Rentech improves pellet mill production

“I feel that we have a good handle on the remaining issues that need to be resolved in order to further increase production at both plants,” president and CEO Keith Forman said in a press release. “We are preparing to shut down the Wawa facility in the next few days to replace the remaining problematic conveyors and complete mechanical upgrades, maintenance and repairs at the plant. Once we bring the plant back online, we expect Wawa to ramp from approximately 40% of capacity to approximately 70% over the next several quarters.”

Forman continued, “At Fulghum, U.S. and South American volumes for the second quarter were lighter than the prior year period but combined performance for the first half of 2016 is generally tracking to that of 2015. We still expect Fulghum’s results for the year to be lower than the record performance in 2015 given the previously announced loss of a mill contract. NEWP’s second quarter results were considerably weaker than the prior year; however, we are encouraged by the buying activity NEWP began seeing in June. We continue to expect NEWP to generate most of the year’s EBITDA during the second half of 2016.”

“In addition, we are making better than originally expected progress with our cost cutting efforts. We now expect to realize $12-$15 million (USD) in total annual cost savings instead of our previous target of $10-$12 million,” Forman added.

Summary of results
The consolidated results consist of Fulghum Fibres (Fulghum), New England Wood Pellet (NEWP), Industrial Wood Pellets, which includes our Canadian pellet plants, and unallocated corporate expenses. The former Rentech Nitrogen Pasadena and East Dubuque facilities are classified as discontinued operations due to the disposition of those businesses on March 14, 2016 and April 1, 2016, respectively. Rentech’s energy technologies business is also classified as discontinued operations due to its sale in October 2014. Allegheny’s operations are included in our operating results from January 23, 2015, the closing date of the acquisition.

Consolidated revenues, excluding discontinued operations, for the second quarter of 2016 were $31.8 million, compared to $39.9 million in the prior year period. Consolidated revenues, excluding discontinued operations, for the first six months of 2016 were $71.7 million, compared to $76.4 million in the prior year period.

Gross loss, excluding discontinued operations, for the second quarter of 2016 was $(1.7) million, compared to gross profit, excluding discounted operations, of $3.8 million in the prior year period. Gross loss, excluding discontinued operations, for the first six months of 2016 was $(1.5) million, compared to gross profit of $9.3 million in the prior year period.

During the second quarter of 2016, Rentech recorded a book gain of $358.6 million in discontinued operations on the sale of Rentech Nitrogen Partners (RNP). The gain is comprised primarily of $59.8 million of cash proceeds and CVR Partners (CVR) common units valued at $202.1 million, based on CVR’s closing price on March 31, 2016 of $8.36 per unit, compared to the company’s share of RNP’s negative net book value of $97.6 million as of March 31, 2016.

Net income attributable to Rentech common shareholders for the second quarter of 2016 was $306.3 million, or net income of $12.95 per basic share, of which $9.58 per basic share was generated by discontinued operations and $3.37 per basic share was contributed by continuing operations. This compared to a net loss of $(53.4) million, or a net loss of $(2.33) per basic share, of which $(1.55) per basic share was generated by discontinued operations and ($0.78) per basic share was contributed by continuing operations, for the same period last year.

Net income attributable to Rentech common shareholders for the first six months of 2016 was $296.1 million, or net income of $12.51 per basic share, of which $9.67 per basic share was generated by discontinued operations and $2.84 per basic share was contributed by continuing operations. This compared to a net loss of $(58.4) million, or a net loss of $(2.54) per basic share, of which $(1.44) per basic share was generated by discontinued operations and ($1.11) per basic share was contributed by continuing operations, for the same period last year.

Consolidated Adjusted EBITDA loss, excluding equity in loss of CVR and discontinued operations, for the second quarter of 2016 was $(5.3) million, compared to $(7.0) million in the prior year period. Consolidated Adjusted EBITDA loss, excluding equity in loss of CVR and discontinued operations, for the first six months of 2016 was $(9.3) million, compared to $(9.2) million in the prior year period. Further explanation of Adjusted EBITDA, a non-GAAP financial measure, as used here and throughout this press release, appears below.

Fulghum Fibres
Revenues were $20.8 million for the second quarter of 2016, compared to $25.7 million for the same period last year. Revenues from operations in the United States were $12.4 million for the second quarter of 2016, as compared to $14.8 million in the prior year period. Revenues from operations in South America were $8.4 million for the second quarter of 2016, as compared to $10.9 million in the prior year period. The decrease in revenues from the United States operations is due to the previously announced sale of a mill in April 2016 and regional flooding impacting two paper mill facilities of our customers, reducing demand for wood chips from Fulghum’s mills. The decrease in South America revenues was primarily due to lower biomass product sales in South America and chip sales to Asia in the second quarter of 2016 as compared to 2015.

