was net income attributable to Biofuel common stockholders of $3.8 million or $0.03 per diluted share compared to a net loss attributable to BioFuel common stockholders of $1 million or $0.04 per share for the fourth quarter of 2010.

Briefly for the full year of 2011 revenues totaled $653 million which were $200 million or 44% higher than 2010. Our 2011 gross profit was $10.6 million or $11.8 million better than last year, while our 2011 net loss was $10.4 million, which was a $14.8 million improvement from our net loss of $25.2 million last year.

We continued to strengthen our balance sheet and improve our liquidity throughout the year with the rights offering completion in February and cash flow from operations during the year. Our cash balance at December 31, 2011 was $15.1 million as compared to $7.4 million at December 31, 2010, while our total debt balance at December 31, 2011 was $185 million or $0.80 per gallon as compared to $254 million or $1.10 per gallon at December 31, 2010. With that, I will turn the call back over to Scott.

Thanks Kelly. We see a lot of good progress in 2011. For this year our plan is to focus on realizing the benefits of our yield and co-product improvements over the course of the full year and then to include the added benefit of corn oil to our revenue stream.

We also have successfully built up our wet distiller sales at both locations, this mainly through taking a much more direct and active role with the end-user. For instance, today we are producing wet distillers at the highest levels ever in our Nebraska facility and continue to build our modified wet program in Minnesota. The values that we are realizing at both locations are very strong.

Maintaining these wet programs and building where sensible will also be a part of our 2012 plan as these sales represent a premium to the dry market and also result in an energy savings per gallon of production.

Finally, we expect to remain active in the export market and will continue to leverage our plants' ability to make low moisture product, although in 2012 we expect overall export volumes to be down significantly from 2011. We also, of course, remain focused on risk management and costs as these are foundations of our operating plan.

As noted in our earnings release, margins fell significantly during the month of September and remain compressed. During December we scaled back our production and as a result in January, for example, we are running approximately 10% behind our January 2011 production.

Another key tenet of our plan for the year will be to run smart, as opposed to running solely to maximize capacity utilization. We began to operate this way in 2011, and we remain perplexed by those in the industry who run at max capacity irrespective of the margin environment. In any event, for us this means that we will continue to monitor the margin environment, local corn pricing, look at what point we optimize yield and co-product recovery, and with this realize the lowest possible production cost to maximize margins.

As far as the industry and insights we have or comments we would like to touch on, I'm going to talk a little bit about ethanol and then, of course, distillers and corn.

The ethanol industry saw record production rates during the fourth quarter of 2011, driven by strong margins. Corn demand was a key part of the demand picture, and for 2011 full year we saw record exports for the industry.

Exports were driven by the United States continuing to serve as the world's low-cost producer, as well as incentives for exporters to complete transactions by the end of the year.

As production rates continued into January, despite the market signals from December, we saw a trend towards increasing stocks and lower crush margins. During the month of February we did finally see ethanol production begin to scale back. And I am referencing IA's most recent data, but also some of the market trends we see. However, the industry is still, or appears to still be running ahead of demand.

Against this crush margins have recently begun to recover from the lows we saw in late January and the first half of February. I think you all may recall that recent years have seen a pattern of relatively lower margins during this first quarter of the year, and we anticipate that this same pattern will be repeated this year when seasonal gas demand picks up in the near future and we move towards the summer gasoline specification changes.

The other important thing to point out is that 10% blending has become the de facto standard across the United States, and we anticipate going forward that domestic demand will track more closely with gasoline demand.

The potential for E15 15% ethanol blend to come online at the beginning of the second half of the year is expected to produce additional demand, with the most significant impact coming from 2013 and beyond.

Exports are another opportunity for 2012. The picture is unclear at this point, and yet we have been active thus far in the first quarter. And the RBOB ethanol blend that we see is not only an incentive for the US but also the international market.

Our co-product streams, specifically our distillers' grain, have been an important part of the input for many producers in the animal feed industry. Lately we have seen stronger spot margins we believe attributed to anticipation or concern from bleachers about the slowdown in the ethanol industry and the potential for being cut short.

Corn oil values have also shown strength lately despite the large volumes in supply that have come on the market with many people now spending oil. Corn oil is finding good use for biodiesel producers and increasingly gaining traction as a feed ingredient.

As to the corn crop, USDA is projecting the largest corn planting since 1944, with most focusing on 94 million acres planted. This is expected to be supportive of margins toward the latter part of the year, and yet there is a lot of time between now and not just planting but also harvested.

