Q4 2019 Earnings Call
And gentlemen, todays conference is scheduled to begin shortly please continue to say goodbye. Thank you for your patience.
[music].
Many 19 earnings conference call.
Following the company's prepared remarks instructions will be provided for keeping an eye.
At this time, all participants are in listen only mode.
I'll now turn the conference call earlier host fill bogs senior Vice President Investor Relations and Treasurer Mr. box. Please go ahead.
Thanks Daniel.
Welcome to Green Plains, Inc., and Green Plains partners fourth quarter 2019 earnings call.
Participants on today's call, our Todd Becker, President Chief Executive Officer, Patrick Simkins, Our Chief Financial Officer, and Walter Cronin, Our Chief commercial officer.
There was a slide presentation available and you can find the presentation on the investor page under the events and presentations link on both corporate website.
During this call, we will 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.
Actual results could materially differ.
Because of factors discussed in yesterday's press releases in the comments made during this conference call and in the risk factor section of our form 10-K form 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'd like to turn the call over to Todd Becker.
Good morning, Thank you for joining our call today for the quarter, we reported an adjusted net loss of $14.4 million.41, a diluted share which exclude the revert a reversal of a deferred tax asset of $25 million that affected the P.S. negatively this was a noncash adjustment had no impact.
And our financial strength.
As expected financial results were improved from the prior quarter due to the ethanol margin environment at the beginning of the fourth quarter.
We reported $16 million, an adjusted EBITDA for the quarter, and we were free cash flow positive as well.
We remain that that zero against our convertible debt has the debt at GPP is non recourse to the parent and the revolvers at Green Plains, Inc., our secured against receivables and inventories.
We are in a position we're in this position as an outcome of our portfolio optimization plan.
We're now embarking on a total transformation plan, which will I will discuss later in the call as well.
Our quarter was also impacted negatively by it shut down by the shutdown of Wood River for our project 24 upgrade and the final stages or the Madison shutdown as these occurred during a positive margin environment. We believe this affected our quarter negatively by two to three cents a gallon.
Both plants came back to full rates during December and we expect them to continue to operate well during 2020.
We produced approximately 239 million gallons of ethanol, which put us at an 84.5% utilization rate for the quarter well. This was lower than our stated goal of 90%. There was the highest utilization rate in two years more importantly in December we ran at 94% once wood river fully came up to speed up or a project 24.
Our upgrades and the repairs that are Madison plant were completely lined out which is also the highest single month in over two years with these projects now complete at running well, we expect to achieved 90% or Bob for each quarter and 2020. Our goal has been to run maximum production levels in order to maximize the benefit of our cost initiatives. We believe we will file.
We'll be able to demonstrate what this platform can do.
The consolidated crush margin for the fourth quarter was two cents per gallon, but the spot crush continued to decline during the quarter as industry production edged higher the weekly EA data printed the fourth highest production a record earlier this year.
Well the production levels have dropped since then this industry continues to be oversupplied, we will continue to focus on or things with within our control reducing operating expenses through our project 24 initiative and driving additional value through our protein rollout. Our first project 44 modification at our would rubber Nebraska location continues to exceed our expectations.
And leave US excited about completing the rollout across the remaining non IC implants in our platform in December and January our Opex with an average of 21 cents a gallon Atwood River, let me explain one more time, how we look at this so you can do a like for like comparison of other companies and plants as there seems to be continued confusion on them.
Yeah, and how it works first we take the five commodities, we buy and sell it to get a gross margin our corn cost natural gas ethanol revenues the stores revenues and corno revenues are converted into a gross margin.
From there we take the cost of plant operations to get the EBITDA per gallon inclusive in this is the nay Trent railcar cost chemical usten enzymes electricity repair and maintenance production and admin payrolls related to the plant supplies in DNA and find the corn purchase commissions, a one cent per gallon for your reference illustration of the.
These points are shown on page six of the conference call presentation.
In addition, what is not included in the Opex per gallon calculation is the fact that natural gas usage is reduced by 25% with the project 24 upgrade further improving the returns on this project, we're expecting all plans to reduce natural gas future usage, which helps overall sea ice scores on sustainability scores Wood river operated at each.
Similar cost structure to all of our IC and plans of similar size and achieved the second lost operating cost level in our platform in December showing that these modifications can make our non IC ATM Delta T. and Fogo, both plants competitive with our best IC implants in our fleet and even across the industry our operators are being.
To retrain to operate these like an I.C.M. plant I think very differently as a retrofit to freight is basically making these I see him as the front and back ends or similar already lastly, we were told by ice the m. that these modifications or even better than what is in many legacy plans. We're obviously very excited about the outcome.
With the improved December results, we believe we're on track to achieve our overall goal before the ended the third quarter, we're making progress on the next three project 24 upgrades and they should be running in March or April and we should complete the remaining non IC m. plants during the second and third quarters. Upon completion I want to plants are fully lined out we anticipate the entire plan.
And to be below 24 cents a gallon as originally expected. We believe we could likely achieved 23 cents a gallon overall and we are starting to think about the next steps driver platform costs, even lower in the future. The key here is that in order to be six to be successful in our transformation to put two protein.
We must continue to reduce our operating cost. So we can run in any environment I will give further into protein in my closing comments have spent most of the time discussing this initiative.
During the quarter, we completed the sale of our 50% interest in Jefferson energy companies to our joint venture partner for $29 million. This largely completes the portfolio optimization plan that we embarked on two years ago. All told we have sold approximately $780 million in assets and paid off or Deconsolidated nearly.
The $1 billion of debt.
