Q2 2024 Ceres Global Ag Corp Earnings Call

Presentation

Operator

Good morning, everyone. Welcome to Ceres Global Ag earnings call for the second quarter results for financial year 2024. (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 those forward-looking statements, please refer to the company's management's discussion and analysis, which is available on Sedar+ and on the company 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. We started the fiscal year strong last quarter with the second-best Q1 in Ceres history by continuing to execute on our core strategy and maximizing our partner networks and finding creative capital-efficient ways to increase our farmer direct origination. We built on this momentum and delivered the second-best Q2 and the first half of this fiscal year in Ceres history.
Before we dive into our segment results and the key drivers of our new record performance, it's important to cover the macro factors that influence market volatility and how we conduct our operations.
Geopolitics remains one of the critical contributors to market volatility as the RSC skipping crisis added an additional layer of geopolitical instability and the conflict in Ukraine and Gaza continued unabated. With a lack of near-term resolution in this complex is crucial to recognize the possibility that further geopolitical escalation could lead to elevated market volatility.
Weather conditions were favorable domestically during the tail end of 2023 growing season, resulting in improved production, an adequate crop in the Northern Plains and Canadian prairies.
In the second quarter, we achieved an income from operations of $3.7 million and net income of $2.7 million. This strong performance was driven by our team's continued ability to anticipate volumes, trade precisely and properly positioned and network of assets iIllustrating our ability to continuously maximize the value of our network of assets.
Our joint venture with Berthold Farmers Elevator continued to experience solid growth. With volumes increasing by 11% in the second quarter of 2024. Meanwhile, volumes handled at the Thief River Falls joint venture grew even more rapidly, increasing by 33% in the second quarter.
We are particularly pleased with the results of Thief River Falls as the meaningful operational improvements we've implemented at the joint venture are now coming to fruition, through negotiations with railroads to secure freight capacity and timely rail execution, a clear focus on talent by hiring a new general manager and a green merchandiser and a comprehensive review of compensation and benefit programs. We have laid a solid foundation for sustained performance at TRF and they're seeing considerable growth at the joint venture.
In our Supply Chain Services segment, we achieved the highest gross margins in Ceres history this quarter by industrial products, NGL and fertilizer product volumes, competitive rail logistics and Northgate team's ability to handle higher customer demand, all contributed to the record performance.
In the seed retail and processing segment, quarterly soybean crush volumes increased by 19.2% compared to last year. Our team's proactive procurement of soybeans and the adoption of operational decisions at the resort and crush plants amplified our operational capacity and efficiency, leading to significant growth and record-breaking volumes and gross margins.
This quarter, our team demonstrated exceptional expertise in arranging our network of assets to accommodate the flow of grain and oilseed volumes to our facilities, while Ceres handled [4.9] less volume in the second quarter of 2024 compared to 2023, the decline was mainly due to the strategic divestment of Port Colborne facility in February of 2023 as part of our strategy of streamlining our asset footprint to optimize our operations.
The higher supply of grain during harvest created market conditions favorable to accumulate higher inventory levels at our terminal assets. Moving forward, our attention will be centered on merchandising accrued volumes to favorable posiotion Ceres for the quarters ahead.
I will speak about our outlook and the company's plans for the remainder of 2024 in a moment, 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 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.
Starting with the financials for the quarter, gross profit was $7.9 million, up 16% from $6.7 million in Q2 2023. The second best Q2 in Ceres's is history, mainly driven by increased trading opportunities across our core commodities and record gross margins in the seed, retail and Processing segment.
Income from operations grew substantially this quarter, reaching $3.7 million compared to $1 million last year. Net income was $2.7 million or $0.09 per share compared to negative $1.3 million or negative $0.04 per share in Q2 2023.
Revenue was $282.2 million, nearly unchanged from $283 million in Q2 of last year. We handled and traded 26.5 million bushels of grain and oilseed during the quarter, down from 30.8 million bushels in the same period last year.
We also continued to maintain the positive trajectory of adjusted EBITDA and adjusted net income realizing $4.9 million and $2.7 million respectively, compared to $2.5 million and $620,000 in Q2 of 2023. In our grain segment, that trading margin was $8.4 million, mostly unchanged period-over-period.
Our supply chain service revenue decreased by $300,000 this quarter to $1.9 million, primarily due to lower grain related third party storage and elevations led by the sale of Port Colborne facility in February 2023. Net seed, retail and processing margin was [$3.2 million], up from $1.9 million in Q2 of last year, mainly due to record volumes and successful trading and positioning in the segment this quarter.
General and administrative expenses decreased from $5.8 million in Q2 2023 to $4.1 million this quarter with prior year expenses, including employee severance and cost reduction expenses and the higher legal fees related to the now concluded regulatory investigations.
Interest expense was $2.2 million, up slightly from $2 million in Q2 of last year, mainly due to higher interest rates on our revolving line of credit and delayed draw term loan and partially offset by the lower term loan balance, which was repaid with the proceeds from the sale of the Port Colborne facility in Q3 of fiscal year 2023. There was an income tax recovery of $1.1 million compared to $412,000 of expense last year.
Moving on to the financials for the fiscal year to date, gross profit was $22 million, up 79% from $12.3 million last year. Revenue was $498.2 million, down from $543.1 million due to lower commodity prices this year.
We handled and traded 55.5 million bushels of grain and oilseed during the first half of 2024 compared to 56.9 million bushels in the previous year. Year to date, income from operations in 2024 was $12.8 million compared to negative $1.2 million in 2023.
Net income was $8.9 million or $0.29 per share up slight -- up significantly from negative $4.9 million or negative $0.16 per share last year. Adjusted EBITDA and adjusted net income were $15.5 million and $9.1 million, respectively, compared to $2.2 million and $1 million in the same period last year.
In the first half of 2024, our net trading margin was $24.2 million, up from $17.7 million last year. Supply chain service revenue was $3.6 million compared to $4 million in the previous year. Net food and retail processing margins were $5.3 million, up $2.9 million from last year.
Year to date, general and administrative expenses were $9.3 million down from $13.5 million in 2023. Interest expense was $3.5 million compared to $3.4 million due to higher interest rates on the revolving line of credit and delayed draw term loans and partially offset by a lower term loan balance year-over-year.
There was an income tax expense of $812,000 this year compared to an income tax expense of $590,000 in 2023. At the end of the second quarter, we had $54.4 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 remainder of the fiscal year and the progress we've made last year.

