REX American Resources Corporation

Greetings and welcome to the REX American Resources Fiscal 2023 Third Quarter Conference Call. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I would now like to turn the conference over to Mr. Doug Brueggemann, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining RECS American Resources Fiscal 2023 Third Quarter Conference Call. We'll get to our presentation and comments momentarily, as well as your question and answer session. But first, I'll review the Safe Harbor Disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainties within meetings of the private securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. Rex American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today Stuart Rose, Executive Chairman of the Board and Zafar Rizvi, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. We are very pleased to report these record net income and earnings per share quarterly results. Sales for the third quarter increased slightly compared to the prior year. Ethanol sales for the quarter were based upon 73.2 million gallons this year versus 66.3 million last year. The increase in sales volume were offset by lower pricing across all categories, largely reflecting commodity pricing for this time period. We reported a $30 million increase in third quarter gross profit to $39.3 million this year versus $9.3 million in the prior year as we benefited from lower corn and natural gas pricing over the prior year third quarter. SG&A increased for the third quarter from $5.8 million to $7.6 million, primarily due to incentive compensation linked to the large increase in earnings. As mentioned in the second quarter, the company made a change in the method of accounting to begin classifying shipping and handling costs as cost of sales instead of within selling general and administrative expense as historically presented. in order to improve the comparability of gross profit and SG&A reported. The company has applied a retrospective application of its new accounting policy. This change only impacts cost of goods sold and selling general administrative expense and has no impact on the earnings reported. We had income of $4.7 million from our unconsolidated equity investment in this year's third quarter versus $661,000 in the prior year primarily reflecting improved industry operating conditions for this time period. We reported interest and other income of $4.9 million versus $2 million in the prior year. The increase primarily reflects increased interest rates as well as $862,000 from COVID relief grants received from the USDA during this quarter. Income before income taxes and non-controlling interest was $41.3 million for the third quarter compared with $6.1 million in the comparable year-ago period. We reported a tax provision of $9.6 million versus a provision of $1.2 million in the prior year. These factors led to net income attributable to REC shareholders of $26.1 million for this year versus $3.2 million in the prior year's third quarter. Net income per share attributable to REC shareholders was an all-time record, $1.49 for this year's third quarter versus $0.18 in the prior year. Stuart, I now turn the call over to you.

Thank you, Doug. Going forward, the business has continued to be strong, and we expect our fourth quarter to be significantly better than last year's corresponding quarter. We're working hard on our carbon capture project and also increasing the capacity of our One Earth plant. Zafar will discuss the ethanol business and carbon capture business in his segment. We have cash of $332 million, consolidated cash in our balance sheet of $332 million. We're earning interest on that, which should be significantly better, or we hope it should be significantly better than last year. The ethanol plants expansion will use some of that cash. The carbon capture project will also use some of that cash. Ginza Farr will discuss this on his part of the call. We're always looking for other ethanol carbon capture businesses and other entities that could benefit from our expertise. So far, we have nothing imminent on the acquisition front. We have our buybacks still available. We buy back on dips, and currently we are not purchasing any shares. I'll now turn the conference call over to Zafar Rizvi.

Thank you, Stuart. Good morning, and thank you for joining us today for the third quarter earning calls. As Stuart and Doug previously mentioned, our teams successfully capitalized the opportunity in the commodity market and were able to achieve the best result in the history of the company. We have seen some decline in the crash margin in the fourth quarter compared to the third quarter, but we believe we'll still be able to achieve significantly better results in comparison to last year's fourth quarter. According to the EPAIA November 29th report, ethanol stock and production dropped during the week. We have also seen natural gas price drop considerably, which has a positive impact on our financial results. The November 9th, 2023 USDA report shows an expected output of $15.23 billion bushels of corn, second highest on the record and 174.9 bushels per acre yield for the year 2023-24. We are pleased the corn yield in Marion, South Dakota this year is estimated at 152 bushels per acre compared to 132 bushels last year. As you remember that we had the last couple of years drought in Marion, South Dakota area. Also approximately 580,000 acres 12% more acres of corn were planted this crop year compared to last year. Corn in Gibson City, Illinois are less available at 203 bushels per acre compared to 214 bushels per acre last year. But almost 400,000 more acres were planted and an increase of 4% were planted this year compared to last year. Looking ahead, the drop in the ethanol and DDG export could negatively affect future results if this continues throughout the next year. Ethanol exports through September 2023 were approximately 1 billion gallons compared to 1.1 billion gallons in 2022 during the same period. DDG exports through September 2023 were approximately 8 billion 8 million metric tons compared to approximately 8.5 million metric tons, a decrease of approximately 428,000 metric tons compared to the same period, 2022. Considering all these factors, we still believe our fourth quarter is expected to produce much better results compared to the same quarter last year, as I mentioned previously. Let me give you some update about carbon. Our carbon project, as I mentioned in our previous calls, we believe our carbon capture and sequestration project will further advance our sustainability goals and have a financial impact that will improve the company's performance for our shareholders. We have budgeted approximately $165 million to build the carbon capture, comparison and storage facility, expand the 1-0 energy plant, ultimately 200 million gallons annually, and undertake other projects related to the reducing carbon intensity. The construction of the capture and compression facility has started, and long lead items have been ordered, and all modular compression equipment for the facility is scheduled to be delivered by early next year. The construction of the facility is expected to be completed by the end of second quarter at which time testing of the facility will begin. We continue to complete the paperwork of different government agencies while we wait for the EPA approval of the Class 6 permit for carbon injection and for the Illinois Commerce Commission's approval to construct the 7.2 miles carbon pipeline. All these permits and approvals depend on several local, state, federal agencies. Unfortunately, we cannot predict when we will receive these permits from these various agencies. In other updates, two other carbon pipeline companies recently withdrew their pipeline application. Big River Resources has entered into an agreement with Navigator, which withdrew their carbon pipeline application. We are pleased about the big milestone we have reached so far and hope different government agencies will complete their approvals early next year. We will also continue to evaluate other projects that would improve our energy efficiencies, reduce carbon intensity. If we successfully achieve our goals, we will be prepared to provide low carbon ethanol and byproducts with a social impact of reducing carbon in the atmosphere and a financial impact that improves the company's performance for our shareholders. In summary, we are pleased to announce the most profitable quarter in our history, and we believe our fourth quarter is expected to produce much better results compared to the same period last year. We continue to make progress on our carbon sequestration project and plan to increase ethanol production of One Earth Energy ultimately to 200 million gallons to maximize 45Z tax credit benefits. Once again, we could not achieve these milestones without the hard work and dedication of our colleagues. We are very appreciative of their efforts in achieving these positive results. I will give back the floor to Stuart Rose for additional comments. Stuart?

