Input Capital cuts costs as delayed sales lift Q3 profit

A hostile canola export market has left “commodity streaming” firm Input Capital paring back its staff count and halting its sales and marketing efforts.

The publicly traded Regina company on Tuesday booked adjusted net income of $1.06 million on $4.95 million in adjusted total revenue for the quarter ending June 30, up from about $249,000 on $2.78 million in the year-earlier period.

The company in mid-May announced it would postpone its previously stated plans to ramp up its mortgage business with canola growers and for now focus its activities on “maximizing shareholder value from our existing book of business.”

The company’s board at that time decided options for “cost effective, scalable” funding of the company’s mortgage stream business “are not competitively available in the marketplace at this time, particularly in light of the trade issues with China.”

“In keeping with that decision, and with an eye on profitability, we have eliminated all sales and marketing expenses and reduced staffing to a level appropriate to our new level of activity,” CEO Doug Emsley said Tuesday in a release.

“We have also reduced (general and administrative) expenses in a number of other areas, including executive compensation, which will result in a significant overall reduction in operating expenses going forward.”

The company also bought back almost 20 per cent of its outstanding shares during the quarter, a move Emsley said “represents a prudent strategy especially in light of ongoing trade issues with China.”

Input said the “large increase” it booked in adjusted revenue from crop sales for the quarter ($3.879 million, up from $1.897 million) was a result of “weather-related delivery delays in September and resulting crop quality issues, which pushed more of the expected 2018 crop sales into the second and third quarters compared to the previous year.”

The company, as of June 30, had an active streaming portfolio of 406 producers in the three Prairie provinces: 290 in Saskatchewan, 104 in Alberta and 12 in Manitoba.

Looking ahead, the company reiterated canola prices have been soft, “due in large part to trade disruptions with China, Canada’s traditionally largest canola customer, as well as general softness in the price of U.S. soybeans, to which canola prices have a strong correlation.”

It’s “impossible to know when or to what degree canola prices will rise, or if these trade tensions will be resolved,” Input said, but lower prices have just a “moderate” effect on the company’s profitability and it has “a significant margin of safety.

“Every one of our contracts remains profitable at today’s prevailing canola prices,” the company said Tuesday. “In fact, the price of canola could fall below the marginal cost of production of our farm clients, and our canola margins would remain positive.” — Glacier FarmMedia Network