Green Brick Partners Inc (GRBK) 2012 Q1 法說會逐字稿

Welcome to today's BioFuel Energy conference call first-quarter 2012 earnings results. 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 all for your attention. After a short forward-looking statement I would like to turn the conference over to your host, Mr. Scott Pearce, President and CEO.

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 press release and are described in greater detail in our Annual Report on Form 10-K and in the other periodic filings.

Good morning, everyone, and thank you for joining us on our first-quarter earnings call. Today with me on the call are Kelly Maguire, CFO 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 an update on our plans for the year and views of the industry.

I'd like to start by saying it was a challenging quarter for the industry and BioFuel, where the weakness in ethanol prices as reflected in the narrow ethanol corn crush margin, was the main driver behind our net loss.

We realized some benefit from strong distillers pricing and the improvements we made in 2011, but they were simply not enough to overcome the low ethanol prices driven, in our opinion, by the industry overproducing. We will get into some of these details shortly.

We anticipated a difficult quarter and start to the year as this is historically a challenging period for the industry. Our plan was to focus on yield and co-product returns and specifically on getting our corn oil extraction systems fully on stream, while continuing to be disciplined on cost and operating safely.

Our corn oil system commissioning began at the end of December in our Nebraska plant, and about a month later in our Minnesota facility. During the quarter both systems were successfully commissioned with very few issues.

Revenue contribution from the quarter from corn oil was $2.7 million and we estimate this represents about a 67% rate over the quarter for full production compared to what we expect to realize when well (technical difficulty) CEO is at or above plan and pricing stable in the $0.40 range during this quarter.

As noted in our press release, we pulled back production against our initial 2012 plans due to weakness in ethanol prices. This allowed us to focus on yields and at the same time grind through corn basis ownership that was favorable against a tight premium market. This was particularly relevant in February.

Margins have improved since the middle of the first quarter and at this point we're running both facilities at nameplate, staying disciplined on yield and cost.

With respect to cost, during the quarter we took the challenge that the market took before us and have initiated another full review of cost-saving opportunities. One outcome of this review is that after looking at opportunities to optimize our rail fleet, beginning in April we subleased a portion of our tanker cars at a significant premium to the lease costs. And I will now turn it over to Kelly to take you through the financial results.

Thank you, Scott, and good morning, everyone. As Scott mentioned earlier, our company had a very challenging first quarter, which resulted in our $11.1 million net loss. We recorded revenues of $139.4 million for the first quarter of 2012.

This represents a 12% decrease when compared to the same period in 2011 and is driven primarily by an 18% decrease in ethanol revenues. The decline in ethanol revenues was a result of both lower production and sales volumes previously mentioned combined with a lower price per gallon received.

On the positive side, we began selling corn oil in the first quarter of 2012, which generated $2.7 million in revenues and also saw a $2.5 million increase in our distillers' revenues over the prior year as a decrease in our production volume was offset by increased unit pricing. Our cost of goods sold was $145.9 million for the first quarter of 2012, a decrease of 9% when compared to 2011 and was primarily due to less corn ground as we slowed plant production.

On a per-bushel basis, our cost of corn was 1% lower in the first quarter of 2012 versus the same period in 2011. We generated a $6.5 million gross loss for the first quarter of 2012, which was $4.3 million worse than the same period in 2011.

Our operating loss was $9.3 million for the first quarter of 2012 as compared to $4.8 million last year. In addition, our interest expense was $1.8 million during the quarter or $2.4 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 2011.

Our depreciation expense was $6.8 million for the quarter, most of which, $6.5 million, is included in cost of goods sold with the remainder in G&A expense. The end result of this difficult quarter was a net loss attributable to BioFuel common stockholders of $9.4 million or $0.09 per share compared to a net loss attributable to BioFuel common stockholders of $7.7 million or $0.11 per share in the same period in 2011.

For the quarter earnings before interest, taxes, depreciation and amortization, or EBITDA, which is a non-GAAP financial measure management uses to monitor the company's operating performance, was a negative $2.5 million compared to a positive $1.9 million in the first quarter of 2011. This result was actually better than what our operating plan for 2012 called for as we anticipated the first half of 2012 would present a challenging margin environment.

