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Rentech, Inc. (NASDAQ:RTK)

F4Q08 Earnings Call

December 16, 2008 1:00 am ET

Executives

Julie Dawoodjee - Director of Investor Relations

D. Hunt Ramsbottom - President, Chief Executive Officer, Director

Dan J. Cohrs - Chief Financial Officer, Executive Vice President

Analysts

John Bridges - J.P. Morgan Chase & Co.

William Burns - Johnson Rice & Company LLC

Pearce W. Hammond, Jr. - Simmons & Company International

Jeremy Sussman - Natexis Bleichroeder, Inc.

[Zack Holcom] - Private Investor

[Gary Kavanaugh] - Private Investor

[Michael Faherty - Bella Investments]

Peter Lindsay - Residential Alternatives

Operator

Welcome to the Rentech fiscal 2008 fourth quarter and full year conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, December 16, 2008.

Your speakers for today are Julie Dawoodjee, Director of Investor Relations, Hunt Ramsbottom and Dan Cohrs. I would now like to turn the conference over to Julie Dawoodjee.

Julie Dawoodjee

I would like to welcome all of you to Rentech’s 2008 fiscal fourth quarter conference call for the period ended September 30, 2008. Before we begin our prepared remarks, I would like to cover some administrative aspects of this conference call.

Hunt Ramsbottom, President and CEO of Rentech, will provide opening remarks highlighting our company’s progress during the fiscal year and Dan Cohrs, our Chief Financial Officer, will give a financial review of the fourth quarter and full year and will provide comments on Rentech’s financial position. We will then open the lines for questions and ask that you limit yourself to one question so that we may get to as many questions as possible.

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. You are cautioned that while forward-looking statements reflect our good faith beliefs 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 December 16, 2008 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.

Now I would like to turn the call over to Hunt Ramsbottom, President and CEO of Rentech.

D. Hunt Ramsbottom

I’d like to focus this call on Rentech’s key competitive advantages that we believe differentiate our company from other alternative fuel players in the sector and will bring long-term shareholder value. We believe our competitive advantages stem from two key differentiating factors.

We have an advantage among alternative fuel providers in that we have a profitable operating asset. Our wholly-owned fertilizer facility REMC performed exceptionally well during fiscal 2008 generating strong cash flow and achieving record volume, production and revenue. This source of cash flow helps fund the commercial deployment of our proven synthetic fuels technology.

This takes us to our other unique attribute which is that we operate the only synthetic transportation fuels facility in the United States. The PDU represents the first time our company has built a fully integrated and synthetic fuels facility. The PDU enables us to work on enhancing our technology with the goal of increasing the economic returns of large scale facilities.

Hence the PDU is instrumental in moving our commercialization plans for the Rentech process forward. Our patented Rentech process can turn any carbon-bearing feedstock such as biomass, natural gas, petroleum coke and coal into ultraclean synthetic fuels and chemicals when combined with commercially available gasification and upgrading technologies. We believe the Rentech process is one of the most promising methods to providing our nation with a scalable solution for domestic production of clean fuels since our technology is ready today, proven and expected to be economic.

We’ve seen market demand in synthetic fuels both domestically and internationally because of the characteristics of and applications for these fuels. These are the only synthetic fuel types certified for use by the United States Air Force and are also in the process of receiving formal certification by the Federal Aviation Administration for use in commercial aircraft. We are working with both the US Air Force and the Commercial Aviation Alternative Fuels Initiative or CAAFI to obtain certification of our fuels for use in commercial aircraft.

The characteristics of our fuels are such that they can be used without modifying existing diesel or jet engines in distribution pipelines. As a result we see no infrastructure based barriers for the immediate and widespread adoption of fuels produced from the Rentech process.

There are environmental benefits to our fuels that we believe make them an attractive option to traditional fuels and other alternative fuels. Fuels produced from our process are biodegradable and are cleaner burning than traditional petroleum-derived fuels potentially providing significant savings by reducing the need for expensive retrofitting or replacement of existing engines in order to meet emission standards such as the new California statewide truck and bus rule to curb emissions from heavy duty diesel trucks. We believe our fuels already meet or exceed all relevant existing fuels and environmental standards.

