Q3 2022 REX American Resources Corp Earnings Call
Okay.
Greetings and welcome to the Rex American resources fiscal 2022 third quarter conference call. During the presentation, all participants will be in a listen only mode.
The words, 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.
If 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 Mr. Doug Bruggeman, Chief Financial Officer. Please go ahead.
Good morning, and thank you for joining Rex American Resources' fiscal 2022 third quarter conference call.
We'll get to our presentation and comments momentarily as well as your question and answer session, but first I'll review the safe Harbor disclosure.
<unk> to historical facts or statements of current conditions. Today's conference call contains forward looking statements that involve risks 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 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 the company's filings with the Securities and Exchange 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 and Zafar Rizvi Chief Executive Officer.
I'll review, our financial performance and then turn the call over to Stuart for his comments.
Sales for the third quarter increased by eight 5% as we experienced higher pricing for ethanol distiller grains and corn oil.
<unk> sales for the quarter were based upon $66 3 million gallons this year versus 69 million gallons last year.
We reported a gross profit of $11 3 million this year versus a gross profit of $25 2 million in the prior year.
For the current year quarter improved selling prices were offset by heart by higher corn and natural gas pricing.
Ethanol pricing improved by 8% dry distiller grain and corn oil pricing both improved by 25% for this year's quarter over the prior year third quarter.
Corn cost increased by 17% and natural gas prices increased by 56% for this year this quarter compared to the prior year as inflationary pressures and the impact on commodity pricing for the Ukraine, Russia conflict continued.
Corn pricing was also impacted by higher corn basis based upon reduced availability of corn as we approached the harvest season.
Gross profit comparison between years benefited slightly from fewer ethanol contract sold net of freight in the current year, which leads to higher sales.
SG&A increased for the third quarter to seven 9 million from $6 3 million in the prior year.
The increase was primarily due to an increase in the number of ethanol contracts that require the freight to be paid by us compared to the prior year, which we classify as SG&A cost.
We had income of 661000 from our unconsolidated equity investment in this year's third quarter versus income of 349000 in the prior year.
The company's interest in other income in the current year increased dramatically to 2 million versus 35000, the previous year, primarily reflecting increased yields on our cash.
The discontinued operations reflected in the prior year numbers are in front of the refined coal business as we entered those operations on November 18th of 'twenty 'twenty. One there was no impact in the current year.
We reported a tax provision from continuing operations of $1 2 million for this year versus a provision of $4 3 million in the prior year, primarily reflecting the lower level of income in the current year.
These factors led to net income attributable to Rex shareholders from continuing operations of $3 2 million for this year's third quarter versus $13 3 million in the prior year.
Total net income per share from continuing and discontinued operations.
Attributable to Rex shareholders was 18 cents for this year's third quarter versus 85 cents in the prior year.
How about again like to point out all outstanding shares for all periods have been retroactively adjusted to reflect the three for one stock split which was effective on August 5th F. 2022.
Stuart I'll now turn the call over to you.
Thank you Doug.
Going forward.
Currently in the current quarter, we remain profitable crush spreads are still challenging in which our CEO fibroids, but he will discuss in his segment. We've made significant progress in carbon capture which again will be discuss bags with borrowers to speak in his section in terms of our cash we have approximately $290 million in cats.
Very little or no debt, we continue to look for further investments in ethanol companies, although nothing agenda that we're also making major investments in carbon capture of which will be discussed later in the call.
We also now can earn meaningful interest on our cash and with 290 million. We expect our interest income to go up during the current quarter during the during the following quarters.
We buy we buy back stock on dips, we bought back approximately 250000 shares in the quarter. We have board authorization for another 875000 shares. So far is that we will now discuss our ethanol and carbon capture operation.
Thanks Stuart.
Good afternoon, good morning, everyone as I mentioned in our previous quarterly God.
<unk> logistics.
Caused by issues with the <unk>.
Android and availability of God that.
Slowdown in auto production the availability of upon in this hard to get out there.
