REX American Resources Corporation — Form 10-Q Summary
Period clarification: The request metadata says 2022 Q1, but this filing covers the three months ended April 30, 2023, REX’s first quarter of fiscal 2023, compared with the three months ended April 30, 2022. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted.
Business context and reporting period
REX operates in ethanol and related products, with majority interests in One Earth Energy and NuGen Energy and an equity-method investment in Big River Resources. Its results are exposed to corn, ethanol, distillers grains, distillers corn oil and natural gas prices, as well as plant production and logistics. Interim results are unaudited and are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales and revenue | $212.7 million | $194.2 million |
| Gross profit | $15.0 million | $11.9 million |
| Gross margin | 7.1% | 6.1% |
| Income before income taxes | $8.7 million | $8.8 million |
| Net income | $6.7 million | $7.0 million |
| Net income attributable to REX shareholders | $5.2 million | $5.2 million |
| Diluted earnings per share | $0.30 | $0.29 |
| Net cash used in operating activities | $10.6 million | $17.7 million |
- Revenue rose about 10%, while gross profit increased about $3.1 million. Higher sales volumes and dried distillers grains pricing contributed; ethanol’s average selling price declined.
- SG&A rose to $10.6 million from $5.2 million, chiefly reflecting $4.8 million more outbound freight expense and higher bonus-related expense. Interest and other income increased to $2.8 million from $0.2 million, mainly due to higher yields on cash and investments.
- At April 30, 2023, cash and cash equivalents were $77.7 million, short-term investments $188.1 million, and restricted cash $3.4 million. Working capital was $324.8 million; the current ratio was 10.0 to 1.
- Total assets were $566.5 million and total equity was $517.4 million. The balance sheet lists operating lease liabilities of $13.8 million; it does not list borrowings or other conventional debt.
- Operating cash use improved year over year but remained negative. Investing activities provided $21.0 million, including net proceeds from Treasury bill maturities and purchases; capital expenditures were $4.2 million. Financing activities used $0.7 million for payments to noncontrolling-interest holders.
Material changes versus prior comparable period
- Ethanol revenue increased to $157.5 million from $146.5 million; gallons sold rose 11% to 71.5 million, while average selling price fell to $2.21 per gallon from $2.28.
- Dried distillers grains revenue increased to $39.7 million from $31.9 million, with both price per ton and tons sold higher. Distillers corn oil revenue increased to $13.1 million from $11.1 million, driven by a 16% increase in pounds sold.
- Cost of sales increased 8%. Corn represented approximately 83% of cost of sales; higher corn prices and usage added cost, partly offset by hedging. Derivative gains recognized in cost of sales were $5.8 million versus losses of $11.8 million in the prior-year quarter.
- Income before taxes was slightly lower, while net income attributable to REX shareholders was broadly unchanged. Cash used in operating activities narrowed, reflecting, among other factors, an inventory reduction that provided $7.4 million of cash.
Outlook, commentary, risks and contingencies
- No earnings or revenue guidance is provided. REX expects capital expenditures of approximately $60 million to $70 million for the remainder of fiscal 2023, primarily for expansion and carbon-intensity reduction projects at One Earth and NuGen.
- REX is exploring carbon sequestration near the One Earth plant. It has applied to the EPA for a Class VI injection-well permit for three wells and signed a carbon-capture construction contract. Required approvals and documentation remain outstanding; success and related tax-credit eligibility are not assured.
- Management cites commodity price and availability volatility, changing ethanol demand and policy, logistics, weather, and geopolitical disruptions as risks. REX notes that crush spreads and operating margins can deteriorate and that plants could reduce or halt production to limit variable costs. Its fixed-price sales contracts generally extend no more than four months.
- Proposed federal renewable-fuel obligations and Inflation Reduction Act incentives, including potential 45Q and 45Z credits, may affect the business; the filing describes uncertainty about policy, implementation and project qualification.
- At April 30, 2023, unrecognized tax benefits were approximately $19.0 million. REX was undergoing a federal tax examination for fiscal years ended January 31, 2015 through 2020; management did not expect reasonably possible changes in uncertain tax positions to materially affect results or financial position.
- A $0.25 million liability was recorded for a probable and reasonably estimable patent-infringement loss relating to a discontinued refined-coal facility. Management says current legal proceedings are not expected to have a material adverse effect.
- Combined forward purchase commitments at One Earth and NuGen included approximately 20.3 million bushels of corn and 4.1 million MmBtu of natural gas; sales commitments included approximately 42.8 million gallons of ethanol, 82,000 tons of distillers grains and 13.9 million pounds of distillers corn oil.
Most important facts for investors to verify
- Confirm the reporting-period mismatch: this is a quarter ended April 30, 2023, not a 2022 Q1 filing.
- Track crush spreads, corn and natural-gas costs, realized product prices, plant volumes and the effect of hedging on reported margins.
- Assess whether the planned $60–$70 million of remaining fiscal 2023 capital spending and carbon-sequestration project progress are consistent with available liquidity and expected returns.
- Monitor operating cash conversion, including working-capital movements, and the composition and maturities of short-term investments.
- Follow EPA permitting and other approvals for carbon sequestration, federal fuel-policy developments, and the status and potential resolution of the tax examination and patent litigation.