REX American Resources Q4 2024 Earnings Call Transcript

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Provided by Quartr
March 28, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to the REX American Resources 4th Quarter and Full Fiscal Year 2023 Conference Call. As a reminder, today's call is being recorded. And at this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. I would now like to turn the call over to Mr.

Operator

Doug Ruderman, Chief Financial Officer of REX American. Please go ahead.

Speaker 1

Good morning and thank you for joining REX American Resources Q4 and full fiscal year 2023 conference call. I have joining me on the call Stuart Rose, Executive Chairman and Zafar Rizvi, Chief Executive Officer. We'll get to our presentation and comments momentarily as well as your questions and answer session, 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.

Speaker 1

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 ks and 10 Q. REX American Resources assumes no obligation to publicly update or revise any forward looking statements. I would now like to turn the call over to Stuart Rose.

Speaker 2

Good morning and thank you again to everyone for joining us. Fiscal 2023 was a great year for REX American. Our core business of ethanol and co product production was strong with 285,900,000 gallons of ethanol sold, an increase of more than 7% over 2022. We kicked off construction of the One Earth Energy Carbon Capture and Sequestration Project at our Gibson City, Illinois location. We are also on track to complete the first phase of ethanol production capacity expansion to One Earth Energy Facility.

Speaker 2

On the financial front, 2023 saw the most profitable quarter in the company's history from a net income per share perspective during the Q3. I'm also proud to announce that both Q4 and full year 2023 were the 2nd most profitable quarter and full year in REX's 39 year history as a public company. This is quite an achievement for our company. Across the board during 2023, the team at Rex American consistently looked over the horizon, identified met challenges, proactively drove success throughout the year. I'd like to thank everyone in our company for their hard work and dedication to making REX a successful and profitable company that it is.

Speaker 2

Our operational excellence has been the cornerstone of our success. Tim is in the market every day monitoring and optimizing our contract positions to continue producing ethanol and co products efficiently and profitably. Our commitment to innovation and sustainability has never been stronger, as evidenced by the ongoing construction and permitting process for our carbon capture project, which if successful will reduce REX's carbon footprint and produce net income benefits. We expect the One Earth Energy CCS project to add significantly to our financial results once it is approved and up and running. This assumes we receive all necessary permits and approvals.

Speaker 2

As far as the additional avenues of growth, we're always looking at facilities that come in the market. Though at present, we do not see opportunities that fit within our standards of quality and which make economic sense to our portfolio. I'm proud of the work we have done and excited about the direction of our company to look into the next several years. I now turn things over to CEO, Zafar Rizvi to discuss the One Earth project in greater detail.

Speaker 3

Thanks, Stuart. Our carbon capture and sequestration project in Gibson City, Illinois is not only a testament to our commitment to the environment but also to our strategic foresight in positioning the company for profitability well into the future. As we have discussed with you before, the ONEOK Energy project, if all approvals are received and the facility is operational, to contribute to REX bottom line through both 45 and 45Q tax credit, which we plan to maximize with the related expansion of our Gibson City ethanol production facilities capacity to 200,000,000 gallons per year. We expect these two projects together could add significantly to our bottom line. The addition of CCS to our ethanol facility also opens up other potential business lines such as production of low carbon ethanol for use in so called alcohol to jet process for sustainability aviation fuel products as well as the potential for us to sequester carbon for other producers in our Class 6 injection wells.

Speaker 3

Both of these are additional business options for us. We are exploring, however, the near term focus is getting the facility up and running. To that point, we continue to make progress in construction of the CCS and you can see picture of the in process project in our updated investors presentation, which is available on our website as of this morning. Currently, the team is focused on completing construction of the carbon capture portion of the facility, preparation for emergency response plans and getting all of the required permitting completed. We continue to expect completion of construction of the carbon capture facility by the end of the second calendar quarter of 2024 and beginning of testing after additional power sources are in place.

Speaker 3

As far as permitting and approvals, we continue to monitor our Class 6 injection permits, application for the Environmental Protection Agency, our pipeline application with use zoning permit for the county. We are very keen to ensure complete compliance with all regulatory requirements and are committed to working closely with all appropriate agencies to get the One Heart Energy project approved and into service as fast and as safely as possible. As of year end, we have invested approximately $38,600,000 into the 1 Ought Carbon Capture Project and associated ethanol production capacity expansion. This is compared to total budget amount $165,000,000 to $175,000,000 for both the CCS projects and ethanol production expansion at Gibson City. This investment underlines our beliefs in the project's potential and our commitment to sustainable energy solutions.

Speaker 3

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

Speaker 1

Thanks, Zafar. I'll begin with our operational results. REX's ethanol sales volume during fiscal year 2023 were 285,900,000 gallons, an increase of 7.5% over fiscal year 2022 sales volumes of 265,800,000 gallons. Average selling price for our consolidated ethanol volumes was approximately $2.22 per gallon for the full year. Dry distilligrane sales volume during fiscal 2023 totaled 652,000 tons, a 9% increase over fiscal 2022 volumes.

