Q3 2024 REX American Resources Corp Earnings Call
Speaker Change: Good morning, and welcome to the RECS American Resources 3rd Quarter 2024 Earnings Conference Call.
Speaker Change: As a reminder, today's call is being recorded and at this time all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: I would now like to turn the call over to Mr. Doug Bruggeman, Chief Financial Officer of Rex American. Please go ahead.
Doug Bruggeman: Good morning and thank you for joining RECS American Resources Q3 2024 conference call. With me on our call today are Stuart Rose, RECS Executive Chairman and Zafar Rizvi, the RECS CEO.
Doug Bruggeman: We'll get to our presentation and comments momentarily, as well as your questions, but first I will review the Safe Harbor Disclosure.
Doug Bruggeman: 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 meeting of the Private Securities Litigation Reform Act of 1995.
Doug Bruggeman: 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.
Doug Bruggeman: Rex American Resources assumes no obligation to publicly update or revise any forward-looking statements.
Speaker Change: I'd now like to turn the call over to our Executive Chairman, Stuart Rose.
Stuart Rose: Good morning, and thank you again to everyone for joining us.
Stuart Rose: During the third quarter, Rex American Resources continued our progress on our three goals for 2024, setting the company up.
Stuart Rose: for success well into the future. As a reminder, these goals were to continue profitable operations.
Stuart Rose: and to complete the capacity expansion for our One Earth Energy ethanol production facility to 175 million gallons per year and move toward the plan further permitting of the facility to 200 million gallons per year.
To the first goal, we exceeded the mark.
Stuart Rose: The third quarter was Rex American Resources' second most profitable quarter in the company's history, behind only the third quarter of 2023.
Stuart Rose: over the second quarter of 2024, principally reflecting better corn pricing. Rose's margin improved over the third quarter of 2023 by 1% despite a 21% reduction in product revenue.
Stuart Rose: As we have consistently said, we believe Rex's facilities and personnel are among the best in the industry, which they prove quarter after quarter through their attention to detail and awareness of the markets.
Stuart Rose: The focus on lean and efficient operations in our core ethanol business, we believe, will serve as a basis for future increases in profit levels once our one-earth plant expansion is up.
Stuart Rose: and running next year. It is this part of the business that has allowed RECS to grow substantially debt-free, maintain strategic freedom, and move forward independently with additive growth projects.
Stuart Rose: As we always do, I want to say thank you to our team for the efforts this quarter and every day.
Stuart Rose: and the second goal to complete construction of the capture and compression portion of our One Earth Energy CCS project in Gibson City, Illinois.
Stuart Rose: We have substantially realized this goal. I'll let Zafar Rizvi, our CEO, discuss the specifics with regard to the remainder of this project later in the call.
Stuart Rose: Our third goal was to complete construction of the One Earth ethanol production capacity expansion to 175 million gallons per year to prepare for further permitting and production levels.
Stuart Rose: of 200 million gallons per year. Right now, we estimate the facility is on track for completion in the middle of 2025 based upon delays and delivery timelines for certain necessary components.
Stuart Rose: As you can see, our efforts to support near and long-term growth moving forward successfully. The current time, the fourth quarter, continues to be profitable, but trails last year's fourth quarter, which was a historically very strong quarter.
Speaker Change: I'd now like to turn things over to our CEO, Zafar Rizvi, to give further updates on our major projects.
Zafar Rizvi: Currently, the electric interconnection from our local utility is moving ahead and should be complete by first quarter of 2025.
Zafar Rizvi: The timeline for completion of the ethanol production expansion has been extended from our previous target to the middle of 2025.
Zafar Rizvi: due to delays recently communicated by one of our equipment suppliers.
for delivery of several necessary components.
as no major additional construction or capital spending is expected.
Zafar Rizvi: We expect that the expansion will provide even greater benefit to shareholders as well as support our ability to self-fund ongoing and future growth projects.
Zafar Rizvi: and we are looking forward to other portion of the project.
