Q4 2022 Green Plains Inc Earnings Call
Okay.
Good morning, and welcome to the Green Plains, Inc, and Green Plains partners fourth quarter and full year 2022 earnings conference call.
Following the company's prepared remarks instructions will be provided for Q&A.
At this time all participants are in a listen only mode.
I'll now turn the call over to your host Phil Boggs Executive Vice President Investor Relations. Mr. Box. Please go ahead.
Great. Thank you and good morning, welcome to Green Plains, Inc, and Green Plains partners fourth quarter and full year 2022 earnings call participants on today's call are Todd Becker, President and Chief Executive Officer, Jim Stark Chief Financial Officer, unless leave Andrew Mellon EVP of product marketing and innovation.
There is 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 today'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 statement I would like to turn the call over to Todd Becker.
Thanks, Bill and good morning, everyone. We have a lot to talk about so lets get started.
The fourth quarter margins will improve off the lows we experienced during the prior quarter, but we are still faced with some challenging headwinds due to weakness in ethanol margins in the quarter, which happened very quickly over a few days. This industry has such great potential and we continue to have a small imbalance in production versus demand it weighs heavily on margins.
Addition to the pricing structure in our opinion remains broken where very little margin excuse me very little volume in the market. Each day on the close prices a million barrels a day of production the pricing mechanism needs to be addressed in the future in the western corn belt basis remained stubbornly high for this time of year about 45.
For bushel higher than the prior five year average at 30 cents higher than the prior year by severe cold snap in December caused outages across our platform and when combined with rail embargoes, which had green plains are unusually hard we had inventory backed up at some of our locations leading to plant slowdowns.
Some plants going offline for a period of time, we estimate the storm cost our platform around <unk> <unk> per gallon for the quarter alone just over those few weeks. In addition, we've made an economic decision to temporarily idle 10% of our production capacity based on current market conditions and continue to evaluate the right time to bring capacity back online.
Despite these challenges we ran at 93% utilization rate across our platform as we benefited from pulling our seasonal maintenance into the third quarter and continue to see increasing production rates and locations. We invest tech now we invested technology into over the last few years.
Overall, our results show the consolidated crush margin of around three cents per gallon, an EBITDA close to $6 million.
We're also learning as our transformation is more important than ever and contributed to our positive margins, even with the headwinds from the traditional platform, which is why we continue to execute on our ambitious transformation of Green plains that we laid out for you over the past few years. Our focus is on our four pillars of protein oils sugar and carbon all combined with a focus on lowering our cost.
A traditional operations.
During 2022, we've made great progress on the transformation completing the construction of three additional MSA protein technology locations, which makes five total and breaking ground on our first clean sugar facility in Shenandoah at commercial scale.
We continue to make progress on our overall de carbonization of our platform positioning ourselves for the future of sustainable aviation fuel with our exciting alcohol to jet announcements we've made recently.
M. A C project that central city, Mount Vernon, and Oh by and continue to come online during the quarter the incremental yields from these new MSC systems during commissions during commissioning contributed to another quarterly production record for our low carbon renewable corn oil I can now say that all five of our MSC facilities are now completed and operational.
And producing ultra high protein.
In fact during two this week alone we set daily production of platform Records.
Huge accomplishment for our team to bring these facilities online in a continued challenging supply chain and labor market.
On the last call I indicated that we expect to make significant exciting progress on our commercial sales for 2023, and we have done just that which allowed it which I will discuss later in the call.
Our carbon initiatives continue to progress first starting with Osaka gas in tallgrass to utilize carbon for our from our southeastern locations to produce synthetic fuel and methane products, while still in development phase for now we are optimistic about the potential of this product project.
We also just announced a sustainable aviation fuel partnership with Tallgrass, P&L and United Airlines to develop a new alcohol to jet technology.
The offtake, but this product demonstrates the urgency of developing pathways to Decarbonize aviation fuel and we believe the use of decarbonize ethanol as a low carbon feedstock, which green plains has a supply agreement into the joint venture as well it could be transformational.
Not only for our company and our shareholders, but also for the whole industry.
We are excited to continue to develop this novel technology from P&L as being blade energy scaled it up and work toward a towards a pilot facility in the coming years. This gives us confidence in the long term value of our bio refinery platform and the optionality around what we do and what we are coming.
