Transcript Annual Members’ Meeting - Conestoga Energy Partners, LLC

Annual Members’ Meeting
May 7, 2013
A Word From Our Counsel
Forward Looking Statements
This presentation contains forward-looking statements involving future events,
future business and other conditions, future performance, and expected operations.
These statements are based on management’s belief and expectations and on
information currently available to management. Forward-looking statements may
include statements which contain words such as “believe,” “expect,” “anticipate,”
“intend,” “plan,” “estimate,” “predict,” “hope,” “should,” “could,” “may,”
“future,” “will,” “potential,” or the negatives of these words and all similar
expressions.
Forward-looking statements involve numerous assumptions, risks, and
uncertainties.
The actual results or actual business or other conditions
experienced by Arkalon Energy, LLC, and Bonanza BioEnergy, LLC, may differ
materially from those contemplated by any forward-looking statements, and the
Companies are not under any duty to update the forward-looking statements
contained in this presentation. The Companies cannot and do not guarantee any
future results or performance or what future business conditions will be like.
Arkalon and Bonanza caution you not to put undue reliance on forward-looking
statements, which speak only as of April 3, 2012, the date of this presentation
2
Tonight’s Topics




Welcome
Audit & Tax
Happiness is 2012 in the rearview mirror
How is 2013 score card so far
 What does the balance of the year look like
 Our strategic and tactical focus going forward
 Tom’s Top Questions
 We invite those remote participants to send in
questions as you have them.
3
Annual Meeting Presentation
Arkalon Energy, LLC
&
Bonanza BioEnergy, LLC
©Copyright Kennedy and Coe, LLC 2010
All rights reserved.
7/16/2015
ARKALON ENERGY, LLC
Liberal, Kansas
Consolidated Financial Statements
Years Ended December 31, 2012 and 2011
with Independent Auditors' Report
©Copyright Kennedy and Coe, LLC 2010
All rights reserved.
7/16/2015
5
ARKALON CONSOLIDATED BALANCE SHEETS
December 31,
2012
2011
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable - net
Inventories
Commodity Contracts
Prepaid expenses
Total Current Assets
Total Property, Plant and Equipment - Net
Other Assets
Investments
Deposits
Other Assets
Total Other Assets
Total Assets
$ 20,938,122
11,717,197
8,859,753
3,807,896
487,560
45,810,528
116,516,363
$ 38,197,892
6,259,005
13,632,459
2,507,361
537,468
61,134,185
125,737,546
2,289,527
7,500,500
3,902,232
13,692,259
$ 176,019,150
1,166,609
1,950,000
5,160,985
8,277,594
$ 195,149,325
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6
ARKALON CONSOLIDATED BALANCE SHEETS
December 31,
2012
2011
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable
Accrued liabilities
Current maturities of long-term obligations
Total Current Liabilities
Long-term debt, less current maturities
Deferred Revenue
Members' Equity
Total Liabilities and Members' Equity
$ 20,664,492
1,206,624
3,983,818
25,854,934
72,393,363
729,287
77,041,566
$ 176,019,150
$
4,022,040
2,154,272
10,392,335
16,568,647
73,117,886
795,586
104,667,206
$ 195,149,325
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7/16/2015
7
ARKALON CONSOLIDATED
STATEMENTS OF OPERATIONS
Year Ended December 31,
2011
2012
Sales
Ethanol
Distillers grains
Carbon dioxide
Producer incentive payments
Net Sales
Cost of Sales
Gross Profit (Loss)
General and administrative
Operating Income (Loss)
Other Income (Expense)
Interest expense
Other Income (Expense)
Total Other Income (Expense)
Net Income (Loss)
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$ 233,401,603
84,097,423
1,156,243
3,141,899
321,797,168
340,103,036
(18,305,868)
4,183,549
(22,489,417)
(5,508,689)
372,466
(5,136,223)
$ (27,625,640)
$ 282,253,376
79,280,570
560,781
4,042,715
366,137,442
330,636,076
35,501,366
4,230,457
31,270,909
$
(7,742,558)
(1,364,929)
(9,107,487)
22,163,422
BONANZA BIOENERGY, LLC
Garden City, Kansas
FINANCIAL STATEMENTS
Years Ended December 31, 2012 and 2011
with Independent Auditors' Report
©Copyright Kennedy and Coe, LLC 2010
All rights reserved.