For the second quarter of 2016, our mills in the United States processed 2.6 million green metric tons, or GMT, of logs into wood chips and residual fuels; our mills in South America processed 0.7 million GMT of logs. For the second quarter of 2015, our mills in the United States processed 3.1 million GMT of logs into wood chips and residual fuels; our mills in South America processed 0.6 million GMT of logs.

Gross profit was $2.9 million for the second quarter of 2016, compared to $4.3 million for the same period last year. Gross profit margin for the second quarter of 2016 was 14%, compared to 17% for the same period in the prior year. The decreases in gross profit and gross margin were due primarily to lower revenues due to the sale of a mill in the United States and lower product sales volumes at our operations in South America.

Net income was $0.5 million for the second quarter of 2016. This compares to net income of $3.1 million for the same period last year.

Adjusted EBITDA for the second quarter of 2016 was $3.5 million. This compares to Adjusted EBITDA of $5.5 million for the same period in 2015.

New England Wood Pellet
Revenues were $4.4 million for the second quarter of 2016 on deliveries of 24,000 tons of wood pellets. Revenues were $11.7 million for the second quarter of 2015 on deliveries of 57,000 tons of wood pellets.

Results at NEWP continue to be impacted by the abnormally warm temperatures in the Northeast during the most recent winter, along with depressed prices for competitive heating fuels such as heating oil and propane. In addition to stalled consumer purchases during the first quarter of 2016, distributors have been slower than in the last several years to build inventories for the upcoming winter. As a result, NEWP’s sales volumes were significantly lower than historical levels. In response to market conditions, NEWP has temporarily scaled back production at its facilities since February 2016.

Gross profit for the second quarter of 2016 was $0.6 million, compared to $2.6 million for the same period in the prior year. Gross profit margin was 13% for the second quarter of 2016, compared to 22% for the same period in the prior year. Gross profit and gross profit margin were lower because of lower sales volumes and sales prices during the second quarter of 2016.

Net loss was $(0.3) million for the second quarter of 2016, compared to net income of $1.5 million for the same period last year.

Adjusted EBITDA for the second quarter of 2016 was $0.4 million. This compares to Adjusted EBITDA of $2.5 million for the same period in 2015.

Wood Pellets: Industrial
Revenues were $6.5 million for the second quarter of 2016, earned by delivering approximately 56,000 metric tons of wood pellets. Revenues were$2.5 million for the second quarter of 2015, earned by delivering approximately 13,500 metric tons of wood pellets.

Gross loss for the second quarter of 2016 was $(5.2) million, compared to $(3.1) million for the same period in the prior year. Gross loss margin was (80)% for the second quarter of 2016, compared to (120)% for the same period in the prior year. The increased gross loss in 2016 was due to higher sales volumes at production costs that exceed sales prices as the Atikokan and Wawa Facilities are ramping up, including the related write-down of inventory by $5.2 million during the second quarter of 2016, and considerably higher depreciation expense in the second quarter of 2016 than in the second quarter of 2015. Further, certain expenses were recorded as operating expenses during the second quarter of 2015 before assets were placed into service. These expenses were capitalized to product inventory and included in cost of sales during the second quarter of 2016 as both the Atikokan and Wawa Facilities were in service during the entire second quarter of 2016. During the second quarter of 2015, the Atikokan Facility was in the ramp-up phase and producing wood pellets, and the Wawa Facility was commissioned and producing a limited quantity of wood pellets. The improvement in gross loss margin between periods was due to improvements in production costs and increased revenues as a result of the higher volumes shipped during the second quarter of 2016 as compared to the same period last year.

Net loss was $(7.0) million for the second quarter of 2016, compared to net loss of $(10.7) million for the same period last year.

Adjusted EBITDA loss for the second quarter of 2016 was $(4.4) million. This compared to Adjusted EBITDA loss of $(9.6) million for the same period last year.

Corporate and Unallocated Expenses
Selling, general and administrative expenses were $4.7 million for the second quarter of 2016, compared to $5.3 million for the same period last year. The decline was primarily due to a decrease in computer software-related costs of $0.8 million, consulting costs of $0.4 million and non-cash equity-based compensation of $0.4 million, partially offset by increases in severance and exit costs of $0.4 million, transaction costs of $0.2 million, professional services fees of $0.2 million, and sublease commissions of $0.2 million. Non-cash equity-based compensation expense was $0.7 million for the second quarter of 2016, compared to $1.1 million for the same period in the prior year.