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Good morning, and welcome to the REX American Resources Second Quarter 2024 Conference Call. As a reminder, today's call is being recorded. And at this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. I would now like to turn the call over to Mr. Doug Bruggeman, Chief Financial Officer of REX American. Please go ahead.

Good morning, and thank you for joining REX American Resources Q2 2024 conference call. 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 contain forward-looking statements that involve risks 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 risks and uncertainties associated with the forward-looking statements are described in today's news announcement in the company's filing 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 again to everyone for joining us. During the second quarter, REX American Resources made excellent progress in the three goals for the remainder of the year that I laid out in our last call. As a reminder, these were to continue profitable operations, to complete the construction phase of our One Earth carbon capture and compression facility, and to complete the capacity expansion of our One Earth Energy ethanol production facility to 175 million gallons per year and move toward the planned further permitting of the facility to 200 million gallons. To the first goal, we were entirely successful. REX had very profitable operations relative to the prior year's comparable quarter. Our team produced strong gross margin in the second quarter, improved by 37% over the first quarter and by nearly 8% over second quarter 2023. Net income per share also improved more than 20% over the first quarter of 2024 and more than 35% over second quarter 2023. While we have our eyes on the future, we continue to emphasize our core business of ethanol production, which has allowed us to accomplish three goals, as well as produce consistent industry-leading results for our shareholders. The success of this core business has allowed us to grow without burdening the company with any debt. Our team executes at a high level every day, and I want to say thank you to them for their efforts this quarter. On the second goal, to complete construction, the capture and compression portion of our One Earth Energy CCS project in Gibson City, Illinois, we continue to make progress.

Thanks, Stuart. Our carbon capture and sequestration project in Gibson City, Illinois continue to progress. You can see updated picture of the carbon capture and compression portion of the facility in our second quarter investor presentation, which was posted to our website this morning. Due to regulatory action by the state of Illinois, which is in July imposed a moratorium on the construction of CO2 pipelines, we have adjusted our construction schedule for the initial portion of the project. We believe this is the most prudent path from both on operational and financial prospects. Operationally, completing the capture and compression facility later in the year will mean a shorter period between completion of the construction and testing of the portion of the facility, which will require utility interconnection that is planned to be completed by the end of the first quarter of 2025. From a budgetary perspective, taking a more measured approach to construction allow us to more closely monitor our spending without incurring potential extra cost to meet the accelerated deadline. Given the new permitting reality, we are confident that pursuing the several ongoing portion of this project in this way is the right path. While pipeline permitting in Illinois is being worked out, our Class VI injection well permit application with U.S. EPA is still in process. And we anticipate a draft permit being issued by 2024 under year-end. On the timeline currently estimated by the EPA itself, we would then anticipate final approval of the project in the second quarter of 2025. As a reminder, as of last quarter, REX had secured easement for enough of the subsurface area to allow us the capacity to sequester all of our carbon emission from the One Earth Energy plant for the next 15 years, and also secured easement from our neighbor farmers for well number one and two, which will allow us to completely avoid the use of eminent domain in eventual construction of our carbon delivery pipeline. The expansion of our One Earth Energy ethanol facility to 175 million gallons per year of production is on track for completion in the first quarter of 2025. Final testing and commissioning depends on the completion of the electric interconnection from our local utility. After necessary emission certification from the increased production levels, we then expect to begin the planned further permitting of the One Earth ethanol facility to allow it to produce 200 million gallons per year. This additional permitting is the only step necessary to allow for the expanded capacity to 200 million gallons as no additional construction or capital spending is expected. This [25] and eventual 50 million gallons per year expansion in production capacity added on to our current highly efficient and profitable facility we expect will enable us to expand our already stand-out profitability in our core ethanol business line. As of quarter-end, we have invested approximately $91 million into the One Earth carbon capture project and associated ethanol production capacity expansion. Spending for the carbon capture and sequestration project stood at $49.1 million as of second quarter end, while expenditure on the ethanol expansion stood at $41.7 million as of the same date. This is compared to total combined budget amount of $165 million to $175 million for both the CCS project and ethanol production expansion at Gibson City. I would now like to hand the call to our CFO, Doug Bruggeman, to discuss our operational and financial results. Doug?

