LOS ANGELES Nov 10, 2015 (Thomson StreetEvents) -- Edited Transcript of Rentech Inc earnings conference call or presentation Tuesday, November 10, 2015 at 4:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Julie Cafarella Rentech Inc. - VP of IR * Keith Forman Rentech Inc. - President, CEO * Dan Cohrs Rentech Inc. - CFO * Dennis Corn Rentech Inc. - VP of Business Development ================================================================================ Conference Call Participants ================================================================================ * Brent Rystrom Feltl & Company - Analyst * Matt Niblack HITE Hedge - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the Rentech Inc. third quarter conference call. My name is Tiffany and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. I would like to inform all participants this call is being recorded at the request of Rentech Inc. This broadcast is copyrighted property of Rentech Inc. any rebroadcast of this information in whole, in part without prior written permission of Rentech inc. is prohibited. I will now turn the call over to Julie Cafarella, Vice President of Investor Relations. Julie, you may again. -------------------------------------------------------------------------------- Julie Cafarella, Rentech Inc. - VP of IR [2] -------------------------------------------------------------------------------- Thanks for joining us, everyone. Welcome to Rentech's conference call for the three and nine months ended September 30, 2015. During today's call, Keith Forman, President and CEO of Rentech will is summarize our activities. Dan Cohrs, our Chief Financial Officer, will give a financial review of the period. Also on the line with us today are members of the Fibre and Fertilizer Management teams. They will be available for questions at the end of our remarks. Please be advised that certain information discussed on this conference call will contain forward-looking statements. They can be identified by the use of terms such as may, will, expect, believe and other comparable terms. You are cautioned that while forward-looking statements reflect our good faith belief and best judgment, based upon current information, they are not guarantees of future performance. They are subject to known and unknown risk and uncertainties and risk factors. We detail these factors from time-to-time in the company's periodic reports and registration statements filed with the Securities and Exchange Commission. The forward-looking statements in this call are made as of November 10, 2015. Rentech does not revise or update these forward-looking statements except to the extent that it is required to do so under applicable laws. Today's presentation also includes various non-GAAP financial measures. The disclosures related to these non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures, are included in our 2015 third quarter earnings press release. You can find the release on our website. Now we'll turn the call over to Keith. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [3] -------------------------------------------------------------------------------- Welcome to our quarterly call. I'm going to reorder my talking points this morning in response to inquiries we've been receiving this morning with regard to our announcements and the market's interpretation of them. The issue of course being focused on is our liquidity paragraph. Rentech, for the most part of its 32-year history, has always been a company confronting issues around its liquidity. It is certainly a topic we strive to address each reporting period in our filings, on our calls and is monitored diligently by us on a routine basis. Prudency and reporting requirements dictate that we have a clear path of liquidity for a 12 month period into the future. While we believe the transaction with CVR would initially close during the fourth quarter of this year, this path was evident. As we have reevaluated that the closing will most likely be pushed into the first quarter of next year, this path is less clear without some adjust to our capitalization or spend. Our change in tonality around this issue was meant to focus on the importance to Rentech Inc, that the transaction between RNF and CVR Partners close as projected during the first quarter of 2016. There are no immediate cash shortfalls. There's no current or pending amortization. No overdue senior obligation. No gun to our head. However, in early next year, we expect to need some of the proceeds from the expected merger and related sale of Pasadena to meet our cash requirements. If there were some unforeseen delay to this closing we would need to procure additional capital to fund our continuing operations through closing. The options we may consider for funding a capital shortfall may include and/or some combination of the following. The incurrence of additional debt through a bridge loan type arrangement, monetization of a portion of our remaining unencumbered ownership of RNF units, which total there's 3.1 million, which are not transferable without the consent of CRV partners or reducing our future outlays of cash. The good news is this is not a surprise. We will, if needed, seek a solution that is in the best interests of our shareholders, not one driven by false panic that would have terms incongruous with obtaining our long-range goals. All right. So that being said, I'll go back to the original purpose of the call, which was to discuss things in our rear view mirror, our third quarter results. Consolidated results improved compared to last year as our operating businesses posted higher EBITDA across the board. Performance at Fulghum and NEWP was better than we anticipated and as a result we now expect both businesses to exceed our guidance for the year. Rentech Nitrogen had an strong quarter. We discussed the fertilizer business in some detail earlier this morning on the call for Rentech