Q2 2024 REX American Resources Corporation Earnings Call
Speaker 2: Greetings and welcome to the Rex American Resources Fiscal 2023 second quarter conference call.
Speaker 2: During the presentation, all participants will be in the listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one fall by the four on your telephone.
Speaker 2: 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.
Speaker 3: Good morning and thank you for joining Rex American Resources fiscal 2023 second quarter conference call.
Speaker 3: 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. you
Speaker 3: 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 security litigation reform act of 1995.
Speaker 3: 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.
Speaker 3: The risk 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.
Speaker 3: including the company's reports on Form 10-K and 10-Q.
Speaker 3: Rex American resources assumes no obligation to publicly update or revise any forward-looking statements.
Speaker 3: I have joining me on the call today, Stuart Rose, executive chairman of the board and Zafar Rizbi, chief executive officer.
Speaker 3: I'll first review our financial performance and then turn the call over to Stewart for his comments.
Speaker 3: Sales for the second quarter decreased by 11.8%, primarily due to lower unit pricing across all products, as well as slightly lower ethanol-gown sold-year over year.
Speaker 3: Ethanol sales for the corridor were based upon 69.1 million gallons this year versus 71.4 million in the prior year.
Speaker 3: We report a gross profit of $18.4 million this year versus gross profit of $14.1 million in the prior year as we benefited from lower corn and natural gas pricing over the prior year's second quarter.
Speaker 3: SGNA increased for the second quarter from 6.7 million to 8.6 million. This increase is primarily related to stock incentive executive compensation expense upon issuance during the quarter.
Speaker 3: As highlighted in the press release in the second quarter, the company made a change in the method of accounting to begin classifying shipping and handling costs as cost of sales rather than within selling general administrative expense as historically presented in order to improve the comparability of gross profit in SG&A reported.
Speaker 3: The company has applied a retrospective application of its new accounting policy. I'd like to point out this change only impacts cost of goods sold in selling general administrative expense and has no impact on earnings reported.
Good morning, everyone. Thank you Stewart as I mentioned in the previous call. We saw improvements in the early stage of the second quarter, which led to the quarter, but offered.
In this first quarter.
We believe we are pleased with our team produced better than.
And then in the previous quarter, and even better than last year second quarter. After considering the total $9 4 million impact of the Goldman 19 grants.
According to the EIA on August 23rd Board ethanol stock and production dropped during the week ending August 18, we have also seen natural gas prices dropped considerably which has a positive impact on our financials is that the August 11 2020.
23, USD had a ball shows unexpected output up $15 1 billion bushels of corn second highest on record.
175.1, which was about equal.
Yeah.
I want to eat food.
We are pleased with the full cost of phone yields in the <unk>. This year 145 bushels, an acre compared to 132 versus last year.
And also approximately 458000 more acres of corn planted this crop.
Rob.
Last year, we expect all in yield in the Gibson City, Illinois area to be less favorable.
101 bushels per acre.
This year compared to 214, which was about equal last.
Last year, but but almost 700000 more.
This year compared to last year looking.
Looking ahead, the drop in ethanol and bvd export could negatively affect.
Yes.
This is if this continue ethanol export through.
He looks at $105 million gallons compared to 828 million gallons in 2022.
During the same period ethanol exports have dropped 15% since two.
2022 D bvd exports.
All of them.
DDG export through June 22.
Pipeline 1 million metric tons compared to $5 7 million metric tons, a decrease of approximately 580 format.
400, 584000 metric tons compared to the same period.
Two.
Considering all these factors we continue to source corn at a reasonable price export of ethanol and DDG and agreed and we don't face any major logistic problem. We believe at this early stage of the third quarter will be profitable and even better than last year and couldnt be better than this quarter.
Let me provide an update on our carbon sequestration projects and one ethanol.
The plant expansion.
As I mentioned in our previous call. We are pleased to publish.
Sustainability.
The board early in the year, highlighting what we have accomplished while addressing the sustainability economy, and our social responsibility as a locked.