A reconciliation of EBITDA to our net loss for the quarter is included with the supplemental materials that accompanied our press release, which can be found on our website at www.bfenergy.com.

Finally, our cash balance at March 31, 2012, was $11.7 million as compared to $15.1 million at December 31, 2011. And our total debt balance at March 31, 2012, was $181.7 million or $0.79 per gallon.

And with that I would like to turn the call back over to Scott.

Thanks, Kelly. For 2012 our plan is to remain focused on yield optimization and realizing the benefits of our co-product improvements over the full year. Of course we will remain focused on cost and risk management, which are foundations of our operating plan.

I talked specifically about corn oil earlier, and as Kelly noted, we saw similar incremental contribution from distillers during the quarter. Two positive elements of this include validation of the distillers marketing program we implemented in 2011 and strong relative value as distillers grain feed continues to see healthy demand.

You may recall that we made some changes in the middle of last year on distillers. And again I think we have seen good validation of that as well as the focus on corn oil, which I'm going to ask Doug to share some insights on now, as well as talk about production during the quarter.

Thanks, Scott. We saw a significant improvement in distillers during the quarter, a similar incremental contribution to what corn oil represents. We have been able to build up our wet distillers sales of both plants by taking a much more active and direct role with the end user. Not only have these efforts resulted in better net backs, but have also resulted in additional energy and cost savings. Maintaining these wet distillers programs and building, where sensible, will also be a key part of our 2012 plan.

Corn oil commissioning went very well overall. During the quarter we were able to consistently meet plan of 0.5 pounds per bushel of corn at each location. This outcome was better than our commissioning plan.

Our Minnesota startup did kick off two weeks later than anticipated, but this was intentional as we sought to leverage the lessons learned from our Nebraska experience. In the current quarter we are working with our proprietary design and beginning to trial additives to drive yields higher. We will be careful to maintain quality of both corn oil and our other coal products.

Overall in the quarter we produced at about 8% less than in the same period of 2011 when we ran at nameplate capacity. I shared during our last call a key tenet of our plan for the year will be to run smart as opposed to running solely to maximize capacity utilization.

And now I will turn it back to Scott.

Thanks, Doug. Just on the last note, I'd just add that we remain perplexed by those in the industry who run at max capacity, irrespective of the margin environment, and yet we are finding that there are fewer and fewer producers that are running their operations this way today.

In any event for this -- this for us means that we will continue to monitor the margin environment local corn pricing and will seek ways to optimize yield and co-product recovery to realize the lowest possible production costs and maximize margins.

Finally, on the export front, we did remain active during the quarter and continued to leverage our plant's ability to make low moisture product. Yet we did pass on a number of opportunities as the premiums were not strong enough to offset the incremental production cost.

So, with that recap of operations and our focus in '12, I would like to talk a little bit about our insights on the industry.

If you look at EIA's most recent monthly recap -- and I will talk about ethanol first -- US ethanol production is down from the record production in December of 2011 yet remains up 1.4% year over year at an estimated run rate of about 14.1 billion gallons. This is against gasoline demand and is down for the year, still tracking about 130 billion, 131 billiion gallon figure.

Exports have been taking up some of the excess ethanol production where we've seen actually comparable to higher level of exports for the first couple months of 2012. Over the past several months and up to last week we did see some correction in stocks downward, accentuated by yesterday's report.

Gross margins have remained relatively flat off of the lows experienced in the first quarter.

Those of you who follow the industry may recall that in recent years we've seen this pattern of relatively lower margins during the first half of the year.

As far as the industry and the 10% blend it has become the de facto standard across the US, and we anticipate that we will see domestic demand continue to track with gasoline demand until there is either a pickup in E15 or exports, which I will touch on.

As far as our view on the potential for E15 blends to come online beginning in the second half of the year, we are not expecting that that is going to produce a lot of additional demand in 2012, and we envision that the most significant impact will be in 2013 and beyond.

