REX American Resources Corp (REX) 2024 Q1 法說會逐字稿

Good morning, and welcome to the REX American Resources, fiscal first quarter 2024 conference call.

As a reminder, today's call is being recorded.

(Operator Instructions) I would now like to turn the call over to Mr. Doug Bruggeman, Chief Financial Officer of REX American.

Please go ahead.

Good morning, and thank you for joining REX American Resources, Q1 '2024 for conference call.

We'll get to our presentation and comments momentarily as well as your questions.

But first, I will 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'd now like to turn the call over to our Executive Chairman, Stuart Rose.

Good morning, and thank you again to everyone for joining us.

First quarter saw a continuation of the strong results of REX American returned over its history.

Once again, our core business of the ethanol and co-product production was strong with 74.5 million gallons of ethanol sold an increase of approximately 4% of our first quarter of 2023.

Instruction of the One Earth Energy carbon capture facility continue to pace our Gibson City, Illinois, location.

We are also on track to complete the ethanol production capacity expansion at the One Earth Energy facility with the initial plan to run at 175 million gallons per year and then apply for an EPA permit to increase production to 200 million gallons per year.

To match our operational achievements, our financial results were among the best in our history with first quarter 2024 the second most profitable first quarter in the company's history from a net income per share perspective.

This was made possible due to lower natural gas and corn input prices.

They [are led] and the excellent execution of our team despite a weaker pricing environment for both ethanol and co-products.

The balance of the year, we have three goals.

First, continue our streak of profitable operation, which is now reached 15 quarters in a row.

Second, complete the construction phase of our One Earth Energy carbon capture and compression facility.

And lastly, to complete the capacity expansion of our One Earth Energy ethanol production facility to 175 million gallons per year move towards the plan, further permitting of the facility to 200 million gallons.

Focusing on these three core priorities, while remaining nimble and adjusting as appropriate to market and business conditions, we'll keep us in a good position, both now and in the future.

I'd now like to turn things over to our CEO, Zafar Rizvi, to give further update on our One Earth project.

Thank you, Stuart.

As Stuart said, our carbon capture and sequestration project in Gibson City, Illinois, is progressing, with the construction on the capture and compression facility is still on track.

You can see updated pictures of the progress at this facility in the first quarter investor presentation, which was posted to our website this morning.

We continue to expect that construction on the carbon capture and compression facility will be completed in July.

At that point, the facility will be ready for testing.

However, given extended calendar for electric utility connections across the country and which also impact Central Illinois we have been made aware that our connection to the facility is not likely until the fourth quarter of 2024 at the earliest.

We will provide updates on this as appropriate.

At the same time, we are seeing activity on the approval and permitting front of the pipeline and sequestration portion of the project.

We plan to reapply by weeks and to several questions we received in April from the EPA regarding our Class 6 well permit application.

And we continue to anticipate approval of the permit by Q1 of next year.

We have lately been encouraged by the progress of the EPA on other Class 6 well applications.

For the first sequestration well, we are also pleased to report that we have now [squared] the easement for enough of the subsurface area to allow us the capacity to sequester all of our carbon emissions from the One Earth Energy plant for the next 15 years at a minimum.

Also, as an update to the agreement we discussed on our last call, we have now squared from our former neighbors 100% of the land necessary for the growth of the proposed carbon delivery pipeline, which will serve injection well number one and two.

This is an incredible [significant] achievement as it means we are able to avoid the use of eminent domain for control of the pipeline door.

This was always our preferred outcome and one which we are happy to have achieved through discussions with our neighbors [to] the Illinois Commerce Commission hearing on the pipeline are proceeding.

The expansion of our One Earth Energy ethanol facility to 175 million gallons per year of production is progressing well.

Construction is ongoing, and we anticipate completion of the initial expansion in the fourth quarter.

After the necessary testing and permitting, we then expect to begin to plan for the permitting of the one-off facility to allow it to produce 200 million gallons per year.

This additional permitting is the only step necessary to allow for the expanded capacity as no additional construction or capital spending is expected.

As of quarter end, we have invested approximately $78.1 million into the One Earth carbon capture project and associated ethanol production capacity expansion.

This is compared to a total budget amount of $165 million to $175 million for both the CCS project and ethanol production expansion at Gibson City.

I would now like to hand the call to our CFO, Doug Bruggeman, to discuss our operational and financial results.

Thanks, Zafar.

I'll begin with our operational results.

REX ethanol sales volume during the first quarter of 2024 were 74.5 million gallons, an increase of approximately 4% over first quarter 2023 sales volumes of 71.5 million gallons.

Average selling price for our consolidated ethanol volumes was approximately $1.60 per gallon for the first quarter.

