Green Brick Partners Inc (GRBK) 2012 Q2 法說會逐字稿

Welcome to today's BioFuel Energy conference call entitled earnings release for second-quarter 2012. 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, therefore, 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.

Good morning, everyone, and thank you for joining us for our second-quarter earnings call. On the call today with me are Kelly Maguire, Chief Financial Officer, and Doug Anderson, our Chief Operating Officer. It was another challenging quarter for the Company. Ongoing weakness in ethanol prices as reflected in the narrow ethanol-corn crush margin remained a key driver behind our net loss. However, our assets performed well during the quarter, and the benefit we had from strong distillers pricing, and as well our corn oil revenue that was realized over the full quarter, did help to mitigate the loss during these historically low crush margins.

Later in the call we will talk about the ongoing drought, but we do expect to have an advantage as the harvest progresses here in the next month or so, as the local crop around both of our plants remains in good shape. In Nebraska, it is irrigated all around our facilities; and southern Minnesota has seen decent moisture levels and has not experienced the drought going on throughout most of the corn belt. There's little question in our view that the key reason for the continued lag in the industry's profitability and low crush margins, the high level of ethanol inventories that were carried over from the previous quarter, and the industry continuing to over-produce well into the second quarter. Towards the end of the quarter, we did finally see a pullback in production, which has continued into the third quarter.

We also saw corn basis levels that rose through the quarter exceeding historical averages. We believe that this, in part, is a result of farmers with increased [on-farm] storage spreading out their corn sales across the year and limiting supply. Because the Chicago Board corn-ethanol crush spreads remain range bound, this trend towards rising local corn base has put additional pressure on margins as the quarter progressed. This basis pressure was a key driver in our decision to scale back in mid-June, which I will also cover some of the rationale behind that later. But now I'm going to turn it over to Kelly to go through the financial results for the second quarter.

Thank you, Scott, and good morning, everyone. As Scott mentioned earlier, the Company had another challenging quarter, resulting in a $12.4 million net loss. We recorded revenues of $122.8 million for the second quarter of 2012. This represented a 27% decrease when compared to the same period in 2011, and was driven primarily by a 34% decrease in ethanol revenues. The decline in ethanol revenues was a result of both lower production in sales volumes, combined with a lower price per gallon received.

On the positive side, corn oil revenues continued to increase, generating $4 million in revenues in the second quarter of 2012 versus $2.7 million in the first quarter of 2012, which was our first quarter of corn oil sales. We also saw a $2.5 million, or 9%, decrease in our distillers revenue over the prior year, as the decrease in our production and sales volumes was only partially offset by our increased unit pricing received.

Cost of goods sold was $131.1 million for the second quarter of 2012, a decrease of 24% 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 10% lower in the second quarter of 2012 versus the same period in 2011. We generated an $8.3 million gross loss for the second quarter of 2012, which was $4.5 million worse than the same period in 2011. Operating loss was $10.7 million for the second quarter of 2012, as compared to $6.3 million last year.

In addition, our interest expense was $1.7 million during the quarter, or $300,000 lower as compared to last year. 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 challenging quarter was a net loss attributable to BioFuel common stockholders of $10.6 million, or $2.05 per share compared to a net loss attributable to BioFuel common stockholders of $7 million, or $1.38 per share in the same period in 2011. It should be noted that the Company affected a 1-for-20 reverse stock split on June 15, 2012, and therefore, the per-share amounts just mentioned reflect this reverse stock split.

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 $3.9 million compared to a positive $400,000 in the second quarter of 2011. A reconciliation of EBITDA to our net loss for the quarter is included in the supplemental materials that the Company press released this quarter. Our cash balance at June 30, 2012 was $9.2 million, as compared to $15.1 million at December 31, 2011. And our total debt balance at June 30, 2012 was down to $178.2 million, or $0.77 per gallon.

With that, I would like to turn the call back over to Scott.

Thanks, Kelly. So, for our plan, we continue to believe that focusing on yield and co-products return while being disciplined on production decisions, with the latter being key during periods like this, are instrumental to our plan forward. During the quarter, we fully optimized our corn oil systems. We were able to realize an improved yield by grinding finer and process consistency, while at the same time, keeping costs in line and operating safely. Doug's going to talk a little bit more about these in a second.

As we noted in our release, we again pulled back production against our initial 2012 plan during the month of June due to weakness in ethanol prices and particularly the tightness in corn supply around our local plants. Running this way allowed us to focus on yields, while at the same time grinding more slowly through corn ownership that was favorable against [the then] escalating premium market. We also deployed an additional 50 tanker cars to higher value service, as we continue to optimize our rail fleet. And then finally during the quarter, we formally announced a collaboration with Gevo, who we believe is well positioned among the second-generation biofuel companies as we look for ways to enhance value to our platform and our shareholders.

