Conference Transcript - REX 2026-03-26

Operator

Good morning, and welcome to the Rex American Resources fourth quarter and full fiscal year 2025 conference call. As a reminder, today's call is being recorded, and at this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. I would now like to turn the call over to Mr. Doug Bruggemann, Chief Financial Officer of Rex American. Please go ahead.

Speaker 4

Good morning, and thank you for joining this morning's call. I have joining me on the call today, Stuart Rose, Rex Executive Chairman, and Zafar Rizvi, our Chief Executive Officer. We'll 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 risk 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 risk 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-K and 10-Q. Rex American Resources assumes no obligation to publicly update or revise any forward-looking statements. I'd now like to turn the caller over to Stuart Rose, our Executive Chairman.

Stuart Rose, Chairman

Good morning, and thank you to everyone for joining us today. Fiscal 2025 was an exceptional year for REC's American Resources, highlighted by outstanding operational performance and meaningful progress on our strategic growth initiatives. We demonstrated not only the resilience and scalability of our business model, but also the strength and capability of our team. Our ethanol sales volume reached record levels in 2025, driven by strong export demand and favorable industry conditions. In a dynamic commodity pricing environment, our team's operational excellence and market expertise enabled us to deliver strong financial results while maintaining our leadership position in the industry. While we expect these conditions to persist in the near term, our long-term success is rooted in discipline, execution, efficiency, and most importantly, teamwork, qualities that allow us to perform consistently, even in more challenging environments. On the strategic front, 2025 was a transformative year. We are encouraged by the initial implementation of the 45Z tax credit with its impact of fiscal 2025 and expected to positively impact our results going forward. We also made significant progress on our capacity expansion at the One Earth Energy Facility, which is nearing completion and will allow for increased annual production capacity to 200 million gallons. In addition, we continue to work diligently on our carbon capture and storage initiative at the One Earth facility, reinforcing our commitment to sustainability and long-term value creation. Our financial position remains exceptionally strong after reporting record EPS for fiscal 2025. We concluded the year with a solid balance sheet, substantial cash reserves, and no bank debt. This financial flexibility, combined with our operational strength, positions us well to pursue continued growth and deliver enhanced shareholder value. Looking ahead to the remainder of 2026 and beyond, we are confident in our ability to build on this momentum. expanded capacity tax credit eligibility and strong financial fund that foundation provide multiple avenues for sustained growth as always our success is driven by our people the dedication market insight and attention to detail demonstrated by the Rex train by the Rex team truly set us apart whether operating our facilities at peak efficiency or strategically managing our commodity positions our employees continue to perform at the highest level with that I'll turn the call over to CEO Zafar Rizvi who will provide additional details of our operational achievements and strategic initiatives

Zafar Rizvi, CEO

thank you Stuart fiscal 2025 was a landmark year for Rex American resources highlighted by exceptional execution across all aspect of our business and meaningful progress against our growth strategy i'm pleased to report that we are making strong progress toward completing the capacity expansion project at our one art energy ethanol production facility which will increase capacity to 200 million gallons per year we expect testing and commissioning to begin upon completion with the facility becoming fully operational in fiscal 2026. In addition to increasing potential sales volume, this expanded capacity position us to capture greater market share and benefit from the strong export demand environment that characterized 2025 and continues into 2026. This additional production also enhanced our ability to maximize benefits under the 45-Z tax credit program. Turning to the 45-Z program, as Tubert mentioned, we successfully positioned RECS to capitalize on near-term opportunities under the 45-Z tax credit program during 2025. we completed assessment with multiple independent experts to establish carbon intensity scores across our facilities as anticipated our score came in below the required threshold with the purchase of energy credits enabling us to qualify for far and began recognizing 45d tax credit benefits. Looking ahead, our carbon capture facility would further reduce our CI scores. This would allow us to qualify for higher tier credits for potentially increasing the financial benefits from the program. Our carbon capture and sequestration projects continue to await permitting from the class 6 well and associated carbon dioxide connector pipeline. We remain actively engaged with the EPA and the Illinois Commerce Commission throughout this both process. As of fiscal year end, 2025, we have invested approximately $166 million in our carbon capture and ethanol expansion projects combined and currently remain within our previously stated total budget range of $220 million to $230 million. I will now turn the call over to our CFO, Doug Brockman, to discuss our operational and financial results.