7/16/2015
9
BONANZA BALANCE SHEET
December 31,
2012
2011
ASSETS
Current Assets
Cash
Accounts receivable - net
Inventories
Commodity contracts
Prepaids
Total Current Assets
Total Property, Plant and Equipment - Net
Other Assets
Investments
Other assets
Total Other Assets
Total Assets
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7/16/2015
$
$
423,844
8,862,642
3,270,110
847,088
443,903
13,847,587
55,015,319
$ 23,788,673
2,086,222
4,856,666
1,845,002
385,569
32,962,132
60,182,855
2,290,728
818,829
3,109,557
71,972,463
1,167,809
774,690
1,942,499
$ 95,087,486
BONANZA BALANCE SHEET
December 31,
2012
2011
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable
Accrued liabilities
Current maturities of long-term debt
Total Current Liabilities
Long-Term Debt, less current maturities
Members' Equity
Total Liabilities and Members' Equity
$
3,382,343
1,279,295
1,009,510
5,671,148
20,964,286
45,337,029
$ 71,972,463
$ 2,386,100
1,997,124
7,354,334
11,737,558
21,973,796
61,376,132
$ 95,087,486
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11
BONANZA STATEMENTS OF OPERATIONS
Year Ended December 31,
2012
2011
Sales
Ethanol
Distillers grains
Carbon Dioxide
Producer incentive payments
Net Sales
Cost of Sales
Gross Profit (Loss)
General and administrative
Operating Income (Loss)
Other Income (Expense)
Interest expense
Other income (expense) - Net
Total Other Income (Expense)
Net Income (Loss)
$ 130,041,199
44,648,261
107,954
785,503
175,582,917
181,906,166
(6,323,249)
3,740,675
(10,063,924)
$
(1,149,839)
1,352,560
202,721
(9,861,203)
$ 156,138,098
40,924,385
2,550,593
199,613,076
175,350,376
24,262,700
3,445,541
20,817,159
$
(1,758,323)
(315,069)
(2,073,392)
18,743,767
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12
BONANZA STATEMENTS OF OPERATIONS
Year Ended December 31,
2012
2011
Sales
Ethanol
Distillers grains
Carbon Dioxide
Producer incentive payments
Net Sales
Cost of Sales
Gross Profit (Loss)
General and administrative
Operating Income (Loss)
Other Income (Expense)
Interest expense
Other income (expense) - Net
Total Other Income (Expense)
Net Income (Loss)
$ 130,041,199
44,648,261
107,954
785,503
175,582,917
181,906,166
(6,323,249)
3,740,675
(10,063,924)
$
(1,149,839)
1,352,560
202,721
(9,861,203)
$ 156,138,098
40,924,385
2,550,593
199,613,076
175,350,376
24,262,700
3,445,541
20,817,159
$
(1,758,323)
(315,069)
(2,073,392)
18,743,767
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13
TAXABLE INCOME RECAP
Arkalon
Bonanza
Arkalon
Bonanza
Taxable loss
Taxable loss
Taxable loss
Taxable loss
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Year End 2012
33,642,572
8,551,729
Cummulative
through 2012
135,940,535
28,544,162
Per unit
950
415
Per unit
3,839
1,386
TAXABLE INCOME RECAP
Explanation of Some of the Book/Tax Differences
• Bonanza - $7,500,000 Total Small Producer Credit
• Arkalon - Higher Interest Costs
• Cumulative Benefit of LIFO Reduction
- Arkalon: $4.1M ($116/unit)
- Bonanza: $1.3M $63/unit)
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ARKALON AND BONANZA
CUMMULATIVE DEPRECIATION
Cummulative
through 2012
Per unit
Arkalon
Tax Depreciation
Book Depreciation
Book/Tax Difference
162,205,363
54,126,165
108,079,198
4,581
1,529
3,052
Bonanza
Tax Depreciation
Book Depreciation
Book/Tax Difference
81,105,112
27,784,284
53,320,828
3,938
1,349
2,589
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16
COMBINED ARKALON AND BONANZA
DEPRECIATION ON PER UNIT BASIS
Year
2013
2014
2015
2016
2017
Book
Tax
Depreciation Depreciation
288
25
288
21
288
18
288
17
288
16
Increase/(Decrease) to
Taxable Income
263
267
270
270
272
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7/16/2015
17
• Two Types of Credits Available:
– Investment Credit:
• Investment in a Qualified Business Facility exceeding
$50,000.
• Credit is 10% of investment
– Training Credit:
• Education expenditures exceeding 2% of wages
• Limited to $50,000
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18
• Investment Credit
– 2008
– 2009
– 2010
– 2011
– 2012
Total
$
$
16,503,164
28,487
31,611
1,273,831
286,828
18,123,921
• Training Credit
– 2008
– 2010
– 2011
– 2012
Total
$
$
50,000
48,691
50,000
50,000
198,691
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19
• Investment Credit
– 2007
– 2009
– 2010
– 2011
– 2012
Total
$
$
7,956,545
5,226
6,025
811,608
215,932
8,995,336
• Training Credit
– 2007
– 2009
– 2010
– 2011
– 2012
Total
$
$
50,000
14,491
50,000
50,000
50,000
214,491
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20
UPCOMING CHANGES
• Bonus Depreciation:
- 50% Bonus Depreciation has been extended through
December 31, 2013. (Applies to new assets with less
than 20 year class life)
- Beginning January 1, 2014 bonus depreciation will be
eliminated.
