Q4 2020 Green Plains Inc and Green Plains Partners LP Earnings Call
Good morning, and welcome to the Green Plains, Inc, and Green Plains partners fourth quarter and full year earnings conference call.
Following the company from her remarks instructions will be provided for Q&A.
At this time all participants are in the listen only mode.
I will now turn the conference over to your host Phil Boggs Senior Vice President Investor Relations and Treasurer. Mr. Box. Please go ahead.
Thank you and welcome to Green Plains, Inc, and Green Plains Partners fourth quarter 2020 earnings call participants on today's call are Todd Becker, President and Chief Executive Officer, Patrick Simpkins, Chief Financial Officer, and Walter Cronin, Chief Commercial officer.
There was a slide presentation available and you can find it on the investor page under the events and presentations link on both corporate websites.
During this call we will be making forward looking statements, which are 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 and the comments made during this conference call and in the risk factors 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 statements now I'd like to turn the call over.
To Todd Becker.
Thanks, Bill and good morning, everyone and thanks for joining our call today, the fourth quarter and the opening weeks of 2021 have been exciting for our company. We have continued to optimize and rationalize our asset portfolio, while pursuing strategic investments.
What is most exciting for our shareholders is our partnership with Osprey and funds and accounts managed by Blackrock to acquire fluid quip technologies and expand the use of their technology on a global basis. The partnership not only validates our strategy, but helped secure green Green Plains transformation.
And creates a leading AG tech powerhouse team, we are continuing to execute on opportunities for expanding ultra high protein a renewable corn oil production through deployment of flow equips patented MFC system. In addition, we expanded our production of specialty alcohols by completing our 50 million gallon U S. P upgrade and are further expanding the G N S.
Finally, we are beginning to install fluid clips clean sugar technology at our York Innovation Center campus. All of these initiatives are part of the pivot we are making to transform our business and our future earnings power now compete back to each of these initiatives later in the call turning to our financial results for the quarter, we reported an adjusted net loss.
Of $18 $3 million or <unk> 53 cents negative a diluted share when adjusting for $22 9 million of noncash related to the sale of Hereford ethanol facility and an $8 4 million tax valuation allowance, while we're not happy with the Bottomline results driving demand driving demand due to COVID-19 has still not.
It recovered so we can focus on what we can control and how we manage risk we reported $9 4 million and adjusted EBITDA for the quarter and our consolidated crush margin was six cents per gallon.
Another quarter of positive margins, partly due to our risk management strategies and a slight benefit from our industrial alcohol and protein businesses as in prior quarters margins were impacted negatively by having some assets idled our liquidity position is strong and growing and we are well positioned to execute on our transformation plan.
We ended the year with $275 million in cash as well as $45 million remaining on our delayed draw term loan with Metlife.
Proceeds from the pending sale of <unk> will also provide an estimate of $37 million to green plains assets close as well as an additional 27 millions to green Plains partners that will be used to reduce their debt. Additionally, we just completed $825 million mezzanine note facility.
With funded accounts managed by Blackrock, providing additional financing to accelerate implementation of ultra high protein technology.
While mezzanine debt is not not our only or best choice. Obviously the relationship. We submitted is an extremely important factor combined with other financings and available alternatives, our blended cost of capital remains very beneficial for our shareholders. The.
The combination of these financing initiatives enable us to accelerate capital to our higher returning initiatives more importantly is our partnership resulting from this financing relationship as we look at other opportunities in the future to build acquire and grow the company.
From an operational standpoint, we are nearing completion of bump of the Mount Vernon project 24 upgrade which just started up during the first quarter.
Our Madison location is expected to be completed during the third quarter. At this time, we have deferred the decision to continue project 24 at Atkinson in New York in order to pursue pursue higher returning projects such as DNS grade alcohol at York Atkinson is under consideration to be our first clean sugar location, but a final decision has not been made yet or.
Project 24 plants have reduced energy and water usage lowering operating costs and more importantly resulted in a better carbon footprint. Once Madison is completed we anticipate we will achieve operating costs below 24 cents per gallon across our field varied plant even without accuracy.
During the quarter, we produced 214 million gallons of ethanol, which equates to a 76% utilization rate.
Contributions from protein distillers grains, and renewable corn oil have benefited margins as we are seeing our thesis play out that the world is demanding additional protein and vegetable oils.
The weekly EIA IEA data continues to reflect an imbalance as production has remained above 930000 barrels per day range. While overall gas demand has remained suppressed and inventory stocks have been consistently over 23 million barrels.
With that said 2020 exports were better than expected and when the U S. Consumer returns to driving we expect margins to recover nicely, especially as China truly returns to buying ethanol from us the rest of the world recovery will be helpful. As well Green Plains partners continue to generate stable cash flows protected by long term minimum volume.
Commitments.
As of December 31, $30 million has been repaid on the debt since it was refinanced refinanced last June including $10 million from the Hereford transaction now.
Now I'd like to turn the call over to Patrick to review, both Green Plains, Inc, and Green Plains partners financial performance and I'll come back on the call to talk more specifically about our ongoing initiatives and how fluid quip fits into our transformation plan.
You Todd and good morning, everyone consolidated revenues were $478 $8 million in the fourth quarter down $236 9 million or 33, 1% from the same period, a year ago with the change being driven by both lower production run rates in ethanol prices as well as lower export volumes in our AG and energy segment.
For the quarter, our run rates were 75, 7% of capacity compared to 84, 5% run rate for the same period a year ago for.