Stuart?

In conclusion, we completed the best quarter in our 39-year history as a public company. We drastically outperformed the industry. As Elon Musk said, as he said yesterday, for people who are listening to his conference call, he has no patents or his patents are all open patents. We have no super patent or anything like that. but we better execute than our competitors, and our people are the real reason for that. We feel we have the best people in the industry. We feel that they know what they're doing. In carbon capture, for example, everyone else has these big pie-in-the-sky projects. We've focused on a project that we believe is very doable, and at the moment I believe we're in the lead in the ethanol business in our carbon capture project. It's ahead of any other carbon capture project that I know of in the ethanol business, other than ADM, which was done long ago. So we're, again, going to show we believe that execution is way more important than anything else, and we feel we're better at that than anyone else. So I said earlier, we know we have good plants. We know we have good locations, but the most important thing we have is good people, and we Our people are just terrific, and they get all the credit for this quarter. It's just a terrific job, and they deserve it. I'll now leave the forum open for questions.

Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1-4-3. One moment, please, for the first question. Our first question comes from Jordan Levy with Truist Securities. Please proceed.

Hey, guys. It's Henry on for Jordan here. Congrats, firstly, on the quarter. To start off, I know you mentioned the 2Q date before. I was wondering if you have any more color on some of the different benchmarks, both on the construction side and then from the EPA around the on the CCS bill that we should be looking for in the next 12 to 18 months?

I'll take that. As far as concern about the EPA, I think it's under technical review. And we have no idea how long that technical review will take. But as far as construction of the facility is already started, as I mentioned previously, and the modular unit, which will be arriving in February, and we believe that our facility will be completed by July 31st or earlier.

That does not mean we'll be in business July 31st. It may take a little longer because we still may be waiting for permits.

The construction of the facility will be completed, but we cannot operate unless we receive the EPA permit and pipeline permit, which I mentioned earlier. But as far as concerned, the compression facility will be completed.

Awesome. Thank you. And then just looking ahead to next year, how are you guys looking at the ethanol landscape shaping up kind of compared to this year? And have you guys started having conversations with any of the nearby operators on potential carbon offtake given kind of where you're at, you know, your advanced timeline for your current carbon capture projects? That's hard.

I'm sorry, could you repeat that question again? I'm not sure what exactly you're asking, please.

Just a quick one on kind of the ethanol landscape, how you're seeing that shaping up for next year. And then just anything you have on any conversations, if you have begun having them with nearby operators for a potential carbon optic, given where you're at with the CCS build-out.

I think as far as concern ethanol, looking forward, as I mentioned, that we are in a commodity business. I think it's very hard to predict more than even a couple of months or three months. So at this stage, I really cannot predict what happened with the commodity market, and it's changed every single day or every month. But when we're going to see any opportunity, we will be there to materialize that. So I really cannot predict what happens next year. But I can, as I mentioned, the fourth quarter, certainly we believe that it will be much better than last year's same fourth quarter. But as far as concerned about the carbon, I think once we complete the facilities, that will be probably by the end of 2025. At that time, we will see exactly that if there is other sources of the carbon is available from anybody else. Otherwise, our expansion of the ethanol facility will be still will be a very feasible project with using 45Z and even 45Q. Return on investment is much higher than we expect.

