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Rentech, Inc. (NASDAQ:RTK)

Q1 2014 Results Earnings Conference Call

May 13, 2014 06:00 PM ET

Executives

Julie Dawoodjee Cafarella – VP, Investor Relations

D. Hunt Ramsbottom - Chief Executive Officer, President

Dan J. Cohrs – EVP and Chief Financial Officer

Sean Ebnet – SVP, Business Development

Analysts

Matthew Farwell - Imperial Capital, LLC

Brent R. Rystrom - Feltl and Company, Inc.

Lucas Pipes - Brean Capital

Matt Niblack - HITE Hedge

Operator

Hello and welcome to the Rentech’s First Quarter 2014 Conference Call. My name is Eric and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Julie Cafarella, Vice President of Investor Relations. Julie, you may begin.

Julie Dawoodjee Cafarella

Welcome to Rentech's conference call for the 3 months ended March 31, 2014. During this call, Hunt Ramsbottom, President and CEO of Rentech will summarize the company's activities. Dan Cohrs, our Chief Financial Officer, will give a financial review of the period. Also in the room with us today is Sean Ebnet, Senior Vice President of Wood Fiber Business Development. The team will be available for questions at the end of our prepared remarks.

Please be advised that certain information discussed on this conference call will contain forward-looking statements. They can be identified by the use of terms such as may, will, expect, believe and other comparable terms. You are 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. They are subject to known and unknown risks, uncertainties and risk factors. We detail these factors 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 May 13, 2014. Rentech does not revise or update these forward-looking statements except to the extent that it’s required to do so under applicable laws.

Today's presentation also includes various non-GAAP financial measures. The disclosures related to these non-GAAP measures, including reconciliations to the most directly comparable GAAP financial measures are included in our 2014 first quarter earnings press release. You can find the release on our website.

Now, I will turn the call over to Hunt.

D. Hunt Ramsbottom

Thank you, Julie. We’ve made tremendous progress since unveiling our wood fibre strategy just one year ago. Last year we acquired Fulghum Fibres because they are a leading provider of contract wood chipping services. This acquisition marks our entry into the growing wood fiber industry. At the same time, we announced the construction of our first two wood pellet facilities in Eastern Canada with long term contracts to Ontario Power and Drax Power.

We have strengthened our fiber business. We secured $150 million investment from Blackstone’s GSO. This investment is a vote of confidence to our business platform. Part of the investment funded our recent acquisition of New England Wood Pellet, the largest producer of pellets for the home-heating market, for the U.S. heating market.

Before I discuss these recent developments in more detail, I’ll provide an update on our business. Fulghum is performing as we expected. During the quarter Fulghum generated revenues of $28.6 million and EBITDA of $4.5 million. We anticipate the business will meet our ’14 guidance of revenues of $95 million and EBITDA of $20 million. Our Canadian pellet projects in Atikokan and Wawa are progressing on schedule and on budget. We are targeting the first delivery of pellets from the Atikokan facility to Ontario power this summer.

The first shipment of pellets from our Wawa facility is scheduled for the fourth quarter of this year. We’re building wood inventories in anticipation of production at both sites currently. The experienced team we’ve assembled in Canada did a great job through very very tough winter to keep these projects moving for our customers and our shareholders.

Overall, the projects in Canada are progressing very well. QSL will also ready to begin receiving pellets at the port this summer. We received a substantial number of dedicated rail cars at the Wawa facility; the remaining cars will arrive later this summer to transport pellets to the port in the fourth quarter.

Now our recent acquisition of New England Wood Pellet or NEWP is an important step strengthening and expanding our wood fiber business. NEWP broadens our product offerings, increases our customer base and opens up new geographic markets. NEWP is known for its high quality products and has about a 15% market share of heating pellets in the northeast. It’s the largest domestic market for pellets in the U.S. The company is a leading supplier of pellets to major retailers including Home Depot, Lowe's, Tractor Supply and Wal-Mart.