For the fourth quarter Green Plains realized a net loss from $49 $6 million or $1 43 per share inclusive of the $22 $9 million noncash loss related to the sale of our Hereford facility and an $8 $4 million charge related to an increase in our valuation allowance on deferred tax assets.
<unk> for these items, our adjusted net loss was $18 $3 million or <unk> 53 per share relatively unchanged to an adjusted net loss of $18 $6 million 53.
<unk> per share for the fourth quarter of the prior year.
Adjusted EBITDA, which excludes the loss on the sale of assets was $9 4 million for the fourth quarter down slightly from an adjusted EBITDA of $11 $2 million for the same period, a year ago as improvements in the consolidated crush from 2020 compared to the prior year were offset by a decline in AG and energy contributions and the sale of our cable business.
<unk>.
For the quarter, our SG&A cost of all segments was $22 $8 million, which was $2 $2 million higher than the $26 million reported in Q4 of 2019, driven primarily by higher insurance costs and slightly high.
Higher property taxes and professional fees.
Consolidated interest expense for the company was $10 $5 million, which was higher by $1 $8 million compared to the $8 $7 million in Q4 of 2019, due primarily to a higher interest costs related to GPP financing and our utilization of our delayed draw term facility to finance protein construction at our Wood River.
Plant.
On slide nine of our Investor deck, we provide a summary of our balance sheet highlights, we had $302 $8 million of cash and working capital net of working capital financing at the end of the fourth quarter compared to $275 $3 million per the prior year quarter.
Our liquidity position at the end of the quarter consisted of $274 $8 million in cash cash equivalents and restricted cash along with approximately $332 million available primarily under our working capital revolvers and delayed draw term loan. This amount also includes $5 million available under the current credit facility of the partnership.
Capex for the fourth quarter was $19 $1 million, including $3 $9 million of maintenance capex with the balance of $15 $2 million being allocated to growth capital primarily for our high protein and project 24 initiatives.
For the year, we invested $106 $4 million in capital was approximately $18 $1 million supporting maintenance Capex and the balance going to fund our high protein technology construction and project 24 build out.
As we look at capital allocation for 2021, we are focused on completing project 24 initiatives and accelerating our protein technology build out with the announced protein projects and the anticipated rollout to additional sites during the year for 2021, depending on market conditions, and construction timing or capex is projected to be.
Between 202 hundred $25 million, including the completion of protein technology at Wood River. The startup of projects that are buying and Mount Vernon as well as two additional sites.
Maintenance capital Capex for the year is expected to be approximately $20 million for.
For Green Plains partners, we had 215 million gallons of throughput volume at our ethanol storage assets during the quarter, which was down 25 million gallons or 10% from the fourth quarter of 2019 as a result of lower production rates at Green Plains plants. However, as a result of minimum volume commitment contracts with Green Plains trade the partnership build tree.
<unk> group at the MVC level, which was amended to 230 to 45 million gallons of throughput after the sale of Hereford.
Accordingly, the partnership reported an adjusted EBITDA of $13 $8 million per the quarter up slightly from the $13 $3 million reported in the fourth quarter of 2019, mainly due to a 6% increase in throughput rates charged by GPP offset slightly by other ancillary costs.
The partnership distributable cash flow was $11 $3 million per the quarter compared to $11 $2 million from the same quarter of 2019.
On a last 12 month basis, adjusted EBITDA was $54 $2 million distributable cash flow was $45 $4 million and declared distributions were $11 $4 million, resulting in a 399 times coverage ratio for the trailing 12 months and a $3 nine eight coverage ratio for the fourth quarter our coverage ratio is.
<unk> any adjustment for required principal payments amortized during the period.
Now I'd like to turn the call back over to Todd.
Thanks, Patrick.
So we've been talking for some time now about Green Plains, one point O in Green Plains, two <unk> and our actions over the past several months are beginning to demonstrate the acceleration of our total transformation plan to achieve that vision.
Joining with Osprey and funds and accounts managed by Blackrock and acquiring a majority and fluid quip technology truly sets the stage for every aspect of the plan.
With the recent Harvard led studies, indicating.
That corn based ethanol reduces greenhouse gas emissions by 46 per cent compared to gasoline. This is just the start of the carbon revolution for this industry and our platform. There are several carbon mitigation initiatives that our company is exploring to implement as we emit 99% pure and clean <unk> used in the carbon cycle to grow crops.
But now can be sequestered and now not only significantly lower carbon intensity, but now actually have true Logan low carbon ingredients and food and feed.
Our focus going forward is across four key areas first expanding in producing sustainable ultra high protein ingredients for the pet theory, poultry and Aqua culture markets.
The results, we are seeing at Shenandoah and the innovations we are working on with our strategic partners are remarkable.
The recent strategic actions in our portfolio and additional financing we have secured served to accelerate our ability to quickly deploy who equips MSC technology to multiple additional locations.
We continue to see initial margins at an incremental 15 to 20 cents per gallon, which applied across our capacity applies a baseline opportunity of $140 million to $190 million of annual EBITDA from the protein initiative once it once it's completed and before we see the benefit of higher priced securities as we move up the <unk>.
J curve.
The protein market have seat has seen massive price increases lately and continue to support our overall thesis.
The World is protein deficient with flu quips technology, we have the opportunity to deliver much needed protein into the market without expanding land use and construction on our wood River facility to add high protein technology is in full swing and we expect its completion by early in the third quarter.