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21
UPCOMING CHANGES
• Passive (Unearned) Income Tax Increasing in 2013:
- As of January 1, 2013 Medicare sur-tax of 3.8% on
passive income.
- Applies to individuals, trusts, and estates.
- Includes interest, dividends, capital gains, rents,
royalties, and income from partnerships and scorporations.
- 3.8% of the lesser of
 Net investment income for the year, or
 The excess of modified AGI over the threshold
amount ( $200,000 for single filers, $250,000 for
MFJ)
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22
UPCOMING CHANGES
• Any suspended passive losses at the shareholder level can
be used to offset passive income in 2013.
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23
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©Copyright Kennedy and Coe, LLC 2010
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7/16/2015
25
PREVIOUS STRUCTURE
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7/16/2015
26
COMPANY AS RESTRUCTED
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7/16/2015
27
OWNERSHIP & ENTITY RESTRUCTURE
• Final vote – Both Arkalon and Bonanza approved by
majority vote
• Restructure has received bank approval from Farm Credit
• Bank reporting requirements
• Audit still completed at each entity level
o Arkalon Energy
o Arkalon Ethanol
o Bonanza BioEnergy
o Conestoga Energy Partners, LLC
o Conestoga Energy Holdings, LLC
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28
OWNERSHIP & ENTITY RESTRUCTURE
Tax Steps Ahead
• Bonanza BioEnergy will generate a member K-1 as of
restructure date
• All 2013 tax year K-1’s will be sent to the members
during February 2014
• Starting with the 2014 tax year only one K-1 (to be
received in mid-February 2015) that will include the
results of Arkalon Energy, Bonanza BioEnergy and
Conestoga Energy Partners
©Copyright Kennedy and Coe, LLC 2010
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7/16/2015
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30
Happiness is 2012 in the rearview mirror
Historic low margins
Record Brazil Imports
Blend Wall
Drought & high corn prices
Last man standing strategy
We burned cash, but came through it
31
When the Bear Needs to eat
We are faster than most when:
Big crops in SW Kansas and corn belt
Higher Nat Gas Prices
Export & or carbon premiums
High cattle on feed numbers
We are slower than most when:
Small crops in SW Kansas and corn belt
Lower Nat Gas Prices
No Export or carbon premiums
Lower cattle on feed numbers
32
2012 in Review
 Net Income
 AET:
 BBE:
($28.75M)
( $9.86M)
2011 $22.17M
2011 $18.73M
 Senior Debt retired
 AET:
 BBE:
$7.2M
$7.1M
 Plant Placements in ERI Safety
 BBE ranked #2; AET ranked #11
(out of 80 plants)
 AET: Refinanced working capital loan
 BBE: Refinanced revolving loan
33
Significant Improvements in Q1 ‘13
 Net Income Showed Significant Improvement
 AET
 BBE
-$6.6M (Q1 ‘12) -$1.1M (Q1 ‘13)
-$2.6M (Q1 ‘12) -$0.014M (Q1 ‘13)
 AE and BBE Generated Positive EBITDA for Q1 ‘13
 AET
 BBE
-$2.0M (Q1 ‘12) $3.0M (Q1 ‘13)
-$0.86M (Q1 ‘12) $1.6M (Q1 ‘13)
 Cash Flow has Improved
 AET
 BBE
-$4.5 (Q1 ‘12) $972K (Q1 ‘13)
-$2.5M (Q1 ‘12) $1.3M (Q1 ‘13)
34
Q1 ‘13 Consolidated Results
AET
BBE
CEP
Combined
62,953,812
5,502,250
17,454,826
34,074,614
10,949,153
180,414
8,906,196
787,163
86,698,051
45,204,181
8,906,196
97,028,426
16,451,403
17,635,240
8,906,196
787,163
140,808,428
COGS
Grain
Non-Grain
75,642,809
5,379,195
38,878,399
3,346,980
5,337,291
114,521,207
14,063,466
Gross Profit
5,676,048
2,978,802
3,568,905
12,223,755
Fixed Costs
5,725,382
3,232,520
2,552,980
11,510,883
(1,106,263)
(14,400)
1,033,983
(86,680)
EBITDA
3,043,294
1,571,583
1,034,022
5,648,899
Working Capital
21,355,489
9,529,287
3,925,456
34,810,232
0.90
0.44
0.08
0.69
Revenues
Ethanol
DDG's
WDG's
Services
Other
Total Revenues
NI
LTD / Equity
35
Q1 2013 Act V Bud Summary
AET
Act
Bud
Variance
Crush + DG Revenue
$0.38