Pellets are burned in modern heating appliances. They are convenient and economical source of heating. They are cost competitive with delivered retail natural gas in the northeast. Low population density in NEWPs markets makes the distribution of natural gas inefficient and expensive. So people rely on pellets for heating in that market. Pellets are also more economical than heating oil, propane or electricity in the region. And the prices have been more stable than those of heating oil or natural gas.

About a million and half tons of pellets are consumed annually in the northeast and demand is expected to grow by 7% through 2018 so we see some very nice growth embedded in the business. NEWP brings additional cash flow, diversification, profitability and growth opportunities for our expanding wood fiber business.

Now GSO’s recent investment in Rentech financed the cash portion of the purchase price; the remaining funds are available for an additional near term fiber opportunities. They invested in us after performing significant due diligence on our assets, our business plan and pipeline of opportunities. They bring access to capital, other potential investment opportunities in fiber and in Nitrogen. We will also benefit from the expertise of our new Board members.

We have access to the economies of scale in purchasing that Blackstone offers to all of its portfolio companies. As we execute the plan for growth that we see in the fiber business we’ll benefit from resources brought to bear by GSO in order to maximize our organizational effectiveness and benchmark our cost structure. So now we are going to turn our focus to the nitrogen business.

I am pleased to report that Rentech Nitrogen first quarter financial and operating performance have improved significantly over the fourth quarter of ’13. During the quarter, both facilities operated very, very well producing at or above our new nameplate production rates. The ammonium plant at East Dubuque facility operated at a 100% and the UAN plant ran at 98%. This compares to the 35% for ammonium and 39% for UAN in the fourth quarter of last year. The team did a fantastic job getting the plant running after the fourth quarter.

On stream rates capacity and facility improved 81% for ammonium sulphate, 98% for the sulphuric acid plant. This is up from 16% and 78% in the fourth quarter of last year. We’re on track to achieve close to 90% on stream rates of their sulphate plants and that’s by midyear. And this is the targeted maximum rate for that plant.

Rentech Nitrogen generated earnings of $0.08 per unit in the quarter. The results for the quarter were seasonally low although we expect very much improved second quarter. First quarter results were impacted by lower product prices and higher natural gas prices compared to last year. In addition, last year we had an unusually high volume UAN sales in the first quarter of ’13. Very cold and prolonged winter pushed natural gas prices higher. But our natural gas committee made some smart moves in the quarter keeping our gas cost relatively low despite regionally higher prices.

These decisions net of growth profit margin of $3.1 million on gas sales. These transactions contributed to better than expected results for the quarter. Overall, we made some very good progress this quarter. Dan.

Dan J. Cohrs

For Rentech Nitrogen we are now seeing a lot of activity and we are looking for a good second quarter. The first quarter did not show good comparisons to last year’s strong first quarter, the application fees and got off to a late start. The wood fiber business picked up contributions from Fulghum Fibres which we didn’t know in the first quarter of last year and expenses for the pellet business and corporate were in line with our expectations.

Looking at the results for the quarter, consolidated revenues were up 42% from last year at about $85 million that consisted of Rentech Nitrogen revenues which were slightly down off about 6% from last year as prices were down across the board for all the nitrogen products although ammonia sulphate and urea volumes were up.

Fulghum Fibres contributed $28.6 million of revenue for the quarter, and of course that’s compared to zero for last year before we owned the company. Gross profit margins in Rentech Nitrogen suffered this quarter as we saw margin compression both in the ammonia business with higher natural gas prices and in the ammonium sulphate business as we saw pressure on international ammonium sulphate prices as well as higher input cost as we had ammonia supply interruptions coming out of the Ukraine crisis which drove ammonia prices up and put margin pressure on our ammonia sulphate business.

We generated net income loss of $5.6 million for the year, which was $0.02 per share fully diluted for continuing operations and we had another penny loss in the energy technology segment which of course now has been classified as discontinued operations.

EBITDA showed somewhat similar trends. Consolidated adjusted EBITDA was $6 million this quarter, slightly up from $5.7 million last year. Rentech Nitrogen’s EBITDA was down from last year we had $11.5 million of EBITDA this quarter versus $20.6 million last year and we picked up $4.5 million of EBITDA from Fulghum Fibres versus no contribution last year.

