Q3 2024 Ceres Global Ag Corp Earnings Call

Participants

Carlos Paz; President, Chief Executive Officer, Director; Ceres Global Ag Corp

Blake Amundson; Chief Financial Officer, Vice President; Ceres Global Ag Corp

Presentation

Operator

Good morning, everyone, and welcome to Ceres Global AG earnings call for the third 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 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.
I would now like to turn the call over to Carlos Paz, CEO of Ceres Global AG. Please go ahead, Mr. Paz.

Carlos Paz

Thank you, operator, and good morning, everyone. This quarter we continue to build on the positive momentum from the second best first step in Ceres history by delivering yet another new record quarter. Our effective trading practices and ability to navigate volatile markets, along with our focused execution of our core strategies has allowed us to achieve the second-best third quarter and the second best nine month performance in Ceres history.
Before we cover our segment results and the key contributors to our continued near-record performance, is essential to discuss the macro factors that shaped market volatility and guide our operational tactics. Market volatility remains partially tied to geopolitical risks with ongoing conflicts in Ukraine, Gaza, and Israel showing no clear signs of near term resolution. Recent increased hostilities between Iran and Israel underscore the potential for geopolitical unrest and market volatility and instability in these regions remain elevated.
In South America, favorable weather conditions led to potentially record crops in the region. The market will now focus its attention on spring crop development and then Northern Hemisphere. In the third quarter, we achieved income from operations of $2.8 million and net income of $1 million. Our team's disciplined trading and ability to leverage our network of partners were the key drivers for the continued strong performance, this quarter our team position and network of assets to effectively manage the flow of grain and oilseed volumes at our facility.
Although Ceres handled 23% less volume in the third quarter, this decline was largely a result of higher inventory levels due to favorable market carries and our strategic divestment of the Port Colborne facility in Q3 2023, to streamline our asset footprint and optimize our operations. We were also able to achieve record numbers in our supply chain services, seed retail, and processing segments.
In our grain segment, our joint ventures continue to demonstrate our ability to maximize the value of our network of assets, and we continue to reap benefits of the strong operational base we established at Sea River Falls. Volumes handled at Farmers Elevator grew 17% in the third quarter. These increase is attributed to the solid foundation we established last year, which included working with railroads to ensure timely service and capacity as well as our focus on recruiting the best talent to serve our customers. Meanwhile, volumes handled at Berthold Farmers Elevator decreased by 17% this quarter into higher farmer retention.
In our supply chain services segment, we achieved higher volumes this quarter compared to last year. Competitive rail logistics, increased demand for fertilizer products, and Northgate team's ability to handle higher customer volumes were the primary drivers for the increase. We continue to see strong performance at the Gateway pipeline connection to Northgate. And volumes through gateway facility rose by 31% compared to Q3 last.
In the seed retail and processing segment, we realized record year today, soybean crush volumes. Third quarter and year to date volumes were 12.2% and 19.8% higher, respectively, compared to the same periods last year. Year to date, gross margins were also the highest on record for any nine month period in the history of Ceres. Our team's proactive purchasing of soybean volumes and enhancement of operational inefficiencies at the Jordan crush plants have been instrumental in driving this record-setting volumes and margins.
This year's harvest has created opportune market conditions for enhancing our inventory reserves at our terminals. Moving forward, we will continue to direct our efforts towards merchandising these accumulated volumes to best position 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?