Speaker 1

Volumes during the Q4 were approximately 169,000 tons, an increase of 13.4% over Q4 2022. Average selling price for DDG was approximately $213.55 per ton for the full year. Modified distiller grain sales volume were 54,000 tons in fiscal year 2023 compared with approximately 94,000 tons in fiscal year 2022. For the Q4, MDG volumes totaled approximately 18,000 tons, increase of 7.3% over the same period in 2022. Average selling price for modified distiller grain was approximately $103.54 per ton for the full year.

Speaker 1

Corn oil sales volume in fiscal year 2023 were approximately £87,500,000 compared to £77,800,000 sold fiscal year 2022, an increase of approximately 12.5%. For the Q4, corn oil sales totaled approximately £22,000,000 an increase of 7% over Q4 2022. Average selling price for REX corn oil products was approximately $0.60 per pound for the full year. Gross profit for fiscal year 2023 was $98,200,000 versus gross profit of approximately $48,600,000 for fiscal year 2022. The more than 100% increase in gross profit was due to improved production levels and lower corn and natural gas prices.

Speaker 1

Gross profit in Q4 2023 was $30,400,000 compared to $13,300,000 in Q4 2022. The increase was due to similar dynamics as seen for the full year. Our SG and A expenses increased to $29,400,000 for fiscal year 2023 versus $22,800,000 in 2022. SG and A in the Q4 increased to approximately $7,400,000 versus $5,100,000 in the Q4 of 2022. In each case, the increase was primarily due to higher incentive compensation related to the company's performance.

Speaker 1

Interest and other income grew by approximately 21 percent 2023 totaling 15 point $7,000,000 compared with approximately $13,000,000 for fiscal 2022. We reported interest and other income for the Q4 of approximately $4,800,000 versus $2,600,000 for the same period in 2022. Income before taxes and non controlling interest for 2023 was approximately $98,500,000 a significant increase from $47,500,000 in 2022. During the Q4, we reported approximately $32,500,000 in this metric versus $13,300,000 during the same period during the previous year. As Stuart mentioned at the beginning of the call, 2023 was the 2nd best year from a net income perspective in our company's history.

Speaker 1

Net income attributable to REX shareholders for the year was $60,900,000 compared to $27,700,000 fiscal year 2022. For the Q4 2023, this equaled $20,600,000 compared with 8 point $2,000,000 for the Q4 2022. On a per share diluted basis for the full year, this amounts to $3.47 per share of net income in 2023 compared to $1.57 per share in 20 22 for the Q4 of 2023, diluted net income per share was $1.16 per share compared to $0.47 per share the same period in the previous year. We ended the year with total cash, cash equivalents and short term investments of $378,700,000 compared with $280,900,000 for fiscal year end 2022. The cash build during 2023 was reflective of our conservative fiscal approach and anticipated capital expenditures related to the 1 Earth Energy CCS project and ethanol production capacity expansion at our Gibson City location.

Speaker 1

Also related to this conservative approach, Rex American ended the year without any bank debt. I'd now like to turn the call back to Zafar.

Speaker 3

Thanks, Doug. I would now like to give some color around how we see ethanol market progressing through the remainder of the calendar 2024. Looking at the ethanol and co product market, we anticipate continued changes in commodity market. However, as we have seen over the years, our incredible capable team that is in the market every day. Watching these markets, adjusting our positions and looking at our forward contracting strategy put us in better position no matter the market conditions.

Speaker 3

As far as the market for our most important inputs, coal and natural gas so far during calendar year 2024, we are seeing pricing run more in our favor than a year ago. This has resulted in Aetna profitability currently running slightly ahead of the same period a year ago. In closing, I want to thank our very dedicated employees whose hard work and innovation have driven our success. We are excited about the future and confident in our strategy to deliver value to our shareholders. Thank you for your continued support.

Speaker 3

I would like to open the things up for questions. Operator?

Operator

Thank you. At this time, we'll be conducting a question and Our first question comes from the line of Jordan Levy with Churwood Securities. Please proceed with your question.

Speaker 4

Hi, guys. It's Henry on for Jordan here. Congratulations first on another excellent quarter. Just to start with on the regulatory side, are there any incremental updates or color you can give us on the discussions with the EPA and the Illinois Commerce Commission?

Speaker 2

So far?

Speaker 3

Sure. Let me give you some information where we stand today. Our carbon facility is under construction. As you know, it's expected to complete by the end of July or beginning of August. Permitting process for Class 6 permit is under review by the EPA, which is we have no knowledge when they will approve, but it is under technical review.