Green Plains partners reported $13.3 million of adjusted EBITDA and a coverage ratio a 0.99 times for the fourth quarter and a 1.0 times for the trailing 12 months, we anticipate that as Green plains production level hits the targets laid out during the during 2020 of greater than 90%. These coverage ratios will improve.
We will continue to look for opportunities to grow the partnership through accretive acquisitions and will be on the offensive. During 2020 ideally these would be in multi product terminals backed by multiple long term customers.
Lastly, our cattle business had a record quarter and we expect this to be continue to be continued in 2020 with strong returns as well now I'll turn the call over the Patrick to read review, both Green Plains, Inc. and Green Plains partners financial performance and I'll come back and discuss the outlook for 2020 give a bit of a policy update before provide more details on our protein initiatives.
Thank you Todd.
Green Plains Inc. consolidated revenues were $715.7 million in the fourth quarter up $132.2 million were 23% from fourth quarter year ago.
The increase in revenue was driven primarily by higher ethanol production rates as compared to the fourth quarter of 2018.
Production run rate was 84.5% of capacity in Q4, 2019 compared to 71.1% run rate for the prior year fourth quarter.
Our consolidated net loss for the quarter was $39.7 million, including a noncash tax valuation allowance adjustment of $25.3 million.
Compared to net income of $53.5 million in the fourth quarter, 2018, where we recognized $150 million gain on the sale of assets.
Adjusted EBITDA for the fourth quarter totaled $16 million compared to adjusted EBITDA of $128 million for over 40 years ago, which also included the impact of the gain on asset sales mentioned earlier.
For 2019, adjusted EBITDA was a negative $35.1 million versus 20 $225.8 million in 2018.
For the quarter, our SGN a cost for all segments was $20.6 million down $11 million $11.9 million or 37% from $32.5 million in Q4, 2018, driven primarily from a reduction of controllable expenses.
And the asset sales completed last year. This change does not include an additional 2.6 million dollar reduction to SG nay from discontinued operations laid for Cabot business.
The full year 2019 are actually in a cost were $77.1 billion all segments as compared to $108.3 million for 2013.
Interest expense decreased 20.4 million to $8.7 million were lower debt balances lower interest cost and the write off of unamortized debt expense in 2018 due to the retirement of our term loan b.
Capex for 2019 was about $75 million with approximately $24 million of maintenance Capex for ethanol production, an additional $49 million of growth Capex, primarily for project 24 in the high protein feed project and Shenandoah, Iowa.
For 2020, we will focus capex spending primarily on the completion of our project 24 initiative.
An expansion of our high protein development plan, along with normal maintenance Capex.
Opportunities to deploy capital can always be impacted by the overall margin environment, but as of now we are targeting approximately 100 120 million and capex spending on our operate based on our operating and financing plans.
On slide nine of the Investor deck, you will see our balance sheet highlights, we had $275 million of cash and working capital net of working capital financing at the end of the fourth quarter compared to $428 million the into 2018, the balances for 2019 numbers excluded balances from our cattle business that.
Consolidated in September.
Our liquidity position. If you ended the quarter remained solid with $269.9 million in total cash along with approximately $221.8 million available under our working capital revolvers.
This amount does not include availability of $67.9 million under the credit facility of a partnership.
For Green Plains partners, we had 240.1 million gallons of throughput volume at our ethanol storage assets during the quarter, which was up 32 million gallons or 15% from the fourth quarter 2018, as result of higher production rates at Green Plains plants.
The partnership reported adjusted EBITDA of $13.3 million for the quarter, which was $1.9 million lower than the fourth quarter of 2018 as a result of the sale to three plants.
Distributable cash flow was $11.2 million for the quarter $1.9 million lower in the same quarter of 2018 again, reflecting the sale of the previously mentioned plants.
The distribution of 47.5 cents per unit declared on January 16th resulted in the coverage ratio of 0.99 for the fourth quarter.
On a last 12 month basis, adjusted EBITDA was $54 million distributable cash flow was $45.3 million and declared distributions were $45.1 million, resulting in a one times coverage ratio from 2019 now I'd like to turn the call back over to Todd. Thanks, Patrick Let me discuss the IND.
History briefly last year, we faced numerous industry headwinds. However, there are number of positive opportunities as we begin 2020, even as margins remain under pressure.
As we've continued to remind everyone to solution remains the same the industry remains oversupplied and needs to rationalize supply at this point undercapitalized players continue to find a way to survive in the past. It was the green plains slowdown that was the main driver for reduced supply, but because of project 24, and the fact, we lose more money slowing down our strong.
That is used to run full out and drive our cost per gallon lower.
The last time, we slowed down all that happened was the industry sped up we had positive net income margins begin to appear in October as supply was below 970000 barrels per day and since then the last five week average was a 1.065 million barrels a day with some weeks even higher.
We believe some of the slowdown never happened that were announced by other players are carrying capacity as an industry to the best of our knowledge is 1.150 million barrels per day when everyone is running at some of the good eastern plants come back on line.
The good closed eastern plants come back online, which is over 17.6 billion gallons per year I am not saying, we will run consistently there, but we can take care of any demand that shows up.
I would say our average estimate going forward is 1.100 million barrels a day or 16.8 billion gallons annually. So where's the man demand going to come from what we know that 10% of the fuel supply is 14.3 billion gallons and exports are 1.5 billion gallons. So our baseline demand is 15.8 billion gallons can trying to take a bit.
And gallons, yes, we'll day, we will find out can you 15 grow fast enough to help yes, well it we're working hard to get there. We currently have 2070 station selling efifteen and are projecting we will be a 3000 by the end of 2020 with demand of 200 million gallon 200 million incremental gallons and if we can achieve.
