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FINAL TRANSCRIPT
BIOX Corporation
2016 Fiscal First Quarter Financial Results Conference Call
Event Date/Time: February 5, 2016 — 9:00 a.m. E.T.
Length: 14 minutes
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FINAL TRANSCRIPT
February 5, 2016 — 9:00 a.m. E.T.
BIOX Corporation 2016 Fiscal First Quarter Financial Results
Conference Call
CORPORATE PARTICIPANTS
Alan Rickard
BIOX Corporation — Chief Executive Officer
Courtney Quinn
BIOX Corporation — Vice President of Finance
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February 5, 2016 — 9:00 a.m. E.T.
Conference Call
PRESENTATION
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the BIOX
Corporation 2016 Fiscal First 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 anyone has any difficulties hearing the
conference, please press *, 0 for Operator assistance at any time.
Listeners are reminded that portions of today's discussion, including responses to questions
posed in today's call, could constitute forward-looking statements that are subject to risks and
uncertainties relating to BIOX's future financial or business performance and condition. Actual results
could differ materially from those anticipated in these forward-looking statements.
Risk factors that may affect results are detailed in BIOX's filings with the Canadian securities
regulatory authorities, which can be accessed at www.sedar.com. Please note that BIOX is under no
obligation to update any 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 Friday, February 5, 2016,
at 9:00 a.m. Eastern Time.
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February 5, 2016 — 9:00 a.m. E.T.
Conference Call
I would now like to turn the conference over to Mr. Alan Rickard of BIOX. Please go ahead,
sir.
Alan Rickard — Chief Executive Officer, BIOX Corporation
Good morning. Thank you for joining us today. Yesterday we released our 2016 first quarter
results, which you can find on our website at bioxcorp.com.
I'm joined today by our Vice President of Finance, Courtney Quinn. I'll provide the highlights
of the quarter and our outlook moving forward, Courtney will review the financials, and then we'll
take any questions at the end.
It was a strong quarter from both a production and marketing perspective. Our Hamilton
facility continues to operate at a high level of efficiency. Our target is to operate at 95 percent of our
nameplate capacity, which we exceeded in Q1 fiscal 2016.
Our facility uses a broad range of feedstock, allowing us to optimize both the greenhouse
gas, or GHG, profile and the cold flow characteristics in order to provide an optimal product for use
by our customers and obligated parties, a key benefit as governments like Ontario and California
increasingly implement mandates that reflect carbon reduction targets instead of traditional volumebased targets.
We produced 16.3 million litres of methylesthers in Q1 2016 compared to 16.2 million litres
in the same period last year.
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Conference Call
Top lines sales were $25.7 million. Sales were positively impacted by the retroactive
reinstatement of the US biodiesel tax credit, which Courtney will address in a moment.
In total, we sold 19.7 million litres during the period, which included 14.2 million litres of
our own production, as well as 5.5 million litres of biodiesel produced by third parties, which is an
important element of our growth strategy which I'll address in a moment.
We believe calendar Q4 of 2015 will become known as a watershed moment in the North
American biodiesel industry. In November, the US EPA announced volume obligations for 2014
through 2017 as its final RVO rule for biomass-based diesel.
The sector now has straight-line visibility into the volume obligations two full years in
advance. This provides producers and obligated parties with a level of clarity and certainty that is
crucial for planning purposes. This clarity and certainty should also provide the biodiesel market with
greater confidence in terms of pricing, which we believe is key to a sustainable biodiesel industry.
The final RVO ruling mandates volume obligations of 1.63 billion US gallons in 2014; 1.8
billion US gallons in 2015; 1.9 billion gallons in 2016; and 2 billion in 2017. The EPA actually increased
its 2015 volume obligation by 100 million US gallons from an earlier proposal released in June of 2015.
The key to the rule is the increased volumes in 2016 and 2017. Based on historical market
behaviour of the obligated parties that have the option to carry forward up to an additional 20 percent
of their obligation into the following year, we believe the actual 2016 demand for biodiesel will be in
the range of 200 million US gallons per month throughout this year.
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Conference Call
But what's interesting is that the biomass-based diesel production has eclipsed this 200
million gallon mark only twice in December 2013 and December 2014 prior to the expiry of the tax
incentives in each of those years.
We believe the clarity around the volume obligations will create stable and consistent
demand from obligated parties. With the rules clearly spelled out, they will be in a position to acquire
physical product or compliance units in the form of RINs on a regular and ratable basis as a matter of
normal operations.
The scale of the US mandates sets the base of demand for all renewable fuel in North
America. However, in Ontario, we have seen a rapid adoption of the Greener Diesel program, which
has just completed its initial compliance period, and will ramp up both the volumetric and GHG
reduction targets through 2016 and 2017.
For 2016, this program required the volumetric blend level of 3 percent biomass-based
diesel in the Ontario distillate fuel pool with an average GHG reduction of 50 percent. In 2017, this
program increases to a 4 percent volumetric requirement with an average GHG reduction of 70
percent.
Our facility is not only located in the midst of the diesel distribution hub within Ontario, but
it also provides superior GHG performance, which positions us both as a strong solution for the
obligated parties and for strong sales results for our business.
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Conference Call
In addition to the US federal and Ontario provincial programs, we also hold facility and
product registrations to access the California and British Columbia low-carbon fuel standards and the
Alberta and Canadian federal renewable fuel standards. The clarity and certainty provided by the US
mandate and the Greener Diesel program is great news for the biodiesel industry. Stable, known
demand will allow for informed decisions about deploying working capital for feedstock and planning
production volumes.
