Q2 2020 REX American Resources Corp Earnings Call

Welcome to the Rex American resources fiscal Twentytwenty second quarter conference call. During the presentation, all participants will be to listen only mode. Afterwards, we will conduct a question answer session.

At that time, if you have a question piece plus the one sopping up for on a telephone if anytime during the conference you knew we cannot Baird. Please press star Zero I would now like to turn the comfortable to double Cohen Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Rex American resources fiscal 2022nd quarter Conference call.

Well good to our presentation comments momentarily, that's what was your questions and answers, but first I'll review the safe Harbor disclosure.

In addition to historical facts or statements of current conditions. Today's conference call contains forward looking statements that involve risks uncertainties within the meeting other private Securities Litigation Reform Act of 1995.

Such forward looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance.

As such actual results may vary materially from expectations.

Risk uncertainties associated with the forward looking statements are described in today's news announcement and the company's filings with the Securities Exchange committed Commission.

Including the company's reports on form 10-K and 10-Q.

Rex American resources assumes no obligation to publicly update or revise any forward looking statements.

I have joining me on the call today Stuart Rose Executive Chairman of the board hands, a far Rizvi Chief Executive Officer.

First review, our financial performance and then turn the call over to Stewart for his comments.

Sales for the quarter decreased 63%, primarily due to lower production levels as we had idled or one earth and nugen ethanol plants in March.

We reopened the one earth plant in late May and the Nugen plant in late June which resulted in approximately one month to production for each of the plants and the second quarter.

Opened all sales for the quarter based upon 26.5 million gallons this year versus 60.4 million last year.

Sales for the quarter roster impacted by 11% decline on ethanol ethanol pricing year over year.

We reported a gross profit of 553000 to second quarter for the ethanol and byproducts segment versus the gross profit of 6.2 million in a prior year.

The decrease in gross profit was primarily caused by the same factors that impacted sales.

Refined coal segment had a gross loss of 1.8 million for the second quarter fiscal 2020.

First is 2.2 million for the prior year based upon lower volume.

These losses are offset by tax benefit of 2.9 million and 3.2 million for the second quarters of fiscal 2020 in 2019, respectively.

Reported from the section 45 credits and the tax benefits from operating losses.

As to name a similar between quarters at 4.4 million this year versus 4.8 million in the prior year.

We had a loss of 507000 from our unconsolidated equity investment in this years second quarter.

First as income of 239000, the prior year, reflecting overall ethanol industry conditions.

Interest and other income decline year over year from 1.3 million to 197000, primarily due to lower interest rates on our cash and short term investments as interest rates fell sharply during the current year.

We recorded a tax benefit of 4.1 million for the second quarter of this year versus 2.6 million in the prior year.

We recorded or federal tax benefit from currently calculated tax losses at 35% rather than the current 21% tax rate based upon our ability to carry back losses five years due to the carriers Act.

These factors led to a net loss attributable to erect shareholders of 1.7 million in the current year second quarter versus net income of 2.3 million in the prior year.

Stuart.

Yeah.

Going forward that's in all its currently profitable with all plants open.

The question I'll prices are low or excuse me were up over last quarter corn appears to be.

The plan as Paul, which hopefully a good harvest insight you.

The only negative that we see our that I see is at this at this current time are the biggest negative I see is there's 98.

Finally, he said have applied for written exceptions and if they were given all 98 that what would have an impact on our business service. If the government does not follow the law rents that could have an impact on business.

So cash we had over $180 million on a consolidated basis.

We continue to work on our potential carbon capture site, which so far with what is the our CFO will discuss a little lighter Oh, we bought back 30536 shares during the last quarter were authorized to buy another 241185.

Which which we will again work on if the stock Deps alright.

Dipped to levels. So we think are attracted to the for the company we buying back stock.

Continue looking for quality ethanol plants at reasonable prices not found anything and nothing imminent. There. We continue to look at an ancillary products that can be made out of ethanol alerts byproducts.

We would still consider an embarrassment and something other than ethanol.

That could use our abilities, but again nothing imminent that area.

So far recipe, our CEO will now discuss.

All right there are a reptile business and carbon capture thank you.

Thank you still what good morning, and thank you for joining us today for the second quarter carbon 20 Covenant Cogs.

As we all know 2020 fiscally it started in the challenging environment, including decline into crude and ethanol demand, but I.

Well were 19 pandemic and shot going up business and stay at home Argos like wasn't it.

That's embedded in a degree than a fuel demand and negatively impacted the ethanol industry several economic facilities across the country, but shut down including both of them would yard majority owned launch.

As I mentioned in the past waterfall that challenging environment left with the season to shut don't them Nugen plant on March 17, and whatnot Mark coding cost.

April 2020, we had our the bulk of Og to go do you want bonds.

We have experienced some improvement in business activity at late May as well were 19 shut down. The next that's created increasing demand for the gasoline and ethanol at the demand for economically that lets reopening of one now conducting they may and new new Union is getting to see June.