<unk> Ultra high protein project is just getting underway, but we expect it to be completed in early 2022. Additionally work on our Mount Vernon location as supported by the recent financing will begin soon with startup anticipated in early 2022, as well we will likely be back again in the near future to make further announcements about additional locations.
Our protein product is now being shipped to four distinct species. The most interesting thing is that plays different roles, depending on the need of the customer in pet food.
The customer sees the benefits of a high east product, while getting the added high protein to the diet and dairy are customers can displace very expensive diets, while taking advantage of an increase in milk yields and milk protein levels, and 20% more intestinal digested protein than comparable soy bypass products.
And poultry and we're just getting started but there there are two initial benefits first we are a key ingredient to the all veg diets for poultry producers to sell a clean label product second and even more exciting is that demand for post MSC distillers grains, which has better consistency in performance than traditional products products is gaining traction.
<unk>.
We also believe our ultra high protein is the perfect Aqua feed, especially when combined with our highest Connie partnership to provide super clean Aqua feeds producing better taste profiles and yields and this is all just the tip of the iceberg.
Including influencing each of these areas we have an exclusive partnership with Novozymes. We are working in every species to tailor the east portion of ultra high protein to express specific amino acids or other targeted characteristics in short supply.
All of our partnerships are being combined into one single innovation engine and our York Innovation Center is being utilized as I speak to work on and develop these potential breakthroughs.
One second area of focus is expanding renewable corn oil to reduce carbon intensity of global liquid fuels.
One of the critically important side benefits of implementing fluid quip protein technology is that it extracts and liberate additional renewable corn oil we are seeing a 50% increase in corn oil yield at Shenandoah and anticipate similar results elsewhere edits as it's rolled across our platform.
This is an exciting opportunity for green plains, as we witness the rising demand for global veg oils from the rapidly expanding renewable diesel industry.
While an increase in yields was originally part of our protein economics, the impact of increased protein pricing in the market was not.
As we complete the protein initiative the opportunity grows to $40 million of incremental EBITDA or about four cents per gallon.
Two the consolidated crush for every 10 cents per pound increase in veg oil pricing. We are seeing these moves in the market today and it could run much higher as competition to secure veg oils intensifies at 75 cents per pound.
At 1.2 pounds per bushel yield post MSC rollout across our platform that adds an incremental $140 million of margin.
We believe structurally long term veg oil prices are moving higher if not significantly higher than where we are today.
Third our specialty alcohol business achieved a key milestone recently with the completion of the USP upgraded York, We're now capable of producing 50 million gallons per year of USP grade alcohol and the initial feedback from our customers has been outstanding.
Our project to further upgrade the site to be capable of producing grain neutral spirits is ongoing and we expect that to be completed late in the second quarter or early in the third.
While we missed the primary consumer products procurement cycle for 2021. We are start we are still seeing good demand for USP and will focus on 2022 for the full payback results over the long run we believe margin in this space, particularly excuse me, particularly with the upgrade the DNS could be $1 to $1 50 per gallon over fuel ethanol.
<unk> and contribute $75 million to $110 million of annual EBITDA in future years with added USP capacity at Wood River.
And then finally, one of the most exciting strategic initiatives, we have relates to the Queen sugar technology that we have access to through our joint ownership of fluid quip the opportunity to convert a dry mill bio refinery to produce clean low Ci dextrose and glucose broadens our ability to produce innovative ingredients to support the growing demand from the <unk>.
<unk> synthetic biology and biotech industries.
We are in the process of completing and starting up our fully scalable CST system at our York Innovation Center, right, now, which will enable us to deliver commercial quantities to customers for the Houston testing and validation as well as utilizing it for commercial products.
As we prove out our ability to supply clean sugars from a dry mill process. We will quickly look to execute this in a larger scale by selecting one of our existing facilities to convert to clean sugar production.
The great thing about this technology is that it adds flexibility to the locations of that install it replacing ethanol with dextrose or glucose as the primary product produced leaving the remaining ultra high protein renewable corn oil and post MSC distillers grains.
The end markets for clean sugars are expanding quickly creating opportunity for innovative solutions that can utilize our existing capacity. While today. These markets are largely supplied by existing wet mills, we are anticipating significant growth, especially as customers demand products with a reduced carbon intensity.
This is the key reason why we are excited why we are so excited about the IP fluid quip provides as it allows us to produce additional innovative agreements.
<unk> from our bio refineries further decoupling decoupling us from the volatility of past economics.
The economics are far superior for clean sugared better than anything else. We have talked about today, we will work very hard to protect the IP for all the fluid quip portfolio and have a strong partnership in place to do that we.
We believe the proliferation of low carbon fuel standards in new states and countries will continue driving additional demand for ethanol, but more importantly, renewable Cornell recover we recover at each of our bio refineries. We expect this demand to increase exponentially in the coming years as a nationwide L. CFS is not out of the realm of possibilities. So.
If I were to summarize the Green Plains EBITDA opportunity for 2023, and 'twenty, four and 'twenty 'twenty four and beyond I would look at it like this.
Once completed we believe our base sustainable Ultra high protein platform will produce $150 million of EBITDA before we begin to move up the J curve with higher protein purity and improved characteristics previously discussed and we are already starting to see some of those.
Our renewable corn oil platform has significant upside a 10 cent per pound move would add $35 million to $40 million when all protein construction is completed.
Our specialty alcohol business Day York on Wood River could at least provide $75 million of baseline EBITDA and finally, developing two commercial clean sugar systems, converting a 150 million gallons of ethanol capacity, which we believe could be in place by 2025 could at a baseline of $100 million of ore.
