Q1 2024 Ceres Global Ag Corp Earnings Call

Participants

Carlos Paz; President & CEO, Board Member; Ceres Global Ag Corp.

Blake Amundson; VP & CFO; Ceres Global Ag Corp.

Presentation

Operator

Good morning, everyone. Welcome to Ceres Global Ag's earnings call for their first quarter results for financial year 2024. (Operator Instruction) 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 on the company's website. Please note this call is being recorded.
I would now like to turn the conference over to Carlos Paz, CEO of Ceres Global Ag. Please go ahead, Mr. Paz

Carlos Paz

Thank you, operator. And good morning, everyone. As we navigate the complex landscape of geopolitical tensions and the ever-changing global market. It is crucial to understand the macro factors that could influence our operations and investments.
The ongoing conflict in the Middle East has added a layer of uncertainty to the market affecting various sectors, particularly, food oil and other commodities. While the impact of this conflict on commodities has been relatively modest compared to the Russia, Ukraine conflict. It is essential to recognize that further geopolitical tensions or escalations to lead to increased volatility.
Moving onto domestic factors, weather conditions in the US Northern Plains and the Canadian prairies will play a significant role in influencing crop volumes and prices. During the first quarter, our corporation achieved income from operations of $9 million, making the second-best first quarter in Ceres history.
This achievement was possible due to our team's ability to leverage our network of partners and effectively analyze the impact of weather on crops, allowing us to navigate extreme conditions and position the corporation for success.
Despite extreme weather conditions impacting crop yields, we managed to handle 7% more volume in the first quarter of fiscal year 2024 compared to the previous year. Our farmer-direct origination strategy, early crop development analysis and the effective utilization of our asset footprint have allowed us to navigate geopolitical uncertainties and extreme weather resulting in near-record adjusted net income.
Our joint venture with Berthold Farmers Elevator continues to be a great addition to the Ceres network with volumes increasing by 24% in the first quarter of 2020. This growth is a testament to our proactive positioning in the grain and oilseed markets. Our farmer-direct origination strategy and our ability to maximize the value of our network and assets.
Meanwhile, volumes handled of Thief River Falls decreased by 8%, primarily due to lower pharma grain sales. Our previous efforts to improve operational efficiency by negotiating with railroads have yielded positive results as we managed to secure adequate freight capacity and timely rail execution in the first quarter. These operational improvements will set a solid foundation for future harvest.
And our Supply Chain Services segment, we achieved the second highest gross margins in Ceres history for the first quarter. This was driven by increased industrial product volumes compared to the same quarter last year and was attributed to higher demand for chemicals, improved rail performance and the strong execution by Northgate team, including volumes for customers.
Fertilizer volumes also saw a significant boost, tripling compared to the first quarter of 2023, due to higher farmer demand for crop inputs. Meanwhile, the commissioning of the Gateway pipeline connection to Northgate and the strong performance of Steel Reef contributed to higher NGL volumes compared to the same period last year.
In the Seed Retail from processing segment, our quarterly soybean crush volumes reached a historic high, surpassing the first quarter of 2023 by 18.5%. This achievement was a result of our team's timely and proactive soybean procurement as well as the implementation of operational efficiencies at the Jordan crush plant.
These enhancements in operational capacity, increase efficiencies and effective trading strategies enabled us to achieve record-breaking gross margins for this segment during this quarter. I will speak about our outlook and the company's plans for growth in a few minutes.
But first, I like to turn things over to Blake to review our financial results for the quarter. Blake?

