REX

REX American Resources Corp. – Q2 2024 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended July 31, 2024 (Fiscal Q2 2024) and the six months ended July 31, 2024. REX American Resources Corporation operates in a single reportable segment: ethanol and by-products. The Company holds majority ownership interests in One Earth Energy, LLC (75.9%) and NuGen Energy, LLC (99.7%), and an equity method investment in Big River Resources, LLC (10.3%).

Key Financial Metrics

Note: The Company has no long-term debt or current debt obligations listed on the balance sheet. Liquidity is supported by significant cash and short-term investment balances.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 30% in Q2 2024 compared to Q2 2023 ($148.2M vs. $212.0M) and 27% for the six-month period. This was driven primarily by lower commodity prices for ethanol, distillers grains, and distillers corn oil, rather than volume reductions.
• Profitability Increase: Despite lower revenue, Net Income attributable to REX shareholders increased 37% in Q2 2024 ($12.4M vs. $9.1M) and 58% for the six-month period ($22.6M vs. $14.3M). Gross profit improved due to a faster decline in corn costs (the primary raw material) compared to the decline in product selling prices.
• Interest Income: Interest and other income rose significantly to $4.4M in Q2 2024 (from $3.3M in Q2 2023) due to higher yields on excess cash and short-term investments.
• Capital Expenditures: Capital expenditures surged to $40.2M for the six months ended July 31, 2024, compared to $8.2M in the prior year period. This increase is attributed to the One Earth plant expansion and carbon sequestration project.

Outlook, Risks, and Management Commentary

• Carbon Sequestration Project: The Company is developing a carbon sequestration project at One Earth Energy. While a test well has been drilled and construction on the capture facility is nearing completion, new Illinois legislation (Senate Bill 1289) has imposed a moratorium on new CO2 pipeline certificates of authority until at least July 1, 2026. The Company must resubmit its application after rules are finalized or the moratorium lifts.
• Plant Expansion: One Earth Energy has received EPA approval to increase production from 150 million to 175 million gallons per year, with plans to apply for 200 million gallons in Q1 FY2025.
• Capital Allocation: Total project costs for expansion and sequestration are estimated at $165M–$175M. The Company plans to fund these from available cash, with an additional $50M–$60M expected to be spent in the remainder of FY2024.
• Market Risks: Operations remain highly sensitive to the "crush spread" (difference between ethanol prices and corn costs). A 10% adverse change in ethanol prices could reduce pre-tax income by approximately $50.9M over the next 12 months.
• Tax Credits: The Company is pursuing tax credits under Section 45Q (carbon capture) and Section 45Z (clean fuel production), though final rules for 45Z qualification are pending.

Investor Verification Checklist

• Regulatory Timeline: Verify the status of the Illinois Commerce Commission application for the CO2 pipeline and the impact of the moratorium on the carbon sequestration project timeline.
• Capital Burn Rate: Monitor the $40.2M capital expenditure run rate against the $165M–$175M total project budget to ensure cash sufficiency without debt financing.
• Commodity Hedging: Review the effectiveness of derivative instruments in managing the crush spread, noting the $6.2M loss on corn purchase derivatives in Q2 2024.
• Related Party Transactions: Confirm the pricing and terms of corn purchases from minority equity investors ($28.3M in Q2 2024).
• Tax Audit Status: Track the ongoing federal income tax examination regarding refined coal production tax credits from prior years.