In addition we have the ability to produce carbon neutral and carbon negative fuels when the Rentech process is combined with carbon capture and sequestration and we use biomass as a feedstock.

There are many advantages to our fuels beyond the environmental benefits. For instance, fuels produced from the Rentech process have a longer shelf life than comparable petroleum-derived fuels. This quality of our fuels makes them appealing as a source for strategic fuel reserves.

The lower density of our jet fuels could enable airplanes to have a lower takeoff weight which conserves fuel and therefore lowers operating costs. The lower density of our jet fuels could alternatively allow aircraft carriers to carry heavier payloads at the same volume of fuel when compared with traditional jet fuel which would enable aircraft to carry more passengers or freight.

In addition to the performance and environmental qualities of our fuels compared to traditional fuels we believe the cost to produce a barrel of synthetic fuels from the Rentech process at a commercial scale plant will be competitive with the long-term projected cost of crude.

We successfully completed a continuous run of nearly 800 hours with the PDU during which time we produced thousands of gallons of ultraclean fuels including military jet fuel, commercial aviation fuels and ultralow sulfur diesels as well as specialty chemicals. The fuels we produced met or surpassed all applicable fuel standards. We are providing samples of our products to potential customers such as the US Air Force, airlines and chemical companies for testing and certification. We believe doing so will help enable us to obtain long-term commercial off-take agreements for products to be produced at our large scale facilities.

We continue our negotiations with potential customers but we believe improved marketing conditions will be required for customers to make firm long-term commitments.

We produce fuels at the PDU from a quality of syngas that is typically created from solid feedstocks. We believe this demonstrates that the Rentech catalyst can successfully react with syngas streams from a wide variety of feedstocks including biomass and fossil-based resources.

Through the data we collected from operating the PDU thus far we learned that our catalyst performed with 20% greater productivity than anticipated. This means that with our commercial scale facilities we should be able to produce 20% more products than we expected with the same amount of equipment, lowering our capital expenditures and feedstock costs per barrel of production. Alternatively we can produce the same amount of products at our commercial scale facilities as we originally planned to but with 20% less reactor capacity thereby reducing total capital costs required to build the plants.

In addition we made an improvement to our catalyst and with our commercial catalyst suppliers we produced large scale batches of enhanced stronger catalysts for the use of our Colorado facility. The improved catalyst composition can lower operating costs because of lower catalyst losses from the reactor system.

In the short time since we’ve operated the PDU we have already sent samples of our products to customers and have identified opportunities to reduce our capital and operating costs, both of which can be applied to commercial scale synthetic fuels and chemicals facilities making their economic returns more favorable.

The PDU is also significant because it demonstrates the successful design, construction and operation of a fully integrated synthetic fuels and chemicals facility utilizing the Rentech process. The PDU also provides us with valuable engineering, design and process knowledge that will be transferred to the planning and construction of commercial scale facilities. These factors should help us achieve our goal to accelerate the deployment of a commercial scale reactor.

Today’s crude processes are not expected to be sustainable in the long run. The IEA projects crude to reach over $100 per barrel over the next seven years and higher beyond that. Therefore it is important to build a domestic synthetic fuels industry today so that we can address the nation’s energy needs of the future.

This strategy was expressed by President-Elect Obama during a recent interview in which he stated that especially with today’s low oil prices it’s more important than ever to develop domestic sources to reduce oil imports in order to break the cyclical pattern of highly volatile oil prices. We therefore expect the new administration to implement policies that will benefit our alternative energy business.

The cornerstone of our alternative energy business is the deployment of our commercial scale reactors. We have identified three methods by which we plan to bring our process to the market place.

The first is by developing biomass synthetic fuels facilities. These types of facilities will be small in size and not as complex in design than fossil facilities making them less capital intensive. They also could prove our commercial capabilities and increase our financing, licensing and partner opportunities. We can also transfer the experience we gain from building these facilities to larger commercial fossil projects as we scale up.

The second method by which we intend to deploy commercial scale reactors is via large scale fossil facilities. These types of projects are attractive because they provide economies of scale and product diversification. Because of these two factors these types of projects are expected to generate significant cash flows.

Licensing our technology is a third method by which we expect to deploy commercial scale Rentech reactors. Licensing is an attractive business for us as it requires no capital investment from Rentech and provides us with the opportunity to expand the global reach of the Rentech process.

