Rentech Announces Results for Second Quarter 2013

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Rentech Announces Results for Second Quarter 2013

LOS ANGELES--(BUSINESS WIRE)-- Rentech, Inc. (NYSE MKT: RTK) today announced its results for the three and six months ended June 30, 2013. Rentech owns and operates wood fibre processing and nitrogen fertilizer businesses. Rentech also owns technologies designed to produce certified synthetic fuels and renewable power when integrated with third-party technologies.

Rentech's financial results reflect the consolidated results of Rentech, Inc. and its subsidiaries, including its wood fibre processing business and Rentech Nitrogen Partners, L.P. The results of the wood fibre processing business are reported as two operating segments: Fulghum Fibres (wood chipping) and wood pellets. The results of Rentech Nitrogen are reported as the nitrogen products manufacturing subsidiary of Rentech, which includes two operating segments: the East Dubuque Facility and the Pasadena Facility. Results of the energy technologies business are reported in a separate segment.


D. Hunt Ramsbottom, President and CEO of Rentech, said, "Our financial results for the quarter demonstrate the dramatic transformation we have undertaken at Rentech. Our new business at the parent, which is wood fibre processing, generated positive EBITDA, and we had no R&D expenditures this quarter. Our focus is now on opportunities with attractive returns within the wood fibre processing and nitrogen fertilizer segments, as we continue our low-cost efforts to monetize our energy technologies." Mr. Ramsbottom continued, "Demand for nitrogen remains healthy although results for the quarter in that business were affected by the delayed and abbreviated spring application period and softer nitrogen prices."

Mr. Ramsbottom continued, "Our integration of Fulghum Fibres into Rentech has been smooth, and we have been pleased with Fulghum Fibres' financial performance and growth prospects relative to our conservative assumptions at the time of the acquisition." Mr. Ramsbottom added, "Conversions of the decommissioned wood fibre mills to pellet production in Eastern Canada are progressing and are within budget."

Financial Highlights

The financial statements for the periods ended June 30, 2013 include results of Fulghum Fibres from the closing of the acquisition on May 1, 2013.

Three months ended June 30, 2013

Consolidated revenues for the three months ended June 30, 2013 increased by $49.4 million to $120.2 million compared to the prior-year period, comprised of:

  • Contribution of $16.1 million from Fulghum Fibres; and
  • Increase of $33.3 million from the nitrogen products manufacturing subsidiary, which reflects a contribution of $42.2 million of revenues from the Pasadena Facility, partially offset by a 13% decline in revenues from the East Dubuque Facility.

Gross profit for the three months ended June 30, 2013 was $42.3 million, a decrease of $3.3 million compared to the prior-year period, and which included the following:

  • 15% gross margins at Fulghum Fibres; and
  • Decline in gross margin at the nitrogen products manufacturing subsidiary to 38% from 65% in the prior-year period, primarily due to the acquisition of the Pasadena Facility, which realizes lower gross margins than does the East Dubuque Facility, and the effects of allocating fixed costs to lower volumes of delivered products.

Operating income for the three months ended June 30, 2013 was $25.1 million, a decline of $4.4 million compared to the prior-year period, comprised of the following:

  • Contribution of $0.8 million from Fulghum Fibres, which included $2.3 million of depreciation and amortization expense;
  • Operating loss of $0.8 million from the wood pellets segment, which reflected selling, general and administrative (SG&A) costs associated with developing the business and non-capitalized costs associated with early work on acquiring and converting the wood fibre mills at Atikokan and Wawa for pellet production;
  • Contribution of $34.0 million from the nitrogen products manufacturing subsidiary;
  • Operating loss of $2.6 million from energy technologies, which reflects costs associated with decommissioning the Product Demonstration Unit (PDU); taxes, insurance, security and other administrative costs of the Company's energy technology facilities and sites; protecting patents; and efforts to sell and seek partners for its energy technologies and related assets; and
  • Corporate and unallocated expenses recorded as operating expenses of $6.4 million.

Consolidated Adjusted EBITDA for the three months ended June 30, 2013 was $31.9 million, which was flat in comparison to the prior-year period, and which included the following:

  • Contribution of $3.1 million from Fulghum Fibres; and
  • $38.4 million of Adjusted EBITDA from the nitrogen products manufacturing subsidiary.

