Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Green Plains, Inc. and Green Plains partners third quarter 2019 results.
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I would now like to hand, the conference over to your speaker today Mr. Jim Stark. Please go ahead Sir.
Thanks Lynn.
Welcome to the Green Plains, Inc. and Green Plains partners third quarter 2018 earnings call.
Participants on today's call or Todd Becker, President and Chief Executive Officer, and Patrick Simpkins, Our Chief Financial Officer.
There is a slide presentation available and you can find that presentation on the investor page under the events and presentations link on both corporate website.
During this call, we won't be making forward looking statements, which our predictions projections or other statements about future events.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
The results could materially differ because the factors discussed in yesterday's press releases and the comments made during this conference call and in the risk factor section of our Form 10-K , 10-Q, and other reports and filings with the Securities and Exchange Commission.
We do not undertake any duty to update any forward looking statement now I would like to turn the call over to Todd Becker.
Thanks, Jim and good morning, everyone and thanks for joining our call today, we reported a net loss of $39 million or a dollar six cents per diluted share as expected, though the financial results were driven by a week ethanol margin environment for most of the third quarter. So far there was a much different picture for ethanol.
Margins into fourth quarter.
As the curve has turned positive and remain that way through this call.
I would just discuss this more detail later on the call. We produced approximately 238 and a half million gallons of ethanol, which put us at an 84% utilization rate quarter again, our Madison plant Didnt take some time to get up to speed up to the extended shutdown and we are close to reaching our desire production levels. That's as planned.
It's still have a little work to do.
The consolidated crush margin for the third quarter was a negative six cents per gallon well certainly this is not the margin we would like to see the industry rationalization due to the extended negative margin if resin environment has resulted in plants shutting or slowing down therefore, reducing inventories.
This culminated in a late Q3 margin improvement that has continued into the fourth quarter as I said the ethanol industry did appear to show some production discipline in the third quarter as a production rate for Q3, 2019 was 4% less than the same quarter a year ago.
So far into the fourth quarter industry stocks are at the lowest level, we have seen in more than two years.
While margins have recovered to be positive at similar <unk> at similar fundamentals last time stocks were at this level margins were significantly better.
As we noted in the press release yesterday, we have completed the first project 24 modification at our Wood River in Nebraska location. The plant was restarted last week and it now ramping up production. It may take a few weeks for this plan to reach is targeted utilization rate, but we believe the investment in wood River will low it's lower its operating cost per gallon by approximately eight cents.
Well also lower natural gas usage at the plant by 25% generating additional savings over and above the eight cents per gallon.
Wood River will now be one of the top two or three plants in our system and should be competitive with the best operating plants in the industry.
Not only does this change the value of this plant, but should also change the way the market thinks of our platform valuation as well.
We should we have begun work on the next three project 24 upgrades, which should be completed in March or April 2020, once dawn, approximately 360 million gallons or nearly half of our non IC and production capacity will have significantly lower operating cost per gallon driving our platform average below 26 cents and lower as we fully.
Deploy the full project 24 [noise].
Remember as we indicated our first quarter 2019 was over 36 cents with our slowdown and last year was over 32 cents a gallon in total.
This is why we have already seen.
It's close the margin gap on the competitors, who mainly run IC ATM platforms out our goal remains to get to the top 15 or 20% of low cost producers in the industry very soon.
Again, our capital cost per gallon for this project is approximately eight or nine cents with a savings of eight or nine cents per gallon on lower operating expenses that are non I see I'm ethanol plant.
We believe project 24 will give us a distinct advantage and operating cost compared with others and under our agreement with IC ATM have exclusive rights to deploy this technology across our platform and through the end of 2022.
As we announced in September we were successful in selling 50% of our cattle feeding business.
The total EBITDA generator for the entire business for the third quarter was $11.2 million, earning approximately $75 per head EBITDA I.
I will let Patrick get into the equity method discontinued ops conversation when he reviews the financial numbers for the third quarter.
We expect cattle solid financial financial performance to continue finishing the year on a strong dog and we expect a record quarter for this business overall in the fourth quarter.
Currently this transaction has a significant impact on our balance sheet, our gross debt as of September Thirtyth was $530 million and breaks down very simply as.
150 million of non recourse working capital financing secured by inventory and receivables 140 million of non recourse debt associated with Green Plains partners that has to be consolidated.
And $240 million of convertible notes and other debt, we had $254 million a total cash at the end of the third quarter and when compared to the $240 million of debt that is actual recourse to green Plains, we were net debt zero at the end of September Thirtyth.
Well it has taken us sometime to get back to this net that there are a position I am pleased that we stayed the course that we communicated to you back in May of 2018.
With our portfolio optimization plan.
We also noted in the release yesterday that we supported the stock price through the third quarter and into the fourth quarter buying back approximately $22 million the stock or 2.2 million shares for the year, we have purchased nearly $62 million of stock or 5.4 million shares. The board of directors have authorized an additional $100 million for the share.
Repurchase program.
Green Plains now has approximately $119 million available under the authorization as we did over the last 120 days, we'll be opportunistic buyers of our shares in the future.