Speaker 4

Thank you, Zafar. I'll begin with our operational results. REX ethanol sales volumes during fiscal year 2025 were 290 million gallons, a slight increase over fiscal year 2024 sales volumes of 289.7 million gallons, and represented an all-time high for REX. Volumes in the fourth quarter of 2025 were 70.1 million gallons versus 74.6 million gallons in the fourth quarter of 2024. Each selling price for our consolidated ethanol volumes were approximately $1.74 per gallon for the full fiscal year 2025 and $1.72 for the fourth quarter. Dried distilled grain sales volumes during fiscal 2025 totaled 612,000 tons, a 3% decrease over fiscal 2024 volumes of 632,000 tons. Grains during the fourth quarter were approximately 151,000 tons, a decrease of approximately 9% over the fourth quarter of 2024. Average selling price for dry distiller grains was approximately $144.06 per ton for the full year and $147.25 per ton for the fourth quarter. Modified distiller grain sales volumes were 81,900 tons in fiscal 2025, compared with approximately 70,000 tons in fiscal year 2024. For the fourth quarter, modified distiller grain volumes totaled approximately 19,700 tons, an increase of approximately 1% over the same period in 2024. The average selling price for modified distiller grain was approximately $65.82 per ton for for the full year and $67.92 for 10 for the fourth quarter. Corn oil sales volumes in fiscal year 2025 were particularly strong, coming in at approximately 97 million pounds compared to 88.1 million pounds sold in fiscal year 2024, an increase of approximately 10%. For the fourth quarter, corn oil sales volumes totaled approximately 25.2 million pounds increase of 7% over fourth quarter 2024. Average selling price for Rex's corn oil product was approximately 54 cents per pound for the full year and fourth quarter of 2025. Gross profit for fiscal year 2025 was $93.7 million versus gross profit of approximately $91.5 million dollars for fiscal year 2024. Gross profit in Q4 2025 was 28.9 million dollars compared to 17.6 million dollars in Q4 2024. The fourth quarter benefited from both improved ethanol pricing and reduced corn cost, the two largest drivers of gross profit. Our SG&A expense increased to $32.6 million for fiscal year 2025 versus $27.1 million in 2024. SG&A in the fourth quarter increased to approximately $12.3 million versus $6.2 million in the fourth quarter of 2024. The fourth quarter increase was primarily due to increased incentive bonus based on company profitability levels. Interest and other income was $15 million in 2025, down from $19.2 million in fiscal year 2024. We reported interest and other income for the fourth quarter of approximately $4.5 million versus $4.2 million for the same period in 2024. Income before taxes and non-controlling interest for 2025 was approximately $88.6 million, a 5% decrease from $92.9 million in 2024. During the fourth quarter, we reported approximately $27.4 million in this metric versus $17.9 million during the same period during the previous year. Net income attributable to REC shareholders for the year was $83 million compared to $58.2 million in fiscal year 2024. For the fourth quarter, 2025, this equaled $43.7 million compared with $11.1 million for the fourth quarter, 2024. The fourth quarter benefited from the recognition of approximately $28 million in 45Z tax credits as the regulations became more clear. On a per-share diluted basis for the full year, this amounts to an all-time high of $2.50 per share of net income in 2025 compared to $1.65 per share in 2024, and for the fourth quarter 2025, diluted net income per share was $1.32 compared to $0.31 per share for the same period the previous year. We ended the fiscal year with total cash, cash equivalents, and short-term investments of $375.8 million compared with $359.1 million for fiscal year-end 2024. This net building cash was primarily due to cash from operations offset by capital expenditures primarily related to the plant expansion project at the One Earth Energy facility. Rex American ended the year

