REX American Resources Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 22, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to the REX American Resources Fiscal First Quarter 20 24 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 Brueggemann, Chief Financial Officer of REX American. Please go ahead.

Speaker 1

Good morning and thank you for joining REX American Resources Q1 2024 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.

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

Speaker 2

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 ethanol and co product production was strong with 70 4,500,000 gallons of ethanol sold, an increase of approximately 4% over Q1 of 2023. Construction of the One Earth Energy Carbon Capture Facility continue to pace their Gibson City, Illinois location. We're also on track to complete the ethanol production capacity expansion at the One Earth Energy Facility with the initial plan to run at 175,000,000 gallons per year and then apply for an EPA permit to increase production to 200,000,000 gallons per year.

Speaker 2

To match our operational achievements, our financial results were among the best in our history with Q1 2024 the 2nd most profitable Q1 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 and the excellent execution of our team despite a weaker pricing environment for both ethanol and co products. For the balance of the year, we have three goals. First, continue our streak of profitable operations, which has now reached 15 quarters in a row. 2nd, complete the construction phase of our One Earth Energy Carbon Capture and Compression Facility.

Speaker 2

And lastly, to complete the capacity expansion of our One Earth Energy ethanol production facility to 175,000,000 gallons per year move towards the planned further permitting of the facility to 200,000,000 gallons. Focusing on these three core priorities, we're remaining nimble and adjusting as appropriate to market and business conditions will 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.

Speaker 3

Thank you, Stuart. As Stuart said, our carbon capture and sequestration project in Gibson City, Illinois is progressing with construction on the capture and compression facility still on track. You can see updated pictures of the progress at this facility in the Q1 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.

Speaker 3

However, given extended calendars for electric utility connections across the country and which also impacts Central Illinois, we have been made aware that power connection to the facility is not likely until the Q4 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 reply 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.

Speaker 3

We have lately been encouraged by the progress of the EPA on other Class VI well applications. For the 1st 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 1 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 secured from our farmers' neighbors 100 percent of the land necessary for the proposed carbon delivery pipeline, which would serve injection wells number 12. This is an incredible significant achievement as it means we are able to avoid the use of eminent domain for control of the pipeline road. This was always our preferred outcome and one which we are happy to have achieved through discussion with our neighbors.

Speaker 3

The Illinois Commerce Commission hearing on the pipeline are proceeding. The expansion of our 1 Ath energy ethanol facility to 175,000,000 gallons per year of production is progressing well. Construction is ongoing and we anticipate completion of the initial expansion in the Q4. After necessary testing and permitting, we then expect to begin the planned further permitting of the 1 off facility to allow it to produce 200,000,000 gallon 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.

Speaker 3

As of quarter end, we have invested approximately $78,100,000 into the 1 Earth Carbon Capture project and associated ethanol production capacity expansion. This is compared to a total budget amount of 165,000,000 dollars to $175,000,000 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.

Speaker 1

Thanks, Zafar. I'll begin with our operational results. REX ethanol sales volume during the Q1 of 2024 were 74,500,000 gallons, an increase of approximately 4% over Q1 2023 sales volumes of 71,500,000 gallons. Average selling price for our consolidated ethanol volumes was approximately $1.60 per gallon for the Q1. Dry distiller grain sales volume during the Q1 of 2024 totaled 163,500 tons, a slight increase over Q1 2023 volumes.

Speaker 1

Average selling price for DDG was approximately $187.64 per ton for the Q1. Modified distillers grain sales volumes were 14,500 tons in the Q1 of 2024, compared with approximately 12,000 tons in the Q1 of 2023. Average selling price for modified distiller grain was approximately $82.52 per ton for the Q1. Corn oil sales volume in the Q1 of 2024 were approximately £21,000,000 compared to £20,600,000 sold in the Q1 2023. The average selling price for REX's corn oil product was approximately $0.47 per pound for the Q1 of 2024.