As I discussed the high protein initiative later in the call. This was not only about purchasing shares below book.
Although that has a strong reason as itself as we approach 30% of book value analysis over 60%, but more importantly, we get the by the perceived ethanol valuation as we transformed the company into a high value protein business I think the long term value of these assets are not reflected in the long term opportunity that has become available to us with a high protein feed.
Acknowledges.
Green Plains has agreed to sell at 50% joint venture interest in Jefferson energy companies fuel terminals to our joint venture partner Jefferson Jefferson Energy Holdings for $29 million the transaction should be close on or before December 15 2019.
When we partner to build this facility terminal space was challenging for ethanol exports, which is not the case today. We also believe that redeploying this capital for other organic products projects will yield the higher return for our shareholders.
In the end we are under contract to sell the terminal for more than we've built before and this should show the market are stronger balance sheet has become and our ability to withstand downturns in the future.
More important along with these actions, we expect to be cash flow positive from operations in the fourth quarter and have delivered on every aspect of the portfolio optimization plan, including the cattle transaction, which was beneficial to our shareholders as well.
Green Plains partners reported $13.3 million of adjusted EBITDA and a coverage ratio of 0.98 times for the third quarter and 1.05 times for the trailing 12 month.
We firmly believe that our opportunity opportunities to grow the partnership outside of its relationship with Green Plains Inc., but we wanted to get the business that supports the partnership healthy first so now we can go on the off emphasis off at the start to invest in growth as cash flow remained steady and the distribution remains solid and intact.
Now I'd like to turn call over to Patrick to review, both Green Plains in Green Plains Partners financial performance, and then I'll come back down to call to discuss the outlook for the fourth quarter give a policy update and provide more details on our protein initiatives and strategies for the near future.
Thank you Todd.
Green Plains consolidated revenues were $632.4 million in the third quarter down $156 million or 20% from the third quarter a year ago.
The decrease in revenue was driven primarily by the disposition of three ethanol plants and the sale of license vinegar during the fourth quarter of 2018.
I would also like to note that taking the cattle business off balance sheet effected our historical revenues as the business is now classified as discontinued operations with the disposition of our capital operations, there were $160.1 million and $217.7 million of revenues for the three month period ended September Thirtyth 2000.
Team and 2018 prospectively that are now reported as discontinued operations.
In addition, the related assets and liabilities of the cattle operations have been removed from the balance sheet as they are no longer consolidated the companys financial statements going forward, our proportional share of the cattle operations along with all other net equity method investments will be accounted for using the equity method of accounting.
Our consolidated net loss for the quarter was $39 million versus a net loss of $12.5 million a year ago.
Recognized tax benefit of $12.5 million in third quarter 2019, resulting in an effective tax rate of about 24%.
Interest expense decreased $9.2 million to $10.5 million for the quarter compared to last year with the change being driven primarily by significantly lower overall debt balances compared to last year.
Adjusted EBITDA for the third quarter was a negative $13.4 million compared to positive adjusted EBITDA of $32 million for the third quarter of 2018.
SDMA of $18.5 million decreased $4.7 million or 20% from 2018, primarily due to the reduction of controllable expenses and the asset sales complete in the fourth quarter 2018.
Capex for the first nine months of 2019 was about $49 million with approximately $17 million of maintenance Capex for ethanol production, an additional $32 million of growth capital primarily for project 24 in the high protein feed project can Shenandoah, Iowa.
On slide eight of the Investor deck, you will see our balance sheet highlights we had $288 million.
Cash and working capital net of working capital financing at the end of the third quarter compared to $427 million at the end of 2018.
Our liquidity position at the end of the teams remain solid $284 million in total cash along with approximately $260 million available under our working capital revolvers. This about does not include availability of $68 million under the credit facility the partnership.
For Green Plains partners, we had 239.9 million gallons of throughput volume at our ethanol storage assets, which was down $75 million 75 million gallons or 24% from the third quarter 2018 as rules to though of Green Plains plant sales in Q4 2018.
The partnership reported adjusted EBITDA of $13.3 million for the quarter, which was $3.5 million lower than third quarter 2018, as a result of lower throughput volumes.
Distributable cash flow was $11.1 million for the quarter, which was $3.8 million lower than the same quarter in 2018, reflecting the sale of the three plants in the fourth quarter of last year and slightly lower ethanol production at Green Plains in the third quarter versus prior year.
The distribution of 47.5 cents per unit declare until October 17th resulted in a coverage ratio 0.98 for the third quarter on a last 12 month basis. Adjusted EBITDA was $55.8 million distributable cash flow was $47.2 million declared distributions were $45.1 million, resulting in a one point.
Okay five coverage ratio I'd now like to turn the call back over to Todd.
Thanks, Patrick and earlier in the call when I talked about project 24, I want to make sure we have clarity on where we're at today and where we're going to project 24, we're on the path to below 24 cents, a gallon and we believe that we will actually exceed those targets when all the projects are completed what our four.