Zafar Rizvi, CEO

without any bank debt i'd now like to turn things back to zafar thank you doug i would now like to provide additional contacts around our priorities for 2026 and the key factors expected to influence our business throughout the year we are well positioned as we enter fiscal 2026 with expanded production capacity expected to come online this year contribution from the 45 g tax credit expected to benefit our bottom line and favorable market tailwinds so far we anticipated another year of strong performance and continued growth our strategy and execution remain guided by our three p's profit position and policy profit we have now delivered 22 consecutive quarters of profitability a testament to our team's discipline operational excellence and market expertise we expect a profitable first quarter earning of 2026 are expected to benefit from expanded capacity a continued laser focus on our core business and expected contribution from the 45z tax credit position we expect to complete the one art energy expansion this year while continuing to advance our carbon capture initiative these projects will enable us to increase production at lower carbon intensity strength our comparative position and allowing us to capture additional value from both the 45 the tax credit and our core business policy the policy environment remains favorable the 45 the tax credit program provides meaningful near-term benefits which would further further increase with our carbon capture facility at Oneworth. We also continue to monitor developments related to year-round E15 blending, which could drive incremental ethanol demand while reducing gasoline prices at emissions. Ethanol export demand remains exceptionally strong throughout 2025, with U.S. export reaching record levels once again we expect this strength to continue into 2026 supported by growing global demands for lower carbon fuel increased fuel blending and the cost competitiveness of u.s production on the input side corn supplies remain favorable which should support manageable input cost and expected healthy crush margin looking ahead as we progress through 2026 we remain focused on maximizing the performance of our business capturing the benefits of expanded production capacity and continue efforts of our carbon capture facility at the same time we will continue to drive operational excellence across all aspects of our business. A strong balance sheet, zero bank debt, and multiple growth drivers position us well for another year of value creation for our shareholders. In closing, I would like to thank our dedicated team for their hard work, innovation, and commitment to excellence, which continue to drive our success. We are excited about the opportunities ahead and confident in our ability to deliver sustained, strong performance. Thank you to all of our stakeholders for your continued support. With that, I will turn it over for questions. Operator?

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 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. Thank you. Our first question comes from the line of Peter Gastrick with Water Tower Research. Please proceed with your question.

Peter Gastrick, Analyst — Water Tower Research

Thank you. So, good morning, gentlemen, and thanks for taking my questions. And congratulations on yet another quarter of better-than-expected results at RECS. It's also great to see the One Earth expansion fully on track and you've continued with the strong share buybacks. But my first questions are regarding 45Z. For that $28 million, is that just for Q4, or does that represent a catch-up on previous periods? And also, how should we think about, you know, 45Z in terms of the future run rate?

Speaker 4

That is for the full fiscal year of 2025. You know, going forward, you know, this is good through 2029, so we remain optimistic that we'll continue to be able to claim these 45Z tax credits in the future years.

Stuart Rose, Chairman

Also, if we get the carbon capture project completed, that will significantly increase the amount of 45Z credits that we will receive over and above this.

Peter Gastrick, Analyst — Water Tower Research

Okay, great. And just to follow up on that, are you able to disclose by how much that would improve your CI score with the CCF?

Zafar Rizvi, CEO

I think that this time we have not disclosed that publicly maybe in the future if it's required we will

Stuart Rose, Chairman

it will be significant let's just leave it that it will be significant if we can get it that's why we're working so hard on it

Peter Gastrick, Analyst — Water Tower Research

okay great very good and regarding the CCS permitting so the Illinois pipeline moratorium I believe was set to expire July 1st I just wanted to confirm where we are on the Class 6 injection permit. I recall it was expected to be finalized in June. Is that still the case?

Zafar Rizvi, CEO

Yes. We have several.

Speaker 4

Well, it's been moved to September on the EPA website at this point.

Zafar Rizvi, CEO

It has moved on the website, but we have several different conversations with EPA over the last few months and even last few weeks. And we are at the final stage of technical review at this time. We have all the documents which they requested. We have provided them. But as you know, the government agencies moved a little bit slower than expected. And that's what they posted it on their website. But that does not mean that will be the latest we will get. But we are having regular meetings with them.

Peter Gastrick, Analyst — Water Tower Research

okay great thank you um just a couple of questions uh before i get back in the queue just regarding um you know tariffs and the geopolitical situation so the first one on tariffs um how would you how would you characterize the impact that tariffs are having on your operations for both uh you know ethanol and corn oil in the fourth quarter and

Zafar Rizvi, CEO

looking into this year as far as data impact we are pleased to see that there is no impact on our exports of ethanol, as you know that last year, 2025, export was the best export ever, and even we have greater relationship with Canada at this time. Canada imported approximately 792 million gallons, and so there seems to be no impact whatsoever at this time. And actually, the tariff may help us to really to export because we can see the Brazil is back in the business now. Last year, they only exported 49.6 million gallons. And this year, first month of the year, it's January 2026, they imported about 36.4 million. And also the export of January was the best five months since a long time. So we certainly see the export is increasing, and there is no other impact whatsoever on our business at this time. adding on to that

Stuart Rose, Chairman

the high oil prices that we're currently experiencing should only be good for our business both export and domestically we're much greater value than we ever were the differential as far as I can recall anyway the differential between the price of ethanol and the price of gasoline made from oil so we should by all, assuming that oil prices stay high, that should be very, very good for the ethanol business.