SG&A expenses were up slightly for Rentech Nitrogen due to personnel and severance cost mainly at Pasadena. Fulghum Fibres SG&A was $1.4 million versus zero last year before we owned it. Wood pellet SG&A was up about $1 million but that’s really a project expenses that we had to book as SG&A, project and start up costs.

Corporate expenses were flat despite the transaction cost for the NEWP acquisition that we absorbed in the most recent quarter. During the quarter Fulghum processed 3.8 million metric green tons of logs which were of course no comparison from last year because we didn’t own it last year.

Looking at the balance sheet, we ended the quarter with $81 million of cash for the consolidated balance sheet and if we take that pro forma for both the GSO financing and the acquisition of NEWP, we would have $141 million of cash that would break down to $104 million for Rentech and $37 million for Rentech Nitrogen, again those are both pro forma for the GSO financing and the NEWP acquisition.

On the debt side of the balance sheet, we reported $421 million of debt as of March 31, again, pro forma for both GSO and the NEWP acquisition we would show $434 million as we added $13 million of debt when we acquired NEWP and the $50 million of debt and the GSO financing was offset by paying down $50 million of debt that we previously had.

As Hunt mentioned the new investment in Rentech by GSO we funded our acquisition of New England wood pellet. We still had capital from that investment for our next up in the fiber business. We haven’t had a chance to discuss that financing with you, let me highlight some of the key terms. The $100 million of convertible preferred stock has a conversion price of $2.22, that was a 23% premium over the closing price of Rentech’s common stock on the day we – before we closed the transaction.

At 222, the preferred of convertible into about 45 million shares which would be 16.5% of Rentech common stock assuming full conversion of the preferred. The Preferred carried the cash dividend of 4.5% and is optionally redeemable in seven years. We may force conversion if the price of Rentech’s common stock remains above $4. 44 for 30 consecutive trading days.

The $100 million redemption value is backed up by about 5.5 million common units of Rentech Nitrogen which are owned by Rentech. The number of units is fixed and no covenants are affected by any change in the unit price. Each units will be released and the price of Rentech’s common stock is above $4.44 for nine week consecutive trading days which is the substitute cash for the units or and the preferred shares are converted. We will continue to receive all the cash distributions paid on these units. No hedging transactions of any kind are permitted and Rentech’s common stock prices are at least $4.44 and no short selling is permitted at any time regardless of the stock price.

The $50 million senior term loan there is interest of LIBOR plus 700 basis points due to LIBOR floor of 1% and have a below maturity of five years. The only collateral for the loan is approximately $2.8 million common units of Rentech Nitrogen owned by Rentech. The number of units provided this collateral is fixed and no covenants are affected by any change in the unit price. We can substitute cash per units there are options. Rentech will also continue to receive all cash distributions paid on these units. We can pre pay the loan without penalty after the first year or at any time from proceeds of an – wood fiber processing business or from certain asset sales. And the loan can be expanded with an accordion feature to increase the term loan by upto $75 million. Both of these securities were issued at 98% at par.

We used proceed from the convertible preferred stock to repay the $50 million balance on the revolving margin loan that was backed by units of Rentech Nitrogen and we terminated that facility. The GSO debt facility is usually expandable to provide additional financing for new growth in the fiber business. Although we are also free to finance our growth through the capital markets. We are looking forward to working closely with GSO who have been fantastic business partners for us, not just suppliers of capital.

Today in our press release, we provided some updated guidance for Rentech, excluding Rentech Nitrogen so that our outlook would be up to date for the acquisition of New England Wood pellet. For 2014, we projected revenue for the wood fiber business of $146 million that consists of $95 million from Fulghum Fibres, $20 million from the new pellet plants in Ontario as they begin planned deliveries and $31 million from New England Wood Pellet for the eight months following the acquisition.

