REX American Resources Corporation

Greetings and welcome to REC's American Resource 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 RECS American Resources Quarter 2 2025 Conference Call. With me on our call today are Stuart Rose, RECS Executive Chairman, and Zafar Rizvi, the RECS 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 call over to our Executive Chairman, Stuart Rose.

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 to the second half of the year. Overall, Rex exited the second quarter in a great position to continue delivering value to our shareholders. Passage of the One Big Beautiful Bill Act during the quarter was very supportive for our carbon capture and sequestration project, the continuation of the 45Q tax credit, extension of the 45Z tax credit through 2029, according to the economics of our project, put us in good position. We wait on approvals from the county, state, and EPA. We are pleased with these developments and believe they set up RECs for long-term success. 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 affected by a 100% stock dividend. Their stock recently traded at all-time highs, We saw this as an opportunity to reward our loyal shareholders and increase liquidity in our shares. Split 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. We are very proud of the work the team does every day to ensure our company's success drive value for shareholders. I'll now turn the call over to CEO Zafar Rizvi to provide updates on our ongoing projects.

Zafar Rizvi Thank you, Stuart. The One Art Facility expansion is progressing steadily. The previously mentioned energy efficiency initiative has been completed with a focus on optimizing the reduction of the expanded plant's carbon intensity. Most of the previous expansion work is already complete. The initial capacity expansion, which will increase annual ethanol production capacity to 175 million gallons, is expected to be fully operational in 2026. Turning to carbon capture, the recently enacted Big Beautiful Bill Act has further strengthened the economics of REC's proposed carbon capture and sequestration project by preserving both the 45Q and 45Z tax credits. While we also extended 45Z through 2029, with this outcome, we are positioned to maximize the benefit from the tax credit program through expansion of our ethanol production capacity to 175 and then to 200 million gallons. The legislation also simplified 45 requirements by removing mandates tied to climate smart farming practice. Also, thanks to the legislation, clean fuels produced with feedstock source outside the U.S., Mexico, or Canada will not be eligible for the 45 credit pending final Treasury guidelines. This supports our business as well as that of our former partners. As of today, the EPA estimates that our Class VI injection well permit application will be finalized in March 2026, which has been moved forward from April 2026 as per the EPA website. RECS remains in active communication with the EPA on our application and we'll look forward to the final approval of this permit. As of the end of the second quarter, we have invested a total of approximately $126.7 million in carbon capture and ethanol expansion projects. We remain within our revised combined budget range of $220 million to $230 million for both projects. I'll now hand the call over to Doug Bergman to discuss our financial results.

Thanks, Zafar. During the second quarter of fiscal 2025, our ethanol sales volumes reached 70.6 million gallons compared to 65.1 million gallons due to 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 and a price of $164.45 per ton in the prior year. Modified distillers grain volumes totaled approximately 19,000 tons with an average selling price of $64.41 per ton. Foreign oil sales volumes were approximately 23.1 million pounds during the quarter, with an average selling price of 54 cents per pound. Compared to the prior year, we sold approximately 14 percent more pounds in the second quarter and also experienced approximately a 26 percent increase in prices, which led to approximately a 46 percent 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 is recorded as cost of goods sold and impacts gross profit but does not impact sales. Selling general 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 non-controlling interest was approximately $12.1 million compared to $19.5 million in Q2 2024. That income attributable to direct shareholders was $7.1 million or 43 cents per dilated share compared to $12.4 million or 70 cents per dilated 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 now turn things back to Zafar.

Thanks, Doug. Rex's strategy continues to be guided by the three P's, profit, position, and policy. Profit, our dedicated team has delivered 20 consecutive quarters of the 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 our last year's third quarter, which was our second best quarter on record. I'm 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 standard of the performance. Position. Ethanol expansion and carbon capture initiative remains moving forward, and within budget, positioning lacks for sustainable long-term organic growth. Policy. 40 policies measure particularly the continuation of the 45Q tax credit and the extension of 45Z tax credit through 2029, enhance the economics of our operation and strengthen future earning potential. Looking ahead, RECS anticipates better performance in the third quarter of 2025 compared to the first two quarters of the year. supported 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 that expects 2025 to set a new export record. As far as feedstock supply, early estimates also suggest the U.S. corn crop is on track for a potential record harvest, which should further benefit RACs. 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?

