Market Overview

Rentech Announces Results for Second Quarter 2017

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Rentech, Inc. (NASDAQ:RTK) today announced results for the second
quarter ended June 30, 2017.

Summary of Results

The consolidated results consist of Fulghum Fibres (Fulghum), New
England Wood Pellet (NEWP), Industrial Wood Pellets and unallocated
corporate expenses. The former Rentech Nitrogen Pasadena and East
Dubuque facilities are classified as discontinued operations. The
Pasadena and East Dubuque facilities were sold on March 14, 2016 and
April 1, 2016, respectively. Rentech's energy technologies business is
also classified as discontinued operations.

Consolidated revenues from continuing operations for the second quarter
of 2017 were $24.7 million, as compared to $31.8 million in the prior
year period. Consolidated revenues from continuing operations for the
first six months of 2017 were $57.0 million, as compared to $71.7
million in the prior year period.

Gross loss from continuing operations for the second quarter of
2017 was $(0.7) million, as compared to $(1.7) million in the prior year
period. Gross loss from continuing operations for the first six months
of 2017 was $(1.4) million, as compared $(1.5) million in the prior year
period.

Operating loss from continuing operations for the second quarter of 2017
was $(7.6) million, as compared to $(11.8) million in the prior year
period. Operating loss from continuing operations for the first six
months of 2017 was $(38.6) million, as compared to $(21.9) million in
the prior year period. Rentech recorded asset and goodwill impairment
charges of $7.8 million and $13.1 million, respectively, during the
first six months of 2017 which negatively impacted operating loss for
the period.

Consolidated Adjusted EBITDA loss from continuing operations for the
second quarter of 2017 was $(4.6) million, as compared to $(5.3) million
in the prior year period. Consolidated Adjusted EBITDA loss from
continuing operations for the first six months of 2017 was $(10.7)
million, as compared to $(9.3) million in the prior year period. Further
explanation of Adjusted EBITDA, a non-GAAP financial measure, as used
here and throughout this press release, appears below.

Rentech's net income for the second quarter and first six months of 2017
was negatively impacted by a $26.7 million impairment of its investment
in CVR Partners, L.P. The impairment resulted from the Company's
conclusion that the decline in value of the common units it owns in CVR
Partners, L.P. is other than temporary from an accounting perspective.

The results for discontinued operations for the three and six months
ended June 30, 2016 include Rentech's share of book gain on the sale of
Rentech Nitrogen, which was $358.6 million.

Net loss attributable to Rentech common shareholders for the second
quarter of 2017 was $(37.1) million, or net loss of $(1.60) per basic
share, of which $(1.60) per basic share was contributed by continuing
operations and $0.00 per basic share was generated by discontinued
operations. This compared to net income attributable to Rentech common
shareholders of $285.0 million, or net income of $12.05 per basic share,
of which $(0.87) per basic share was generated by continuing operations
and $12.89 per basic share was contributed by discontinued operations,
for the same period last year.

Net loss attributable to Rentech common shareholders for the first six
months of 2017 was $(71.3) million, or net loss of $(3.07) per basic
share, of which $(3.08) per basic share was contributed by continuing
operations and $0.00 per basic share was generated by discontinued
operations. This compared to net income attributable to Rentech common
shareholders of $274.8 million, or net income of $11.61 per basic share,
of which $(1.41) per basic share was generated by continuing operations
and $12.99 per basic share was contributed by discontinued operations,
for the same period last year.

Fulghum Fibres

Revenues were $17.6 million for the second quarter of 2017, as compared
to $20.8 million for the same period last year. Revenues from operations
in the United States were $11.0 million for the second quarter of 2017,
as compared to $12.4 million in the prior year period. Revenues from
operations in South America were $6.6 million for the second quarter of
2017, as compared to $8.4 million in the prior year period. The decrease
in revenues from the United States operations is primarily due to the
sale of two mills in May 2017 and lower processing volumes at existing
mills. The decrease in South America revenues was primarily due to fewer
chip sales to Asia in 2017 as compared to 2016. Fewer vessels shipped
during the second quarter of 2017 than during the second quarter of
2016; however, we expect export chip sales to pick up throughout the
remainder of 2017 but to be lower than in 2016. Lower biomass product
sales also contributed to the decrease in South America revenues.

