Earnings Call Transcript - REX Q2 2025

Operator, Operator

Greetings, and welcome to REX American Resources Corporation Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Doug Bruggeman. Thank you. You may begin. Good morning, and thank you for joining REX American Resources Quarter 2 2025 Conference Call.

Doug Bruggeman, Host

With me on our call today are Stuart Rose, REX Executive Chairman, and Zafar Rizvi, the REX Chief Executive Officer. We will get to our presentation and comments momentarily, as well as your questions. But first, I will 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 risks and uncertainties within the meaning 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 risks 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-Ks and 10-Q. REX American Resources assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to our Executive Chairman, Stuart Rose.

Stuart Rose, Executive Chairman

Good morning, and thank you to everyone for joining us today. During the second quarter, REX extended our success in our core ethanol production business, moved our One Earth energy expansion project forward, and saw supportive near-term tailwinds develop for our business as we head into the second half of the year. Overall, REX exited the second quarter in a great position to continue delivering value to our shareholders. The passage of the One Big Beautiful Bill Act during the quarter was very supportive of our carbon capture and sequestration project. The continuation of the 45Q tax credit and extension of the 45Z tax credit through 2029 are important to the economics of our project. We are in a good position as we wait on approvals from the counties, state, and EPA. We are pleased with these developments and believe they set up REX for long-term success.

Zafar Rizvi, Chief Executive Officer

During the quarter, we maintained our strong balance sheet and continue to have ample cash to complete our several growth initiatives as well as other opportunities which could arise. These include any potential acquisition opportunities that meet our strict operational and financial criteria or additional future organic growth. This morning, we announced that our board of directors has authorized a two-for-one stock split that would be effected by a 100% stock dividend. We saw this as an opportunity, as our stock recently traded at all-time highs, to reward our loyal shareholders and increase liquidity in our shares. This will affect shareholders of record as of September 8, 2025. Overall, the REX team executed at a high level once again, delivering value to our shareholders and moving our business forward efficiently. I will now turn the call over to Doug Bruggeman to discuss our financial results.

Doug Bruggeman, Host

Thanks, Zafar. During 2025, our ethanol sales volumes reached 70.6 million gallons compared to 65.1 million gallons in Q2 2024. The average selling price for ethanol was $1.75 per gallon during the quarter versus $1.79 in the prior year. Dry distiller grain sales volumes were approximately 148,000 tons for Q2 with an average selling price of $143.63 per ton compared to approximately 133,000 tons at a price of $164.45 per ton in the prior year. Modified distillers grain volumes totaled 19,000 tons with an average selling price of $64.41 per ton. Corn oil sales volumes were approximately 23.1 million pounds during the quarter with an average selling price of $0.54 per pound. Compared to the prior year, we sold approximately 14% more pounds in the second quarter and also experienced approximately a 26% increase in prices, which led to approximately a 46% increase in sales dollars. Gross profit for the second quarter was $14.3 million compared to $19.8 million in Q2 2024. This primarily reflects lower sales prices for dried distiller grains as the average price dropped from $164.45 to $143.63. We also paid higher shipping costs, which are recorded as cost of goods sold and impact gross profit but do not impact sales. Selling, general, and administrative expenses were approximately $6.2 million for the quarter, compared to $6.4 million in Q2 2024. Interest and other income totaled $3.1 million for the quarter compared to $4.4 million in Q2 2024, reflecting lower rates and lower investments. Income before taxes and noncontrolling interest was approximately $12.1 million compared to $19.5 million in Q2 2024. Net income attributable to REX shareholders was $7.1 million or $0.43 per diluted share compared to $12.4 million or $0.70 per diluted share in Q2 2024. We ended the first quarter with cash, cash equivalents, and short-term investments of $310.5 million. REX continues to maintain a strong financial position with no bank debt. I will now turn things back to Zafar.