For Rentech, again excluding Rentech Nitrogen we project EBITDA of $7 million in 2014. This consists of $47 million of contributions from our various businesses $20 million from Fulghum Fibres, $2 million from our pellet plants in Ontario and the first delivery to Drax in December, $5 million from NEWP for 8 months and 10 million from the former energy technologies segment which is the expected gain on the sale to Sunshine Kaidi.

We expect these EBITDA contributions to be partially offset by $5 million in business development expenses as we develop the pipeline of growth for our wood pellet business. $90 million of corporate and transaction related expenses and $6 million of non-cash compensation expense. Our forecast of corporate cash expenses increased by $4 million since our last guidance. This increase is mainly due to the transaction cost of acquiring New England Wood Pellet and the significant cost of advisors that we needed in order to evaluate and respond to proposals from shareholders and to reach a settlement agreement with shareholders.

We expect to capitalize the expenses related to the GSO financing so those are not included in the $4 million estimate. We have project and capital employees to add significant profits to our fiber business over the coming quarters. And we expect the second quarter for Rentech Nitrogen to be much stronger than the first quarter. I’m going to wrap up and now we’ll answer questions.

D. Hunt Ramsbottom

Thanks Dan. I’m really pleased with the progress we’ve made in the fiber and Nitrogen businesses over the quarter in the last few months. Our nitrogen facilities are improved financial – and operating performance in the quarter. In Fiber, we grew our portfolio and secured investments which means continued growth in that business. And now with NEWP acquisition we expect annually with our run rate fiber business to be in the $43 million to $46 million run rate in 2015. We are well on our way to a possible IPO and the fiber businesses in MLP in 2015. And with that, I’ll turn it over to the operator for questions.

Question-And-Answer-Session

Operator

(Operator Instructions)

Our first question comes from Matt Farwell with Imperial Capital. Please go ahead.

Matthew Farwell - Imperial Capital, LLC

Hey good afternoon guys.

D. Hunt Ramsbottom

Hi Matt.

Matthew Farwell - Imperial Capital, LLC

On the New England Wood Pellet transaction, could you provide some more illustration on how pricing is determined for wood pellets in the northeast and then how you would go about growing capacity for that business to keep up with market demand?

D. Hunt Ramsbottom

So I’ll go after the issue of market demand in that area. We knew we bought a terrific platform and a great company up there and as we stated that demand exceed supply in that market place. So there is capacity out there with other suppliers in the market place and quite honestly we are looking to this acquisition as a platform company to buy some other companies that have capacity available in them and that’s the goal is to take this management team, utilize what they’ve built or that’s got a terrific asset and look to buy some other assets in that region that possibly could be under utilized. Go ahead, Sean.

Sean Ebnet

This is Sean. I think to the question about pricing, it’s really more about what is the alternative fuel cost in the market and to that end certainly electricity, propane, oil and even natural gas it comes out at a higher cost on a heat basis than wood pellets within the New England Market. And so that’s – that combined with feedstock cost are also know before price –product pricing [is set] [ph] for the year.

Matthew Farwell - Imperial Capital, LLC

Okay, great. Looks interesting, when you look at other M&A opportunities clearly you’ve talked about in the past reaching the $55 million mark, would you characterize the next leg as something that won’t be related to this type of business, retail or would it be more in line with developing new pellet plant projects or else just rolling out fuel supply and in and around the areas where you are developing the business today?

D. Hunt Ramsbottom

I think what I can say Matt is that we’re looking at all the above. And I think it’s going to be a matter of what hits first, the return profiles on the development versus the acquisition and you know we’ll continue to look at that as it works through our pipeline and hits our criteria and quite honestly which one comes first. But most important it’s going to be the return profile.

Matthew Farwell - Imperial Capital, LLC

Okay. And there is some news that came out in the last month or two regarding Drax and losing eligibility for contact for difference funding related to one of the units. How does this affect the work that you do with Drax. I know it increases their reliance on the RO, the [Roc] [ph] markets going forward but you know at the same time other projects were approved for CFD in the U.K. markets, so has this at all affected how Drax is looking at the contracting.