To help us strengthen our commercial offering we’ve partnered with UOP, a Honeywell company, to offer a one-stop solution to developers of synthetic fuels and chemicals to facilities worldwide for synthesis gas and conversion and production upgrading. This alliance has been instrumental in advancing our licensing discussions.

In addition we launched an engineering program with Jacobs Engineering to assist us in completing a commercial scale reactor design package for the Rentech process. This work will enable us to continue to refine the capital cost estimates for our reactor design.

We are currently in commercial discussions with potential customers, licensees and partners and we are actively pursuing a number of licensing opportunities domestically and internationally in regions including India, China, Australia and Europe.

We’re also working on early-stage biomass projects for which we are conducting preliminary engineering and cost estimate work, evaluating potential project sites and actively pursuing feedstock sources and gasification technologies.

In addition we are pursuing a number of fossil projects including our planned project in Natchez, Mississippi. We now own the land on which we intend to build the approximately 30,000 barrel per day synthetic fuels and chemicals facility. We have several development initiatives underway that are moving our Natchez project forward.

We are evaluating proposals for product distribution via pipeline and barge since having identified product delivery points including to various major airports. We are also currently in discussions with feedstock suppliers. We are in the process of selecting an engineering firm that will work with us in obtaining all necessary permits in order to construct the Natchez facility. In parallel we are working with the potential customers for off-take agreements and partners for the financing of the project.

We believe that Rentech is unusual among alternative energy companies in that we have a significant source of operating cash flow available to us from our fertilizer business REMC. Because of this cash source and the steps we’ve taken to recently reduce the run rate of our operating costs from fiscal 2008 levels we feel we are in better position to weather the current economic environment and continue to advance our technology and commercialization efforts than comparable alternative fuels companies without any cash flowing assets.

We believe our cost reductions in conjunction with the expected strong performance of REMC will enable Rentech to achieve positive consolidated EBITDA for the fiscal 2009. This is a significant milestone as it not only marks the first time in our company’s history that we’ve projected positive consolidated EBITDA performance but we are expecting this level of performance at a time when most companies are scaling back financial projections and results.

I look forward to your questions in a few moments but first I’ll turn the call over to Dan Cohrs who will give you details on our financial performance.

Dan J. Cohrs

I’m very happy to be here with you this morning and I look forward to working with Hunt and the rest of the team and to meeting all of you in the future. First let’s focus on the fourth quarter results from fiscal year 2008 and compare them to the results from the same quarter in fiscal year 2007.

We saw a significant increase in revenues from last year’s fourth quarter. Revenues were up from $30 million to almost $75 million, a 150% change which was driven by very strong results at REMC in that fourth quarter. Gross profit rose from $2 million to almost $15 million in the quarter.

The loss to common shareholders was reduced from a loss of $58.9 million last year to $8.9 million this year. On a per share basis that was a reduction in the loss from $0.36 per share last year to $0.05 per share in this year’s fourth quarter. The impact of impairments in that loss was $0.23 per share last year and $0.02 per share this year leading to a net loss before impairments of $20.8 million last year which reduced to $5.7 million this year.

If we look at the components of those impairments, the picture has changed quite a bit since last year. In last year’s fourth quarter there was a $38.2 million impairment due to the write-off of REMC conversion costs. This year there is a $3 million impairment due to the valuation of auction rate securities that we’ve written down and a small charge of $200,000 related to some other projects for total impairments this year in the fourth quarter of $3.2 million, again compared to $38.2 million last year.

If we focus on R&D expense, which is a major subject for later in the call, we see R&D expense was $10.6 million in the fourth quarter of 2008 which is a significant decline from earlier quarters this year. On a sequential basis from the third quarter of ’08 that’s a 33% decline.

Let’s quickly run through the full year results for fiscal year 2008. Revenue was up almost 60% from $132.3 million last year to $211 million this year, again on strong results from REMC. Gross profit was up from almost $16 million to $50.5 million in 2008.

The loss to shareholders was reduced from $91.7 million last year to $62.9 million this year. On a per share basis last year’s loss was $0.61; this year’s loss was $0.38. The impact of impairments in those annual numbers was $0.26 last year and $0.08 this year leading to a loss before impairments last year of $53.5 million; this year $50.4 million. That’s on a more apples-to-apples basis before impairments.