Projects are done in April of 2020, our opex per gallon will be below 26, and then finally when it's all done later in the year, we will we will be below 24 cents a gallon.
I had missed misspoken earlier on the call now I'll come back to discussing the margin environment and our initiatives going forward margins for the first time of year, our positive in the current quarter, and our plus or minus a few pennies a breakeven through the middle of 2020.
Looking at U.S. ethanol production over last 90 days, we are averaging about 1 million barrels or production today and spending considerable monetized below those levels.
Thats almost 50000 barrels less than the same period in 2018 per day as a result ethanol inventories are some of their lowest levels and over two years sitting at over a little over 21 million barrels or about 20 days of stock. When you include export demand.
I want to keep something in mind Green Plains is not intentionally slowing anywhere the industry has taken over reducing production and finally plants that have should have slowed down sooner and or who are counting on the green plains slowdowns like the past.
Have hit the wall and realize you can run out of money with the strategy like that if the downturn last too long like the one we have experienced.
So, while we were selling assets paying or debt off increasing liquidity investing and efficiencies. Many others. We're hoping for the improvement and finally reached a point where liquidity was drying up reaction time seem to be faster in the industry to temper production levels as cash burn accelerated the physical markets are sure telling us that margin should go higher as.
Index values have continued to be very firm in relation to history.
We continue to monitor the corn harvest and believe that you Sta Pradesh projections for the crop are accurate to what we know around our plant locations, our internal crop yields based on a very comprehensive multiyear crop tour and analytics analytics program that we have put in place remains at about 170 bushels per acre was to find out more of this week how that looks.
We are encouraged by the administration's effort to support ethanol and our farmers. The current proposal from the EPA on how to handle small refinery exemptions continues to be a challenge, but we hope to have a path to a program that make sense. Our goal has been to get the 15 billion gallons mandated by the renewable fuel standard.
To be upheld.
Our understanding of their proposal is just that 15 billion gallons means 15 billion gallons as quoted from EPA administrator Wheeler, but the EPA has full discretion, which is why we are asking for actual gallons to get used and that the deal you recommendations. We continue to try to find a happy medium between industry in the EPA.
Okay, but the relationship is sometimes strained.
We're also pleased they trade deals close to resolution with China, while export ethanol exports are still tracking in the 1.5 to 1.6 billion gallon range. This year and deal with China could add substantial demand to the U.S. ethanol industry and we believe it will be on the list when China come shopping from products from the us farmer.
We continue to make progress with Mexico in other countries that mandates continue to increase around the world for ethanol contrary to Fox news read ethanol is already a low carbon fuel and continues to get lower each day as planned improvements and upgrades changes our footprint and calculations for the better for the industry.
A great example of this is our Wood River project, we believe our carbon index or sea ice score will be at 64 or below placing this plant in the top 10 of all plants in the industry. The fact that all of our production could score here versus some plants with partial production, scoring is a testament to the project we are putting in place.
The combination of more domestic demand from higher blending requirements continued expansion of unleaded 88, or you 15, and higher export demand with China should continue to improve the ethanol margins in 2020 as long as this all happens.
Our operating cost per gallon continues to improve as mentioned, but more specifically we continue to track lower in November December as a result at the work completed at Wood River and other initiatives. We have ongoing and believe we will continue to achieve as I mentioned sub 24 cents a gallon levels across our whole platform when all of our projects are done.
Our high protein feed technology capital investment at Shenandoah, Iowa is progressing well our steel to finish the fabrication of the dryer system for the project was delayed but is on the ground. There are now while the construction and production on high protein will be completed in December drive product will be available in February of 2020 because of this delay.
We have seen significant interest from feed ingredient companies wanting to enter into offtake agreement for our future production of the new product that we will produce.
We have agreed to sell 60% of Shenandoah production volume at a fixed price offtake.
For a premium to high protein soy milk prices and remain in negotiations for the remainder along with a second plants production to be named in the future. This is not a commodity product by traditional distillers grains of the past, but an isolated highly specialized protein from the corn kernel that can radically transform our company's profitability as we roll to the whole.
Platform in the future.
We believe that we're not only on a path to be the base product a 50% protein from this technology, but believe that next generation technologies exists to take this protein higher potentially much higher we are in a cost, but finally change in traditional ethanol plants into true bio refineries through changing the co product which is different.
From what you heard in the past about changing the based product of ethanol. This is not about say lasik ethanol anymore or anything remotely like that.
We're in discussions with some of the largest users of high protein feed products all over the world and believe weather and pet food poultry swine beef and especially aquaculture, we know you'll be surprised about the ever increasing value discussed around this new product that we will soon be making.
This is why are optimal aqua venture is so important we have a team working with some of the largest aquaculture companies in the world designing trials for this new product and how it will be included an awkward diets, we see more and more countries beginning to push back on soy based feeds from Brazil, and other global producers and moving more towards corn based products.
We just opened a world class aquaculture laboratory and testing facility in Shenandoah Iola, Iowa, and we'll begin to directly fee different species of fish with this product we are producing and Shenandoah very soon this commercial laboratory will not only be for internal validation, but also for third parties to validate feed formulations for the on further on use.
