REX American Resources Corp (REX) 2020 Q1 法說會逐字稿

Greetings, and welcome to the REX American Resources Fiscal 2020 First Quarter Conference Call. (Operator Instructions)

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 2020 First Quarter Conference Call. We hope everyone and their family and friends have remained safe and healthy since we've last spoke. We'll get to our presentation and comments momentarily as well as your Q&A 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 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 in 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. Let me first review our financial performance. Sales for the quarter decreased 20.4%, primarily due to lower production levels as we idled our NuGen plant mid-first quarter as the crush margin for this plant was affected by local corn availability, the COVID-19 pandemic and lower oil pricing and the impact on ethanol demand and pricing. Ethanol sales for the quarter were based upon 48.3 million gallons this year versus 61.3 million last year. Although we idled the One Earth plant, it occurred at its quarter end, so there was no significant impact on its volume for the first quarter. We reported a gross loss of $8.2 million for the ethanol & by-products segment versus a gross profit of $6.1 million in the prior year. Gross margin in the current year was not only impacted by the lower volume and negative ethanol and corn crush spread, but also by the $9.1 million lower of cost or net realizable value charge as corn and ethanol values fell sharply due in part to the slowdown in demand from the COVID-19 impact, all of which was offset somewhat by a hedge gain of $3.1 million.

Our refined coal segment had a gross loss of $1.1 million for the first quarter of fiscal 2020 versus $2.5 million for the prior year based upon lower volume. These losses are offset by tax benefits of $959,000 and $3.9 million for the first quarter of fiscal 2020 and 2019, respectively, recorded for the Section 45 credits and the tax benefits from operating losses.

We had a loss of $477,000 from our unconsolidated equity investment in this year's first quarter versus income of $126 million for the prior year, reflecting ethanol industry conditions. Interest and other income declined from $1.1 million to $669,000, primarily due to lower interest rates on our cash and short-term investments as interest rates fell sharply during the quarter. We recorded a tax benefit of $5.3 million for the first quarter of this year versus $3.5 million in the prior year. We recorded our federal tax benefits from losses at 35% rather than the current 21% federal tax rate based upon our ability to carry back losses 5 years due to the CARES Act passed in the first quarter. The above factors led to a net loss attributable to REX shareholders of $7.6 million in this year's first quarter versus net income of $2.8 million in the prior year.

Let me now turn the call over to Stuart for his comments.

Thank you, Doug. Going forward, our ethanol business is currently losing money, and we expect it to lose money in the second quarter, but we do not expect the loss to be as much as the first quarter. Wind prices and ethanol prices have risen, allowing us to reopen our Gibson City plant. Hopefully, we can have all plants operational by the fall. Corn harvest looks good. And the CARES Act certainly helped us as losses can be carried back 5 years. There's also some other benefits in the CARES Act that we certainly will take advantage of where it applies to us.

In terms of refined coal, it continues to be down as coal use for electricity has declined and especially at the utility where we have our operations.

In terms of quarter end, we had $195 million roughly on -- in cash on a consolidated basis. We plan on investing in a potential carbon capture site, which Zafar, our -- Zafar Rizvi, our CEO, will discuss following me. We continue to buy in shares on dips. Opportunistically, we've bought in 108,706 shares during the first quarter and since the first quarter, and we're authorized to buy 241,185 more. We continue to look for quality ethanol plants. We still believe in the industry, but we'd have to have very, very good prices, and certainly, we have nothing imminent at this time. We would consider outside investments. We've done that in the past. That's how we got into the ethanol business, if we feel it would be profitable and would fit our skill set. Again, there's nothing imminent.

I'd like to turn this over to Zafar now to talk a little bit about the ethanol business and the carbon capture that we have just initiated -- carbon capture project we've just initiated. Thank you.

Thanks, Stuart. Good morning, everyone. I will keep my remarks brief. As I mentioned in our previous call, we entered fiscal 2020 facing continued challenges. Including the recent declines in the crude and ethanol markets, decline in the price and the COVID-19 pandemic. The fear of COVID-19 spread of the virus led to a shutdown of businesses and stay-at-home order by the governors. That resulted in a decrease in the fuel demand and negatively impacted the ethanol industry. Several ethanol facilities across the country shut down, including both of our majority-owned plants. We are taking every step to keep our employees safe and are following CDC state and federal guidelines.