Speaker 1

Looking forward to the Q2, 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 NuGen and One Earth facilities. Gross profit for the Q1 of 2024 was $14,500,000 versus gross profit of approximately $10,200,000 for the Q1 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 and administrative expenses increased to $6,100,000 for the Q1 of 2024 versus $5,800,000 in the Q1 of 2023. The increase was primarily due to higher incentive compensation related to the company's improved performance.

Speaker 1

Interest and other income totaled $5,900,000 in the Q1 of 2024 compared with approximately $2,800,000 for the Q1 of 2023. This reflects better earnings on our cash and short term investments and $1,200,000 of patronage income at our Nugent facility. Income before taxes non controlling interest for the Q1 of 2024 was approximately $16,000,000 an increase of more than 83% over the Q1 of 2023. As Stuart mentioned at the beginning of the call, Q1 2024 was the 2nd best first quarter from a net income perspective in our company's history. Net income attributable to REX shareholders for the Q1 was $10,200,000 compared to $5,200,000 in the Q1 of 2023.

Speaker 1

On a per share diluted basis for the Q1 of 2024, this amounts to $0.58 per share of net income compared to $0.30 per share in Q1 2023. We ended the Q1 with total cash, cash equivalents and short term investments of $351,800,000 compared with $378,700,000 as of January 31, 2024. The uses of cash during the Q1 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.

Speaker 3

Thanks, Doug. I would now like to give some color around how we see market progressing through the Q2 and the remainder of the calendar 2024. Looking at the ethanol and co product market, we saw a decline in the cash spread as well as product pricing in the Q1 as compared to the 3rd Q4 of last year, which is normal occurrence. Again, we were able to achieve positive results despite less than idle condition because of our incredible team. In the Q2, we have begun to see a pricing recovery, however, not to previous levels.

Speaker 3

For the Q2, we continue to see positive margins and earnings, though as Doug mentioned, we will see effects of planned plant maintenance during the Q2 of the year. This will impact production and increase associated expenses for the Newgene and 1 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 impacts. I would encourage everyone listening to take a look. Now I would like to open things up to questions.

Speaker 3

Operator?

Operator

Thank Our first question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question.

Speaker 2

Hi, Jordan. Hey, all. It's Henry

Speaker 4

on 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 6 to kind of 7 month runway to get through the remaining phases and get the final approval in Q1?

Speaker 4

Thanks. So far?

Speaker 3

Yes. Jordan, as we mentioned that we received recently some about approximately 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 spend send them all the guideline how that works. And we will be submitting this by this Friday.

Speaker 3

And after that, the depends on how the technical review will proceed. So we depends on how the technical review will proceed. So we're expecting that should be the latest should be the Q1 of 2025.

Speaker 2

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 need to be 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. And just because EPA gives us approval, that doesn't mean 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.

Speaker 2

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 is ready, which should be by the end of the year. But in terms of putting it in the ground, I don't think we're ready to give you a date at this time. Got it.

Speaker 4

Got you. 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 175,000,000 gallons.

Speaker 4

Could you all just provide any color on the timeline for the permit submission to 200? How long do you expect that to take once the permit is submitted? Thank you.

Speaker 3

Yes. The process basically work we already have 175,000,000 gallon production permit at this time. But since the production facility is in the process to increase production from 150,000,000 to 175,000,000 Once the facility is completed, then we're required 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 200,000,000 gallon permit from EPA.

Speaker 3

So this is a step by step process, as I mentioned in previous two calls. So we are following those steps by step process. But the facility will be ready to will be able to produce 200,000,000 gallon, but the only thing will be required at that time once we complete 175, then the next step will be applied for 200,000,000 gallon.

Speaker 4

Thanks for that color. Congrats again.

Speaker 2

Thank you. Thank you. Thank

Operator

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

Speaker 5

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

Speaker 2

so far?