We believe this is one of the first fully integrated facilities in the United States in existence today.
When we look at the projects, we have going today and the margin curve heading into right direction, our appetite to sell additional assets has diminished, but we still continue to consider opportunistic transactions at the right value our balance sheet has allowed us to be patient around divestments, we certainly will keep our options open, but our employees and management team are improving efficiencies.
Lowering our operating and overhead costs and coming with a plan coming up with a plan to roll out high protein technologies through the whole platform in the future without ever stressing the balance sheet.
In closing the last couple of years have been challenging we believe we have done our best to be transparent with everyone. As we have navigated through this difficult environment. We're certainly excited about the future as we try to transform this company into the next decade more importantly, we're optimistic with positive margins.
Lower costs lower stocks overall in the market and even the most important thing that we want to talk about which as we are almost $1 billion of debt less than this time last year, we think thats a very positive for our shareholders. So thank you for joining our call today and I'll ask lives to start to Q and a session.
As a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question press the pound Keith.
And the interest of time, we ask that you limit yourself to two questions.
Please stand by only compiled acuity roster.
Our first question comes from Adam Samuelson with Goldman Sachs. Your line is now open.
Yes, thanks, good morning, everyone.
Good morning.
So Todd a lot of moving pieces.
In the quarter and the portfolio and I'm, just hoping maybe you could just rank order from a capital allocation front.
I am here, how we should be.
Prioritizing share repurchase.
Project, 24 investments and kind of what the actual cash outlays of those are.
Hi, Hi protein.
Hi protein feed and kind of the size of the capital investments that you've got on the horizon over the next 12 months.
Then I've a follow up just on the market.
Okay.
First and foremost project 24 is the single most important use of our capital today and Thats, where the first dollar is going to go to as we continue to accelerate try to accelerate.
This project as we mentioned we have three of them that have started engineering and construction three more of them and we are finalizing some of the plans for Madison amount burn in as well and so first and foremost we have indicated that project will be somewhere between 50 and $60 million of Capex related to project 24 and.
Other capex related to that would be a $15 million as we upgrade other things in the plant that need to get plants and need to get up rate upgraded for example, when we did wood river, we upgraded the cooling tower that needed.
And there was an bad repair so.
Theres going to be a combination of somewhere between kind of 50 and $70 million of Capex and total needed to finished project 24, and like I said the first one is done and operating today, that's first and foremost.
After that then.
We're going to finish Shenandoah was.
Protein installation and and we mentioned that that is going to be.
Between 30 and $40 million.
And so we've already paid for some of that and but we will use capital to to finish that project as well and then from there really we'll look at our balance sheet, we'll look at our cash flow generation.
And we'll look at our free cash flow generation, which is which were in a position right now in the fourth quarter generating free cash flow again, and we'll make a determination where we go next obviously, we have to pass with that and.
Protein is a very important initiative, what we're trying to do on protein is did come up with creative ways to build this throughout our platform without stressing our cash balance.
And increasing our debt levels significantly so we're working on that and edge as you saw and again we don't.
We don't give indications of how and when we would use share repurchases, but as you saw we stepped in when the stock got down to 30% of book value and continued to buy from there we stepped into to support the stock when it when it started to hit towards at $7 level, and and again I think in a cyclical business.
Ought to be very circumspect down on when and how you want to use buybacks because obviously our stock went further and faster than we all thought of it could go at the time and we believe we stepped in at the right time, especially seeing the forward curve. So we'd like to get a little bit more definition towards 2020 forward curve, you know and in Q4 margins.
Our positive still and.
And what we would like to see some more certainty around 2020.
Ill levels, and and that would allow us to step in to do some other things as well.
Okay I appreciate that color and then just on on the market.
We as we think about the margin curve, having having flip back into positive territory after better part of the year and in the Red.
Do we just what's your sense on the industry's ability to ramp back up production or the financing is the financing there I mean.
It into this week did have production up again sequentially were sold trailing the prior year, but those year on year gaps are starting to narrow a little bit.
What do you think where do you think industry production levels will will stabilize and is that enough to keep stocks and check.
Yes, I mean, obviously, we're coming into the winter season, so which slows down a little bit although we still see some draws through the end of the year data, we're going to have to watch closely.
I think it's not just going to be about whether you have enough money to Ron or start your plant back up I think there's more to it in the eastern corn belt is whether you can have the corn to start your plant backup or run your plan consistently or whether you actually afford to buy the corn in the eastern corn belt and I think that was a challenge of someone in third quarter as well.
And so I think the east is really where the we're going to watch closely on startups and shutdowns and I think you'll see that will be volatile into 2020, and I think as we move along further into 2020, that's probably going to be more of the.
For the up and down of the numbers then the plants that are down today I feel like.
They're probably going to stay down because the consistency I think what the margin curve is telling US is we're going to give you a margin for 30 days, we might give you a margin for 60 days.
Board, that's not trying to incentive production today to start back up it is time trying to Incent productions to stay up.
So we've seen margins over the last 30 days into those high single digit levels across our whole platform higher at times.