For the three months ended June 30, 2013, the Company recorded a net income tax benefit of approximately $25.1 million which is comprised of an income tax benefit for Rentech of approximately $25.2 million and an income tax expense for Rentech Nitrogen Partners of approximately $0.1 million. The income tax benefit for Rentech was due to the release of valuation allowance of $26.3 million that had been recorded against Rentech's net operating loss carryforwards. The release of the valuation allowance resulted from recording of deferred tax liabilities related to the Fulghum Fibres acquisition.

Net income for the three months ended June 30, 2013 was $32.8 million or $0.14 per basic share. Excluding loss on debt extinguishment, the gain on fair value adjustment to earn-out consideration and the income tax benefit, net income allocated to common shareholders for the current period was $8.1 million or $0.04 per basic share. A reconciliation of net income exclusive of these items is provided below. This compares to net income of $9.5 million or $0.04 per basic share for the same period last year.

Fulghum Fibres

Fulghum Fibres generated revenues of $16.1 million from May 1, 2013 through June 30, 2013. Gross profit was $2.4 million for the period. SG&A and interest expenses for the period were $0.9 million and $0.5 million, respectively.

Wood Pellets

The wood pellets segment incurred SG&A expenses of $0.8 million for the three months ended June 30, 2013, which included acquisition and development costs associated with the Company's two previously announced pellet projects in Eastern Canada, as well as other costs necessary to build the Company's wood pellet business.

Nitrogen Products Manufacturing

The nitrogen products manufacturing business generated revenues of $104.0 million, compared to $70.6 million for the comparable period in the prior year. Revenues increased due to the contribution of $42.2 million from the Pasadena Facility, partially offset by a 13% decline in revenues from the East Dubuque Facility. Product deliveries from both facilities were negatively affected by a wet spring season which resulted in a delayed and abbreviated planting season and less nitrogen demand. Results of the quarter were further affected by significant increases in exports of urea from China that negatively impacted urea and other nitrogen prices. Lower urea prices also prompted some late season switching from UAN to urea due to the relative value of the two fertilizers.

During the three months ended June 30, 2013, Rentech Nitrogen generated operating income of $34.0 million, compared to $41.6 million during the comparable period in the prior year. Operating income in the current period was reduced by lower gross profits as well as higher SG&A expenses and depreciation and amortization expenses attributable to the addition of the Pasadena Facility.

Adjusted EBITDA for the three months ended June 30, 2013 was $38.4 million, compared to $44.9 million in the corresponding period in 2012. Adjusted EBITDA excluding Partnership level expenses totaled $40.9 million for the current period. The East Dubuque Facility and the Pasadena Facility contributed $38.9 million and $2.0 million in EBITDA, respectively, during the three months ended June 30, 2013. Further explanation of Adjusted EBITDA, a non-GAAP financial measure, has been included below in this press release.

Gross margins for the three months ended June 30, 2013 were 38%, compared to 65% for the same period last year, primarily due to the addition of the Pasadena Facility, which realizes lower gross margins than the East Dubuque Facility, and the effects of allocating fixed costs to lower volumes of delivered products. Gross margins at the East Dubuque Facility were 61% for the current period, compared to 65% for the prior-year period. Gross margins at the Pasadena Facility were 6% for the current period, which reflected inventory write-downs and sales of products that were produced from higher-cost raw materials purchased earlier in the year. During the three months ended June 30, 2013, the Partnership incurred a write-down of ammonium sulfate inventories of approximately $1.8 million for product not shipped due to the reduced application from the prolonged wet weather.

SG&A expenses were $4.9 million for the three months ended June 30, 2013, compared to $3.9 million for the prior-year period. The increase was primarily due to the addition of $1.3 million of SG&A expenses from the Pasadena Facility, partially offset by a 28% decline in expenses at the East Dubuque Facility primarily due to lower unused credit facility fees, legal expenses and other professional fees.

Interest expense was $3.9 million for the three months ended June 30, 2013, compared to $0 for the prior-year period. The increase was attributable to debt incurred for the purchase of the Pasadena Facility and expansion projects at the East Dubuque and Pasadena Facilities.