Speaker 3

The process basically work we have ordered all the equipments and other basic things which we need for the well. And those are will be available once we get the approval from the EPA. And then it takes approximately 2 to 3 months to have the well start digging and then complete to make it to that 7,000 feet down. So altogether, process maybe take somewhere 3 to 4 months after that.

Speaker 2

Keep in mind that we also need other things like pipeline approval, so that which could delay things. So there's no guarantees at this time. But assuming we had all our approvals, that's exactly how long Zafar said is exactly right.

Speaker 1

Yes.

Speaker 5

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

Speaker 3

The owner's answer is, at this time, we are really trying to laser focus what 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. Either we can have some conversation with the University of Illinois talking about DACA unit and others, but that's the 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 complete most importantly, completion of the facility at this time.

Speaker 5

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 kind of latest thoughts on that?

Speaker 3

I think we have seen some improvement of demand. There's a lot of conversations going on. But on the same time, we have not really seen tremendous improvements of the demand at this time. And but this is also a driving season, so we will see that will happen in the next couple of months.

Speaker 2

Also keep in mind just because there is 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.

Speaker 5

Okay. Thanks very much.

Speaker 2

Thank you, Pavel.

Operator

Thank you. Our next question comes from the line of BJ Cook with Singular Research. Please proceed with your question.

Speaker 6

Hey, guys. This is Vijay Cook in for Chris Sakai. Just a couple of questions. One kind of build on the last caller. There'll be a point where all the expansion and One Earth project is complete and up and running.

Speaker 6

How do you expect that to affect the industry capacity as a total? Because there are demand to absorb all the additional capacity?

Speaker 3

I think while production is we plan to have production up to 200,000,000 gallon. As you know, all these plants are different location and different side of supply. For 1 R Synergy, mostly our plant supply is toward to the south or east. So but it probably depends on which railroad the plants are located, but I don't really know that how much that will affect overall supply of the ethanol facilities.

Speaker 6

Okay, thanks. Appreciate that. Just one more. Great quarter on unconsolidated affiliates also. I just wanted to make sure are similar factors affecting those investments as well?

Speaker 6

Or is there some idiosyncratic factors worked in there?

Speaker 3

I'm sorry, I didn't understand your question. Will you please repeat that?

Speaker 6

Okay. Other income

Speaker 1

Oh, interest and other income?

Speaker 3

Yes. Yes.

Speaker 1

I mean, yes, we had obviously increased interest rate on our cash and cash equivalents. And then somewhat of a not a one time, but a rare occurrence of a $1,200,000 patronage income at NuGen. That's not a recurring thing and not something to count on going forward.

Speaker 6

Yes. Perfect. Great quarter guys. Appreciate your time.

Speaker 2

Thank you. Thank

Operator

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.

Speaker 2

Thank you. Again, we outperformed most of our public peers last quarter and we did it with 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.

Operator

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

Powered by Quartr

Key Takeaways

  • REX sold 74.5 million gallons of ethanol in Q1 (+4% YoY) and reported the second-best Q1 net income per share at $0.58, extending its streak to 15 consecutive profitable quarters.
  • Lower natural gas and corn input costs drove a 42% increase in Q1 gross profit to $14.5 million, offsetting weaker ethanol and co-product pricing.
  • Construction of the One Earth Energy Carbon Capture and Compression facility is on schedule for July completion, with power expected by Q4 2024 and EPA Class VI well permit approval anticipated in Q1 2025.
  • The One Earth Energy ethanol plant expansion to 175 million gallons per year is slated for completion in Q4; the company will then apply to raise capacity to 200 million gallons without additional capital expenditure.
  • As of quarter end, REX held $351.8 million in cash and short-term investments with no bank debt, and has invested $78.1 million of a $165–175 million budget into its carbon capture and capacity expansion projects.
AI Generated. May Contain Errors.
Earnings Conference Call
REX American Resources Q1 2025
00:00 / 00:00