The impairment components were a $3 million write-down on the securities this year that we already mentioned and again this year there’s a $9.5 million impairment on REMC conversion costs and a few other projects that were still coming through. That was compared to the same number last year of $38.2 million of impairments. Total impairments reduced year-over-year from $38.2 million down to $12.5 million.

For the full year comparison R&D expense was up from $43.1 million last year to $64.5 million this year. That was an increase mostly driven by the expenses for PDU construction which remember pass through the P&L as R&D expense. We will not see that trend in the future and I’ll speak more about that in just a second.

Focusing on REMC for a moment we got $53.8 million of EBITDA at REMC compared to our guidance of $50 million or greater. So we came in ahead of our projections for the year.

That was on revenues that increased from $131.8 million up to $210 million and gross profit that went from $15.9 million up to $50 million. Included in that $50 million is an $8.7 million write-down due to natural gas inventories that had to be written down as gas prices declined during the year. That’s a phenomenon that follows our policy of locking in margins by buying gas forward against the forward sales of fertilizer. Net income at REMC increased from $11.9 million last year to $45 million this year.

Going back up to the consolidated level, the cash on our balance sheet increased significantly year-over-year. Last year on September 30 we had $33.7 million of cash. This year on September 30 we had $63.7 million of cash.

So the highlights of the year are that REMC continues to perform exceptionally well, we have increased the efficiency of that plant through process improvements, the onscreen factor at the plant reached over 96% this year, and we achieved new production records for both UAN and liquid urea. We had record product sales. For ammonia the average gross selling price was $539 per ton in 2008 compared to $343 per ton last year and $301 per ton in fiscal ’06. For UAN the average gross selling price was $308 per ton this year compared to $209 per ton last year and $161 per ton in fiscal ’06.

Looking ahead at REMC we have already entered into significant prepaid sales agreements for a significant portion of production for fiscal 2009. For ammonia 60% of our projected shipments for fiscal 2009 have already been contracted at an average sales price of $816 per ton. For UAN 40% of our projected shipments for next year have been contracted already at an average sales price of $396 per ton. On all of those forward sales we’ve locked in gross margins through purchases of natural gas.

As we look ahead, since we have a very good start already on fiscal 2009 with those presales we have continued confidence that EBITDA at REMC will be well in excess of $50 million in fiscal year 2009.

At the corporate level at Rentech we’ve taken some pretty significant steps to reduce our expenses. We’ve reduced the expense rate for corporate staff and for operations of the PDU and of course our largest single reduction will be due to the completion of PDU construction.

Let’s run through a bit of the thought behind our guidance for 2009. We’ve told you that REMC should have EBITDA in 2009 significantly in excess of $50 million per year due to those strong presales and what we view as market conditions for 2009. With that EBITDA being generated at REMC, let’s look at the corporate picture.

R&D expense in fiscal year 2008 was $64 million. Included in that $64 million was $40 million for the PDU construction. That $40 million will be zero in 2009 so we have a very significant reduction already in R&D expense. Also in R&D expense we have the PDU operations and our technology development function. Those expenses should be at a run rate which is down about 25% from the levels that we saw in fiscal year 2008 due to our cost management efforts.

Similarly with SG&A we reported SG&A for 2008 of $33.4 million. Due to our cost reduction efforts we expect that to be down approximately 25% in 2009.

When we put those cost reductions together with well in excess of $50 million of EBITDA at REMC, we expect consolidated EBITDA for the company to be positive in 2009.

Let’s take a look at our corporate expense rate for 2009. Excluding the impact of PDU construction which was $40 million as I said, we expect the rate of corporate spending to drop approximately 25% from last year’s rate which was almost $5 million per month. At that spending rate we expect our liquidity needs for fiscal year 2009 to be funded by cash flows from REMC.

Now that requires certain modifications to our credit agreement and we’re currently working with our lenders, and they have assured us that we can obtain the required modifications. With those modifications we expect to be able to meet our liquidity requirements without accessing the capital markets throughout fiscal year 2009.

With that I’ll turn the call back over to Hunt.