Or more of EBITDA. This was at a conservative 15 to 16 cents per pound glucose dextrose pricing, yet the market trades higher than net today for certain qualities in quantities. We expect the cost of these systems to be below a dollar per gallon equivalent and the returns are very compelling.
Anticipate beginning to design and engineer our first large scale system over the next several months. One thing that is really important is that the is that prior to the fluid quip acquisition. They already had a larger scale $25 a bushel per day CSC CSP system in operation for crude dextrose, and we are using New York to validate the scale up as our smallest location.
<unk> is at least double that size. So it's not really a matter of if but a matter of win. We also believe the IP. The IP has significant value on top of all that we expect our initiatives around growing optimal aqua carbon mitigation and fluid quip traditional business could add additional upside.
And you add all these up all of these up I can make the case that in 2024 and beyond.
We believe we could have a baseline EBITDA of near $300 million to over $400 million and going higher with no contribution from our fuel business, which would be unlikely as demand will recover and expanded expanded blends like the governor of Iowa, just announced will be more prevalent.
We've also mapped out where we can see an upside case significantly higher than what we just laid out driven by upside in protein and clean sugar.
As we look back on 2020 and the challenges we have overcome we are well positioned to accelerate our transformation of Green Plains two point on beyond through the efforts of our dedicated employees. We have accomplished much. We are actively redefining the margin opportunity that is achievable at Green Plains.
We transform our bio refineries to produce innovative new low carbon sustainable ingredients that matter to a growing world. Thanks for joining the call today and we'll start the Q&A.
Thank you Todd.
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Our first question comes from the line of Craig Irwin with Roth Capital Partners. Your line is now open.
Good morning, and thanks for taking my questions.
So one thing Craig.
Hey, Todd.
Congratulations on the progress recently.
So one thing that really caught my caught my attention and I want to make sure I heard this perfectly clearly is your capex guidance 200 to 225 this year.
We've been talking about wood river, and <unk> for a while but adding learning and two additional sites.
The hydro plant.
Like it seems like you are pulling this forward moving little bit faster now now that you have the capital or financing to move forward and is it fair for us to think that there's probably around another $50 million to $70 million to complete those additional locations in 'twenty two.
Yes.
We're going to move as fast as we can and it's going to be subject to obviously availability of contractors general contractors equipment and all the all of what we can achieve in the quickest amount of time. Our goal is to have five years to 77 of these units under construction.
And with our recent announcement as yesterday as well as the additional opportunities.
Opportunities that we're seeing we want to try and accelerate as quickly as we can.
And that's what we're working on so to 'twenty as the baseline if we can move faster than that and start other others up then I would say we would go after that opportunity, but again it takes between engineering design and build its about a year total of construction and design time.
Greg that would leave about 140.
Left to go.
So that would that would really bridge $2022 23.
Got it got it okay excellent. So then.
It's fluid quip acquisition congratulations.
It seems that it's really allowing you to move faster and do a lot of really interesting things can you comment about whether or not.
This is one of the key factors, that's allowing you to move to move forward on these additional plants.
Is there any technology development that you may be seeing earlier.
You could be adopting here.
What are the synergies that youre seeing from fluid at this point.
And how does this inform the strategy.
Rolling out the rest of the platform.
Fluke its IP portfolio is very strong and it's strong in multiple aspects, which is why we're moving as fast as we can it starts with proteins.
The demand for protein is so.
Massive around the world and continues to grow every year that we want to make sure that we move as fast as we can to get the baseline earnings in line with what we have previously indicated to the market.
On top of that.
We're moving fast with our partnerships to add value in multiple different ways to this to this product as we said.
One other things as it is a we think it's we believe it's one of the most perfect Aqua feeds that have been developed in many years and with that what we wanted to be able to do is use our partnerships strategic partnerships between novozymes and highest economy to increase the value of the product Novozymes isn't just all about per.
Protein purity as Novozymes is about enhancing the ability to have this product be designed for different needs of the different consuming species. For example, we've met with a group of pet pet food customers Novozymes Green Plains, and pet food customers to ask them and look for what are they short and deficient in the feed and how.
We used to east to express those shortages or deficiencies and we're making progress there we've met with dairy customers for the same for the same reason, let's go after the immuno acid expression of things that they're short not things that are readily available and we're making progress there on the high ash economy side by adding.
That that ingredient to our to our overall product, we can really start to drive taste profiles and yields in and land based Aqua culture systems, which are just starting to gain traction in the United States, but it's the fastest growing.
Protein consumed in the world today, so when we look at that that's the first reason. The second reason is is really driving up using that technology to go after and liberate more of the corn oil that's available in the current what do you think about it the Cornell and the current if theres one eight pounds of oil per bushel of corn.
<unk>, which is 56 pounds today and traditional ethanol plant, usually liberates about eight pounds with the fluid quip system. We immediately start deliberate up to one two pounds and political is working very hard on adding technology to go after all of that available corn oil up to one eight pounds and we think we're going to make progress.
Yes, there in addition.
Lastly on protein at least from that perspective 3535 pounds per bushel was a baseline we can go after more protein as well and so we wanted to get our plants up and running but we know that our technology, while keeping the remaining product intact and valuable can go after.
Up to four five pounds per bushel and make more and more high quality proteins and so bringing them in house is really abled allows them to go after more and more development of their IP and allows us to move very fast to roll. These out while also building other plants for other customers of fluid quip. So I think that's very important is that.
We are a customer of fluid quip as much as we are a shareholder flow quip.