Zafar Rizvi, Chief Executive Officer

Thanks, Doug. Our strategy continues to be guided by the three P's: Profit, Position, and Policy. Profit: Our dedicated team has delivered 20 consecutive quarters of profitability, reflecting strength, discipline, and commitment. Our third quarter for 2025 is on pace to outperform the second quarter but will not be as strong as last year's third quarter, which was our second-best quarter on record. I am particularly pleased with the increased yield of corn oil production, which reflects the consistent and efficient operation of the overall plants. This improvement demonstrates not only the effectiveness of our process but also the dedication of the team in maintaining high standards of performance. Position: Ethanol expansion and carbon capture initiatives remain moving forward and within budget, positioning REX for sustainable long-term organic growth. The 45Q tax credit and extension of the 45Z tax credit through February 2029 enhance the economics of our operation and strengthen future earning potential. Looking ahead, REX anticipates better performance in 2025 compared to the first two quarters of the year, aided by favorable corn supply trends and steady demand, particularly from rising ethanol exports. Exports are running about 10% ahead of 2024 levels through June, according to the Renewable Fuels Association, with 2024 already a record year. REX expects 2025 to set a new export record. As far as feedstock supply, early estimates also suggest the US corn crop is on track for a potential record harvest, which should further benefit REX. We believe this favorable market dynamic supports margin expansion through year-end with additional export upside once tariff-related trade issues are resolved. REX remains confident in the outlook for its core business, and we are committed to executing our growth strategy while continuing to deliver long-term value to our shareholders. Now I would like to open things up for questions.

Operator, Operator

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Peter Dastreich with Water Tower Research. Please proceed with your question.

Peter Dastreich, Analyst

Good morning, and thanks for taking my question. For starters, congratulations on the results and another consecutive quarter of profitability. I have said it before, but that is something that has eluded pretty much all of your peers. So congratulations on that. It is also great to see the regulatory tailwinds that are coming through in your favor. Just a few questions for me. The first one is just regarding an event that you held this summer at your One Earth Energy facility. It looks like it was very well attended with a couple of hundred people. Could you talk about who turned up for that event and any implications for your state and local support for your growth projects, particularly for CCS?

Stuart Rose, Executive Chairman

I was at the event, so I guess I will answer that. This is Stuart. People that turned up were mostly local people, and it was the first time we did it at the One Earth facility. And it was, again, we are doing our best to be good citizens in the community, and almost all the local or many local officials turned up, many shareholders. We only own 75% of One Earth, so many shareholders turned up. A few government officials, state representatives, and people like that showed up. Overall, it was a big success. I think we accomplished what we were trying to do, which is to get some gratitude and have more favor in the local community. I think we are already a major citizen of Gibson City, but this just made us a little bit better.

Peter Dastreich, Analyst

Okay. Thank you. Just in relation to the CDTS component of the Earth Energy project, something that came up toward the end of last year was an issue with interconnection from the local utility. I may have missed the update, but can you just confirm whether that was resolved?

Zafar Rizvi, Chief Executive Officer

Yes. That is resolved, and now we are able to get the utility directly from Ameren, and it is no problem anymore.

Peter Dastreich, Analyst

Okay. That is great. Thank you. So, you know, thanks for the update in terms of the ethanol margins. It looks like we are in a better place today versus earlier this year. But, you know, going into the second half, it would be great to hear your thoughts on the outlook for your co-products, as well. Thank you.

Zafar Rizvi, Chief Executive Officer

As you know, I already mentioned that we believe our third quarter will be better than the second quarter. But it will not be as good as last year because last year was our second-best quarter. But as we also see the bumper crops, not only in South Dakota but also pretty good crops in Illinois, particularly in McLean County, is the record corn this year in Illinois, and we see that will be very beneficial to both of our locations. And we also see a bumper crop in Iowa, where we have a minority shareholder company, Big River, which we own approximately 10%. So they have also the record crops this year. So we certainly see that there are going to be plenty of feedstock available. And, also, as you know, the export is increasing of ethanol, and we are very pleased with that. Not only Britain is planning to buy ethanol from the US, but also Japan plans to buy this year. Also, due to the tariff negotiation, we certainly see that if this continues, we will be in pretty good shape in our core business.

Stuart Rose, Executive Chairman

In terms of the byproducts, corn oil continues to be very strong. DDG is a little weak relative to corn prices. And with the bumper crop, I do not know if that is going to continue or not, but DDG has not been as strong relative to corn prices as it has in the past. Hopefully, that will turn around.