Thank you. One thing on your question, I think you probably realize you've been following our stock for a long time. Zafar and his team have proven quarter after quarter after quarter that they know the commodity business and are really good at it. Other people with all their futures contracts and the big floors of commodity traders and everything have drastically underperformed what Zafar and his team have done. And there's no reason if it's happened in the past, there's no guarantees it's going to happen in the future. But when you look at that team and what they have done, I think you have to say that we know this business and that we're better, again, as I said in my call, better executing than everyone else. And, again, on the carbon capture, we hope to have it completed with permits by the end of next year, which would be, with 45Z, a huge, huge addition, potentially, to our earnings per share. So we'll see what happens in June. That's the thing that we are putting, Safar and his team is putting in the growth area the most efforts into. And again, if he does that, if they do that like they've done ethanol business, we're in really good shape.

And I add to that, since we are increasing our production to 200 million gallons, so every reduction from 0.50 to reduction, every gallon reduction, is two cents a gallon. So if we, and the carbon sequestration is approximately somewhere 30 to 35 cents, 30 to 35 points. So if we are able to reduce our carbon footprint, our intensity, and as we are working on several other projects, so we can generate with the 200 million gallon ethanol facility, over three years, somewhere $500 to $600 million tax credit.

Again, that would be the most we can generate. That would be the most. Right. We don't want people putting that in their numbers, but that's what we're working so hard to get to. And if we even get to half of that, that's all increase in earnings per share. So we have a big bogey out there, and we're going to work hard to get as much of it as we can.

That's the reason we are allocating $165 million. It's a major investment and certainly is the risk, but we believe the return is much better and much higher.

Thank you, guys.

Our next question comes from Chris Sakai with Singular Research. Please proceed.

Hi, good morning. Just a Question, where are you seeing the most demand for ethanol?

Where we see the most demand in ethanol, you mean export side?

Right.

I think mostly right now we see Canada, and we have recently seen the United Kingdom, Netherlands, South Korea, Colombia. So those are the top five. We have seen some India also. So certainly a lot of these countries are importing. So Canada is always on number one.

Okay, great. How are you guys seeing the price of corn and dried distiller's grain and modified distiller's grain heading into the next quarter?

I think the... Corn is, generally speaking, as you can see, it's trading about $4. Yesterday it was $4.49, and today it's some increase. So I think that, as I mentioned previously, in the South Takeda area, certainly we have seen some minus bases, and we have seen some bases in overall in Illinois has gone up a little bit. We have seen bases in Minneapolis and some other part where it was – Not as good production as it compared to last year is plus basis, but otherwise most of the area is the minus basis.

What about the price of natural gas as we head into the winter?

The natural gas price has considerably dropped, as I mentioned, that we have seen that it's less than a $5 for January, February. And we have seen that about for March as low as $2.56 or $2.67. So that will be a major impact, as I mentioned that in my previous prepared remarks, that we have seen the drop in natural gas pricing.

Okay, great. Thanks.

Our next question comes from David Locke with Old Mammoth Investments. Please proceed. Hey, guys. How are you doing?

Good. Hey, first off, I'd really like to thank you guys for taking questions. There are some teams out there that seem sort of afraid to take questions from their investors in a public forum. So thanks for your time and your candor in doing this.

Thank you. Thank you for asking questions.

Um, so my, my first question is like the, the industry overall has been beset by a ton of operational problems the last few months, explosions, fires, et cetera. To, to what extent has that contributed to the good financial margin environment for the last half year or so? And how have you guys managed to sidestep all of that? And relatedly, how old are your plants relative to industry average?

We have some of the newest plants in the industry. They're, I believe, under 10 years old. Some of these older plants just should be shut down, to be honest with you. The fires and all that stuff maybe helped us a little bit. I don't know if they had commitments where they had to buy plants I'm not sure of the situation where they had to buy product on the open market, on the spot market. That certainly, if they did, that would help. But I think you have not, and we have a number of plants, some we only own a small part of, but we have many plants, and these are all newer plants. In the beginning, we made a decision to go with the best builder and the best plants, and I don't know of any I don't know of any operational problems in these plants. They're just better built. Semi-annually, we do an extensive service on these things, and they're just state-of-the-art better plants. That's all I can say. They're Fagan ICM plants. When you see a 100-million-gallon Fagan ICM plant, very seldom do you see anything materially go wrong with those plants. There can always be a tornado or something, but the plants themselves, are built terrifically. In our case, we take extremely good care of those plants.

I will add to that. I think the safety is our number one priority. We always review that every month, the safety procedure. God forgive, anything can happen to anybody, but we are making sure all the safety procedures are followed and drills are happening regularly. and other very closely monitored other safety things. And as Stuart mentioned, there's a couple of plants which happened that thing. I think if you ring, there's one plant that happened in the South Dakota that was about only 70 million gallon plant that was shut down for a while. ADM plants were shut down for maybe a couple of weeks or more. And so I think there is, Stuart has mentioned that there is maybe a minor impact. But I think the overall, if you look at the commodity market, you know, that also makes a difference. When you have in October 2nd, corn was trading $4.88 and ethanol was trading $2.36. So there is plenty margin at that time to look at it, to make sure that this is the time to lock in and moving forward. So I think, as Stuart mentioned, it all depends on when and what time you execute your profit and consider that this is good enough and let's lock in and move on. Let me add.