Our 2021 goal over a 10000 stations it will increase incremental demand to over 800 million gallons per year now we could blow past. This number in the event you Sta comes through with $100 million for infrastructure, which they are moving quickly on it was into president budget proposal to Congress when added to the based demand it starts ever.
Real impact on margins in excess supplies. We also believe that other countries will continue to increase demand as well.
So regarding the 10th circuit EPA sense circuit ruling EPA administrator indicated 10 circuit ruling would have an impact on the way they handle small refinery exemptions and they would be announcing soon how they intend to move forward on it but they do have 45 days to appeal to the decision should they choose to go that route our guess is they don't rock the boat either.
Our way and an election year, but find a way to adhere to the deals. So that 15 billion means 15 billion.
If these things happen, we may finally to the law in the RFS work as intended as intended as I had said before our story was hijacked by the oil industry and we must take it back. This is the most successful low carbon program ever implemented globally as we continue to reduce tailpipe emissions by 40% to 45% and even more importantly, the industry's footprint continues.
Hey, good continuously gets better with reduced natural gas usage and reduced water use per gallon or production, which is not even calculated in the emissions yet.
We remain focused on controlling what we can control, which is reducing our costs through project 24 extra extracting value through new sustainable feed ingredients by capitalizing on our investments in protein technology. This is what we're referring to as a total transformation plan for Green Plains. If you refer to the last side of the presentation before the appendix.
It illustrates what our year would have looked like of all of our plants had this technology deployed at very reasonable expected protein levels of 50% at 53%.
You can see the results are impressive which is why we are headed to become a true bio refinery as maximizing value beach Colonel corn through the application of technology, and New York, New New use Easton enzymes.
All while not being dependent on government policy and this is why our partnership with novas items as well our joint venture with optimal Aqua are so important.
I'm happy to report that Shenandoah has begun can commissioning our first high protein production Phil facility last week.
And we expect the dryer to come online 30 days later to achieve maximum production shortly after.
We have recently increased the volumes of the offtake agreement for all intents and purposes. Shenandoah production has spoken for Additionally, we have begun the engineering for our second and third high protein location and expect one more unit to be fully constructed before the end of the year, we're discussing offtake agreements for a second and third facility as well we will make the.
Final decisions on the location and announce that shortly.
We continue to focus on the current technology running successfully and available in the market, which is fully equipped technologies. Thus far we have not seen another technology that gives us the base quality, we need from solely mechanical separation, which gives us a baseline 50% protein product.
We have seen some chemical and blocking and processes, but our aquaculture and pet food customers have indicated they do not want a product produced like this and more importantly, we don't believe we can get those products, except the globally from those process processes. So we continue to focus on the technology. We have chosen and is operating at scale today, producing product that is being used around the world.
This technology is another step in the transformation of Green Plains, two world class protein provider. In addition by partnering with no designs. We believe we will be able to increase the value of the products, we produce everyday and together provide solutions for our niche nutritional partners in the aquaculture animal feed in companion animal food markets.
Worldwide utilizing advanced biology with potential pathways up to 60% protein.
So let's talk about the margin potential in front of much which which is much higher.
Then to 12 to 15 cents per gallon, we talked about in the past on protein.
This was based on our 50% protein product, let me walk you through what we have been calling the J curve of protein profitability.
At 53% pro the potential margin contribution rises to about 21 cents, a gallon and at 56% pro the potential is approximately 36 cents a gallon.
The norstar for us to achieve is a 60% protein product combined with novel feed ingredient that could add as much as 57 cents a gallon at prices near $1200 aton for the product.
This illustrates why we're so excited about the direction. We're headed we're currently in aquaculture trials to validate novel ingredients that will be used in combination with our high protein products as either a complete feed or premixed further enhancing the profitability of this product. We are on a path to transform this company to be in AG Tech posted focused comes.
Any maximizing the value of the assets in coming years and it begins now in combination with our transformation to sustainable ingredients. We are also led launching our SG initiatives as much of what we do already gets us close to what the market is looking for in this investment thesis.
We just haven't articulated all of what makes this company and industry right for a new round of investment from investors and capital looking for SG opportunities. We will begin to highlight things like carbon intensity greenhouse gas emissions and carbon reductions natural gas and water reductions land use efficiency gains protein increases to help conversion.
Inefficiencies and aquaculture, which reduces land used to feed ourselves finally finally.
We were just awarded it pattern for the novel process of using thins still it from an ethanol plant to produce algae oil at protein rich biomass, which we have been quietly and successfully scaling and our York, Nebraska pilot and research facility, which is now in full trials for use in Aqua culture feeds. This is a bolt on technology that can be applied to any corn.
Based ethanol plant. This is different from the other novel ingredients mentioned earlier when most don't know is York, Nebraska has a full scale world class pilot fermentation facility that we acquired along with the ethanol facility not many of these exists in the world. Today. This has helped accelerate the ability to prove out can get this technology patented.
Lastly, another aspect of our ESG initiative is our corn oil production. This is one of the based feedstocks using a renewable diesel processes a benefit of our protein initiative is the fact that corn oil production goes up between 50 and 100% depending on the facility.
We have a very constructive price for you on vessel oils, and fats pricing with the expansion globally of renewable diesel production and we will benefit from this and our SSD strategy overall, we have already been exporting our oil for this purpose even before the U.S. has scaled up this is a low sea ice score oil that helps plants achieved their targets more to come on our overall, yes.
Strategy, but we believe well we are already a very environmentally sustainable company. When we combine these new protein initiatives with what is going on an optimal aqua and the early results from project 24, we truly believe the 2020 will be looked upon as an inflection point in Green Plains history. Now we are firmly on the path to more predictable.
And sustainable margins and cash flows.
The challenges in this industry of maneuver numerous over the past year.
