Ceres Global Ag Corp. (CRP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Ceres Global Ag's 2022 Third Quarter Results Earnings Call. [Operator Instructions] I would like to remind everyone that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks and uncertainties related to these forward-looking statements, please refer to the company's management discussion and analysis, which is available on SEDAR and on the company's website. I would now like to turn the call over to Robert Day, CEO of Ceres Global Ag. Please go ahead, Mr. Day.

Thank you, and good morning, everyone. We delivered another strong quarter. Compared to a year ago, gross profits were up by $6.5 million, and EBITDA and income from operations were more than 50% higher. Most encouraging, these results come from solid performances across all operations and P&Ls across the company. Combined with our record first and second quarters, this was the best 9 months in our company's history. In the Grain segment, our strong results were once again due to successfully navigating volatile markets, this time, however, doing so in an environment influenced by the war in Ukraine. In unpredictable circumstances such as this, our traders have kept risk positions relatively small, and they focused on delivering products and services to our customers as prices are high and markets are inverted. Meanwhile, companies have trended towards minimizing inventories and waiting until later than normal to cover their needs. It's an honor that our customers are relying on Ceres in these challenging times, and I am incredibly proud of our team as they have remained focused and delivered on our customers' needs. In the Seed and Processing segment, we benefited from the expansion of our Jordan Mills soybean crush plant last July, where we increased the plant's production capacity by 50%. As a result, soybean crush volumes were significantly higher than the same quarter a year ago, however, not quite as high as they would have been had it not been for power outages caused by weather. Nonetheless, the team found a way to get customers what they needed and maximize margins in the process, enabling another strong financial result for the quarter. In the specialty crop blending or bird food business, U.S.-Canadian border closures resulted in significant truck freight disruptions during parts of the quarter, which caused logistics challenges. Regardless, we were able to overcome those challenges and increased volumes compared to the same quarter a year ago. In the Supply Chain Services segment, industrial product volumes continued to trend upward and were higher than quarter 3 of last year as the construction of new homes in the U.S. continues to drive strong demand for lumber and oriented strand board. Meanwhile, fertilizer volumes were solid despite a significant increase in prices, and natural gas liquid volumes through gateway were significantly higher than a year ago. That completes my review of the business segments. Before I turn the call over to Jay to review our financial results for the quarter, I would like to thank him for his contributions to Ceres over the past 2 years. Jay has significantly improved not just the finance area of our business, but the business overall through his strong leadership and contributions as an executive in the company. I know I speak for everyone at Ceres by wishing him the best in his next endeavor. Meanwhile, I would like to congratulate Blake Amundson as he transitions from Financial Director to Vice President and CFO at Ceres. Blake has been with Ceres for nearly 7 years and is well prepared for this next challenge. And last, I am pleased to welcome Holly Dammer to the Ceres team as our new Vice President of Human Resources. Holly brings over 20 years of experience to the role and has previously held senior HR positions at other large agribusiness companies. With that, I would now like to turn the call over to Jay to discuss our financials. Jay?

Thank you, Bob, and good morning, everyone. I'll start with our usual reminder that all dollar amounts expressed in today's call are in U.S. dollars, unless otherwise stated. This morning, we reported our most profitable third quarter to date with net income of $912,000 or $0.03 per share compared to a net loss of $78,000 or $0.00 per share in Q3 of last year. Revenue for the quarter grew 32% to $269.6 million. This increase was primarily due to higher commodity prices compared to Q3 of last year. Our gross profit more than doubled to $12.3 million, with the increase due to higher merchandising margins as a result of the team's effective risk management in a challenging market environment. Net trading margin increased by $4.8 million to $13.7 million on higher trading margins and increased trading opportunities across multiple commodities. Supply Chain Service revenues increased by $347,000 to $1.9 million. Of that, $238,000 of the increase was attributable to higher grain-related third-party storage and elevations, with the balance primarily related to nongrain supply chain service revenue attributable to the Gateway Energy Terminal. Higher soybean crush volumes and margins drove our net Seed and Processing margins that were $2.5 million compared to $984,000 in Q3 of last year. At quarter end, our balance sheet remains strong, with working capital of $60 million and $40.4 million of our credit facility unused and available. This provides us ample flexibility to manage our ongoing working capital needs in this volatile and high-priced commodity environment. As a reminder, we amended our credit facility back in February, increasing the maximum amount from $100 million to $150 million, with the potential to access an accordion feature that would provide an additional $20 million. We also obtained a 25 basis point reduction to the interest rates on the facility. On the topic of interest rates, interest expense in Q3 totaled $1.2 million compared to $1.3 million last year. This decrease was driven by the lower interest expense on the term loan we entered in with the Bank of Montreal last June, which replaced our previous term loan. This concludes my review of the financials. For additional details, please refer to our MD&A. I'll now turn it back to Bob to discuss our outlook for the remainder of the year. Bob?