Today, the fundamentals of our base ethanol business remain challenged as we all have seen things move quickly on our margin structures. We remain open to the forward margin as there has not been real opportunities to hedge forward.
There are times I feel like a broken record, which is why our technology transformation is more important than ever.
The EPA recently proposed RFS volumes of 15.25 billion gallons per year. This administration has repeatedly demonstrated a commitment to higher level ethanol blends, including allowing for <unk> to be sold during the summer for the fourth straight year, our value proposition is the lowest cost octane enhancer remains both domestically and <unk>.
Globally, we are capturing more corn oil corn oil from every kernel and are headed to 1.2 pounds mechanically and regardless of the final RVO levels. We believe the rapid expansion of renewable diesel production will continue.
Our distillers corn oil will remain in demand.
As we always do we're going to focus on the things within our control executing on our transformation plan, bringing additional MSC and corn oil facilities online complete completing our clean sugar build in Shenandoah and executing on our carbon plants.
Jim will recap our efforts in just a moment and discuss our success during 2022 to strengthen our balance sheet as we ended the year with over $500 million in cash as a result, we believe we are well positioned to execute on our transformation strategy.
Partnership Green Plains partners delivered another consistent quarter and declared a distribution of <unk> 45, and a half cents per unit, while maintaining stable coverage ratios and now I'll hand, the call over to Jim to provide an update on the overall financial results Jim.
Thank you Todd and good morning, everyone.
Green Plains consolidated revenues for the fourth quarter were $914 million.
<unk> 12 billion higher than the same period, a year ago, driven by higher run rates are.
Our plant utilization rate improved year over year to 93, 4% run rate during the fourth quarter comparing favorably to the 83% run rate reported in the same period last year.
As Todd mentioned, we are monitoring the economic environment closely for wind to restart the 10% capacity, we have which is which is having a minor impact on the utilization rate in the near term.
For the quarter, we reported net loss attributable to Green plains of $38 $6 million or <unk> 66 per diluted share compared to a loss of $9 6 million or 18 cents per diluted share for the same period in 2021.
Adjusted EBITDA for the quarter was $5 $8 million compared to 32 million for the same period last year.
Higher corn basis in the western corn belt and weak ethanol demand contributed to the lower margin for Q4 2022 compared to last year.
We realized three cent per gallon consolidated crush for Q4, 2022, which is <unk> 17 cents a gallon lower than last year due to the factors described above on the.
Sequential quarter to quarter basis, we sold the consolidated gross margin per gallon improved 12, <unk> when compared to the third quarter of 2022.
Our AG and energy segment turned in a better performance versus 2021 recording a $9 6 million increase in EBITDA to $11 8 million for the fourth quarter.
This increase was driven by market volatility and our merchant trading and distribution businesses and our fuel racks and natural gas storage.
For the fourth quarter of for the fourth quarter, our SG&A cost for all segments was $28 $9 million compared to $18 2 million for Q4 'twenty one.
This increase was driven by higher personnel costs related to higher head count as we described through most of last year on our quarterly calls and we are bullish and we have fully staff our company for our transformation plan. This increase is also related to higher insurance rent and other fees and expenses related to running the business.
Interest expense of $6 5 million for the quarter, which includes the impact of debt amortization and capitalization capitalized interest was roughly in line with the $6 9 million reported in the prior year fourth quarter.
For the year interest expense was significantly lower by approximately $34 5 million for last year as a result of the convertible notes being exchanged in 'twenty, one and 2022.
We anticipate interest expense for 'twenty three to be approximately $40 million, given where interest rates are currently and that we are carrying and lower debt balances ended 2023.
Our income tax expense for the quarter was $4 $9 million compared to.
Due to a tax expense of $4 eight for the same period of 'twenty one.
At the end of the quarter the net loss carryforwards available to the company were $85 8 million, which may be carried forward indefinitely.
We currently anticipate that our normalized tax rate for the year for Green Plains, Inc. Excluding minority interest should be around 21%.
On slide nine of the earnings deck, we provide a summary of the companys balance sheet.
As shown we ended the quarter with $464 $4 million of cash and working capital net of working capital financing compared to $698 million at the end of 2021.