$0.37
$0.01
Non Grain COGS
$0.20
$0.16
($0.04)
Cash Fixed Costs
$0.10
$0.10
$0.00
EBITDA
$0.04
$0.04
($0.00)
Comments
Variance due to higher drying %
Key Drivers were yield and commodity/crush
BBE
Act
Bud
Variance
Crush + DG Revenue
$0.45
$0.46
($0.01)
Non Grain COGS
$0.24
$0.21
($0.03)
Cash Fixed Costs
$0.14
$0.14
($0.00)
Comments
Key Drivers were yield and commodity/crush
EBITDA
$0.11
$0.12
($0.01)
36
AET – Q1 ‘13 Selected Plant B/S Data
Working Capital
Current Ratio
Total Term Debt
Total Term Debt per
Gallon
YE 2010
YE 2011
YE 2012
Q1 2013
34,643.13
45,800.05
20,459.10
21,355.49
2.28
3.79
1.62
1.83
94,484.33
76,984.17
69,769.64
68,904.80
0.86
0.70
0.63
0.63
37
BBE – Q1 ‘13 Selected Plant B/S Data
Working Capital
Current Ratio
Total Term Debt
Total Term Debt per
Gallon
YE 2010
YE 2011
YE 2012
Q1 2013
8,105.71
21,627.88
8,694.25
9,529.29
1.79
2.89
2.59
2.51
35,057.96
27,542.42
20,473.80
20,473.80
0.64
0.50
0.37
0.37
38
We are optimistic about the rest of 2013
 Projecting 2Q Margins to remain strong




We are locking in crush margins on rallies
California is the market for both plants
We expect some pressure on DG values
Plants that could come on, have
 There is some uncertainty about 3Q




Possible Brazilian imports
Weather Markets
Old crop/ new crop inverse
Over all, we are cautiously optimistic
 We have locked in ½ of 4Q’s production at a profit
 Projecting a big crop ( same as a year ago)
 Drought in SW Kansas continues
 Big crop and high oil prices would be positive
 What if anything happens with RFS2
39
The RFS2 is under attack
Mandated blending will need to exceed 10%
in 2014
RIN’s have become their latest tool in this war
Opponents have about 9 months to modify or
kill RFS2
 Cellulosic and Advanced are potential
compromise areas
Opinion suggests that in a dysfunctional
congress, it will be hard to get things changed
40
Our Focus is increasing Share Holder Value
 Retire Debt
 Our industry will always be volatile
 Allows for accretive growth
 Investor Returns
 We want the investors paid
 Growth
 CEP will be our growth mechanism
 No earnings from AE or BBE will be used until Investors
have been paid back
41
Tom’s Frequently asked Questions
 Are we looking at any type of cellulosic technology?
 Currently no.
 Biomass has lots of value in SW Kansas
 Too much volatility in the market place for additional investment
 Is our company at risk if the RFS2 goes away or materially
modified?
 We don’t think so.
 Ethanol has a place in market ( 10% minimum)
 CAFÉ standards at the end of 2016 will encourage higher blends of
ethanol ,RFS or no RFS
 Our key is reducing debt and leveraging our competitive
advantages
42
Tom’s Frequently asked Questions
 Will there be dividend payments for 2013?
 Bonanza:
 Arkalon:
 Conestoga:
Key drivers
Possibly
Not likely
Likely
 Margins
 Cash build
 Debt reduction
Will new CEH stocks certificates be sent out?
Yes, within the next 30 days
43
Why the volatility in our year to year earnings?
 The renewable fuels industry is built on a foundation
of volatile drivers
Commodities:
Weather, World S&D, Government policy, Prices
Government policy:
 The real growth in our Industry was ignited by
mandates & tax incentives. All can be changed with a
stroke of a pen
Consumer demand:
Blending economics, Economy, Auto Makers
Debt:
44
How is company planning on growing?
 In 2012, CEP added the management of Diamond
Energy:
 Management fee: $166K per month; plus
 Labor Revenue: 10% of monthly comp expense
 CEP Logistics began operating in 2012
 $214k Net Income (Q1 ‘13)
 Conestoga Connections (2012)
 IT, Internet, Security Cameras, Sprinkler remotes
45
We are bullish Conestoga Energy Holdings
We produce a good product
The Company has been tried and tested
Board & Management are focused on the key
drivers for long term success
Our plants are positioned to take advantage
of niche markets… worldwide
Our debt is coming down
46
Your questions?
47