For the second quarter of 2017, our mills in the United States processed
2.3 million green metric tons, or GMT, of logs into wood chips and
residual fuels; our mills in South America processed 0.6 million GMT of
logs. For the second quarter of 2016, our mills in the United States
processed 2.6 million GMT of logs into wood chips and residual fuels;
our mills in South America processed 0.8 million GMT of logs.

Gross profit was $1.3 million for the second quarter of 2017, as
compared to $2.9 million for the same period last year. Gross profit
margin for the second quarter of 2017 was 8%, as compared to 14% for the
same period in the prior year. The decreases in gross profit and gross
margin were due primarily to lower revenues as a result of a decrease in
biomass product sales in South America, a decrease in chip sales to
Asia, the sale of two U.S. mills in May 2017, lower processing volumes
at existing domestic mills, and an increase in repairs and maintenance
expenses for the mills in South America.

Operating loss for the second quarter of 2017 was $(0.6) million, as
compared to operating income of $1.2 million in the second quarter of
2016.

Adjusted EBITDA for the second quarter of 2017 was $1.3 million. This
compares to Adjusted EBITDA of $3.5 million for the same period in 2016.

Net loss for the second quarter of 2017 was $(0.8) million. This
compares to net income of $0.5 million for the same period in 2016.

In August 2017, Fulghum was notified by a customer of the exercise of
its purchase option for six of Fulghum's chip mills. The parties are in
discussions to enter into new operating agreements for Fulghum to
continue to operate the mills on terms similar to operating agreements
at other Fulghum mills when Fulghum transfers the asset ownership to the
customer. When the sale of the mills is consummated, the
Company expects to receive a one-time cash payment of approximately $5
million. The sales proceeds will be used to pay off the underlying debt
on the mills with any remaining proceeds to be offered to GSO Capital
Partners LP as a prepayment of its debt.

New England Wood Pellet

Revenues were $4.0 million for the second quarter of 2017, earned by
delivering approximately 22,000 tons of wood pellets. Revenues were $4.4
million for the second quarter of 2016, earned by delivering
approximately 24,000 tons of wood pellets. Demand continued to be
negatively impacted by relatively warm weather, continuing depressed
prices for competing heating fuels such as heating oil and propane, and
changes in consumer buying patterns where the consumer now makes
purchases on an as-needed basis. Sales prices for the second quarter of
2017 were also lower than in the prior year period.

Gross loss for the second quarter of 2017 was $(0.4) million, as
compared to gross profit of $0.6 million for the same period in the
prior year. Gross loss margin was (11)% for the second quarter of 2017,
as compared to gross profit margin of 13% for the same period in the
prior year. Gross profit and gross profit margin were lower because of
lower sales volumes and prices, higher depreciation expense and charges
relating to scaling back production at the facilities during the second
quarter of 2017.

Operating loss was ($1.1) million for the second quarter of 2017, as
compared to $(0.2) for the same period last year.

Adjusted EBITDA loss for the second quarter of 2017 was $(0.0) million.
This compares to Adjusted EBITDA of $0.4 million for the same period in
2016.

Net loss for the second quarter of 2017 was $(1.2) million. This
compares to net loss of $(0.3) million for the same period in 2016.

Wood Pellets: Industrial

Revenues were $3.2 million for the second quarter of 2017, earned by
delivering approximately 23,000 metric tons of wood pellets. Revenues
were $6.5 million for the second quarter of 2016, earned by delivering
approximately 56,000 metric tons of wood pellets. Revenues were lower
due to the idling of the Wawa facility and lower operating rates at the
Atikokan facility.