Our liquidity position at the end of the quarter included $500 3 million in cash cash equivalents and restricted cash along with approximately 235 million available under our working capital revolver.
Our balance sheet remains in a solid position as we continue our transformation to a green plains to point out.
For the fourth quarter, we allocated about $29 million of capital to profit sustaining and growth projects, including $14 million to our MSC protein initiative.
About 10 million to other grossing growth initiatives and approximately $5 million towards maintenance safety and regulatory capital.
Total capex for 'twenty, two with $212 million, which was about $38 million in the range. We communicated to you back on our Q3 call.
To date, we have invested approximately $330 million of our shareholders' capital across our platform and the deployment of fluid technologies MSC across to the Green Plains Bio refinery network, including our share of Green Plains store kjv withdrawals in ethanol.
For 2023, we anticipate capex will be in the range of $150 million to $250 million, including Usher to finish up the turnkey project with their Olson this year.
And the capital to complete our clean sugar building buildings Shenandoah in late Q4 of 23.
It should also begin construction on the MSC project Madison, along with capital for for a couple of D. C O Tex installations throughout our platform.
For Green Plains partners. We continue continue to realize consistent performance earnings and cash flow. Realizing net income of $9 6 million and an adjusted EBITDA of $12 7 million for the quarter slightly better than $12 2 million or <unk> 40 for the same period a year ago.
Plant utilization rates at Green Plains were higher increase in the storage and throughput volumes for the partnership by 12, 3% for the fourth quarter versus the same period a year ago.
The year of 2022 storage and throughput volumes were approximately 16% higher than 'twenty, one coming in at around 876 million gallons and we anticipate a similar amount of volume for 2023 based on our current outlook.
As a result hardship continues to support steady returns to our unit holders declaring a quarterly distribution of 45 and a half cent per unit with just under a one times coverage ratio for the quarter.
For the partnership.
Ratable cash flow was $10 $7 million for the quarter in line with the $11 million for the same quarter of 'twenty one.
Over the last 12 months the partnership produced adjusted EBITDA of $31 2 million dispute distributable cash flow of $44 6 million and declared distributions of $42 8 million, resulting at a one four times coverage ratio, excluding any adjustment for the principal payments made in the past year I would also add.
The partnership did pay down $1 million of term debt for the year and also increase its cash unit holders by $23 6 million a 22 versus 2021.
Now I'd like to turn the call back over to Todd.
Thanks, Jim.
Our commercial standpoint, we've been pointing to 2023 for awhile now as we now have significant quantities of volume from our expanded MSC platform.
Our team has been working with numerous customers for some time now and the impact is showing up in our sales efforts.
For the year, we have contracted and sold nearly half of our anticipated production and when combined with what we believe will be repeat repeat customers. Since we are in the ration and they expect us to keep volume available.
We have approximately 250000 tons or 75% of our capacity is spoken for for all intents and purposes.
Engagement from our customers across species have been impressive and we appreciate each one as we know putting a new ingredient in in mass is something that has never really happened in the span of my 35 year career.
A new plant based high protein product in volume besides the traditional corn gluten meal or high protein soybean meal, our fishmeal has never really been available.
In addition, while we embarked on this journey, we initially focused on the crude protein protein differences.
Between our legacy distillers grains, and these protein centric products. This helped to underpin both the nature of our transformation and the view that we needed to become part of feeding the world.
We always knew that once we solidify it ourselves with our new customer base by providing unmatched.
Production volumes and redundancy to focus would shift to nutritional value and the impact on our customer's bottom line.
As we are successfully completing sales cycles initiated early to mid 2021, we're starting to see the customers acknowledgment of the nutritional benefits that are fermented ingredients have to offer over certain other plant based and solvent extracted ingredients.
Embraced by our customers is also very much in line with our plans for product development, which is predicated on the view that our fermentation platform combined with our Houston enzyme partnerships can develop amino acid peptide solutions that will create an even stronger relationship with our customers whether it's in agriculture pet food, our young vinyl gastric animal diets.
All of this is important but we do know what matters to our shareholders as well as we have been stewards of the capital you dedicated to Green Plains with.
