Q3 2020 REX American Resources Corp Earnings Call

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Good day and welcome to the of Rex American resources fiscal 2023rd quarter Conference call.

During the presentation, all participants will be in on listen only mode.

Afterwards, we will conduct a question and answer session.

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I would like to turn the conference over to Doug Bruggeman, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining Rex American resources fiscal 2023rd quarter Conference call.

Well get to our presentation of comments momentarily as well as your question and answer session, 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 risk and uncertainties within their means of the private Securities Litigation Reform Act of 995, such forward looking statements reflect the company's current expectations and beliefs, but are not guarantees of future.

Performance as such the actual results may vary materially from expectations.

The risk the risk and uncertainties associated with the forward looking statements are described in today's news announcement and on the company's filings with the Securities and Exchange Commission income.

Moving the Companys reports on form 10-K on 10-Q.

Ex 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 and the four reserves the Chief Executive Officer.

I'll first review, our financial performance and then turn the call over to Stuart for his comments.

Sales for the quarter increased 43%, primarily due to increased production levels.

The whole sales for the quarter were based upon 74.6 million gallons this year.

<unk> was 47.6 million gallons last year.

We ran a consolidated plants at full capacity in the current year third quarter, well last year, we had reduced the run rate that the nugen plant based upon tight corn supply in that region.

On a price per gallon declined from $1.39 in the prior year to $1.31 of the current year.

We reported the large increase in gross profit the 18.9 million in the third quarter for the ethanol and buy products segment versus gross profit of 28000 in the prior year.

Our crush spread between ethanol and corn was approximately 19 cents in the current year versus approximately a negative four cents in the prior year, primarily reflecting year over year, lower corn price unit of 21%.

Our refined coal segment had a gross loss of 1.3 million for the third quarter fiscal 2020.

Versus 1.6 million in the prior year based upon lower volumes.

The losses are offset by tax benefits of 1 million and 2.2 million for the third quarters of fiscal 2020 and.

2019, respectively recorded from the section 45 credits and the tax benefit from operating losses.

SGT day was similar for the third quarter at 4.3 million versus $4.1 million in the prior year.

We recorded income of 1.2 million from our unconsolidated equity investment in this year's third quarter first of the small loss of 15000 the prior year.

Interest and other income declined year over year from 1 million. The 537000, primarily due to lower interest rates on our cash and short term investments as interest rates fell sharply during the current year.

We recorded the tax provision of $4.1 million for the third quarter of this year versus the benefit of 3.2 million in the prior year.

We had a tax expense in the current quarter based upon returning to profitable operations reversing in the third quarter previously recorded federal benefit of losses at 35% for the current year.

As well as having a lower run rates at the refined coal facility.

The above factors, but the net income attributable to Rex shareholders of 8.8 million or $1.44 per share in this year's third quarter first of the net loss of $2.1 million or.

The loss of 32 cents per share in the prior year.

Stuart I'll turn the call over to you now for your comments.

Thank you cut the cord or the.

On the quarter today going forward, we so far are profitable, but crush spreads have deteriorated rapidly in the last 30 day supply, which they are our CEO will discuss EPS further we.

We have hopes for for for a possible better EPA in agriculture Secretary.

Related to the ethanol and the Biden administration that should be a positive we hope to be a pots of it for our company on.

Currently there's less driving much of its related to co, but it's getting people the hard and I expect it to be a deeply been harder right before the vaccine the hit us even harder right before the vaccine as people are more cautious as they see the vaccine commit suicide and we like the way more people will be staying on.

In terms of refined coal we of approximately one year of left where we receive tax credits are expect to receive tax credits on that business. The.

The fourth quarter did well.

Well are we expected to improve over the third quarter on an after tax basis, yes.

Cold weather hits, the utilities, usually run more which consists of such gets to make more refined coal the utility where it usually runs one which gives us the chance to make more refined coal terms of short term cash on the balance sheet. We have approximately 200 and too much short term cash and short term investments excuse me short term.

Investments in cash on the balance sheet, we of approximately $202 million WTI.

The purchase 316349 shares and so far in fiscal 2020, we have lots of I'd say shouldn't spread another 33500 as well.

We.

We currently under our current authorization and we tend to try to buy our users our buy back to buy the stock on EPS. We're also looking for opportunities in the ethanol. So yes, we got my really looking the plants that we consider among the very very best.

In terms of carbon capture we're working hard on that so far rich on the our CEO of what the Scott said I'll now turn the conference call over to our CEO, So part of rich.