Since one not to not do second quarter ended on June Thirtyth than you would do in second quarter ended on July 35, New do that reason second quarter financial themselves have approximately one month up what reduction activities, but each location.

We also gone through usual these startup cost reduction problem, but these problems are behind us now.

We have seen funded improvement so far in Florida and study flow net autohop majority owned locations.

Oh gosh markten.

We believe this could lead to a profitable third quarter prop well water worldwide economic and do some gosh marked in reliability up won't.

Oh and go when banking that the.

Do you have gone Braga boat shows 64% that the going is excellent. Good can do some compared to 57 last year.

The cone condition and Southgate, obviously out ethanol plant maybe on it look look a lot new again is located in 74% accidental boot compared to 60% to 80% last year as part of your West The report on August 20 pork.

The corn crop I found out launch draw area in South Dakota, and Illinois looks better than last year, which could lead went back to you only harvest and better future economic as Doug.

But on the other hand as Gordon mentioned earlier, we are still experiencing continue uncertainty because of the trade disputes and go wouldn't mind can set and the smaller to finally exemption.

The EPA continued continued to consider and glad small refinery exemption from autofacts compliance, yet, which could lead let's blending.

Not quarterly less demand that's not.

At an r. and D. export drop in plus six month up to one it wasn't compared to last year that not Luxembourg totaled 731 million gallons compared to 767 hundred 64 million gallons doing the same period Lafayette.

Explored a dry distiller grain.

Went up 2020 odd so approximately 5 million down compared to 5.26 metric tons for the past six month couple talking 19.

Let me give you.

So I'll give you some progress on the Gordmans question project, which I discussed in our previous call as I mentioned during the previous God, we have working with the uniqueness to you for Illinois.

Explored carbon sequestration, but Arctic.

The University has received the U.S. to borrow <unk> department of energy of art to the carbon say programs and expected to start what within a couple of months goodwill Gaufman storage site associated with Bundock economics.

Your newest deal for Illinois doing at desk, but.

So far it makes us make desktop is gone back if up front end engineering and design.

And study up the field to correct. The gap just system as I mentioned during the previous call Geological mapping correct. There's on and modeling have demonstrated excellent storage potential exist in the Mone Simon storage complex in divest de up one not in that facility.

To date, we have completed the feasibility studies systemic testing and a half bunch of extra land for this project. This project is still but Im let me state and we cannot predict we wouldn't be successful with this project.

In summary, we have something we have seen some improvements up crush margin and expect to battle corn crops in I would draw area this year and that than last year that could lead to a profitable third quarter.

We want to Betty I appreciate it thank will fund the hod water compiled implies doing to pandemic.

And we are taking every step so keep that would imply save and follow CDC state and federal guidelines I will get back given the flowed back to school of thought it gets bought the governments that gets delivered.

That's.

In conclusion, it looks like the worst is behind us the ethanol business is now apparently profitable.

We have great plants, great locations among the best in the industry. Most importantly, we have great people and that's the biggest thing that allowed us to navigate this difficult difficult time, then become profitable again I'll now leave it open to questions.

Thank you if you like to register question. Please press the one sub four on the telephone you'll hear a tweet pump technology Quest keep your question has been answered any relate to with Jyoti station. He's supposed to one sounds like a sneak one more piece for the first question.

Our first question comes from the line of join Levy with three Securities. Please proceed with your question.

Morning, Stewart dug into the fall right just to start off just on on the industry as a whole just curious to get your thoughts on how you kind of view that disciplined the overall ethanol industry here in the U.S. and then.

We've seen a nice bounce back in in production and demand on the ethanol.

Subsequently gasoline frontend.

And with that just you know.

Given that we could see more volatility. However, you you it what sort of things can can you guys do let the corporate level that you know buffer or better position yourself to go through that volatility versus your peers.

Well, there's very little disciplined and the ethanol industry when it's profitable everyone produces like crazy.

And there's no real discipline deep on plants never go away permanently. They just maybe one or two have but virtually not never got that close down for little while even if they're very very inefficient plants. They seem to never they seem to come back and said, there's very very little disciplined what we do and what we think we do better on what.

So far is really good at as we tried to be the low cost producer in the industry. We work really hard at that I think were among the line depending on the price of course, we're where we have among the most efficient.

Plants in the industry and that's allowed us over the years.

To to way way outperform the industry had many of the company's <unk>.

If you look at their retained earnings on there on their income statement. They have negative retained earnings we of course to make money virtually every year. This year is it's a very very difficult year for something none of us expected.

But but we tried that said.

We feel like where the low cost producer will always be okay, and so far.

That said, that's that's worked well for us.

That answered your question.

Yeah, absolutely does and I think that you guys showed your ability to kind of handle those low cost and drive this comes down this quarter as well along the same lines of thought just you discuss briefly kind of a ethanol investments and trying to look for the right price is there something there is there a mark.

Signaled that you would look for that would make you comfortable extending the ethanol footprint or something on the price or the crush margin side or is it just about getting the right claim that the right pricing.

I think.

For sure we would look at whether it's we're better off buying our own plants, our plants are valued at.

