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

Good morning, everyone, and welcome to the Ceres Global Ag's earnings call for their first quarter results for fiscal year 2023. [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's discussion and analysis, which is available on SEDAR and the company's website. I would now like to turn the call over to Carlos Paz, CEO of Ceres Global Ag. Please go ahead, Mr. Paz.

Thank you, Simon, and good morning, everyone. We look forward to walking you through the quarter today. I'm joined this morning by Blake Amundson, CFO at Ceres. As anticipated, this quarter was highlighted by a challenging macro environment. As our industry continues to feel the impact from the war in Ukraine, regardless of market conditions, we focus on positioning the company for success by deepening customer relationships, maximizing the value of our assets and making personnel adjustments to reduce costs and rightsize the company. During the quarter, our team was instrumental in shielding the company from unnecessary risks. Their ability to navigate volatile markets allowed Ceres to recognize positive adjusted net income this quarter and maintain a strong top line revenue growth. In our Grain segment, the volumes handled by Ceres dropped by 11% compared to Q1 last year. This quarter, we saw the effect of the late planting, leading to a later-than-normal harvest and the realized effects of extremely low inventories from last year's unprecedented drought. While this factor resulted in reduced volume handled during the quarter, we remain optimistic that farmer sales and handle volumes will increase during Q2. Meanwhile, railroad interruptions during the harvest season created logistical challenges and added complexity to merchandising grain. While we have loaded several Canadian Pacific unit trains through the expansion at Thief River Falls, North American rail service significantly declined this quarter, resulting in challenges in shipping products that originated from our farmer partners. We continue to work diligently to resolve rail service issues and expect to surpass the volume handle at Thief River Falls for this crop year. Looking at our Supply Chain Services segment, oriented strand board and fertilizer volumes were weaker compared to last year, though natural gas liquid volumes through the Gateway Energy Terminal were significantly higher. Overall, gross margins for the segment were consistent with Q4 volumes and only slightly lower compared to Q1 last year. Turning now to our Seed and Processing segment. Local margins were adequate during the quarter. Soybean crush volumes were higher than last year's Q1, though we did not reach our targeted capacity. This was due to challenging operational issues experienced during the quarter, preventing our plant from running at full capacity. Operational adjustments have been made, and we are starting to see crush volumes reflect the plant's full capacity potential. While the Seed business is seasonal and tends to realize margins during Q4, our costs were well managed throughout the quarter. The Seed team focused their efforts on the sale and distribution of soybean and corn seed products in Western Canada and marketing seeds supplies from our partners. While this quarter has presented challenges, we had a solid quarter operationally and remain optimistic about the outlook of fiscal year 2023. I will speak about our strategy and outlook for the year in a few minutes. But I would first like to turn things over to Blake to review our financial results for the quarter. Blake?

Thank you, Carlos, and good morning, everyone. Before I begin, just a reminder that all dollar amounts expressed in today's call are in U.S. dollars, unless otherwise stated. For definitions and reconciliations of non-IFRS measures, including the referenced EBITDA and adjusted net income, please refer to Section 8 of this quarter's MD&A. Gross profit for the quarter was $5.6 million compared to $23.9 million in Q1 of 2022, primarily due to lower trading opportunity across our core commodities. EBITDA was negative $218,000 this quarter compared to $15.4 million in 2022. Our income from operations was negative $2.2 million for the quarter compared to $13.7 million in the same quarter last year. The net loss for the quarter was $3.6 million or $0.12 per share versus a net income of $8.8 million or $0.28 per share in Q1 of last year. As a reminder, we began reporting adjusted net income this last quarter, which adjusts for major write-offs, certain legal expenses and employee severance costs. We felt it was more representative of the underlying performance of the business. This quarter, we realized $337,000 in adjusted net income versus $9.8 million in Q1 of last year. Revenue for the quarter was up $52 million or 25% from last year to $260 million. This was mainly due to an increase in prices of specific core commodities compared to the same quarter last year. Throughout Q1, we handled and traded 28.3 million bushels of grain and oilseeds compared to 31.6 million bushels for the same quarter last year. Supply Chain Services revenue was relatively flat compared to Q1 last year at $1.8 million, while our grain-related supply chain revenue increased due to higher third-party storage and elevation. Our nongrain supply chain revenue decreased due to lower realized revenue from our Gateway Energy Terminal. Net seed and processing margin was $513,000 in Q1 compared to $868,000 for the first quarter of fiscal year 2022. This decrease was primarily driven by last quarter's sale of the St Agathe Bird Food plant. This quarter, general and administrative expenses were $7.7 million compared to $10.2 million in Q1 of last year. This decrease is due to higher incentive accruals in the prior year, but offset by employee severance costs and higher legal expenses realized this quarter. Interest expense for this quarter totaled $1.4 million compared to $1.1 million in Q1 of last year, driven by increased borrowings on our term debt and increased interest rates, partially offset by lower average daily borrowings on our revolving credit facility. Income tax expense was $178,000 this quarter compared to an expense of $3.6 million in Q1 of last year. At quarter end, we had working capital of $52.3 million. This concludes my review of our financials. I'll now turn it back to Carlos to provide some comments on our outlook for the balance of the year. Carlos?

Thank you, Blake. Although uncertain and volatile conditions will continue to impact markets and challenge supply over the next several quarters. Ceres is in a good position to navigate this choppy waters. Our last fiscal year was the best annual operating financial performance in corporate history, providing us with the asset infrastructure and the talent to continuously adapt to changing market conditions. The market will soon be looking at South America as the crop planting season approaches. The progress made on this season crops will be important, especially for corn and soybeans, which will likely influence prices across the grain and oilseed complex. While this may create the possibility of further volatility, we remain focused on continuing to work with our partners to nurture the multiple revenue streams they offer and create solutions for our customers. In our core Grain business, we were pleased to see resilience in our northern tier crops in Canada and the U.S., which in the end, delivered better-than-expected yields, resulting in higher production and more product for Ceres to handle and merchandise during the remainder of the fiscal year, especially in Q2. We have significantly increased our direct access to growers and the ability to increase origination of core products through our partnerships with Berthold Farmers Elevator and our joint venture with the Farmers Grain in Thief River Falls, Minnesota. We will continue to leverage these partnerships to offer regenerative ag solutions to our strategic customers and to generate attractive margins. Demand for both soybean meal and oil remains strong, which should contribute to attractive gross margin environment for our plant in Manitoba. We also opened new markets in the renewable and biodiesel sector in the U.S., which we expect will continue to contribute to better demand for oil produced in the coming quarters. We are seeing industrial products and fertilizer volumes increase and expect the demand for natural gas liquid to remain strong as crude oil prices stay high. We have invested in our infrastructure and are able to capitalize on this demand through our Gateway Energy Terminal. As previously announced, we are committed to realizing the full value of our assets and acquisitions in order to meet the demand for our core products. As part of this strategy, we will continue to focus on maximizing trading and merchandising opportunities and developing a regenerative ag and supply chain solutions for our strategic customers. We will provide more updates on our outlook for fiscal year 2023 at our Annual General Meeting, which will be held virtually on Monday, November 14, at 11:00 a.m. Eastern Time, 10:00 a.m. Central. I hope you are all be able to attend. On that note, I would like to open the call for questions. Simon?

[Operator Instructions] Mr. Paz, it appears there are no participants signaling for questions at this time. So I would like to turn the call back to yourself, sir.

Thank you, Simon. And thank you, everybody, for your participation in today's call. We appreciate your support, and we look forward to speaking with you again next quarter.

Thank you very much for joining. This does conclude today's conference call. You may now disconnect.