We believe our godman captive project will further advance our sustainability goals.
And financially impact that improves company put apart months for our shareholders.
We have budgeted approximately $165 million to build and build a garden captive.
Jeff compassion and storage facility the expansion of the one knocked another dip loan to $200 million gallon annually and other project related to reducing carbon intensity.
We plan to build one we wanted to build a one answer nerdiest question.
Carbon capture and storage facility in Gibson city, the contract to build a capture and compression facilities have been signed and long lead items.
Previously we expect facility construction will start in the middle of September the delivery of all modular.
Production equipment for the facility is scheduled to be delivered by February 2024.
The construction of the facility is expected to be completed by July 31st 2024 at which time testing of the facility will commence.
We continue to complete the paperwork of different government by months and why adamant of AT&T agent.
Agencies.
While we are waiting for the EPA approved class six.
But god in Jackson.
We answer Duane qualities of the EPA regarding last six months. This is highly technical very time consuming project and it depends on several local state and federal agencies approval.
Ultimately, we cannot predict when we will receive all of these but months from different local state and federal governments.
And any delays in concessions.
The other update.
Our new again ethanol facilities.
<unk> partnered with summit carbon solution dwell put up the worlds largest Scotland pipeline.
And there are a decent because they wanted associates entered in.
Agreement with the navigator another pipeline company.
We're pleased about the big milestone, we have reached so far and a whole different government agencies will complete their approval. This year early next year.
Regarding the <unk> plant expansion, we have plans to increase ethanol production to 200 million gallons a year. We have received on the EPA permit to produce $175 million got it.
Put this facility, we must achieve 175 million gallon a year.
Production, which is expected.
Late last late next year before we can apply for a 200 million gallons a year, but a reduction a lot of money. Because this is a two step process, we have to achieve 175.
And before we apply 200 billion gallon.
But the facility will be capable of producing 200 million gallons from the day one.
The blonde grant capacity is approximately 150 million gallon a year. We also continue to evaluate other project that would improve <unk> and reduce carbon intensity the clean fuel production graduate section 45.
It is related to a reduced fuel carbon intensity score.
To provide as much AD dollar a gallon depending on the carbon intensity of ethanol produced and sold.
If we successfully achieve this goal we have to be prepared to provide low carbon ethanol.
Bio products.
So the impact on reducing carbon in the atmosphere and the financial impact that improve the company's performance for our shareholders.
In summary.
We are pleased to announce a profitable quarter actually the 12.
Consecutive profitable quarter continued progress on the Olive Garden restoration project are planned to increase ethanol production at one <unk>.
200 million gallon.
Gallon to maximize Fortifies, the benefits and signed Ghadhban offtake agreement with the pipeline companies at Neogen and Big Labor law.
Once again, we could not achieve this milestone without the hard work and dedication.
Colleagues, we are very appreciative of their efforts on not giving these positive goals.
Give the floor back to Stuart rose for additional comments Stuart.
Thank you so far in conclusion, our results again this quarter outperform most of the industry, especially the other public companies.
Going forward during the next quarter again, we expect to do significantly better in the third quarter of this year than we did in the third quarter of last year, Yes, if our results keep going along as they have gone along so far during this quarter. We feel we have the best ethanol plants and they are among the best ethanol I absolutely.
Great location is good.
The crops look like they'll be pretty good pretty good real good. This year, we were a little worried about that earlier, but things seem to have gotten better.
And the biggest thing we have as far as said earlier, we feel we have the.
The best people working for us in the ethanol industry.
People that will be working for us and our shareholders in a carbon capture industry and if we can do what we did in ethanol and carbon capture we hope to have a much much larger much much more profitable company.
Leave the floor open to questions.
Okay.
Thank you.
If you would like to register a question. Please press star one four on your telephone you will hear at three Tom prompt technology a request. If your question has been answered then you would like to withdraw your registration. Please press. The one followed by the three once again to register a question. Please press the one four on your telephone.