And couple of years, we will continue to do our best to and to be transparent with you. We believe we positioned ourselves through our portfolio optimization plan and through our cost reductions as you cannot transform unless your generation one platform is efficient and low cost. In addition to the protein strategy, we have outlined which puts us in the best possible possess.
I want to succeed as we continue to transform ourselves in the Green Plains 2.0.
What is important as while ethanol margins have been under pressure for the last 18 months.
We have a very dynamic plan to reinvent the company now while while it may take a while we are set up very well to succeed thanks for joining the call today and now I'll ask.
Moderate as start to Q and a session.
Ladies and gentlemen to ask a question you will need to press star one on your telephone.
Mr. All your question press the pound key.
Please limit your questions to no more than two at this time.
If you wish to ask additional questions. Please rejoin the queue. Please standby, while we compile the Q and a roster.
Our first question comes from Adam Samuelson with Goldman Sachs. Your line is now open.
Yes, thanks, good morning, everyone.
Hi, Adam Hi, So taught you just went through a lot of details on on the high pro initiatives and I guess.
First in the Capex that you outlined I mean.
Presumably as cash on hand, and any cash from operations, but talk about the financing plan. Both for further capital spending this year and also to get the whole get the whole fleet converted to high profile. I think you talked with 350 to 400 million opportunity in the slides just any pathway on the financing of getting there and timing.
And maybe how does how do we accelerate some of these investments to get to this end state.
Yeah. So thats. The key is we want to accelerate this this project and go as fast as we can to roll. This out so we've been talking with several different financial partners on from the debt side in terms of banking.
And and other lenders and we believe that our goal is to get somewhere between 100 $150 million of debt for these projects to get them. Kickstarted. In addition, we have also been talking with with other partners around.
Accessing.
Partnership in terms of equity investments into some of these ventures to accelerate them. So we're kind of being if we're going to look at it to be very creative the first the first though is if we get to $150 million line to start we believe we could build three or four of these very quickly those three or four would add to Shenandoah, which gets us to five of these projects they start to.
Self finance each other very quickly so five projects with self announce another two to three that gets us up to eight self finance is self announces the rest.
Now in terms of off cash balance sheet. We also want to make sure. We always retain a strong cash position. We still believe we have some liquidity available through other levers that we can pull as well to finance. Another one of these with with equity. So it's a little bit of everything no. We're going to look at everything across our platform as well to make sure that that we are optimizing.
And where we can also find other sources of liquidity, but our goal is to now really begin to think about.
More aggressively funding this plan because of what we're finding out in terms of offtake agreements.
Shenandoah starting up we already know there's a plant two plants operating that are doing very well.
Product is being very widely accepted globally in the market and so our goal is to move as quickly as we can and we're developing that plan right now, but we are in talks right now to potentially use debt financing to to move quicker.
That's helpful color and then just on the on Shenandoah I mean, I know the based investment plan here was predicated on a 50% protein content I mean any sense at this point kind of where you where you think your initial product will be front protein content perspective, and timeline to get that higher towards the upper bound of your hopes on.
56% to 60% range.
Yes, Argo initially it's obviously the whole thesis was based off of 50% protein.
But we already know that mechanically just mechanically we can get a little bit higher than that and that will kick off our partnership with no designs to continue to work with them to move up move up the J curve and we believe quickly we can get to the the 53 type pro within.
Six to eight matson from their start to move up as we laid out.
The three would be the first stop 56 is the next stop we think Thats a year to 18 month.
Belamant program.
Then from their move up the J curve, which is a two to two to three year development program to get the 60 pro with novel ingredients. I think the key is is that it's a combination of not just the high profile, but also some ingredients that that we've been using at our awkward trials and adding and our aqua feeds that that we've been we've been producing.
For for some some of our customers already through the optimal venture and so from that standpoint, I think we'll move very quickly to 53, and then and then from their step by step as we move up the J curve.
Okay and then just finally from me just on the base ethanol outlook and any comments on exports and I know I mean, the phase one trade deal did include ethanol in the language in the in the document any any signs of any product inquiries from Chinese customers any sense that they're getting the time.
Our flavors to really make that arb make more sense of that current fuel prices just to comment on that demand outlook ramping up a little bit.
There is some discussion we're going to learn a lot more later this week, but we're going to have to wait and see on that.
I don't think anybody seen much inquiry on the phase one trade deal yet as we're just obviously, we've got to trade deal, but we also got we've got a virus at the same time so.
As we work through that and as the administration said they've talked to their counterparts in China that they're going to they're going to continue on with their idea that theyre going to that they're going to purchase. These products. Our view is constructive I think we'll learn a lot more potentially later this week and we have been told that ethanol and Ddgs are included in the trade deal.
And and we're hopeful that that we'll learn more soon but in terms of inquiries I'm not sure anybody has seen very much at all.
Any of these products yet as I think the virus put put it off just a bit.
Okay I appreciate that color I'll pass it on thanks. Thank you.
Thank you. Our next question comes from Pablo.
Raymond James Your line is now open.
Thanks for taking that taking the question actually going back to the previous one.
Regarding China.
Have you gotten any clarity from from your kind of traditional Chinese counterparts.
The.
Cara, 70% tariffs on U.S. ethanol.
We'll be lifted at any point, then foreseeable future as part of phase one.
Well, yeah, I mean, I think we're going we know that.
From what we've always been told is the 70 will go down to their more traditional level and then from there.
What we're hearing as positive developments in terms of it could go lower than what it was before we started so.
But thus far all we've been told is the 71 was the level that was put on as punitive when when they.
Increase tariffs on many products during during the trade war.