Thank the Stuart good morning, everyone.

As I mentioned the wouldn't cause.

Above the loss of lot of this the us starting from the challenging in light of men.

Moving a decline in accrued and that's not the man insight over 19 pandemic, Chuck the owner businesses and stay at home auto.

I will find on part of new again of soon the D., we saw the leaving the fuel demand on the negative impact of the ethanol industry, we experienced the rule room and in the late May rent the call wouldn't like the inside of don't on on the relaxed, creating a greater demand of that gasoline and ethanol.

During the third quarter of can do some further improve most importantly, we the steep the steady flow of Ucweb on at both <unk> of the majority owned as well as the minority owned locations. This resulted in the improved crush margin and the very profitable the current quarter of these.

The root condition continue on the until recently, we are seeing a declining the cash margin due to oil hi of got corn price the price of ethanol could keep up the the increase in corn prices in the break up the cut off and that that will be about what were 19.

Also direct payment of pharma under the gas act of resulted in the lack of interest on on wasn't setting.

China stepped up its going on but just that led to a higher on price and the decent we had experiencing continued uncertainty because of the trade dispute and the EPA continues you can see done and get on small independent of the exemption.

A lot of past compliance the yet.

Unless the economic condition and the availability of the on continue to trade disputes of the dog on global banking.

Diminishes, we expect the crush margin may continue to decline due to less the mine for the ethanol and the high across the board.

On the other hand, you ask Dick on reported was gone can do some of the South Dakota and the seven of 79% excellent we.

We had difficulty in sourcing on net out of.

No we can on the loss of crops yet.

But this year the GAAP around up on draws on insulin data in the Illinois is a strong got it.

The corn crops, but 2021 EPS is projected to the yield approximately 14.5 billion, what's the expected to CAD 1.7.

The biggest slowed up approximately on them.

1000 metric tons in the first nine month of wanting money compared to last the export of Doug.

Just to look at the end through September 22000 opened the approximately 8.2 flow.

Million metric tons, compared with 8.3 million met the done, but the plus the nine month.

On the nine the.

That's not the exposure during this timeframe.

Nine and on it.

To the million gallon, 59% of lost the volume of 1.1 billion gallons the link the sands.

Let me give you a little bit about our the carbon sequestration project.

As I mentioned during our last call we on working with the University of Illinois, the drill of carbon sequestration value at the out of one not the new facility. The University of Illinois is in the process of evaluating a bottom on application who developed desk Brad.

The themes of will put up on a farm Moody's assessed mix out of his reflect the location and conduct of front end engineering and design.

The study of the CEO of GAAP just system.

The uniqueness do you expect to receive of well drilling and look in the first quarter of 2021 and plan to do the best well within the first half of the 2021.

The project. This project is the steel of Eddie put them on him, let me state and we cannot predict yet that we will be successful with this project.

In summary, we are pleased on on to very profitable quarter. In spite of the very difficult environment for the industry. We are pleased with the production of the corn crops in the dry it yet this year over the last year.

Hello, and let go of Eddie profitable quarter.

We had a very appreciative and thankful for the hard work of our colleagues the winning the spin dynamic the contributed to put off the table.

The next inspite of the uncertainty and the difficult overall environment.

I will get back flow.

Load back story really put additional comments thanks.

Thanks, a lot.

And so far so we had a good quarter.

Regain profitability, but.

The top hard times of hit US again, as the crack spreads have gone negative.

All things considered.

A profitable quarter during these times as something to be proud of and our plants are among the continue to be among the best locations of best plants in the industry and the so far set most importantly on the best part of our company is during the scope of times are our employees of show an outbreak they are the day.

On the heroes there they come to work on it and we're very proud of the way we have the best the best employees in the industry net settle how best to produce among the best numbers in the industry I'm not I'm not leave the.

Form of open to questions.

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Our first question is on the line of Jordan Levy Truest. Please go ahead with your question.

Hi, guys and really nice how are you guys really nice quarter.

Just kind of what's the the get your thoughts you know you've built up this really material cash position now and kind of thinking about how you guys, maybe rank or think about potential uses of that cash between potential investment Stuart you mentioned looking into the potential ethanol plant.

The things like that and rich.

The return of capital, whether it's kind of through a buyback or maybe a few of you explored the idea of Oh, the special dividend or something along those lines.

Well I think you are as you mentioned, we're always looking for where ethanol plants. So that's that's always our first choice we'd.