We saw some days into into very low teens. Some of our plants are much higher so our shenandoah or an all buying.
Has very good margin so the top 10% to 25% of this industry is just going to run and can run at these levels.
And then it's really going to be the bottom third of the industry and what happens there. So while 10 10 may look like.
A big number.
Versus the average of last year. The average of this year still low number were 10000 barrels a day, it's hard to call we believe that.
Continues to refine their numbers.
But but still has a flaw around the way that they measure terminal stocks and up 700 down 700 that probably we're going to see a lot more of that because of the month. They only measure terminal stocks on a monthly basis not on a weekly like we do.
And our ethanol plants and so.
I still think we'll see volatility as more importantly, though Adam.
The market the cash market the physical market is extremely strong when you look at a lot of these areas around the United States. We're trading at very high historical index value levels relative to what we've seen over that same period over last year year, and a half and and that's what I've been saying as well as that these stocks and.
The margins weren't.
Correlating very well with.
The way that we were seeing the physical values and so overall, we still think theres, they're the market will remain positive.
But certainly we have to watch closely on a weekly basis, all right I really appreciate all that color I'll pass it on thanks. Thank you.
Our next question comes from Ben revenue with Stephens. Your line is now open.
Hey, this is actually Kim on for Ben Thanks for the question guys.
What's a reasonable expectation for capacity utilization for the company and for the industry in Fourq.
And then what level of production do you think we need to see with the current domestic and export demand backdrop keeps about from the market balance if China doesn't return to the market.
Yes, so for ourselves our goal for the fourth quarters to be at 90% or above on utilization.
We think with Wood river, returning and with.
Madison lighting itself out we will continue as we stated that we will run into that 90% to 92% of capacity and and depending on where the margins are Mike and how fast are opex per gallon comes down.
We're going to continue to evaluate that but thats. The stated goal of the company is we're just going to continue to run as hard as fast as we can and though we believe that's the right way to look at it with the strength of our balance sheet.
With that in terms of China, returning are now returning to the market. Obviously right now the market is in a bit of a balance your up or down on stockpile weekly basis more importantly at 1 million barrels a day, that's that's not enough.
To not have the market continue to be tied whether it's 1 million 10, or 980 or 90 all of those numbers are good. So at these levels sub 10, 20 sub 2010 30 levels.
We believe the market stays in check and continues to provide an opportunity for our platform to earn a positive margin.
Anything much above Tenthirty Tenforty, we'll start to I think without China.
Have a bit more excess of supply. So it's really up to this industry to maintain discipline around our on production levels and determine whether whether on and how and where they want to earn a return so.
That's that's our view on that.
Okay. Thank you and then one other question could you tell us where the company opex per gallon was for the quarter.
Did the upgrade at Wood river have any impact or how should we think about that going forward into fourq you.
Well because it was a shutdown quarter our opex per.
For gallon is a bit higher because looking at September was higher end.
Excuse me in July and August our Opex per gallon.
Brand close to 27 to 27 and a half sense and then in September it runs higher in October with higher because of shutdowns. We believe now in November and December will return back to that 27 to between 27 to 28 cents, a gallon, which is still significantly lower than we have ron ever in our in the past from anyway.
Many years and then with.
With Wood river fully coming back online by the first quarter, we believe will be sub 27 cents, a gallon and start to move lower from their whereby June of next year, we will be sub sub 24 cents a gallon we believe.
The results of what we've done in everything that we've seen project 24 is actually saw project 24 at this point and we believe the platform for can be below 24 cents a gallon basis everything we now know about these projects and some of the things that we're finding out.
As we start wood river backup and and really get both sides operating we brought at full rates.
And now we're just lining everything out and wood river, but overall within the next every every single month, we should start to see declines as more and more of our plant start to come on.
The projects and I think when we get down to.
Sub 24 cents a gallon while there are plant below 20 today in fact, a shenandoah on Obi run sometimes below 20 cents, a gallon and we believe wood river will be in that 21 to 22 cents a gallon puts itself into.
Top 20 or 30 plants in the industry today and then after that the whole platform sub 24 cents a gallon we believe firmly puts us in that top 25% range of this industry and that's with multiple different original technologies, but I think if you would ask.
Anybody about our upgrades and I've asked the question is this is going to be as good as it IC ATM and there is some and the answer even though there's obviously some based technology.
Still around the plant the answer is it's good or better in terms of energy efficiencies.
Size scope and scale of some of the things that we've put in and and really redefining technology.
On our plans going forward and when we say while the base was Delta T or Bogo Bush. The finished was ice GM to bring them back into line with traditional IBCM plans. Obviously, there's some really great plants operating other newer vintage Plaza spent a lot of money to get below 20 cents a gallon operating costs.
Overall, we believe that our platform will be highly aggressive in terms of our ability to compete with the very best.
Individually.
Thanks, a lot ill pass it along.
Thank you.
Our next question comes from Ken Zaslow with Bank of Montreal. Your line is now open.
Hey, good morning, guys.
Hi, Ken.
