Rentech releases third quarter financial results

Rentech Inc. released third quarter financial results on Nov. 9. The results were released roughly one month after announcing its shares would be removed listing on the Nasdaq Capital Market and be moved the OTCQB market, effective Oct. 16. 

The company reported that revenues for its New England Wood Pellet division reached $10.4 million during the third quarter on deliveries of approximately 55,000 tons of wood pellets. Revenues for the same period of last year were $9.4 million on deliveries of approximately 49,000 tons of wood pellets. Rentech said demand continues to be negatively impacted by relatively warm weather, continuing depressed prices for competing heating fuels, and changes in consume buying patterns where the consumer now makes purchases on an as-needed basis. The company also said sales prices for the third quarter were also lower than during the same three-month period of last year.

Gross profit for the New England Wood Pellet business was $600,000, compared to $1.5 million during the same period of last year. Gross profit margin was 5 percent, down from 16 percent. Rentech said these figures were down due to lower sales prices, higher depreciation expense and charges relating to scaling back production at the facilities during the third quarter.

Operating loss for the New England Wood Pellet division was $8.7 million, compared to an operating income of $700,000 during the same period of last year. Net loss was $8.8 million, compared to a net income of $600,000 million. Adjusted EBITDA was $1.4 million, down from $1.7million during the same period of last year.

Rentech’s Industrial Wood Pellet division reported revenues of $2.4 million earned by delivering approximately 13,000 metric tons of wood pellets. Revenues for the same period of last year reached $2.9 million earned by delivering approximately 16,000 metric tons of wood pellets. Gross loss for the third quarter was $1 million, compared to a gross loss of $6.1 million during the same period of last year. Gross loss margin was 40 percent, compared to a gross loss margin of 214 percent for the same quarter of 2016. The decrease in gross loss and gross loss margin is attributed to the idling of Rentech’s Wawa, Ontario, pellet mill, lower operating rates at the Atikokan, Ontario, facility, and a reduction inventory write-down in 2017. Operating loss was $4.8 million, compared to an operating loss of $11.1 million during the third quarter of last year. Net loss was $5.3 million, compared to a net loss of $11.5 million. Adjusted EBITDA loss was $4.8 million, compared to an adjusted EBITDA loss of $9.3 million during the same three-month period of 2016.

Rentech said it entered into a deed of termination with Drax and the Wawa Co. in October whereby the Drax contract and Rentech guarantee of the WaWa Co.’s obligations to Drax were terminated with no further continuing obligation amongst the parties.

The company also indicated that the Wawa Co. was notified by the Northern Ontario Heritage Fund Corp. in November that it did not fulfill its covenants under a conditional grant it provided to the Wawa Co. The breach is related to the failure of the Wawa plant to operate for the duration required under the grant agreement. NOHFC issued a default notice and is demanding repayment of $2.5 million. Rentech said any default by the Wawa Co. under the grant to the Wawa plant would trigger a cross default under NOHFC’s grant to the Atikokan Co., which has separately complied with its grant agreement. If the Atikokan Co. receives a notice of default and demand of payment, Rentech said payment under its grant would be $800,000.

Rentech’s Fulghum Fibers division reported revenues of $22.1 million for the quarter, down from $26.3 million for the same period of last year. During the quarter, Rentech said mills in the U.S. processed 2.2 million green metric tons of longs into wood chips and residual fuels, down from 2.8 green metric tons. Mills in South America processed 700,000 green metric tons of logs, down from 800,000 green metric tons. Gross profit was $2.6 million, down from $3.9 million. Gross profit margin was 12 percent, down from 15 percent. Fulghum reported an operating loss of $21 million, compared to an operating income of $2.3 million during the same period of last year. Net loss was $20.5 million, compared to a net income of $1.4 million for the same period of 2016. Adjusted EBITDA was $2.7 million, down from $4.6 million during the third quarter of 2016.

Overall, Rentech reported consolidated revenues from continuing operations of $34.6 million, down from $38.6 million during the same period of last year. Gross profit was $2.2 million, compared to a gross loss of $800,000 reported for the same period last year. Operating loss was $37.9 million, compared to a loss of $13.1 million during the same period of last year. Net loss attributable to Rentech common shareholders was $40.2 million, or a net loss of $1.73 per basic share, compared to a net loss of $8.6 million, or 37 cents per basic share, during the third quarter of 2016. Consolidated adjusted EBITDA was a loss of $4 million, compared to a loss of $7.5 million during the same period of the previous year.

Rentech filed a quarterly report with the U.S. Securities and Exchange Commission on Nov. 9. In that report, the company said it has a history of operating losses and accumulated deficit of $474.2 million as of Sept. 30.  The company said it believes it can fund operations through the end of 2017, but believes it will need additional liquidity to fund corporate activities in 2018.

The company said it attempting to address its liquidity needs through a combination of cost reductions and pursuing strategic alternatives. Rentech said it has retained Wells Fargo Securities LLC and RPA Advisors LLC to assist in the strategic alternatives review process.

Rentch said it expects its New England Wood Pellet and Fulghum Fibers businesses to continue to generate positive cash flow and be self-sufficient from a liquidity perspective. The Atikokan plant is expected to generate cash flow in the break-even to slightly positive under a revised operating plan to produce 45,000 metric tons of wood pellets per year.

In the SEC filing, Rentech explains that it in February 2017 it announced the Atikokan facility would operate at levels sufficient only to fulfill delivery requirements under its contract with Ontario Power Generation. The facility no longer ships pellets to the Port of Quebec for delivery to Drax. Rentech said it will continue to explore alternatives for selling additional wood pellets that could be produced at the plant to increase its utilization.

Also in February, Rentech idled the Wawa facility, which experienced equipment and operating challenges subsequent to the replacement of problematic conveyors during the fourth quarter of 2016. While the company said it believes the issues at the facility can be resolved with additional capital investments, it has concluded that it is not economical to pursue those investments or continue to operate the facility at this time. Following idling, a small workforce remained in place to maintain the facility so it could resume operations with a minimal cost if there was interest from a third party to invest in or purchase the plant. However, Rentech said it laid off the remainder of the workforce in September, except for those required to maintain security of the site.