Thank you, Jay. As the conflict continues in Ukraine, the impact on global agriculture has the potential to have prolonged effects on global grain and oilseed supplies, availability and prices. In addition, challenging weather is causing planning delays in some parts of North America, all of which have the potential to cost price volatility for the product Ceres trades and merchandises. Therefore, Ceres' role as a key ingredient supplier to food, energy and industrial customers has never been more important, and we accept that challenge. Over the past several years, we have added to our network of assets and both brought in and developed talent in the organization to be able to deliver on our promises to customers and generate positive financial results. We will add to our capabilities very soon with the addition of Berthold Farmers Elevator, LLC, which was previously announced, in which Ceres secured the right to purchase 50%. We expect to close on that transaction in the coming weeks. In addition, this summer, the Farmers Grain joint venture and Thief River Falls will complete its expansion, which will provide Ceres with unit trains of product that we previously did not have access to. Altogether, we are confident that the Grain segment will continue to perform well in quarter 4 and next fiscal year. In our Supply Chain Services segment, we expect propane and butane volumes to continue increasing as petroleum values remain elevated and Canadian drilling remains consistent, and we expect fertilizer and industrial product volumes to remain steady. Meanwhile, we expect our soybean crush business in Manitoba to continue performing well as we enter summer and continue to crush old crop soybeans. Next fiscal year's success will depend in part on weather and how much soybeans farmers plant, and the wet conditions in Manitoba bode well for soybean planting and yield, so we are optimistic about opportunities in this segment of our business for next year. Regarding growth and development, our plans for building a canola processing facility in Northgate, Saskatchewan remain on track at this point in time. Last month, the U.S. Environmental Protection Agency released a proposed rule expressing their interest in evaluating canola oil as a feedstock for renewable diesel, a move that's expected to increase demand for canola oil and canola crush businesses. At this stage, Ceres is focused on advancing on the design and engineering work needed to clarify total project cost and bring in the remaining capital needed to fund the project. On that note, I would like to open the call for questions.

[Operator Instructions] First question comes from the line of [ Stuart McKean. ]

Just a question on -- I know as I seem to be the only one on these calls. Any luck attracting analyst coverage of Ceres? You've got such great results.

Yes, I appreciate that. It is something that we're working on, and we've had a couple of discussions with some potential analysts. So I agree, I mean, with the improvement in results and just the overall EBITDA levels, we would expect to get some attention, and so we are working on that. But at this point in time, I can't confirm any concrete plans, but we are definitely working on that.

All right. I mean, I guess, in a certain way, the growth initiatives are great. But if the growth in the stock and the share price isn't there, it's almost meaningless. I mean shareholders just been sitting here at this price. And it's -- I think we need some action on that front as a shareholder.

Yes. And I think what I can say about that is that we have had discussions at the Board level about what our options are, things to consider. And that's -- those are discussions that are ongoing. I think we'll see how things play out here. But what I can tell you is that it is a topic being discussed, and different options are being considered.

And it appears there are no further questions at this time. I will now turn the call over -- back over to Mr. Day.

Okay. Thank you very much, and thanks, everyone, for listening today. We look forward to following up in our next quarterly call, which will be the end of our fiscal year. Take care.

[Audio Gap] for joining. This concludes today's conference call. You may now disconnect.