D. Hunt Ramsbottom

Now I’d like to turn the call back to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Bridges - J.P. Morgan Chase & Co.

John Bridges - J.P. Morgan Chase & Co.

Could you characterize your counterparties on these forward sales? We hear of a lot of trauma out there and just wondered if you could give us a bit of background on those clients and how sure you are that those contracts are safe?

D. Hunt Ramsbottom

The counterparties on those contracts are Agrium. Almost all of our sales go through Agrium and the way those contracts work of the credit risk, to the extent there’s credit risk in the contract falls at the Agrium level. It doesn’t go through to the distributor or the farmer.

Operator

Our next question comes from William Burns - Johnson Rice & Company LLC.

William Burns - Johnson Rice & Company LLC

Looking at the third quarter to fourth quarter, from a seasonal perspective I would have expected your fourth quarter sales to actually decline sequentially from your fiscal Q308 sales. I was wondering what factors caused that sequential increase or am I just mis-modeling this?

D. Hunt Ramsbottom

That’s a fall and [fill] and sales time for us.

William Burns - Johnson Rice & Company LLC

I always assumed the third quarter would be the peak from the seasonal.

D. Hunt Ramsbottom

Remember we’re on a fiscal year ended September 30 so it’s really the timing of the deliveries at REMC. That can vary from year to year. You’re correct. Last year, I assume this is what you’re looking at, in 2007 revenues were highest in the third quarter and then dropped in the fourth quarter. You have your facts correct but this year we saw a sequential increase just related to the timing of the fall applications which can be affected by things like weather.

William Burns - Johnson Rice & Company LLC

That helps me with trying to model going forward. You know my extensive background in the fertilizer business.

D. Hunt Ramsbottom

It’s not an easy business to forecast, we grant you that.

William Burns - Johnson Rice & Company LLC

That’s not really my forte for this old coalminer.

Then maybe a follow up for Dan. Nice to have you. During the first nine months of your fiscal year, cash used in operations was approximately $31 million and then when we closed out the entire year that gap had been shut to about $8 million. I can put the third quarter source and use of the statement to the fiscal year and see what kind of elements change but could you give me maybe a macro? What went right internally or externally?

D. Hunt Ramsbottom

I think most of that is driven by the presales at REMC which were very strong. When we sell fertilizer forward, cash comes in at the time we sell and in some cases it also comes in at the time we deliver. It depends on the contract. But late in 2008 presales were very strong so that tends to generate cash.

Dan J. Cohrs

We also reduced PDU expenditures.

Operator

Our next question comes from Pearce W. Hammond, Jr. - Simmons & Company International

Pearce W. Hammond, Jr. - Simmons & Company International

I have a few questions. The first is from the revenue line. Should we expect next year to look similar to this year as far as total revenues?

D. Hunt Ramsbottom

Yes, that’s our expectation.

Pearce W. Hammond, Jr. - Simmons & Company International

From a seasonality, the same discussion we just had with Bill, but it may be tough on Q3/Q4 but Q1 should certainly be weak.

D. Hunt Ramsbottom

Right.

Pearce W. Hammond, Jr. - Simmons & Company International

What’s your expectation for total cash burn this year?

Dan J. Cohrs

2009?

Pearce W. Hammond, Jr. - Simmons & Company International

Yes.

Dan J. Cohrs

Well we said that the corporate rate will drop about 25% from a rate which was about almost $5 million per month last year.

Pearce W. Hammond, Jr. - Simmons & Company International

So essentially from $60 million; 25% off of that. Now that’s just at the corporate rate?

Dan J. Cohrs

That’s just at the corporate level.

D. Hunt Ramsbottom

Corporate including R&D and PDU operations.

Pearce W. Hammond, Jr. - Simmons & Company International

So if we add on top of that REMC, then what are you expecting for total cash burn or your cash build up for 2009?

Dan J. Cohrs

REMC will generate cash so what we’re saying is that if you consolidate it, we expect REMC to generate enough cash to fund the consolidated company. We also said that does require some modifications for the loan covenants so that we can move cash within the company but REMC is expected to generate enough cash to pay for the corporate expenses as well as some pay-downs on the debt facility.

Pearce W. Hammond, Jr. - Simmons & Company International

So on the balance, assuming you get the changes on the covenants, you are expecting to generate free cash in fiscal year 2009.