Zafar Rizvi: Just as with the expansion of our ethanol operation at the One Earth site, further work and testing in the capture and compression facilities are subject to completion of the utility interconnection to supply power to the project.
Zafar Rizvi: Beyond waiting for power, we continue to wait on several regulatory issues to be resolved. Our permit applications for Class VI injection wells are still under review, with anticipated final approval slated for July 2025, according to the EPA.
Zafar Rizvi: As a result of these challenges and as the capture and compression portion of the project are substationally complete, we plan to manage near-term major capital expenditure related to the CCS project in order to maintain budgetary flexibility and stay within project spend in light of the timeline for approval.
Zafar Rizvi: Given the new permitting reality, we are confident that pursuing the several ongoing portions of this project in this way is the right path.
Thank you for watching!
Zafar Rizvi: Spending for the carbon capture and sequestration project stood at $52.9 million as of third quarter and while expenditure on the ethanol expansion stood at $50.2 million as of the same date.
Zafar Rizvi: This is compared to total combined budgeted amount of $165 to $175 million for both the CCS project and ethanol production expansion at Gibson City.
Speaker Change: I would like to hand the call to our CFO Doug Bruggeman to discuss our operational and financial decisions done. Thanks, Zafar. I'll begin with our operational results.
Doug Bruggeman: Rex's ethanol sales volume during the third quarter 2024 were 75.5 million gallons, an increase of approximately 3% versus third quarter 2023 sales volume of 73.2 million gallons.
Doug Bruggeman: Average selling price for our consolidated ethanol volume was $1.83 per gallon for the third quarter, compared to $2.32 per gallon in the third quarter of 2023.
Doug Bruggeman: Dry distillers grain sales volume during the third quarter of 2024 totaled 170,116 tons, a 5% decrease over third quarter 2023 volumes.
Doug Bruggeman: Average selling price for the dry distilled grain was $147.14 per ton for the third quarter of 2024 compared to $194.94 per ton in the third quarter of 2023.
Doug Bruggeman: Modified distilled grain sales volumes were 18,392 tons in the third quarter of 2024 compared with approximately 13,500 tons in the third quarter of 2023.
Doug Bruggeman: The average selling price for modified distiller's grain was $63.00 per ton for the third quarter versus $85.86 in the prior year third quarter.
Doug Bruggeman: Corn oil sales volume in the third quarter of 2024 were approximately 23.4 million pounds compared to 24.1 million pounds sold in the third quarter of 2023.
Doug Bruggeman: The average selling price for Rex's corn oil products was $0.44 per pound for the third quarter of 2024, compared to $0.61 per pound in the third quarter of 2023.
Doug Bruggeman: The 1% increase in gross profit was achieved despite lower average selling prices for all products which were more than offset by lower corn and natural gas input prices.
Doug Bruggeman: Our selling general and administrative expenses increased to $8.4 million for the third quarter of 2024 versus $7.6 million in the third quarter of 2023.
Doug Bruggeman: The increase was primarily due to rail car leasing cost increases and certain donations to local first responders related to the carbon capture at the One Earth facility.
Doug Bruggeman: Interest and other income totaled $4.6 million in the third quarter of 2024, compared with $4.9 million for the third quarter of 2023. Prior year amounts included $900,000 of COVID-related grants from the USDA.
Doug Bruggeman: Income before taxes and non-controlling interest for the third quarter of 2024 was approximately $39.5 million compared to $41.3 million for the third quarter of 2023.
Doug Bruggeman: Net income attributable to REX shareholders for the third quarter was $24.5 million compared to $26.1 million in the third quarter of 2023.
Doug Bruggeman: We ended the third quarter with total cash, cash equivalents, and short-term investments of $365.1 million, compared with $378.7 million as of January 31st, 2024.
Doug Bruggeman: The uses of cash during the first nine months of the fiscal year were primarily related to our ongoing construction projects at the One Earth Energy Facility.
Rex American also entered the quarter without any bank debt.
And now I'd like to turn things back to Zafar.
Zafar Rizvi: Thanks Doug. I would now like to discuss how we see the end of the fiscal year shaping up.
