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REX American Assets Company (NYSE: REX) This autumn 2022 earnings name dated Mar. 23, 2023
Company Members:
Douglas Bruggeman — Chief Monetary Officer
Stuart A. Rose — Govt Chairman of the Board
Zafar Rizvi — Chief Govt Officer
Analysts:
Jordan Levy — Truist Securities — Analyst
Chris Sakai — Singular Analysis — Analyst
Graham Worth — Raymond James — Analyst
Presentation:
Operator
Greetings, and welcome to the REX American Assets Fiscal 2022 Fourth Quarter Convention Name. [Operator Instructions] I might now like to show the convention over to Mr. Doug Bruggeman, Chief Monetary Officer. Please go forward.
Douglas Bruggeman — Chief Monetary Officer
Good morning, and thanks for becoming a member of REX American Assets Fiscal 2022 Fourth Quarter Convention Name. We’ll get to our presentation and feedback momentarily in addition to your question-and-answer session, however first I’ll evaluate the secure harbor disclosure.
Along with historic information or statements of present circumstances, at present’s convention name incorporates forward-looking statements that contain dangers and uncertainties inside the meanings of the Non-public Securities Litigation Reform Act of 1995. Such forward-looking statements mirror the corporate’s present expectations and beliefs however aren’t keys of future efficiency. As such, precise outcomes could fluctuate materially from expectations. The dangers and uncertainties related to the forward-looking statements are described in at present’s information announcement and the corporate’s filings with the Securities and Trade Fee, together with the corporate’s reviews on Type 10-Ok and 10-Q. REX American Assets assumes no obligation to publicly replace or revise any forward-looking statements.
I’ve becoming a member of me on the decision at present, Stuart Rose, Govt Chairman of the Board; and Zafar Rizvi, Chief Govt Officer. I’ll first evaluate our monetary efficiency after which flip the decision over to Stuart for his feedback.
Gross sales for the fourth quarter declined by 5.6% as we skilled decrease quantity for ethanol and distillers grain. Ethanol gross sales for the quarter have been based mostly upon 63.7 million gallons this 12 months versus 69.9 million final 12 months as we skilled some weather-related disruptions to their operations through the quarter.
We reported gross revenue of $14.9 million for this 12 months’s fourth quarter versus a gross revenue of $38.8 million within the prior 12 months. Within the present 12 months quarter, we skilled decrease ethanol pricing in addition to greater corn and pure fuel pricing. Corn price elevated by 22% and pure fuel pricing elevated by 12% for this 12 months’s quarter in comparison with the prior 12 months as inflationary pressures and the influence of commodity pricing from the Ukraine-Russia battle continued. We proceed to expertise greater foundation pricing for corn close to the NuGen facility based mostly upon a poor corn harvest and diminished corn availability in that native space.
SG&A elevated for the fourth quarter to $6.7 million from $6 million within the prior 12 months. The rise is primarily because of a rise within the variety of ethanol contracts that require the freight to be paid by us in comparison with the prior 12 months, which we classify as SG&A prices.
We had revenue of $2.5 million from our unconsolidated fairness funding on this 12 months’s fourth quarter versus revenue of $3.9 million within the prior 12 months. The corporate’s curiosity and different revenue within the present 12 months elevated dramatically to 2.6 million versus 13,000 within the earlier 12 months, primarily reflecting elevated yields on our money.
The discontinued operations reflecting the prior 12 months numbers are from the refined corn enterprise as we ended these operations on November 18, 2021. There was no influence within the present 12 months.
We reported a tax provision from persevering with operations of $2.2 million for this 12 months versus the availability of $10.7 million within the prior 12 months, primarily reflecting the decrease degree of revenue within the present 12 months. These components led to internet revenue attributable to REX shareholders from persevering with operations of $8.2 million for this 12 months’s fourth quarter versus $21.3 million within the prior 12 months. Complete internet revenue per share attributable to REX shareholders from persevering with operations was $0.47 for this 12 months’s fourth quarter versus $1.19 within the prior 12 months. Once more, I’ll level out all share numbers mirror the three-for-one inventory cut up, which was efficient August 5, 2022.
Stuart, I’ll now flip the decision over to you.