We've been pretty good not pretty good really good about giving our cash back to our shareholders through buybacks and the special dividend on.

I would take away we don't we at this time do not know how much of the carbon capture it's kind of the costs were at the beginning of the venture we liked it we have high hopes that it is going to be a large large venture instead of doing the special dividend and take away of the flexibility room or so when were within maybe a couple of years.

Years of having something that we hope because it may be nothing, but we hope it's going to be something very very big probably it's not in our interest, but it's in our shareholders' interest we feel the when the stock dips. The by the shares takes the people that want to sell out of the market. It on.

Also supports the stock at a certain level and and when we do start making money like we did last quarter on a much lower number of shares the earnings per day.

That's the kind of way so we bought back three on almost well over 5% of our shares this year, which by any measure is a lot of shares for the for a company the bi so so where where and.

I don't think what changed that part of the strategy at least not unless we find that the.

Net carbon capture distant for some reason isn't going to happen.

And the other question.

Yes, just the just the follow up but sort of or is the far of one of the you mentioned last quarter.

Looking into.

A couple of different things, including some of the protein side of the.

CDG as well as some of the high grade and we've seen the change as well, but just wanted to get your thoughts on on how that's playing out and the monitor.

Hi lots of far as the party you want to answer the question. Yes, I think we have we always looking for something we can benefit from that that locked on them and on the short on them. We have looked at it sort of being over the last several years, including the recently I think the in the auto.

The opinion at this time that is not on the market really do.

On on investment you could then four or five years.

The.

So as the market will do well, we will keep our eyes on it and the debt Thats why we have this cash and we will see the market is there and is the bad we will certainly will join debt, but at this time, we really don't think that the.

Mark.

Getting the hand does that many.

It's part of the influence.

Gotcha.

Thank you so much guys.

Thank you. Thank you. Thank you so much on.

Our next question is from the line of Chris Hi from singular research. Please go ahead.

[laughter].

Yes. The morning, it's one of the I guess an idea about your international sales. The then you go to China.

So far.

To the yield on what we normally type of yes of we can say on what we saw solid local.

Plus on the and then the export the China and type of deal.

The D., we have some gone to China, but as you know the nice.

Not in the activity in the market this year and even the since 2016. This year the ahead, but just.

Little bit, but China is not very active in the market at this time.

Okay, and then as far as the other countries go how about what were the the largest.

I think the most the acting Mexico is all of it on the top of the list of and.

There really is the step up.

The anybody gets than we have in Mexico, and South Korea, the quality of Vietnam, Thailand, Indonesia, Turkey. So those are the top.

People, who really buying and if you look at back lost the at Hawesville in 2019, obsolescent Mexico's how good quality of Vietnam, Indonesia. So these are the same of people who are on top of the list last few of the up consistently is still on the top of the list.

Last on Jain of bought in 2016 day, what 21 21 per cent of the BBD with bus sales by China in 2016 since that since that time dropped in 2017, the 40% and after that basically the dispute.

That's the up the other than to be stepped up and the but Mexico of wasn't.

This is the Seattle was actually but the behind last do you have the but just generally do some of them, but about 1.5 million.

And this is the of the bunch of the about $1.2 million approximately.

Okay.

Great and the other one other question on.

How enthusiastic or you guys about abiding president.

We we have not been helped us and the industry by the EPA of the Trump presidency on we do.

Obama EPA was much more friendly to us so but to answer your question where were guardedly enthusiastic.

And it's going to make a big difference if we have an EPA administrator that like sets at all and and who.

That said it was going not to grant exemptions and continues the ethanol program after two years longer and so force. So we.

We feel that we feel I feel the and I can't speak for everyone, but I felt that at least.

We have a chance with this administration the last administration we felt.

It was not part of the Trump administration, even though they talked a lot about being right. That's an all in reality did not follow.

Follow did not give us what the law required which was 15 billion gallons of blending.

Oh 15 billion gallons of blending so hopefully we'll get that of at the bottom of administration.

Okay, Okay, great. Thanks.

Thank you.

Im showing that there are no further questions from the fell short of the set the price I sort of said the Buck stretched and I apologize for net anyway very good. Thank you everyone for the first talking or lifts and the thing that crude she had a very much and.

Well talk to you next quarter at the end of next quarter or at the conference call next quarter. Thank you bye.

Thanks, everybody bye bye.

Thank you that does conclude the conference call for today, we thank you all for your participation on we ask that you. Please disconnect. Your lines. Thank you everyone and have a good day.

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