<unk> has many customers around the world from Poland to Canada, South America to China to the United States in their portfolio has been rolled out across across the world.
We're going to look to see that continue even in protein technologies in South America. So between that I mean, obviously, the clean sugar, which we think is very exciting it's been very beneficial and synergistic to become a large shareholder of the company.
Great more protein is a good segue into the next question I wanted to ask Shenandoah <unk> been operating that I guess, roughly roughly 10 months 10 months at this point. Originally you told US you know where youre aiming for 50% or better you're starting at 51.
Last call I think you said you were you were averaging around 63% have we climbed higher are we potentially.
54 range now.
And can you maybe share with us any other.
Key developments at Shenandoah is we look for the.
The opportunity to improve the economics from this technology going forward.
Yeah, I mean, we've consistently been in that range because what we wanted to do was get consistent production on a daily basis.
Of 52% to 53% protein with the with the yields that we want to achieve to achieve maximum additional initial payback.
You can assume that we are continuing our development to achieve higher protein <unk> and move up the J curve as well as add other nutritional characteristics through expression in the east and also then bring in ingredients to change taste profiles as well.
To come on that.
We're making some advances as we speak and as we get more and more results. We were able to bring those bring those to you but you can assume we are working very hard to get up the J curve.
Great and then lastly, novozymes this should be exciting technology side.
Maybe it gets us into agriculture in the future can you can you maybe share with us the breadth of development programs that youre looking at with Novozymes.
Whats the general status, what's the timeline before we start seeing things visibly as investors looking to understand the potential here.
Yes. This is a very powerful partnership when you take a look at all of the partnerships that we've put together around this IP, whether it's the ownership in fluid quip and the shareholders that have come into to this powerful platform and if you think about AG Tech look at the look at the powerful.
Shareholders, we've put together because this is true AG tech and Novozymes on the other side as a partner has been really an incredible opportunity for both companies and so we are working very hard with them on several initiatives.
We are doing joint meetings on several different species, where using the York Innovation Center as we speak to look at several opportunities as well and as we have successes, which we're starting to see some come to fruition, we'll be able to report those back to you, but I can tell you that everything we expected.
<unk> out of this partnership and more is beyond our expectations at this point and I think we will have some exciting announcements in the future on that.
Great Congratulations on the on the put Florida hydro.
Thank you.
Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open.
Great. Thank you and good morning, everyone.
Good morning.
So Todd a lot of ground covered there going through the strategic plan and the opportunity set.
I just wanted to think about.
Maybe in the first in the near term, we do have still have a.
Market, thats, not particularly well balanced.
And we didn't get a lot of color on kind of your view of the ethanol market. This year and maybe just help us think about how you're how you're seeing things as they stand today and kind of where opportunity could exist in the back half of the year of driving miles get better exports China improve.
Just start there.
Yes look.
We know the ethanol.
Market last year with Covid and reduced driving has definitely suffered.
Coming out of a year, where.
Demand that margins were low prior to that so we've got work to do as an industry to rationalize or balance ourselves relative to demand.
What we saw it today with a big draw on stocks was a nice to see.
But we have a lot of work to do.
And we remained last year to have a pretty good export program in 2020, although we could have certainly used a lot more than that and so while.
We're coming into 2021 continues to be oversupplied.
Margins continued to remain under pressure you know there's a lot of there are some positives obviously driving should recover we get into summer driving season, we're looking forward to that the vaccine.
While certainly.
Is slow to roll out.
Ultimately over time should be helpful to driving demand.
And then obviously returning of the export program and while we saw the first 200 million or so gallons sold to China.
To say, whether that's a program or not or whether that's a.
And opportunity, but when they finally have come back into the market. Obviously, we're excited for that as well. So if we see like for like this year versus last year relative to what we're able to sell in a COVID-19 year hopefully exports exports go higher it's really going to come down to when does the consumer do.
<unk>.
And I think that's really what we're waiting for and margins will probably remain under pressure for that but look I think we've set ourselves up very well we got through 2020, we got through 2019, we have less debt than we than we had before we got to 2019 and we're in a better balance sheet capacity today, we have plenty of liquidity.
And we continue to structure ourselves very well and manage risk aggressively and tried to at least get out of the way of some of this margin volatility.
Okay. That's all.
But that all.
Really helpful.
So maybe going back to the strategic plan that we think about kind of where you get to 'twenty four.
You gave the Capex number for this year from looking through the way you presented this between what's left to spend on high protein.
And the investments in clean sugar, we're talking about.
$400 million to $500 million of capital to spend between now and.
I guess the end of 'twenty, three really depending on how quickly they clean sugar.
Progresses.
As we think about.
The balance sheet, where it sits.
Cash you got to you got the two financing arrangements, you've got cash in the door from the plant sale and you've got <unk>.
Pension cash flow between now and then so.
What do we think the right one.
We think about the capital structure as we get to this new baseline.
And move forward.
Debt on your books today is the convert.
So just to make sure.
I'm trying to think what the balance sheet, what we looked like when they get to the 10 states.
Yeah. Our goal is not to have the debt levels that we've had in the past obviously, you know with with over $1 billion of debt in the past.
I don't see ourselves doing that again.
Our goal is obviously funding has been a strategy through partnerships.
Through divestitures through monetization and using cash and I think we've done a pretty good job to lay out at least getting through protein now if sugar is successful in New York and we decide to.