We believe strongly we have the best commodity trading teams Not just the best plants, but I really believe we have the best commodity trading team led by Safar in the ethanol business.

Our consolidated plants were built between 2007 and 2009, if I can just add that on.

Thank you. Yes, thank you.

So as you guys continue to sort of like scour the M&A market, but not find anything that's worthwhile. Are you looking for plants that look like the ones that you have, or are there dumpster diving opportunities for you to bring your management expertise and maybe fix up one of these older ones?

We don't dumpster dive. That won't be us. We're not fix-up artists. Not saying that we couldn't do it, but we have come very close to buying plants that are similar to ours, Fagan ICM plants, and that was 100 million gallon. And for one reason or another, it hasn't worked out, but that would be our preference. And that would be what we would look for. Unfortunately or fortunately, whatever you want to say, Most of those plants are doing really, really well, and the price has gone very, very much up on those plants. So I don't see anything coming imminently. But in this industry, you never know what might happen.

Okay. How do you guys feel generally about the broad supply-demand environment for ethanol right now?

I mean, we've been

we've been oversupplied for the better part of a decade and a half. It feels like, although we've had sort of just consistently decent margins all year this year with some really high ones over the summer and early fall. So, um, like, are, have we finally managed to make it to balance with a little bit of increased demand and some supply coming offline?

I think, go ahead, Stuart.

I was going to say my opinion, It's a commodity, and what will happen is there will be one way or another we're expanding our plants. If it does continue this demand, there will be some expansion, and then the supply will keep up with it. But we have hopes as an industry, and it may or may not happen. The government has given a lot of support to it happening, supplying things like jet fuel, We also would have hopes of being a very, very low-carbon fuel, which creates demand for our fuel in addition to what it is now across the country. And there are more and more pumps. I see them in Dayton. I see them around the country, more and more pumps that are greater than 10% ethanol. And cars today that are manufactured today can run on 15% ethanol. So that would be a 50% increase, and the gas stations make more money on 15% ethanol. So they have incentives. So there's hopes that that will increase demand. So to answer your question, it's a commodity business, but a lot of things are moving in that direction.

Okay. And then my last question is on the pipeline in Illinois. Do you guys need – any eminent domain rulings to make that happen. And it seems like there have been some problems in Iowa recently with that. And the clown show Vivek is sort of like actually campaigning in Iowa about that whole issue. So I'm just sort of curious what, what the gating items are for getting that installed.

Yeah, I can answer that a little bit. I think if you look at the Illinois law is clearly state, regardless of we plan to use it or not eminent domain. But regarding the pipeline, Illinois law clearly state that we can use eminent domain. But as far as our attention, we at this stage, we do not believe that we have to use eminent domains. because we have approximately four miles pipeline to the well number one. And by the time we reach to well number two and three, the last well is only 7.2 miles pipeline. And so we may have some difficulties. We do not know. But as far as concern, which we have a preliminary indication which we have, we do not believe that we will be using any imminent domain. But the law is still there exists. And in case of we have no choice whatsoever, that maybe we consider, but that's not what our attention is at this stage.

And keep in mind, as Safar just said, we're only going four miles, and a lot of that four miles is over land, farmland, where we're helping the people that we're dealing with for these four miles are selling their corn to us. And some of them are shareholders, I believe, so So they have a big incentive to make this happen because in both cases, they're better off having us do well and they'll do well. And it's been a great partnership for many, many years, as Doug said, since at least 2009. So we have done – we have been – they've done good for us, I believe. I know we've done good for them. When you think of these other pipelines in Iowa, they're going hundreds of miles. We're going four miles. We don't think it's going to be any issue. If it is, Illinois law backs us up, but we don't believe it'll be an issue at this time.

Yeah, exactly. And I think Stuart is exactly right. As you mentioned, the people are going out there to protest. As you know, that That can happen. We cannot stop them. That's their opinion. And there certainly is the same people go almost every state in Illinois, in Iowa, South Dakota. And that's their, you know, that's what the values they think they have. But as far as we're concerned, we continue to concentrate what we have to provide and what we have to do.

Okay, thanks a bunch for the clarification and nuance on that. That's all I've got, and thanks for another excellent quarter, and congratulations on kicking everybody's butt.

Thanks for the questions.

Mr. Rose, there are no further questions at this time. We'll now turn the call back to you.