Please for the first question.
Our first question comes from Jordan Levy with <unk> Securities. Please proceed.
Good morning, all and.
Thanks for the help households.
<unk>.
Hey, Stuart.
It really exciting updates and nice quarter.
Just thinking about the carbon capture side of things maybe they prefer the floor.
There's clearly been a lot of class six permits that have been submitted for approval but.
You all talk to moving forward with construction starting.
Timber and that sort of thing and I think it's fair to say that you are you all as a team tend to be pretty conservative with how you approach investment opportunity. So maybe just just give us a little bit on how you're thinking about potential.
Potential for approval in the timeline there on the EPA, knowing that you're kind of at the timeline and deepwater some of the long lead time equipment there.
Uh huh.
We as I mentioned that we have dual unit quad. He is from EPA. So it's almost nine months since we applied.
I'll put the bottleneck generally speaking it takes about somewhere six months to 18 months. So we expect that we will have done before the end of 2024 and <unk>.
<unk>.
Since we have not many inquiries, but our.
Conversation with the EPA, we understand they are now looking at the technical aspect of those.
The documents.
But why did and.
So so far we have no inquiries.
But if we don't start construction and we don't do all these things and they'll do it then.
The people who have not started already they will be at least two to three years behind because lot of these lead items. It takes from what it was 218.
It didnt months to two years before you receive so somebody is we had started earlier and then part of the thing is we are also expanding our plants to 200 million gallon and once we expanded that to 100 million gallon. If there is any delay we will be still working on several other projects, which can reduce hours.
Carbon intensity of the scoop when since these schools.
Out.
Our ethanol plant. So we will still benefit from 45 Z, but we may not be benefited as much as we like to have on carbon sequestration, so delay and delay that but we still will benefit partly in early stage of food wanted to late 2025 from a garden.
Since introduction, which we working on different other projects.
Absolutely George how do you tell your question a little further a lot of people are Johnny come Latelies. There applying we've worked on this with the with the University of Illinois with the University of Illinois, getting a government grant we've been working on this for years, but they can just walk in and get this type of a permit you your.
Right, we are seeing a lot of applications, but they are so far behind we believe where we are in and we were so far behind that but the permitting process and the work they've done on their projects that they can't even we're not even close to being at the same level that we are and it's it.
A lot of people are just putting these projects and talking about it theyre not theirs, they may or may not happen and they may or may not be real they don't even know yet.
The E P. A M and we don't know for sure that the ebay's EPA is going to approve us, but we do know that we've been working on it the right way and doing it for a long long time with U S government grant to the University of Illinois, which has been working on it with this which.
Which has already done a carbon capture project with Archer Daniels. So we have a lot going for us.
And a lot of these others just think you can throw in a permit application in get it well it doesn't work that way, it's a very very complicated process and we're way way along in that process.
Yeah.
So we really see it that way and certainly impressed with the work that you've all been able to do on that front.
Maybe I'm not on us.
Somewhat separate issue.
The $165 million that you all talked about being budgeted for carbon capture and planned expansion. Maybe if you could just help us break that down for us in.
In terms of what that all constitutes and any sort of incremental capex that might be required for any additional initiatives.
I think.
We have not really disclosed this is basically our budget, we estimated but we have not disclosed how much it will be part of carbon sequestration and how much will it be what ethanol facility and other at this stage, so I am not sure.
That I can disclose that at this stage, but we certainly had total budgeted we estimate <unk> hundred 65 million that include the <unk>.
So first Harry.
The.
And pipeline about four to five months and then construction of the facility and then.
Noted that the.
From a production from 150 to 200 million gallon.
That's all it all inclusive of $165 million.
Oh, Okay, that's great and just to clarify so far you've mentioned just being kind of a two step process in the plant expansion, but the 165 would include the expansion to $200 million. Even if you have to show you can run 175 first.