To build those first two plants, obviously, that's not in our funding plan yet, but the payback is as much quicker on that than it is on protein and so I don't think we'd have any problem from that perspective, whether construction financing or or some type of partnership financing to to get those built because theyre very fast pay.
Backs and so.
That's not in our capital plan, yet today, but obviously in 2020, we're very confident we'll be successful. So that's probably the next stage of our capital plan I don't see us.
Really changing our portfolio mix too much today on what we have we kind of did what we needed to do in terms of monetizing assets and what we have left I think is especially since we put all the money into project 24, getting through finishing that and having a platform that operates.
Got a very high level in this industry I think is a key factor and then from there obviously gives and takes we will have to be considered but overall I'd say protein.
Is just about funded.
Notwithstanding other things that can come into play sugar would need to be obviously come to a funding plan there, but overall I don't see us exploring our balance sheet with a bunch of debt to get that done because I don't think it takes it takes that either so and then obviously cash flows from these projects start to kick in and help pay as well.
Okay, Great. That's all really helpful color I'll pass it on thank you.
Thank you.
Next question comes from the line of Jordan Levy will choose Securities. Your line is now open.
Good morning, guys, Todd you talked on this briefly but.
Knowing the larger macro demand for protein could you just kind of touch on the demand youre seeing from your customers for your products specifically in markets. You're currently in like Pet and then also in the markets that you're exploring dairy poultry aqua and that sort of thing and and how that kind of ties into the potential for offtake.
Agreements down the road as you as you get these plants online.
Yeah, I mean, this is about substitution replacement and adding value and.
Excuse me.
And that's what we're trying to do with working with customers. We could sell every bit of our protein out today, if we want to just sell it as a generic soybean price soybean meal equivalent protein I can have that sold out in under 10 minutes and so but that's not really where we believe we fit into the value chain, because our product isn't just proteins protein and <unk>.
Our product is <unk> 25 per cent east and so when you think about the price of east.
By adding our project product into many of these species, you're getting additional advantages and that's really what we're working with the customers. So in each of the species, obviously Pat very important.
Our second year of our of our Pet Op program Pratt offtake, where they continue to increase their volumes not decrease them day, our customers continue to change formulations and we're in the middle of a palatability study as well on higher protein purity from the initial start so we're doing a lot of work around pet and.
We think that'll be a key cornerstone market for us.
As exciting as that though is we are now starting to work with large dairies some of the largest in the United States, who are now using our product.
And that's probably new since the last conference call is where we really werent in dairy at the time, but we have seen in our dairy studies as well as working with our customers enhanced yields milk yields enhanced quality enhance performance and we're in we're in very early stages with working with our customers but.
That's a new vertical for us that we really just started shipping last quarter, but now we are in theory.
We are in Aqua as we speak our fish are being fed today.
Customers fish are being fed today with our products.
Driven by our our relationship on innovation with Novozymes and a raise relationship on feed quality and taste profiles with Irish economy, and really creating a cleaner better tasting healthier fish and that's kind of what we're going after with our partners and getting them the characteristics that they want as well by using these technology partnerships.
So we're in Aqua today, and we're expanding relationships, they're both domestically and globally.
We're working very hard to do that and then lastly in poultry.
Not just around.
Using it for all veg, we're starting to see characteristics come in play there, but even more exciting again as we've talked about is our post MSC ddg's and thats the product that we're making after the process that is a more consistent better quality less variability around that market as well, so we're making great advances.
But again, if we just want to commoditize it sell it as high protein soybean meal, that's 12% to 15 cents per gallon right there anyways.
We could we can make that phone call and probably get multiple years of our products sold.
In under 10 minutes at high protein soybean meal prices, which by the way is a great return as well that's still that's still under a three year payback on the project on the project. Our goal is to move up that J curve as rapidly as we can.
That's great color and just from my second question, knowing the Queen Sugar is still in the really early.
Early innings of its billed.
Build out and you guys looking into that just you mentioned in yesterday's release that you've got 40 per.
Plus discussions going on with different partners just could you just discuss kind of how you see that market playing out over the next few years.
You see the opportunity set and how that fits into the overall two point other strategy.
Yeah. So I think what the market should be clear is that clean sugar has been done with fluke before they did it at a much larger scale than we're doing it at York effect. They did it at a 25000 bushel a day scale, which is about half of a 50 million gallon plant and it ran very well and they may crude dextrose. So they didn't have to make refined did they didn't have to make food.
Great, but they did make crude dextrose. So all you have to do after that is refine it and make it a better product, but they have run much bigger systems and what we wanted to do is bring it back to York, which day.
A facility that is literally a mini ethanol plant in there that you can transform into a clean sugar system. So we're going to bring it back. So we can engineer a larger system.
So we're further down the road on our development and probably.
Some people understand because of because of their stuff. They did before we became partners with the team and brought in and other partners, which is why I think the value of this IP portfolio has yet to be.
I think actually realized by by people looking at what we've been able to do here with our partners. So that's very exciting and then when you look at the 40 <unk>.
Even more.
Partners that we're working with it's everybody from food.
Two industrial chemicals.
Two anything regarding fermentation.
All the way.
Into.
Green chemicals, and industrial biotech and synthetic biology.
And you can probably start to get some names, but what youre not going to give out but and as well as confectionery.
That's another market that we've already shipped clean sugar to in the past who have made products that are on the shelves today with our refined dextrose and so.
This isn't this isn't really going to be a matter of if we can make it. It's just a matter of scaling it and when we're going to make it at scale and obviously, it's what a wet mill does today and the margins are healthy relative to making fuel and we have very strong IP around that and we will protect that IP as well.