Rod last year and again this year resulted in a decrease in only yield.
Richard.
The increase in the price of one greater than the ethanol price on top of that the high price of natural gas is also negatively affecting the profit margin in the ethanol industries.
As Doug mentioned earlier.
USDA.
The report shows that one year dropped 26% in Nebraska, and 10% and that's all great off Nebraska about boom.
1 million, one 9 million bushels of a drop and saw great at 78 million bushels of it dropped.
Two last year.
There are not allowed to get out with our new <unk> plant is located what while it widely.
It's located in a while but it.
It didn't leave.
Illinois, while I would add.
Well I'm, not saying that a deep long is located sorry for that the USDA also reported production increases in Illinois, not too great a million.
Uplift.
And productions, it up and all the other four producing states that what's affected states nearly all Western States, Nebraska, Kansas, South Dakota and Texas.
The USDA reports show them to an expected $13 93 billion wholesale product.
<unk> got up yet compared to approximately 15 billion bushels.
Wanting to go up yet a decrease of 8%.
On the bright side ethanol and DDG export have increased compared to last year through September one.
And the non food to go wild price continued to increase and it is expected to increase even more ethanol exports number one.
Ooh.
2022 totaled one 1 billion gallons compared to 873 million gallons for the same period last year.
<unk>, 7% increase.
Despite all of these issues and difficulties as long as we continue to source corn at a reasonable price and real order ever since he and logistic and rules at this very at least eight as Stuart mentioned, we expect that the fourth quarter could be profitable.
Profitable.
Let me now share the progress of our Ghadhban sequestration project. These are the bullet points the first test well.
Why not give us successfully.
Total desktop around 7100 feet, the PDD assessment testing and water movement desktop completed and we are very pleased with the results.
Several other.
Modeling what farms ratify maximum injection pressure.
While it would be rock cohort analysis expected movement of the Bloom.
That shows the location is very good target for carbon frustration.
The design of the compression facility is complete.
Contract to build a compression part of the facility had been signed and long lead time.
Equipment has been ordered the pipeline to injection well operated.
Well, operator identification number had been.
The vertical pipeline <unk> study is expected to be finished by January 2023.
<unk> six <unk> with a capacity to store 90 million tons of carbon has been completed and submitted.
We continue to complete several other documents wildfire different government agencies, but most document that quite a lead time on a completed unexpected it'll be completed very soon.
Once again this is a highly technical and time consuming.
As acquired considerable time to make progress, but we are pleased that we have started what we started four years ago now has achieved some big milestone.
Also mentioned.
Our previous call. We had also evaluating several other projects that would increase production after sensitive and you're saving as well as reduce water consumption at our plants.
We believe the completion of some of these projects will lead to a greater benefit under the inflation reduction Act passed by Congress. The section 45 fuel cash payment for the government sequestration increased to $85 met biomass down from $50 per metric ton mcneal, the clean fuel production.
Under section 45.
It has led to reduced carbon intensity score.
Wide are much better than.
<unk> 45.
In summary, we are very pleased to announce once again, a profitable quarter in a very very difficult environment as well as very good progress with our carbon sequestration projects. He didn't give Scott Wilkinson.
Milestone in achieving our ninth cause.
Deepwater a positive income cannot be accomplished without the hard work.
And dedication of our colleagues we are very appreciative of their efforts.
A effort on not giving these positive units added.
I will give back the floor it will spill over to put additional comments.
Thank you so far.
The ethanol business remained steady and one of the ways why potential carbon catalyst business, it's going to help significantly by government legislation along with.
Great progress I'm by Sofia, RSV and his team will continue to.
Consider we continue to believe that we have the best plants among the best plants in the industry. Our locations are good, especially the ones. The one that is right in the middle of what we consider the best carbon capture area of the country.
But more importantly, we truly believe it's a virus that we have the best employees in the industry. Most companies in the industry I had were not many many companies would not profitable we are profitable water will continue.
Consider our employees to be at a.
