Earnings Call Transcript - REX Q1 2020

Doug Bruggeman, CFO

Good morning, and thank you for joining REX American Resources' fiscal 2020 first quarter conference call. We hope everyone and their family and friends have remained safe and healthy since we've last spoke. We'll get to our presentation and comments momentarily, as well as your Q&A 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 risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with 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.

Stuart Rose, President

Thank you, Doug. Going forward, our ethanol business is currently losing money, and we expect it to lose money in the second quarter but we do not expect the loss to be as much as the first quarter. Wind prices and ethanol prices have risen, allowing us to reopen our Gibson City plant. Hopefully, we can have all plants operational by the fall. Corn harvest looks good, and the CARES Act certainly helped us as losses can be carried back five years. There are also some other benefits in the CARES Act that we certainly will take advantage of where it applies to us. In terms of refined coal, it continues to be down as coal used for electricity has declined, especially to the utility where we have our operations. In terms of quarter-end, we had approximately $195 million in cash on a consolidated basis. We plan on investing in a potential carbon capture site, which Zafar Rizvi, our CEO, will discuss following me. We continue buying shares on dips; opportunistically, we bought 108,706 shares during the first quarter. Since the first quarter, we're authorized to buy 241,185 more. We continue to look for quality ethanol plants and still believe in the industry, but we'd have to see very good prices. Certainly, we have nothing imminent at this time. We will consider outside investments; we've done that in the past, which is how we got into the ethanol business if we feel it will be profitable and fit our skill set. Again, there's nothing imminent. I'd like to turn this over to Zafar now to talk a little bit about the ethanol business and the carbon capture project we've just initiated. Thank you.

Zafar Rizvi, CEO

Thanks, Stuart. Good morning, everyone. I will keep my remarks brief. As I mentioned in our previous call, we entered fiscal 2020 facing continued challenges, including the recent declines in the crude and ethanol markets, the decline in prices, and the COVID-19 pandemic. The fear of the COVID-19 spread of the virus led to a shutdown of businesses and a stay-at-home order by the governments; that resulted in a decrease in fuel demand and negatively impacted the ethanol industry. Several ethanol facilities across the country shut down, including both of our majority-owned plants. We are taking every step to keep our employees safe and are following CDC, state, and federal guidelines. As I mentioned previously, our NuGen plant continued to suffer negatively throughout the last year due to a shortage of corn in that area. The challenging environment and very severe economic impact of COVID-19 led to the decision to shut down the NuGen plant on March 17 and One Earth Energy on March 31. By April 2020, we had idled both of our majority-owned plants. We have experienced some improvements in business activities recently as COVID-19 shutdown orders relaxed; as Stuart mentioned earlier, that created an increase in demand for gasoline and ethanol which positively impacted the price. As a result, we began the process of reopening One Earth Energy and started production yesterday. Due to all these reasons, we are expecting a loss in the ethanol segment in the second quarter of 2020. If market conditions do not continue to improve and the threat of COVID-19 is not eliminated, we will generate a loss.

Stuart Rose, President

Thank you. In conclusion, we had a rough quarter. We expect at least one more rough quarter before hopefully things return to normal. We're opening one of our closed plants, and the harvest so far looks good. We still have great plants, great locations, and when things normalize, we should and hope to do well again. We have high hopes for carbon capture, although as Zafar said, nothing is guaranteed in that area, but we are certainly working on it in collaboration with the University of Illinois. Most importantly, we feel we have the best people in the industry. So when things do get back to normal, our people know what they're doing. They've done well in the past, and we know they'll do what it takes to bring us back to where we were; to restore these plants to what they're capable of. I'll now leave the floor open to questions.

Operator, Operator

If there are no questions, I would like to thank everyone for participating in our call. We greatly value your support, and we are hopeful that the situation will improve in the next three to four months. Thank you very much. Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you, and have a good day.