Canadian biodiesel producer Biox announces fiscal Q3 results

Biox Corp. announced its fiscal 2014 third quarter (Q3 2014) financial results for the three-month and nine-month periods ended June 30.

Highlights

-Production of methyl esters was 13.8 million liters in Q3 2014 compared to 14.7 million liters in the third quarter of fiscal 2013 (Q3 2013)

-Sales were $16,847,000 in Q3 2014 compared to $19,256,000 in Q3 2013

-Operating loss was $2,973,000 in Q3 2014 compared to $1,806,000 in Q3 2013

-Operating loss prior to noncash items was $1,863,000 in Q3 2014 compared to operating income prior to noncash items of $463,000 in Q3 2013

-Operating loss prior to noncash items of $909,000 in Q3 2014 for Biox’s operating segment (Biox Canada Ltd. and Biox USA Ltd.) compared to operating income prior to noncash items of $2,130,000 in Q3 2013

-Net loss was $3,250,000 in Q3 2014 compared to $2,084,000 in Q3 2013

-Loss per share was $0.08 in Q3 2014 compared to $0.05 in Q3 2013

“Our Hamilton facility continues to operate effectively,” said Kevin Norton, CEO of Biox. “However, until the EPA finalizes the U.S. minimum renewable volume obligations for 2014 and 2015 and a resolution on the U.S. biodiesel tax credit is determined, we anticipate that market dynamics will remain challenging with the value of biodiesel and RINs providing only a narrow margin range for producers. Closer to home, our relationship with Shell Canada Ltd. is proving beneficial as an efficient method to gain access to the growing demand for biodiesel in the Ontario market. With the official guidelines for the Ontario Renewable Diesel mandate expected to be released by the MOE in September 2014, we expect this market to grow. We continue to pursue additional relationships that would integrate our production and our sales and marketing with greater scale to maximize these assets.”

Financial Highlights

Sales were $16.8 million and $49.8 million, respectively, for the three-month and nine-month periods ended June 30 compared with $19.3 million and $50.2 million for the corresponding periods in 2013. The 13 percent difference in sales for the three-month period ended June 30, was primarily the result of the reinstatement of the U.S. $1 per gallon U.S. biodiesel tax incentive in January 2013, which resulted in a stronger pricing environment in calendar 2013 compared with calendar 2014.

Direct expenses were $17.6 million and $49.6 million, respectively, for the three-month and nine-month periods ended June 30 compared with $16.9 million and $40 million for the corresponding periods in 2013. The increase in direct expenses for the three-month and nine-month periods ended June 30 was primarily due to a higher volume of biodiesel sold during the period due to the temporary shutdown of the Hamilton facility from Oct. 25, 2012, through Feb. 1, 2013.

General and administrative expenses were $1.1 million and $4 million, respectively, for the three-month and nine-month periods ended June 30, compared with $1.3 million and $4.1 million for the corresponding periods in 2013.

Operating loss was $3 million and $12.4 million, respectively, for the three-month and nine-month periods ended June 30 compared with $1.8 million and $0.8 million for the corresponding periods in 2013.

Operating loss prior to noncash items was $1.9 million and $3.8 million, respectively, for the three-month and nine-month periods ended June 30, compared to operating income prior to noncash items of $0.5 million and $3.8 million in the corresponding periods last year. The increased losses for the three- and nine-month periods in 2014 were primarily due to the expiry in December 2013 of the U.S. $1 per gallon biodiesel tax incentive that was in effect in calendar 2013, which resulted in a stronger biodiesel pricing environment during the three-month and nine-month periods ended June 30.

Combined operating loss prior to noncash items for Biox’s wholly owned subsidiaries, Biox Canada Ltd. and Biox USA Ltd., was $0.9 million and $0.4 million, respectively, for the three-month and nine-month periods ended June 30 compared with operating income prior to noncash items of $2.1 million and $9.5 million for the corresponding periods in 2013.

Net loss was $3.3 million or $0.08 per share and $28.1 million or $0.62 per share, respectively, for the three-month and nine-month periods ended June 30 compared with $2.1 million or $0.05 per share and $1.8 million or $0.04 per share for the corresponding periods in 2013.

As of June 30, Biox’s available cash position amounted to $10.5 million, which consisted of cash and cash equivalents and short-term investments, compared with $15.9 million on Sept. 30, 2013. Working capital as of June 30 was $10.4 million.

The company believes that its future cash flow from operations combined with its current financial resources and debt financing should be sufficient to enable Biox to meet its ongoing requirements for capital expenditures and working capital requirements.

As of June 30, the company had 45,710,967 common shares outstanding, as well as outstanding stock options to purchase 2,775,000 common shares and share purchase warrants to acquire up to 1,982,143 common shares.

Outlook

The value of biodiesel and biomass-based diesel renewable identification numbers (D4 RINs) continue to be negatively impacted as the industry awaits the announcement on the 2014 and 2015 renewable volume obligation (RVO) from the U.S. EPA. 2014 RINs traded at approximately $0.56 (or $0.84 per U.S. gallon) as of Aug. 11. The final announcement of the RVO levels for 2014 and 2015 will be an important signal for the sustainability of the biodiesel industry in the U.S. The EPA has stated that it will release the 2014 RVO during the summer of 2014.

The proposed RVO maintains the current volume requirement of biomass-based diesel at 1.28 billion U.S. gallons for 2014 and 2015. At this level the 2014 and 2015 volume requirements would actually fall below the 1.8 billion U.S. gallons that the U.S. biomass-based diesel industry produced in 2013.

While Biox has historically sold the majority of its product into the U.S. market, the implementation of the Canadian regulations significantly increase the accessible market for its product in Canada. Furthermore, the implementation of a renewable diesel mandate in Ontario on April 1 provides Biox with market certainty in its local region, which supports the significant capital investment that it made in the Hamilton facility. Once fully implemented, the regulation requires the use of an estimated 240 million liters of biobased diesel per annum on an average GHG adjusted volume basis.

Biox’s interterminal pipeline and supply agreement with Shell is an example of how the company can directly service primary suppliers with a secure supply of biodiesel under the new Canadian and Ontario regulations by the most efficient possible logistics. The supply of biodiesel under this agreement has the potential to become a significant portion of Biox’s Hamilton production given the implementation of the Ontario mandate and as the Canadian renewable fuel content regulations extend eastward into Québec and the Atlantic provinces.

Biox continues to pursue growth strategies that would expand its business through increasing the volume of biodiesel it produces, controls and distributes in strategic locations throughout North America.