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FINAL TRANSCRIPT
August 13, 2014 — 9:00 a.m. E.T.
BIOX Corporation Third Quarter Results
CORPORATE PARTICIPANTS
Kevin Norton
BIOX Corporation — Chief Executive Officer
Chris Clinning
BIOX Corporation — Executive Vice President and Chief Financial Officer
PRESENTATION
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the BIOX
Corporation 2014 Fiscal Third Quarter Financial Results Conference Call.
At this time, all participants are in a listen-only mode. Following the presentation, we will
conduct a question-and-answer session. Instructions will be provided at that time for you to queue
up for questions.
If you have any difficulties hearing the conference, please press *, 0 for Operator
assistance at any time.
Listeners are reminded that portions of today's discussions, including responses to
questions posed in today's call, could constitute forward-looking statements that are subject to risks
and uncertainties relating to BIOX futures—future financial or business performance and condition.
"Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript
is error-free. CNW Group will not be responsible for any direct, indirect, incidental, special, consequential, loss of profits or other damages or
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August 13, 2014 — 9:00 a.m. E.T.
Actual results could differ materially from those anticipated in these forward-looking
statements. Risk factors that may affect results are detailed in BIOX filings with Canadian securities
regulatory authorities, which can be accessed at www.sedar.com.
Please note that BIOX is under no obligation to update any formal-looking statement—
forward-looking statements discussed today, except as required by applicable law. And investors are
cautioned not to place undue reliance on these statements.
I would like to remind everyone that this call is being recorded on Wednesday, August 13,
2014, at 9:00 a.m. Eastern Time.
I would now like to turn the conference over to Mr. Kevin Norton, Chief Executive Officer
of BIOX. Please go ahead, sir.
Kevin Norton — Chief Executive Officer, BIOX Corporation
Morning, everyone. Thank you for joining us on today's call. Yesterday afternoon, we
issued our 2014 fiscal third quarter financial results by press release. A copy of those results is
available on our website at bioxcorp.com.
With me today is Chris Clinning, our Executive Vice President and CFO. I'll summarize the
key events of the quarter, and then Chris will review our financial results. I'll then close with a few
comments, followed by a Q&A.
Our Hamilton plant continues to operate at a high level of effectiveness. We've produced
13.8 million litres of methyl ester in Q3, slightly lower than the 14.7 million produced in the same
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August 13, 2014 — 9:00 a.m. E.T.
period last year due to a scheduled two-week shutdown in April 2014 for maintenance activities.
The plant has proven to be reliable, and we believe that our target of 95 percent uptime will
continue to be reached over the long term.
Our consistent quality of production has earned us a reputation within the industry as a
leader in biodiesel production in North America. The broader biodiesel market continues to
challenge—continues to be challenging, specifically in the US market.
But let's start in Canada. The Greener Diesel Mandate in Ontario was implemented in April
of this year, and we are starting to see increased levels of blending as a result.
However, as the guidelines for the program have not been released by the Ministry of
Environment, and we do not anticipate them until later this summer or the fall, we expect the
volumes blended in Ontario to increase in the 2015 blending season.
Most obligated parties in Ontario are not blending this summer, until they have a full
understanding of their responsibility. One notable exception is Shell Canada. Our Supply Agreement
with Shell provides it with a stable, secure source of greener diesel. The relationship is working well.
We continue to ship increasing volumes through our inter-terminal pipeline to Shell.
We believe that as the Greener Diesel Mandate matures, Shell and other primary suppliers
in Ontario will represent a significant portion of the production from the Hamilton facility.
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The Ontario Greener Diesel Mandate is a significant development for us. It provides
market demand right in our own backyard. Obligated parties are required to blend 2 percent
greener diesel into petroleum diesel for on-road use.
The volume escalates over the implementation period of the regulation. The 2 percent
increases to 3 percent for 2016, and then increases again to 4 percent in 2017 onward.
Once fully implemented, the regulation requires the use of approximately 240 million litres
of greener diesel per annum on an averaged GHG-adjusted volume basis.
The Greener Diesel Mandate, and our relationship with Shell, places us in a prime position
to capitalize on the increased demand we are seeing in the local markets. Together, we believe
these two elements represent significant progress in diversifying our sales outside of the US market.
Diversifying our end markets is important, given the dynamics that continue to exist in the
US. There is still no official announcement on the final Renewable Volume Obligation for 2014.