Thanks,

Thank you, Doug. I would now like to give some color around how we see market progressing through the remainder of the year. For the third quarter, we are off to a strong start and we expect to see the same corn market drivers that were supportive to this point in the year continue to play out. With this, we expect to see the result of the third quarter exceeds those of the second quarter of this year. Additionally, we believe increase in ethanol per export, which on a volume basis, was 36.5% higher through June than at the same point last year, according to the USDA, have had a positive impact across the industry. As far as corn inputs at the current time, we are looking toward harvest and what is expected to be a bumper crop. For corn in the Midwest, crop condition near our two consolidated plants are expected to be strong. We are anticipating the robust harvest coupled with the current corn in the farm inventories will lead to a continued favorable corn input pricing. Above all, we have focused on profitability over product pricing or production numbers, as evidenced by our improved gross margin performance this quarter, despite lower ethanol pricing and volume sold. It is this focus and the people in our plants who live it every day that continue to make us the successful, profitable company we are. Now I would like to open things up to the questions. Operator?

[Operator Instructions] Our first question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question.

Morning all, and thanks for all the updates. I just wanted to talk first on the carbon capture sequestration side of things. You guys did a good job calling out in the press release kind of the various external forces that you have to think through when you're going through this process, but maybe just help us think about in the event and in the time frame that assuming you do get the permit approval that you need, can you just talk to the timeline around the build out of the pipeline and then any remaining necessary equipment at that point?

Yes, I think if you look at that information, which we provided, the EPA permit is expected to be in -- sometime in second quarter of 2025. But in the meantime, our construction is in a full swing. We are already taking care of it. Carbon sequestration facility, which will be ready by the end of this year, depending on the utility connection, interconnection with -- to provide that utility to the CCS and also to ethanol facility. So once we have this utility received and then construction of the One Earth Energy ethanol facility is completed, we're going to concentrate on ethanol facilities to restart as soon as possible. As you know, One Earth Energy has produced over the last 15 years, I can say with confidence, no -- not a single year they lost that money. And that ethanol location is very important to us and that facility will produce much better profit moving forward once we complete that facility. And the second, we will certainly continue to do construction work and try to reach as soon as possible when we receive all these permits and then ICC permit and other permits as we received and construction will be completed. And once the electric connection is connected, we will start the testing. So I will say sometime probably once we receive the permit from EPA, we will start the construction of the well. So we will say probably sometime August or September next year we should be in operation. But that's just expected to depending on all of those permits we receive. Otherwise, we are waiting for all those permits. So -- but it depends on the permits, but facilities...

Jordan, to further answer your question, the biggest delay is in receiving permits. We call it a pipeline, but it's really just a three, four mile connector, the pipe itself. But we have to wait for Illinois to give us a permit on that, which is not -- which is not easy, but building the pipeline and building the whole itself are not nearly as time consuming as waiting for these permits. And that's, I think was your question is once we get the permits, how long will it take? That will not be nearly as long as waiting for the permits. And

Yes. Absolutely. I appreciate all those details and certainly you all have done an impressive job of how much you've been able to get done on your own. And now just waiting on the pipelines. And maybe just a clarifying question once you on the...

The pipeline may not be the -- there's more than the pipeline. We're also waiting on the EPA, which is…

Yes. EPA permits - exactly.

And a lot of local permits too. There's lots of permits involved there.

But I think the main thing which I really wanted to emphasize is ethanol facility itself does not need any pipeline. And we are in a full swing on the construction of the ethanol facilities from 150 million to 175 million and then move toward to 200 million gallon facility. And that should be completed by the first quarter of 2025 depending on utility providing the electric connections. So once that facility is completed, we will be able to produce ethanol at that kind of rate. And also, as you know, our core business is very important to us and we have produced great results on our core business. And One Earth Energy is the star student of our -- all of our facilities. And we hope that will continue to produce that profit as it produced from the last 15 years.