With that said I'll give you a look under the hood a bit since the inception of this strategy. We indicated it is our belief was the base product would sell for a premium of $200 over traditional distillers low protein products and I'm happy and excited to report we have exceeded this target since inception over the average of the sales book.
This is fully consistent with our initial outlook and guidance. This premium ebbs and flows depending on customer requirements for different protein levels and other requirements around quality control and quality assurance. In addition to geographic locations keep in mind. This is before much effort to move up the J curve as we are now beginning to focus on that in 2002.
23 on our species focus for 2023, we expect based on sales, we have made and in customer process advancements that approximately one third of our production will go into global Aqua and pet food customers and we are even starting some of those negotiations at over 58% protein levels, which we are confident we can now make.
On demand at our facilities. The remaining production is spread across all species for different uses that different feeding cycles from young to old. When you look at the average premium to date, which is trending up combined with the move and corn oil pricing, we anticipate to fully achieve projected rate of returns on the MSC systems.
We have been running this was not easy.
Bottlenecking startups were harder than we expected, but once we had real volume available to our large customer. They knew this product was real are great customers have demonstrated their confidence in our product and our journey. We are proud to offer a solution that helps keep it helps them meet their needs.
The MSC technology is also contributing to higher renewable corn oil yields and with new pricing levels. It helps cement long term project returns rest assured while we are seeing strong acceptance of our 50% protein product. We will continue to focus on developing and commercializing higher proteins at 60% and above.
So where does that leave us for the rest of our platform and timing, we have outlined supply chain issues, especially with our electrical gear and also permitting on the last several calls our turnkey partnership with Arrow and 875 million gallon plant, where we own half of their MSC production is under construction, our Madison, Illinois location is next up for us.
For our MSC technology development and pending receipt of the required permits from the state which are in process now should be under construction. This summer for 2024 startup.
A fair amount location in Minnesota is also in the planning stage, but the permitting situation there could take longer than Madison as we have outlined nonetheless, several calls at superior and otter tail due to the size of the plants and our focus on capital efficiencies. We our first focus on maximizing our renewable Cornell yields and are reviewing deploying a full MSC system at a late.
Date, but right now we're looking to deploy little quips D. C O extraction technology from mechanical means to extract more oil in the meantime.
This will give us approximately 885 million gallons of capacity, including of our our half with tariffs and that Green Plains will have MSC bullion storage installed once completed.
When you add in the D. C O enhancements, we will be relatively close to the original plan laid out and even more important the strategy, we laid out as a three to five year journey to move up the price and protein curve and I feel like we are right, where we want to be.
So now, let's pivot to our sugar business, we are deploying a truly game changing technology from flu equip where we own and control the IP and are on the path to be truly disruptive to an industry that hasn't seen a new entrant in a long time are exercised and protein has set us up well for dextrose as we can apply those learnings to an even smoother execution of it.
This strategy.
Our ability to convert the starch component from a kernel of corn at a dry mill ethanol plant into a lower carbon dextrose product is opening doors opening the door to a new source of supply in an industry dominated by an oligopoly we've.
We've had potential customers, calling us up because they were rash and product from the big four dextrose producers, but unfortunately, our commercial facility isn't completed yet our commercial scale CST system is under construction in Shenandoah, Iowa.
Where we are building a revolutionary biocatalyst on a path to complete our first true by a refinery other huge of the future that can separate the high value protein feed ingredients as well as the optionality to convert starts to dextrose. The great thing is once the CST facility begins we will still produce protein oils and other animal feeds from each bushel.
Corn just lots of ethanol.
This is a game changing technologies that demonstrates why we invested in and own a significant majority of flu equipped two years ago and their efforts to design and engineer. This technology to this scale is a testament to their IP suite. They developed the engineers and scientists have fluid quip that are there now and our dedication to disruptive technologies Shannon.
<unk> is on track to build a facility capable of producing 200 million pounds expanding to 500 million pounds of dextrose annually and we believe in the coming year that investment opportunity will continue to expand this technology Shenandoah or deployed at additional locations. How do I know are on the right track there.
The talent, we are attracting from from traditional corn wet milling industry is nothing short of extraordinary and they keep coming our way as they know this is a quote unquote changed the world kind of opportunity. The economics remain compelling and we are anxious to stand up our first system, our carbon initiatives continued to gain traction as well as I outlined.