Dan J. Cohrs

That’s right.

Pearce W. Hammond, Jr. - Simmons & Company International

Then touching on the senior credit agreement you mentioned that you feel confident you’ll be able to modify the covenants. If you could provide some more color there and what might be involved in modifying the covenants. Will there be any cash or anything? What terms may be involved in modifying that?

Dan J. Cohrs

Since we’re in the middle of those discussions, we really don’t want to talk too much about it. But we have been told very clearly by our lenders that they think modifications are achievable. They’ve given us some pretty strong assurances that we can modify the covenants. If you read the 10K, we note that one of the covenants that we would like to modify is the requirement that when we bring money up from REMC to the parent, for every dollar we upstream we’re required to pay down $1 on that loan. That’s one of the key covenants that we’re discussing and we discussed that in the 10K.

Operator

Our next question comes from Jeremy Sussman - Natexis Bleichroeder, Inc.

Jeremy Sussman - Natexis Bleichroeder, Inc.

In terms of the timing of your projects, can you talk a little bit more about your biomass facilities that you were mentioned a little bit earlier; maybe get us just a little bit more detail?

D. Hunt Ramsbottom

We can’t give any detail today unfortunately. In terms of the timing of the ones that we have been looking at and scoping, I think as I said in my script we believe that we can accelerate getting ourselves to market faster than the large fossil plants. The returns look attractive even at today’s prices to us on the forward curve of crude even going up to $60 crude. You kind of catch me at a strange time which we can’t go into much detail on it except the fact that we have them in the pipeline and we’ve been running the numbers and we’ve gone through engineering and cost estimates on them and the economics are looking attractive to us.

Jeremy Sussman - Natexis Bleichroeder, Inc.

Given that these take less time to come to market, it’s safe to say that we’ll be hearing some more detail at some point in the near future on these?

D. Hunt Ramsbottom

That’s correct.

Jeremy Sussman - Natexis Bleichroeder, Inc.

In terms of potential licensing off-take agreements and all that and given that you have the PDU up and running, how have recent discussions been along those lines assuming that there’s been some demand out there?

D. Hunt Ramsbottom

The overall theme of the folks that we have been talking to is that they do have a long view. So I would say the discussions have not been thwarted although I will say that in the last two or three months certainly this economic downturn on a worldwide basis has given some people some pauses to look internally at their own companies. So they’ve been distracted I would say in the last couple months but I would say in terms of the discussions they are ongoing.

People have a very long view and understand the decline rates of crude worldwide and feel very positive about what we can do together. I would say we’ve had maybe some distraction in the last few months and that’s understandable but the dialogue is continuing both domestically and on a worldwide basis. Where I sit today I feel fairly encouraged about it.

Jeremy Sussman - Natexis Bleichroeder, Inc.

Obviously when looking at one of these large facilities we all need to take a pretty long-term view over things given the fluctuations we’ve seen in prices recently. To some extent we certainly have to look past those. As you said in your remarks, clearly from Obama’s standpoint he seems to want to go green but also wants to seem to reduce our dependency on foreign oil. So I guess, anything specific that you’re seeing in the early stages of him bringing on his team to Washington? Anything specific that you’re seeing there that we should all look out for given that it could potentially benefit you all?

D. Hunt Ramsbottom

It’s hard to speculate. We do have some folks that are on my advisory committee that have met with the transition team and they are maintaining their focus. We know Chu through our advisors who is going to be running the Department of Energy, so we’ve got some pretty good direct ties into the administration. We’re hearing now it’s going to be up to $1 trillion and I think there’s going to be a lot deployed on energy.

Our view at least on the renewable side, and I think he is going to go after everything and I think CO2 is going to be part of it which I think we’re in a great position with Natchez, what we would like to see is if you’ve got plants that you can show that will be providing jobs in the next 24 months that have a very good solid carbon footprint that they increase that dollar for instance that we would get on a renewable diesel or a renewable jet fuel. You can increase that number and I think you see a larger deployment of alternative fuels in the United States.

There’s a couple of recommendations that we have floated out there through our sources to the folks and right now I think our view is the folks that are going in there are going to stick to it and try to build a format here in the United States that will wean us off of foreign crude.

