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

Good morning, everyone. Welcome to Ceres Global Ag's earnings call for the third quarter results for financial 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 discussion and analysis, which is available on SEDAR and on 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, operator, and good morning, everyone. This quarter, the business operations performed very well despite continued market volatility. February 24 marked the 1-year anniversary of the conflict in Ukraine, a conflict that has had many humanitarian and economic impacts. For agricultural markets, particularly for Ceres, for Northern Spring wheat, durum and canola markets, the war has disrupted production and exports, causing uncertainty regarding supply. While Ukraine has shipped significantly more grain over the last several months. Russia's announcement that we will not support the Black Sea grain deal beyond the 18th presents great uncertainty for agricultural markets. Adding to this volatility was the extreme weather readings around the globe this year on the back of La Niña phenomenon. While Brazil yielded record soybean crops, Argentinean bean, corn and wheat crops were devastated by droughts, resulting in an extended U.S. export season that kept rail freight values elevated. Continued dryness in the Western U.S. Plains is also expected to impact the already small Kansas wheat crop. Despite unfavorable macro conditions, the Ceres team smoothly navigated these erratic markets by effectively utilizing the company's asset network, trading and positioning, resulting in another quarter with positive adjusted net income. We were able to handle 20% higher volumes compared to last year. We were well positioned to handle the higher crop volumes moving to domestic and international export markets. Year-to-date, our volumes handled had surpassed the volumes handled for fiscal year 2022. Contributing to our success was the performance at Berthold Farmers Elevator. The venture continues to exceed our expectations. Volumes handled at BFE increased by 15% compared to last year. As being incorporated into our network of assets, this joint venture has continued to create synergies that provide long-term value for the corporation. At Farmers Grain LLC, Thief River Falls, despite significant rail freight delays, the joint venture originated higher volumes than the prior year and continues to allow directly with growers value-added solutions for our customers. In the Supply Chain Services segment, Industrial Products and fertilizer volumes [were] down compared to the third quarter of last year as a result of substandard array of performance and farmer deliveries. However, we have liquid volumes for our Gateway Energy Terminal continue to trend upwards as collaboration increased with Steel Reef, our partner in the Gateway Energy business. Overall, gross margins for the segment are the highest we've seen this fiscal year. In the Seed and Processing segment, soybean crush volumes were higher compared to the same quarter last year as a result of improvements in operational efficiency and effective merchandising. While demand for soy oil was low this quarter due to operational issues across the U.S. renewable diesel refineries, the high demand for soybean meal more than made up for the shortfall in oil, resulting in solid margins. I will speak about the financial outlook for the rest of the fiscal year and the company's growth in a few minutes. But first, I'd 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, please note 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 adjusted EBITDA, working capital and adjusted net income, please refer to Section 8 of this quarter's MD&A. Gross profit for the quarter was $5.5 million compared to $12.3 million in Q3 of last year, mainly due to lower trading opportunities across core commodities and 2022 being one of the most profitable years in the history of the company. Revenue was $287.9 million, up from $269.6 million in the third quarter last year, primarily due to increased volumes handled compared to the same quarter last year. We handled and traded 24.1 million bushels of grain and oilseed during the quarter, an increase of 20% compared to 20.1 million bushels for the same period last year. Year-to-date, revenue rose from $782.8 million in 2022 to $831.1 million in 2023, while gross profit was $17.8 million in 2023 compared to $52.2 million in 2022. Income from operations was $339,000 compared to $3.6 million in the same quarter last year. Net income was negative $553,000 or negative $0.02 per share, down from $912,000 in Q3 of 2022 or $0.03 per share. For the 9-month period ended March 31, 2023, income from operations was negative $864,000 compared to $24.3 million for the same period the previous year. Year-to-date, net income was negative $5.4 million or negative $0.17 a share in 2023, down from $13.7 million or $0.45 a share for the 9 months ended March 31, 2022. We maintained positive adjusted EBITDA and adjusted net income this quarter, realizing $2.2 million and $410,000, respectively, compared to $5.4 million and $2.5 million in the Q3 of last year. We also maintained positive adjusted EBITDA and adjusted net income for the 9 months ended March 31, 2023. In 2023, adjusted EBITDA and adjusted net income were $4.4 million and $1.4 million, respectively, compared to $29.3 million and $16.8 million for the same period last year. Net trading margin was $7.6 million, down from $13.7 million in Q3 of 2022 due to fewer trading opportunities across multiple commodities. Year-to-date, net trading margin was $25.3 million in 2023 compared to $56.6 million in 2022. Our Supply Chain Service revenue rose slightly this quarter to $2.1 million from $1.9 million in Q3 of 2022, primarily due to higher third-party storage, cleaning and elevations for the grain-related segment. Supply Chain Services revenue also increased by $174,000 to $6.1 million for the 9 months ended March 31, 2023 compared to the same period in the prior year. Net seeding processing margin was $1.6 million, down from $2.5 million in Q3 of last year. Year-to-date, net seeding processing margin was $4 million in 2023, down from $6.9 million in 2022. This decrease was due to the sale of the St Agathe Bird Food processing plant that occurred in June of last year. General and administrative expenses were $5.2 million for the quarter and $18.7 million year-to-date, down from $8.7 million and $27.9 million, respectively, in the prior year. The decrease was mainly due to higher incentive accruals last year relating to our record performance in fiscal '22. Additionally, general and administrative expenses were lower due to consulting expenses incurred in the previous year related to the Northgate crush project. Interest expense was $1.6 million, up from $1.2 million in the same period last year, primarily due to higher variable interest rates year-over-year on the revolving line of credit and the delayed draw portion of the term loan, which is unhedged. Year-to-date, interest expense was $5 million in 2023, up from $3.6 million in 2022. There was an income tax recovery of $118,000 this quarter compared to an income tax expense of $1.4 million in Q3 of last year. Year-to-date, income tax expense was $472,000 in 2023 compared to $6.3 million in the 9 months ended March 31, 2022. We finished this quarter with $48.1 million of working capital. This concludes my review of our financials. For more information, please refer to our MD&A and financial statements. I'll now turn it back to Carlos to provide some comments on our outlook for the rest of the year.