Our plants have been registered for E15 sales, and we remain active in the national fuel survey to support the ongoing implementation of E15 blending and sale.

Exports are in our area of opportunity, we believe, with the sugar crop in Brazil and recent harvest coming in below expectations. Specifically to Brazil, there are several things that are up in the air at the moment, but we do believe that there is a prospect of raising the ethanol blend level back to 25%. In any event, we do expect Brazil to import ethanol in the fourth quarter.

We also have a couple of ongoing discussions with new export opportunities and believe that the global market is seeking to take advantage of the discount to RBOB that ethanol is trading and the octane value ethanol represents.

As far as co-products, specifically distillers grain, I think we've seen that the value continues to be recognized as this product makes its way and becomes an important ingredient for producers in the animal feed industry. We've seen even stronger distillers' pricing since the middle of the first quarter, and we believe that that is going to continue to trend our way with feeders, especially with soy milk pricing remaining as high as it is.

Corn oil values have also been pretty steady despite pretty significant amount of supply that's been coming online. We're selling it to both bio diesel producers and increasingly gaining traction as a feed ingredient in the feed industry.

As far as the crop goes, end of March planning intentions came in with a forecast of 96 million acres. Weekly crop planting progress showed crop in most parts of the country to be off to a really solid start. This is expected to be supportive of margins towards the latter half of the year and is supported by the forward curve.

Yesterday's USDA report brought the crop carry out back up -- this is for the old crop -- to $850 million, and yet, we do believe that the crop is in tight hands. And there's a lot of time between now and harvest, even though we do expect to see harvest come a lot earlier this year.

So, with that recap of the quarter, operationally, some insights on the industry, I would just like to wrap up by saying we are not distracted by this, what was an anticipated weak quarter against the longer-term prospects for the industry. We remain focused on the implementation of realizing the full improvements made in 2011 and continuing to stay focused on cost and revenue growth that we believe continues to position our plants well within the industry.

We also believe that we will continue to enjoy some benefits of our Western corn belt locations for sourcing corn compared to other regions of the country where premiums are higher. And I think if you look at our comparative results on corn, and as Kelly noted, we actually realized a slight improvement in this quarter, [their] support in that data to the point I've just made.

And then finally I anticipate that the current situation will pass and there will be some change, whether it is additional plant slowdowns, uptick from summer gasoline demand, or for the international markets that I've mentioned earlier that are short octane and see a benefit in the ethanol gasoline spread.

Now I would like to turn it over to any questions you may have.

(Operator Instructions) [George Herbert].

Good morning, gentlemen. Job well done even though you did not make a profit. I realize this is a hard quarter. I have really one question.

Could you tell me the book value -- I realize it is a historic number -- as well as the replacement cost for putting the plant back together as an estimate.

Thanks, George. I'm going to let Kelly take that.

George, are you talking to the book value of the fixed assets or the book value of equity?

Book value of equity, sir, per share.

Our book value of total equity at the end of March for BioFuel Energy Corp. stockholders was $85.4 million.

What does that work out per share, sir?

Well on a per-share basis that is $0.80 per share. We have 106 million shares outstanding.

Oh, okay, so $0.80 a share. Do you have any idea what the replacement cost would be if you started to try to build it? I realize it's a guesstimate.

George, I think the industry generally looks at about $2.00 a gallon as far as the total replacement cost. And so if you were to take that over our $220 million of nameplate capacity you would get a number close to $440 million, $450 million.

What does that work out per share?

That is a little over $4.00 per share.

So the historic book value was roughly $0.80, and if you had to replace this company it would cost you roughly $4.00 a share.

Yes.

Good. Job well done, guys. Keep up the good work. You are doing a wonderful job. As a shareholder, I'm going to go out and buy more. Your stock right now is at $0.375, roughly. So I think it is a great buy down here. You are buying at roughly $0.50 of cost -- or value at $0.80. So, job well done, gentlemen. Thank you very, very much and keep the good work up.

