REX American Resources Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended October 31, 2021 (fiscal 2021 third quarter), not 2020 Q3 as stated in the request. Financial amounts below are in millions of dollars unless noted. The statements are unaudited.
Business context and reporting period
REX reported one segment: ethanol and by-products. It consolidates majority-owned One Earth Energy and NuGen and holds an equity-method investment in Big River. Refined coal results are presented as discontinued operations. The company ceased refined coal operations on November 18, 2021, after the quarter, when the business could no longer earn production tax credits.
Financial performance
| Metric | Three months ended Oct. 31, 2021 | Prior-year quarter | Nine months ended Oct. 31, 2021 | Prior-year period |
|---|---|---|---|---|
| Revenue, continuing operations | $203.1 | $124.2 | $562.8 | $246.7 |
| Gross profit | $25.2 | $18.9 | $58.8 | $11.3 |
| Gross margin | 12.4% | 15.2% | 10.4% | 4.6% |
| Income before tax, continuing operations | $19.2 | $16.3 | $39.2 | $(0.6) |
| Net income attributable to REX common shareholders, continuing operations | $13.3 | $9.0 | $26.3 | $(1.5) |
| Net income attributable to REX common shareholders, including discontinued operations | $15.3 | $8.8 | $30.9 | $(0.5) |
| Reported diluted EPS, including discontinued operations | $2.56 | $1.44 | $5.16 | $(0.09) |
Quarterly revenue rose about 63%; nine-month revenue rose about 128%. Management attributed the increase primarily to higher commodity prices and, for the nine-month comparison, higher production and sales after the One Earth and NuGen plants restarted in 2020 following COVID-related idling. Quarterly ethanol gallons sold fell 8%, while the average ethanol selling price rose 76%. Nine-month ethanol volume rose 39% and average price rose 66%.
Cash provided by operating activities was $50.4 million for the first nine months, versus $21.5 million a year earlier. Continuing operations generated $56.8 million; discontinued operations used $6.4 million. Investing activities provided $10.4 million, including net proceeds from short-term investment maturities, while capital expenditures were $4.2 million. Financing activities used $7.9 million, including $6.6 million for share repurchases.
Financial position and liquidity
- At October 31, cash and cash equivalents were $197.4 million, short-term investments $21.6 million, and restricted cash $1.7 million.
- Working capital was $260.7 million; the current ratio was 6.6, versus 8.4 at January 31, 2021.
- Total assets were $524.4 million and total equity $464.7 million. The balance sheet presents no borrowings; operating lease liabilities totaled $11.6 million.
- Cash, cash equivalents, and restricted cash increased $53.0 million during the nine-month period. Receivables increased $20.3 million, partly reflecting higher sales and payment timing.
Material changes, outlook, and risks
- Quarterly gross profit increased $6.2 million year over year, but the crush spread narrowed to $0.11 per ethanol gallon from $0.19. Nine-month gross profit increased $47.5 million, reflecting higher volumes and by-product prices; the reported crush spread was $0.06 versus $0.05.
- Costs and commodity volatility remain significant: average corn cost was $6.45 per bushel in the quarter versus $3.28 a year earlier; natural gas averaged $4.58 per MmBtu versus $2.09. Derivative losses included in revenue were $2.1 million in the quarter and $4.9 million year to date.
- Management expected capital expenditures of approximately $3 million to $5 million for the remainder of fiscal 2021. No earnings or revenue guidance was provided.
- REX completed a 500,000-share repurchase authorization during the fiscal third quarter and had authorization to repurchase approximately 449,000 additional shares. It was also evaluating investments, including ethanol, energy, carbon capture, agriculture, and liquid securities.
- The company was exploring carbon sequestration near One Earth with the University of Illinois; drilling of a test well had commenced, but further work was required to assess feasibility.
- Principal risks include volatility and availability of corn, ethanol, distillers grains, corn oil, and natural gas; crush-spread compression; changing renewable fuel requirements and small-refinery waivers; and uncertain economic, weather, and pandemic effects. Management said COVID-19 caused no significant business disruption in the reported periods.
- Unrecognized tax benefits were approximately $8.8 million at October 31, 2021; the company 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 over the next 12 months to materially affect results or financial position.
- Management said no known legal proceedings were expected to have a material adverse effect and reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers fiscal Q3 2021, not 2020 Q3.
- Assess whether higher selling prices can sustain margins as corn and natural-gas costs rise and crush spreads fluctuate.
- Review the effect of the November 18, 2021 refined-coal shutdown, including the loss of future tax-credit generation and any wind-down costs; equipment removal was expected to cost no more than $250,000.
- Monitor receivables, operating cash conversion, commodity hedging results, and the company’s substantial exposure to commodity prices.
- Verify use of excess cash, remaining share-repurchase authorization, and progress and feasibility of the carbon-sequestration project.