REX American Resources Corporation Q2 FY2027 earnings call

• Financial Milestones: REX achieved its highest second-quarter net income per share in company history at $1.06 per diluted share, representing a record quarterly performance. The company delivered its 24th consecutive profitable quarter.
• Ethanol Expansion: The expansion project at the One Earth Energy facility in Gibson City is on schedule for completion by the end of 2026. Current production is approximately 150 million gallons, with a planned step-up to 175 million gallons, followed by regulatory applications for 200 million gallons.
• Carbon Capture Progress: A major regulatory milestone was reached when the U.S. EPA issued draft Class VI well permits for three injection wells associated with the One Earth carbon capture project. The Illinois moratorium on carbon sequestration expired on July 1, allowing the state-level permitting process to begin.
• Capital Discipline: The balance sheet remains strong with no bank debt and $379.5 million in cash, cash equivalents, and short-term investments. Growth projects are funded entirely from internal balance sheet resources.
• Policy Tailwinds: The Section 45Z production tax credit program continues to provide significant margin support, contributing $18.4 million in Q2 and $26 million year-to-date. Management believes the fully permitted carbon capture project will further improve carbon intensity scores and enhance 45Z value capture.

The transcript does not break down revenue by specific product segments (e.g., ethanol vs. carbon capture). The company operates primarily as an integrated ethanol producer with emerging carbon capture capabilities. For the second quarter of fiscal 2026, Net Sales and Revenue were $168.5 million, up from $158.6 million in Q2 2025. Gross Profit was $53.3 million, a significant increase from $14.3 million in the prior year period. This improvement is attributed to stronger crush margins and $18.4 million in Section 45Z production tax credit income recognized directly through gross profit. Even excluding the tax credits, gross profit grew approximately 144% year-over-year.

• Q3 Outlook: Management anticipates that third-quarter results will be better than the same period last year and expects to remain profitable.
• No Formal Financial Guidance: No specific numerical revenue or earnings guidance for the full year or next quarter was provided beyond the qualitative expectation of outperforming the prior-year period.
• Long-term Capacity: The goal is to reach 200 million gallons of production capacity at the One Earth facility by mid-next year, contingent on regulatory approvals.

• Regulatory Delays: The timeline for final approval of the carbon capture project faces uncertainty, particularly regarding the Illinois Commerce Commission's approval for the 5-mile connector pipeline. This state-level permitting is identified as the potential bottleneck holding up the project longer than the federal EPA process.
• Market Policy Changes: While export demand is strong, there is ongoing scrutiny and news regarding RIN credits and exemptions, which could impact cash flows, although management does not anticipate a major negative impact due to diversified RIN types (biodiesel/D4/D6) and growing export volumes.

Q: Analyst asked about the timeline for reaching 200 million gallons at One Earth and the clarity of the Illinois EPA permitting process for the carbon capture project compared to the federal EPA.

A: Zafar Rizvi explained a step-by-step approach: increasing production from 150M to 175M gallons first, then applying for 200M gallons after meeting EPA requirements, targeting mid-next year. Stuart Rose added that while the federal EPA permit issuance is expected soon, the Illinois pipeline connector approval is the biggest unknown variable and likely the longest delay, as the state moratorium recently expired.

Q: Analyst inquired about the impact of recent news regarding RIN credits and exemptions on future cash flows and capital deployment strategies like share buybacks.

A: Zafar Rizvi stated that while RIN news may have some impact, it is not expected to be major because ethanol exports are up 13% and the RIN mix includes biodiesel/D4/D6. Regarding capital, Stuart Rose confirmed REX is a leader in share buybacks and has the flexibility to continue them given their strong cash position ($379.5M), while also remaining open to acquiring other ethanol plants or related industry assets.

Q: Analyst asked if the draft Class VI permits would enable discussions with third parties for direct air capture projects given excess well capacity.

A: Stuart Rose acknowledged they have the capacity to take on third-party projects like direct air capture but stated there are no imminent deals. The primary focus remains on completing their own carbon capture project to maximize bottom-line benefits under current 45Z rules before exploring external opportunities.