Operator

Our next question comes from [Zack Holcom] - Private Investor.

[Zack Holcom] - Private Investor

I have several questions. First of all, I was looking through the 10K and I didn’t see anything on compensation for bonuses. I didn’t know if you guys received bonuses this year or if that’s something that just hasn’t come out yet.

Second of all would be for Natchez. What’s the next step on the Natchez facility?

D. Hunt Ramsbottom

The awards and the bonuses are at the discretion of the Comp Committee. There are discussions that are ongoing and I can’t comment on those today. But none for ’08 have been awarded to date.

What was your question on Natchez?

[Zack Holcom] - Private Investor

What’s the next step? You purchased the land and I know that you’re trying to go through phase one but what is the next step? Have you been able to lock down any type of, I know you really can’t say, but partners or in deep discussions with partners to get something going on Natchez? Because it seems to be pretty quiet down there.

D. Hunt Ramsbottom

If we had partners, we would certainly as I said before you’d all be the second one to know besides us. But we are in discussions I think as I said in my script with feedstock suppliers, we are entering into engineering and permitting, and we’ve been working on pipeline and distribution points to airports. So we are absolutely in discussions with partners. But the credit markets are going to have to cooperate. We can have all the discussions we want with partners but the credit markets have to cooperate.

We are certainly progressing. I think you’ve read and I think you’ve seen a lot of these projects get canceled or postponed. We are progressing the discussions with each one of our partners on the front end and the back end of our plant but being mindful of the economic situation that the world is in.

Operator

Our next question comes from [Gary Kavanaugh] - Private Investor.

[Gary Kavanaugh] - Private Investor

I wanted to ask a question regarding your PDU and I’d really like to compliment you on the success of that. Now as I understood it you said that the production was 20% better than what you’d expected and then shortly after you mentioned an improvement in the catalyst. I did not get whether that 20% was because of the improvement in the catalyst or that’s a secondary possible improvement.

D. Hunt Ramsbottom

Essentially the catalyst was 20% more productive than we anticipated in our modeling.

[Gary Kavanaugh] - Private Investor

Was that a result of a prior improvement in it then or has there been a subsequent improvement in the catalyst?

D. Hunt Ramsbottom

It’s the old recipe that we improved on.

[Gary Kavanaugh] - Private Investor

So the 20% better is the catalyst that you’re using and expect to scale up to the larger operations?

D. Hunt Ramsbottom

Oh yes. But we haven’t stopped at the 20%. We’re still working on improving it both on attrition rates and the improvements.

[Gary Kavanaugh] - Private Investor

Is it your belief that this is scalable? You’ve not seen anything to convince you otherwise that the PDU is scalable on a 2X or 3X or 4X basis or have you run into things that you’ve found that would be limiting to that?

D. Hunt Ramsbottom

No. We do believe that. As Harold indicated I think on the last conference call, we believe it’s scalable and that’s why we keep progressing with our commercial plans.

[Gary Kavanaugh] - Private Investor

Your syngas composition; I thought I heard you say that it is suitable for a variety of gasifiers which would of course have a variety of feedstocks. But obviously it seems like the output or the constituents, the composition of the syngas would be different depending upon what your feedstocks were. How did you go about controlling that in a range; in other words simulating various types of gasifiers to be able to be confident that that will all work out just fine?

D. Hunt Ramsbottom

We didn’t simulate the various gasifiers but we needed a syngas ratio of 1 so we just worked with a syngas ratio of 1 which depending on which gasifier we would end up using that gasifier would have to have the same to get the ultimate syngas for our catalyst.

[Gary Kavanaugh] - Private Investor

The composition of the syngas; you’re expecting a certain percentage of CO by weight or by volume regardless of what the feedstock is?

D. Hunt Ramsbottom

Right. It’s again the CO ratio of 1 to 1.

Operator

Our next question comes from [Michael Faherty - Bella Investments].

[Michael Faherty - Bella Investments]

A risk management question given the state of the economy. I’m wondering if Agrium and Rentech have accounts receivable insurance?

D. Hunt Ramsbottom

I can’t speak to Agrium but we do not.

[Michael Faherty - Bella Investments]

Have you had anyone that handles risk management looked into Agrium?

D. Hunt Ramsbottom

I can get back to you on that but we haven’t had any issue with their contracts.