Rentech Nitrogen realized a non-cash gain of $4.8 million for the three months ended June 30, 2013 as a result of a decrease in the potential earn-out consideration related to the acquisition of Agrifos. The decrease in fair value was primarily due to lower results and expectations in 2013 caused by a delayed and abbreviated spring application season and higher levels of urea exports from China suppressing prices.

Energy Technologies

The energy technologies segment includes SG&A (including costs formerly booked as research and development (R&D) expenses) related to the Company's technologies that are designed to convert carbon-bearing solids or gases into hydrocarbons and electric power. The segment had nominal product sales during the three months ended June 30, 2013, which generated gross margins of 45%. The segment incurred SG&A expenses of $2.7 million during the current period, compared to $1.0 million for the prior-year period. SG&A expenses increased primarily due to the re-categorization of $2.0 million in costs that were previously reported as R&D expenses, partially offset by a decrease in project development costs of approximately $0.3 million. These former research and development expenses include costs in support of de-commissioning the PDU, costs associated with efforts to sell and obtain partners for the PDU and the Company's energy technologies, patent protection expenses, taxes, insurance costs, security and other administrative costs of energy technology facilities and sites. R&D expenses for the energy technologies segment were zero for the three months ended June 30, 2013, since all R&D activity ceased in the first quarter of 2013. R&D expenses for the prior-year period were $4.1 million, which were entirely related to the Company's alternative energy technologies.

Six months ended June 30, 2013

Consolidated revenues for the six months ended June 30, 2013 increased by $70.5 million to $179.8 million compared to the prior-year period, comprised of:

  • Contribution of $16.1 million from Fulghum Fibres; and
  • Increase of $54.4 million from the nitrogen products manufacturing subsidiary, which reflects contribution of $67.3 million of revenues from the Pasadena Facility, partially offset by a 12% decline in revenues from the East Dubuque Facility.

Gross profit for the six months ended June 30, 2013 was $65.1 million, a decrease of $3.2 million compared to the prior-year period and which included the following:

  • 15% gross profit margins at Fulghum Fibres; and
  • Decline in gross profit margin at the nitrogen products manufacturing subsidiary to 38% from 63% in the prior-year period, primarily due to the acquisition of the Pasadena Facility, which realizes lower gross margins than does the East Dubuque Facility, and the effects of allocating fixed costs to lower volumes of delivered products.

Operating income for the six months ended June 30, 2013 was $27.1 million, a decline of $8.9 million compared to the prior-year period, comprised of the following:

  • Contribution of $0.8 million from Fulghum Fibres, which included $2.3 million of depreciation and amortization expense;
  • Operating loss of $1.9 million from the wood pellets segment, which reflected SG&A costs associated with developing the business and non-capitalized costs associated with early work on acquiring and converting the wood fibre mills at Atikokan and Wawa;
  • Contribution of $51.1 million from the nitrogen products manufacturing subsidiary;
  • Operating loss of $9.5 million from energy technologies, which reflects costs associated with R&D, decommissioning the PDU; taxes, insurance, security and other administrative costs of the Company's energy technology facilities and sites; protecting patents; and efforts to sell and seek partners for its energy technologies and related assets; and
  • Corporate and unallocated expenses recorded as operating expenses of $13.3 million.

Adjusted consolidated EBITDA for the six months ended June 30, 2013 was $37.8 million, compared to $43.0 for the prior-year period, which included the following:

  • Contribution of $3.1 million from Fulghum Fibres; and
  • $59.1 million of Adjusted EBITDA from the nitrogen products manufacturing subsidiary.

For the six months ended June 30, 2013, the Company recorded a net income tax benefit of approximately $25.8 million which is comprised of an income tax benefit for Rentech of approximately $26.0 million and an income tax expense for Rentech Nitrogen of approximately $0.2 million. The income tax benefit for Rentech was due to the release of valuation allowance of $26.3 million that had been recorded against Rentech's net operating loss carryforwards. The release of the valuation allowance resulted from recording of deferred tax liabilities related to the Fulghum Fibres acquisition.

Net income for the six months ended June 30, 2013 was $27.6 million or $0.12 per basic share. Excluding loss on debt extinguishment, the gain on fair value adjustment to earn-out consideration and the income tax benefit, net income allocated to common shareholders for the current period was $2.5 million or $0.01 per basic share. This compares to net income of $6.3 million or $0.03 per basic share for the same period last year.