Nitrogen. The highlights of the call were the following, financial and operating results for both nitrogen facilities improved significantly from the third quarter of last year. We had higher sales volumes for ammonia and UAN. Sales volume for AS were lower due to the restructuring constraints but pricing was higher than in the third quarter of last year. Improved margins were driven by lower natural gas and ammonia feed stock costs. Both of our facilities operated at high uptime rates, not to mention safely and this is to the credit of our facilities at the facilities themselves. At Pasadena we took an additional asset impairment charge of $32.5 million instigated by the combination of updated for updated market reads and updated out year forecasts for production prices. For product prices, I'm sorry. Our Rentech Nitrogen updated guidance for 2015, due to the improved performance at East Dubuque, slightly lower results at Pasadena and the addition of transaction costs. A brief update on the RNF sales process. We received no comments during the HSR portion of our process. The S4 has been filed, was filed in September and is currently in the SEC review process. We're running a parallel paths with the sales process and preparations of spin-off documents for Pasadena. We specifically put the Pasadena spin-off option in the sales document to place control of this asset disposition in our hands and therefore we can heavily impact the actual closing of the CVR transaction. So we now expect to close the CVR Partners transaction in the first quarter of 2016. Let me update you a bit on Canada. We did a little intermittent update back in early October with respect to the Wawa situation on our website. The August update to our CapEx estimate of approximately $145 million is unchanged. We have approximately $24 million to be spent as of the end of the third quarter. I want you to note, though, that the CapEx estimate does not include contingencies for any additional issues that could be identified during the ramp-up. Once we complete the infeed and conveyance repairs and began to reestablish an operating history, we will have more clarity to when we might reach full production capacity and stabilized EBITDA. We estimate that several factors present in the market today, if perpetuated, would have the effect of reducing our guidance for stabilized EBITDA around, by about 10%. Those factors may or may not improve by the time we hit full production at the plants. These factors include the fact that oil prices, which drive indexation of prices, and our (inaudible) contract have declined more than Canadian diesel prices. Let me just clarify that a little bit. There's an imperfect link for cost reimbursement. Back in the day that this contract was signed, over two years ago, there was a 95% correlation between brent and Canadian diesel and there's been a disconnect. So the fall in brent prices has not been matched by commensurate fall in diesel so we're still paying the higher price but only being reimbursed as if it had dropped to the same level of brent. So that's the situation that exists today. Of course none of that is happening because we haven't sold any pellets to Drax yet. So we're just alerting people here that if this situation perpetuates in the south in the future, there will be a little shortfall in cost reimbursement. There's also currency exchange rates, spot pricing for pellets that are not under contract and our reduced ability to procure third party pellets for sale through our port facility. So all of those are situations that the market says do not exist today, that may exist in the future, that have existed in the past and we'll see when we get there. We are just alerting people there's a little bit of squishiness around the EBITDA number but it's in the magnitude of 0% to 10% range. Switching gears to Atikokan, we've been meeting our contractual obligations and the plant is ramping up on schedule. Now that the electrical issues which inhibited us early in the year have been remediated once we installed the larger replacement transformer in August. Through early November we've produced approximately 42,000 metric tons of pellets. We have delivered to OPG, under our contract 34,000 metric tons of pellets. The quality of our production remains good. The heat value of the pellets supplied to OPG continues to be higher than the minimum requirements of the contract, which actually results in a little bit higher revenue to us. During the quarter, we began shipping excess volumes to our port facility to supplement Wawa's production as we build inventory for the first shipment to Drax early next year. We have completed most of the repairs to the truck dump hopper with some minor modifications that are just being worked on right now and it is working as expected. Atikokan is not immune from the conveyance issues that have afflicted Wawa. We use the same vendor for 35% of the conveyance there. We've ordered replacement conveyance parts for two of the conveyors and are hopeful that the near wholesale replacement of conveyance that's been underway at Wawa will not be needed at Atikokan. We continue to target reaching full capacity to Atikokan by the end of February of 2016 but we still acknowledge that the timing could shift by several months depending on the degree of modifications needed to correct the conveyance issues or anything else that we may see. Through early November, we've produced 21,000 metric tons of pellets at Wawa. We now have a total of approximately 28,000 tons of pellets in transit or at our storage facility in the Port of Quebec. This represents about 61% of the capacity of the Super Max schedule to ship to Drax early next year. Wawa is expected to complete a four-week outage this week, whereby we installed equipment to correct our material handling problems. The new log in-feed system is expected to be become operational this week. Once it's