Stuart A. Rose — Govt Chairman of the Board
Thanks, Doug. Going ahead, ethanol at the moment is operating at roughly breakeven year-to-date. Zafar Rizvi in his part will talk about ethanol a lot additional.
Our money is roughly $280 million on the finish of the 12 months consolidated. And we have now — our makes use of of money — the money over the following couple of years embody carbon seize, which, once more, Zafar Rizvi will talk about.
Investing the money proper now — proper now we’re investing the money and interest-bearing accounts, principally treasuries and cash market accounts and the banks that we’re coping with, and that is to the perfect of our data, are very, very safe. We contemplate them fine quality banks, and we really feel very comfy that our money is invested in a really, superb manner. We’re incomes first rate curiosity on that money versus many corporations which have debt. We do not need a lot — we have now nearly no debt. In order that’s, in our opinion, it’s good a solution to make investments our money at the moment.
We’ll purchase again on dips. We’ve got some plans for growth of our ethanol vegetation, which Zafar Rizvi will discuss. And we’re all the time on the lookout for extra ethanol vegetation to buy at the moment. We’ve got nothing imminent, but when one thing have been to return up, superb ethanol plant, we would definitely have a look at it.
I’ll now flip the decision over to Zafar Rizvi, our Chief Govt Officer. Thanks.
Zafar Rizvi — Chief Govt Officer
Thanks, Stuart. Good morning, everybody. As I discussed in our earlier quarterly name, we proceed to face difficult operations. Working surroundings all through of the 12 months because of plenty of components, drought has affected the provision of corn and created a robust foundation as Doug simply talked about, notably on the Marion, South Dakota location. And as well as, ethanol manufacturing is bigger than the demand, which proceed to negatively have an effect on the crush margin.
The excessive value of the pure fuel over the past quarter and 12 months additionally negatively affected the revenue margin. In constructive information, we have now seen pure fuel value drop significantly lately. And based on EIA, yesterday’s weekly report exhibits ethanol manufacturing dropped below 1 million barrels a day, 10 weeks low retreated 17,000 barrels a day week-to-week. However the corn foundation are nonetheless sturdy and anticipated to get constructive for the harvest. We’re happy with the provision of corn within the Gibson Metropolis Illinois space. Nevertheless, due to progress in home export from the state, corn foundation are starting to strengthen. We’ve got seen weak point within the value of corn oil and DDG, however they’re — these are nonetheless promoting above the price.
Regardless of drought, the latest slowdown in export, the decline within the crush margin and different financial headwinds, we proceed to supply corn at cheap value and don’t face any main logistic problem or scarcity of corn at this early stage of the primary quarter 2023. We count on to breakeven or barely worthwhile at the moment, as Stuart simply talked about.
Let me offer you some progress of our carbon sequestration undertaking. These are the bullet factors. The college efficiently drilled a check effectively to a complete depth of round 7,100 toes, during which virtually 2,000 toes our Mount Simon sandstone was incurred. Accomplished geologically fashions are predicting the motion of the CO2 injection into the subsurface. The rock core evaluation carried out point out superb reservoir high quality. Accomplished water injection exams on the effectively itself to guage the anticipated motion of CO2 in addition to anticipated plume space, testing signifies a really appropriate storage for carbon sequestration.
The 2D and 3D seismic testing was accomplished and signifies superb storage. A number of different exams and modeling have been carried out to confirm most injection stress, reservoir high quality, rock core evaluation and anticipated motion of CO2 plume. These check outcomes nonetheless exhibits this location is an excellent goal for carbon sequestration.
The design of the compressor facility is accomplished, the contract to construct the compressor a part of the power have been signed and lengthy lead time gear has been ordered. The pipeline hazard materials identification quantity has been acquired. The Class VI allow for 3 injection wells with the capability to retailer 90 million tons of carbon have been accomplished and submitted.
The work on the pipeline FEED research is anticipated to be completed by the early April 2020. All main lead gear order for the compressor facility, which has been engineered and sized the contract to construct the power have been signed. We’re at the moment engaged on a front-end engineering design examine for brief pipeline to ship carbon from our carbon sequestration facility.
We count on a prebuilt modular plant will likely be delivered by the tip of December 2023, after which the constructing will likely be structured across the modular plant. We proceed — as soon as once more, that is extremely technical, very early stage and time -consuming undertaking, it has required appreciable time to make progress. We can’t predict we will likely be profitable, however we’re happy what we began 4 years in the past now has achieved some large milestone.