Thanks, George.

Paul Resnik, Uncommon Equities.

You commented that it didn't make a lot of sense to be producing flat out in the current environment. Historically, Archer Daniels has done that, and I think for the very simple reason that they view their goal is to push people out of the industry. Has there been any stress on some of the smaller plants where closings may be more than temporary?

Paul, I think the answer to that is yes, we saw, during the course of the quarter, maybe not as many as we had anticipated quite honestly, but a number of smaller plants and some plants that are in non-western corn belt locations close. I don't want to speculate as to whether those would be permanent or not, but we have a handful of, again, those smaller plants that are not on stream and a couple of others that announced being down, you might have seen in some of the public releases.

Thank you. Well, between the corn harvest outlook and the eventual, gradual working in of E15 I guess we see the light at the end of the tunnel. I'm a little tired of being in the tunnel here, but you can see the light. Have a good day.

Thank you.

(Operator Instructions) John Klein.

I'm calling in, just trying to get an understanding of some things in relation to your revenues. Your revenues were less this past three months than the previous three quarters, and when you look to a direct competitor of yours, they had a 36% increase in revenues versus the same period, even though they had a lower margin and had the same explanation for the industry. Where was the failure in the execution?

As far as producing more?

Well, as far as your revenue line. Your last conference call and the last quarter was based on the fact that you had increased operational efficiencies that were going to be coming into play, and you had just an unlimited potential capacity to export to Brazil.

And so what I have heard now is that you've actually -- you are running at about a 90% capacity in terms of what you want to sell in the economic gallons and are actually -- are selling less than you sold last year. I'm just wondering what the thinking is, and in trying to drive the revenue number (multiple speakers)

I guess I will give you two points on that. First, as far as the comparison you make I can't speak to exactly what or who that is, but there are those who have had added capacity or ultimately fought back or came back and, therefore, would have more volume to sell.

But with us, we haven't added capacity, so then if you focus on some of the comments that I made, both as far as the decision to not run at higher rates and then as well as exports, as far as the higher rates go, we -- you know -- and we are running a fermentation process that is biological on the front end and -- but we see improved yields and, therefore, can drive down our unit cost, our efficiency and increment. And at times when margins are weak I think it -- just from a process makes perfect sense that you would not want to run as high or as full out as you might otherwise in favorable or even moderate margin environments.

The second point is we have secured a lot of our corn for the quarter. With respect to that, had favorable corn that compared to what we would have to pay up to secure more would represent a deterioration in margin over our unit cost greater than the benefit realized from running faster.

The second point, John, is that as far as exports go it is a little bit of a similar story. It is true that we have the ability to put both plants pointed towards whether it is Brazil, Europe or other export markets, given the low moisture capabilities we have. However, when we saw others in the industry willing to produce those gallons at levels that were $0.05 to in some cases $0.10 worse than what we had seen in '11 we made the decision to continue to run the normal US product as opposed to chasing a market where we did not believe that the benefit or the lack of benefit I should say of the price offered by some of those competitive tenders made sense for us to essentially produce that lower-moisture product, which does come at a cost. When we produce with 1% water as compared to 0.25% we have an implied lower value in terms of the total cost. So, both decisions were driven by economics.

Okay. Well, let me if I may switch tracks here for a second. I just want to get an understanding with the talk of the reverse split coming and the existing amount of shares as being at about 104,500,000, you have a board member in David Einhorn who is noted as being one of the largest short seller hedge fund managers and carries about 67 million of those 104 million shares. What are you doing to protect existing shareholder value in relation to executing a reverse split?

Well, I think -- first of all, Mr. Einhorn just as kind of a clarification, does not own 67 million shares. He basically owns a third of the company, the Greenlight entities do, from that perspective.

You know, we believe that the reverse split is merely a mathematical exercise. There will be fewer shares out there to trade, but obviously it will be at a proportionally higher price and should not have any impact on the underlying value of the company. We think the board and management believes it is in the best interest of the shareholders to maintain our listing on the NASDAQ and we believe (multiple speakers)

Why is that? Why is that? It is a stock that trades at about a few 100 shares a day. You haven't traded more than 1 million shares in the last three months more than 4 times.