That's right exactly so the plant will be designed with do we already designed and some of the fermentation tanks that have already been built. So we design is going to be capable of producing 200 million gallon. There day, one when it will be in.
Expansion will be completed.
Completed.
But the EPS.
$150 million, we have to show them to stack testing and other testing to see we are at $175 million and then immediately after that they do that testing to make sure. We are complying with that then we apply for 200 million so even.
24, when we apply the.
That 400 million and we received in 2025 that will apply for the whole year.
We can produce 200 million gallon sold so you want to wait to see if I have already had a marked for 200 million gallon, so but that will be $200 million gallon for 2025.
Got it thank.
Thank you all so much I'll hop back in the queue. Now 165 million also a subpar pointed out includes a lot of improvements, we're making to lower our C O two intensity, which met in which its technical but it makes a big difference in 45 C calculations.
We are working very hard he is working in our company is working very hard at reducing our C. O two score.
Awesome. Thanks, so much.
Thank you.
Yeah.
Our next question comes from Pavel <unk> with Raymond James. Please proceed.
Thanks, Laura.
Thanks for taking the question.
You touched on.
What you've seen in in terms of corn purchasing I guess, if we zoom out for a moment corn is now the cheapest it's been since the pre Covid era and I'm curious if you think there's kind of $4 a bushel number is sustainable.
It's hard to say I think it's all depend.
Ultimately the production and then it also depends.
How quickly the hardware gums and so.
And if the harvest.
The final results could be different than what we see now and as you know there is some heat wave going on but we believe that not going to be major impact because the corn is already denting.
But we really cannot predict what will be the price will be in the future, but it's all the matter of up supply and demand and export and then as you know youll brand and throw money international events.
That.
The price of the phone we have seen that Brazil has producing in bumper crops, but even then their clubs is price is coming very close to the U S.
Corn crops since we have a corn price since the corn price has dropped. So this is really depend on several international matters.
Hard to say at this stage.
Okay.
Maybe in terms of what you guys can control.
I asked this question before multiple times are you seeing Amy.
Opportunistic M&A.
Potential in terms of getting.
Getting our capacity expand it through some.
Asset acquisitions.
Not currently.
We have in the past and we've tried hard to get them, but currently we I don't I have not seen anything.
In fact, I think people are doing better now and the best time to buy a company at the prices we want to pay so when when things aren't so good things in the industry are certainly.
Become much better than the last.
Couple of months, so I think our attention.
Properly is on carbon capture and maybe other uses of our we have three potential carbon capture projects one of them, we have to be ready pretty quick in the next couple of years, but we have two others that we bought black with the EPA.
Our potential of growth is to find uses for those carbon capture projects, whether it's our own uses are taking someone else's karpen, yet and that's that's probably more than mergers about the rest of other ethanol companies I think that it's probably a better focus up our time at this point in time.
Yeah.
I will add that I think if you look at it originally the ethanol facility was 100 million gallon and we have grown that our consumption.
$250 million plus the both location from 100 $150 million now we are growing organically from 150 to 200 million. So we certainly are growing.
Uh huh.
Not production over that year and then the most important thing is we know these plants, we know how there.
What is going.
Corn availability off in that area, and we think it's much better to grow or organically than I do.
Our acquisition of some other location and find out that location was not as good as we have our own plants.
Got it thanks very much guys.
Thank you.
Yeah.
Our next question comes from Chris Sakai with singular research. Please proceed.
Yes, Hi, can we talk about us.
Yes, the price of natural gas and how that's affecting our profitability.
I think the natural gas price has considerably dropped over the last year at this time, it was trading close to 6% or $7 and all of its about $4.
$20 or less.
Suddenly, it's a major impact on our P&L because that's the second highest.
The expense we have so suddenly.
Certainly is helping and we believe that this will continue at least this year then that enterprise will continue to be.
Sam.
Great.
Battle, but we cannot predict what happened in the winter season in January February March and that depends a little bit different situation can be.
But through December we feel much about it.
The prices will stay as is.