Gross loss for the second quarter of 2017 was $(1.6) million, as
compared to $(5.2) million for the same period in the prior year. Gross
loss margin was (50)% for the second quarter of 2017, as compared to
(80)% for the same period in the prior year. The decrease in gross loss
was primarily due to the idling of the Wawa facility, restructuring of
operations at the Atikokan facility, and a related $4.3 million
reduction in inventory write-downs.

Operating loss was $(2.7) million for the second quarter of 2017, as
compared to $(6.6) million for the same period last year. The decrease
in operating loss was due to the idling of the Wawa facility, lower
operating rates at the Atikokan facility, decreases in inventory
write-downs and the absence of allocations of corporate overhead to the
wood pellets industrial segment. These reductions were partially offset
by estimated contractual penalties under the Canadian National contract
of $0.8 million recorded in selling, general and administrative expenses.

Adjusted EBITDA loss for the second quarter of 2017 was $(2.7) million.
This compares to Adjusted EBITDA loss of $(4.4) million for the same
period last year.

Net loss for the second quarter of 2017 was $(3.2) million. This
compares to net loss of $(7.0) million for the same period in 2016.

Prior to our decision to idle the Wawa facility in February 2017, we
agreed to deliver approximately 336,000 metric tons of pellets to Drax
in 2017. In January 2017, we shipped approximately 48,000 metric tons to
Drax. In March 2017, Drax agreed to cancel the next two shipments for
2017 without any penalties, leaving us with an obligation to deliver
approximately 193,000 metric tons for this year. In April 2017, we
shipped most of Wawa's remaining inventory of approximately 12,000
metric tons of pellets to Drax pursuant to an amendment to the Drax
contract; this shipment does not affect our delivery obligations for
2017. We are currently negotiating with Drax to cancel the remaining
shipments in 2017. At this time, we cannot make a determination if any
penalties will be associated with future changes to the contract.
Rentech, Inc. has guaranteed the payment obligations of the Drax
contract up to a maximum amount of CAD$20 million.

Corporate and Unallocated Expenses

Selling, general and administrative expenses were $3.1 million for the
second quarter of 2017, as compared to $4.7 million for the same period
last year. The decrease was a result of the Company's cost saving
efforts, including a decrease in personnel costs of $0.9 million,
professional fees of $0.5 million, non-cash equity-based compensation
expense of $0.4 million and rent expense of $0.2 million. These savings
were partially offset by the absence of allocating a portion of
corporate overhead to the wood pellets industrial segment. Non-cash
equity-based compensation expense was $0.3 million for the second
quarter of 2017, as compared to $0.7 million for the same period in the
prior year. Corporate allocations to the Wood Pellets: Industrial
segment totaled $0.9 million for the second quarter of 2016.

Conference Call with Management

Rentech will hold a conference call today, August 10, 2017, at 10:00
a.m. ET to discuss its results for the second quarter of 2017. Callers
may listen to the live presentation, which will be followed by a
question and answer segment, by dialing (888) 517-2513 or (847) 619-6533
and the passcode 8819662#. An audio webcast of the call will be
available at www.rentechinc.com
within the Investor Relations portion of the site under the
Presentations section. A replay will be available by audio webcast and
teleconference from 12:30 p.m. ET on August 10 through 11:59 p.m. ET on
August 18. The replay teleconference will be available by dialing (888)
843-7419 or (630) 652-3042 and the passcode 8819662#.

 

Rentech, Inc.

 

Consolidated Financial Results

 

(Stated in Thousands)

 
   

For the Three Months Ended

June 30,

    For the Six Months Ended

June 30,

2017     2016 2017     2016
(Unaudited)
Revenues $ 24,738 $ 31,793 $ 56,959 $ 71,730
Cost of sales   25,415   33,472   58,381   73,278
Gross loss   (677 )   (1,679 )   (1,422 )   (1,548 )
Operating expenses
Selling, general and administrative expense 6,146 7,742 14,830 16,856
Depreciation and amortization 453 775 1,077 1,783
Asset impairment 7,759
Goodwill impairment 13,125
Other expense, net   348   1,651   361   1,664
Total operating expenses   6,947   10,168   37,152   20,303
Operating loss   (7,624 )   (11,847 )   (38,574 )   (21,851 )
Other expense, net
Interest expense (2,520 ) (2,511 ) (4,917 ) (6,083 )
Loss on debt repayment (3,295 ) (3,295 )
Other income (expense)   207   367   (1,137 )   513
Total other expenses, net   (2,313 )   (5,439 )   (6,054 )   (8,865 )
Loss from continuing operations before income taxes