I think we'll go back to our to our normal I think it was 20% to 30% Tara I don't know the exact number off my head, but it was 20% to 30% tariff originally and then a potential for that to even go down further so yeah, I think we're going to come off the high one but again, what what happens after that we don't we don't know yet.
Okay and in that context.
China's decision this was actually before the virus to suspend it he can mandate for 2020.
Do you have any sense when they may restore kind of with five they each and target.
Well I think theres some confusion in that as well I mean, when you look at the announcement. Each 10 is already being has been accepted and being used in many provinces and many large provinces and so while that came out it doesn't necessarily affect the fact that they still blend ethanol and still want to blend ethanol.
I think what they realize that internally, it's going to be hard to hit some of these mandates because they haven't built plants and they don't have those plants, but that doesn't mean, they're not going to buy ethanol at all in fact, we remain very constructive on Chinese ethanol demand going forward, even without that because I don't think that that was really.
That impactful to what our program will be because even if they use even five or six it's still has a significant amount, but some provinces have already made the switch fully to each pad and we believe they will they will continue to buy that even more aggressively as as these trade barriers are lifted.
Okay very helpful. Thank you.
Thank you.
Thank you. Our next question comes from Ben.
With Stephens Your line is now open.
Hey, good morning.
Good morning.
Ask.
You guys sold 230 million gallons of ethanol in the quarter, which is.
The capacity.
That's because of wood river and Madison being down.
24 petition and then some improvements in Madison.
That's correct. So if you take a wood river plant, which produces about 9 million gallons and months and a medicine, but 8 million gallons mom, Debbie 17 million gallons a month times approximately.
A couple months of production overall, and so yes that wouldn't that negatively affected our quarter and negatively affected our EBITDA per gallon because those plants. Both had positive EBITDA margins during some of the highest margin his experience and they were down and they were offline. So we weren't able to take advantage that at two large plants, which we think overall affected our quarter by.
Two to three cents a gallon on our ethanol a gallon, but look that's a that's a short term investment for a long term solution and so we knew that the risk is when any of our plans go down for these transformations that.
We would be potentially.
Giving up margin opportunity Thats, what happened in the fourth quarter.
Got it okay. So as you guys work through project 24 implementations in 2020.
What percentage of your capacity would you expect to be offline in the midst of that.
So we're probably going to take off line one plant a month.
For.
[music].
And it is just before cop two to three weeks is the switch over time depending on.
The size of the project at each plant so potentially it's one plant per month.
He said two thirds of them.
That would be down starting with the first three that are going down right. Now there is too small and in one big one and then after that.
Another small and goes down and then two large ones and then a small and so it's it's basically going to be every couple of plants become one of our bigger plants.
That's going to be over seven months.
Period, where it's not all down during the same time.
Okay perfect helpful. Thank you.
And then I wanted to asking the agribusiness segment had a nice quarter and still.
Total segment EBITDA down 50 years past I'd, just be curious to hear kind of what happened in the quarter.
I understand mechanically what.
Nice result, and then how should we be thinking about that.
As it relates to kind of.
Full year.
EBITDA contributions.
[music].
Yes, So thats segment had good earnings from storage.
Returns.
Brands that we had in stores that basis went up and we're.
We're able to achieve.
Much better sales levels in addition.
As our pride went up as well.
Little more service revenues and then finally in our AG and energy.
And the energy side, we just didnt have the same fourth quarter opportunities in our natural gas merchant businesses that we've seen in the past.
I'll, just because of reduced volatility reduce prices and weather, so sometimes that sometimes superchargers our quarter still very committed to that program.
But it just wasn't a year that it was a big contribution were in prior years past that was off from their strongest quarter in our merchant businesses. So we still think we'll we'll still hit 20.
20 is much will return back to normal for that segment has been has been running for the last several years, but just not as much opportunities in our merchant energy businesses this quarter.
Okay, great. Thanks.
Thank you.
Thank you. Our next question comes from Craig Irwin.
With Roth Capital Partners. Your line is now open.
Hi, good morning, and thanks for taking my questions.
So Tom your comments on project 24, most today and on previous calls have been really clear and I should say congratulations on the progress there.
Last call you discussed our side benefit of project.
24 that you uncovered an opportunity to.
Address natural gas usage usage.
At Wood River.
Opportunity to save maybe as much as eight cents a gallon.
Can you maybe share with us whether or not youre uncovering similar side benefits as you execute project 24.
Plants that are in the pipeline for the next couple of months are there potential projects.
Thank you weren't you're in planning to execute that could deliver similar returns.
Yes, I think I think if you take a history lesson on on Wood River, which is really the best one to look yeah. When we bought that plant in 2014.
It was running.
At 35 cents, a gallon and thats, while a similar obi and plant was probably running in the low twentys at the time cents per gallon and so that was the delta that we needed to overcome and a lot of it was driven by the difference in distillation and energy use and other.
And consistency that were in those plans.
Fast forward to today, we still we were reducing overall our costs at wood river, but never could get much below 30 cents a gallon.
We ran at sub 21 cents, a gallon below 21 cents a gallon in December and a little bit above 21 cents a gallon in January.
And so you can.
See the impact of this this transformation and project 24, that's just operating costs. That's basically just straight in operating cost that we outlined for you.
In the slide in our presentation not inclusive of energy reductions that were that we're finding out as well so.
What will happen.
It's it's not just a function of reducing 2019 operating cost per gallon of Wood River was 30 cents a gallon 2020 should be in that 21 to 22 cents a gallon. So we were going to pick up the whole eight cents, a gallon reduction and it'll run very similar to and I see endpoint now there are definitely a handful of IC implants that.
Run below 20 cents, a gallon and sometimes ours do even so weve, but we believe that in relative terms that gets us very close to much of the rest of anything thats I see them out there, but beyond that is the fact that our cost of goods sold.
