Q4 2021 REX American Resources Corp Earnings Call

Okay.

Greetings and welcome to the Rex American resources fiscal 2021 our fourth quarter conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time, if you have a question.

Please press the one followed by the four on your telephone.

At any time during the conference you need to reach an operator. Please press star Zero I would now 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 2021 fourth quarter conference call.

We'll get to our presentation and comments momentarily as well as your question and answer session for 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 the meaning of the private Securities Litigation Reform Act of 1995.

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

Not guarantees of future performance as such actual results may vary materially from expectations.

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

Putting 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 and Zafar Rizvi Chief Executive Officer.

I'll review, our financial performance and doesn't turn the call over to Stuart for his comments.

Sales for the fourth quarter increased by 68% as we experienced higher pricing for ethanol distiller grains and corn oil.

Ethanol sales for the quarter were based upon $69 9 million gallons this year versus $67 7 million last year.

We reported gross profit of $38 7 million from continuing operations versus a gross profit of $8 3 million in the prior year.

For the current year quarter improved selling prices were offset somewhat by higher corn and natural gas pricing.

Ethanol pricing improved by 74% dry distiller grain improved by 19% and corner, our pricing improved by 122% for this year's quarter over the prior year fourth quarter.

Corn cost increased by 44% and natural gas pricing increased by 80% for this year's quarter.

SG&A increased for the fourth quarter to 6 million from $4 2 million in the prior year.

Primarily represents increased incentive compensation based upon higher earnings in the current year.

We had income of $3 9 million from our unconsolidated equity investment in this year's fourth quarter versus income of $332 in the prior year again, representing strong fourth quarter industry fundamentals.

Interest and other income decreased to approximately 13000 versus 415000 in the prior year, primarily reflecting lower interest rates.

Expect to begin to see some improvement in this area in the current year as rates increase on short term investments.

As mentioned last quarter, the refine coop ratios now classified as discontinued operations and its results and historical results are now reflected on one line on the income statement, including the tax benefits from this business.

We reported 159000 of net income a.

Reportable direct shareholders from discontinued operations in the fourth quarter as we ended operations on November 18th 2021.

We reported a tax provision from continuing operations of $10 7 million for the fourth quarter of this year versus a benefit of 102000 in the prior year.

Tax provisions on our rates will be impacted from time to time based upon levels of income permanent tax items and uncertain tax position adjustments.

These factors led to net income attributable to Rex shareholders from continuing operations of $21 3 million for this year's fourth quarter versus $3 3 million in the prior year.

Our net income per share from continuing operations attributable direct shareholders was 358 for this year's fourth quarter versus 56 cents in the prior year.

Total net income per share attributable to Rex shareholders was $3.61 for this year's fourth quarter versus 59 cents in the prior year.

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

Yeah.

Thank you God.

We had a very good fiscal 2021 , but now business has become a little bit I'd say much tougher.

Projecting for this quarter possible losses tied to higher corn gas prices and ethanol prices not rising as fast cutting cutting their entire crush margins.

Corn could be an issue for the for the rest of the year, especially relating to until Ukraine, along with normal seasonal issues rents.

Rents could be an issue next year it'll be up to the EPA to decide what that rent will have the last it wont be legislated anymore. So so a lot will depend on what happens with the EPA chiefs and that could affect this year switch it sometimes they allowed the current year rents to be spread out.

The other issue that we're having is logistical issues inflation.

Labor labor shortages could be issues. So we have a number of things that we are worried about the positive side.

Product as American made we need more U.

U S. We're going to need more U S steel as the rest of the world does not seem to be too willing to help us as much as we would like in that area and we are more greenfield than oil and it can be and then it could be used up to 15%. So we're hopeful blending rate could go up.

There are whole food blending rate would go up to 15% and that of course with increased demand.

We now have over 250 million on a consolidated basis 250 million cash on a consolidated basis.

In terms of uses of cash we will be talking to you.

We'll be talking to you about carbon capture he'll also talk to you more about our ethanol plants and what we expect to happen there.

So in terms of spend and the cash are looking for other ethanol ethanol plants that are successful we have not found anything in our price range as of this time.

There's intel ancillary businesses and that's in all like high protein.

Different techniques to make that I protein known what to date has shown great earnings. So we're waiting to see is the most successful and NR before.

Before we decide whether or not to get into that business, but again other people are looking at it.

We also are looking at other industries that might fit our skills, especially commodity driven industries, where we might be able to potentially turn them more grain.

Tinian to buyback our stock on dips.

And Oh last year, we bought something at the stepped up significantly.

The cash available to buy more.

We have exited the refined coal business.

But we still carried forward a large amount of tax credits, which can be used to lower our taxes paid.