Blake Amundson

Thank you, Carlos. And good morning, everyone. Before I begin, please note that all dollar amounts expressed in today's call are in US dollars unless otherwise stated. For definitions and reconciliations of non-IFRS measures, including the reference, adjusted EBITDA, working capital and adjusted net income, please refer to Section 8 of this quarter's MD&A.
Gross profit grew 155% from $5.6 million in Q1 of 2023 to $14.2 million this quarter, making it the second best first quarter in Ceres's history, primarily due to increased trading opportunities across our core commodities and higher crush margins from the Seed Retail and Processing segments.
Income from operations also grew substantially this quarter, reaching $9 million compared to negative $2.2 million in Q1 of 2023. Net income was $6.2 million, or $0.20 per share compared to negative $3.6 million or negative $0.12 per share last year.
Revenue was $216 million, down from $260.1 million in Q1 of last year, mainly due to lower commodity prices, which we handled and traded 29.9 million bushels of grain and oilseed during the quarter, up from 27.9 million bushels in the same quarter last year.
We continue to achieve positive adjusted EBITDA and adjusted net income this quarter, realizing $10.6 million and $6.4 million respectively, compared to negative $218,000 and $337,000 in Q1 of 2023. Net trading margin was $15.8 million, up from $9.2 million in the same period last year due to higher trading margins across multiple commodity.
Our supply chain service revenue decreased by $144,000 this quarter to $1.7 million compared to Q1 of 2023, primarily due to lower grain related third-party storage and elevations and the sale of our Port Colborne facility in February 2023.
Net feed, retail and processing margin was $2.1 million, up from $513,000 in Q1 of last year, mainly due to record crush margins this quarter. General and administrative expenses decreased from $7.7 million in Q1 of 2023 to $5.1 million. This quarter as a result of a reduction in legal expenses and employee severance related to cost reduction measures in Q1 2023, partially offset by an increase in compensation related accruals related to the first quarter financial performance.
Interest expense was $1.3 million, down slightly from $1.4 million in Q1 of last year, mainly due to lower average daily borrowings on our revolving credit facility, partially offset by the higher interest rates on our delayed-draw term loan and revolving credit facility. There was an income tax expense of $1.9 million compared to $178,000 last year. At the end of the first quarter, we had $53 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 first -- for the fiscal year and the progress we've made over the past year.

Carlos Paz

Thank you, Blake. Looking forward, as delays began to freeze and activities are slow in the Northern Plains and the Canadian prairies. We'll be turning our attention to other parts of the world, such as Mexico and the United States.
Our strength lies in our team's ability to serve global crop developments, and we will continue to align our business to seize opportunities as they emerge. We have efficiently harnessed the capabilities of our internal assets to accommodate the recent harvest storage requirements.
Looking ahead, our primary focus will be efficiently marketing and selling to store volumes, positioning Ceres strategically for the upcoming quarter. The Supply Chain Services segment, we expect industrial products and fertilizer volumes to trend higher throughout the year due to greater crude oil production and higher crop input demand from local producers.
Following the successful commissioning of the Gateway pipeline connection through Steel Reef's fractionation facility in North Portal, Saskatchewan. We also anticipate further growth in NGL volumes.
For our Seed Retail and Processing segment. We expect the combination of Manitoba's adequate soybean crop production, a record Brazilian soybean crop and lower soybean demand from China to elevate the local soybean supply. Under these market conditions, our crush plant is poised to operate at a high capacity and produce adequate margins during the second quarter.
By way of a corporate update, we are pleased to share the news last month that we have resolved a matter with the CFTC and do not currently anticipate any other charges arising from the DOJ investigation.
We appreciate the CFTC's acknowledgment of our [cooperation] relating to this historical matters and are glad to have this resolved. So we may focus on our core purpose. (inaudible) customers to achieve their supply chain and regenerative Ag goals.
A fundamental strategy centered on optimizing our partner network and innovating cause effective methods for increasing direct farmer engagement remains unchanged for 2024. As global concerns of environmental sustainability continue to grow, we believe that regenerative agriculture will have a sizable role in mitigating climate change and improving solid health for the benefit of communities.
Developing regenerative agriculture and supply chain solutions remain a core long-term priority for us. As we continue to make strides in connecting growers to end-user business and foster more efficient growing practices among our farmer partners.
We remain focused on maximizing the value of our assets, capitalizing on synergies within our partnerships and effectively trading on marketing our core products. We are dedicated to building on the positive momentum we achieved from our strong performance this quarter.
I look forward to sharing updates for our regenerative agriculture solutions and other areas of growth over the coming quarters. We'll provide additional updates on our outlook for fiscal year 2024 at our Annual General Meeting, which will be held virtually on Thursday, November 16, at 11:00 AM Eastern Time, 10:00 AM Central. I hope you are all able to attend. On that note, I would like to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) There are no questions in the queue at this time. I would now like to turn the call back over to Mr. Paz for closing remarks.

Carlos 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 next quarter.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.