Last fall, the EPA proposed to maintain the RVO for biomass-based diesel at 1.28 billion US
gallons for 2014 and for 2015, which is well below the reported production of 1.8 billion US gallons
in 2013.
The uncertainty surrounding the RVO has impacted the value of biodiesel and D4 RINs.
2014 RINs are trading at approximately $0.56 or $0.84 per US gallon as of August 11, 2014. These
prices continue to trend—continue a trend of RIN value trading within a fairly narrow range
throughout the first eight months of calendar 2014.
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Extrapolating the data from the latest EMTS reports shows the industry is on track to
produce more than 1.5 billion US gallons, based on the first six months of 2014. More recently,
though, production levels have been trending higher.
During calendar Q2, the run rate shows the industry is on track to produce 1.8 billion US
gallons on an annualized basis. So the production exists to fulfil a higher RVO than was proposed by
the EPA last November. The final announcement of the RVO levels for 2014 and 2015 will be an
important signal for the future of the biodiesel industry in the United States.
Based on comments made by representatives of the White House and a variety of US
Senators, the feedback from the industry has been taken into consideration by the EPA, and we are
cautiously optimistic that we could see a meaningful increase in the range of 200 million gallons or
greater for 2014. The EPA has stated that it will release the 2014 RVO this summer.
The uncertainty producers face on the RVO has been compounded by the expiry of the $1
per US gallon biodiesel tax credit. The expiry has impacted pricing between producers and obligated
parties. Based on feedback from the National Biodiesel Board, we do not anticipate that the
incentive will be renewed until after the US elections cycle this fall, if at all.
With the current value of the biodiesel and D4 RINs, as well as the continued delay in the
RVO, the biodiesel tax credit would provide a step-up in terms of margin available to the industry if
it is retroactively reinstated. But that remains dependent on the passage of the Tax Extenders bill by
Congress.
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2014 has been a challenging year in terms of market fundamentals. However, the
efficiency of our facility in Hamilton and the sales and marketing expertise of our team has allowed
us to endure these challenging conditions. We continue to produce at full capacity and market all of
our products on a timely basis.
With the guidelines for the Greener Diesel Mandate in Ontario, and the final
announcement of the RVO in the US, both expected later this year, we believe 2015 should provide
a more stable regulatory structure for efficient producers to be successful.
With that, I'll turn it over to Chris, who will review the financial results.
Chris Clinning — Executive Vice President and Chief Financial Officer, BIOX Corporation
Thank you, Kevin, and good morning, everyone.
We sold 13.5 million litres of biodiesel this quarter compared with 13.6 million litres during
Q3 2013. Sales revenue was 16.8 million for Q3 2014 compared with 19.3 million in the same period
last year.
The change is primarily the result of the dollar per gallon and refundable blended tax
credits from the US Internal Revenue Service that expired on December 31, 2013, that Kevin
referred to, which provided a more favourable pricing environment in calendar 2013 compared to
calendar 2014. Average revenue per litre sold in Q3 2014 was $1.12 compared to $1.40 for the same
period last year.
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Direct expenses were 17.6 million for Q3 2014 compared with 16.9 million for the same
period last year. Total direct cost of sales was $1.11 per litre in Q3 2014 compared to $1.25 for the
same period last year. These sub-costs represent 70 percent of direct cost of sales for Q3 2014
compared to 71 percent for the same period last year.
Feedstock costs for animal fat, distillers corn oil, and greases were trending higher through
the first five months of calendar 2014. However, since June, there has been a noticeable decrease.
Forward contract values of soybean oil are also under pressure because of the strong
harvest expected this fall. In fact, at least in the short term, the spread between soybean oil and
animal fats have tightened, and is considerably smaller than historic norms of 25 to 30 percent.
We will continue to leverage our True multi-feedstock technology to minimize our
feedstock costs through the use of a wide range of feedstocks, including soybean oil, if it makes
economic sense to do so.
General and administrative expenses were 1.1 million for the quarter compared with 1.3
million for the same period last year, and we believe this reflects a normalized G&A run rate for us
going forward in the range of 1 million to 1.2 million per quarter.
Operating loss, prior to noncash items, was 1.9 million for Q3 2014 compared with
operating income, prior to noncash items, of 0.5 million in the same period last year. And combined
operating loss, prior to noncash items for our operating segment, BIOX Canada and BIOX USA, was
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0.9 million for Q3 2014 compared with operating income, prior to noncash items, of 2.1 million for
Q3 2013.