As I additionally talked about, in our earlier name, we’re evaluating a number of different initiatives that may improve manufacturing effectivity, enhance vitality effectivity to scale back carbon depth in addition to diminished water consumption at our plant.
We consider we will full most of those initiatives quickly. Completion of those initiatives will result in a higher profit below the Inflation Discount Act handed by the Congress and can contribute to decreased price of manufacturing.
As Stuart simply talked about, we additionally determined to extend the ethanol manufacturing capability at One Earth Power, Gibson Metropolis Illinois to 175 million gallons from 150 million. The clear gas manufacturing credit score Part 45Z, which is said to diminished gas carbon depth rating might present as a lot as $1 a gallon relying on carbon depth of ethanol produced and bought.
The Part 45 money cost for the carbon sequestration elevated to $85 metric ton, which we plan to change after the expiration of the 45Z, which we are going to proceed to boost the sturdy place of our firm.
In abstract, we’re happy to announce as soon as once more worthwhile quarter in a really, very troublesome surroundings in addition to good progress in our carbon sequestration undertaking. We plan to extend ethanol manufacturing capability to maximise advantage of the Inflation Discount Act Part 45D and 45Q as soon as 45Z expires.
If we are able to obtain what we’re planning to perform sooner or later, we will likely be prepared to offer low carbon ethanol and byproducts whereas decreasing carbon within the environment.
We can’t hit these carbon sequestration milestones, embark on initiatives to lower carbon depth, plan to extend ethanol manufacturing and obtain a tenth consecutive quarter of constructive revenue with out the laborious work and dedication of our colleagues. We’re very appreciative of their efforts to attain these constructive outcomes.
I’ll give the ground again to Stuart for additional feedback. Thanks, Stuart.
Stuart A. Rose — Govt Chairman of the Board
Thanks, Zafar. In conclusion, we’ve outperformed a lot of the trade rivals once more. We’ve completed this, once more, we consider we have now the perfect vegetation, nice places, nice potential in carbon seize, which we predict will likely be our future. And most significantly and the most important distinction between us and the remainder of the trade, as Zafar talked about, is our individuals. We really feel we have now the perfect individuals within the trade. And ultimately, that’s what separates us from the competitors, and lots of competitors can have hopes and goals however if you happen to don’t have good individuals to implement them, they simply are inclined to by no means occur. We’ve got confirmed previously that we have now good individuals and might run very, superb ethanol vegetation, and we plan and hope to try this in carbon seize. We have a look at that as our future.
I’ll now go away the decision open to questions.
Questions and Solutions:
Operator
Thanks. [Operator Instructions] Our first query comes from Jordan Levy with Truist Securities. Please proceed.
Jordan Levy — Truist Securities — Analyst
Morning, Stuart, Zafar, Doug. Good quarter in opposition to one other difficult backdrop. I believe that’s value recognizing for certain. Possibly to start out out, you talked about a plan for increasing One Earth’s capability. Definitely looks like CCUS is shifting ahead in among the initiatives this 12 months. Possibly if you happen to might simply give us any commentary you might need round capital plans for ’23 and what we must always count on there?
Stuart A. Rose — Govt Chairman of the Board
Zafar?
Zafar Rizvi — Chief Govt Officer
Jordan, we’re — as I mentioned, we plan to — broaden to $175 million. We’re in technique of evaluating all the price and the return on funding. We hope to have all of these disclosed on the June — our quarterly name different on the shareholders assembly that what precisely whole money will take to or the ethanol facility growth and the carbon sequestration, and we may have these numbers at the moment.
Jordan Levy — Truist Securities — Analyst
And presumably, would the growth be all through the course of this 12 months?
Zafar Rizvi — Chief Govt Officer
Sure, precisely. I believe we have now — already had main analysis has completed. We’re placing the monetary fashions, and we’re wanting all of these data and see what’s the return on funding. As I discussed, that with the growth from $150 million to if we go to $175 million, and that’s about $25 million extra ethanol manufacturing. And if we have a look at the good thing about 45Z, if we’re capable of obtain all these carbon depth, which we’re engaged on carbon sequestration and as I used to be what — talked about, that from — couple of years, even earlier than the 45Z, we have been making an attempt to be — guarantee that we scale back our carbon depth.
