Q4 2023 REX American Resources Corp Earnings Call

Participants

Douglas Bruggeman; VP of Finance, CFO & Treasurer; REX American Resources Corporation

Stuart Rose; Executive Chairman & Head of Corporate Development; REX American Resources Corporation

Zafar Rizvi; CEO, President & Director; REX American Resources Corporation

Pavel Molchanov; Analyst; Raymond James & Associates, Inc.

BJ Cook; Analyst; Singular Research, LLC

Presentation

Operator

Good morning, and welcome to the REX American Resources Fourth 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.Douglas L. Bruggeman Chief Financial Officer of RxAmerica. Please go ahead.

Douglas Bruggeman

Good morning, and thank you for joining REX American Resources Q4 and full fiscal year 2023 conference call. And joining me on the call. Stuart Rose, Executive Chairman, and Zafar Rizvi, Chief Executive Officer, will get to our presentation and comments momentarily as well as your questions and answer 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 risk 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 would now like to turn the call over to Stuart Rose.

Stuart Rose

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 285.9 million gallons of ethanol sold, an increase of more than 7% over 2022. We kicked off construction of the water energy carbon capture and sequestration project at our Gibson City, Illinois location. We were also on track to complete the first phase of ethanol production capacity expansion, the One Earth Energy facility on the financial front, 2023.
So the most profitable quarter in the Company's history from a net income per share perspective during the third quarter, while also proud to announce that both fourth quarter and full year 2023 were the second most profitable quarter and full year and full year on Rex's 39 year history as a public company.
This is quite an achievement for our company. But the Board during 2023, the team at REX American consistently look over the horizon and identified and met challenges proactively drove success throughout the year. I'd like to thank everyone at our company for their hard work and dedication to making Rex for a successful and profitable company that it is our operational excellence has been the cornerstone of our success 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 than ever, as evidenced by the ongoing construction and permitting process for our carbon capture projects, 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 now up and running. This assumes we receive all necessary permits and approvals. As far as the additional avenues of growth, we're always looking at facilities that come on the market. So 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. of far recipe to discuss to one nurse project in greater detail.
Thanks, Steward power, 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 one-off synergy project. If all approvals are received and the facilities operational to contribute to the bottom line through both 45 D and 45 Q. tax credit, which we plan to maximize with the related expansion of our Gibson City ethanol production facilities capacity to 100 million gallon per year. We expect these two projects together could add significantly to our bottom line 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 project process for sustainability, aviation fuel products, as well as the potential for us to sequester toward carbon for other producers in our classics, but well plus six injection wells, both of these are additional business option funds. 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 projects in our updated investor 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.
As far as permitting and approvals we continue to monitor our Class six injection permit application for the Environmental Protection Agency, our pipeline application with the Illinois Commerce Commission and obtaining our special use unit per month for the country. We are very keen to ensure complete compliance with our regulatory requirements and are committed to working closely with all appropriate agency to get one often as the project approved and into service as fast and as safely as possible.
As of year end, we have invested approximately $38.6 million into the Oneok carbon capture project, an associated ethanol production capacity expansion is compared to total budget amount, $165 million to $175 million for both the CCS projects and ethanol production expansion at Gibson City. This investment underlines our belief in the project's potential and our commitment to sustainable energy solutions.
I would now like to hand the call to our CFO, Doug Berkman to discuss our operational and financial results.