Same are little close to close to this pricing, which we have now.
Have you put it and thought about.
The hedging that's price and locking in these prices since future.
We do we do consider then when there is a lowest price we consider we do buy at those prices.
Those consumption for our ethanol facilities, we do not leave everything open, but suddenly norm, but January February March.
We look at it see if it's feasible at this stage or not but through the somebody we have.
But just some of those.
Our natural gas.
Throughout the year.
Okay sounds good and then can you talk about demand for ethanol globally, which countries are demanding more.
I think the.
Demand is basically continuously Canada is on the top of the list. We have seen the last the last month, the Netherlands, and UK is south Korea in field.
But all.
These are the top five.
Countries, which is importing from the U S.
But certainly the demand.
Export has dropped as I mentioned previously.
Yeah.
Okay, great. Thanks for the answers.
Okay, you're welcome.
Okay.
Our next question comes from David Lockheed with Old Mamet investments. Please proceed.
Good morning, gentlemen, how are you today.
Good thanks.
Could I ask a quick question about just sort of what do you guys think the.
The cost of new capacity in the industry is in terms of call it dollars per gallon of throughput.
And then related to that then.
It doesn't seem like there's any assets trading in the business right now and you guys had said that you haven't found anything that you've been able to buy what sort of the ask in terms of.
What holders of assets one on that same kind of metric.
The cost to build would probably be in the two and a half dollar to $3 a gallon, but that's just off the cuff estimate you'd have to say it depends on the projects.
And we have not.
I would think it would cost somewhere in that level to buy a plant. If there was even one for sale I don't the advantage of buying a plant versus building one and I don't know if anyone building one at that price. The big advantage is that you could be in operation pretty much right away and take advantage, whether it's through a pipeline or whether it.
Through your own carbon capture project, but you could be in European business right away to get 45 C credits. So there.
There is a big advantage, if there was something for sale, but in.
In all honesty, everyone in the industry knows all about this there's no secrets and the prices. If you were to find something the price would be pretty high.
And.
In terms of like brownfield expansion of like along the.
Along the lines of what you guys are doing moving one plant for 150 to 200 is that a lot less or is that sort of some early hired about $2 kind of range.
It suddenly.
Certainly the last time too right.
Yes.
Got you have already locked up.
Equipment and other.
Loading facilities already there and so many other facilities already exist so it suddenly the less than $2.
Okay.
And on an unrelated topic can you guys spend a couple of seconds.
Reflecting on any opportunities and sustain the ethanol to sustainable air fuel.
If theres anything that you guys might do there at some point or.
In general just give sustainable air fuel might sort of soak up some ethanol capacity going forward.
Yeah, I think that that's the one of the other reason, which as you can see we have expanded out ethanol facility not only to take advantage of 45 Z and then in future. If we have to be but we can certainly be able to.
S a F.
Because every gallon of ethanol produced approximately one gallon of SaaS. So we have we have discussion with several other companies who are really.
Believe that.
Technologies, and it's going to convert the ethanol too.
So we have in discussion with those.
Suddenly try to make sure what exactly is in the market. So that way if we decided to pivot at the later stage, we certainly will be able to add Saf, but there is no proven technologies at this time, which can we feel comfortable and we'll let other people to experiment and <unk>.
Once we know this is a successful we suddenly we'll get into it.
It reminds me of an old, saying pioneers take the arrows and where we are.
Not the pioneers, we'll watch and see who is successful at it and we think someone will be successful and then we will have the ethanol.
And then possibly get into that business will be one of the largest producers the best in all of them. We don't we believe that it will take kept an all too to make.
To make the fuel so we'll be ready if someone had separate successful with the technology, let's see what happens.
Okay. Thanks, very much for your time gentlemen.
Mr. Rose Journal further questions at this time, please continue with your presentation or closing remarks.
Oh I just want to thank everyone for listening and we hope you will listen and I'll be with US next quarter. Thank you 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.
Uh huh.
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Okay.
Okay.
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