So we — all of these initiatives are actually popping out to be nice profit for us to shifting ahead. So it appears to be like like we are attempting to guage all that return on funding and placing the packet collectively. And hopefully, we may have by that. That’s what it results in saying spend 275 million, we might have thought-about to broaden 200 million however we wish to be certain we don’t create deficit of corn in that space.
Jordan Levy — Truist Securities — Analyst
Nice. Thanks for that. And Zafar, I respect all of the feedback and updates you gave on carbon seize. Possibly simply to again up and have a look at this on a excessive degree. Are you able to simply lay out for us — I do know you talked about some targets for the tip of the 12 months shifting into ’24. Are you able to simply type of lay out for us the place you count on to be exiting ’23? What will likely be accomplished? And what you count on to sort of be engaged on on the time?
Zafar Rizvi — Chief Govt Officer
I believe probably the most of our objects, as I discussed that we have now ordered all of the long-lead objects, gear, a few of these gear takes as lengthy — as time main is to 12 months and half. And so we have now taken — order all these gear. And likewise, as I discussed, that we’ll count on to have our modular unit, which will likely be compressor facility will likely be delivered by the tip of this 12 months. After which we may have — development will begin round that modular unit as a result of that may take additionally at the least six to seven months or longer as a result of there’s lots of pipes that must be linked, electrical, constructing must be constructed round it. And so our objective is to have this — to complete all these initiatives by the tip of 2024. Definitely, that’s our objective, and it will possibly occur another unsure issues, which we don’t come out and delay their undertaking, however that’s what our objective is by the tip of 2023.
Stuart A. Rose — Govt Chairman of the Board
Jordan, one different factor you need to know and that individuals are — lots of people are asserting CO2 initiatives within the ethanol trade. However all they’re actually doing is tapping into pipelines and so they’re not getting the majority of the financial advantages. The financial advantages are as much as — for the years ’26, ’27 and ’28 $1 a gallon. We hope that — we count on to have 175 million gallon plant. So even when we get half of that, no matter we obtain we are going to obtain in any respect, whereas most of those corporations occur into pipelines are depending on the pipelines being constructed. They’re asserting that they’re doing CO2 seize, however they’re actually not doing their very own CO2 seize.
We’re doing our personal. We’ve been doing this as Zafar talked about, for 4 years, and that is our undertaking. That is our shareholders’ undertaking. It’s not one thing the place we have now to share the majority of the revenues with the pipeline firm. And the pipeline firm, after all, then has you captive and has the power and they’ll take proportion of the earnings. In our case, all earnings come to our shareholders. And once more, we’re a small firm, 18 million shares, however we predict it may be very, very vital. That’s our plan, and that’s what we hope and count on.
Zafar Rizvi — Chief Govt Officer
Precisely sure, that’s the main distinction between us and others. So — and in addition, I believe as Stuart talked about, we have been actually making an attempt to take a look at it 4 years in the past when there was no 45Z at the moment. 45Q was $50, now it’s $85. So all these advantages are actually coming to see some productive…
Stuart A. Rose — Govt Chairman of the Board
They’ll accrue to our shareholders as Zafar is saying.
Zafar Rizvi — Chief Govt Officer
Precisely.
Jordan Levy — Truist Securities — Analyst
I believe that’s nice commentary. I actually respect it. I’ll go away it at that. Thanks.
Douglas Bruggeman — Chief Monetary Officer
Thanks, Jordan.
Operator
Our subsequent query comes from Chris Sakai with Singular Analysis. Please proceed.
Chris Sakai — Singular Analysis — Analyst
Hello. Good morning. Are you able to discuss the place you see the international locations of largest export for 2023?
Zafar Rizvi — Chief Govt Officer
Export of ethanol, you imply?
Chris Sakai — Singular Analysis — Analyst
Sure.
Zafar Rizvi — Chief Govt Officer
Okay. The Canada has exported — imported 502 million gallons. And I believe — and South Korea, 156 million, Netherlands 99 million. Complete export for 2020 was 1.3 billion gallons in comparison with 2021 was 1.2 billion gallons and that was 9% greater than 2021.
Chris Sakai — Singular Analysis — Analyst
Okay. Thanks. Are you seeing any elevated price in your — in rail because of all of the latest prepare derailments?