Zafar Rizvi, Chief Executive Officer

Yeah. I think that is correct, Stuart, because I think the export of DDG has dropped compared to last year. So that is one of the things we can see. Even Mexico is buying less than last year in the first six months. So that is certainly some concern.

Peter Dastreich, Analyst

Okay. That is great. Thank you very much. Congratulations again, and I will get back in the queue. Our next question comes from Jared Edeling with South Dakota Investment Office. Please proceed with your question.

Jared Edeling, Analyst

Hey, guys. Thanks very much for the opportunity to ask a question and great quarter. Just wanted to see if you could comment on the overall CI score of your two main plants given the change in the recent legislation relating to 45Z and if you would qualify for any credits without a carbon pipeline.

Zafar Rizvi, Chief Executive Officer

So what do you want me to take that?

Stuart Rose, Executive Chairman

Yeah. Why do not you take it, Zafar?

Zafar Rizvi, Chief Executive Officer

Yeah. I think we have not really compared to other few companies that have declared their CI score. As you know, there are no clear guidelines at this time. So that is one of the reasons we have not really discussed publicly what exactly is our CI score at this time until we have clear guidelines on what will be our CI score. But we are certainly very happy to see that Smart Farming is no longer part of the calculation, and that will give us four to six points, and that could help us to really be able to go below 50 or close to that number where we could be able to get some CI score reduction without CI score and be beneficial to us.

Stuart Rose, Executive Chairman

Oh, so as part of the One Earth project, we also are doing things to make our plant more energy efficient, which should help our CI score. And there is a chance even without carbon capture, but like Zafar said, we cannot get we do not know the guidelines, so we are not going to say that it is going to happen. But there is a chance we could get some tax credits even without carbon capture, even before our carbon capture project is ready to go, but we do not feel we are in a position to say anything about that right now.

Jared Edeling, Analyst

Excellent. Thank you. And given the Illinois moratorium on carbon pipelines, which appears to expire in July, if your Class VI well is approved, would you believe that you would be able to build that soon after that expiration?

Zafar Rizvi, Chief Executive Officer

That is what our goal is. But as you know, we still have after that is approved, we plan to get from the local county special use permit, and then we also have to have an IEPA permit. And we have discussions with the Illinois EPA, and we also have discussions with the ICC, Illinois Commerce Commission. They are also working on legislation or the guidelines, whichever they wanted to have us follow. We certainly, if those guidelines are issued and all those approvals are received, then we certainly will be able to operate in February 2026, but, naturally, this depends on all of those permits once we receive those.

Jared Edeling, Analyst

Excellent. And my final question is related to the short distance that the pipeline is. What is the build time once approvals come to first carbon injection?

Zafar Rizvi, Chief Executive Officer

I think once we receive, we have to apply. It is less than six and a half miles of pipeline. The owner's answer is we build that pipeline. The reason is because from the very beginning, we wanted to make sure that we are away from the aquifer. Otherwise, we could have built that well right next to our ethanol facility, but we decided we want to be away from the aquifer so that way in the future, there is no concern about the drinking water. And that is what exactly happened later on. The legislation was issued that there should not be any over or under that carbon sequestration where the aquifer is. So we are six and a half miles away from the aquifer, and that is what the that. So it depends on how quickly we can get permission from ICC. Once we receive the permission from ICC, that takes about a couple of months to build the pipeline.

Jared Edeling, Analyst

Great. Thanks so much, guys. Thank you.

Operator, Operator

We have reached the end of the question and answer session. I would now like to turn the call back over to Stuart Rose for closing comments.

Stuart Rose, Executive Chairman

I would like to thank everyone for listening. Again, we outperformed most in the industry this quarter, and we currently expect an even better quarter next quarter. It is all due to having great locations for our plants, great plants, and most importantly, the top people in the industry. And that goes from our CEO all the way to all the teams in our plants. That is really what makes us special and what makes us outperform the industry quarter after quarter. We look forward to talking to everyone after the end of our next quarter, and thank you again for listening.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.