and equity in loss of investee

(9,937 ) (17,286 ) (44,628 ) (30,716 )
Income tax benefit   (26 )   (9,705 )   (1,250 )   (12,107 )
Loss from continuing operations before equity in

loss of investee

(9,911 ) (7,581 ) (43,378 ) (18,609 )
Equity in loss of investee   27,212   1,360   28,130   1,360
Loss from continuing operations (37,123 ) (8,941 ) (71,508 ) (19,969 )
Income (loss) from discontinued operations, net of tax     305,100   96   310,674
Net income (loss) (37,123 ) 296,159 (71,412 ) 290,705
Net (income) loss attributable to noncontrolling interests 66 (157 ) 77 (3,563 )
Loss on redemption of preferred stock (11,049 ) (11,049 )
Preferred stock dividends         (1,320 )
Net income (loss) attributable to Rentech

common shareholders

$ (37,057 ) $ 284,953 $ (71,335 ) $ 274,773
Net income (loss) per common share allocated to Rentech

common shareholders:

Basic:
Continuing operations $ (1.60 ) $ (0.87 ) $ (3.08 ) $ (1.41 )
Discontinued operations $ 0.00 $ 12.89 $ 0.00 $ 12.99
Net income (loss) $ (1.60 ) $ 12.05 $ (3.07 ) $ 11.61
Diluted:
Continuing operations $ (1.60 ) $ (0.87 ) $ (3.08 ) $ (1.41 )
Discontinued operations $ 0.00 $ 12.89 $ 0.00 $ 12.99
Net income (loss) $ (1.60 ) $ 12.05 $ (3.07 ) $ 11.61
Weighted-average shares used to compute net income (loss)

per common share:

Basic   23,211   23,067   23,206   23,051
Diluted   23,211   23,067   23,206   23,051
 
 

Rentech, Inc.

 

Financial Results by Business Segment

 

(Stated in Thousands)

       

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2017     2016 2017     2016
(in thousands)
Revenues
Fulghum Fibres $ 17,553 $ 20,829 $ 37,488 $ 48,265
Wood Pellets: Industrial 3,167 6,538 11,314 16,399
Wood Pellets: NEWP   4,018   4,426   8,157   7,066
Total revenues $ 24,738 $ 31,793 $ 56,959 $ 71,730
Gross profit (loss)
Fulghum Fibres $ 1,336 $ 2,939 $ 3,621 $ 7,605
Wood Pellets: Industrial (1,574 ) (5,198 ) (4,961 ) (10,167 )
Wood Pellets: NEWP   (439 )   580   (82 )   1,014
Total gross loss $ (677 ) $ (1,679 ) $ (1,422 ) $ (1,548 )
Selling, general and administrative expenses
Fulghum Fibres $ 1,423 $ 1,175 $ 2,880 $ 2,376
Wood Pellets: Industrial 1,166 1,346 3,670 2,654
Wood Pellets: NEWP   413   499   913   1,060
Total segment selling, general and administrative expenses $ 3,002 $ 3,020 $ 7,463 $ 6,090
Depreciation and amortization
Fulghum Fibres $ 133 $ 289 $ 426 $ 830
Wood Pellets: Industrial 1 53 13 100
Wood Pellets: NEWP   241   302   482   597