Increase our cash flow.

I'll now turn the call over to Zafar, who will talk more about the ethanol business and the carbon capture business so far.

Thank you Stuart good morning.

As I mentioned in our previous quarterly calls the operating environment in the fourth quarter improved.

And we are very pleased with the results of the fourth quarter and the fiscal year.

Since last month as Stuart mentioned it has been very challenging due to several reasons, including an increase in ethanol production in stock.

Challenging logistic problems and and in Greece in the price of corn greater than the ethanol price peak job negatively effecting the crush margin as a result, the first quarter of 2022 may not be profitable. If this trend continue into the second quarter or maybe longer which could adversely affect <unk>.

And net income.

Also plan plan to shut down.

But the regular maintenance and safety Jackups during the month of April .

We had also.

Stuart mentioned again.

We are also evaluating several other projects, which could help increase production FSIC energy savings as well as reduce water consumption and further enhance safety. Some of these projects are capital intensive and why now.

This is before any can be implementing all of these projects are in a very early stage and may not may not materialize.

Let me share some progress.

With vitamins sequestration project as I mentioned in the several previous calls we are working with the University of Illinois in drilling a carbon sequestration pad. The first well at one after another D was successfully drilled with desktop.

Around 7100 feet.

And which are more 2000 feet amounts I'm Simon stone was encountered the geological model has been established and is being used as a basis for stimulation simulation upfront.

The movement of the C O two injection.

Into the subsurface. Additionally, we will be performing additional testing at the well itself over the next several months do simulation models will help to make progress on the completion of the classics Paramount application.

We have started the completion of the application process will continue as we began to receive more information from simulation models to predict the behavior of the CEO .

When it is injected <unk> simulations are currently at a very preliminary stage and a lot of more work is required but the data include.

Indicate all the C. O two produced by that one I cannot do facility can be injected and stored at the potential scripts.

Site.

We will continue to evaluate further as we make progress. This is a highly technical and time consuming project and it will take time to make material progress.

The Pilatus has me testing was completed in the Middle of February almost 16000 notes were placed at different points 160 million points of data have been collected.

And being analyzed a pre study of the <unk> and the design of the facility is completed are completed the bidding process will start after the completion of engineering.

As I have mentioned in previous calls this project is still at a very preliminary stage.

Quite a lot of time consuming modeling and analysis, we cannot yet predict the result of the simulation models and where there will be some rather that we will be successful or not.

In summary, as Stuart mentioned, we are very pleased to announce once again, a profitable quarter and progress with our carbon sequestration project, we are very appreciative and thankful for the hard work of our colleagues on achieving these.

I'll give the floor back to Stuart rose for additional comments Stuart.

Thank you so far.

In conclusion, we had a great 2021 , but but we are very cautious on 2022, but we believe and continue to play we have great plants, great locations and most importantly, great people and we believe with what this combination as we have done in the past will continue.

The greatly outperform.

Our competitors are the bulk of our competitors well into the future I'm madly I'll now leave the forum open for questions.

Thank you.

If you would like to register a question. Please press the one four on your telephone you will hear at three Tom prompt technology a request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the <unk> III.

One moment please for the first question.

We have a question from Medtronic Dennis with twist. Please proceed.

Good morning, guys Hello.

Oh, no carbon capture topic right now obviously the focus is on the test wells in the reservoir modeling.

You might consider working on simultaneously like initial infrastructure planning or maybe talking about third parties that might accelerate the timeline if the tests are successful.

We we.

We are working with several different people at the as I've mentioned previously the design of the.

Facility is completely completed and engineering.

Now in the process of completing and.

And we will be able to put.

But.

After the engineering the buildings and then we will start that but I think we want to make sure is that.

Beth.

The well is completed and now we are in the process of filing six permit and all those things. When you start doing this testing is required a lot of modeling and simulations and other things because without that data information we cannot complete.

But what about EBITDA, but really six apartment so that.

While we are trying to complete that bottom out on the same time, we are working on their facilities.

And I think we have a probe.

Our team is working with several different.

People and then.

We will likely sell the project, but I think there is a there's a.

You know, sometimes nothing we can do unless we have more data.

That makes total sense and then maybe jumping topics.

The prepared remarks, I think you mentioned that you're not seeing anything in your price range.

Our ethanol facilities, but could you just talk about what youre seeing in the M&A market.

Given the volatility in crush spread that our sellers pulling away or are they looking at.

As you know.

Do you want.

I haven't seen any plants for sale this year that weren't for sale previous I haven't seen during the fourth quarter I think prices probably went up significantly because it's a really good plants had a really good fourth quarter, but ive not seen those prices I haven't seen anything to be honest come on the market.