We'd like to thank everyone for listening, and we'll look forward to talking to you at the end of the next quarter. Thank you. Bye. Thanks.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone. you Thank you. Thank you. Thank you. Greetings and welcome to the REX American Resources Fiscal 2023 Third Quarter Conference Call. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. I would now like to turn the conference over to Mr. Doug Brueggemann, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining RECS American Resources Fiscal 2023 Third Quarter Conference Call. We'll get to our presentation and comments momentarily, as well as your question and answer session. But first, I'll review the Safe Harbor Disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risk and uncertainties within meetings of the private securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs, but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risk and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Form 10-K and 10-Q. Rex American Resources assumes no obligation to publicly update or revise any forward-looking statements. I have joining me on the call today Stuart Rose, Executive Chairman of the Board and Zafar Rizvi, Chief Executive Officer. I'll first review our financial performance and then turn the call over to Stuart for his comments. We are very pleased to report these record net income and earnings per share quarterly results. Sales for the third quarter increased slightly compared to the prior year. ethanol sales for the quarter were based upon 73.2 million gallons this year versus 66.3 million last year. The increase in sales volume were offset by lower pricing across all categories, largely reflecting commodity pricing for this time period. We reported a $30 million increase in third quarter gross profit to $39.3 million this year versus $9.3 million in the prior year as we benefited from lower corn and natural gas pricing over the prior year third quarter. SG&A increased for the third quarter from $5.8 million to $7.6 million, primarily due to incentive compensation linked to the large increase in earnings. As mentioned in the second quarter, the company made a change in the method of accounting to begin classifying shipping and handling costs as cost of sales instead of within selling general and administrative expense as historically presented. in order to improve the comparability of gross profit and SG&A reported. The company has applied a retrospective application of its new accounting policy. This change only impacts cost of goods sold and selling general administrative expense and has no impact on the earnings reported. We had income of $4.7 million from our unconsolidated equity investment in this year's third quarter versus $661,000 in the prior year primarily reflecting improved industry operating conditions for this time period. We reported interest and other income of $4.9 million versus $2 million in the prior year. The increase primarily reflects increased interest rates as well as $862,000 from COVID relief grants received from the USDA during this quarter. Income before income taxes and non-controlling interest was $41.3 million for the third quarter compared with $6.1 million in the comparable year-ago period. We reported a tax provision of $9.6 million versus a provision of $1.2 million in the prior year. These factors led to net income attributable to REC shareholders of $26.1 million for this year versus $3.2 million in the prior year's third quarter. Net income per share attributable to REC shareholders was an all-time record, $1.49 for this year's third quarter versus $0.18 in the prior year. Stuart, I now turn the call over to you.

Thank you, Doug. Going forward, the business has continued to be strong, and we expect our fourth quarter to be significantly better than last year's corresponding quarter. We're working hard on our carbon capture project and also increasing the capacity of our One Earth plant. Zafar will discuss the ethanol business and carbon capture business in his segment. We have cash of $332 million, consolidated cash in our balance sheet of $332 million. We're earning interest on that, which should be significantly better, or we hope it to be significantly better than last year. The ethanol plants expansion will use some of that cash. The carbon capture project will also use some of that cash. Ginza Farr will discuss this on his part of the call. We're always looking for other ethanol carbon capture businesses and other entities that could benefit from our expertise. So far, we have nothing imminent on the acquisition front. We have our buybacks still available. We buy back on dips, and currently we are not purchasing any shares. I'll now turn the conference call over to Zafar Rizvi.