If you go take a look at the average we trade on average 1 million shares.

Well I'm just saying in the last three months it has only traded over 1 million about 4 times. But the point being, the point being is that this is more of a trader's stock at this point. Until the company becomes a solid investment the share value will diminish greatly in terms of the existing shareholders. I can just see a massive selloff when Greenlight or anybody else who wants to just divest themselves of this company starts selling. I don't see anything being done in terms of protecting the existing shareholders, which is, I think, your mandate in the first place.

As far as -- let Kelly talk about the reverse stock split, but the fact of the matter is all shareholders that we have are treated the same, will be treated the same in a reverse stock split. And therefore to your point about the protections, we are going to and will continue to comply and ultimately treat our shareholders and do our best to protect all of them equally.

Is there an existing -- is there a restriction in the existing amount of shares that were issued to all the board members on March 15?

With respect to what?

I'm not sure I -- say the question again.

A restriction -- a sale of the stock an immediate sale -- a capacity to sell the stock right away.

They all vest over four years. So none of those can be.

Sold off right away?

But, with respect to the point about the reverse stock split, Kelly, do want to comment on the --?

Yes, I guess the other thing I would just add to that is that from the information that we've received that we have been working with from consultants, the data shows that the impact of a reverse stock split is very minimal on the change in the value.

That runs contrary to what I've ever read. About 87% of companies that have a reverse stock split are worth about half the value after a period of time. But nevertheless, you know, I just don't see the benefit of a reverse stock split at this point. Where this company is, where their revenues are going, where their margins are and everything else, who is going to want to pay $10 a share for this stock?

Well, respect your view, John, but I think the fact is we have looked at it carefully, we have discussed it with people who know the capital markets, and we believe that it will also allow us to have some coverage that we have not historically had being below $1.00. And we have carefully considered it and ultimately haven't made decisions as far as what the exact split is and the like. But in doing so we will exercise prudence to do what is in the best interest of our shareholders.

Okay. Well, I really hope that the execution gets better because I think this past three months was not good by any stretch of the imagination.

It was a tough quarter for the whole industry. I think if you want to look at some of those (multiple speakers) ethanol companies and look at their quarter-over=quarter performance from be it the fourth quarter or be it this quarter compared to '11 I think, with all due respect, I think we did pretty well.

Okay. Thank you, gentlemen.

Thanks, John.

Thanks, John.

[Kevin Ritchie], [Rocco Investment Partners].

Yes, I was wondering, could you tell me the ASP per gallon ethanol and the co-product return as a percentage of corn cost?

I'm not familiar with the acronym you are talking about.

The average selling price per gallon of ethanol for the quarter.

Okay.

Yes, our average selling price was right at $2.10.

And then the -- do you guys calculate the co-product return as a percentage of corn cost?

We do. I can tell you it was in the mid-20 range but I want to be careful about -- you could do it real quick I guess, Kelly.

Yes, it was basically 23%.

Okay. Thank you very much.

And that -- let me just clarify that; that is excluding corn oil, so it is about 27% with corn oil.

Okay. Thank you.

At this time there are actually no more questions in the queue.

Great. Well, again in summary, it was a difficult quarter and yet we responded to the challenge the market presented us and are continuing to get more efficient.

Our plan will be to continue to operate our plants with the objective of maximizing cash flows rather than gallons produced. And we will continue to refine our production decisions accordingly. We also believe that we will continue to see government policy that is net positive and supportive to the industry, even though, as I commented before, at the current timing in the election cycle, we don't see or expect much to happen this year.

The way the market looks today is challenging but as I mentioned the forward curve with very good initial progress on the corn crop, a large carry out back to something greater than 1 billion bushels has the potential to change the current market environment and we believe make a lot of those who may be skeptical of ethanol rethink the positive contribution to our overall economy, fuel supply and national security.

This will wrap up our earnings call for the quarter. 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.