Dan J. Cohrs

Do you mean looked into Agrium as to whether they have insurance? I mean we’ve certainly looked into Agrium as a company but whether they have insurance we don’t know.

[Michael Faherty - Bella Investments]

Like receivables insurance is something that people miss and in this economy it could have its benefits.

D. Hunt Ramsbottom

We’ll have to look into that.

[Michael Faherty - Bella Investments]

Would you mind?

D. Hunt Ramsbottom

We’ll look into that.

Operator

Our next question comes from Peter Lindsay - Residential Alternatives.

Peter Lindsay - Residential Alternatives

With the stock prices being so low, will you be keeping the poison pill in place in the event that other companies are looking at buying your company?

D. Hunt Ramsbottom

It’s actually not in place. It has expired already. The Board has decided not to renew the poison pill. We have several other [desensitize] provisions in place that serve to protect shareholder value in the event of an abusive takeover transaction.

Peter Lindsay - Residential Alternatives

Has there been significant interest in this environment from foreign countries? For example, India or China?

D. Hunt Ramsbottom

In terms of our technology?

Peter Lindsay - Residential Alternatives

Yes.

D. Hunt Ramsbottom

We’ve had a fair amount of activity, yes.

Peter Lindsay - Residential Alternatives

What about the [inaudible] you have in that company out in California; the garbage to gas? Is that still ongoing?

D. Hunt Ramsbottom

The Solena? Yes. They are still in negotiations with their feedstock supplier [Insight].

Operator

Our final question comes from Pearce W. Hammond, Jr. - Simmons & Company International

Pearce W. Hammond, Jr. - Simmons & Company International

I’ve got a couple of questions as kind of a follow on to John Bridges’ from earlier. I know this is probably at least partially in the 10K but the contract with Agrium when you’re talking about selling for 60% of the ammonia at a locked in price and the UAN 40% at a locked in price, is that a complete take or pay contract or are there certain stimulations from Agrium’s side with the farmers coming in and saying, “Hey we can’t get letters of credit to buy the fertilizer from you?” What part of that if any comes back to you guys? I know you mentioned it was mostly on their side of things but how is that contract structured?

D. Hunt Ramsbottom

It’s take or pay and if the deliveries are delayed for any reason, we charge storage costs.

Pearce W. Hammond, Jr. - Simmons & Company International

What kind of storage costs does that entail?

D. Hunt Ramsbottom

A normal storage cost. It’s a nominal storage cost but a reasonable market rate.

Pearce W. Hammond, Jr. - Simmons & Company International

So it’s all take or pay and in an effort to secure any type of default from their end on payments, do you have litigation concerns; going to Agrium and suing them for anything that they don’t take? Is that something that they’re obviously trying to avoid but something that you’re willing to do to capture anything that comes up negligent?

D. Hunt Ramsbottom

Well remember, in most of those contracts we collected at least 25% of cash up front and sometimes substantially more. So we have the cash or at least a large portion of the cash.

Pearce W. Hammond, Jr. - Simmons & Company International

So the upfront payment can be as high as 25% or even more, it’s all take or pay. Those were very helpful data points.

Operator

Mr. Ramsbottom, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

D. Hunt Ramsbottom

I’d like to make a few closing comments. We believe the long-term shareholder value will be driven by our differentiating qualities among alternative fuel players.

We have an operating asset that performs exceptionally well. We expect our recent corporate cost reductions in conjunction with the expected continued strong performance of REMC will enable us to achieve positive consolidated EBITDA for the fiscal year 2009 for the first time in our company’s history. Our commercialization plans are progressing with a mindful eye on expenses in light of the economic environment. As intended, the PDU is enabling us to identify opportunities to increase the economic returns of our facilities utilizing the Rentech process.

With the PDU operating, we have been able to have more meaningful discussions with potential customers, licensees and partners and we look forward to sharing the outcome of our negotiations with these parties in the future with you and look forward to speaking with you when we announce our fiscal 2009 first quarter results. Thank you for your time.

Operator

Ladies and Gentlemen that does conclude the conference call for today. We thank you for your participation.

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Source: Rentech, Inc. F4Q08 (Quarter End 9/30/08) Earnings Call Transcript

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