Douglas Bruggeman

Thanks so far. I'll begin with our operational results. Rex's ethanol sales volume during fiscal year 2023 were 285.9 million gallons, an increase of 7% and 1.5% over fiscal year 2022. Sales volumes of 265.8 million gallons average selling price for our consolidated ethanol volumes was approximately $2.22 per gallon for the full year. Dry distillers grain sales volume during fiscal 2023 totaled 652,000 tons, a 9% increase over fiscal 2022. Volumes.
Volumes during the fourth quarter were approximately 169,000 tons, an increase of 13.4%. And for fourth quarter 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 fourth quarter, MG. 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. Foreign oil sales volume in fiscal year 2023 were approximately [87.5 million pounds] compared to [77.8 million pounds] sold fiscal year 2022, an increase of approximately 12.5% for the fourth quarter. Foreign oil sales totaled approximately [22 million pounds] an increase of 7% over Q4 2022 average selling price for Rex coronary products was approximately [$0.60] per pound for the full year.
Gross profit for fiscal year 2023 was $98.2 million versus gross profit of approximately $48.6 million 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.
Gross profit in Q4 2023 was $30.4 million compared to $13.3 million in Q4 2022. The increase was due to similar dynamics as seen for the full year, our SG&A expenses increased to $29.4 million for fiscal year 2023 versus $22.8 million in 2022.
SG&A in the fourth quarter increased to approximately $7.4 million versus $5.1 million in the fourth quarter of 2022. In each case, the increase was primarily due to higher incentive compensation related to the Company's performance. Interest and other income grew by approximately 21% 2023 totaling $15.7 million compared with approximately $13 million for fiscal 2022.
We reported interest and other income for the fourth quarter of approximately $4.8 million versus $2.6 million for the same period in 2022. Income before taxes and noncontrolling interest for 2023 was approximately $98.5 million, a significant increase from $47.5 million in 2022.
During the fourth quarter, we reported approximately $32.5 million in this metric versus $13.3 million during the same period during the previous year. As Stuart mentioned, at the beginning of the call, 2023 was the second best year from a net income perspective in our company's history. Net income attributable to REX shareholders for the year was $60.9 million compared to $27.7 million in fiscal year 2022.
For the fourth quarter 2023. This equaled $20.6 million compared with $8.2 million for the fourth quarter 2022 on a per share dilutive basis for the full year, this amounts to $3.47 per share of net income in 2023 compared to $1.57 per share in 2022.
And for the fourth quarter 2023 diluted net income per share was $1.16 per share compared to $0.47 per share for the same period in the previous year. We ended the year with total cash, cash equivalents and short-term investments of $378.7 million compared with $280.9 million for fiscal year end 2022. Cash build during 2023, it was reflective of our conservative fiscal approach, anticipated capital expenditures related to the water Energy's CCS project in ethanol production capacity expansion at our Gibson City location. 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.

Zafar Rizvi

Thanks, Doug.
I would now like to give some color around how we see ethanol market progressing through the remainder of calendar 2024.
For looking at the ethanol and co-product market, we anticipate continued changes in commodity markets. 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 a better position, no matter what the market conditions as far as the market for our most important input, coal and natural gas.
So far during calendar year 2024, we are seeing pricing run more in our favor than a year ago. It has resulted in ethanol profitability currently running slightly ahead of the same period a year ago.
In closing, I want to thank our very dedicated employees for their 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. So I would like to open these things up for questions. Operator?
Thank you.

Question and Answer Session

Operator

(Operator Instructions) Jordan Levy, Truist Securities.

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

Zafar Rizvi

So let me give you some some information where we stand today. Our carbon facility is under construction, as you know, is expected to complete by the end of July or beginning of August, permitting process for the plastics pharma is under review by the EPA, which is because we have known knowledge when they will approve, but it is under technical review. We also file for the pipeline.
So if the ICSC and we are waiting for that process is in, we are going through the process and expected to complete by the end of July, early August, and we also able to have able to get a well number one and number two. And number three, we all that easement is signed for the all that to the well, we also have 91% of the floor area at this time for the Well number one, we also have approximately 62% of the easements for the six mile pipeline, which will take us to well number one and soon is completed. And we also have new facilities time agreement with Summit last year. It's also some it is also improving being able to successfully able to get some legislation passed in U.S. and U.K.
So as far as basically coming back to Jordan again, that certainly we did this process is a long process and it's a government agencies, and we have no knowledge when when and when they will approve that.

Stuart Rose

Henry, I wanted to add that Henry, when I add that 91% is an incredible number to get that much a lot of people, a lot of virtually everyone else has less in that narrow holes and they tried 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 farmer partners to get this project done. And that then and that's we think something that separates us from a lot of the other people that might be a little more troubled at Knott's.

Thank you, guys, for all that color. Just a quick follow-up around capital allocation. And then you mentioned in the call on you're not you haven't seen anything in the ethanol ethanol asset space. That's, I guess, worthy of purchasing at this point. 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 on where we are. I think what you guys are thinking about or looking at for uses.

Stuart Rose

That's 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 why in the future way, way in the future and just just talk at this point, but let's say jet fuel, let's say of a CIFCO. two can be minute.
There's a number of power plants nearby that that emit a lot of CO2. We have a car, but we have carbon capture holes. We're getting permitted. Now there's chances to be partners with them, cement plants and there. We also, as you probably know, when our stock drops, we're prolific buyback so so there's always the opportunity to use the cash for that. So we're excited about the future after carbon capture our combined or our carbon capture, combined with other people's carbon capture. There's so many things we can do in the future.

Zafar Rizvi

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

Thank you.

Operator

(Operator Instructions) Pavel Molchanov, Raymond James.

Pavel Molchanov

Thanks for taking the question. Good to connect as always, I've kind of posed this question before, but I get your latest thoughts on that. You're extremely cash-rich to state the obvious for a company of your size and there are ethanol assets that periodically come up for sale, maybe maybe not as good as yours, but they are for sale or is there any opportunity to add to your existing production asset base?