Zafar Rizvi: As Stuart stated earlier, our plants continue to run with positive earnings into the fourth quarter, but not at the level of last year's fourth quarter.
Zafar Rizvi: Corn input prices have improved compared to a year ago, and given the bumper crop of corn in the Midwest, we expect adequate supply for our plants for this growing season.
Zafar Rizvi: of the calendar year were approximately 33% higher than at the same point in calendar 2023 according to the U.S. Energy Information Administration.
on paste to exceed 2018 export volumes.
currently the all-time high year for export
Zafar Rizvi: Looking ahead to 2025, we are particularly excited about the completion of our ethanol production expansion and anticipated increase in profitability this will allow for.
Zafar Rizvi: We will still expect approval of our Class VI permit from the EPA in the near term and to continue making progress on our CCS facility, which we expect would bring additional profitability once in operation.
Zafar Rizvi: Looking further down the road, the projects we are working on today are laying the groundwork for you.
Zafar Rizvi: for further potential growth into sustainable aviation fuel and third-party carbon sequestration.
Zafar Rizvi: We are excited about the future as we grow organically and are confident in our team's ability to rise to the challenges.
at every turn.
Zafar Rizvi: Now I would like to open things up to questions, operator.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Jordan Levy with Truist. Please proceed with your question.
Speaker Change: Morning all. Hi Jordan. Congratulations on the solid quarter. I wanted to get your thoughts here. There was just an article I saw from Reuters that was saying the Biden administration won't finalize 45Z guidance ahead of the January inauguration. So I want to get your thinking as it relates to the growth initiatives on the expansion and on the CCUS efforts.
Speaker Change: Should the incoming administration fail to finalize 45-0 or just let it kind of slip to the side? How does this all look under 45-Q and how do you think about that more broadly?
Stuart Rose: My opinion, this is Stuart, I'll answer first and Zafar can follow up, but if we also believe they won't finalize 45 Z by the end of the term
Speaker Change: And we don't know what the Trump administration will do. We don't know their feelings on the 45-period QRC, and so we remain wary of what they will do. We don't know.
Zafar Rizvi: In reality, it's going to be really hard to get 45Z without any regulations and without an EPA permit. Right now it's going to be really hard for us to benefit in the next two years from 45Z.
Zafar Rizvi: So, hopefully we can benefit at least get one year of 45Z, but it's going to be very difficult right now because they have not finalized the regulations and we don't know what the new Trump administration is going to do. Zafar.
Speaker Change: Midwest is basically the farmers and corn growers and there's a lot of support we see from farmers and corn growers.
Speaker Change: because they are also looking to see how they can benefit from 45Z as a
Trump administration will.
knowledge what exactly is going to happen.
Speaker Change: one other thing Jordan at this time for Jordan at this time 45 Q is in effect and that's cut and dry it's $85 a ton
Speaker Change: That has passed legislatively, so if we don't get 45Z the way the law is written today, we would get 45Q, which is $85 a ton, which would still make our project very profitable as long as I keep that.
Speaker Change: Yeah, and I think I add to that is as you know Jordan that you know, you have to be servicing by 2032
Speaker Change: You know, time expires, but 45Z was only three years, so that's the difference between 45Q and 453, that we can take advantage of 45Q.
Speaker Change: whatever you expect for the incoming policy landscape and recognizing that.
Speaker Change: you've got a significant amount of cash on the balance sheet right now that puts on a nice uptick from last quarter. If you look at the areas of opportunity for you all in terms of deploying that cash, I think you noted
Managing Costs on the CCC
Stuart Rose, Zafar Rizvi
look like. But where do you see...
you know, the most attractive opportunity.
Thank you for watching.
Speaker Change: Well, one thing we've always done, Jordan, as you know, when the stock drops, if the stock ever drops significantly, we are kings of buybacks. We bought back probably more shares percentage wise than any other company I know. So...
That's one thing. The other thing is...
Speaker Change: We always are looking for opportunities, whether it's new ethanol plants. There are a few that we're looking at, but that doesn't mean anything when they're in the very, very preliminary stages and who knows if anything will happen.
