Green Brick Partners, Inc. quarterly report, Q3 FY2014

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Business context and reporting period

Filing identity: The supplied 10-Q is for BioFuel Energy Corp., not Green Brick Partners, Inc. It covers the quarter and nine months ended September 30, 2014. BioFuel had disposed of its ethanol plants in November 2013, settled the related senior debt through that transfer, and was operating as a holding company with only nominal consulting revenue while pursuing an acquisition of JBGL, a residential land development, construction lending, and homebuilding business.

Financial performance and condition

  • Revenue: $11,000 for Q3 2014 and $167,000 for the first nine months, from consulting services; prior-year comparable periods had no continuing-operations revenue.
  • Results: Q3 continuing-operations and net loss were each $681,000; loss attributable to BioFuel common stockholders was $604,000, or $0.11 per share. For the first nine months, continuing-operations and net loss were each $4.299 million; loss attributable to common stockholders was $4.065 million, or $0.75 per share. No income tax provision or benefit was recorded.
  • Expenses and margins: General and administrative expense was approximately $692,000 in Q3, versus $1.049 million in Q3 2013. Nine-month expense was approximately $4.466 million, versus $3.781 million. The filing attributes the nine-month increase mainly to $2.3 million of acquisition-related legal and financial advisory costs. Operating margins are not meaningful given negligible revenue and the company’s post-disposal structure.
  • Cash flow: Operating activities used $5.791 million in the first nine months of 2014, compared with $10.125 million provided in the prior-year period. There were no investing or financing cash flows reported for 2014. Cash and cash equivalents were $7.081 million at September 30, down from $12.605 million at year-end 2013.
  • Liquidity and balance sheet: Current assets were $8.779 million and current liabilities $2.076 million; total assets were $8.830 million and total equity $6.754 million. The balance sheet reports no debt at September 30. Cash was held at one financial institution in excess of FDIC insurance limits. The filing reports $181.8 million of federal NOL carryforwards, fully reserved against.

Material changes versus prior comparable periods

  • Q3 2014 net loss improved to $681,000 from $5.129 million in Q3 2013, and nine-month net loss improved to $4.299 million from $15.195 million. The comparison reflects the absence of ethanol-plant losses in 2014: the disposed plants contributed losses of $4.080 million in Q3 2013 and $11.415 million in the first nine months of 2013.
  • Continuing-operations losses were higher year over year for the first nine months, primarily reflecting acquisition advisory costs, partly offset by lower compensation and stock-based compensation expense.
  • Cash declined during the first nine months of 2014, with operating cash use including payment of $4.2 million of change-of-control severance and other working-capital movements.

Outlook, risks, and unusual items

  • The company planned to acquire JBGL for $275 million, funded through shares, a rights offering expected to raise $70 million gross, cash on hand, and up to $150 million of debt financing from Greenlight. The filing said the transaction was expected to close by the end of October 2014, but cautioned there was no assurance it would close. The rights offering had expired and shareholder approval had been obtained on October 17, 2014, after quarter-end.
  • Nasdaq continued listing was conditioned on closing the acquisition by November 4, 2014 and the combined company meeting initial listing requirements.
  • The acquisition involved Greenlight and the Brickman Parties, existing holders and transaction counterparties; the filing says an independent special committee reviewed the deal and a director affiliated with Greenlight recused himself from board deliberations and approval.
  • The company disclosed shell-company status, limited operating revenue, continuing losses, dependence on cash and prospective transaction financing, potential loss of the Nasdaq listing, and uncertainty over completing the acquisition. It also noted that the NOLs were fully reserved and subject to potential limitations; a rights plan was adopted to protect tax attributes.
  • Management reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting occurred during the quarter.

Important facts for investors to verify

  1. Confirm the intended issuer: this filing identifies BioFuel Energy Corp., whereas the request names Green Brick Partners, Inc.
  2. Verify whether the JBGL acquisition closed, its final consideration and financing, and the resulting ownership and debt structure; these were not completed as of September 30, 2014.
  3. Review subsequent Nasdaq listing status and whether the combined company satisfied initial listing requirements.
  4. Assess the company’s cash runway and ongoing expenses given $7.081 million of cash, operating cash use, and minimal revenue at quarter-end.
  5. Evaluate the realizability and any ownership-change limitations on the $181.8 million of NOL carryforwards.