Total segment depreciation and amortization recorded in
operating
expenses

$

375

$ 644 $ 921 $ 1,527
Net income (loss)
Fulghum Fibres $ (819 ) $ 521 $ (21,681 ) $ 2,174
Wood Pellets: Industrial (3,230 ) (7,015 ) (9,584 ) (13,753 )
Wood Pellets: NEWP   (1,204 )   (313 )   (1,704 )   (868 )
Total segment net loss $ (5,253 ) $ (6,807 ) $ (32,969 ) $ (12,447 )
Reconciliation of segment net loss to consolidated net loss:
Segment net loss $ (5,253 ) $ (6,807 ) $ (32,969 ) $ (12,447 )
Corporate and unallocated expenses recorded as selling,

general and administrative expenses

(3,145 ) (4,720 ) (7,367 ) (10,765 )

Corporate and unallocated depreciation and

amortization expense

(78 ) (131 ) (156 ) (256 )

Corporate and unallocated income (expenses) recorded
as other
income (expense)

2

(4,727 ) 4 (4,723 )
Corporate and unallocated interest expense (1,366 ) (1,375 ) (2,679 ) (3,798 )
Corporate income tax benefit (expense) (71 ) 10,148 (211 ) 13,349
Equity in loss of CVR (27,212 ) (1,329 ) (28,130 ) (1,329 )
Income (loss) from discontinued operations, net of tax     305,100   96   310,674
Consolidated net loss $ (37,123 ) $ 296,159 $ (71,412 ) $ 290,705
 
 

Rentech, Inc.

 

Selected Balance Sheet as of June 30, 2017

 

(Stated in Thousands)

       
Cash(1) $ 19,048
Accounts receivable 6,759
Inventories 24,075
Other current assets   6,728
Total current assets $ 56,610
Accounts payable $ 11,468
Accrued liabilities 12,319
Debt 15,879
Other current liabilities   7,781
Total current liabilities $ 47,447
 

GSO Credit Agreement

$

47,176

Fulghum debt (2)

38,467

NEWP debt (3)

14,223

QS Construction Facility

 

13,609

Total debt

$

113,475

 

(1) Amount includes cash of $8.7 million and $0.1 million at Fulghum and
NEWP, respectively.

(2) Fulghum debt consists primarily of 15 term loans and four short term
lines of credit with various financial institutions with each loan
secured by specific property and equipment.

(3) The NEWP debt consists primarily of four term loans and one short
term line of credit with each term loan secured by specific property and
equipment.

Disclosure Regarding Non-GAAP Financial Measures

Adjusted EBITDA, which is a non-GAAP financial measure, is defined as
net income (loss) from continuing operations plus net interest expense
and other financing costs, income tax (benefit) expense, depreciation
and amortization and unusual items, like impairment and debt
extinguishment charges, fair value adjustments to earn-out consideration
and equity investment in CVR. Adjusted EBITDA is used as a supplemental
financial measure by management and by external users of our
consolidated financial statements, such as investors and commercial
banks, to assess:

  • the financial performance of our assets without regard to financing
    methods, capital structure or historical cost basis; and
  • our operating performance and return on invested capital compared to
    those of other public companies, without regard to financing methods
    and capital structure.

Adjusted EBITDA should not be considered an alternative to net income,
operating income, net cash provided by operating activities or any other
measure of financial performance or liquidity presented in accordance
with GAAP. Adjusted EBITDA may have material limitations as a
performance measure because it excludes items that are necessary
elements of our costs and operations. In addition, Adjusted EBITDA
presented by other companies may not be comparable to our presentation,
since each company may define these terms differently.

The table below reconciles Rentech's consolidated Adjusted EBITDA
(excluding equity in loss of CVR and discontinued operations) to loss
from continuing operations for the second quarters and first six months
of 2017 and 2016.