Zafar Rizvi — Chief Govt Officer
Not likely. I believe the railroad all the time improve their charges, they mainly is — has monopoly on that observe on the course. So there’s actually all the time improve their charges. However lately, we have now not seen it because of this case, which is derailed and improve within the fee.
Chris Sakai — Singular Analysis — Analyst
Okay. Thanks. Are you able to speak in regards to the allowing course of to date for the CCS?
Zafar Rizvi — Chief Govt Officer
I’m sorry, might you repeat your query, please?
Chris Sakai — Singular Analysis — Analyst
How is the allowing processing — course of going?
Zafar Rizvi — Chief Govt Officer
The allowing course of, we have now submitted the allow, which all the necessities, which requested. We accomplished all of the paperwork. Since that point, they’ve couple of questions, which we answered them. And we — they confirmed that they’ve acquired all of the paperwork and it’s below evaluate. So from there, we can’t management, it is dependent upon the federal government company, how lengthy they have been going to take. However we count on that we must always obtain the allow earlier than anyone else as a result of we have already got completed beforehand, our check effectively and so they know these space, and we utilized for the check effectively allow beforehand, and we acquired at the moment. So we hope that we’ll obtain sooner, and we now relaxation is admittedly depend upon the company.
Chris Sakai — Singular Analysis — Analyst
Okay, nice. Thanks in your solutions.
Zafar Rizvi — Chief Govt Officer
Thanks.
Operator
Our subsequent query comes from Graham Worth with Raymond James. Please proceed.
Graham Worth — Raymond James — Analyst
Hello. Thanks for taking the questions. First off, I used to be simply questioning about your ideas across the M&A panorama because it pertains to producing property. How valuations are wanting versus a 12 months or two in the past?
Stuart A. Rose — Govt Chairman of the Board
We haven’t seen something that — that’s something up on the market to be sincere, so I can’t inform you how valuations are. However I might assume that the up vital individuals would need considerably extra for his or her vegetation than they did a 12 months or two in the past. For no different motive, everybody has had some kind of carbon — each public firm results in have some kind of carbon seize plans. And they also assume their corporations are value extra. Our competition is that the pipeline corporations that they’re coping with will find yourself both — to begin with, we predict they’ll be delayed. Second of all, we predict that they won’t contribute to the underside line what a few of these corporations assume. However within the meantime, they’re valuing their corporations greater than they did a 12 months or two in the past for certain due to the chance, due to the laws that simply handed that Zafar talked about, we now can stand up to $1 a gallon for 45Z, $85 a ton for 45Q, that’s some huge cash to be distributed to totally different individuals. In our case, we hope to maintain the majority of it.
Graham Worth — Raymond James — Analyst
Okay. Bought it. Understood. After which for my follow-up, had a extra macro coverage query. So the EPA lately proposed permitting 12 months -round E15 mixing within the Midwest. Simply questioning, do you assume this may occur? And does that plan go far sufficient in your opinion?
Stuart A. Rose — Govt Chairman of the Board
Zafar, you wish to reply?
Zafar Rizvi — Chief Govt Officer
Sure, it’s laborious to say. I believe the totally different — as you’ll be able to see, the totally different states are attempting to implement and to in Iowa and different on a number of different states making an attempt to all 12 months round, and so they utilized for the exemption from the EPA. I hope it’s all 12 months round E15 as a result of if it’s not all 12 months round, it’s discourage the fuel station to have six — eight or 9 months in a 12 months, after which they need to discontinue after which begin over. In order that’s what we hope and — however we can’t predict what Congress or any EPA will most likely will do this. There may be already a laws making an attempt to introduce in Congress to permit all 12 months round. And hopefully, that occurred.
Graham Worth — Raymond James — Analyst
Bought it. That’s clear. Thanks very a lot. I’ll cross it on.
Stuart A. Rose — Govt Chairman of the Board
Thanks.
Operator
Mr. Rose, there aren’t any additional questions at the moment.
Stuart A. Rose — Govt Chairman of the Board
Okay. Properly, we thank everybody for listening, and we stay up for speaking after the tip of this quarter and speaking to everybody once more after the tip of this quarter. Thanks. Bye.
Operator
[Operator Closing Remarks]
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