Rentech (RTK)

Q1 2012 Earnings Call

May 11, 2012 3:00 pm ET


Julie Dawoodjee - Vice President of Investor Relations & Communications

D. Hunt Ramsbottom - Chief Executive Officer, President and Executive Director

Dan J. Cohrs - Chief Financial Officer, Executive Vice President, Treasurer and Principal Financial Officer for Rentech Nitrogen Partners LP


Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

James Jampel

Peter S. Park - Park West Asset Management, LLC

Anatol Feygin

Chris Brown

Alex Lerner



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Ladies and gentlemen, thank you for standing by, and welcome to the Rentech First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, May 11, 2012. And I would now like to turn the conference over to Ms. Julie Dawoodjee, Vice President of Investor Relations and Communications. Please go ahead, Ms. Dawoodjee.

Julie Dawoodjee

Thank you. Welcome to Rentech's conference call for the fiscal quarter ended March 31, 2012. During this call, Hunt Ramsbottom, President and CEO of Rentech, will summarize our company's activities during the quarter. Dan Cohrs, our Chief Financial Officer, will give the financial review of the period and provide comments on Rentech's financial position. We will then open the lines for questions. We ask that you limit yourself to one question so that we may get to as many of your questions as possible.

Please be advised that certain information discussed on this conference call will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. They can be identified by the use of terminology 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 and are subject to known and unknown risks and uncertainties and risk factors detailed 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 May 11, 2012, and Rentech does not undertake to revise or update these forward-looking statements, except to the extent that it is required to do so under applicable law.

Now I would like to turn the call over to Hunt Ramsbottom, President and CEO of Rentech.

D. Hunt Ramsbottom

Good morning, everyone, and thank you for joining us today. We reported solid first quarter results, driven by strong fertilizer prices and high sales volume at Rentech Nitrogen. Strong demand for fertilizer was supported by the USDA's expectations of record corn plantings of nearly 96 million acres and tight inventories. The dry, warmer weather we experienced in March enabled farmers in our core market area to apply ammonium approximately 15 days earlier than the typical start of the spring application window on April 5.

We shipped unusually high volumes of ammonium in March, which shifted a significant portion of deliveries into the first quarter. In the second quarter, we'll still recognize revenues from some ammonium deliveries, but the quarter will be primarily composed of spring deliveries of UAN.

For the first quarter, average prices for delivered products rose significantly from last year. Ammonia at $673 per ton was 11% higher than last year and UAN at $327 per ton was 59% higher than last year. We locked in a significant portion of our spring book in the September, October window of last year, when pricing for deliveries was at a premium. We sold limited additional tonnage in late December through February when product prices were softer. We later completed the remainder of our spring product sales after prices depreciated as a result of relatively high corn prices and early spring application window and industry supply interruptions.

Results for the quarter also benefited from low natural gas prices, which led to gross margins of 59%, up significantly from 43% the same quarter last year. These positive business fundamentals in the first quarter led to strong cash generation, so our first cash distribution of $1.06 per unit was better than we had forecasted. The distribution covers cash generated during the period that began upon the close of our IPO on November 9 to March 31, 2012. That period included fall product deliveries and excluded the negative impact of the plant turnaround, which took place in the first 15.5 days of October 2011. The distribution is payable to unit holders of record as of May 8 and will be paid on May 15. The next distribution covering the second quarter will be paid on or about August 14.

Today, we're issuing guidance for the calendar year 2012. Our forecast calls for cash available for distribution in the range of $2.86 per unit and EBITDA in the range of $120 million. So that you can make direct comparisons to the forecast in our IPO prospectives, we're also updating our guidance for the 12 months ending September 30, 2012. We now expect EBITDA of approximately $110 million, up from previous guidance of $97 million and cash available for distribution at approximately $2.67 per unit, up from $2.28 per unit. Both of these distribution numbers are after debt service.

Looking forward, products for the summer fill are seasonally at lower prices than peak seasons, spring and fall prices. We're beginning to see activity for ammonium and UAN summer sales in the range of $600 to $625 for ammonium and $300 to $330 for UAN. We're also beginning to see activity for fall ammonia application season. Posted prices in our region of the Mid Corn Belt are in the mid-$600 per ton range. We've already committed a small portion of our fall book in this price range. The UAN prices for fill tons [ph] in preparation of the 2013 spring season are posted in the low-$300s.

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