Earlier, the partnership I've seen fuels from biogenic carbon we went it went into the IRA impacts in quite a bit of detail on the last call and we continue to work towards maximizing our opportunities youre reviewing such options as combined heat and power systems and many others.
Summit carbon solution continues to make progress on schedule with right away at over 60% of the mileage completed across the entire 2000 mile footprint, which has been acquired with over two thirds acquired in critical states like Iowa important to Green Plains is at summit has already put down payments on critical long lead equipment like compression equipment that will.
Go into our plants their progress means we are remain on track to start capturing the benefits of higher rates in 2025.
Certainty of carbon sequestration remains the most critical aspect for us as we believe in sustainable aviation fuel and summit to access to permitted class six wells right now and poor space can you give us a competitive advantage quicker and better than the market in our low carbon strategies.
Looking ahead, we remain optimistic about the potential of the inflation reduction act to provide a meaningful uplift to our margins in 2025 and beyond.
As I mentioned before I told you.
If I told you the potential forward EBIT estimates from this program alone you wouldn't believe me, but the math is easy and I'll, let you use your imagination.
As you know.
I am adamant that all roads lead to alcohol alcohol to jet sustainable aviation fuel, which is the future of this industry recently, we saw the state of Illinois pass a new dollar 50 per gallon.
S. A F blenders credit on top of the I R E. The aviation sector needs to Decarbonize and we are there ready made solution from both our low carbon alcohol and also our waste oils, we produced for the renewable diesel industry as they convert to SaaS in the future as well for scale alcohol as a much bigger solution, but both vegetable oil based.
And alcohol based sustainable aviation fuel are important to give aviation the ability to reduce their scope, one and two emissions from jet fuel.
With the opportunities in front of us from our MSC technology for protein in Cornwall expansions deployment of clean sugar technology, and carbon capture and utilization. We continue to have confidence in our strategy to hit our 2024 and beyond projections, the IR, a impact and potential to move higher to higher protein pricing levels and.
Upgraded nutritional outcomes over the coming years could even add to these totals we have set this company up to be aligned with macro drivers that underpin our initiatives around protein and vegetable oil demand decarbonize de carbonization and the emerging bio economy and we are just getting started our employees are excited everyday to drive value.
And our customers are excited as well all which we believe will create significant shareholder value in the future. We appreciate your continued support of Green Plains transformation. Thanks for joining our call today, we can start to question and answer session.
Thank you if you'd like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press star one again please.
Please limit your questions to no more than two at this time.
Wish to ask additional questions. Please rejoin the queue.
Our first question comes from Craig Irwin from Roth Capital Partners. Please go ahead. Your line is open.
Good morning, and thanks for taking my questions.
Todd.
Some of the other players out there the private guys.
It sounds like there's something really funky going on again with asset values that they are particularly strong.
You know, we haven't seen something like this and in almost 10 years can you maybe share with us what youre seeing point point to data points that we can see publicly and I kind of have an intuition and this might be related to operators confidence in SaaS and the demand for those plants to serve the opportunity for.
You know the Irene what president of items laid out you know can you can you maybe just unpack that for us and talk about whether or not.
This could put us into a capacity definite deficit for for fuel ethanol in the future.
Yes. Thanks, Great question, what we're seeing out there at least at this scale plants. The big plants that we that are have been built over 100 million gallons is strong interest.
That we've seen on processes that are happening in the market today.
Hearing that some people aren't even making the second round of some of these asset sales because they're bidding what were traditional.
The values that we were able to buy in the past and theyre not making into the second round. So we're hearing very strong values almost towards original replacement values, even though we'd today it would cost a lot more to rebuild a platform like ours. So that's very enthusiastic for us when we look at our asset values today, obviously youre going to have to watch, whether you're subscale or not but.
When we look at that today, our view is that.
The people that are showing up in some of these data rooms from what we understand are really taking the view of sustainable aviation fuel and de carbonization and looking at the I R E and thinking to themselves. The Optionality. That's available in this industry has never been stronger based on all of the different aspects that this industry.
He is heading down on whether what were doing on protein oils and sugars, whether what others are doing around other technologies that they are deploying whether we're gonna do combined heat and power systems on cogeneration to reduce our not only our carbon but our energy costs all the way through this sustainable aviation fuel initiative, the optionality and getting a hold of.