Great. Thanks, so much Todd.
Thank you I appreciate it.
Thank you. Our next question comes from the line of Ben <unk> with Stephens, Inc. Your line is now open.
Hey, good morning, everybody.
Good morning, I wanted to ask.
Clearly the pace of the transfer my transformation is accelerating.
<unk> and partnerships.
Augment the pace of the transformation.
Todd if you if you snap your fingers and had unlimited capital would that further accelerate the pace of the transformation or there.
You had mentioned engineering operational bandwidth dynamics that we need to be mindful of as well kind of help us think about rank ordering the constraints around accelerating.
Transformation that's underway.
Yeah, obviously unlimited capital would accelerate everything because you can.
Certainly push harder and push faster and we're always managing between gen.
<unk> are one point of margin volatility and two point or capital needs and we still have to manage through that and manage our business. Accordingly, because we always want to have strong liquidity and a strong balance sheet and that if you go back and look at the 12 or 13 past years of Green Plains, We've always had strong liquidity and a strong balance sheet to manage through market volatility. So we always.
Have to take that into consideration on how fast and how hard we press, but unlimited capital at this point, obviously got hit the right price because.
That's important as well could accelerate us in and probably get us into maybe save six months off the timeline, but I'm not sure that it's going to make a dramatic effect at this point I think we have a good plan.
And if and as we need capital as we develop the plan further whether it's through the expansion in clean sugar enhanced oil recoveries or other things like that obviously will have to develop we will have to develop financing structures and strategies around that but I'm not sure. You can go much faster just because of the constraints.
On the system at this point.
Okay great.
And then my second question you made some comments around the National Lcs program and forgive me for not knowing this but I'm curious to know how active are you in selling and Delphia test markets today in California with your existing.
Product portfolio.
And by extension, obviously national I don't see assets program, Oregon State by state.
Programs that are being L. CFS programs that are being discussed.
Give us a sense of how.
Accretive that would be to your kind of margin per gallon equation.
Yeah. So.
Obviously, we sold our Hereford plant, which was a low carbon plan, but it didn't fit with our overall strategy in <unk>.
And protein oil and sugar at the time so.
And it was the right thing to do from and we get to participate in the future through the earn out of reducing their ci scores by sequestering carbon.
I think.
We're going to see the spread of our California model.
Across several states, if not across the United States and nationally and globally as well.
And this is just the beginning of it and I think that's where the re rating of of ethanol plants and what we do and how we do it I think sequestering carbon from an ethanol plant is not a.
If it's going to happen, but it when it's going to happen and reducing our ci scores significantly.
From in the $60 70 is into the Twenty's into <unk> into <unk> is very possible if not all the way down to net zero carbon for what we do because of other things that ethanol plants are doing are doing these days and.
So when we look at our participation today for us.
We are focused on something a little bit different today than just L. CFS markets.
We have a plant that shifts into California, and we have a couple of plants that actually ship into California today and can take some advantage of that but we really need more volume bigger programs national rollout in more states to do it.
And really a scheme around what does it mean when an ethanol plant gets to 30 carbon 30, Ci scores, but what does it mean when an ethanol plant gets to zero or negative Ci, which I think is coming as well in our industry and so.
I think that.
We're on the path of that and I think it's going to be somewhat of a surprise.
Two.
The outside looking in at traditional Gen. One one.
One point O ethanol that they have the capability and we have the capability to sequester carbon at such a rate and I think the important thing is what we've looked at is that it can meet the gold standard when you look at what we do we can meter every single tonne of carbon that we sequester and we can monitor it and measure it and.
Not just a dream I mean, you can truly and youre seeing ethanol companies do that in the United States producers that if they can sequestered you can actually monitor it measure it and have a real impact to what the market's looking for so.
I am optimistic and I think it's going to happen I think that youre going to see Red States and Blue States all kind of move to some of these standards and potentially move to a national standard.
Okay, great. Thanks for the color and best of luck.
Thank you.
Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open hi.
It's Dan Rizzo on for Laurence.
Thanks for taking the question.
On the new high protein platform can you quantify even roughly the amount shipped to date and the average sales price and the amount you expect to ship over the next couple of quarters in a reasonable range for the average sales price.
Yeah, that's not something we typically give out in quantity quantity and price except to say that we're achieving significant.
Premiums.
As expected.
We are working with customers on Asps and depending on the protein we ship or the use of the product Asps may fluctuate a bit but we are achieving our initial goals that we thought and we are achieving our initial production volumes that we thought that we indicated that we thought would happen as well.
Thank you very much.
Thank you. Our next question comes from the line of Eric Stine with Craig Hallum. Your line is now open.
Good morning, Thanks for all the details I do apologize if you've already touched on this but just.
On the clean sugars.
Side of it you mentioned that Atkinson would likely be the first and I think in your 2025 outlook that you plan to have two I mean is that is that something we should look at it as a baseline.
Something that potentially comes in higher than that given the economics.
I believe it.
Kind of a typical capex is it a dollar a gallon channel we should think about it.
Yes, I mean, we're definitely looking at Atkinson, it's a small plant it's a good location.
It's lacking rail, but it does have all truck capacity, which a lot of stuff gets shipped out and totes and it's a it's a plant in a good location to procure the inputs, but again that decision hasn't been made yet I would say when we look at it.
There'll be one of our smaller plants in one of our larger plants will be that we're looking at for the 2025 number would be a.
50, or 60 million gallon plant and 120 million gallon plant for conversion.