I'm going to go down as well as we use about.
About 20% to 25% less natural gas because of this.
Project 24 upgrade and Thats not in our cost reduction is just in a reduction of Cogs from from commodity procurement and so if you look at.
A plant now the thing is is that depending on if gas prices are two.
Today, so the benefit is not significant at low gas prices, but if a plant uses three bcf and its $2, you've bought $6 million and gas maybe it saves us another million and a half dollars millions and millions of dollars an overall costs, which is just about another penny a gallon penny and a half a gallon, but but we didn't even without that take another penny.
And a half again across all of the project 24 plants and now you're talking about another $6 million to $8 million of of savings just on our Cogs. So that's what we discovered now beyond that.
Once we complete this we're not done yet I mean, we still actually believe there are other things we could do once we start to operate.
Like in IC ATM plant that is still another step. After this then now you can start to de bottleneck. Even further your cost structure. Because you are much like IBM plant and as I said ITM has made it very well known to us that what we did to improve that middle part of the plant is actually.
Bigger and more robust and a lot of legacy IC implants other because their technology has changed over the years as well. So we're very happy about it I think the interesting next Ics that step will be superior and Fergus falls and those are 260 million gallon plants.
So we'll see what the impact on 60 million.
Ill plants is next now we don't expect that operate like 100, but overall Craig what we believe is we will be below 24 cents a gallon trending towards 23 cents a gallon across the whole platform and then we will take it from there and see how much lower we can get it.
Great. Thank you for that should then on hydro I guess, we've been hearing that pricing.
Is maybe in the range pricing for the offtake agreements just maybe in the range of roughly $100 over soy meal.
Can you, maybe discuss that and whether or not there's opportunity for this to.
Achieving greater premium as maybe some of the since you're working on snow designs and greater customer experience out there.
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Accumulates over time.
Yes, so our first contract was not quite a 100, but was not far from that in terms of just value for 50% protein being put into aqua and into pet and so that was the first step in and it's really a function of.
Getting it in more more aggressively and consistently into products, where it gets on the label or gets into the into the diet and once it's in we believe it will stand and so that's why our initial customer came back and up and upsize. The original offtake agreement because it's working so well for them.
And they like the product so much so with that said, though most interesting is the question being will aqua lose this product to Pat oral pet lose its product to aqua or will be enough for both today, it's a comp it's a bit of a competition starting at the 50 pro because it does have other qualities around amino acids.
And other factors in terms of of.
Sure and things and the diet and certain things that happened in the process. So they like the product a lot. It's already being included in all vegetarian diet and poultry producers as well. So we're starting to see that coming because of the way that they like the their product as well.
But I think going forward as we move up the protein curve, it's not a linear curve in terms of value of protein. We're soybean high protein Soymeal has been at 47% Hi pro for ever.
We and not really going much higher are the great thing about high pro coming out of an ethanol plant. The fact that starts are using.
The fluid CWIP system. It starts at 50 pro mechanically before even do anything else and then you can start to move up grew up the curve and I gave you those numbers. So we believe theres another.
100, $150 a ton if you can get the 53 pro and we believe there's another $300 a time to get too.
56 pro and each.
Each $100 a ton is worth about six to seven cents a gallon of uplift in the ethanol margin.
So we're very excited about it and we know it works because the offtakes have been increase because we've been delivering our the product to our customer from alternative sources that are producing today as as the industry does not have a lot.
Of redundancy and we're helping each other out but but more so we're very excited to start delivering them. Our first products next month and and start to include those so we have plenty of interest for offtake agreements from multiple different species and we believe that when we announce as we get close to announce the second location.
Our goal is to have an off take agreement very close behind that or at the same time.
Thanks again for taking my questions.
Thank you.
Thank you. Our next question comes from Elvira Scotto with RBC capital markets. Your line is now open.
Hey, good morning.
Anyone.
This question is on the MLP, so given all the transformational.
GTR. He can you talk about how green plains partners fits into broader Green Plains strategy.
Actually the great thing about.
What we're doing at Green Plains.
Claims is the fact that in order to be very successful in the Green Plains 2.0, and their total transformation plan our generation one platform has to operate.
Continually at high levels and a low cost.
Which is a very beneficial we believe for the MLP going forward as we've stated.
Publicly we want to run higher than 90% we were at a 94% in December and we want to continue to run as hard as we can going forward, which that increases the volumes at least or stabilizes and potentially increases the volumes at the MLP for everything that goes through their which keeps the.
The dividend.
The distribution very very stable and potentially.
Growing so our view is that is very constructive for four GPP to have green plains transform reduce our costs and run more consistently than we have in the past. In addition, the way that we used to be we used to be the governor of supply and reduce.
Our supplies during low margin environments, we don't really have to do that anymore as we lose more money reducing than we do running so.
Overall, and then you take into consideration things like China. He 15.
Our our terminal in Birmingham, which is very well.
Terms.
Running very well with lots of capacity goes through it. So overall, we think it's very beneficial to Green Plains partners for us to do everything we're doing invest behind it in our original generation one platform.
Okay, and then just doesn't as a follow up I think you know.
You said that.
You want to grow Green Plains and.
Maybe diversify the asset mix.
And ethanol.
When we think about Green Plains partners.
About TPP.
Do you have any sort of targets in terms of.
You know, what's the target for third parties as a percent of GPP is customer base or what kind of diversification across products you're thinking of.
Yes, we have targets to reduce the dependence on green plains as as a.
Apparent organization to GPP.
And get it to be more independent in terms of volumes that go through and so I think as we've been fixing green plains and getting it to a point where it can operate more consistently in any environment and drive more volumes for Green Plains partners.