Fulghum Fibres

Fulghum Fibres generated revenues of $16.1 million from May 1, 2013 through June 30, 2013. Gross profit was $2.4 million for the period. SG&A and interest expenses for the period were $0.9 million and $0.5 million, respectively.

Wood Pellets

The wood pellets segment incurred SG&A expenses of $1.9 million for the six months ended June 30, 2013, which included acquisition and development costs associated with the Company's two previously announced pellet projects in Eastern Canada as well as other costs necessary to build the Company's wood fibre processing business.

Nitrogen Products Manufacturing

The nitrogen products manufacturing business generated revenues of $163.5 million, compared to $109.1 million for the comparable period in the prior year. Revenues increased due to the contribution of $67.3 million of revenues from the Pasadena Facility, partially offset by a 12% decline in revenues from the East Dubuque Facility. Product deliveries from both facilities were negatively affected by a wet spring season which resulted in a delayed and abbreviated planting season and less nitrogen demand. Results of the quarter were further affected by significant increases in exports of urea from China that negatively impacted urea and other nitrogen prices. Lower urea prices also prompted some late season switching from UAN to urea due to the relative value of the two fertilizers.

During the six months ended June 30, 2013, Rentech Nitrogen generated operating income of $51.1 million compared to $61.1 million during the comparable period in the prior year. Operating income in the current period was reduced by lower gross profits as well as higher SG&A expenses and depreciation and amortization expenses attributable to the addition of the Pasadena Facility.

Adjusted EBITDA for the six months ended June 30, 2013 was $59.1 million, compared to $66.8 million in the corresponding period in 2012. Adjusted EBITDA excluding Partnership level expenses, totaled $63.7 million for the current period. The East Dubuque Facility and the Pasadena Facility contributed $58.5 million and $5.2 million in Adjusted EBITDA, respectively, during the six months ended June 30, 2013. Further explanation of Adjusted EBITDA, a non-GAAP financial measure, has been included below in this press release.

Gross margins for the six months ended June 30, 2013 were 38%, compared to 63% for the same period last year, primarily due to the addition of the Pasadena Facility, which realizes lower gross margins than does the East Dubuque Facility, and the effects of allocating fixed costs to lower volumes of delivered products. Gross margins at the East Dubuque Facility were 58% for the current period, compared to 63% for the prior-year period. Gross margins at the Pasadena Facility were 9% for the current period, which reflected certain inventory write-downs and sales of products that were produced from higher-cost raw materials. During the six months ended June 30, 2013, the Partnership incurred write-downs of sulfur and sulfuric acid inventory of approximately $0.5 million and ammonium sulfate inventories of approximately $1.8 million.

SG&A expenses were $9.6 million for the six months ended June 30, 2013, compared to $6.5 million for the prior-year period. The increase was primarily due to the addition of $2.6 million of SG&A expenses and an increase in Partnership level expenses to support the Pasadena Facility, partially offset by a 13% decline in expenses at the East Dubuque Facility primarily due to lower unused credit facility fees, legal expenses and other professional fees.

Interest expense was $5.7 million for the six months ended June 30, 2013, compared to $0.1 million for the prior-year period. The increase was attributable to debt incurred for the purchase of the Pasadena Facility and expansion projects at the East Dubuque and Pasadena Facilities.

Rentech Nitrogen realized a non-cash gain of $4.6 million for the six months ended June 30, 2013 as a result of a decrease in the potential earn-out consideration related to the acquisition of Agrifos. The decrease in fair value was primarily due to lower results and expectations in 2013 caused by a delayed and abbreviated spring application season and higher levels of urea exports from China suppressing prices.

Energy Technologies

The energy technologies segment had product sales of $0.2 million during the six months ended June 30, 2013, which generated gross margins of 48%. The segment incurred SG&A expenses of $3.8 million during the current period, compared to $2.5 million for the prior-year period. SG&A expenses increased primarily due to the re-categorization of $2.0 million in costs that were previously reported as R&D expenses, partially offset by a decrease in project development costs of approximately $0.8 million. These former R&D expenses included costs in support of de-commissioning the PDU, costs associated with efforts to sell and obtain partners for the PDU and the Company's energy technologies, patent protection expenses, taxes, insurance costs, security and other administrative costs of energy technology facilities and sites. R&D expenses for the energy technologies segment were $5.7 million for the six months ended June 30, 2013, all of which were incurred in the first three months of the year. R&D expenses for the prior-year period were $9.1 million.