Tonnage I just wanted to get a better clarity what percentage of the industry, who is closed capacity will not come back how much is permitted.
So we think the carrying capacity of the industry is a little over 1.1 million barrels a day today.
Maybe even to 115 Ole if you were going to run this industry all out.
There is definitely companies large companies that have said, they're going to slow production and shut some production.
I don't know how fast they will back or not come back I mean, I think that if you look at the benefit of where we're running today for the whole industry versus probably back and add the debt to the detriment of those companies I think people will stay disciplined in this million barrel range.
Right now so we're probably 100 150000 barrels a day off line.
And I think we have an opportunity to remain at these levels. We'll just have to watch. It closely there are definitely plants that won't come back for a while possibly even this whole crop year, if you're sitting out in the east and having the inability to to lock in your corn needs or your input needs.
And I think other plants makeup kind of come up and down depending on their ability to so we're going to watch closely as I said I think the carrying capacity is one one to 1.11 0.115 or 1.15 and.
Sitting here at all at 1 million barrels a day plus or minus I think is is a good place to be but we'll watch it closely.
My second question is.
Increasing authorization of your share repurchases.
I'm assuming.
Still a commitment a pretty large commitment to keep buying back stock at this rate is at a fair way to think about even as the stock appreciates.
Thank you said that the stock is undervalued under up to 19, how has that changed.
As it are you still committed to buying back stock.
I think what we do as we said, we're always going to be opportunistic buyers market wants to go too far too fast and the wrong direction will step in and support the stock like we have over five years, we're not going to give anybody any path or insight to what how this authorization will be use except that I think it's.
Positive as a board authorized another 100 million dollar addition to the first $200 million, although we do still have some left on the last thing.
As you know and as you are fully aware of cyclical companies move too far in too fast and the wrong direction and there's still some work for this industry to do I don't think that.
I think theres going to be positives that that we see and potentially some negatives and I think overall, we're on the right tracking and.
We have the authorization and we will use that as needed.
Hey can you talk about the potential consolidation within the industry do you think today, what if there will be the trade deal and if there is the.
Yes, the policy that is stable.
Good day would be greater interest in the ethanol assets and would you guys be open to discussions with that.
Yeah, I think overall because of again, the last year and a half.
What we were able to accomplish whether it was selling assets paying off our debt and putting ourselves into a really good position as a company I think overall the industry I didnt quite the same way as we did and because we started our process many years ago, but I think overall as we see some recovery.
The conversations are going to start back up for consolidation and how that happens is going to be interesting to watch if we have a strong domestic policy, which we are advocating for if he 15 or unleaded 88 really takes off and we're starting to see even stations go to their mid grade based fuel.
To be unleaded, 88, and not offering 10 anymore, we're starting to see that phenomena happy happened and we believe that overall when we see that happened and if we have a positive China trade deal and everything. We're hearing is that if there is a trade deals struck and if it is coming out on agriculture effort.
It is on the list and they have been pressing hard for ethanol to be included in some way shape or form I think you'd have a but I think even more importantly, the consolidation.
And the interest in these assets can it's going to come from the protein component that is going to rollout across this industry and the next by the 10 years, it's extremely expensive.
But I don't think you can discount the revaluation of an asset when you put protein on top of it to be much more like a soy crushing plant and much less like an ethanol plant because the value of the protein today basis. The contract that we have put in place to start as a starting point at 15 cents a gallon.
And our view of profitability to a plant.
That doesn't even include the.
The uplift you're going to gain as this product moves through different species like aquaculture and even higher value pet foods and what we wanted to do a show the value of the product in this first off take agreement and by the way show that we can get off take agreements for our product that's made in an ethanol plant because its such high quality and.
While there is only a few plants producing this product today, it's highly intriguing, especially in agriculture, and pet food around the world and so.
Thats step one of this product step two of this product is there is technology, that's being developed today and even on the shelf that is increasing the value of this protein through enzymes and yeas and other technology from 50 to 60 52, what we believe is on a path to 60 pro which would radically revaluate ria value in F.
And all planned to be a highly sophisticated protein machine because when you start to get to mid Fiftys pro or high Fiftys pro the product all of a sudden isn't just a.
The premium to high protein soy meal, but it's starting to approach corn gluten meals and fish meals then beyond that there's a third leg of even novel ingredients that are going to be developed out of this product.
Again early days, but everything we're seeing around this strategy. We believe can radically transformed the value of the whole industry not just green plains, but again. This is this isn't something you could just market as a commodity you have to have very specialized salespeople nutritionists, we have world class scientists now traveling the world.
So to sell to product for us and and then obviously the integrated Aqua lab that we haven't seen adult first with kind where people from all over the world are interested in using that to develop.
Basically dyess around this product. So this is a revolutionary product again lots to be proven you've got to spend a lot of Capex you got to build you got to certainly build it out and have a salesforce and not degrade the value of is it any way shape or form.
That's what I think consolidation probably could happen down the road, where it may leave it may leave.
The oil guys already refiners behind who said I'll wait for the right time to buy an ethanol plant and some have bought ethanol plant and a may move more into the highly specialized feed and protein.