With that, Doug's going to talk a little more about yield, both on corn and corn oil, and our production plan.

Thanks, Scott. We saw a significant improvement in distillers during the quarter, similar incremental contribution to what corn oil represents. Specific details of our improvements included -- we realized more consistent ethanol yields at both plants, with a 1% improvement over the first quarter by grinding finer and continuing to work on improving our process consistency. Corn oil optimization activities have gone very well overall for the Company.

During the second quarter, we were able to consistently exceed our stretch goal of 0.65 pounds per bushel through continuing process improvements, the addition of chemical additives, and also the continued development of operational expertise with our unique design. Overall in the quarter, we produced at about 15% less ethanol than in the same period of 2011 when we ran at nameplate capacity. As Scott has already mentioned, the key tenet of our plan remains running smart as opposed to just running solely to maximize capacity utilization while we continue to focus on continued efficiency improvements and cost control.

With that, I will turn it back to Scott.

Thanks, Doug. So, I'll talk briefly about the key areas of the industry that impact us -- the gasoline ethanol complex, corn supply distillers, and then end talking just about the ongoing discussions around the mandate in the RFS and our perspective on that. If you look at EIA's most recently monthly recap, US ethanol production is down 6.9% from the record set at the end of last year. That would show us at an annual run rate of 13.7 billion gallons, and they would be virtually unchanged from the year prior; however, the bigger news is that since that time, the weekly data suggests that we are actually running closer to somewhere around 12.2 billion to 12.5 billion gallons. And this is in contrast to an implied demand at May that was at 13.4 billion gallons, which was up year-over-year.

We do think 10% blending continues to be the de-facto standard, and that domestic demand will track gasoline demand going forward. We look to the same numbers and weekly data, and do note that unlike in May, we are producing at less than what the implied demand is currently. Our view is that we will see some impact on 15% ethanol blends, but they will be pretty minimal, and will really only start to pick up in '13.

As we've talked about in past calls, ethanol inventories play a big role, and we touched on this at the beginning of the call in ethanol prices. At the end of May, the EIA reported ethanol inventories above 900 million gallons at 918 million, which was down from 940 million gallons at the end of April; however, again, if you look at the weekly data, inventory levels have continued to trend down since that time with reduced production and relatively higher seasonal demand. And the last weekly reports showed the [drop] down below 800 million for the first time.

Exports have taken up some of the excess ethanol production, although net exports are lower than what we saw in 2011, both looking at the May data as well as what we know since that time. We've touched on this a little bit in terms of our results, but co-products is probably the strongest area not surprisingly, with high corn prices and the relative value we are realizing, as well as corn oil values at similar levels is helping against these low crush margins.

As far as the 2012 crop, I touched on the conditions around our plant earlier, but it has remained in pretty good shape when we're looking at the new crop, and this is consistent with USDA's State Level Crop Reports. Wood River benefits from extensive irrigation, while Fairmont has not seen the more severe drought conditions that have been common in corn belt states to our south and east. We believe that the drought will lead to greater [valubility] in local supplies, and some ethanol plants that have had historically good corn supplies may be short, particularly in the regions impacted by the drought. We anticipate that this could create improved opportunities for margins for those with relatively strong corn supply. So, in essence, the local corn supply demand is going to play a big factor in plant profitability as we look at this coming production against the crop year.

So, those are our comments in terms of different areas of the industry. With respect to the growing chorus of calls for some change or action by the government, whether it is USDA, EPA, or more broadly to appeal or somehow alter the mandate RFS. We agree with leaders in the industry who have suggested that this is a complicated situation. With the drought and historically high corn prices, there is certainly reason to have a discussion around -- what are the impacts and what are the different choices? Having said that, we believe the market is working. Ethanol production is down, and the market is continuing to indicate that, that should be the case, while demand for our co-products, which is a substitute for corn, remains strong.

Taking a broader view, the US and the world need the environmental and cleaner solution that ethanol provides, as well as an octane value that delivers something -- to provide that octane at a competitive price. We believe that this is a key factor that is being overlooked as people talk about reducing or cutting back the RFS as some type of silver bullet for increasing corn supply. In the end, we remain of the view that the US and the world need a long-term solution to diversify away from fossil fuels, and as to the solution, first-generation corn and sugar, and second-generation biofuels will continue to play an increasing role. There are no easy answers, and yet we do not see good reason for a 50-year event to justify abandoning a sensible long-term policy, and the associated investment that has established the US as a leader in developing sustainable and market-competitive biofuel and bio-based chemical solutions.

With all that said, and despite the current challenges, we remain focused on controlling the things we can, and being able to realize the longer-term prospects for the industry, and BioFuel in particular. We continue to benefit from the improvements we made over the past year to our platform, and with ongoing refinements, are confident that our ongoing focus on cost and running efficiently has produced better results than otherwise would be the case, and positioned our plants well within the industry. We anticipate further improvement in the domestic supply/demand as more production comes off-line and are optimistic specifically about the crop conditions around our facilities.