One other thing that

Yes, that's actually a good segue to my follow-up question, which is just going to be Stuart,

My opinion is it's a bipartisan. CC, carbon capture was a bipartisan issue. And I don't think that one party or the other will do -- will affect the current law. What happens if there are some proposals out there to extend certain things and that may be affected by one party or the other? I think it's a good thing the Democrats nominated a Minnesota person for Vice President. He certainly is from a farm state, from an ethanol state and understands the issue. But otherwise, I don't think that it really one party or the other is really taking a firm stand on expanding the CCS tax credit amounts that are out there.

Absolutely. Thank you all so much, and nice job with the continued strong results.

Thank you, Jordan.

Thank you. Our next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Hi, Pavel.

Thanks for taking the question. So even with our -- I suppose particularly with the slowdown in carbon capture construction, you are going to be stockpiling even more cash on the balance sheet beyond the sizable amount that you already have. What is the kind of allocation? What's the current priority for using the $350 million of cash that you already have and even more that you're going to be putting on?

First priority is the carbon capture and expansion of the Gibson City plant. Second priority is possibly looking at expansion of our South Dakota plant. That's a possibility, especially if we can lower our carbon capture score and get some tax credits. That would be a possibility. We're always looking for acquisitions. We've looked at a couple this year. They weren't for us, but you never know what's going to come up. We would consider stuff related to the tax credits and related to energy outside of ethanol, but nothing's come along that we think is better than ethanol. So we stuck to our field. And the last thing that we've been really good at over the years, and you never know where the stock market is. We didn't buy shares this quarter. But over the years, we're probably the buyback kings and percentage of shares bought back. And we're really, really -- we know what we're doing there. And we buy on dips, which is important. We don't just buy to lower the share count. We don't buy at the stock highs. We buy low to protect our shareholders when the stock's down. And that's been very, very successful. That's been very successful strategy for us. And that's still there. We still have buyback authorization, but we have not used it -- we did not use it in the last quarter.

What's the latest on your thinking about sustainable aviation fuel?

I think for that, we have to have low carbon at fuel produced. We believe that we certainly will need carbon sequestration for that location. And also, as you know, there's no clear guideline for 45

Got it. Thank you very much.

Thanks, Pavel. Thank you.

Thank you. Our next question comes from the line of Chris Sakai with Singular Research. Please proceed with your question.

Hi. I have a question on capital expenditures. How are you doing compared to your budget -- budgeted amount for capital expenditures?

I think we -- at this time, we are right on track.

Are you seeing any possible need for more to spend more there?

No, not at this time, but as you know, it depends on inflation factor in the future. But at this time, we do not see any major increase. The main things we have seen is delay in receiving lot of equipments and components of electric components that is causing some delay of our completion of these facilities. But we are overall right on budget.

Okay, thanks. And then have you seen any weather-related issues over the last quarter?

No, we have not seen any major weather-related issue. There was some issue in the South Dakota area where there was a heavy rain and there was some railroad track washed out for few days, but not a major problem.

We are expecting very good crops this year.

Correct. Yes, the crops is very -- expected very good, not only in Illinois, Illinois is expecting the bumper crops which will be record crops this year. And the same time, South Dakota is 73% to excellent to good crops, which is also near-record crops for that area.

Okay, great. Thanks.

Thank you, Chris.

Thank you. Our next question comes from the line of Jordan Levy with Truist Securities. Please proceed with your question.

Hi, guys. Just a follow up for me.

At this time, Summit, the investment would not be because of the Summit pipeline. It may be later, but at this time, South Dakota has, in my opinion, this is my opinion, some eminent domain issues. And so if we were to invest in the next year, it would not. Being in the Summit pipeline will be an advantage, we hope, someday. But we would just do it because it would be more efficient to have a larger plant. And if the corn supports it, we would consider it. So that's the biggest issue is always corn, whether a bigger plant would raise the corn prices. So we have to be very careful on that. The third thing is, we do not have the 45

Thank you, Stuart.

Thank you. And we have reached the end of the question-and-answer session. I'll now turn the call back over to Stuart Rose for closing remarks.

All right. I'd like to thank everyone for listening again. Corn crops are good right now. As