At BIOX, we see this impacting us in two important ways. First, we'll continue to operate our
Hamilton facility at capacity, producing biodiesel from the lowest carbon intensity feedstock, which
is a key advantage for obligated parties to comply with state and provincial carbon-based mandates.
But in terms of our growth strategy, a sustainable biodiesel market allows us to deploy our expertise
and leverage our established network within the sector to touch more gallons.
We have earned a reputation in the sector as a credible and trusted party to work with. Our
existing infrastructure can facilitate more volume than we produce at Hamilton, as demonstrated by
our third party sales in our Q1 2016.
Our expertise in administration, compliance, and logistics allows us to maximize the
economics for our customers. And we intend to deploy that expertise in a market where demand is
mandated to grow through 2016 and 2017.
With that, I'll turn it over to Courtney to review the financials in more detail.
Courtney?
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Conference Call
Courtney Quinn — Vice President of Finance, BIOX Corporation
Thank you, Alan. Good morning. It was a strong quarter from a financial perspective.
As Alan mentioned, we recorded sales of 25.7 million in our first quarter of fiscal 2016. The
passage of the US tax extenders legislation in December, which retroactively reinstated the biodiesel
tax incentive, allowed us to recognize revenue of 6.7 million in US dollars from calendar 2015. This
significantly bolstered our first quarter results. This compares to 27.4 million in revenue in the same
period last year, which included US $6.5 million in refundable tax credits from our customers and the
IRS.
We sold 19.7 million litres in the first quarter compared to 19.4 million in the same period
last year. The change in the value of sales reflects a decrease in the average revenue per litre in the
first quarter of 2016, due in part to the expiry of the $0.08 per litre ecoENERGY payment in March of
2015, as well as declining heating oil values.
Average revenue per litre sold was $0.826 in the first quarter compared to $0.884 in the
same period last year before the US biodiesel tax credit is taken into account.
RIN values rebounded after the EPA's RVO announcement in late November 2015. As of
February 3rd of this year, RINs were trading at $0.77, or a $1.16 per US gallon.
The change in average revenue was partially offset by a decrease on the cost side. Total
direct cost of sales was $0.954 per litre in the first quarter of 2016 compared to $0.979 in the same
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Conference Call
period last year. Feedstock and energy costs were lower in the first quarter compared to the same
period last year. Feedstock costs were approximately 10 percent lower.
RBD soybean oil is currently trading at approximately $0.32 per pound, up from a low in the
mid-20s during the first quarter of fiscal 2016. Animal fats are currently approximately 0.23 to $0.27
per pound, up from 0.18 to $0.19 in late 2015.
Feedstock costs accounted for 70 percent of direct costs compared to 73 percent in the
same period last year.
General and administrative expenses were 1.5 million in the first quarter of 2016 compared
to 1.2 million in the same period last year. The 2016 figure includes a nonrecurring charge of $400,000
related to management restructuring.
We anticipate general and administrative expenses to remain low throughout calendar 2016
in a range of 1 million to 1.2 million per quarter.
We recorded operating income of 4.2 million in the first quarter compared to 4.7 million in
the same period last year. Prior to noncash items, operating income was 5.4 million compared to 5.7
million in the same period last year.
The change in operating income was primarily due to the $400,000 nonrecurring
management restructuring expense and the expiry of the $0.08 per litre ecoENERGY payment items I
mentioned earlier.
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Conference Call
As at December 31, 2015, cash and cash equivalents and working capital were 6.6 million
and 11.8 million, respectively. That’s compared to 7.7 million and 7.4 million as at September 30,
2015. The improvement in working capital is primarily due to the retroactive reinstatement of the US
biodiesel tax incentives that I mentioned earlier.
And with that, I’ll turn it back to Alan for his closing thoughts.
Alan?
Alan Rickard
Thanks, Courtney. We enter 2016 with a great deal of momentum. BIOX has navigated
through a period of tremendous uncertainty within the biodiesel market.
Today, the macroeconomic fundamentals of the North American biodiesel market have
never been better. While the industry is dealing with depressed distillate pricing and relatively modest
RIN values, we see a strong market ahead.
For the first time ever we have clarity and certainty, and the demand from obligated parties
two years in advance with the US market.
Here in our own domestic market we expect increased demand as the Ontario Greener
Diesel mandate increases its requirements for greener diesel.
We are seeing values rise for low-carbon intensity products as climate change policies that
are linked to these fuels are emerging in key markets like Ontario, BC, and California. This emphasis
on low-carbon intensity products plays directly into the value of our Hamilton production facility as a
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Conference Call
flexible, multi-feedstock facility that can efficiently convert even the most challenging feedstocks into
biodiesel.
And finally, we have the infrastructure and capacity in place today to market, administer,
and distribute more volume. The combination of our internal expertise and our network provides us
with an opportunity to expand activities downstream to generate better economics for our customers
and capture more value for BIOX throughout this chain.
In short, our facility will benefit from the higher demand our facility processes, lower carbon
products, and our focus is to capture a larger portion of that value chain in the context of increased
mandated demand and lower-carbon intense products.
I’d like to thank our shareholders. We are committed to listening to you and building your
trust. We believe we have exciting opportunities, and a real plan for creating long-term value.
We would now like to take any of your questions.
Q&A
Operator
At this time, I would like to inform everyone in order to ask a question, please press *, then
the number 1 on your telephone keypad. Again, that’s *, 1 on your telephone keypad to ask a
question.
There are currently no questions. Mr. Rickard, I turn the conference back to you, sir.
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February 5, 2016 — 9:00 a.m. E.T.
Conference Call
Alan Rickard
Thank you for joining us for today’s call. We look forward to updating you on our progress
next quarter.
Have a great day.
Operator
And this concludes today’s conference call. You may now disconnect.
*****
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