Since last year, we did make a run at plants last year and very close in February anyway, but.

But we did not get them so.

Maybe something will come next year, but as of now I have not I've not seen anything that would fit what we're looking for in our price range.

That makes perfect sense, thanks for the update.

Thank you.

As a reminder to register a question. Please press star one four on your telephone keypad.

Yeah.

Okay.

If there are no further questions are there any further questions if not.

The way I'm, sorry, sorry, we do have a few more questions.

Okay. Good.

Our next question comes from Chris Sakai with singular research. Please proceed.

Yes, hi, good morning, just I had a question on <unk>.

He if you experienced any weather related issues.

In this quarter.

And recently.

I think the more it is about logistics.

Yeah.

Performance of the railroad and as you probably heard that even Canadian Pacific has.

Strike and Thats also affecting and previously also shortage of labor.

Good companies and they cannot find drivers make it sometimes that I wasn't getting that right.

And.

Power out there and then he goes and then the next person who was supposed to be there. It does not show up so thats mostly related with the.

With that yeah.

Yeah, but I think that has some effect, but it's not the major factor is the major effect is continuously about the railroad for apartments.

Okay great.

Go ahead.

Oh, okay.

And you mentioned.

About a tight labor market I, just wanted to get an idea about.

What what you're seeing.

At Rex.

And are you having to increase wages.

So that.

I think.

We are company, we always has a very competitive wages and we always bid.

We always take care of our employees and we also have bonuses systems and other systems continues through until happier incentives.

As we make money there certainly make more money and they have also.

I can assure you none of them is.

Minimum fee all of those kind of numbers. So we have very competitive wages and we always review every year and two.

Salaries and other things to make sure they are above the market value.

Okay, Okay, great. Thanks.

Our next question comes from Jared <unk> with South Dakota investment Office. Please proceed.

Hey, guys. Thanks, I have a couple of questions first related to the.

Clearly the crush margin has contracted as corn has gone up.

But it looks like also the byproducts that you guys sell corn oil and distillers grains prices are very strong can you just talk about the margin impact that those have.

And do they do they make the overall picture look pretty good or at least okay right now.

I think let me say that certainly there is recently we have seen increase in DDG value also which is previously it wasn't completely goes to 90% to 95, 5% upon value and recently, we have seen close to 100, 206% of the corn.

Suddenly we have seen ethanol not thats in our corn oil has value has increased.

Doug mentioned also in his.

But if we address remarks as far as.

<unk> margin as you can see two days corners trading $2 $7 62.

And the ethanol is trading close to 248. So you can see that to how much it is not enough cash margins.

I think the other concern we suddenly have is moving forward at Stuart mentioned that.

As you know Ukraine produced.

Close to $1 6 billion bushels, a year and the export about $1 billion bushel E.

He is the export and we're concerned that input.

Export completely stopped from Ukraine, and then employers move to that extra two words.

U S. Then it could be at some problem I have shortage about corn.

Our monthly usage is for you.

It's 1 billion 245000 versus a year.

And we are expecting.

Ending stock will be close to.

14 40.

$1 billion for 44000, and then if we would absolutely take it out to 400000 exported more million exported more than our stock will continuously going to drop and it may not meet their usage is wichita.

Approximately $1 2 billion bushels a month.

So those are some concerns and that's why you can see the market is reacting and although there is a in Wes.

In future and present.

That is that's the other problem is the market that is theres no carry in the corn at this time, but there is a fear of shortage of phone.

Ukraine situation did not improve.

Great. Thank you for that.

Secondly, it appears the global refined products market has tightened significantly in the last month.

Can you just touch on any opportunities you guys had to capture better margins exporting ethanol.

I think if you look at the export really lost last year exports was drop compared to.

Lastly, export about once a <unk> billion compared to year before approximately $1 3 billion and January export was $123 million.

$101 3 million that compared to.

In 2020, it was a mix.

Sure.

Yeah.

And.

And what are your export 123 million $24 million gallon and that was less than last year. So if we can see that exported consistently dropping even.

Month of January compared to last year in January last year in January to about $165 million and these theories of $123 million, but we have seen recently, but as Ian has lifted.

They are data rich.

18% if that goes away at and maybe we'll see more export activities.

Great. Thank you.

Our next question comes from Mary Rose with infusion partners. Please proceed.

Mhm.

Yes.

Okay.

Yeah.

Well all of that.

Hello, operator.

Operator move on.

Okay.

Mr. Rose there are no further questions at this time.

Okay anyway, we'd like to thank you everyone for listening today I appreciate it very very much and we will look forward to reporting next quarter. Thank you again for listening to the call bye everyone.

Thank you bye bye.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.

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Uh huh.

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