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

At this time, we will begin the question-and-answer session.

(Operator Instructions)

Mr. George [Herbert].

Good morning gentlemen and congratulations keeping the ship afloat. I just have really one question. Can you please tell me what the historical book value of the Company is right now and how many shares are outstanding?

George, this is Kelly. With the reverse stock split that went into effect in June, at the end of June, the Company had outstanding 5.4 million shares of common stock and a book value, or an equity value of $75 million so that would be a book value of $14 per share.

$14 a share, and what would be the replacement cost for the plant and equipment that you have set up approximately?

Replacement values are pretty hard to predict but approximate, I would say would be 10% to 20% more than that. Kelly, what do you think?

Yes, I would say that's probably a good estimate.

So, somewhere between $16 and $18?

Correct.

Thank you very much. Keep up the good work, gentlemen. I realize it's not your fault and you're doing the best you can, and as a shareholder, I'm not happy but I'm not disappointed with your actions and efforts, and what can I say.

We're not happy either, George, but thank you and we're going to continue to press on.

Mr. Eddy [Lahens].

Good morning gentlemen. Good work again. The supply of corn around the plant, what is the relationship between the suppliers and the plant operation? I.e., will that corn necessarily come to you or go to the market?

We regularly maintain and work hard on the relationships with the farmers around the plants, and I think the best way to answer that is we definitely have to, on an ongoing basis, work in a market environment. That being said, we regularly secure in advance as much corn as we can. When we believe that the values are sensible and at this point, we have already secured -- I've got to look at the exact numbers, but probably somewhere around 30% of our corn for the fall and ultimately have the benefit of storage during the time of harvest. So it is an iterative process but one that we have already begun to stay ahead of.

Very well, very well. That's good to have good relationships. The other question is looking at the total mix of revenue. How do you foresee the margins in this upcoming tight season with the inventory coming down? How do you foresee the business in the next two quarters?

We don't give guidance. If you look at the forward curve, that is the best indication that you can, and I'll leave it to that to indicate what may be the market. My only comment against the forward curve would be that right now, I don't believe that it is providing a lot of anticipation of what is going to happen, given the high level of uncertainty in terms of the current production.

I see. Thank you for the pointer. I don't know if I missed it, but you had mentioned that there was a study going on with Isobutanol. Any comment on that?

A study --?

And ongoing evaluation with Gevo.

Correct. I just mentioned we had a press release at the end of June formally announcing a collaboration with them to continue to evaluate the prospect of retrofitting one of our facilities. I don't have a whole lot more to share on that other that what was contained in that release and just that we believe, as I said, they're one of the second-generation technology is well-positioned. We like the option of working with them and therefore, have chosen to spend some of our resources on continuing to move the ball forward on the ability for us to complete that retrofit.

Any guideline as to this near term? Is this something that will be 2014 in terms of being accomplished or how --? What is the run rate for such an activity?

That's the right way to think about it and I don't want to speak to specific 2014 sooner or later, but it is a longer-term prospect specifically because today, Gevo is starting up its full-scale facility and that is one key piece of what we would ultimately be monitoring. Then the second is to be able to have some measure of approval from the government, most likely for an advanced biofuel requirement, and that is a process that is underway but we will take into 2013 for sure. No investment or formal decision would be made before then.

I see. Thank you very much. The last area there, you mentioned there was an additional 50 railcars put into the mix as a service. What does that in total and what kind of a net bottom-line outcome for that particular effort?

We did sublease out 50 extra tanker cars at a significant premium to what we were currently being charged as far as our lease cost is concerned. Most of these cars that we leased out are going into the oil fields.

So that's a total of what, 100? 150? How much?

We have done a total of 100.

100. Very well. That is a very good use of assets. Thank you very much. Keep up the good work.

(Operator Instructions)

Kevin [Shaipar].

My question is based on the current spreads and your margins and your current available credit. How much time runway do you have before you either need to find some new debt or take some other measures?

I think that, broadly, you're asking the question about our liquidity and with the current spreads, and the only thing I can really say, Kevin, is that we have a fair amount of flexibility within our capital structure. We are doing all we can to manage the business to maximize liquidity while exploring certain alternatives that may be able to improve our position. And with that ongoing, there's really nothing I can say about the timeframe, and moreover, to my earlier point, to the question that Eddy raised, is the current forward strip indicative of what the margins that are to be realized? We don't know but we are doing things now to try to proactively address that.

(Operator Instructions)

There are no further questions at this time. This concludes today's conference call. Thank you all for your attention. All participants may now disconnect.

Take care everybody.