Very very we have $30, a sharon cash our plants, but the market are valued we feel that a very very low price. So we're better off buying our shares or what we call buying back our plants for our shareholders.

We were much <unk> that would be a trigger our that wasn't Duncan we were compared to what we would not want to pay if we can help it unless it and if we don't think there are better plants in us, but unless it was a better plant than ours, we certainly would not want to pay more than what our plants are selling for on the mark.

I think throughout the next summer.

Yes, absolutely.

Just.

One more and.

You mentioned kind of the ability to realize more value from from some of the by products.

Some of your peers are looking into just kind of we've seen we've seen a couple players in the ethanol industry discuss high protein from the DDG stream.

And that sort of investment just kind of thinking about.

What the potential for for that investment isn't what you see kind of the upside and downside of pursuing something like that might be.

Well, there's two places where we've seen people make at the high protein in the sanitizer where to look you.

Both where we'd rather be we'd rather.

Follow and see other people do well when it before we made the investment, but it's something but things are things that other people have done or are doing we're watching that very very closely.

And if they if it is a good cournoyer what's a good example, we weren't the first in corn oil well, we got in fairly early in and it became a good byproduct for us So a watch and see and we definitely study and everything and so far do you want to do you want to <unk> I think that pretty much sums it up unless you got.

The thing I, just want to sand so far.

The only thing I will add to that is you're not been market is not mature enough yet and we would leave that it was going to take little bit longer media to become.

Make sure that that market and that as it got let's begin with Joe It at that time, we will graduate.

I got investment up 40 to 50 million dollar.

And see how quickly that have done on investment is there too so and other paying is that as people are shifting to work.

Just for being was good that OSL actually supply of the D. D. Market is also shrinking at the same amount so thats going to resided hopefully the price of <unk> did you go a little bit higher.

Since them.

That but because.

Not we'd be a duty you would not be available, but most importantly at this time, we really think the market is not mature enough forget this dunkin' west.

50 million, but we're certainly evaluating as Stuart mentioned.

Right No I think that mix makes total sense, maybe just squeeze in one more just looking at you crush margins, where they are now and moving into the back half of the year and.

I think so things have improved as you guys kind of mentioned and the plants are back online just just curious how how you see kind of the rest of the you're playing out you know in terms of in terms of.

Production at the plants or just in general trend Directionally on on volumes from from both your operated and Nonoperated entities.

So far.

Yeah, I think as you can see.

Mentioned that you Gotta, we see that third quarter, it will be expected to be profitable. So we certainly see that the pink has.

Improved compared to last six month, and we believe that do puts continue to improve as I mentioned that we don't see any.

Over 19 to put the.

Uh huh.

Any kind of Oh, gosh limited availability of phone something happened the cone.

Conditions in going forward. If these can do some stay at this like base than I think with the.

Seems to be at this time look like we will be profitable.

Great I really appreciate the answers guys.

Thank you thanks.

Our next question comes from online quick So I was thinking research. Please proceed with your question.

Hi.

Hi, good one just I had a question regarding.

Globally and yours.

Sales globally, which countries.

Are you currently seeing and increase the man.

For ethanol and.

A wood, which country seven not and why and has how is the pandemic affected these countries.

So what do you want to go I think if you look out.

Uh huh.

As I mentioned previously I think that export is dropped to 731 million gallons compared to last year 764 million.

But as deal is always stop loss period was about 110 million gallon compared to do see at 177 million Canada.

So drop and kind of dive better deal, Canada, India, I think southgobi I'd be it deals with us last year in 2009 being able to us with all four countries. The S built up four countries, but that's going on.

They have that up.

Explore is dropped compared to last year. So I think that's certainly that in fact, it's also the other news on this we would also mostly plant shutdown during the March if the <unk> and there was no enough production. When there was not enough production is hard to exports on upsell. So that's something.

The effective doesn't both way, but these are the top four countries was always a neely.

Importing from from U.S.

Yeah, I want them when they had a striving to cope with 19 stuff active throughout the world people aren't you said this many gallons of.

Gasoline or ethanol for driving that say were because of the Copeland.

Or at least they weren't in the second quarter.

Right, but so is it a fair I guess it'd be a fair assumption to say that is I think driving at is increasing then.

So is the demand for ethanol and so is the Sawyer sale.

In the U.S. I think that's affairs, that's a fair hope that if driving increases, but we're still up against last year and I don't know that driving I don't I I don't have the latest figures so far Mike but.

But that the other issue that we deal with it we pay attention to its wholesale price of gasoline. This is fairly low.

Because demand has been low so and we have to compete with that on on an export basis too. So that's another thing that that.

That is that.

Hurts export business, when wholesale price of gasoline and slow.

Right, Okay Yep.

Well, thanks, thanks to that.

Yeah. Thank you thanks for your question.

There are no further questions registered at this time, however, as a reminder, pesto one open the floor I telephone keypad to register for question.

[noise] that said I like to thank everyone for attending our call and well talk to you on a few months. Thank you very much right.

That does conclude the conference call, but today, we thank you for your participation assay pieces can kill line.

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