The increase in operating loss, prior to noncash items, was primarily due to the expiration
of the dollar per gallon US biodiesel tax incentive on December 31, 2013, which has negatively
impacted biodiesel pricing in calendar 2014.
Net loss was 3.3 million or $0.08 per common share for Q3 2014 compared with 2.1 million
or $0.05 per common share for Q3 2013.
At June 30, 2014, we had a cash balance of 10.5 million compared with a cash balance of
15.9 million at September 30, 2013. The $10.5 million cash balance at June 30th is a $1.3 million
improvement over our $9.2 million cash balance at March 31, 2014, as we focus on reducing
inventory levels and accounts receivables. Our working capital position was 10.4 million at June 30,
2014 compared to 17.5 million at September 30, 2013.
Thank you for your time and your support. And now, I'll turn it back over to Kevin, for
closing comments.
Kevin Norton
Thanks, Chris. Our Hamilton facility continues to produce strong results, operating
effectively and reliably. The Greener Diesel Mandate in Ontario is expanding demand for our
product right in our own backyard.
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Our supply agreement with Shell places us in a great position to serve that demand, and
we expect additional obligated parties to enter the market once the program guidelines are
published.
As well, our ability to effectively produce lower GHG emissions feedstock, such as animal
fats and used cooking oils, puts BIOX in a strong position to capture market share in Ontario. That's
the good news.
However, the uncertainty surrounding the RVO and the biodiesel tax credit continues to
impact the values and pricing in the US market. We expect more news on the RVO later this
summer. However, the outcome of the tax incentive will likely remain up in the air until after the US
elections.
In short, the biodiesel market continues to endure growing pains resulting from legislative
uncertainty. We believe that scale is of an increased importance in the current market environment.
Opportunities exist for players with the expertise and the infrastructure to participate across the
value chain. Our supply agreements and inter-terminal pipeline with Shell is just one example of
those opportunities. Our goal is to touch more gallons by increasing the volume of biodiesel we
produce, control, and distribute to better match the infrastructure and the expertise that we have
in place.
Our existing administration and distribution infrastructure is capable of generating more
revenue and growing the bottom line with minimal CapEx, which is exactly what we intend to do.
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So thank you for your continued support. I’d now ask the Operator, to open the call up for
questions. Thanks.
Q&A
Operator
If anybody would like to ask a question, please press *, 1 on your telephone keypad. Again,
that is *, 1 on your telephone keypad.
Your first question comes from RBC Dominion. Your line is open.
RBC Dominion
Hi, guys. So I've got a two-part question. Firstly, how much have you sold that's eligible for
the US tax incentive retroactively, and what is the dollar value? And secondly, what percentage of
your current production qualifies for any returning US tax incentives, i.e. split between Canadian
sales and US sales?
Chris Clinning
The first part of your question on the blended tax credit, everything
we're selling right now we're negotiating with our customers in terms of the split on that credit. So
every gallon we sell into the US is eligible. It's just a question of how—what percentage of that
credit we will receive.
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August 13, 2014 — 9:00 a.m. E.T.
Can you say what your split is between—with the Shell situation, like between Canadian
sales and US sales?
Chris Clinning
I can't really go into the detail on the Shell side for confidentiality reasons and market
reasons, but we're still selling the vast majority into the US. I can give you a little bit of scope on it in
terms of relative to 2012 when we collected $7.6 million on the blended tax credit. I would say the
magnitude of it for 2014, if we continue to sell the way we are now, is similar from that perspective.
That gives you...
Okay.
Chris Clinning
Good enough an idea.
And just the first part is of the—like how much have you sold that's on a retroactive basis?
Do you have that?
Chris Clinning
Well, again, that would be about half of that number. So we're in that $4 million kind of
range.
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Okay.
Chris Clinning
At the end of June.
Okay.
Chris Clinning
3.5 million to $4 million.
Okay. Thanks, Chris.
Chris Clinning
You're welcome.
Operator
Again, if anybody would like to ask a question, please press *, 1 on your telephone keypad.
I have no further questions in queue. I turn the call back over to Mr. Norton.
Kevin Norton
Thank you, everyone, and thank you for joining us this morning. We look forward to
updating you on our progress. That's all for today. Have a great day. Thank you.
Operator
Thank you, everyone. This concludes today's conference call. You may now disconnect.
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August 13, 2014 — 9:00 a.m. E.T.
*****
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