Thank you, Stuart. Good morning, and thank you for joining us today for the third quarter of any calls. As Stuart and Doug previously mentioned, our team successfully capitalized the opportunity in the commodity market and were able to achieve the best result in the history of the company. We have seen some decline in the crash margin in the fourth quarter compared to the third quarter, but we believe we'll still be able to achieve significantly better results in comparison to last year's fourth quarter. According to the EPAIA November 29th report, ethanol stock and production dropped during the week. We have also seen natural gas price drop considerably, which has a positive impact on our financial results. The November 9th, 2023 USDA report shows an expected output of $15.23 billion. bushels of corn, second highest on the record and 174.9 bushels per acre yield for the year 2023-24. We are pleased the corn yield in Marion, South Duquera this year is estimated at 152 bushels per acre compared to 132 bushels last year. As you remember that we had the last couple of years drought in Marion, South Duquera area. Also approximately 580,000 acres 12% more acres of corn were planted this cross year compared to last year. Corn in Gibson City, Illinois are less available at 203 bushels per acre compared to 214 bushels per acre last year. But almost 400,000 more acres were planted and an increase of 4% were planted this year compared to last year. Looking ahead, the drop in the ethanol and DDG export could negatively affect future results if this continues throughout the next year. Ethanol export through September 2023 was approximately 1 billion gallons compared to 1.1 billion gallons in 2022 during the same period. DDG export through September 2023 was approximately 8 billion 8 million metric tons compared to approximately 8.5 million metric tons, a decrease of approximately 428,000 metric tons compared to the same period, 2022. Considering all these factors, we still believe our fourth quarter is expected to produce much better results compared to the same quarter last year, as I mentioned previously. Let me give you some update about carbon. our carbon project. As I mentioned in our previous calls, we believe our carbon capture and sequestration project will further advance our sustainability goals and have a financial impact that will improve the company's performance for our shareholders. We have budgeted approximately $165 million to build a carbon capture, comparison, and storage facility, expand the one energy plant, ultimately 200 million gallons annually, and undertake other projects related to the reducing carbon intensity. The construction of the capture and compression facility has started, and long lead items have been ordered, and all modular compression equipment for the facility is scheduled to be delivered by early next year. The construction of the facility is expected to be completed by the end of second quarter at which time testing of the facility will begin. We continue to complete the paperwork of different government agencies while we wait the EPA approval of the class six permit for carbon injection and for the Illinois Commerce Commission's approval to construct the 7.2 miles carbon pipeline. All these permits and approvals depend on several local, state, federal agencies. Unfortunately, we cannot predict when we will receive these permits from these various agencies. In other updates, two other carbon pipeline companies recently withdrew their pipeline application. Big River Resources has entered into an agreement with Navigator, which withdrew their carbon pipeline application. We are pleased about the big milestone we have reached so far and hope different government agencies will complete their approvals early next year. We will also continue to evaluate other projects that would improve our energy efficiencies, reduce carbon intensity. If we successfully achieve our goals, we will be prepared to provide low carbon ethanol and byproducts with a social impact of reducing carbon in the atmosphere and a financial impact that improves the company's performance for our shareholders. In summary, we are pleased to announce the most profitable quarter in our history, and we believe our fourth quarter is expected to produce much better results compared to the same period last year. We continue to make progress on our carbon sequestration project and plan to increase ethanol production of One Earth Energy ultimately to 200 million gallons to maximize 45Z tax credit benefits. Once again, we could not achieve these milestones without the hard work and dedication of our colleagues. We are very appreciative of their efforts in achieving these positive results. I will give back the floor to Stuart Rose for additional comments. Stuart?

Stuart?

In conclusion, we completed the best quarter in our 39-year history as a public company. We drastically outperformed the industry. As Elon Musk said, as he said yesterday, for people who are listening to his conference call, he has no patents or his patents are all open patents. We have no super patent or anything like that. but we better execute than our competitors, and our people are the real reason for that. We feel we have the best people in the industry. We feel that they know what they're doing. In carbon capture, for example, everyone else has these big pie-in-the-sky projects. We've focused on a project that we believe is very doable, and at the moment I believe we're in the lead in the ethanol business in our carbon capture project. It's ahead of any other carbon capture project that I know of in the ethanol business, other than ADM, which was done long ago. So we're, again, going to show we believe that execution is way more important than anything else, and we feel we're better at that than anyone else. So I said earlier, we feel we know we have good plants. We know we have good locations, but the most important thing we have is good people, and we Our people are just terrific, and they get all the credit for this quarter. It's just a terrific job, and they deserve it. I'll now leave the forum open for questions.

Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1-4-3. One moment, please, for the first question. Our first question comes from Jordan Levy with Truist Securities. Please proceed.

Hey, guys. It's Henry on for Jordan here. Congrats, firstly, on the quarter. To start off, I know you mentioned the 2Q date before. I was wondering if you have any more color on some of the different benchmarks, both on the construction side and then from the EPA around the on the CCS bill that we should be looking for in the next 12 to 18 months?

I'll take that. As far as concern about the EPA, I think it's under technical review. And we have no idea how long that technical review will take. But as far as construction of the facility is already started, as I mentioned previously, and the modular unit, which will be arriving in February, and we believe that our facility will be completed by July 31st or earlier.

That does not mean we'll be in business July 31st. It may take a little longer because we still may be waiting for permits.

The construction of the facility will be completed, but we cannot operate unless we receive the EPA permit and pipeline permit, which I mentioned earlier. But as far as concerned, the compression facility will be completed.

Awesome. Thank you. And then just looking ahead to next year, how are you guys looking at the ethanol landscape shaping up kind of compared to this year? And have you guys started having conversations with any of the nearby operators on potential carbon offtake given kind of where you're at, you know, your advanced timeline for your current carbon capture projects? That's hard.

I'm sorry, could you repeat that question again? I'm not sure what exactly you're asking, please.

Just a quick one on kind of the ethanol landscape, how you're seeing that shaping up for next year. And then just anything you have on any conversations, if you have begun having them with nearby operators for a potential carbon optic, given where you're at with the CCS build-out.

I think as far as concern ethanol, looking forward, as I mentioned, that we are in a commodity business. I think it's very hard to predict more than even a couple of months or three months. So at this stage, I really cannot predict what happened with the commodity market, and it's changed every single day or every month. But when we're going to see any opportunity, we will be there to materialize that. So I really cannot predict what happens next year. But I can, as I mentioned, the fourth quarter, certainly we believe that it will be much better than last year's same fourth quarter. But as far as concerned about the carbon, I think once we complete the facilities, we – That will be probably by the end of 2025. At that time, we will see exactly that if there is other sources of the carbon is available from anybody else. Otherwise, our expansion of the ethanol facility will be still will be a very feasible project with using 45Z and even 45Q. Return on investment is much higher than we expect.