D. Hunt Ramsbottom

The first, the point I’ll make is certainly our Wawa contract is unaffected as you know and Drax is committed to converting three of its stations and is evaluating a fourth. So, I think they are still pressing ahead. We know they are still pressing ahead and we’re in discussions with Drax and other utilities for additional pellet contracts both in the U.K. and other markets. And I don’t know Sean if you want to add anything else to that.

Sean Ebnet

I think that actually sums it up pretty well. There is another CFD application process that’s taking place later this summer. And I suspect Drax will be looking very seriously at that regarding no any additional units they might pursue. But as you correctly stated, Matt, the RO scheme is also available for them as a fall back.

Matthew Farwell - Imperial Capital, LLC

Is there any back story as to why that unit was denied? Was it just in order to include other projects in the funding scheme?

D. Hunt Ramsbottom

You know I think that’s probably a question that really we’re not in a best position to answer; I think probably you can direct towards Drax or others could give you more insight to that than we can.

Matthew Farwell - Imperial Capital, LLC

Okay. And then with regard to the relationship with GSO you’ve indicated that they can be a business partner and available you know potential source of its capital raise. Could you just help us understand how that’s going to work given that you have sources of third party capital that are not related to GSO, and how will that work with looking for financing elsewhere and would you look to – if you were to raise capital from them would you do something similar to issuing preferred stock or would you consider debt or equity?

D. Hunt Ramsbottom

Yeah, I’ll start off and then hand it to Dan. I think as you know there’s substantial organization with different pockets of capital and there’s debt available, there’s - we probably would not approach the equity component but there’s opportunity that we are looking at both in Nitrogen and on the fiber side and you know that would probably most likely be debt, but I’ll let - Dan said a close relationship over the last few months and I don’t know if you want to add to that Dan.

Dan J. Cohrs

Yeah, Matt, we have no restrictions on financing in the markets, so we can do really whatever we want but the benefit is that we’ve got a very close relationship with GSO you know they know our business story well and we design that term loan to be easily expandable and so all the indications we have is that that’s a very good source of capital for us at market terms to expand the business and take us towards that IPO. We’re also getting a lot of really interesting business ideas. You can tap into an organization like Blackstone and there’s just a lot of interesting stuff that you get access to that you may not have had access to before in terms of both investment, ideas, financing ideas as well as other ways to improve our business.

Matthew Farwell - Imperial Capital, LLC

Sound really interesting. All right, well that’s it from me and congratulations on getting that transaction done as well as the acquisition.

D. Hunt Ramsbottom

Thanks, Matt.

Operator

The next question comes from Brent Rystrom with Feltl. Please go ahead.

Brent R. Rystrom – Feltl and Company

Thank you. Maybe for Sean, any particular redundancy built into the Wawa and Atikokan facilities, are there multiple lines for making pellets or is each facility a single line?

Sean Ebnet

Yeah, hi, Brent. There are several lines at Wawa. There is a single line at Atikokan.

Brent R. Rystrom – Feltl and Company

And from a redundancy perspective if something were to happen at Atikokan, do you keep for some period excess capacity available at Wawa to make up for that? And the reason I’m asking Sean I’m looking at recently somebody had a fire on one of their dryers, you know there are things that happen in this business somewhat similar to fertilizer where they are unplanned downtime and I’m just curious how you guys are kind of looking at, thinking about that?

D. Hunt Ramsbottom

Well, first of all, regarding the Atikokan plant, that plant is designed at 90,000 tons plus our contract commitment today is 45,000. We already have redundancy in that plant to meet any shortfall if one of the pellet mills needs to go down for maintenance for example.

And I should also clarify not all mills go down, meaning that they are on the same line. We can take one off and so we have some capacity redundancy at plant. While we also has additional capacity that we could build and try – to position should we need.

And then the third option is that we do have third-party aggregation volumes that we have contracted that we could give tap into should we need it.

Brent R. Rystrom – Feltl and Company

Could you guys give us a quick update what happened with the Fulghum Fibre contract that was referenced in Maine as having an issue?

