REX Q2 2025 Earnings Call Transcript

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Date

Wednesday, August 27, 2025 at 11 a.m. ET

Call participants

Executive Chairman — Stuart Rose

Chief Executive Officer — Zafar Rizvi

Chief Financial Officer — Doug Bruggeman

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Risks

Zafar Rizvi noted, "the export of DDG has dropped compared to last year," and added, "Even Mexico is buying less than last year in the first six months. So that is certainly some concern."

Doug Bruggeman reported that gross profit (GAAP) decreased to $14.3 million in Q2 2025 from $19.8 million in Q2 2024, primarily due to lower dried distiller grains pricing and higher shipping costs included in cost of goods sold.

Doug Bruggeman stated that net income attributable to REX shareholders declined to $7.1 million, or $0.43 per diluted share, in Q2 2025, compared to $12.4 million, or $0.70 per diluted share, in Q2 2024.

Interest and other income decreased to $3.1 million in Q2 2025 from $4.4 million in Q2 2024, reflecting lower rates and investment balances.

Takeaways

Ethanol sales volume-- 70.6 million gallons in Q2 2025, a 5.5 million gallon increase from 65.1 million gallons in Q2 2024, with an average price of $1.75 per gallon versus $1.79.

Corn oil sales-- 23.1 million pounds at $0.54 per pound in Q2 2025, representing approximately 14% volume growth and a 26% price increase compared to Q2 2024, resulting in a 46% increase in sales.

Gross profit-- $14.3 million in gross profit for Q2 2025, down from $19.8 million in Q2 2024 due to lower dried distiller grains prices and higher shipping costs included in cost of goods sold.

Interest and other income-- $3.1 million for Q2 2025, down from $4.4 million in Q2 2024, attributed to lower rates and investment balances.

Net income attributable to shareholders-- $7.1 million, or $0.43 per diluted share, in Q2 2025, compared to $12.4 million, or $0.70 per diluted share, in Q2 2024.

Balance sheet-- Cash, cash equivalents, and short-term investments of $310.5 million, with no bank debt reported at Q1 quarter end.

Capital investments-- $126.7 million spent on carbon capture and ethanol expansion as of Q2 2025, with both projects remaining within the revised $220 million–$230 million budget.

Stock split-- Board authorized a two-for-one split via 100% stock dividend for shareholders of record as of September 8, 2025.

Ethanol expansion timeline-- Initial capacity increase to 175 million gallons expected fully operational in February 2026.

Class VI permit timing-- EPA projected final approval for the carbon capture injection well by March 2026, moved up from April 2026.

Regulatory legislation impact-- Big Beautiful Bill Act extended 45Q and 45Z tax credits through 2029 and removed climate-smart farming practice mandates from 45Z eligibility.

Co-product market trends-- Corn oil demand and pricing characterized as "very strong" in the call, while distillers grain remained "a little weak relative to corn prices," with exports of distillers grain declining.

Energy efficiency initiative-- Completion at One ARC facility, focused on reducing carbon intensity as part of ongoing expansion.

Summary

REX American Resources(NYSE:REX) experienced lower profitability in Q2 2025 despite volume growth in core ethanol and co-product markets, as declining gross profit and net income were driven primarily by decreases in dried distiller grain pricing and higher shipping expenses. Management highlighted the legislative extension of 45Q and 45Z tax credits as materially beneficial, reinforcing the economics of major carbon capture and expansion projects, and confirmed project investment remains within the revised capital allocation. The authorized two-for-one stock split, responding to shares recently priced at all-time highs, is designed to expand shareholder liquidity beginning with the September 8, 2025, record date.

Chief Executive Officer Zafar Rizvi emphasized REX's "20 consecutive quarters of profitability" during the Q2 2025 earnings call, and stated, "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."

REX anticipates improved performance for the remainder of 2025 aided by "favorable corn supply trends and steady demand, particularly from rising ethanol exports," with management expecting a new export record for 2025.

The EPA's advancement of the Class VI well permit timeline and the resolution of local utility interconnection issues for the One Earth Energy project both remove key execution risks to ongoing growth initiatives.

Management acknowledged regulatory changes that may allow some tax credit monetization "even without carbon capture," although they await final guidance before confirming eligibility.

Industry glossary

45Q tax credit: A federal incentive providing a per-metric-ton credit for qualified carbon oxide captured and permanently sequestered from industrial sources.

45Z tax credit: A production tax credit for low-carbon transportation fuels, with eligibility linked to carbon intensity thresholds.

Class VI injection well permit: An Environmental Protection Agency permit allowing for the injection of carbon dioxide for sequestration in geologic formations.

Distillers grain: A co-product of ethanol production used as animal feed, available in dry or modified forms.

CI score: Carbon Intensity score, representing the lifecycle greenhouse gas emissions per unit of fuel produced.

Full Conference Call Transcript

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 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: 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 09/08/2025.

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 and drive value for shareholders. I will now turn the call over to CEO, Zafar Rizvi, to provide updates on our ongoing projects.

Zafar Rizvi: Thank you, Stuart. The One ARC 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 February 2026. Turning to carbon capture, the recently enacted Big Beautiful Bill Act has further strengthened the economics of REX'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 45Z requirements by removing mandates tied to climate-smart farming practices. Also, thanks to the legislation, lean fuels produced with feedstock sourced outside the US, Mexico, or Canada will not be eligible for the 45Z credit pending final treasury guidelines. This supports our business as well as that of our farmer 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. REX remains in active communication with the EPA on our application, and we 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 will now hand the call over to Doug Bruggeman to discuss our financial results.

Doug Bruggeman: 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 is recorded as cost of goods sold and impacts gross profit but does 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: 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 our 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: 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 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: 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 a good citizen in the community, and almost all the local or many local officials turned up, as well as 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: 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: Yes. That is resolved, and now we are able to get the utility directly from Ameren, and it is no problem anymore.

Peter Dastreich: 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: As you know, I already mentioned that we believe that 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, which is the record corn this year in Illinois, and we see that will be very beneficial to both of our locations. We also see a bumper crop in Iowa, where we have a minority shareholder company, Big River, in which we own approximately 10%. So they also have 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: 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: 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: 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: 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: So do you want me to take that?

Stuart Rose: Yeah. Why do not you take it, Zafar?

Zafar Rizvi: 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 is one of the reasons we have not really discussed publicly what exactly is our CI score at this time until we have a clear guideline 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 will be beneficial to us.

Stuart Rose: Also, as part of the One Earth project, we 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: 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: 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 want us to 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: 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: I think once we receive, we have to apply. It is less than six and a half miles 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: Great. Thanks so much, guys. Thank you.

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

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