These systems seems to be something that many new players and not many other entrants are looking at the U S ethanol industry that traditionally they may have looked past it so yeah.
We certainly have headwinds in our traditional fuel economics, and we've had them.
We make a little more than we need every single day, but I think that's going to as we see every year.
We sat last year at this time literally on this call are not knowing what Q2 was going to look like and thinking to ourselves. It's going to just going to continue then all of a sudden we saw a very very strong change in the margin structure hard to predict predict that will happen or not this year, but we do know that the ethanol margin moves very quickly.
Excellent. Thank you my second question is about protein pricing. So it seems like every few months, there's some controversy with surround people speculating about you're at your pricing for the MSC product.
You were pretty clear in your in your commentary, but I was hoping you might be able to kind of put some boundaries around around pricing you know in the past you've pointed to soy meal versus like concentrate things to consider or are we looking at potential pricing closer to to that a slight concentrate I'm, particularly.
As we look at look at that 58% a product that you'll be selling into agriculture, how should we really think about pricing today.
And and how this rolls out this year.
Yes, we hear a lot of rumors around our pricing, which is always very interesting, but obviously theres lots of things that go into consideration of whether it's geographics.
Spreads, but where we are relative to where we're at relative to production. What we wanted to make sure is the our investors shareholders understood first and foremost what we laid out originally.
With that what we believed was a a initial 200 dollar value over our traditional products, we are achieving and actually exceeding.
On average over the whole platform, yes, certainly there is times when Nebraska distillers grains rallied very very hard against protein, but maybe Indiana isn't so depending on where you have locations. Some of your plants, you have higher and lower margin structures, depending on the time of the year, but overall, what we and we wouldn't say it unless unless it was true by the way so but overall.
All in we've achieved greater than the $200 a ton on average across since inception by the way and we can go all the way back but since inception on top of that well.
While we've seen as the contribution from corn oil, which we put into our margin structure on this part of the and this is part of the house that has been strong because of.
Values have gone up significantly since the start of the project as well so.
Look overall, we are bringing systems up still we had to we had our we had record days of production. This week again across our platform and we're still not at full rate and so we're very excited about it but it does tell us that.
The production that we've outlined across these five facilities are on track.
Our sales program is on track, we are having great conversations with what we believe will be our next strategy, which is to replace corn gluten meal to start and rations, both domestically and globally. We can make a 15, 5% to 60 pro product right now it has a better nutritional outcome because it's.
Because of the amino acid profile and the fact that as fermented energy east in it. So this is just a step by step process and as we bring these plants on we are spreading our costs over more and more volume, which is going to help our margin structures as well so.
While we've seen somewhat limited.
Contributions so far now that we are have have these five plants running 2023 is really our inflection but.
A lot of people think they know what's going on in protein pricing because they hear you know.
A b or C, but I'm here to tell you right now.
We are effectively sold out for the first almost the first half of this year.
It is a wide range of species.
With what we have as I said earlier in the call because we're in a ration our customer expects us to have that product available. They may not want to price at all today for the whole year, because they have different views on price as well.
But they expect us to keep volume available because we just can't go into Iraq, and say Oh, no sorry, we don't have any for you. So we know what we have committed for the year as well, but at this point, we are almost 50% priced and sold so it gives us great confidence on and where we have from a pricing perspective.
Great well congratulations on the progress with MSC.
And we look forward to more more needs from SaaS. Thank you.
Thank you.
Our next question comes from Jordan Levy from <unk> Securities. Please go ahead. Your line is open.
Good morning, Todd.
Cool.
Good morning, maybe we could just start off on CST I wanted to get a sense for how you are all approaching the commercial process. There as you get ready later this year to bring that first facility online as their learnings to be had from the work you've done on building up the protein sales side of things.
And how should we think about that whether it's a co location there sort of an offtake.
Yes, I think first and foremost our learnings from protein will absolutely apply.
Two our CST business, how we ramped up our sales process, our quality control process. The things that we did how we brought plants online. We <unk>. It was pretty simple you build an ethanol plant at Ron's now you have are adding component technologies that you've seen in your visits as well. These are these are not part of the <unk>.