Among them, we consider that the real reason why we're doing better than most is as we consider a place to be the best and that I think separates us in ethanol and I think you'll see them. We hope that it will continue and will separate us in carbon capture them out.
The podium open to questions.
Thank you.
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One moment please for the first question.
Yeah.
Our first question comes from Jordan Levy with Trust Securities. Please proceed.
Good morning, all and really nice execution again this quarter.
Maybe ill start out no.
You're clearly, making good progress on the Ccs side, if I think about.
That project moving forward.
Along with the clean fuel credit.
It starts I think in 2025, maybe could you just help us think about how those two items might play together as we get into some of the out years, assuming Ccs progressive and what that means for the business.
So far yes.
Yes.
Jordan.
Yes.
45, Z and 45.
45 <unk>.
Payment up to $85 a ton.
And 45 Z X granted with you received if you reduce the carbon intensity, which is the <unk>.
Line right now if you most ethanol plants had approximately 70 Ci score what do we call it God when intensity.
And then.
It is a line, which is a 50 if you reduce anything below the 50, you'll get some lot of Gatland basis, that's granted on each gotten the Newport abuse. So it is a far more lots to look at it.
We are not that.
That's one of them make sure that we are not tax.
Expert, but this is what I understand it's a.
Got it and when they do the carbon sequestration you reduced approximately 30 point, let's see high school.
And then did it.
About 18 points is.
Land use that also reduced because we are what our land use what happened. We further reduced debt 18 point. So if you started one seven b and then you'll reduce by almost 48 points and then you can reduce your photos Ci score.
You were able to achieve is zero.
It's not that difficult not not that easy, but there is also have to be made lots of changes in the process and other things which has to be accomplished as I mentioned, we were working on a lot of these teams.
Previously from last couple of years to reduce that would affect the Ci score. So we are already working on that thing.
For example, if we had.
Able to achieve zero, but I'm not saying that we will be we would not be then it's almost equal what dialogue a gallon of ethanol production.
We are producing 150 million gotten in and we reduced.
Good to see.
Needle, we gonna have almost.
But bought a gallon basis.
I'll, let a gallon that maybe in one location can be as much as $150 million.
We're not expert, but that's what we understand at this time.
And I'm certainly no tax expert either but that's a great explanation, maybe just to clarify did you did on the land side of that did did you mentioned that you're working on something to get that 18 point reduction or no lag.
The relationship.
When we have accomplished that God, one square station because if.
If we pick the carbon ores.
<unk> put in the ground.
Under that Formula we.
We've got approximately 30 point for the carbon sequestration, we did an 18 point, which is not at all.
<unk> has been used there.
He was always that when they compare there at all a ci score they always add in point for them.
The land so that land you would will be automatically will also get the reduction with the carbon sequestration. So that that's the way it's adds up that's what I understand.
So you're basically you're getting nearly a 50 point reduction just yet.
None.
None of these numbers that's the part saying include what we potentially at a higher selling price of carbon our low carbon ethanol.
It's another parcel we're not we don't want anyone to put that in their numbers, but that's a real possibility also exact.
Exactly so.
And as I said.
Generally that into 70 normally in 17 72 getting it.
Lance has ci score, which they call. It. So if you take 30 point reduction for the carbon sequestration and 18 point introduction for the land. That's a 48 seven b minus 48.
So you can see that.
Approximately when you do.
So the line starting with the 50 that you have had minimum 50, and then go down so that's where the.
The competitors.
It has done so.
Far more lot.
We understand that it will be used.
Got it got it that's helpful.
Next there's been some headlines on RV is coming out in the next day or whatever.
Just curious your thoughts if we assume mandates for ethanol are roughly held flat over the next three years or so.
Yeah, I think we are as we are heading it's approximately 50 still going to be staying at $15 billion, but ethanol.
Uh huh.
They may have increased the overall.
Overall.
One 1 billion, but.
We understand that it's probably going to stay at 15 billion photos.