Thank you, Blake. Looking forward, we will be closely monitoring South America's possibly historic record grain and oilseed crops and changes in Chinese demand in light of with flattering economy. As the weather warms in the second half of the fiscal year, our focus will be votes to planting forecast for the Corn Belt, Northern Plains and Canadian prairies.
Our team remains attentive to climatic and crop trends worldwide to best position the Corporation for capitalizing on market opportunities. In the Supply Chain Services segment, we anticipate volumes to slow due to seasonality until spring, following which we expect solid returns from this segment for the rest of the fiscal year, driven by increased demand expectations for industrial products and NGLs via our Gateway Energy Terminal.
For the seed retail and processing segment, we expect local crush margins to remain steady with a higher than average soybean crops production in Manitoba, reduce export competition due to South America's potential record production and China's lower import volumes. Conditions are favorable for Ceres to maintain high crushing capacity and achieve adequate margins during the third quarter.
Our new record financial results over the past two quarters are a testament to the strength of our fundamental strategy focus on optimizing our partner network and innovating economical methods for increasing farming direct engagement. Illustrating this point is our recent partnership with Phoenix.
We achieved a major milestone in our core long-term strategic priority of developing regenerative agriculture and supply chain solutions by entering into one exclusive agreements with group agreements, Mexico's largest flower MILLER to collaboratively, develop and execute regenerative agriculture initiatives for hybrids, spring wheat grown in Canada and the United States that is destined for Mexico.
This partnership aims to deliver transformative outcomes to enhance both growing performance and environmental sustainability by adopting innovative agronomic practices and technologies, reducing greenhouse gas emissions and positively impacting other sustainability indicators such as biodiversity and water quality.
We believe our partnership with Trimex is only the beginning of the potential that lies ahead for our regenerative agriculture initiative. And Ceres is well positioned to offer more efficient growing practices and create tailored regenerative agriculture and supply chain solutions to our strategic customers.
As the importance of environmental sustainability intensified globally, we believe regenerative agriculture plays a crucial role in addressing climate change and creating positive outcomes for our farmers and the planet.
Of course, underpinning the exciting growth potential in regenerative agriculture are our core business strategies building on the strong momentum seen in 2023. We remain committed to effectively trading and marketing our core products, maximizing the full value of our assets and leveraging synergies within our partnerships.
Our focus is firmly on our vision of partnering with farmers and other suppliers to enable our customers to do great things in fluid, agriculture and energy markets.
On that note, I would like to open the call for questions.

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Thank you. There appear to be no further questions.

Thank you, operator, and thank you everybody.

Operator

Thank you. This does conclude today's conference call. Thank you all for attending. You may now disconnect your lines.