Blake Amundson

Thank you, Carlos, and good morning, everyone. Before I begin, please note that all dollar amounts expressed in today's call 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 in this quarter's MD&A.
Starting with the financials for the quarter, gross profit was $7.8 million, up 41% from $5.5 million in Q3 of 2023. Year to date, gross profit, $29.8 million, up 67% from last year. This increase was mainly driven by higher gross margins in the grain segment. Income from operations grew substantially, reaching $2.8 million in the quarter and $15.5 million year to date compared to $339,000 in Q3 2023 and negative $864,000 in the comparative year.
Net income was $1 million or $0.03 per share compared to negative $553,000 or a negative $0.02 per share in Q3 2023. Year to date net income was $9.9 million or $0.32 a share, up significantly from the negative $5.4 million or negative $0.17 a share in 2023. Revenue was $212.3 million, declining 26% from Q3 of last year, mainly due to fewer bushels merchandise compared to the last year. We handled and traded 21.2 million bushels of grain and oilseed during the quarter, down from 27.4 million bushels in the same period last year.
Meanwhile, revenue for the first nine months 2024 declined 15% to $710.5 million due to lower commodity prices and lower bushels handled in merchandise this year. We also handled and traded 76.4 million bushels of grain and oilseed during the first three quarters of 2024 compared to 84.2 million bushels previous year.
In the quarter, adjusted EBITDA and adjusted net income grew substantially, up 88% and 142% respectively, to $4.1 million in $1 million. Meanwhile, adjusted EBITDA and adjusted net income over the last nine months also experienced strong growth, reaching $19.6 million and $10.1 million, respectively. Net trading margin was $10.5 million in Q3, up 39% compared to last year. And year to date, net trading margin increased 37% to $34.7 million compared to $25.3 million last year.
Our supply chain service revenue decreased by 22% to $1.6 million this quarter, primarily due to lower grain related third party storage and elevations due to the sale of our Port Colborne facility in February 2023. Net seed retail and processing margin was $1.4 million compared to $1.7 million in Q3 of last year, partially due to the divested seed distribution activities in June of 2023.
General and administrative expenses decreased from $5.2 million in Q3 of 2023 to $5 million this quarter as a result of reduced legal fees related to the now settled regulatory investigations. Interest expense was $1.6 million, mostly unchanged compared to Q3 of last year. In the third quarter, there was an income tax expense of $627,000 compared to $118,000 of recovery last year. At the end of the third quarter, we had $57 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 next our fiscal quarter and the rest of the fiscal year and the progress that we've made over the past year. Carlos?

Carlos Paz

Thank you, Blake. As the Northern Hemisphere enters the planting season, we will shift our focus away from South America to the US cornbelt, US Northern Plains, Europe, and the Canadian prairies. During this crucial period for our core products, our team will be vigilantly monitoring weather patterns and global club developments to favorably position Ceres for capitalizing on market opportunities.
In the supply chain services segment, we expect volumes to remain steady due to the replenishing of raw material supply chains, including fertilizer and industrial products, which should result in this segment ending the year with record volumes and a strong margin. For our seed retail and processing segment, I'm following the higher than average soybean crop production in Manitoba, lower export competition due to South America's record soybean production, and China's lower import volumes. Market conditions remain favorable for Ceres to maintained high crush capacity utilization and realize adequate margins during the fourth quarter.
We are also making strides in advancing our regenerative agriculture initiatives. Last quarter, we announced a partnership with Trimex, Mexico's largest flour miller to collaboratively, develop and execute regenerative agriculture initiatives. This quarter, we built on this momentum by announcing a deepening relationship with Lavie Bio by integrating Yalos, a bio inoculants into our regenerative agriculture efforts.
Our partnerships with Trimex and Lavie Bio marked initial steps in the unfolding potential of our regenerative agriculture initiatives. We're constantly seeking avenues of enhancing growing practices and creating practical regenerative agriculture and supply chain solutions for our strategic customers. In a world where environmental sustainability is becoming ever more critical, we recognize the growing importance of regenerative agriculture in combating climate change and delivering positive impacts for both, our farmers and the planet.
Our steadfast commitment to our core strategy has yielded consistent new record financial results for three consecutive quarters, highlighting our success and optimizing our partner network, developing cost effective methods of improving our direct farmer engagement, and employing robust trading practices to navigate volatile market conditions.
By continued success, gives us confidence in our vision and mission of partnering with farmers and other suppliers to enable our customers the great things in the food agriculture and energy market. We remain more committed than ever to executing our core business strategies of effectively merchant -- effectively trading and marketing our core products, maximizing the full value of our assets, and leveraging synergies within our partnerships. On that note, I would like to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) There are no questions at this time. I would now turn the call back over to Mr. Paz. Thank you.

Carlos Paz

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

Operator

Thank you. That concludes our conference today. Thank you for participating. You may all disconnect.