Thank you. One thing on your question, I think you probably realize you've been following our stock for a long time. Zafar and his team have proven quarter after quarter after quarter that they know the commodity business and are really good at it. Other people, with all their futures contracts and the big floors of commodity traders and everything, have drastically underperformed what Zafar and his team have done. And there's no reason... If it's happened in the past, there's no guarantees it's going to happen in the future. But when you look at that team and what they have done, I think you have to say that we know this business and that we're better, again, as I said in my call, better executing than everyone else. And, again, on the carbon capture, we hope to have it completed with permits by the end of next year, which would be with 45Z, a huge, huge addition potentially to earnings per share. So we'll see what happens. And that's the thing that we are putting, Safar and his team is putting in the growth area the most efforts into. And, again, if they do that like they've done ethanol business, we're in really good shape.

And I add to that, since we are increasing our production to 200 million gallons, So every reduction from 0.50 to reduction every gallon is $0.02 a gallon. And the carbon sequestration is approximately somewhere $0.30 to $0.35 points. So if we are able to reduce our carbon footprint, our intensity, and as we are working on several other projects, so we can generate with a 200 million gallon ethanol facility for over three years, somewhere 500 to $600 million tax credit.

Again, that would be the most we can generate. So that's right. We don't want people putting that in their numbers, but that's what we're working so hard to get to. And if we even get to half of that, that's all, that's all increase in earnings per share. So that's the, We have a big bogey out there, and we're going to work hard to get as much of it as we can.

Yeah. That's the reason we are allocating $165 million. It's a major investment and certainly is the risk, but we believe the return is much better and much higher.

Thank you, guys. Our next question comes from Chris Sakai with Singular Research. Please proceed.

Hi, good morning. Just a question. Where are you seeing the most demand for ethanol?

Where we see the most demand in ethanol, you mean export side?

Right.

I think mostly right now we have seen Canada and we have recently seen the United Kingdom. Netherlands, South Korea, Colombia. So those are the top five. We have seen some India also. So certainly a lot of these countries are importing. So Canada is always on number one.

Okay, great. How are you guys seeing the price of corn and dried the siller's grain and modified the siller's grain heading into the next quarter?

I think the corn is, generally speaking, as you can see, it's trading about $4. Yesterday it was $4.49, and today it's some increase. So I think that, as I mentioned previously, in the South Takeda area, certainly we have seen some minus bases. And we have seen some basis in overall in Illinois has gone up a little bit. We have seen basis in Minneapolis and some other part where it was not as good production as it compared to last year is plus basis. But otherwise, most of the area is the minus basis.

And what about the price of natural gas as we head into the winter?

The natural gas price has considerably dropped, as I mentioned, that we have seen that it's less than a $5 for January, February. And we have seen that about for March as low as $2.56 or $2.67. So that will be a major impact, as I mentioned that in my previous prepared remarks, that we have seen the drop in natural gas pricing.

Okay, great. Thanks.

Our next question comes from David Locke with Old Mammoth Investments. Please proceed. Hey, guys. How are you doing?

Good.

Hey, first off, I'd really like to thank you guys for taking questions. There are some teams out there that seem sort of afraid to take questions from their investors in a public forum. So thanks for your time and your candor in doing this.

Thank you. Thank you for asking questions.

My first question is, the industry overall has been beset by a ton of operational problems the last few months, explosions, fires, etc. To what extent has that contributed to the good financial margin environment for the last half year or so? How have you guys managed to sidestep all of that? And relatedly, how old are your plants relative to industry average?

We have some of the newest plants in the industry. They're, I believe, under 10 years old. Some of these older plants just should be shut down, to be honest with you. The fires and all that stuff maybe helped us a little bit. I don't know if they had commitments where they had to buy plants I'm not sure of the situation where they had to buy product on the open market, on the spot market. That certainly, if they did, that would help. But I think you have not, and we have a number of plants, some we only own a small part of, but we have many plants, and these are all newer plants. In the beginning, we made a decision to go with the best builder and the best plants, and I don't know of any I don't know of any operational problems in these plants. They're just better built. We service them. Semi-annually, we do an extensive service on these things, and they're just state-of-the-art better plants. That's all I can say. They're Fagan ICM plants. When you see a 100-million-gallon Fagan ICM plant, very seldom do you see anything materially go wrong with those plants. There can always be a tornado or something, but the plants themselves, are built terrifically. And we take, in our case, we take extremely good care of those plants.