Speaker 3

We also filed for the pipeline to ICIC, and we are waiting that process is in we are going through the process and expect it to complete by the end of July or early August. And we're also able to have able to get well number 1 and well number 2 and well number 3, where all the easement is signed for all the 3 wells. We also have 91% of the four area at this time for the well number 1. We also have approximately 62% of the easement for the 6 Mile pipeline, which will take us to well number 12 is completed. And we also have NewGen facility signed agreement with the Summit last year.

Speaker 3

It's also Summit is also improving their able to successfully able to get some legislation passed in the South Takeda. So as far as basically coming back to Jordan again, that certainly this process is a long process and it's government agencies, and we have no knowledge when and when they will approve that.

Speaker 2

Henry, I want to add that 91% is an incredible number to get that much. A lot of people a lot of virtually everyone else has less than that in their holes and they try for things like eminent domain and stuff like that. It's our hope that we won't have to do anything like that. We have an incredible amount of support from our pharma partners to get this project And that's we think something that separates us from a lot of the other people that might be having a little more trouble than us.

Speaker 4

Yes. Got you. Thank you guys for all that color. Just a quick follow-up around capital allocation. I know you mentioned in the call, you're not you haven't seen anything in the ethanol asset space that's, I guess, worthy of purchasing at this point.

Speaker 4

I'm just wondering if there's in terms of thinking of use of cash outside of your current One Earth and carbon capture projects. Are there other things you guys are thinking about or looking at for uses?

Speaker 2

That's a good question. We have looked at a couple other at some plants. And so far to date, we haven't found anything that we're so focused at the moment on this carbon capture, but there could be a lot of uses for our capital, for example. I mean, this is way in the future, way, way in the future and just talk at this point. But let's say jet fuel, let's say, if CO2 can be admitted, there's a number of power plants nearby that emit a lot of CO2.

Speaker 2

We have carbon capture holes, we're getting permitted now. There's chances to be partners with them. There's cement plants. We also, as you probably know, when our stock drops, we're prolific buyback people. So there's always the opportunity to use the cash for that.

Speaker 2

So we're excited about the future after carbon capture or our carbon capture combined with other people's carbon capture. There's so many things we can do in the future.

Speaker 3

Yes. And also, as you know, that we're going to have approximately $165,000,000 to $175,000,000 is for CCS and expansion of the plants, which is expected to complete by the end of this year or early 2025. So I think that will be also taking a lot of cash, which we have at this stage. And then it still leads us to further future expansion or future purchase of any other properties available, as Stuart mentioned.

Operator

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Speaker 5

Thanks for taking the question. Good to connect as always. I've kind of posed this question before. I thought I'd get your latest thoughts on this. I mean, you're extremely cash rich to state the obvious for a company of your size.

Speaker 5

And there are ethanol assets that periodically come up for sale, maybe not as good as yours, but they are for sale. Is there any opportunity to add to your existing production asset base?

Speaker 2

We are Pavel, hi Pavel, by the way. We're always looking. We are looking, but at this time, we have nothing imminent. What we would ideally want, which is hard to find, is a large Fagan ICM plant that's near Illinois or near somewhere someplace that's near carbon capture because we have the potential at least for the next few years to make as much in carbon capture on these plants as we can in the ethanol business. So that would be ideal.

Speaker 2

We would look at something that wasn't ideal if it was a good plant, would have to be a really good plant that has good corn supply that's relatively new, preferably Fagan ICM. We're pretty stringent on what we look for and we have things so much planned right now that if we never found one with carbon capture, we have great plans for the future.

Speaker 3

And I'll add to that is also for well, we are organically also growing. So as you can see, originally, these plants were 100,000,000 gallon, then we expanded to 125,000,000 each, then 150,000,000. And now we are expanding this 1 Earth Energy plants to 200,000,000 gallon. So I think we certainly is we believe that our plants at the best location possible, CCS project, and they have produced much better than any other location, any other ethanol location. So we are trying to make sure that we reinvest also in our locations and grow organically before we also try to buy something which may not fit our criteria.

Speaker 2

And to be honest, that's been less expensive than some

Speaker 1

of the

Speaker 2

transactions that have taken place when

Speaker 5

Okay. So, earlier this year, the first ethanol to or I guess alcohol to jet facility in the world to open up in Georgia, of course, this is the Lanza Jet project. And I'm curious if at any of your existing ethanol sites or potentially at some future M and A opportunity, you would be interested in running this kind of conversion project to produce SaaS?

Speaker 3

Yes. Pavel, I was at the SAF conference earlier this week, actually last Thursday Friday, hearing about some of the dynamics and projection for this market, approximately there was expected to be approximately $30,000,000,000 30,000,000,000 gallons market is there. And the one thing is very consistent, there is no different kind of aviation fuel. Aviation fuel is only one kind of aviation fuel, which everyone use that. And there is approximately $7,000,000 a day demand.