Stuart Rose

We are prepared as well, but 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 this large Fagen ICM plant that's near Illinois or near somewhere at some places 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. We would look at something that wasn't ideal if it was a good plant would have to be really good plant that has good corn supply. That's that that's relatively no, preferably Fagen ICM. We're pretty we're pretty stringent on what we look for and we have things so much plan right now that if we never found one with carbon capture, we have great plans for the future.

Zafar Rizvi

And I add to that is also per well. We are organically also growing. So as you can see that originally these plants were 100 million gallon than we expanded 125 million each then 150 million. And now we are expanding this one, our synergy plans to 200 million gallons. 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. I think that look at another location. So we are trying to make sure that we reinvest also in our locations and grow organically before we also tried to buy something which may not fit our criteria.

Stuart Rose

And to be honest, that's been less expensive than some of the transactions that have taken place, which went lesser plants have changed hands.

Pavel Molchanov

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

Zafar Rizvi

Yes, Pavel and I will add that have conference earlier this week actually last Thursday and Friday, as you know, hearing about some of the dynamics and projection for this market, approximately, there was there was expected to be approximately -- 30 billion 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 a co-sponsor nearly 7 million barrels a day of demand. There was American Airlines, United Airlines and Southwest Airlines was also here.
So we are currently looking into how Rex could participate and what and what may make the most sense on this part. However, right now, we really are focused on our first getting the one-off plant up and running, which means on permit, permitted, build and are and in operation we are looking at option was CCS behind sequestration of our own carbon, but Arkansas concentrating on making our first, an ethanol plant successful and fast and most importantly see at CCS project successful at this time. But there is great market there is in the future that will be the right thing to do.
Maybe we'll pivot in maybe two or three or four years from now. But at this time, there is only when I learned from that, as there was a conflict. There's only 50 million gallons are produced and there is not enough market, but is expected to grow by 2032 close approximately 30 billion gallons. So yes, there is a great future, but at this time, there isn't really enough market demand.

Stuart Rose

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

Pavel Molchanov

Thanks very much.

Stuart Rose

Any other questions?

Operator

(Operator Instructions) [BJ Cook] Singular Research.

BJ Cook

Hey, guys, thanks for taking my call. On Just quick, is there anything new in for update on the spin-off of capacity expansion in Gibson City.

Zafar Rizvi

I'm sorry, I had been to carrier question. Could you repeat that again, please?

BJ Cook

Yes, sorry. Do you have any new information or update on the capacity expansion at Gibson City?

Zafar Rizvi

I think as I mentioned previously, that though we are expanding that plant, the ethanol facility is going to be a 200 million gallon and the 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, which building is almost complete and equipment is arriving every single day. And we expect that by the end of July or early August, CCS facility will be completed, but we still have to wait, but the pipeline for the pipeline permits and and the APA classics, but before we start any and any kind of carbon sequestration. So those are the main thing that we are waiting for the permits. But as far as concern about the facility is going very well.

Douglas Bruggeman

This is Doug let me add when we expand that facility, the construction will be to take us to 200 million gallons.
Yes, the initial plans are to run at 175 million gallons. And once we achieve that and get EPA further approval that we can go to 200 million gallons.

BJ Cook

And as we think how are you looking at a capacity utilization is kind of a moving target, I get it. But for the rand year on guys expected, I've run it out.

Stuart Rose

I thought I would provide a question what's capacity utilization. We will still mean that we get a decent corn crop, we plan on running pretty much full capacity. The only time we've ever cut that.
And would there be times when won't cut back for maintenance. There will be times when we cut back just because of because we're doing with the CCS, what we can't quite run as much as we may as we usually do but basically it will be full capacity. We'll go we'll go out and we always go out when it's a profitable market of that.

Zafar Rizvi

Yes, we have not really a slowdown at least in our slowdown is processes sometime. It's, you know, a maintenance on expected, some kind of a shutdown. So we tried to use the full capacity practically possible yet because we are in the basically in Illinois in the Corn Belt area and South Dakota clubs was great last year and expect it to be this year at the same. So we have no plan to really slow down at this stage.

BJ Cook

Okay thank you very much.

Stuart Rose

Thank you.

Operator

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

Stuart Rose

Okay well, I'd like to thank everyone for listening. We as you have heard, we have great plants, terrific plants, great and great growth prospects and the key to everything is the execution of our employees. We feel we have the best employees in the industry, the best people working for us. We think that's what really makes a difference between REX and everyone else in our industry. And we just want to thank them. And we also want to thank you for listening to the call.

Operator

We appreciate it very much talk to you next quarter, but and this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.