Dry distiller grain sales volume during the first quarter of 2024 totaled 163,500 tons, a slight increase over first quarter 2023 volumes.

Average selling price for DG was approximately $187.64 per ton for the first quarter.

Modified distillers grain sales volumes were 14,500 tons in the first quarter 2024, compared with approximately 12,000 tons in the first quarter of 2023.

Average selling price for modified distiller grain was approximately $82.52 per ton for the first quarter.

Corn oil sales volume in the first quarter of 2024 approximately 21 million pounds, compared to 20.6 million pounds sold in the first quarter of 2023.

The average selling price for REX's corn oil product was approximately $0.47 per pound for the first quarter of 2024.

Looking forward to the second quarter, it is important to note that we expect impacts to both maintenance expense as well as our sales of our products given regular planned maintenance at our consolidated new-gen and One Earth facilities.

Gross profit for the first quarter of 2024 was $14.5 million versus gross profit of approximately $10.2 million for the first quarter of 2023.

The 42% increase in gross profit was achieved despite lower average selling prices for all our products, which were offset by lower corn and natural gas input prices.

Our selling, general, administrative expenses increased to $6.1 million for the first quarter of 2024 versus $5.8 million in the first quarter of 2023.

The increase was primarily due to higher incentive compensation related to the company's improved performance.

Interest and other income totaled $5.9 million in the first quarter of 2024 compared with approximately $2.8 million for the first quarter of 2023.

This reflects better earnings on our cash and short-term investments and $1.2 million of patronage income at our Nugent facility.

Income before taxes, noncontrolling interest for the first quarter of 2024 was approximately $16 million, an increase of more than 83% over the first quarter of 2023.

As Stuart mentioned at the beginning of the call, first quarter 2024 was the second best first quarter from a net income perspective in our company's history.

Net income attributable to REX shareholders for the first quarter was $10.2 million compared to $5.2 million in the first quarter of 2023.

On a per share diluted basis for the first quarter of 2024, this amounts to $0.58 per share of net income compared to $0.30 per share in first quarter 2023.

We ended the first quarter with total cash, cash equivalents and short-term investments of $351.8 million compared with $378.7 million as of January 31, 2024.

The uses of cash during the first quarter were primarily related to our ongoing construction projects at the One Earth Energy facility.

REX American also ended the quarter without any bank debt.

I'd now like to turn things back to Zafar.

Thanks, Doug.

I would now like to give some color around how we see market progressing through the second quarter and the remainder of the calendar 2024.

Looking at the ethanol and co-product market, we saw a decline in the class spread as well as product pricing in the first quarter, as compared to the third and fourth quarter of last year, which is normal occurrence.

Again, we were able to achieve positive results despite less than ideal condition because of our incredible team.

In the second quarter, we have begun to see a pricing recovery, however, not to previous levels.

For the second quarter, we continue to see positive margins and earnings.

Though, as Doug mentioned, we will see effects of planned plant maintenance during the second quarter of the year.

This will impact production and increase associated expenses for the new [gain] and One Earth Energy plants.

Finally, I want to point out that last week, we posted our second ESG report to our website, highlighting the work we are already doing in reducing our environmental impact.

I would encourage everyone listening to take a look.

Now, I would like to open things up to questions.

Operator?

(Operator Instructions)

Jordan Levy, Truist Securities.

Hi all, [Henry] for Jordan, here.

Congrats on the quarter.

I think just to start with a quick follow-up on the timeline for the EPA well approval.

I see you guys are now kind of in the cumulative portion of tech review based on the latest kind of data from EPA.

When that phase is completed, should we be thinking about a six to kind of seven month runway to get through the remaining phases and get the final approval in the first quarter?

Thanks.

[Jordan], as we mentioned that we received recently some -- about proximately 25 to 26 questions from EPA, which are due by this Friday.

So we plan to answer those questions by this Friday.

And those are basically technical review about -- related with the software and other question, how to operate, because EPA apparently was not very familiar with that software.

So we have to send them all the guideline, how that works.

And we will be submitting this by this Friday.

And after that, the technical review will continue.

We expect that not later than first quarter of 2025 and would be earlier, depends how the technical review will proceed.

So we are expecting that should be -- the latest would be the first quarter of 2025.

To answer your question also a little bit further, we still need and are working on pipeline approval and local permit.

There's a number of different permits, local permits that we need to receive before we're in operation.

So at this time, I don't think we can give you an exact date.

Just because EPA gives us approval that's something, we have the other approvals.

And at this time, I don't think we're in a position to give you the exact date of when we expect to open.

We expect our plant to be finished at the plant level and be able to make -- be able to capture our CO2 gas as soon as the power's ready, which should be by the end of the year.

But in terms of putting that in the ground, I don't think we're ready to give you a date at this time.