As I mentioned previously, our NuGen plant continued to suffer negatively throughout the last year due to shortage of corn in that area. The challenging environments and very severe economic impact of COVID-19 led to the decision to shut down the NuGen plant on March 17 and One Earth Energy on March 31. By April 2020, we had idled both of our majority-owned plants. We have experienced some improvements in business activities recently as COVID-19 shutdown orders relaxed, as Stuart mentioned earlier. That created an increase in demand for gasoline and ethanol and impacted the price. As a result, we began the process of reopening One Earth Energy and started production yesterday. Due to all these reasons, we are expecting a loss in the ethanol segment in the second quarter of 2020. If market conditions do not continue to improve and the threat of COVID-19 is not eliminated, we will generate a loss.

On top of that, we are experiencing continued uncertainty because of the trade disputes and the small refinery exemptions. The EPA has received 27th small refinery exemption for 2019 renewable fuel standard. The EPA has granted 31 exemptions for the 2018 RFS compliance year. On a positive note, we are pleased that ethanol and DDG export for the first quarter of 2020 increased compared to 2019. Ethanol export totaled 485 million gallons compared to 382 million gallons during the same quarter last year. Export of dry distal grains for the first quarter of 2020 totaled 2.7 million metric ton compared to 2.45 metric tons for the first quarter of 2019. The corn crops is projected to yield approximately 16 billion bushels for 2020, 2021 and expected to carry over 3.318 billion bushels. That will be the largest carryover. Farmers planted about 97 million acres of corn and the estimated corn yield is 178 bushels per acre according to the May 12 USDA forecast report.

For the 2019 and '20 years, ethanol plants expected to consume 4.95 billion bushels, which is down 1.98 for -- from last month and 7.9% lower than forecasted in January 2020 due to recent shutdown and slowdown of ethanol plants. Approximately 70% of the ethanol plants were shut down or either slowed down during the last few months.

Let me give you a little bit -- as Stuart mentioned, let me also give you some progress on the carbon sequestration project I have discussed in our previous call. As I mentioned then, we are working with the University of Illinois to explore a carbon sequestration project. The university has received a U.S. Department of Energy award through the carbon safe program to characterize and develop a carbon storage site associated with One Earth Energy ethanol facility. The University of Illinois will evaluate the greenhouse gas storage potential beneath the site of the drilling, test well and performing a seismic surveys. In addition, researcher will conduct a front-end engineering and design feed study for the CO2 capture system. The Carbon Safe project seeks to accelerate commercial development of carbon capture and storage within the Illinois storage corridor, a region which has proven geological storage capability. Geological mapping, characterization and modeling have demonstrated that excellent storage potential exists in the Mt. Simon Storage Complex in the vicinity of the One Earth Energy facility. To date, we have completed the feasibility study, seismic testing, and have purchased extra land for this project. By the way, there is a Section 45Q, which provide $50 a ton tax credit. I just want to mention that also. I want to caution that this project is still at very early preliminary stage, and we cannot predict that we will be successful yet with this project.

In summary, we cannot predict how long this downtrend in the economic activity will continue, but we have seen some improvements in demand of gasoline, which could help the ethanol -- demand for ethanol. We also have seen the corn planting overall so far is making excellent progress. 88% of the corn is planted compared to 80% last year at this time in the country. The corn planting last year in South Dakota was 23% compared to 86% this year. And corn emerged 44% compared to 1% last year in South Dakota around our area. This plant -- the planting of the corn around our plants draw area in South Dakota, Illinois and Iowa is almost completed, which could lead to better yields, early harvest and better economic results.

So I will give back -- the floor back to Stuart Rose for further comments. Stuart?

Thank you. In conclusion, we had a rough quarter. We expect at least one more rough quarter before hopefully things return to normal. We're opening one of our closed plants, and the harvest so far looks good. We still have great plants, great locations. And when things normalize, we should and hope to do well again. We have high hopes for carbon capture, although as Zafar said, nothing is guaranteed in that area, but we are certainly working on it, working with the University of Illinois. Most important is we feel we have the best people in the industry. So when things do get back to normal, our people know what they're doing. They've done well in the past. And we know they'll do what it takes to bring us back to the way we were -- to bring these plants back to what they're capable of. I'll now leave the floor open to questions.

(Operator Instructions)

If there are no questions -- are there any questions? If there are no questions, I'd like to thank everyone for listening to our call. We very much appreciate your loyalty, and hopefully, things will get better in the next 3 or 4 months. Thank you so much.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a good day.

Thank you.