For the ethanol, but we were not sure until it.
At least.
Why not one thing that would be important and we don't know so far departing administration how firm is no wafers.
The ability to keep wafers wherever they feel like give me now than they have in the administration's abaca path.
And.
But it's been pretty good at very little or no wafer. So if its no way per se, it's actually a decent increase.
Yeah.
And.
And hopefully if the export continue to increase as I said this year, we can see that we have had compared to last year and if exports continuing to increase that will also help us.
Got it that's helpful. Lastly.
Jumping around a bit here, but just to go back to Ccs. So far maybe can you just you went over it in your prepared remarks, but just so we have at Sep.
Separated out can you just.
Talk to kind of the next steps as we move into early next year I know you mentioned that you have.
Most of the long.
Long term items, you've been working on.
And the detailed plans, but maybe just break out what we should be looking for as you move into Q2.
Yes, Jordan as I mentioned, there's a lot of scale what it all because there's a lot of government agencies, but we are still in process of applying those burn much doesn't take that long compared to.
<unk> six but what that would be from six months to.
18 months, but other part most of it is required by the Illinois required by the federal government and other things. So we are working on those progress and then we are we cannot start injection, whereas Scott you wouldn't be getting the injection ran up at night, we received EPA, but so we are in.
The process of looking at starting to bid.
And to be prepared for it as soon as we receive.
But from EPA, we should be prepared to start.
Start injection, well, so theres going to be a lot of what will be happening a lot in next year, but our goal is hopefully but.
Suddenly is as Doug said forward looking statement that we complete this project by the end of 'twenty forward, but this could take longer but that's what we are trying to achieve.
Gotcha, and just because you filed for three permits I would assume that.
Youre thinking about some third party volumes there too.
I think at this stage.
At that stage, probably that's what we think game because we do not have enough capacity for ethanol facility, but we know that is.
A lot of demand for the battle is going to be in front of you in the future and so we just wanted to make sure is there going to be two extra overhead will be available we don't have to start.
Start digging them right away as.
As we do.
Will it be started as needed basis, but we will have already bottomed out from the EPA to what you thought.
We wanted to started we can start at any time.
Got it thanks guys.
Thank you Jordan.
Our next question comes from Chris Sakai with singular research. Please proceed.
Yes, hi, good morning.
Good morning can you talk more about.
Or it's Rex experiencing any logistical challenges.
With rail.
I think the main concern, which we have is as you can see the recently going on that.
It does strike and you can hear it from the strike and all around that during that 2019, 2020 one.
The railroad laid off lot.
People and then suddenly.
You know.
These drivers and all of those teams.
Demand increase but that is not.
Enough manpower, we see sometimes you know Bob what is already dead, either followed made it to the pump launch to Paul.
There is no driver and they're supposed to call. It on Monday, they had not add up to Saturday Sunday.
These things delayed further to pick up those little gods, either other containers are not available sometime and that delay cause.
All right.
There's a limited storage, although we have increased large storage compared to other ethanol facilities, but there is a client reach but you have your tanks are completely fall then you'll have to slow down the project audio storage is artful, Paul you've got really overflow the ethanol.
From the banks and then you have to slow down and wait for that but the real cost to come back before you load loaded again, so that suddenly caused the problem of production. That's suddenly caused the problem of shipment and unfortunately, that's the consistent continue problem at this stage.
Okay. Thanks for that and then as you head into winter can.
Can you comment on how an increase in the prices of natural gas will affect profitability.
Yes, I think so.
That's really we are already analyzing it took the jet.
Definitely we try to make sure that we have at least enough natural gas before we got into that plan, but you can see.
Yes.
Nymex is trading today, the 690 <unk> announced last month is about $6 35, and last year. It was $5.42. So there's dialogue has changed and that's it.
Jane since that to happen and it's consistently continuously we'd see that natural gas is although there is enough natural gas in this country I think that basically the Exxon is due to the European situation.
And what again since that happened at the time, because the natural gas prices start going up and so.