Speaker 3

There was American Airline, United Airline and Southwest Airline was also there. So we are currently looking into how Racks could participate and what may make the most sense on this part. However, right now, we really are focused on our part, getting the Vonage plant up and running, which means permitted, build and in operation, we are looking at option for CCS behind sequestration of our own carbon, but are concentrating on making our 1st ethanol plant successful and 1st and most importantly CCS project successful at this time. But there is great market. There is in the future, there will be the right things to do to maybe even pivot in maybe 2 or 3 or 4 years from now.

Speaker 3

But at this time, there is only when I learned from that I say, I've gone first, there's only 50,000,000 gallons are produced. And there is not enough market, but it's expected to grow by 2,032,000,000,000 gallons. So yes, there is a great future. But at this time, there isn't really enough market demand there.

Speaker 2

Pavel, also one of the keys to our success, Pavel, has not been to be the pioneer, but to have the best technology and wait for the best technology and see who has the best technology out there. So we are not jumping into it. We'll let someone else be the pioneer and take the arrows, but we'll come in as soon as someone shows that this is or we'll at least look at it very seriously as soon as someone shows that this can be a profitable business.

Speaker 5

Thanks very much.

Speaker 2

Any other questions?

Operator

Thank you. Our next question comes from the line of Vijay Cook with Singular Research.

Speaker 6

Just quick, is there you guys have any new info or update on the capacity expansion in Gibson City?

Speaker 3

I'm sorry, I didn't hear your question. Could you repeat that again, please?

Speaker 6

Yes, sorry. Is there any new information or update on the capacity expansion at Gibson City?

Speaker 3

I think as I mentioned previously that we are expanding that plant. The ethanol facility is going to be a 200,000,000 gallon and construction is in progress. And for the ethanol facility, we expect that will be completed before the end of this year. And then CCS project is also the construction of the building is compressor facility, building is almost complete. Equipment is arriving every single day and we expect that by the end of July or early August, CCS facility will be completed.

Speaker 3

But we still have to wait for the pipeline permit and the EPA Class 6 permit before we start any kind of carbon sequestration. So those are the main things we are waiting for the permits. But as far as concerned about the facility, it's going very well.

Speaker 1

This is Doug. Let me add. When we expand that facility, the construction will be to take us to 200,000,000 gallons. Initial plans are to run at 175,000,000 gallons. And once we achieve that, and get EPA further approval, then we can go to 200,000,000 gallons.

Speaker 6

Yes. Fantastic. Thanks. How are you guys looking at capacity utilization? It's kind of a moving target, I guess.

Speaker 6

But for the remainder of the year, you guys expect to run it up?

Speaker 2

The question was capacity utilization. For maintenance. There'll be times when we cut back, just because we're doing with the CCS where we can't quite run as much as we usually do. But basically, we'll be full capacity. We'll go all out and we always go all out when it's a profitable market.

Speaker 3

Yes. We have not really a slowdown. Our slowdown is processes. Sometimes it's maintenance are unexpected, some kind of shutdown. So we try to use the full capacity practically possible.

Speaker 3

Yes, because we are in a basically Illinois in the Corn Belt area and South Dakota crops was great last year and expected to be this year the same. So we have no plan to really slow down at this stage.

Speaker 6

Okay. Thank you very much.

Speaker 2

Thank you.

Operator

And we have reached the end of the question and answer session. I'll now turn the call back over to Stuart Rose for closing remarks.

Speaker 2

Okay. I'd like to thank everyone for listening. As you have heard, we have great plants, terrific plants, great growth prospects and the key to everything is the execution of our employees. We feel we have the best employees in just want to thank them and we also want to thank you for listening to the call. We appreciate it very much.

Speaker 2

Talk to you next quarter. Bye.

Operator

And this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • In FY2023 REX sold 285.9 million gallons of ethanol (up 7.5% vs. 2022), with Q3 its most profitable quarter ever and both Q4 and full-year results ranking as the second-highest in its 39-year history.
  • The company has invested $38.6 million to date in the One Earth Energy CCS project and associated Gibson City ethanol expansion, aiming for completion by Q2 2024 and to capture 45/45Q tax credits that will lower its carbon footprint and drive earnings.
  • REX’s FY2023 gross profit more than doubled to $98.2 million and net income rose to $60.9 million ($3.47 per share), while cash and short-term investments climbed to $378.7 million and the company carried zero bank debt.
  • Co-product volumes increased by 9% for DDG and 12.5% for corn oil in FY2023, and ethanol capacity at Gibson City will expand to 200 million gallons (initially running at 175 million) to meet growing demand.
  • While maintaining a conservative M&A stance, management is focused on organic growth and evaluating opportunities in sustainable aviation fuel production and third-party carbon sequestration to diversify its revenue streams.
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Earnings Conference Call
REX American Resources Q4 2024
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