All said, we are confident on our execution and ability to realize improvements in our platform that we put forth in 2011, and that they will continue to help and position us well within the industry in addition to what we believe are the benefits of being located in the Western Corn Belt.

We like where we are in the supply curve, and while we are frustrated by the current margin environment, know that something is going to change, and in fact as noted earlier, I think it already is. We will see some additional plant slowdowns, potential shutdowns in markets like destinations or uptick from international markets that are short octane and see a benefit in the gasoline ethanol spread I mentioned earlier.

So that completes our formal presentation, I would now like to turn it over to any questions you may have.

(Operator Instructions). John Kline.

Good morning gentlemen, a good quarter for -- considering the pressure you were against in the early part of December.

Thanks very much.

I am a private investor. I just wanted to get a take as to what was said earlier in the conference call that was related to throttling your production and -- as it related to the projected corn yields and exports.

In your previous conference call you had indicated that there was a lot of interest in exporting product because of the fact that Brazil's sugar cane commodity costs are so high as it related to corn. So my question comes full circle is that is it correct to expect that all things considered going forward positively that the corn yield will allow a larger margin for ethanol and as a result increase your production and come to the bottom line in that regard?

You mean, when you say corn yield you're talking about the yield from corn that we realize, and as it gets higher we produce more ethanol per bushel of corn, right?

Yes, basically the corn yield itself and the yield that you get from the production of the ethanol too.

On the corn yield we -- separating those two out, we had the last couple of years deviation from the trendline, or maybe not as continued improvement, and yet we had some weather events and ultimately we would expect it will come more back into trendline improvement in yields from some of the crop sciences, as well as productivity improvements that this country continues to make in the heartland.

As far as our plant goes, we are expecting an increase in yield for our plant for 2012. Someone had mentioned earlier, and it is evident to us, and was something that Doug drove in 2011, that when we do run at lower rates or rates closer to what our sweet point is so speak, we do realize more consistent yields than particularly if we are running at higher rates or rates above the design capacity.

So we do believe that we will continue to in environments like this realize an improvement vis-a-vis what we would do if we were not to be running in that manner, which I referred to earlier and Doug talks to the operations teams about running smart.

The final point, John, with respect to exports, I would tell you that in 2011 I think Brazil was a lot more concerned about its sugar crop than they may be today. They typically are in a period where they will really see the results of their harvest -- the second one, anyway, in April. And until that time I don't think that we will have a very good picture of their export demand.

A good harvest may mean less, a trendline or down harvest could mean better exports. But we are seeing export demand continue from Europe, Canada and other places in the world, and yet Brazil is a big player.

Let me ask you also, if I may add, what is your take -- I know you can't really speak in terms of Board statements, but what is your take politically as to support for ethanol and additives into gasoline going forward?

I would reiterate what I said and allow a little more color to it, but I think that [NAT] will continue to see positive support. It has been a hot topic for the last few years, and in particular, not been mentioned much by people today for reasons that I think they're quite concerned being on one side or the other of the issue. But my take -- our take is that we won't see any change to the RFS. That the policy of using the fuel that can be grown here in the US, in addition to the efficiency measures, is the path towards meeting the objectives that have been set out in the past as far as ridding ourselves or becoming less dependent on foreign oil.

And I just think you look at the mix of all the different constituents it's hard to argue against, at least in my view all things considered, to do anything to impact that.

Let me ask you also if the recent spike in gasoline prices and in relationship to your margins is a positive thing?

We haven't seen a strong correlation over a long period of time, John, but I would tell you that the last, I don't know, 60 days or so we've seen a stronger correlation with RBOB, which would suggest that part of the support that I mentioned earlier may be coming from that.

Okay, thanks very much.

Our pleasure.

George Hebert.

Good morning everyone. Congratulations on a great year and a great quarter. My question is a very simple one. The replacement costs for your equipment I calculate to be about $1.50. Is that correct?

Kelly, do you want to take that?

George there -- obviously there haven't been very many plants or really no plants in the pipeline right now as far as that is concerned, and has not been for a little while now. But you're right -- I mean, from the standpoint of when plants are being built that is a pretty good approximation of what it is.

Without any soft costs though.

Right.

Right, secondly a number of months ago I turned on some of your engineers to a company called Coates International that has an engine and a generator that could run on pure alcohol. The symbol on that company is COTE. And I was wondering if any progress had been made on setting up standby generation and/or generation in your area of distribution?