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd 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'd 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 Gastry with Water Tower Research. Please proceed with your question.

Good morning, and thanks for taking my questions. For starters, congratulations on the results and another consecutive quarter of profitability. I've said it before, but that's something that's eluded pretty much all of your peers, so congratulations on that. It's also great to see the regulatory tailwinds that are coming through in your favor. Just a few questions from me. The first one is just regarding an event that you held this summer at your rare earth, or excuse me, your earth energy facility. It looks like it was very well attended with a couple hundred of 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, of course, UCS?

I was at the event, so I guess I'll answer that. This is Stuart. The 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're doing our best to be a good citizen in the community. And almost all the local, many local officials turned up, many shareholders. We only own 75% of One Earth, so many shareholders turned up. A few government officials, a few government officials are state representative and things like that. 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're already a major citizen of Gibson City, but this just made us a little bit better.

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

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

Okay, that's great. Thank you. So, you know, thanks for the update in terms of the, you know, ethanol margins. It looks like we're, you know, 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.

As you know, I already mentioned that we believe that our third quarter will be better than second quarter, but it will not be as good as last year because last year was our second-best quarter. But we also see the bumper crops not only in the South Takeda, but also pretty good crops in Illinois, particularly in McLean County, the record corn this year in Illinois. And we see that will be very, very beneficial to both of our locations. And we also see bumper crops in Iowa where we have minority shareholders companies, 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. And not only Britain is buying, plan to buy ethanol from U.S., but also Japan also plan to buy this year. also due to the tariff negotiation. So we certainly see that if this continues, we will be really in pretty good shape in our core business.

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 don't know if that's going to continue or not. But DDG has not been as strong relative to corn prices as it has in the past. Hopefully that'll turn around.

Yeah, I think that's correct. Because I think the export of DDG has dropped compared to last year. So that's the one of the things which we can see even Mexico is buying less than last year. So for six months, so that's certainly some concern.

Okay. That's great. Thank you very much. Um, uh, congratulations again, and I'll, I'll get back in the queue.

Our next question comes from Jared Edeling with South Dakota investment office. Please proceed with your question.

Hey, guys. Thanks very much for the opportunity to ask a question and great quarter. I 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 related to 45Z, and if you would qualify for any credits without a carbon pipeline.

So do you want me to take that?

Yeah, why don't you take it?

Yeah, I think we have not really compared to other few companies that have declared their CI score. As you know, there is no clear guideline at this time. So that's one of the reasons we have not really discussed publicly what exactly is our CI score at this time until we have clear guidelines that what will be our CI score. But we're 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 able to go below 50 or close to that number. we will be able to get some CI score reduction without CI score and will be beneficial to us.

Also, it's part of the One Earth Program. 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. There's a chance, even without carbon capture, but like Zafar said, we don't know the guidelines, so we're not going to say that it's going to happen immediately. But there's a chance we could get some tax credits even before a carbon capture project is ready to go. But we don't feel we're in a position to say anything about that right now.

Excellent. Thank you. And given the Illinois moratorium on carbon pipelines, which appears to expire in July of next year, If your Class 6 well is approved, would you believe that you'd be able to build that soon after that expiration?

That's what our goal is, but as you know, we still have after that's approved, we plan to get from the local county special use permit. And then we also have to have IEPA permit. And we have discussion with the Illinois EPA and we also have a discussion with ICC, Illinois Commerce Commission. They are also working on legislations or the guideline, whichever they wanted to have, we should follow that. So certainly if those guidelines are issued and all those approvals are received, then we certainly will be able to operate in 2026, but naturally this depends on all of those farmers once we receive those.

Excellent.

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

I think once we receive, we have to apply. It's less than six and a half miles pipeline. The honest answer is we have built that pipeline. The reason, because we, from the very beginning, we wanted to make sure that we are away from aqua fire. Otherwise we can have built that well right next to our ethanol facility, but we decided we want to be away from the aqua fire. So that way in future, there is no concern about the drinking water. And that's 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 aquifer, and that's what the – so it depends 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.

Great. Thanks so much, guys. Thank you.

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

I'd 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's all due to having great locations for our plants, great plants. 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's 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.

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