Rentech, Inc. (RTK)

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Rentech (RTK)

Q3 2012 Earnings Call

November 08, 2012 2:00 pm ET

Executives

Julie Dawoodjee Cafarella - 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

Analysts

Christopher Brown

Justin Orlando

Brent R. Rystrom - Feltl and Company, Inc., Research Division

Presentation

Operator

Ladies and gentlemen, welcome, and thank you for standing by. Welcome to the Rentech Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 8, 2012. I would now like to turn the conference over to Julie Cafarella, Vice President of Investor Relations and Communications. Please go ahead, ma'am.

Julie Dawoodjee Cafarella

Thank you. Welcome to Rentech's conference call for the third quarter ended September 30, 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 a financial review of the period and provide comments on Rentech's financial position. We will then open the lines for question. [Operator Instructions] 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. Your 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 November 8, 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 laws.

In addition, today's presentation includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures, are included in our 2012 third quarter earnings press release that is available on our website.

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. I'm pleased to announce we reported strong results for the quarter. We generated consolidated net income of $0.02 per share for the third quarter, resulting from the reduced R&D expenses in the alternative energy segment and strong product margins at Rentech Nitrogen.

We've said that we plan to increase shareholder value by reducing R&D spending, commercializing our technologies with partners, investing in energy businesses that have good returns and do not depend on first of a kind technology and by expanding Rentech Nitrogen through growth and acquisitions. We've made good progress in each of these areas this year.

Last week, we announced that Rentech Nitrogen acquired Agrifos' fertilizer production facility in Pasadena, Texas. The Pasadena plant acquired by Rentech Nitrogen is the largest producer of synthetic granulated ammonium sulfate fertilizer in North America, producing a differentiated premium product in a growing market. This site provides many logistical advantages and expansion possibilities. The acquisition diversifies risk for Rentech Nitrogen, providing a hedge for ammonia, as geographic and location diversity reduces Rentech Nitrogen's product and market concentration and reduces its seasonality.

Our team has identified several near-term growth opportunities at the plant, the first of which is prefinanced on the Rentech Nitrogen's new credit facilities. The good of this growth is the Pasadena plant will add to the expansion projects currently underway at Rentech Nitrogen's existing facility, which continue to progress on schedule.

The Pasadena plant acquisition exemplifies the benefits of the relationship between Rentech and Rentech Nitrogen. We utilize the new Rentech M&A team to seek acquisition targets for Rentech Nitrogen. The team drew on the expertise of Rentech's staff including engineering, environmental, legal and finance, to conduct due diligence on Agrifos and execute the transaction. Our strong balance sheet affords us the flexibility to assist Rentech Nitrogen in executing its acquisition expansion opportunities. For example, Rentech was able to provide Rentech Nitrogen with a bridge loan late last year to keep its ammonia production capacity expansion project on schedule. Similarly, as we were negotiating the acquisition of Agrifos, we've kept sufficient cash on our balance sheet to lend Rentech Nitrogen in the event there are delays in securing external financing commitments. This certainty of financing allow us to push forward on the transaction.

Since Rentech Nitrogen was able to fund about 90% of the initial purchase price of Agrifos through debt financing through the cost of capitals borrowed in issuing the units, Rentech's percentage ownership and Rentech Nitrogen declined only slightly, from 60.8% to 59.9%. The acquisition was expected to be accretive to cash distributions beginning in 2013, and it comes with several growth opportunities. The incremental cash flow this acquisition can provide is very important for Rentech Nitrogen unitholders, and especially Rentech, since we own the majority of the common units. Rentech Nitrogen will be a more diversified and larger company as a result of the acquisition, which we believe will increase the value of our holdings at Rentech Nitrogen, and ultimately, the value of Rentech.

Rentech's balance sheet also plays a significant role in establishing company's incredible partner for larger, more mature companies and have the resources to help support our energy technologies. We've made significant progress on agreements for the licensing and commercialization of certain of our energy technologies. As those discussions progress, we are evaluating alternatives for our technology portfolio with the assistance of advisors.

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