       
For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2017     2016 2017     2016
(in thousands)
Loss from continuing operations $ (37,123 ) $ (8,941 ) $ (71,508 ) $ (19,969 )
Add items:
Net interest expense 2,518 2,480 5,039 6,051
Asset impairment 7,759
Goodwill impairment 13,125
Loss on debt repayment 3,295 3,295
Income tax benefit (28 ) (9,705 ) (1,252 ) (12,107 )
Depreciation and amortization 2,980 5,117 6,987 11,173
Equity in loss of investee 27,212 1,329 28,130 1,329
Other(1)   (204 )   1,118   1,017   974
Consolidated Adjusted EBITDA $ (4,645 ) $ (5,307 ) $ (10,703 ) $ (9,254 )
 

(1) Includes an expense of $1.4 million for the six months ended June
30, 2017 that represents the release of certain tax indemnifications
from the previous owners of Fulghum. The amounts for 2016 include the
write-offs for the computer software, leasehold improvements, furniture
and office equipment totaling $1.4 million.

The table below reconciles Fulghum's Adjusted EBITDA to segment net
income (loss) for Fulghum for the second quarters and first six months
of 2017 and 2016.

       
For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2017     2016 2017     2016
(in thousands)
Fulghum net income $ (819 ) $ 521 $ (21,681 ) $ 2,174
Add Fulghum items:
Net interest expense 514 575 1,010 1,144
Asset impairment 7,759
Goodwill impairment 13,125
Income tax (benefit) expense (99 ) 428 (1,482 ) 1,207
Depreciation and amortization 1,856 2,225 4,117 4,652
Other(1)   (161 )   (278 )   1,236   (356 )
Fulghum's Adjusted EBITDA $ 1,291 $ 3,471 $ 4,084 $ 8,821
 

(1) Includes an expense of $1.4 million for the six months ended June
30, 2017 that represents the release of certain tax indemnifications
from the previous owners of Fulghum.

The table below reconciles NEWP's Adjusted EBITDA to segment net loss
for NEWP for the second quarters and first six months of 2017 and 2016.

       
For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2017     2016 2017     2016
(in thousands)
NEWP net income (loss) $ (1,204 ) $ (313 ) $ (1,704 ) $ (868 )
Add NEWP items:
Net interest expense 147 150 283 291
Income tax expense 15 19 35
Depreciation and amortization 1,045 592 1,768 1,055
Other   (38 )   (74 )   (88 )   (114 )
NEWP's Adjusted EBITDA $ (50 ) $ 370 $ 278 $ 399
 

The table below reconciles Wood Pellets: Industrial's Adjusted EBITDA to
segment net loss for Wood Pellets: Industrial for the second quarters
and first six months of 2017 and 2016.

       
For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

2017     2016 2017     2016
(in thousands)
Wood Pellets: Industrial net loss $ (3,230 ) $ (7,015 ) $ (9,584 ) $ (13,753 )
Add Wood Pellets: Industrial items:
Net interest expense 491 380 1,067 818
Income tax expense -
Depreciation and amortization 1 2,169 946 5,210
Other   (3 )   39   (127 )   16
Wood Pellets: Industrial Adjusted EBITDA $ (2,741 ) $ (4,427 ) $ (7,698 ) $ (7,709 )
 

About Rentech, Inc.

Rentech, Inc. (NASDAQ:RTK) owns and operates wood fibre processing and
wood pellet production businesses. Rentech offers a full range of
integrated wood fibre services for commercial and industrial customers
around the world, including wood chipping services, operations,
marketing, trading and vessel loading, through its subsidiary, Fulghum
Fibres. The Company's New England Wood Pellet subsidiary is a leading
producer of bagged wood pellets for the U.S. heating market. Rentech's
industrial wood pellet facilities are designed to produce wood pellets
used as fuel for power generation. Please visit www.rentechinc.com
for more information.

Safe Harbor Statement

This press release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995 about matters such as
expectations for the operations, results and contractual obligations of
the Fulghum Fibres, NEWP, and Industrial Wood Pellets businesses. These
statements are based on management's current expectations and actual
results may differ materially as a result of various risks and
uncertainties. Other factors that could cause actual results to differ
from those reflected in the forward-looking statements are set forth in
the Company's prior press releases and periodic public filings with the
Securities and Exchange Commission, which are available via Rentech's
website at www.rentechinc.com.
The forward-looking statements in this press release are made as of the
date of this press release 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

Source: Rentech, Inc.

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