I will add to that is I think the safety is our number one priority. We always review that every month, the safety procedure. God forgive, anything can happen to anybody. But we are making sure all the safety procedures are followed and drills are happening and other procedures very closely monitored the safety thing. And as Stuart mentioned, there's a couple of plants which happened that thing. I think if you ring, there's one plant that happened in the South Dakota that was about only 70 million gallon plant that was shut down for a while. ADM plants were shut down for maybe a couple of weeks or more. And so I think there is, Stuart has mentioned that there is maybe a minor impact. But I think the overall, if you look at the commodity market, you know, that also makes a difference. When you have in October 2nd, corn was trading $4.88 and ethanol was trading $2.36. So there is plenty margin at that time to look at it to make sure that this is the time to lock in and moving forward. So I think, as Stuart mentioned, it all depends on when and what time you execute your profit and consider that this is good enough and let's lock in and move on. Let me add.

We believe strongly we have the best commodity trading teams. Not just the best plants, but I really believe we have the best commodity trading team led by Safar in the ethanol business.

Our consolidated plants were built between 2007 and 2009, if I can just add that on.

Thank you. Yes, thank you.

So as you guys continue to sort of like scour the M&A market, but not find anything that's worthwhile. Are you looking for plants that look like the ones that you have, or are there dumpster diving opportunities for you to bring your management expertise and maybe fix up one of these older ones?

We don't dumpster dive. That won't be us. We're not fix-up artists. Not saying that we couldn't do it, but we have come very close to buying plants that are similar to ours, Fagan ICM plants, and that was 100 million gallon. And for one reason or another, it hasn't worked out, but that would be our preference. And that would be what we would look for. Unfortunately or fortunately, whatever you want to say, Most of those plants are doing really, really well, and the price has gone very, very much up on those plants. So I don't see anything coming imminently. But in this industry, you never know what might happen.

Okay. How do you guys feel generally about the broad supply-demand environment for ethanol right now?

I mean, we've been

we've been oversupplied for the better part of a decade and a half. It feels like, although we've had sort of just consistently decent margins all year this year with some really high ones over the summer and early fall. So, um, like our, have we finally managed to make it to balance with a little bit of increased demand and some supply coming offline?

I think, go ahead, Stuart.

I was going to say my opinion, It's a commodity, and what will happen is there'll be one way or another we're expanding our plants. If it does continue this demand, there will be some expansion, and then the supply will keep up with it. But we have hopes as an industry, and it may or may not happen. The government has given a lot of support to it happening, supplying things like jet fuel, We also would have hopes of being a very, very low-carbon fuel, which creates demand for our fuel in addition to what it is now across the country. And there are more and more pumps. I see them in Dayton. I see them around the country, more and more pumps that are greater than 10% ethanol. And cars today that are manufactured today can run on 15% ethanol. So that would be a 50% increase, and the gas stations make more money on 15% ethanol. So they have incentives. So there's hopes that that will increase demand. So to answer your question, it's a commodity business, but a lot of things are moving in our direction.

Okay. And then my last question is on the pipeline in Illinois. Do you guys need – any eminent domain rulings to make that happen. And it seems like there have been some problems in Iowa recently with that. And the clown show Vivek is sort of like actually campaigning in Iowa about that whole issue. So I'm just sort of curious what the gating items are for getting that installed.

Yeah, I can answer that a little bit. I think if you look at the Illinois law is clearly state, regardless of we plan to use it or not eminent domain. But regarding the pipeline, Illinois law clearly state that we can use eminent domain. But as far as our attention, we at this stage, we do not believe that we have to use eminent domains because we have approximately four miles pipeline to the well number one. And by the time we reach to well number two and three, the last well is only 7.2 miles pipeline. And so we may have some difficulties. We do not know. But as far as concern, which we have a preliminary indication which we have, we do not believe that we will be using any imminent domain. But the law is still there exists. And in case of we have no choice whatsoever, that maybe we consider, but that's not what our attention is at this stage.

And keep in mind, as Zafar just said, we're only going four miles, and a lot of that four miles is over land, farmland, where we're helping the people that we're dealing with for these four miles are selling their corn to us. And some of them are shareholders, I believe, so So they have a big incentive to make this happen because in both cases, they're better off having us do well and they'll do well. And it's been a great partnership for many, many years, as Doug said, since at least 2009. So we have done – we have been – they've done good for us, I believe. I know we've done good for them. When you think of these other pipelines in Iowa, they're going hundreds of miles. We're going four miles. We don't think it's going to be any issue. If it is, Illinois law backs us up, but we don't believe it'll be an issue at this time.

Yeah, exactly. And I think Stuart is exactly right. As you mentioned, the people are going out there to protest. As you know, that That can happen. We cannot stop them. That's their opinion. And there certainly is the same people go almost every state in Illinois, in Iowa, South Dakota. And that's their, you know, that's what the values they think they have. But as far as we're concerned, we continue to concentrate what we have to provide and what we have to do.

Okay, thanks a bunch for the clarification and nuance on that. That's all I've got, and thanks for another excellent quarter, and congratulations on kicking everybody's butt.

Thanks for the questions.

Mr. Rose, there are no further questions at this time. We'll now turn the call back to you.

We'd like to thank everyone for listening, and we'll look forward to talking to you at the end of the next quarter. Thank you. Bye. Thanks.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.