D. Hunt Ramsbottom

Maintenance shop thought they had put it out some of the parts have gotten inside the wall and they’d lost the building and quite a bit of equipment. But you know the team up there has done a phenomenal job getting that plant back on line, in fact we got – where all three lines in our processing chips for the customer and at no point did the customer mill ever suffer from outage as a result of us. We did all the temporary mobile equipment we needed to maintain their commitment to them, while we’ve rebuilt and got that [signal] back on line.

Brent R. Rystrom – Feltl and Company

Thank you. The two quick – themes as far as long-term positioning thinking the wood fiber business. In the year since you guys have announced your entry into this business, any particular thoughts and how EBITDA margins on contracts you’re looking at now have changed or stayed the same since that time of point? That’s the first question.

And the second question, well go ahead and I’ll ask the second one when you are done.

D. Hunt Ramsbottom

Yes. We’ve seen margin pressure on the contracts that we’re currently working on or looking at the future. And I think frankly, you know I think it’s a good relationship with these buyers and really a suppliers going forward. So we’re not seeing any difference in contract relationships.

Dan J. Cohrs

And I would just add, what we see there is very good returns on capital especially for the low risk profile of that business. So I conclude that really what Hunt said, but we are more focused on return on capital than we would be just on EBITDA margin.

Brent R. Rystrom – Feltl and Company

And then do you have when you look at return on capital, are you looking at a big set parameters that you want to earn your capital back in five years or something like that. Have you targets in that?

Dan J. Cohrs

We’ve been quite consistent about saying, in this business we’re looking for after tax returns in the mid-teens, IRRs in the mid-teen and plus or minus depending on how we assess the risk of the business that chip mill contract tend to be very low risk. So we might be willing to go a little bit lower just because of the risk structure is very attractive.

Brent R. Rystrom – Feltl and Company

And then my final question is, maybe a little complicated, but it’s from a semantic perspective over time, I would assume that your wood pellet business in the industrial sites. Now look at the consumer acquisition of new purchase in the industrial side, I would assume the wood pallet business is going to be sourcing out of not just Canada, but also the United States and other markets. How do you think about or how would you tell us or think about that going forward, a year from now two years from now, three years from now? How will Canada evolve as a percent of your sourcing?

D. Hunt Ramsbottom

Well I think it’s hard to put a percentage on it today. But I would tell you that we want to have a fairly aggressive approach in Canada. We’ve got a terrific development team up there that works well together. We got great operating team up there and as you now there’s plenty of wood available for us and supply up there, that’s done in a very sustainable manner. We like that, our customers like that. So we want to leverage the ports. We want to leverage the team up there and we want to leverage the opportunities from the fiber up there for the reasons I articulated. So we’ll be as aggressive as we possibly can in the Eastern Canada, but you will see us working out of the southeast also.

Brent R. Rystrom – Feltl and Company

And one final question, so I just thought of this. Thank you. Sean, real quickly from a European regulatory perspective or European buyer perspective, what is the force recertification standard they’re most concerned with. Are they looking to adapt this year. Are they looking PEFC or they looking at SFI?

Sean Ebnet

I don’t know if I have any answer to direct answer to question, but I think in general they will look at all those certification plus more. There are certain requirements that European utilities like a Drax or will look for that goes a little bit beyond just the FSC or SFI certification such as carbon footprint associated with [indiscernible] furnace and transport. So – but I think they will look at all of those is certainly recognizing them. But they really try to sustainability or -- the number of social economic and verbal impact beyond just existing certifications.

Brent R. Rystrom – Feltl and Company

Thank you.

Sean Ebnet

Thanks, Brent.

Operator: Next question comes from Lucas Pipes with Brean Capital. Please go ahead.

Lucas Pipes - Brean Capital

Good afternoon everybody.

D. Hunt Ramsbottom

Hi, Lucas.

Lucas Pipes - Brean Capital

I had a quick question on the New England Wood Pellet acquisition. I’m just wondering if you could maybe quantify the opportunities set for similar acquisitions over the coming 12 to 24-month.

D. Hunt Ramsbottom

What I can say from our perspective, as we said we bought market leader. There are opportunities to aggregate more businesses and that our development team is doing a fantastic job of looking for opportunities, bidding opportunities and we’ll continue to build that business.