George, I can't really add a whole lot to that. We generally talk about developments when we have specific knowledge that they are going to have an impact or ultimately have something that is worthwhile sharing. And the only thing I can say is we are looking at a portfolio of activities to include who you mention, and we appreciate the connection. And as those developments move from our evaluation and discovery phase we will be sure to come in time to bring them to bear and talk about impact they may have on our future results.

Financial PR, will the Company be -- now that you're doing over $600 million a year in sales will you be doing more financial PR which is desperately needed to keep your name out in front of the investing public?

We have done a number of things over the course of the last year, and particularly the latter half of 2011, to begin to evaluate that and have more frequent discussions with analysts. And to that end up a pragmatic approach with the people that we believe are tuned in to the industry and make sense and are like us with it for the long term will continue to be an increasing part of our dialogue. So I think the answer is yes, George, but those are some of the activities I can point to that we have been involved in.

As a shareholder I realize that you would have been profitable if you didn't have to pay off the interest on the money you had to borrow to build the plants. Is there a possibility of another rights offering to us -- to the shareholders as myself where I could give you more money, A., so you could pay down the debt and therefore be profitable immediately?

We don't have any plans for anything like that at the moment.

What about buying back your stock, are you going to buy your own stock back because it's selling at about book value?

We do not have any plans for doing anything like that either.

Are you looking to be taken over by somebody like Warren Buffett?

We don't have any comment to that.

There a lot of people who are very interested in helping America, and we could run car engines on pure alcohol, as you people have explained to me. Have you looked into doing that? Even about if our taxi cab fleet was to run on pure alcohol in our cities would go a long way into cleaning the air.

I would just come back to the same portfolio comment earlier. We are looking at a number of things. We are aware of what -- and I was going to make some closing comments about this what Brazil has done. We are supportive of flex fuels in the US and we trend in that direction. But in terms of near-term opportunities, the main thing we are focused on and believe would be supportive of the industry is E15. A long way to go from where you are referring, which I think has some merits, to where we are today.

Will you be building another plant soon?

I think that if you look at the overall industry today, and especially given what I have talked about earlier from the current market environment, there's not a lot of reason to think that building a plant makes sense against the points you raised earlier as far as replacement costs and book value.

What about merging with another alcohol producer?

What is that?

What about merging with another alcohol producer?

We are looking at, again, the opportunities that are a portfolio. We do not comment on items that are forward-looking or that have yet to be developed. So I don't have anything to say, other than we continue to be active in the market in terms of understanding the opportunities, while remaining focused on our core competency and running our plants extremely well.

My last question is -- your relationship with Cargill, is it still good and positive or is it negative?

We have had a good partnership with Cargill; it is positive. We did a number of good things in 2011. As noted in July, or I guess the August call, we did make a change on distillers, but they were key to our participation in the export market. And as Doug has ultimately driven, we have done better with local corn procurement.

Well, once again congratulations gentlemen. You did a wonderful thing this year, and as a shareholder I take my hat off to you. And keep up the good work.

Thank you very much.

John Bosley.

Yes, gentlemen, I noticed Q4 versus Q3 an uptick in the SG&A from $1.6 million to $1.1 million. How should we be thinking about that for 2012?

I would say that for 2012 you're not going to see an uptick, it will be pretty well -- remain pretty flat from the latter part of 2011.

And with the -- as natural gas is your second-largest component of cost -- I believe that's true -- how much benefit are you getting from that currently with the low price of natural gas? And what percentage of cost of goods sold is natural gas?

We are getting a good benefit right now not only with the lower natural gas prices, but also with a reduction of usage that we are having, in particular, with the increased wet distillers grain that we are selling not only to Wood River, but also to a lesser degree in Fairmont as well. And you know from the perspective of what it is in relation to cost of goods sold, it is about 5%.

So if I -- and I am new to this story, so forgive the question. So my understanding is correct that natural gas is mostly used in the production of the wet to dry distilled grains after production of the ethanol?

That is correct. It is the drying of distillers grain.

Great. And I'd did notice the change between quarters -- and maybe you can just help me better understand it -- between the amount of dry distillers grains sold and wet -- a reversal to more wet versus dry or is that just -- can you help me understand that a little better?

Yes, that again is just as we continue to build our wet market at both of our plants, you see us selling more wet distillers versus prior year in comparison to dry.

John, if you would take -- just to give you a brief picture -- work that Doug drove in a little bit in 2010 but mainly in 2011, we are in the heart of cattle production around our Wood River, Nebraska facility. So spending more times with those producers, talking with them about inclusion rates and the benefit, particularly of wet product.