2013 Outlook

Rentech

For the twelve months ending December 31, 2013, Rentech reiterated its guidance of total cash operating expenses for Rentech, including Fulghum Fibres and excluding the nitrogen products manufacturing business, of approximately $34 million.

Rentech Nitrogen

In its press release dated August 8, 2013, Rentech Nitrogen updated its guidance for cash available for distribution for the twelve months ending December 31, 2013 to a range of $2.05 to $2.20 per unit. The 2013 guidance includes the impact of two previously announced scheduled outages at its facilities during 2013, and the impact of lost revenue in 2013 due to the unscheduled outage at the East Dubuque Facility in December 2012.

Based on Rentech Nitrogen's current guidance range of $2.05 to $2.20 per unit, and assuming Rentech's current ownership of 23.25 million units of Rentech Nitrogen, Rentech would receive approximately $48 to $51 million in cash distributions.

Conference Call with Management

The Company will hold a conference call today, August 8, 2013, at 3:00 p.m. PDT, during which Rentech's senior management will review the Company's financial results for this period and provide an update on corporate developments. Callers may listen to the live presentation, which will be followed by a question and answer segment, by dialing 888-390-3983 or 862-255-5354. An audio webcast of the call will be available at www.rentechinc.com within the Investor Relations portion of the site under the Presentations section. A replay will be available by audio webcast and teleconference from 7:00 p.m. PDT on August 8 through 7:00 p.m. PDT on August 18. The replay teleconference will be available by dialing 888-539-4649 or 908-379-8864 and the audience passcode 93572#.

Rentech, Inc. and Subsidiaries

Consolidated Statements of Income

(Stated in Thousands, Except per Share Data)

       
For the Three MonthsFor the Six Months
Ended June 30,Ended June 30,
 2013     2012  2013     2012 
(unaudited)(unaudited)(unaudited)(unaudited)
 
Total Revenues$120,153$70,707$179,820$109,295
 
Cost of Sales 77,839  25,052  114,734  41,005 
 
Gross Profit42,31445,65565,08668,290
 
Selling, general and administrative expense15,51611,36129,16821,774
Research and development-4,0895,7479,112
Depreciation and amortization1,8166773,0011,816
Other (92) 80  28  (437)
Operating Expenses17,24016,20737,94432,265
 
Operating Income25,07429,44827,14236,025
Other Expense, Net
Interest expense(4,463)(2,147)(6,267)(4,460)
Loss on debt extinguishment(6,001)-(6,001)-
Gain on FV adjustments to earn-out consideration4,823-4,611-
Other expense, net (248) (447) (146) (386)
Total Other Expenses, Net(5,889)(2,594)(7,803)(4,846)
 
Income Before Income Taxes19,18526,85419,33931,179
 
Income tax (benefit) expense (25,121) 1,175  (25,753) 1,175 
 
Net Income44,30625,67945,09230,004
Net income attributable to non-controlling interests (11,474) (16,159) (17,500) (23,749)

Net Income Attributable to Rentech Common Shareholders

$32,832 $9,520 $27,592 $6,255 
 

Net Income per Common Share Allocated to Rentech Common Shareholders:

Basic$0.14 $0.04 $0.12 $0.03 
Diluted$0.14 $0.04 $0.12 $0.03 
 
Weighted-Average Shares Used to Compute Net Income per Common Share:
Basic225,981225,119225,604225,492
Diluted

231,533

233,737

231,768

233,812
 

Rentech, Inc.

Statements of Income by Business Segment

(Stated in Thousands, Except per Share Data)

       
For the Three MonthsFor the Six Months
Ended June 30,Ended June 30,
 2013     2012  2013     2012 
(unaudited)(unaudited)(unaudited)(unaudited)
Revenues
East Dubuque Facility$61,717$70,643$96,266$ Read Full Story

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