REX American Resources Corporation (REX) Earnings Call Transcript & Summary

Good morning, and welcome to the REX American Resources Second Quarter Fiscal 2026 Conference Call. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Doug Bruggeman, Chief Financial Officer of Rex American. Please go ahead, sir.

Good morning, and thank you for joining REX American Resources Q2 2026 Conference Call. With me on our call today are Stuart Rose, REX's Executive Chairman; and Zafar Rizvi, REX's 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 going escort 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-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 all for being here. The second quarter of fiscal 2026 was another strong period for REX American Resources. We put the higher second quarter net income per share in our company's history and $1.06 per share. Results like these reflect the discipline of our operating team, the strength of our commercial execution and the benefits of the policy and market tailwinds that have been building for some time. Two developments, 1 during and 1 subsequent to the quarter standout is real markers of progress against our long-term growth agenda. First, our ethanol production expansion at the One Earth facility remains on schedule, and we continue to expect the added capacity to come online before the end of 2026. Second, and Zafar will cover this in much more detail. We reported more 45 credits. We reached an important regulatory milestone on our carbon capture and sequestration project in August with the project receiving draft Class 6 well permits from the U.S. EPA. Our balance sheet remains a genuine source of strength. We closed the quarter with no bank debt and substantial cash and short-term imbalance which gives us the flexibility to fund our growth initiatives internally, while we continue to evaluate the best uses of our capital going forward. I want to thank our employees across every facility with the consistency and care they bring to this business each day. shows up directly in these results. I will now turn things over to our Chief Executive Officer, Zafar Rizvi, to walk through our operational progress in more detail.

Thank you, Stuart. Our expansion project at the One Earth facility in Gibson City continued to progress on schedule and we remain on track to complete construction of the additional ethanol production capacity by the end of 2026. This expanded capacity will strengthen our operating platform and enhance our ability to capture additional value under the 45 production tax credit program. Turning to our carbon capture and sequestration project, we reached an important milestones just 2 weeks ago. On August 17, the U.S. Environmental Protection Agency issued drop per much but 3 Class 6 injection wells associated with our one-off carbon capture project. The EPA is now accepting public government on those drop per month, and we continue to work closely with the agency as we move toward final approval. The issuance of these draft per month represents a major step forward for the project and we are encouraged by the continued engagement and progress with our regulatory partners. At the state level, the Illinois moratorium on carbon sequestration expired on July 1, the Illinois Commerce Commission has initiated its rule-making process and the Illinois environment protraction agency has also begun its permitting application process. We plan to submit our application for the approximately 5-mile connector pipeline as well as the acquired Illinois EPA application as soon as possible. We will continue working closely with state and local regulators to obtain the remaining approvals necessary to move the project forward. On the policy side, fortified the production tax rate continued to make a meaningful contribution to our results. During the second quarter, we recognized approximately $18.4 million in Section 45 or production tax credit income, bringing the year-to-date total to approximately $26 million. The tax credit benefits flowed directly through gross profit. We believe our carbon capture project once fully permitted and operational has the potential to further improve our carbon intensity score and increase the value we can capture under the 45 program from a capital investment viewpoint. Our combined investment in the ethanol expansion and carbon capture projects totaled approximately $191.2 million through the end of the second quarter. I will now turn the call over to Doug Bruggeman to discuss our financial results in greater detail.

Thank you, Zafar. For information on this quarter's operational results, including production volumes and selling prices, please refer to our press release issued this morning. Net sales and revenue for the second quarter were $168.5 million compared to $158.6 million in second quarter of 2025, reflecting improved pricing across our product mix. Gross profit for the second quarter was $53.3 million compared to $14.3 million in the same period last year. This improvement reflects stronger crush margins together with the $18.4 million of production tax credit income during the quarter as Zafar mentioned. Even absent the benefit of 45Z tax credits, our gross profit grew approximately 144% year-over-year. Selling, general and administrative expenses were $15.6 million for the quarter versus $6.2 million in the second quarter of 2025. The increase primarily relates to higher incentive compensation tied to the strength of our results and restricted stock issued during the quarter. Equity and income of unconsolidated affiliates was $7.2 million for the quarter compared to $900,000 in the second quarter of 2025, also benefiting from stronger industry dynamics and production tax credit contributions at our nonconsolidated facilities. Interest and other income was $3.2 million for the quarter, essentially in line with the $3.1 million in the second quarter of 2025. Income before income taxes and noncontrolling interest was $48.1 million for the quarter compared to $12.1 million in the second quarter of 2025. Net income attributable to REX shareholders was $34.9 million or $1.06 per diluted share compared to $7.1 million or $0.22 per diluted share in the second quarter of 2025. We ended the quarter with $379.5 million in cash, cash equivalents and short-term investments, and we continue to carry no bank debt. We continue to fund our growth projects entirely from our own balance sheet. I will now turn things back over to Zafar.

Thank you, Doug. To summarize the REX delivered its 24th consecutive profitable quarter and achieved a record second quarter on an earnings per share basis. We successfully capitalized on favorable market conditions through disciplined margin management while continuing to make important progress on our strategic growth initiatives. Looking ahead, at this early stage of the third quarter, we expect to remain profitable and anticipate that third quarter results will be better than the same period last year. Operationally, net expansion remains on schedule for completion by the end of 2020 sales and our carbon capture project has reached an important regulatory milestone with EPA issuing of our draft for 3 Class 6 injection wells. We remain focused on completing the production capacity expansion, advancing the carbon capture permitting process with the EPA and Illinois regulatories and maintaining disciplined stewardship of our balance sheet as we evaluate additional opportunities to create long-term value for our shareholders. Market fundamentals remain constructive at this point with continued record export demand supporting the U.S. ethanol industry and the 5G program providing an important contribution to our margins. We appreciate the continued confidence of our shareholders and the hard work and dedication of our teams across all of our facilities. With that, I will turn the call back to the operator for questions. Operator?

[Operator Instructions] Our first question comes from the line of Mason Born with AWH Capital.

To start, it sounds like you've had good progress on the expansion. When you say online by the end of the year, does that mean all 50 million gallons and do you think the $200 million is the long-term correct level for One Earth? Or could you potentially go higher than that eventually?

I think we have a step-by-step process, as I have explained several times before. We are producing at this time, approximately 150 million gallons and the next step will be 175 million once we accomplish 175 million, then we have to apply 200 million. That's 1 of the requirements for IPA and an EPA is I don't know EPA requirements. So we expect, hopefully, early next year, our middle of that will be close to 200 million-gallon we will be producing.

So it sounds like you're in discussions with Illinois EPA on that. It's great news to see on your draft permit on Class 6 well. did you talk about any time line expectations? The federal EPA process is a little clearer from a time line perspective, but Illinois, I think is -- they already have approved wells in the state. So just wondering the clarity or any thoughts you have on the time line there.