Thank you, Blake. We are not a stranger to choppy markets at this stage and expect volatility to remain for the foreseeable future. However, we are well equipped with a talented team who have demonstrated their ability to effectively trade and position in the markets we operate, manage our supply chains and capitalize on trading opportunities. Speaking of opportunity, we are entering the spring period for North American crops. While planting is expected to be delayed due to cool, wet spring, we believe the elevated prices for grain will encourage farmers to maximize acres planted in order to bring as much of our core products as possible. Exceptional votes, which are expected to decline as estimated by Statistics Canada. We believe this should result in adequate volumes for the corporation to merchandise. Being able to evaluate crop production is a critical component to our business and allows us to anticipate yields, position ourselves correctly and maximize our capacity. Our team is vigilantly monitoring how these crops evolve while they market opportunities as they appear. Looking to our Supply Chain Services segment. We expect industrial products and fertilizer volumes to trend higher than last year as supply chains replenish. NGL volumes should also increase as the Gateway business, recently completed and commissioned the pipeline connection to Steel Reef infrastructure facility and is beginning to run. Processing segment. We expect soybean stocks to remain steadily, allowing for high capacity utilization of our crush plant and adequate margins as we close the fiscal year. The Seed business is seasonal and it generates gross margins during Q4. Soybeans marketed by Ceres Global Seeds produce attractive yields this past harvest, which will support increased sales next year as soybean acres are expected to increase in Manitoba. Over the last months, we have focused on maximizing our strong network of partners, and we are seeing the results of our efforts. With trust and collaboration, we have been able to find creative solutions for partnering with independent co-ops to increase our farmer-direct origination and help our customers with regenerative ag goals. We will continue to focus on maximizing the full value of our assets and deepening our relationship with our farmer partners to meet increasing demand for our core products, regenerative agriculture, supply chain solutions. By connecting growers to end-user businesses, we're not only promoting advocacy or efficient growing practices among our farmer partners, but also creating consistency in supply for our end users. We've seen the positive results of this strategy right across our network, and we'll continue to focus on capitalizing the synergies. On that note, I would like to open the call for questions.

[Operator Instructions] There are no questions at this time. I will now turn the call back over to Mr. Paz.

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

Thank you for joining. This concludes today's conference call. You may now disconnect.