REX American Resources Corporation — Form 10-K Summary
Period clarification: The supplied filing is for the fiscal year ended January 31, 2022, not a standalone 2020 Q4 filing. In the filing’s terminology, fiscal 2021 covers February 1, 2021 through January 31, 2022; fiscal 2020 is the prior comparable year.
Business context and reporting period
REX is principally an ethanol and by-products business, with majority interests in One Earth Energy and NuGen Energy and a minority equity-method investment in Big River Resources. Its six invested plants shipped approximately 699 million gallons of ethanol in the year; REX’s effective ownership share was approximately 282 million gallons. The refined coal operation ceased on November 18, 2021, after eligibility for federal production tax credits ended, and is reported as discontinued operations.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 |
|---|---|---|
| Net sales and revenue | $774.8 million | $372.7 million |
| Gross profit | $97.6 million | $19.5 million |
| Gross margin | 12.6% | 5.2% |
| Income before income taxes | $75.8 million | $4.2 million |
| Net income attributable to REX shareholders, continuing operations | $47.6 million | $1.9 million |
| Net income attributable to REX shareholders, discontinued operations | $4.8 million | $1.1 million |
| Total net income attributable to REX shareholders | $52.4 million | $3.0 million |
| Basic and diluted earnings per share | $8.75 | $0.49 |
| Net cash provided by operating activities | $91.7 million | $8.6 million |
At January 31, 2022, cash and cash equivalents were $229.8 million, short-term investments were $25.9 million, and restricted cash was $2.2 million. The company reported total assets of $550.4 million and total equity of $487.6 million. No conventional borrowing balance is presented on the consolidated balance sheet; reported liabilities include $11.0 million of operating lease liabilities. Current liabilities were $50.5 million.
Material changes versus the prior comparable period
- Revenue more than doubled as both consolidated plants operated at or near capacity, compared with COVID-19-related idling in fiscal 2020, and selling prices and volumes recovered.
- Ethanol gallons sold increased 28%, and the average selling price, net of hedging, rose to $2.21 per gallon from $1.30. The reported crush spread increased to approximately $0.16 per gallon from $0.03.
- Higher prices and volumes also increased dried distillers grains, corn oil, and modified distillers grains sales. Derivative instrument losses increased to $12.1 million from $1.2 million.
- Operating cash flow rose to $91.7 million. Capital expenditures were $5.1 million, and REX repurchased approximately 84,000 shares for $6.6 million, compared with 315,000 shares for $19.6 million in fiscal 2020.
- Cash and short-term investments together increased to approximately $255.7 million from $180.7 million. The refined coal operation contributed $4.8 million of net income attributable to REX shareholders, including significant tax-credit benefits, before its closure.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2022 capital expenditures of approximately $15 million to $20 million, primarily for consolidated ethanol plants and the carbon sequestration project. It expected to fund these expenditures with cash at the plant subsidiaries.
- Management said operating cash flow and working capital were expected to meet One Earth’s and NuGen’s liquidity needs, subject to commodity prices, production, sales and other assumptions. The filing does not provide earnings or revenue guidance.
- A carbon sequestration project near One Earth was in an exploratory and engineering phase. The company had drilled a test well and completed seismic testing and a front-end engineering study, but stated that project feasibility and total completion cost were unknown.
- Results are highly exposed to corn, ethanol, natural gas, distillers grains and corn oil prices, and to the crush spread. Forward contracts generally cover no more than four months; derivatives are not designated for hedge accounting, so fair-value changes affect current earnings.
- Other material risks include changes to renewable fuel mandates and small-refinery exemptions, COVID-19 or other demand disruptions, corn supply and logistics, export restrictions, environmental regulation, and competition from alternative fuels and electric vehicles. Management also cited concern that the Russia-Ukraine conflict could affect corn supply and prices.
- The company was undergoing a federal income tax examination for fiscal years ended January 31, 2015 through 2020. Unrecognized tax benefits were approximately $16.7 million. The auditor identified realization of deferred tax assets as a critical audit matter. The filing also reports a $39.2 million general business credit carryforward.
- Legal proceedings were described as ordinary-course matters with no material adverse effect expected; no loss liability was recorded for legal contingencies. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the reporting-period mismatch: this is the fiscal year ended January 31, 2022, despite the request metadata’s “2020 Q4” label.
- Review whether the unusually strong fiscal 2021 margins and earnings are sustainable given volatile commodity prices, the short duration of fixed-price contracts, and derivative losses.
- Assess the availability and use of the $255.7 million cash and short-term investment balance, including cash held at One Earth and NuGen and the stated limits on investee dividends.
- Track final EPA renewable fuel volume and exemption decisions and their effects on ethanol demand and pricing.
- Monitor the federal tax examination, realization of tax-credit carryforwards, and the carbon sequestration project’s permitting, feasibility and cost.