Assets our goal now is to start to refocus.
On what we originally have put in place at Green Plains partners to expand it as a vehicle to find third party terminals that we believe we can help.
In terms, our own volume going through there as it as a base volume, but have a multi product terminal because ethanol is always a very important part.
Have a lot of terminals out that we see or whatever that we go through and so overall, we are starting to that reassess how to grow Green Plains partners in the future and use it as a vehicle was originally attendance intended for and reduce the dependence on on sponsor volumes.
Great. Thanks, very much thank you.
Thank you and our next question comes from Laurence Alexander with Jefferies. Your line is now open.
Good morning, two questions. One is can you speak a little bit about how you see your competitor most evolving and I'm thinking in terms of.
Which of your competitor.
Others have the knowledge of the agriculture markets follow you along this path and then which assets can follow you along this path.
Optimization.
And our the assets that can be upgraded in the wrong hands will actually be upgraded.
Second question.
Can you speak a little bit about.
Pretty long terms with heard you guess enthusiastic about it platform.
Can you speak a little bit about how you see the guard rails.
That is what would have to go wrong for usage habits, and say, it's time to look for something else.
Well in terms of the competitive mode.
We know that the customers we deal with will not by.
And that depend on a single location high protein.
Production facility, because if that one location goes down Theres no redundancy and they are very dependent.
Ended on a high level of quality assurance and quality controls to make sure that product causes no damage to the two there.
Their diet or their or their what they're using it for and so.
We believe that alone is a potential competitive moat, which is why we're we have to work together with those who have.
Also put it in.
To their locations, there's only a few so that we can provide some initial redundancy, but our goal to roll it out to all 13 facilities provides an awkward cost and agriculture customer globally or domestically with redundancies, which is extremely important and it's not just redundancies and volume.
Redundancies and quality and quality control and so.
While certainly there will be more of these built we all the key to building. These.
Protein.
Operation is to maintain quality, but also to main price maintain price discipline on this product.
Because it would be the dream of many for us to produce a lot of high protein and commoditize, it and and reduce the price, but I don't think that were on any type of path as an industry to do that and anybody that looked at high protein understands that our view when you get into the Fiftys and the sixties that that is a very unique special product that needs.
Be protected at at all costs, and so I think that.
Those that are interested in high protein around the industry understand some of that and believe that if there because it's not a chief investment when you're talking about $35 million to $50 million you can't start these up and immediately cheap and the value of your product you've got.
Creased about either product and everything we're doing.
With our customers on awkward trials at Shenandoah Shenandoah, If you open up a world class Aqua lab that is now doing trials of these and other novel ingredients for customers globally as well as other areas. Other other customers that are using our high protein and other truck will trials as well and.
And the benefit of that so I think there's a good competitive mode that we will have as a as it as a company, but also around others that are want to participate in protein and understand that they have to maintain value because the investment is very big now the second thing I project 24 optimization yet.
We have.
Develop this alongside device with ITM on Rolling this out across our platform now the one thing we do is that when we're done with it we do have a.
A bit of a non compete time that gets us mostly through 2021 and then other plants.
Obviously could always look at spending the money to roll this out as well later on after after late 21 and potentially into 22, but we feel like we'll be at a good competitive advantage by then well rolled it out throughout our whole platform, but we did get a head start it doesn't mean that doesn't mean that we're going to the only ones that ever do that but.
At least we know that Weve are protected it headstart for little while and and then at that point others can do this but again capital is going to be the key for any of this you want to invest in 24, you want to invest and protein. These are we're talking about lots of capital needed at individual plants and the way that this industry has shaped.
Dup over the last 18 months capital has become very tight.
In terms of guardrails.
With everything that we're doing obviously.
We can only do what we can do from the standpoint of.
Of others, and what and how they and how they participate and how they behave.
But in terms of the.
Rails capital to start and there's not a wide availability of capital to anybody that wants to do this we believe because of the what we've done around project 24, and what we've done around.
Our portfolio optimization plan Delevering this balance sheet.
Significantly where we really have no all of our assets are unencumbered at this point.
We have the ability than based on offtake agreements to get we believe access.
Cheap financing cheaper financing not cheap financing, but low cost financing to build it out again, we don't want to lever up the balance sheet, but when you have the opportunity to earned 16 18 20 128 cents.
The five cents a gallon on offtake agreements. We believe you can pay those back very quickly because our goal is never to get into a position again, where we have a term debt maturity facing us as a company.
Thank you.
Thank you as a reminder, ladies and gentlemen that Star then one to ask a question.
Our next question comes from Eric Stine with Craig Hallum. Your line is now open.
Good morning.
I was wondering if you can just talk a little bit on kind of your updated thinking on marginal production in the industry I know.
If you went if we went back a couple quarters.
It kind of looked like.
Given the financial troubles, given the market conditions that there was actually a structural change underway and now your commentary today would suggest that some of those.
Didnt, even happen some of those plants didnt, even come down I mean, how long do you think that these marginal plants can hang on in this current environment.
Updated thoughts would be great.
Yeah, I think I mean, we are very surprised by the EA data.
I'm not sure if it's.
Correct or not but thats all we have okay. This is obviously first quarter as is always.
A week quarter cyclical is weak.
And.
And we're living up to our expectations this quarter as well but.
During the fourth quarter, we did see reductions the down to 960, a day and we saw that evidence of that.
I think.
If we didn't.
Reach a breaking point of these lower.
Still plants than.
I do believe now we are in this 30 day period, where people are going to have to make decisions on what they want to do in terms of cash burn and what do they should be running or not I think someone to try to make it through the first quarter to see if they get the driving season.
But I'm not sure I.