Makes sense.

Thanks for that.

And then just a quick follow-up for me.

Going back to the One Earth facility, the expansion plan for to come online at the end of the year to 175 million gallons.

Can you all just provide any color on the timeline for the permit submission to

[200]?

How long you expect that to take once the permit is submitted?

Thank you.

Yeah, the process is basically what -- we already have 175 million gallon production per month at this time.

But the since the production facility is in the process to increase product production from 150 million to 175 million, once the facility is completed, then we require to do some stack testing, which is basically related with the greenhouse gases.

So we will have to do the testing.

And once we qualify after those testing, then right after that we can apply for the 200 million gallon permit from the EPA.

So this is a step-by-step process, as I mentioned in previous two calls.

So we are following those step-by-step process.

But the facility will be ready to -- we'll be able to produce 200 million gallon.

But the only thing will be required at that time once we complete [Sunland] 75, then the next step will be applying for 200 million gallons.

Thanks for that color.

Congrats again.

Pavel Molchanov, Raymond James.

Good morning.

Thanks for taking the question.

Whenever you get the EPA approval -- so recognizing the timetable is uncertain, do you have a sense of how long it will take before injection gets to the kind of run rate nameplate capacity so to speak that you're anticipating?

The process basically work -- we have ordered all the equipment and other basic things which we need for the well.

And those will be available once we get the approval from the EPA and then it takes approximately two to three months to have the well start -- start digging and then complete to make it to that 7,000 feet down.

So all together, process maybe take somewhere three to four months after that.

Keep in mind that we also need other things like pipeline approvals, so that -- which could delay things.

So there's no guarantees at this time.

But assuming we get all our approvals, that's exactly how long -- what Zafar said is exactly right.

Right.

And in the meantime, while you're waiting on the regulatory road map, what is the status of your dialogue with prospective CO2 injectors for the plant, in other words, other than your own facility?

The honest answer is, at this time, we are really trying to laser focus what's exactly happening at our facility.

Because that's the most important project we have.

Once we are in production, then certainly we can think about it wherever is other -- [meters] are available in that area.

There we can have some conversation with the University of Illinoi talking about that DACA unit and others, but that's a long way to go yet.

But our laser focus is the facility, to complete the facility, get all those permits from ICC, EPA, special use permit from the county.

So those are our main focus and most importantly, completion of the facility at this time.

Maybe I'll just squeeze in a question on the ethanol side of the business.

We keep seeing EPA headlines about year-round E15.

I mean, it seems like it's been going on forever now.

What are your latest thoughts on that?

I think we have seen some improvement -- demand -- there's a lot of conversations going on.

But at the same time, we have not really seen tremendous improvements of the demand at this time.

But this is also a driving season.

So we will see that what happened in the next couple of months.

Also keep in mind, just because there's E15 approved, that doesn't mean there's E15 pumps, and that's still a big issue that the pumps are not out there, even if it was approved for year-round sales.

Okay.

Thanks very much.

Thank you, Pavel.

BJ Cook, Singular Research.

This is BJ Cook in for Chris Sakai.

Just a couple of questions, one kind of build on the last caller.

Though the appointment [welled up] expansion and One Earth project is complete and up and running, how do you expect that to -- affect the industry capacity as a total, because there are demand to absorb the additional capacity?

I think while production is flat -- we plan to have production up to 200 million gallon.

As you know, all these plants are different location and two different sides supply -- for One Earth Energy, more closely our plant supply is towards to the south or east.

It probably depends on which railroad the plants are located, but I don't really know how much that will affect overall supply of the ethanol facilities.

Okay.

Thanks.

Appreciate that.

Just one more.

Great quarter on the unconsolidated affiliates also.

I just wanted to make sure, are similar factors affecting those of investments as well?

Are there some idiosyncratic factors worked in there?

I'm sorry, I didn't understand your question.

Will you please repeat that?

Like other income.

Interest in another income?

Yeah.

Yeah, I mean, we had it obviously increased the interest rate on our cash and cash equivalents, and then somewhat of a -- not a one-time but a rare occurrence of a $1.2 million patronage income in Nugent.

That's not a recurring thing and not something to count on going forward.

Perfect.

Great quarter, guys.

Appreciate your time.

Thank you.

Thank you.

Thank you.

Ladies and gentlemen, that concludes our question and answer session.

I'll turn the floor back to Mr. Rose for any final comments.

Thank you.

Again, we outperformed most of our public peers last quarter and we get it -- what we consider great plants, great locations.

But most importantly, we feel we have the best people in the industry, and that's what separates us.

Hopefully we'll continue to do this, and we look forward to talking to everyone next quarter.

Thank you very much.

Bye.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time.

Thank you for your participation.