You know, we have seen some other private equity firms now into that marketplace, but we think we’re advantaged because we are strategic and we have a great operating team with the platform we’ve got. So, we’ve got very good pipeline going and we’ll look at these on individual basis on the profile we’re putting up on to our existing business of that.

Lucas Pipes - Brean Capital

That’s helpful. I appreciate. And then a quick follow-up question as it relates to your relationship with Drax. Are you having discussions about maybe upsizing the contract volume? So, at what point in time do you think you’re going to start having those conversations about potential growth with that customer in particular?

D. Hunt Ramsbottom

I’m going to turn it over to Sean.

Sean Ebnet

I think, I can’t get into details on who our discussions work, but it’s safe to say, we have a number of conversations with utilities in European markets about what additional opportunities they would like us to pursue. What opportunities we’ve identified that we can bring to them and Drax is one of those companies.

Lucas Pipes - Brean Capital

So, good luck. Good job.

D. Hunt Ramsbottom

Thank you.

Operator

And our last question comes from Matt Niblack with HITE Hedge. Please go ahead.

Matt Niblack - HITE Hedge

Thank you. Just couple of questions, first on the – with pellets strategy etcetera. So number one, when you look at other acquisitions in the pipeline, are they similar to the one in sort of size, [drilling] just completed or are they smaller, larger. And secondly, how would you handicap the probability of closing at least one more acquisition in the product space in 2014?

D. Hunt Ramsbottom

I would prefer to stay away from the size, discussion. I mean, I think it safe to say, we’re looking at smaller and larger acquisitions, that’s our job to look at everything that’s out there in the market place. I mean, I think there’s fairly good chance to see something more happening in 2014.

Matt Niblack - HITE Hedge

Great. And then, more on – relationship they have a lot of expertise I would expect in cost cutting operational efficiency. You’ve kind of top – do you feel like there is more opportunity in any of the business elements apparent or the products or – how to take advantage of their strategic and potentially reduce the cost structure?

D. Hunt Ramsbottom

You know we don’t know. I mean, it’s as you know we are in a growth mode and so it’s a delicate balance when you are growing a business and then forming a third public company potentially in the next few years. So and we’re certainly open to it. We’ve started due diligence with them and it will continue through the finance committee and we’re certainly open to it as we always have been and if there’s ways to be more efficient in any of the businesses we certainly would do that. As Dan mentioned and I think I mentioned that there is leverage possibly through their purchasing organization and we’re looking into that. So we’re looking into all the benefits that they could bring and it’s a delicate balance as I said as you’re growing a business you know when you are looking at SG&A but we’re certainly going to do that and we look forward to the results.

Matt Niblack - HITE Hedge

Great. And then lastly one of the recent acquisitions in the course of your diligence we are able to look it there and could you share with us around both the market share in the northeast that you have as well as the that demand growth recently you have projected into that next couple of years.

D. Hunt Ramsbottom

Yeah, so that share in the northeast market is approximately 15% and we think we can grow it from there.

Matt Niblack - HITE Hedge

Great. And then just in terms of the volume.

D. Hunt Ramsbottom

By the way you are from the Northeast so you should be buying pellets by the way.

Matt Niblack - HITE Hedge

I think as it turns out.

D. Hunt Ramsbottom

I know you are.

Matt Niblack - HITE Hedge

Even in terms of the demand growth we understand that this is highly cost competitive way that they eat the whole of it. Are you seeing demand growth in the market?

D. Hunt Ramsbottom

Yes there’s a 7% growth in the market place today, which is one of the reasons this business was so attractive to us. I mean, they are running flat out and we think we can buy some other companies that might have some available capacity to fill that demand because there’s product now being brought in from outside that market place today and we’d like to be the person to fill that.

Matt Niblack - HITE Hedge

Great. Thank you and congratulations on the executional strategy.

D. Hunt Ramsbottom

Thank you, operator.

Operator

We have no further questions at this time.

D. Hunt Ramsbottom

Alright, okay. Thanks everybody.

Operator

Thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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