Providers around the world that would want to consolidate in ethanol plant.
My last question is it are you able to accelerate this pace to which you.
Move to the protein.
Given the capital requirements is there way to accelerate that.
That's what we're working on with with not just our on balance sheet to make sure it's never get stress again.
But with nutritional partners with producers around the world with feed feed mills around the world feed users around the world with potentially even.
Private investors to invest into the projects, where we could get control it will will control them, but we could roll it out faster and then potentially get them back later on we're going to do everything we can to roll this out as fast as we can but first and foremost obviously, we want to continue to drive the value of the base business higher you have to me.
Okay in order to make protein really well you better make ethanol really well and be in the top 25% to do that as well because protein won't save a bad ethanol operation but.
You have to make your base product really well, which is what we're doing a project 24, but our job. Our goal is to accelerate the build out of the protein across all of our plants, but more so accelerate our technology nutritional partnerships, where we can access the capital because once you start getting off take agreements you know that financing changes.
Rapidly because you do have guaranteed returns a minute guarantee minimum returns on these assets and thats kind of what we're trying to set up today, where we can accelerate the build through gaining asset access to capital because we have nutritional and feed partnerships and offtakes. So our goal is to in the next two to three years potentially build.
This whole whole platform out and it's a very aggressive in a very.
Awesome.
Program, but I think if we can get this done correctly, we'll we'll find the money for this because we'll have the partners I want the product and wanted at a very high value.
Great appreciate it thank you.
Thank you.
Yes.
Our next question comes from Eric Stine with Craig Hallum. Your line is now open.
Morning.
I know you touched on utilization for fourth quarter, but just you know just thinking about 2020 I know that.
You are targeting 90% plus and you're done kind of taken the hit for the good in the overall industry, but you're also signaling that youre going to be pretty.
Go pretty heavy on project 24, so balancing those two things out.
How should we think about utilization in 2020.
Well to give you. An example wood river has now been down for about seven days eight days.
Before we started bringing it back up as we were building project to 24 around the operating plant. So if you don't have to take a plant down significantly for a significant amount of time to implement the project and get it started because all basically get piped in lined in and.
And just starts up as a completed plant so utilization our goal even with Madison.
Still starting up and.
And Wood River still coming online, we're still going to run towards a 90% for this quarter. So that just tells you that as we as we bring up the other plants, it's really much more of a normalized shutdown maybe at a week, but it's going to take that going to take weeks or months to start these projects up okay. That's helpful.
Maybe last one for me just on the the export side I know the industry's looking for new markets and some talk or recent talk that.
Mexico potentially regulators looking at.
Allowing E 10 in their three big cities, just curious if you're hearing anything on that and.
If that is the case when that could potentially start as start to have an impact.
I think we're starting to see an impact are ready to secretary gravity agriculture, and a trade mission is down there actually today.
And they are discussing how to implement this policy broadly across the country and how the U.S. could play a role in health and helping them do that and how we can obviously affect trade with each other so that's happening as we speak we've spent a significant significant amount of industry time.
The grants council has deploying lots of capital to us greencastle in trying to get ethanol into that market, I think where as close as ever everything always take longer than we wanted to but we're starting to see real change with real.
Retailers down in Mexico, and starting to get into some of the terminal capacity as well. So I think it's coming I think it can be pretty dramatic effect on the can be a dramatic effect on our on our exports, but again it always takes longer than we wanted to but that is a market that will be much like Canada, Canada is one of our biggest trading partners.
For ethanol and we expect Mexico to be along right side of them as well.
Okay. Thanks, a lot.
Our next question comes from Pavel Molchanov with Raymond James Your line is now open.
Thanks for taking the question one more about China, if I may.
If there were to be a deal and.
As you said ethanol is likely to be encompassed within it.
Realistically how quickly we see resumption of deliveries into the Chinese market.
I think I think you would be right away they have the capacity to receive it we've got the capacity to ship. It we've got stocks that can move very quickly when they come into by ethanol if they want it ship as soon as possible. They could start loading boats and within 30 days and that's not going to be an issue they've got the capacity to online.
It did as well.
And our they buy the infrastructure needed to to run a very large program and so it could it could be very very fast.
Much like the soybean program as well once once they buy soybeans, it's very fast to start shipping them.
There is definitely capacity ready to go.
Okay understood yes.
Ask a question Matt.
GPP perspective, so it's been at this point.
I think two and a half year since the last.
On dropdown or asset acquisition by GPP and you mentioned in the press release that GPP turned down to a recent expansion opportunity.
What's kind of holding back.
Getting some increases to GPP is asset base.
Well, we've tried I mean, we were in multiple terminal deals one terminal deal where the government said no because of the way that they thought the ethanol market would change in Texas and in.
Oklahoma when we're trying to buy two very large terminals with with with a partner.
And then we've looked at other terminals that that never that weren't we were not able to bring to conclusion because either they didn't sell or are they didn't meet our standard then finally.