Similarly, while not as strong demand there's a lot of hog production around our Minnesota plant. We located them in those regions to be, if you will, together symbiotic, close to what we knew there would be demand as people began to appreciate the value of what essentially is a portion of the corn stream and higher quality than ground corn.

So we have been working over the course of time to develop those and find ways to manage that risk and share the value and enhance the switch you see in our dry and wet -- and my comment earlier about building those products is a key thing looking at 2012's plan.

So if I am hearing you then, what you're saying is that some of the, whether it is cattle or hog producers in your area, they have a demand for the wet as opposed to needing to dry it?

Yes, they have a demand for both, so that I'm clear. But when you work through the nutritional value and the feed guidance that they ultimately follow, particularly in the case of cattle it, I think, became clear as we worked through that over time that there was more value to feeding it as a wet product as opposed to expending the energy and taking it as dry.

And one last follow-up on that then. Are you looking at hedging natural gas going forward so you can lock these what is probably historic low rates?

We are. The thing that I would tell you is that we continue to have a disciplined risk management program, and so where we have an opportunity to sell for product against that natural gas will be the main way we take that benefit as opposed to taking a position that is not covered.

Great thanks so much gentlemen.

[Eddie Lehands].

Good morning gentlemen. I am a private investor. I wanted to compliment you on your focus and disciplined approach to the market, and you have covered a lot of bases.

One comment about Brazil that came out two days ago, it seems like their harvest is being pushed out at least like 10 days in April. Does that create an opening or window?

The second question has to do with export. Is anyone following a big 500 million gallon export in Japan, in India, in China? There it is a lot of gasoline being sold, and why is it that we are only selling quote to the US? Why can't we go for another billion gallons some place else, or is there any effort ongoing that I'm not aware of?

Let me take the first one. And I'm not sure -- are you just asking why is Asia not a stronger market for the US against my comments about US ethanol being relatively cost competitive?

Not just Asia but everywhere.

So what I would tell you is that in particular for the beginning of this year, maybe less so at the end of last, but we have see demand pick up from the Middle East more so than what we have had in the past.

There are opportunities in Japan and Korea that we are evaluating. The Philippines is another location. There are plants in Asia that make sense to serve Asia a bit more. Europe, that people thought was going to have less demand this year because of some changes in the EU and E90, word is that that is likely not going to get modified until 2013.

So, if you take that picture and you go back to Brazil, the only other area I didn't comment to was Canada. Canada has an appetite, and ultimately given the cost of our production against theirs and their feed sources which are more wheat type products, I think we'll continue to see them as a pretty active importer of US ethanol.

As far as the opening in Brazil, I'm not sure that 10 days is going to make a big difference compared to what happens in the overall crop. And the other big factor is what policy does Brazil take on when they have a better sense for their crop.

Last year, they actually reduced the mandate down to 18% -- maybe 20%, but still down from it was at 25%. And there is speculation as to whether they may increase that. But I think the one thing we know is Brazil is growing. The economy is doing quite well, and the general sense we have is it is going to take them some years to get their sugar crop back into the shape that it needs to be to meet their local demand on a sustainable basis.

Thank you very much.

At this time there are no further questions from our audience.

Well, thank you. So in summary I will just wrap up to tell you that we are going to continue to operate our plants with the objective of maximizing operating cash flows rather than gallons produced, and we will continue to refine our product decisions accordingly.

A couple of questions around this realm, but we again believe we will continue to see a government policy that is net positive. Even though in this election cycle, other than the expectation with E15, don't know that we will -- don't know or don't expect that we will see much happen prior to November.

However we do believe that if you look at the global macro economic situation and potential for an incident in the Middle East that may threaten supply, a continued upswing in oil and gasoline prices could change the whole discussion around what has been a lot of talk about corn ethanol in the past couple of years and have either President, candidate or party espousing the benefits of a policy that we enacted in home-grown motor fuels like ethanol.

And it is interesting to us anyway because this would prove the case of history repeating itself as government policy going back to the 1970s in a time when we had long lines and a real problem in the US -- back to that time was to become independent of foreign oil. At the same time period, and faced with the same issues in the 1970s the leadership in Brazil made a similar commitment, but follow through.

We have been closing the gap via the Energy Security Act of 2007 and the subsequent rollout of renewable fuel standards. And at least from our perspective and as said earlier, we believe the RFS for corn ethanol will remain intact and we will also E15 sooner rather than later.

So against this we will continue to look towards the future and how best to position our strategically located and well-performing assets. This will wrap up our end-of-year earnings call. And thanks to each of you for your continued support.

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