Speaker Change: Generally, today, the prices people want is way above what we're willing to pay, so that's an issue.
Speaker Change: but that's always an opportunity. And thirdly, we're not afraid to go into other things that are either related or sometimes even unrelated to our business that we think our management skills will work with.
Speaker Change: We haven't done that in a while, but as you know, we were retailers at one time and now we're ethanol producers. So we're very good if it comes to that, of looking if we see great opportunities of jumping on those if they become available.
Speaker Change: Got it. I'll take the rest offline. Thank you all for your time.
Thank you, Jordan.
Speaker Change: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad.
Speaker Change: Our next question comes from the line of Pavel Malkunov with Raymond James. Please proceed with your question.
Thank you. Bye.
Thanks for taking the question. Following up on...
Speaker Change: It's probably going to be, you know, three months, six months before Congress moves forward with tax reform, which may well include some changes.
Speaker Change: to the Inflation Reduction Act, for example, Section 45Q, are you going to postpone any kind of decisions on the carbon capture project?
Speaker Change: At this point in time, Pavel, we don't, 45 Q goes away.
This is only my, what I would...
Speaker Change: And again, this is not a Board of Directors decision, it's Stuart Rose talking. But as far, we would continue on. We would continue on with carbon capture because we'll get a greater, if no one else is doing carbon capture, we're doing it, we'll get a much greater
Speaker Change: Price for I believe we'll get a much greater price for ethanol and I believe there still be a market to sell our credits
to companies that want to become carbon neutral.
Speaker Change: So, I don't think that we would end our project if there wasn't, and we don't, at this point in time, we don't expect them to end 45.
Speaker Change: But anything is possible with the Trump administration, we're well aware of that. But my personal opinion, and it's only my personal opinion, would be we would continue on with the project.
Speaker Change: and I think it would still be a good project. We wouldn't get government help.
Speaker Change: But there's definitely a market for low-carbon jet fuel, and I can go on and on. California, a few places, there's a good market for low-carbon ethanol, and we would be one of the few producers. So my personal opinion would be to continue on with that. Zafar, do you want to add anything?
Zafar Rizvi: Yeah, I think I will add to that if you remember We started this project in 2018 at that time. There was no Inflation Reduction Act was
Zafar Rizvi: Trump administration during that so I don't really see that they're going to be a major changes to 45q and also you are aware of that
Zafar Rizvi: changes can happen but I personally don't anticipate that there's going to be any changes in 45Q.
Okay, maybe a follow-up on the ethanol front.
Zafar Rizvi: You have, you know, a long history of operating ethanol plants, including, of course, under Trump's first term. Can you just give some historical perspective on how the EPA went about setting the the blending mandates?
Zafar Rizvi: you know between kind of 2017 and 2021 and how you managed around that?
Speaker Change: At that time, I believe it was legislatively set and there was a number of gallons in the law that were the RFS required.
Speaker Change: Nowadays, I believe that the EPA can set that level wherever they want.
Speaker Change: And that could be an issue going forward, we don't know.
Speaker Change: They, again, if they set it at a lower level, that could be a problem. If he really wants to be energy independent, like he claims, they could set it at a higher level. We have no idea what they're going to do, but they, I believe today, have the ability to set it at whatever level they choose.
Okay
Understood. Thank you, guys.
Thank you, Pavel.
Speaker Change: Thank you. We have no further questions at this time. I would like to turn the floor back over to management for closing comments.
Speaker Change: I just wanted to thank everyone for listening. Again, we had another very good quarter outperforming most, if not all, of the industry. We have the best plants, great locations, even a great location for a carbon capture project which we hope to implement.
Speaker Change: sometime in the next couple of years, hopefully sooner than that.
Speaker Change: And most importantly, we feel and we really feel we have the best people in the industry and that's what sets us apart. And again, with the best people, with our CEO, I consider the best in the industry and I think most other people do too. We're well set up for the future. Thank you very much for listening to the call. Bye.
Speaker Change: Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.