operational, the chippers will be able to run at greater through-put capacity. In addition the new replacement conveyors that were installed during the outage have shown no issues during checkout and are expected to operate with no problems during commissioning later this week. The truck dump and its new conveyors are expected to be commissioned later this week also and we are able to operate the plant either with the truck dump or the chippers, which enhances our fibre supply options. Wawa is scheduled to operate intermittently over the coming months as work to correct the remaining conveyance issues to continue into the first quarter of next year. We are compressing what was initially conceived as a phase of a three-phase remediation process into two faces. We have yet to finalize the fabrication and installation contract for the second phase but anticipate that the costs will fit within our Canadian spending guidance of $145 million. We expect to resume the ramp-up of Wawa in the second quarter of the year with the goal of achieving the ability to operate at full capacity in the second half of the year. The conveyance issues have been costly to us. On the surface they may have only increased our aggregate spend in Canada to $145 million from the high end of our previous guidance of $131 million to $140 million. However as I stated last quarter, I want to make sure it's evident that most of the remaining contingency in our project cost estimates has been consumed. In addition, we have had our progress towards operating capacity delayed by months and in turn, as previously announced, we have incurred cash penalty from our downstream constituents as well. The good news is that we aren't very far along with the construction. The change in conveyance providers and the new engineering team that we have in place gives me confidence that we will fix this issue. Keep in mind that the plant has in fact operated, produced at periodic rates, has made high quality pellets that have exceeded our specifications and they have been shipped to our storage facility in the Port of Quebec. Once the conveyance is fixed, we will then get to see how remaining components operate in concert with each other at increasing higher operating levels and for increasingly longer periods of time. We expect these components to perform as they have shown they can in earlier, albeit less stressful conditions at Wawa and Atikokan. We are using equipments that successfully operating in facilities owned by others in their up and running plants so we're optimistic that we will be able to do so as well. Again my caution here is that we are no longer budgeted for additional meaningful failure of critical equipment. Fulghum Fibres, as mentioned Fulghum has performed better than our expectations duration the first nine months of our year and should exceed our EBITDA guidance for the full year of $16 million to $17 million of EBITDA. Domestically our efforts to control costs while increasing plant efficiency at the mills have been showing positive results. Meanwhile in South America, we've been able to increase sales both within South America as well as to Asia. Revenues for the quarter were slightly higher than last year at $23.4 million. U.S. revenues were essentially flat while South American revenues were up almost 25%. Gross profit was up 47% compared to the third quarter last year due to lower maintenance and other operating costs, 3Q 2015 EBITDA of $5.9 million is up over 50% from the same period a year ago. New England up to, now let's talk about NEWP here for a second. New England Wood Pellets retains its role among the Rentech family as an entity that provides consistent positive results. We expect NEWP to also exceed the higher end of our $9 million to $10 million EBITDA guidance for the year. Higher average sales prices, favorable manufacturing variances and lower SG&A spend are contributing to better than expected results. Gross profit for the quarter was up nearly 65% from the comparable quarter last year, 3Q 2015 EBITDA, $4.4 million is up over 60% from 3Q 2014. In addition to higher margins, this quarter's results benefited from a full quarter of Allegheny operations. And I've already talked about liquidity so let me move on to re-organization and cost savings. Which are actually separate from that discussion because they were in the works as we talked about last quarter, they are constantly in the works here. But they do have a direct impact on that, obviously, in the longer term. This is an iterative process and must be so to respond to known factors that present themselves. As such this can be not be viewed as one and done situation. On a high level we have committed that the initial reductions in cost will approximate $10 million to $12 million. The phase into this reduction has already begun. More specifically includes closing our Los Angeles headquarters by sometime in the second half of next year. It involves relocating a much smaller corporate center to the Washington DC area by mid next year. By smaller I anticipate that the ob functions (inaudible) these offices will ultimately represent about a third of the head count that existed in Los Angeles a year ago. Concurrent with this move, and shrinkage of the headquarters head count, will come a reduction in the compensation model to more accurately reflect the ultimate size and scope of Rentech's businesses. In addition, cost reductions that have been underway in procurement, professional season services, information technology and others will continue to press forward. These changes are being driven internally by a small group of people in our organization. My last comment on this topic at this moment will be to let you know that all of our Los Angeles-based employees have been spoken to, each has responded commendably at the task at hand and each person has continued to perform at the high levels we have come to expect until such time as that