And that's kind of how we're thinking about that.
Got it.
Maybe just lastly, I mean, you've touched on a lot of stuff here, but on alcohol.
I know youre up at European Wood River, it sounds like you've missed the window for 2021.
As you get towards the end of this year and in signing those contracts for 2022, I mean is that something that you think you expand or do you think that.
You stick with what you've got in terms of USP at those two locations because obviously, you've got your hands full and you're focusing hard on on high pro and also clean sugars.
Yes, Obviously York as we always said, we got we're fortunate it's a bit of a unicorn quality is so high that we produce or whether it was FCC know USP going to <unk> I think that's what's really important is that we want to hit the GFS.
Moniker by end of the second quarter and.
I'll be able to catch the procurement cycle of 2022, and consumer products companies, especially around GFS and very high quality alcohol.
And then obviously upgrade.
Wood River to USP from FCC, which is which is something else as well and we are working with all of the major consumer products companies.
Debt byproduct like this but again.
They buy it towards the end of end of the year under normal procurement cycle.
And without us having a USB product operating at the time, they didn't know what our quality would be now they do.
Everybody is very excited about our quality, it's a full scale USP system, it's not just running it over some carbon filter and thinking you're making a good quality product. This is actually a full scale distillation system that we've put in place to make what we believe is one of the highest qualities out there and so it's just now just a matter of time to get into the sales cycle.
And things like that again.
It's not our it's not going to be.
A huge focus in terms of the strategy, but it is a big focus because the our quality is so good and.
The customers really like the product and so.
Certainly.
Not the not the absolute part of our strategy its a great contributor to our 2025 and while actually 'twenty three 'twenty two 'twenty three 'twenty four and 'twenty five.
Earnings once everything's why especially when we get the GFS so very exciting.
And we think we've developed as previously announced relationships with some of the top brands in the United States and that's really paying dividends for us now as we execute our better qualities.
Yeah.
Okay very helpful. Thanks.
Thanks.
Thank you.
Our next question comes from the line of Ken Zaslow with Bank of Montreal. Your line is now open.
Good morning, guys I have really two quick questions.
So we've covered a lot. One is did you say that the spread between ethanol and corn will become relatively irrelevant by 2024 for you and that all your profitability will come from the other parts of the corn.
No I mean, our view is that when we give you our 2425 outlook, we're gonna put zero contribution in for ethanol and then we obviously, we can decide what to do with that later and so what we didn't want to do is cloud. The fact of any margin volatility and just say hey, this is going to be our baseline earnings on all of our initiatives and.
Then ethanol will be obviously, a contributor or could take some of that away at times as well, but I think when you look at the the wet mills in the United States. They don't talk about ethanol, but they make it because they split the same corn kernel up into the 200 different products and we split it up into under 10 different products and we're going after some of those high value products. So our goal is to leave it in the rearview mirror.
And while we certainly will give you guidance or guidance in the future on where the ethanol margin is youll.
You'll see less and less of that hopefully as we roll out higher higher value higher margin products.
And then just second follow up is did you allude to the fact that you don't truly believe that maybe one of your from your peers or competitors.
We indicated that there was 200 million gallons of demand from China is just sound like you seemed a little bit more skeptical than that is that the read that I got and then I'll leave it there.
No no that was actually real demand.
And we were happy to see it now we want to see more.
So the question you have to ask yourself is it a program or was it a purchase and.
And that's really what we're trying to figure out is are they coming back for more the windows open when you look at current prices in China, and you look at ethanol prices in China, and actually plants are shutting down because of corn prices in China. The windows open to import a lot more ethanol into China, but I think there's got to be more of a program than just a just a purchase and so I'm.
Always.
Anybody that knows has been listened to our calls for many years as it has in.
China is always a nice to have and I hope to hit by a lot more.
I don't I can't build my business plan around that but it's a fantastic thing that they bought 200 million gallons and I think the.
Hopefully they continue that through 2021 because of the window is wide open for them to import more from a price perspective, even with the tariffs.
How will you be able to assess if it is a program.
Just a one off by like obviously in hindsight, you will be but what are the markers that you're looking for maybe didn't give you confidence one way or the other way and I'll leave it there.
Yes, we have obviously relationships in China with the importers, we have relationships in China on the policy side and the question really is when does it become a policy when does it get published is it just a one time, we'll let you imported and then we'll see how it goes and its really going to be around what do we see on policy changes obviously they.
Or still focus on carbon emissions are they are still focused on their blending strategy, even though a couple of years ago. It kind of got pushed to the side. It seems to be that thats starting to rear its head again, and it's really about hearing more about policy than it is just about opportunistic purchases. So that's what we're waiting to see to get more.
Excited but don't get you don't get me wrong. It is a great thing to sell 200 million gallons, which is.
Is what four 5 million barrels that potentially.
An oversupplied market and maybe that's one of the reasons we saw some draws this week.
Thank you very much have a good day.
<unk>.
Yes.
Thank you there are no further questions I would now turn the call back to Todd Becker for closing remarks.
Yes, thanks, everybody for coming on the call obviously, a lot going on and we appreciate your support you can see that what we're doing is trying to create a lot of value. We're really focused on getting through the next couple of years getting into 'twenty, three and 'twenty four and starting to get a baseline opportunity for ourselves and we think it's possible. We think it's probable and we think the value.
The portfolio that we're putting together is obvious and the value of the partnership that we're putting together is even more obvious and giving us great affirmation, great validation of what we're doing so appreciate your support and we'll talk to you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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