The export terminal I think for from that perspective, but just relative to the price that we received versus the opportunity. The board of GPP did the right thing. This board is is this board ITP and and us as the.
Largest largest unit holder, we want to grow GPP in the future I think.
And this is good for the GPV unit holder, we wanted to make sure the base business of ethanol and production, we were bringing our volumes back up into that 90% range plus so that we know that.
The distribution was solid and we believe that's very important and we've never change in the last two and half years from that so if you kind of recall the history of GPP were basically the last.
MLP one of the last two or three MLP is that made it to the public markets. After that obviously there was a big decline in MLP interest because of multiple factors, including tax policy that from there we've been dealing with the underlying ethanol downturn I think as we kind of come through all of those cleanup Green plains balance sheet, which is which.
I think was hurting green plains partners because of some of the risks that the market perceived.
I think overall as we have a much cleaner larger parent larger.
Green Plains, Inc. Thats very positive for Green Plains partners, and we will start to them are looking at expanding Green Plains partners is as well and multiple different vertical and we have a aboard obviously if you look at who's on our board there as well very interested in doing that they didn't need just to be on aboard just so we can pay a dividend on some ethanol.
Volumes they have they have a very strong view that this is a great partnership the growth, but again not a lot of transactions, taking place and really not as kind of opportunities to acquire so were we have to be patient, but overall, we think we have the dry powder to do what we need down at the at the MLP.
Appreciate it.
Thank you very much.
And our last question will come from Selman Akyol with Stifel. Your line is now open.
Hi, this is well on for Selman, just going off of the last question about.
Growing GPP.
And the dry powder was wondering if you could just kind of expand on.
Any opportunities.
Sure.
Do you inform between but just kind of.
Hoping you could expand on that a little.
Well I mean, we continue to search for businesses that are related in some way shape or form to what GPP does today, whether it's in.
Our traditional motor fuels or ethanol or a combination of where we could feel like we could be impactful to that business by having the billion gallons plus of ethanol behind.
Platform to do other things beyond just shipping through our own tanks at the.
As the ethanol plants and so that the unique opportunity that we're looking for not to say that we wouldn't look at other businesses as well, but we want to make sure. It's within the verticals. So we don't get again, what we spent a lot of time with.
At Inc. was basically.
Looking at expanding our portfolios and diversifying of which we weren't getting the credit for at Inc. and we feel like we want to make sure that if we do something a GPP, we don't diversify away from our core competency around motor fuels and ethanol and that's really will want to focus on for GPP and.
We are looking for opportunities like that and again I think theyre going to be more coming out it's been very slow in terms of some of those opportunities just because of the slow MLP market in general.
But overall I think theres going to be some things that that are going to come out and we'll continue with everything that we can.
We did not go public with GPV would have.
We could just sit here and a clip a coupon off of an ethanol plant shipping through the GPP.
Terminals at the ethanol plant that's not what each that's not why we want.
Established CPP and so our goal is to continue to grow that business.
Okay. Thank you and then is there any update on the MVC payments.
From GPR by chance.
On the MVC payment Patrick you want to comment on where we're at on the MVC payments as that way. The question was we could barely hear you, yes, yes, yes, the MBC payment, where we're at the finish those out for 919 and 20, yes. So there today.
Of course, the MVC payment is approximately 84% of production levels.
As you may recall to the extent that.
There is a credit.
Do GP already for the fact that they paid at the MDC level, although they may not have produced at the MDC level.
That credit effectively a cruise and then when they overproduce basically work that credit off net credit last for about 12 months today that credit is about $7 million.
That $7 million actually become lower.
Over the course every quarter through 2000 and in 20.
I would expect by mid year, 2020 that that credit will be completely.
Off the books of GP Ari.
And in any overproduction, starting in Q3 will basically be into credit of GPP.
That's certainly could happen sooner depending on the run rate at GPR eight.
Right now, we would expect that to be kind of coming into the end of Q2.
Okay. Thank you.
Yes.
And that will conclude today's question and answer session I'd like to turn the call back to Mr. Becker for closing remarks.
Yes, thanks, everybody for coming on the call we finished.
The quarter in a position I think that sets us up well for the future our debt our debt is significantly decrease our net debt is zero against anything recourse to the parent everything above that is either at the MLP or and working capital financing. We believe that everything we've done around our project 24 and portfolio optimization.
Minus that the company up well for the future. We believe that strategy around our protein initiative is solid and continue to want to invest behind that in the future as well, making sure that we continue to do all the way things around supporting the stock price.
We finished a.
A strong October we saw margins in high single digits low double digits across the platform.
In November continues to remain positive into mid to high single digits, and then we'll wait to see where December settles out that still remains somewhat.
On defined as the market will fully go back to the spot type stuff that we've seen over the last several years before the downturn and so overall, it's nice to see this we remain optimistic that the discipline in the market will remain and and overall if we can just get a few things out of.
EPA around domestic policy giddy, 15 rollout and get trying to back into the market. There will be a very different 2020 than it was a 29 team and we're very excited about that so we appreciate everybody coming on the call today and we'll talk to you next quarter. Thanks for all of your support.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.