So that's the mix really major impact if we look at it.
Actually in collateral under the year it was about $2 and air Defense average and 2021. It was $3 84 to exit and now for this calendar year. So far is a $6 64 average. So this and we don't know what will happen in 'twenty two.
23, but that certainly is affecting them.
Bottomline as Doug mentioned is a 56% increase so that takes away your 56%.
Center of the pump.
A portion of the profit.
Okay. Thanks for the answers.
Thank you.
Our next question comes from Pavel <unk> with Raymond James. Please proceed.
Okay.
Thanks for taking the question and.
You you provided some useful perspective on natural gas linear.
Zoom in on corn, when we look at the futures curve.
Basically points to.
$6 a bushel.
Practically forever.
And we went through a decade pretty cold Ed with.
$334.
It's $6 corn in your view going to be the new normal now on a permanent basis.
Pink it seems to me that this stage at least the area where we have.
Seaboard countries, probably going to continue to trend that level, but the.
The major problem in that area.
Where youll have dropped which I had mentioned earlier in my prepared remarks, those areas lack of South Dakota.
Nebraska.
In Kansas, and Texas, Texas is already deficit going.
But this is.
It is certainly due to the drug the basis at a very high you can find somebody how to best use out of $50 60 out of it even though we have seen $1.20 vlccs.
Corn basis, and if if the one is going to leave some area like say North Dakota I do see you Gotta has a bumper crops last year. They didn't have that great. I mean, Annapolis has a great crops just.
Got it got it.
No. It has great jobs. So when you are shipping this going from one of the areas.
Eddie up by rail the rail.
Possible somewhere depending on the destination, but if you look at if you send it from not debate, Texas is about $1 62, just to ship propulsion and on top of that they are going to be up 50 to 70 out of maybe eight defense.
On the basis. So if you are delivering 60 plus paying AP.
Basis, so $2 40 to deliver upon.
And those are Texas, Nebraska, and the other area, which is further away is going to be very difficult.
Some of these ethanol facility.
We need to produce.
At.
One level price.
Okay, Let me turn to a regulatory topic.
It seems like forever, we've been talking about <unk> 15 on a year round basis, and I know there is a new bill from.
Senator Fisher in Nebraska to put.
[noise] legislative.
<unk> nation on that without going through the EPA waivers.
You wouldn't debate that bill has a.
Good chance of passing what do you think.
I believe this time looks to be good.
Good John surpassing because most all of the players.
Players are agreed seems like equity I should say it seems like the agreed that <unk> will not be bad idea. So if that pause I think that will be great.
Because if the bumps continue.
New supply growth.
Months in that year, then people will convert that because I have seen some several bumps and actually in the Illinois, Nebraska and the other area what they call it.
They are selling and you can see the price difference almost 15 to 20 cents sometime different than regular price. So people are using debt. So I think these bumps can produce.
Regular basis 12 months I think this will catch up more and more in depth.
Be ready.
Certainly will increase 5% ethanol demand.
Okay, and then lastly, you.
You mentioned exports and Odyssey.
It varies from quarter to quarter, but your general impression on.
The export window to China, where it where do things stand on that.
I think if you look at it really we did not see much export to China.
China.
This year, mostly.
We can see that mostly it look at Canada was the highest we've put a view.
<unk> talked with the Netherlands, India, and the U K and I think India is certainly is moving also.
Absolutely.
Meet their own demand locally in India, and they are pushing very hard.
And suddenly better deal was not a major player. This year, so far but we have seen certainly Canada and South Korea in Atlanta step up and but we have not seen any major.
Shipment.
China this year.
Alright, okay.
Consistent with what we're seeing thank you guys.
Thank you for that.
Mr. Rose there are no further questions at this time, please continue with your presentation or closing remarks.
Okay, we'd like to thank everyone for listening in and we'll look for it.
Talking to you at the end of next quarter. Thank you very much.
Okay.
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.
Sure.
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Perfect.
Okay.
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