Peter Gastrick, Analyst — Water Tower Research

Okay, that's great. Actually, that was exactly what my fourth question was going to be about. So thank you very much, and I'll get back in the queue.

Zafar Rizvi, CEO

Thank you.

Peter Gastrick, Analyst — Water Tower Research

Thanks for the question.

Operator

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Mason Bourne

Mason Bourne, Analyst — AWH Capital

with AWH Capital. Please proceed with your question. Good morning. A couple questions from me. I guess to start on 45Z, a nice surprise there. Could you talk about on a per-gallon basis what you're recognizing now? It seems like it's roughly 10 cents per gallon if you think about it in terms of your total gallons, but is there a mix within that where some are more or some are

Zafar Rizvi, CEO

less than what you're currently? Yeah, your estimate is correct at this time. Okay, so it's

Mason Bourne, Analyst — AWH Capital

10 cents on all of your gallons. Correct. Okay, and then are there other things within 45Z outside of carbon capture that you view as opportunity for increased credits for carbon

Zafar Rizvi, CEO

capture? I think as you can see, as Stuart mentioned, I think once the carbon capture facility is completed, and that will reduce further our CI score at least 30 to 35 points more. So that really will make a significant effect on us. Do you still view the full dollar

Mason Bourne, Analyst — AWH Capital

as achievable on any of your plants, or is that more aspirational?

Zafar Rizvi, CEO

I think if it is possible, once we have the carbon sequestration facility is completed and our construction is completed at the one earth energy level, it is possible that we may be able to achieve a $1 a gallon at that location.

Mason Bourne, Analyst — AWH Capital

And then it seems like your language and your commentary around carbon capture being operational in 2026 is uh maybe different than last time so are you more optimistic now is that fair to say as you've gotten further into discussions with epa

Zafar Rizvi, CEO

no i think my my conversation is about the complete completing of the construction of our facility at one earth energy uh you know carbon capture facility is already complete It all depends on the permits when we receive from EPA and IEPA and ICC, Illinois Commerce Commission. So it depends on the permits, but as far as facility for the carbon capture is complete.

Speaker 4

But to be clear, we do not expect to capture 45G credits due to carbon capture in 2026. If that was construed that way, that would not be correct. Okay.

Mason Bourne, Analyst — AWH Capital

I missed this last thing for me. So on the E15 front, there's been a lot of commentary there or speculation that maybe you could see some progress. I know there was a waiver just, I think, this week on a temporary basis, but what are your thoughts, higher level, on the possibilities or likelihood of a nationwide E15 in a more sustainable manner?

Stuart Rose, Chairman

manner. Nationwide E15 would be great, but I don't expect that to happen. The oil companies are too powerful. But I do expect more and more independents to put in E15 pumps and the E15, at least in our areas, I think in the whole country, is significantly less. The price to the consumer, significantly less than E10. And also the retailers have a chance to make more money. So I expect that to happen. It should happen. And more pumps of E15, I believe more consumers will use them and it'll benefit us in that way. I do not expect a national E15. That would be great, but I do not think that's going to happen. Great. Thank you. Thank you. It appears

Operator

we have no further questions at this time. Mr. Rose, I'd like to turn the floor back over to you for closing comments.

Stuart Rose, Chairman

Well, I'd like to thank everyone for listening. And as always, I'd like to attribute our record year, and it is record year in both earnings per share and after-tax earnings. And I'd like to contribute that to having the very, very best people, starting with our CEOs of our RISV and all the way down the plant level, all the way. We just have excellent people, and our results speak for that. Again, I think we're among the top, if not the top in the industry, and it's truly due to having the best people. We feel the best people in the industry. Again, I'd like to thank everyone for listening, and we'll

Operator

talk to you next quarter. Bye. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.