the function they oversee is transferred to the field, to the East Coast or eliminated. I thank each of them for their professionalism. As usual, we've given you, our investors, a lot to digest. Our goal is to improve the value of our investment in the wood fibre industry, that remains our top goal. To do so we must have a business striving to create distributable cash flow among the cleanest metrics of financial soundness of a business. We have made strides toward this goal during the first nine months of the year. Our business at Fulghum has regained mojo to a large degree and it looks like that we'll end the year at levels last achieved when we first acquired the business. NEWP, of course, seamlessly rolled up its acquisition of Allegheny and continues to deliver as expected, only a little better. Atikokan is up and running, not clear of headwinds, but for the year will have met all of its contractual obligations with respect to quantity and quality of product. We also set out the year to rationalize the investment thesis around Rentech Inc. We sought to protect our fertilizer business with a partner that could, in concert with our business, build a stronger, more diversified platform upon which to grow and to secure future cash flows, particularly in an industry amidst a transformative period of consolidation that makes single plant companies more vulnerable to competitive pressures. We haven't closed a transaction yet but we intend to and we believe we have chosen the perfect partner. In addition, this transaction will enable Rentech to reduce about 75% of our obligations to GSO, all of which are senior to our shareholders. Vastly enhancing our financial flexibility. This reduction in debt will have the immediate impact of reducing our cash interest expense, which is dollar-for-dollar new distributable cash flow. To the extent this enables us to more readily restructure our subsidiary level of debt facilities to reduce amortizations, our distributable cash generation will be further enhanced. Our cost containment initiatives are becoming more visible and each dollar of cash saved in this process is a dollar of distributable cash created as well. Of course an impediment to achieving our primary long-term financial goals is the uncertainty that still exists around our Wawa facility. As mentioned we are working hard and confident that we will be able to fix the conveyance issues we confront. I can assure you that we take no action here without the inherent belief that the success of such action will ultimately enhance shareholder value. And now Dan, may the quarter specifically. -------------------------------------------------------------------------------- Dan Cohrs, Rentech Inc. - CFO [4] -------------------------------------------------------------------------------- Results for the third quarter improved across the operating businesses. At Fulghum Fibres, lower cost in the U.S. and higher sales of chips in South America improved profitability in the third quarter and our outlook for the year. NEWP's production and sales were up from last year with both product prices and unit costs improving. At East Dubuque revenue increased with record ammonium production despite lower delivered pricing. Lower natural gas costs improved margins. At Pasadena, revenues were down slightly as lower volumes were not quite offset by prices that were significantly stronger than last year. Lower ammonium input prices, combined with higher product prices, drove the raw material margins much higher in Pasadena. This quarter we presented the East Dubuque facility as a discontinued operation since we have an agreement in place to sell the business and, as Keith already mentioned, we wrote down the assets in Pasadena by $32.5 million. Summarizing the P&L results, now keep in mind that the numbers I'm about to mention do not include East Dubuque, which is presented separately as a discontinued operation. But just to have a quick comment on East Dubuque, revenues there were up 2%. The other revenues in the company were up by fine 5% with NEWP, improving significantly, up 27% as we added the Allegheny Mill and Fulghum Fibres revenues were up 6%. Pasadena, which is still, of course, in our consolidated numbers, had revenue declined by 2%. Margins were up across the board with Pasadena improving dramatically from a loss last third quarter to a small profit this year. Fulghum Fibres margins improved from 15% to 21% and NEWP's margins also increased as we saw the price improvement and cost improvement as well. So the total gross profit margin across the company also improved. SG&A consolidated was down 2%, the only place we say improved -- sorry, increases in SG&A would have been due to transaction costs within Rentech Nitrogen, those costs associated with the merger with CVR Partners. So consolidated net income if we take the reported number declined from last year, a loss of $0.51 in the third quarter of last year, dropped to a loss of $1.06 this year. But if we adjust for the asset impairment, the per share number improved to a net income of $0.38 in the quarter. Looking at some key metrics, we've got Fulghum Fibres logs process improved by 3% from last year, so the volume was up from 3.7 million tons to 3.8 million tons and at New England Wood Pellet delivered tons increased by 24%. Again reflecting the acquisition of the Allegheny Mill. And now we'll open it up and take some questions on the quarter. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. We will now begin the question and answer section. (Operator Instructions). Our first question comes from Brent Rystrom from Feltl. Please go ahead. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [2] -------------------------------------------------------------------------------- Yes, thank you. Keith, could you remind us on the Atikokan and Wawa, kind of, what we view as capacity and the utilization of that capacity when these two plants are up full power. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [3] -------------------------------------------------------------------------------- Yes. The capacity, to my recollection Atikokan is 110,000 metric tons per year and at Wawa it's 450,000 tons. So utilization would be, you know, if we used metrics of up and running plants, the 500 metric ton plants that Enviva owns operate at 500 so we think we hit those numbers full out. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [4] -------------------------------------------------------------------------------- Okay. And then you had mentioned in your comments that, you know, although you have yet to test certain things at Wawa, I believe your quote was, earlier under less stressful conditions we were able to stress test some of that equipment. Can you give us a context of what less stressful conditions means? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [5] -------------------------------------------------------------------------------- Well, I guess it's really duration, right, Brent? I mean we've run all 12 mills at the same time. We've run three mills all out for three days in a row. We've never run 12 mills at Wawa for a week consecutively because we just haven't had the ability to deliver that volume of product to those mills. So that's just one aspect of it. And then to get to the mills you have to go through the hammer mills. So the same goes for the hammer mills. I think there's four of those there. Dennis, is there anything you want to enhance on that answer that I gave there? -------------------------------------------------------------------------------- Dennis Corn, Rentech Inc. - VP of Business Development [6] -------------------------------------------------------------------------------- No, (inaudible) I think you covered it. Basically, as you're saying it, until we've had a chance to run the rest of the plant at full output, all the components have been run at lesser output, so far none of those have indicated any problems, but we won't know until we're able to run it. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [7] -------------------------------------------------------------------------------- All right. Thank you. Keith, can you kind of give us an update, I know in the past you've talked about you would like to return some growth to Fulghum. Can you give us an update on what your thoughts are on that part of the business? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [8] -------------------------------------------------------------------------------- We're working it. There are opportunities. I have nothing I can talk about right now but, you know, we are evaluating at least two proposals or three proposals for new facilities there. Of course we do have, historically we've had a mechanism to finance that growth separate from whatever the parent company is ultimately doing. It's not something that we're shutting down. Those relationships are commercially run at a much more localized level. You know, whereas visits to customers at Wawa involve airplanes and passports. The visits to our customers at Fulghum involve getting in your car, putting in a good CD or satellite radio, if we reimburse that, and drive into the plant. So it's a hands-on effort. I can tell you that I've really feel good about the team that we have doing that. I have nothing to report right now. I think the first order of business, though, Brent, was if you can't run what you own properly, how can you justify running more of it? And I think what we've seen the team there do in the last ten to 12 months is to prove that they can run these things as they should be run and kudos to them. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [9] -------------------------------------------------------------------------------- And when you made the comment about financing, that's pretty much a reference to, from a CapEx perspective, there's different ways to fund (inaudible). -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [10] -------------------------------------------------------------------------------- Absolutely. Right. Absolutely. You know, it's one of the things that, idealistically, I want to clear up but I can clear that up post facto. So if I have to, if it's an opportunity to put a new mill in for $5 million or $6 million to serve this customer for the next five to eight years at a profitable rate and I can establish the same sort of, you know, subsidiary level credit to fully fund that construction, I will do that. You know, bigger picture, what's incongruous is I really don't like the subsidiary, what I call blocking credits to be in place below the parent company. But prudency may dictate that we continue on that path for a little while longer. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [11] -------------------------------------------------------------------------------- Okay. Any thoughts about, you know, on the previous call I think you mentioned 78 degree weather, wherever you're at right now, Keith. Thinking of the New England Wood Pellets, but I'm curious, any thoughts on how the retail channel inventory build might look like? I know you had a good quarter, expect a good fourth quarter but after two years of very cool, cold falls in the Northeast and Midwest it looks like we're off to a little bit different pace this year. Does that change the detail? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [12] -------------------------------------------------------------------------------- Well, remember, Brent, we don't sell to Dave in the cabin. We sell to the big boxes and the big boxes started buying these pellets back in the spring. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [13] -------------------------------------------------------------------------------- I understand that. What I'm worried about, do you have an ability to track the retail sell-through? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [14] -------------------------------------------------------------------------------- Yes, I mean, I think we're tracking a little bit through pricing. I think we'll get some pricing feedback through, you know, none of this happens in a vacuum. So there's already dialogue between our guys, our people and, you know, Home Depot or Lowes or Tractor Supply. And envisioned what's going to happen next year and if they report to us that they've had to discount their pellet sales by 10% or 20%, you know, in front of their stores, you know, that's going to be pressure that we're receiving back. We have not received that but I think it's premature because I also think that, you know, things change. The weather changes and fortunately. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [15] -------------------------------------------------------------------------------- My final question, Keith. Timing of the headquarters, you may have mentioned in the called, I didn't recall, but do you have a sense of when that might happen? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [16] -------------------------------------------------------------------------------- Yes, I mean we've engaged with the help of some of our friends and I mean that business-wise not nepotistically. We've engaged a party to, that's already looking at subletting options for our offices here and a similar party's been looking for space for us in the DC area so they there will be actually visits occurring this year to new spaces. And, you know, I'm saying the second quarter, that's our goal. So I mean the second half of the year but it's not going to be in the latter part of the year. -------------------------------------------------------------------------------- Brent Rystrom, Feltl & Company - Analyst [17] -------------------------------------------------------------------------------- All right. Thank you. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [18] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Thank you. Our next question is from Matt Niblack of HITE Hedge. Please go ahead. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [20] -------------------------------------------------------------------------------- Hi. Thanks for taking the question and really nice work on the Fulghum and NEWP. On that topic, how sustainable are the improved results in those two divisions? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [21] -------------------------------------------------------------------------------- Well, I think, you know, the issue, let's focus on NEWP. There's this issue that Brent has talked about with weather. We have had good results. We didn't acquire another, there's not an Allegheny to pull out of the woods or out of the sky right now so there's no step change in revenue. So the better than expected year we're going to post, you know, requires similar tailwinds and right now, looking at the farmer's almanac and all of that, and of course every big customer you have, because they're big customers, are telling you, well you're not going to get had next year, guys. So we'll see. Let's not put it in the bank. Generally that's a $10 million EBITDA business. That's sort of a number we like to, that I would use as a metric of success. And Fulghum, you know, was a 20ish when we acquired it. It's going to exceed $16 million to $17 million this year. I think the pressures on Fulghum are there as well. I mean you saw that there was one disclosure this quarter about a contract with [Rainier] and you saw that they exercised their option to acquire that plant and that worked out for us on a cash basis because the plant was generate very long little cash to us and we got a meaningful check in. We were able to reduce debt at Fulghum with those proceeds. However, and the negative of course is we took a write-down on the physical asset. But you wouldn't want to see that situation perpetuate itself across this spectrum. I think it's always, it's challenging to grow that business. There's headwinds in the fibre and container board industry. There's consolidation going on, consolidations goods/bad depending on what customer you had that was acquired. Are you on the inquiries team or on the acquired team? I guess what I'm saying, Matt, is we're not taking anything for granted. The pressure is on us. What I am pleased about is it's like, I'm going to use a kid analogy because I had parent conferences last Friday. I'm sitting there listening to my daughter get her lecture from the teacher and myself and we wouldn't be giving her a lecture if we didn't think she had A+ in her. If she was C and she got a C, we would be putting her on the back. What Fulghum and NEWP show us is that they have A potential. So when they do B performance, we're upset with them and I think this year is A performance and it makes the bar higher for them. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [22] -------------------------------------------------------------------------------- Okay. So with Fulghum, you would expect just to continue, that's your expectation? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [23] -------------------------------------------------------------------------------- I think operationally, I expect the operational performance not to be a cause of us missing our number, which was a major part of that 13.5 number that we posted in 2014. But I still expect there to be issues around, you know, IP, looking at plants here or GP looking at a plant there and saying, you know, this deal's, we're going to shut that plant down, we're going to run half the fibre. We're going to stop making container board. We're just going to maim bathroom tissue. That stuff will happen and it's naive of any of us to think that those pressures aren't there. Countervailing that is we got the people on the ground in the cars looking for new opportunities where if we lose a paper line in one plant, hopefully we pick up a paper line someplace else. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [24] -------------------------------------------------------------------------------- Right, right. Okay. And then you didn't have a ton to say in your remarks, on this call at least, about Pasadena. So what's happening there?I guess we can read from the filing that the interest there is less than what it was before. You're not sure you can sell it. Is that a correct interpretation and, I mean, (inaudible) the options there? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [25] -------------------------------------------------------------------------------- Right. I mean the additional write-down was a combination of events. For instance if that asset was going to be held in perpetuity, if it was something that wasn't for sale, we would, on a non-discounted basis, look at future cash flows and get to count them out for ten plus years. But because we've put it in this other box, we have to -- I'm sorry, yes, we have to discount the cash flows and we have to clip them. We can't look at it for a longer period of time. So there's pressure from, numerically, on how we value that. And as well as there's input. The reason we haven't said much more about it is because we are in an active process there. There are confidentiality letters where they can't talk about it so I would hate to be and it doesn't do me any benefit to be the party violating that confidentiality. But I think your reading of the tea leaves is not something I'm going to say, boy, you've misread them. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [26] -------------------------------------------------------------------------------- Got it. So if you end up choosing to hang on to it and retain the cash flows, is that something that's on the table there? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [27] -------------------------------------------------------------------------------- That's always been on the table to spin it off. I mean I think first off, you know, we had to have an option that we controlled. One where we wouldn't be held hostage by the smaller player looking to acquire Pasadena. You could just imagine the amount of leverage that would exist if I were to, if we were to have signed purchase agreement and a purchase agreement is by no means a final document, and then get closer to closing and then have, well we need escrow for this or we're not going to pay for this or hey, you know what, the working capital adjustment we agreed to we don't like and knowing full well that I had ended the process, shifted the burden of the transaction or the priority of the transaction to the smaller asset and now what position I would be in to stand in front of the much larger more beneficial event to RNF unit holders. So we didn't ever wanted to be in that position so we wanted to be able to say, enough with you, we're over here and we're out. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [28] -------------------------------------------------------------------------------- Got it. And then I guess lastly, on the delay or maybe it's not even really a delay but the guidance of the transaction for East Dubuque being pushed into Q1 versus hopes of closing in Q4, what's driving that delay? And is the expectation it would be closer to the beginning of Q1 or could this be all the way to the end? What kind of color (inaudible)? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [29] -------------------------------------------------------------------------------- Well, it's, you know, we haven't received the comments back from the SEC yet so we're being a little cautious there. But for no reason, no indicated reason, we don't think we're doing anything that's out of the normal. But it was to expand the reach of the Pasadena process and, as you know, it behooves us to close sooner rather than later so we're striving to make that happen on the earlier side rather than the later side. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [30] -------------------------------------------------------------------------------- But isn't the, can't the Pasadena process happen after the sale of the RNF? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [31] -------------------------------------------------------------------------------- No, the Pasadena process cannot happen after the sale. The approval from the SEC could occur and we could have the unit holder vote and get that out of the way prior to the sale, but we cannot close with CVR until Pasadena is sold. Or divested from the rest of RNF. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [32] -------------------------------------------------------------------------------- Right. So the idea is it that you don't want to absorb the cost of divesting it to RTK? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [33] -------------------------------------------------------------------------------- That's really not the driver, Matt. It's really that CVR doesn't want to own Pasadena. They want to have no ownership trail to Pasadena. It's not a product they are a familiar with. It's an internationally marketed product. It's in Pasadena, not, you know, it's not in their sort of corn wheat belt that they're in. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [34] -------------------------------------------------------------------------------- Right, but the issue is that you don't want to spend the capital to divest it on an interim bases to RTK. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [35] -------------------------------------------------------------------------------- Well, remember we only own 60% of it. I mean if you're talking about RTK buying it, that's got its own set of, it's a hair ball. So possible but not something I really want to chew on. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [36] -------------------------------------------------------------------------------- Got it. So the primary hold-up with the RNF transaction is Pasadena and some other minor things (inaudible). -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [37] -------------------------------------------------------------------------------- Well, I mean, right now it's the combination of everything. We do not have clarity to conduct the vote or anything. So the gating issue will be when we hear back from the SEC, what modifications to that document will have to occur before we file a red herring. A red herring goes out, I don't know what color our cards are going to be but they're typically blue and white and you'll vote and when that vote occurs which is between 20 and 30 days after we receive approval, then any delay after that would be related to something and that something may be Pasadena. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [38] -------------------------------------------------------------------------------- Got it, understood. And then James is on the line with me as well if you'll humor us, he'd like to ask a question. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [39] -------------------------------------------------------------------------------- I've got a picture for you guys. Up at Wawa when I was up there last week, one of the service providers with conveyance had the truck and it was painted at the site, Hite Services and I want to point out that you're the only investor who's actually putting elbow grease to help remediate our problem. -------------------------------------------------------------------------------- Unidentified Participant - Analyst [40] -------------------------------------------------------------------------------- We're helping any way we can. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [41] -------------------------------------------------------------------------------- Appreciate that. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [42] -------------------------------------------------------------------------------- To clarify, we have not taken insider status here is. I want to be on the record that that is in fact not our truck. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [43] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Matt Niblack, HITE Hedge - Analyst [44] -------------------------------------------------------------------------------- Anyway, James, go ahead. -------------------------------------------------------------------------------- Unidentified Participant - Analyst [45] -------------------------------------------------------------------------------- You spoke a little bit about the third party pellets at the Quebec facility or the lack thereof. Are those pellets going to go somewhere else or does say something about supply? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [46] -------------------------------------------------------------------------------- Yeah, right now -- -------------------------------------------------------------------------------- Unidentified Participant - Analyst [47] -------------------------------------------------------------------------------- What can we read into that? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [48] -------------------------------------------------------------------------------- That's a good question, James. Right now those are being drawn to the United States because of the exchange rate. So that's where that, you know, those reasons in there are all kind of intertwined. So you have a more, a better return to those pellet manufacturers by pushing those pellets south. And that's where they're headed. So that's (inaudible) didn't exist a year ago. -------------------------------------------------------------------------------- Unidentified Participant - Analyst [49] -------------------------------------------------------------------------------- So these would be things that might be headed to Europe but instead are going to the United States? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [50] -------------------------------------------------------------------------------- They might be headed to Canadian retail markets. They might be headed to, we were hoping that we would draw them into the Port of Quebec and be stored in our facility and be sold by us, in other words us being sort of a middle man. We did this for while with KD pellets. We were buying pellets from a small producer in Ontario at a price and selling them for a higher price to meet the early deliveries to OPG, which was helpful to us because it avoided us incurring penalties there. For instance, that pellet producer for instance is no longer, at this moment, no longer pellets so there's a supply source that we were probably counting on being around is not there anymore. -------------------------------------------------------------------------------- Unidentified Participant - Analyst [51] -------------------------------------------------------------------------------- And those pellets were going to go through Quebec and then off to Europe or -? -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [52] -------------------------------------------------------------------------------- Yes, yes. Yes. -------------------------------------------------------------------------------- Unidentified Participant - Analyst [53] -------------------------------------------------------------------------------- I see. All right. Thank you. -------------------------------------------------------------------------------- Keith Forman, Rentech Inc. - President, CEO [54] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- Thank you. We have no further questions at this time. Thank you, ladies and gentlemen. This does conclude today's conference. Thank you for participating. You may now disconnect.
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