Think the banks have reached their.
They're breaking point as well in terms of allowing.
Plant to term out there.
Revolvers and that happened last year as as margins got better. So I think we're at that point.
It kind of feels like we're at that point, where.
The bottom 10, 20% of this industry is does not have a lot of capital left to continue if any to continue to support running.
Look we just need to get back to Ninesixty, a day and we'd be in a very different margins situation and ninesixty today, we had margins throughout 2020, along the whole curve and high single.
Digits, and we had seen that for a while so we're going have to watch production closely. It's a combination of production and stocks I mean stocks right now at 23 million barrels are high and we need those to come down as well, but overall I think it feels like we are.
Starting to reach.
Some breaking points on some of the industry players out there and we'll see we'll see how the reaction is but.
Overall, it does we're not it doesn't take much.
A Chinese program and some me 15 to kick in but but we have shown that we could also make a lot ethanol very fast. So our view is that let's let's continue to build out.
Let's continue to do the things with project 24, and if we had all of those in line today, you would be the result of 2020 and the last page of our slide deck Yep.
Okay, and then last one for me in the.
In the release.
You mentioned being complete with the portfolio optimization plan I mean should we take that.
Is that plant sales.
Done with those or is that something that you still would consider if you're able to accelerate project 24 in the high protein initiatives.
Yeah, I mean look at I don't think today the market is very deep for people that want ethanol plants at this.
Moment.
Yes, I can never say that we wouldn't.
Continue on with the program with the right. If there was something there that would help us accelerate project 24, but at this point.
We don't have very active processes going on just because of the kind of the last three to four month and ethanol has put some people on the sidelines.
I do believe.
Overall, there's still a.
Theres still demand for good plants. Our goal is to get all of our plans to look like and feel like the best plants in the industry.
Because I think theres, a misconception that a delta T is not in IC ATM or Vogel.
It was not an ATM and really it comes down to the middle of the plant, which is what we've worked with an IC ATM to basically transform all our plants. The friends the same where you, Brian the corn and and and add the eastern cab or the chemicals through an enzyme to transform it into sugar the middle of the plat and fermentation and distillation.
Obviously is where the money is made and that's why we're trans putting basically full IC ATM systems into the middle of our plant and the back end of the plant and load out distribution. That's all that's all the same so we didnt want to just sell plans to sell plants. When we knew we can invest.
Under.
About 10 cents a gallon for upgrade their pays us back about 10 cents a gallon.
And so we believe when we come out of project 24, you will not be able to differentiate.
Our technology from the best technology in the industry and that we believe alone in any margin recovery environment increases the value of our assets.
Aggressively and then from there.
Put protein on top of that and then you start to be able to really start to predict cash flows over and above ethanol margins and EBITDA of ethanol margins are zero.
Because of what we've done a project 24.
Utilizing the protein in our total transformation plan.
We can be earning 15 to 30 cents a gallon just on protein alone in and that's really the transformation that is run very bet run the very plant very best you can low cost drive your cost down your generation, one assets buying a better and selling a better and making a better is extremely important and moving into the protein, which just basically.
Bases, and and cash flows to be very predictable and you'll be able to see that most of we probably will not.
Just to build a protein.
Production facility.
Without significant offtake agreements and we believe that for every protein facility. We will build we will have an off.
Take agreement if we want one.
Got it very helpful. Thanks, Thank you.
Thank you and our next question comes from Ken Zaslow with BMO capital markets. Your line is now open.
Hi, everybody. This is actually been may you on for Ken.
I just have one question for you today.
Okay.
I'm just wondering about the domestic demand environment and what is assumed in your 15.8 billion gallon sort of base case assumption.
And does RFS have any upside to that given the recent court ruling. Thanks, yeah. So that we use that as if we use.
The fourteenthree as the base demand, but we also know that any waiver issued will be added to 15, and then reduce back to 15.
From a standpoint of that's the based demand and he's in the United States now.
You can buy Iran, and get out of the blending requirement if.
Youre blender and not blend 15, or you could blinded and make 20 to 30 cents, a gallon and the blend and not by the rent. So our view is that while I outlined to you that 14.3 billion gallons is 10% of the fuel supply today 15 does equal 15, one way or the other so we're either going to have reduced.
The Red Bank.
Through these through the 15 equals 15 program and people off the buyer in the get out of their blending or with this recent court ruling people will just blend 15, and it will come through a little bit of 15 to uplift and potentially the rest of just increased blends overall as we are working very hard with EPA.
On Relabeling and labeling concerns that we had around 15 from the beginning but more importantly is what the president put in his budget around 15 infrastructure and and we think that could even move very very fast to start to roll out 15 at a much bigger platform nationwide in fact, New York, obviously they've approved.
So.
While I used 14, three if you use 15 and use 700 million gallons.
All of a sudden you are 10, 15 20 million barrels more of demand and you can take care that supply that supply overhang very quickly so.
It's really hard to say.
Hey.
What the Blender will do because I think they're nervous about the outcome of this ruling and our view is a 10th circuit is the law that EPA must comply with and they probably won't do much with that they probably won't do much to feel that.
Got it thank you so much.
Thank you so much.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Chief Executive Officer, Todd Becker for any closing remarks.
Yes, thanks for the coming on the call today, we're embarking we've left portfolio optimization behind and in our.
On total transformation.
We think we have a great plan a were out we're going to figure out how we finance. This plan, it's transformational to the way Green plains looks in the future.
It helps out all of our ESG initiatives that were embarking on and we believe that it will put green plains into the very good position in the future to give you.
Predictable cash flows and predictable earnings streams, while reducing volatility the original generation one environments. So thanks for supporting us coming on the call and we'll talk to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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