These are actually separate and distinct functional assets and so we just we got great education on how to do this correctly as we think about our CST. Most of this first plant will will ship to customers around the United States. We won't have a co location set up there for several years, but we are work.
And with partners on that as well.
Basically looking for we've had a lot of discussions we've had product in customers hands.
We are making product in York, we're first focusing on 95 D E, which is a familiar term and wet milling, we're focused on refined and unrefined, which is unique we are also in the process of of increasing our capabilities to 43 D E dextrose equivalent.
And making sure that our color matches what comes out of a traditional wet mill, which is why we are attracting wet millers to our into our company right now who would have never worked in the ethanol industry before by the way. They all you know they looked at this in.
It was child's play to make ethanol for these guys. When you look at what happens in a wet mill, it's much more complicated so.
When we look at not only the talent, we're attracting but the customers that are coin we've had customers call us across the United States that have basically been rationed and theyre short supply and they need more dextrose and you saw.
An announcement out of the one of the big four that theyre going to expand some of their dextrose capacity, but in general we believe that we're going to be the next big player and it's just a matter of time now yeah. We got to get the first one started we gotta get make sure we debottleneck it.
But we are anticipating and we are thinking about really this is the game changing.
Technology for Green Plains that could truly revolutionize our long term margin structure above all else above protein.
Above oil even above carbon long term, we believe that this product. It's the margin structures, just so robust and it has been for many many years in this in the wet milling industry. So we're on track.
Like with the position we're in if I could go faster and wave My Magic Wand I would.
But today, we just have to be a bit patient on this but absolutely what we learned in protein is critical to starting up our CST systems and executing even better in the future.
No. That's good color, maybe just on a follow up I don't know how much you can say here, but maybe from a more general level I'm just curious how youre thinking about how the industry might go about.
Pricing structuring.
Ethanol in ethanol to jet situation given.
It will be kind of a.
Low carbon feedstock situation.
Just curious if you have any thoughts there.
We can move quickly from <unk>.
Excess to a deficit.
As a T J progresses, obviously not today, but in the future and so that really I think good.
It gives the industry back some pricing power.
First and foremost you have to have decarbonize. The alcohol you have to meet the standards that are set in the I R E.
We're still focusing on on the measurement of that carbon when you start and your carbon scoring under greed.
Which is somewhere between 50 and 60 for most of the industry you dropped 30 office sooner to sequester the carbon whether it's going to be direct and Jack on a pipeline or other areas.
And then from there another five to 10 points just on combined heat and power alone before you even start to think about.
The aspects of what happens on the farm and and even to see that your plan. So.
When we look at that our low carbon alcohol relative to everything else should be higher in value than fuel.
But I think it can be interesting to see how this plays out I mean today, we're 50 under fuel.
Because we have a little bit of an excess in the market, where there are times, where at fuel fuel price as well so.
We move structurally from an excess to a deficit.
And I believe we will have some pricing power, but I believe the margins will be big across the whole supply chain and I know people say, well you know who's going to buy it.
Airlines is certainly committed and are in our joint venture and remember this is not just a offtake agreement those are our diamond doesn't quite frankly. This is a very important structural partnership that we have with tallgrass and infrastructure player removes molecules everyday P&L, who brought force. This what we believe is a efficient technology.
And United Airlines, with just saying, we don't just want to buy the fuel we want to own the process and invest in the technology and have a real stake in the ground on this one so that's the importance of this of this partnership because think about what we're hearing ethanol to jet.
Our words uttered out of airlines today that Werent uttered three or four years ago, but it is the only real true volumetric Pat yes, absolutely our need of jet is going to be very important veg oils to jet extremely important and it's going to happen as well so combined between veg oils and alcohol, we're going to make it real.
<unk> I believe on sustainable aviation fuel in the future, but also really refine the margin structure of this industry significantly.
Oh, that's great and definitely in really encourage any announcements I appreciate the color.
Thank you.
Our next question comes from Manav Gupta from UBS. Please go ahead. Your line is open.
Hey, guys. Congratulations on the uncomfortable update or who've been update on looking forward do it. My question is now that this is locked and we can all see the price of what <unk> is doing can you talk a little bit about what kind of EBITDA could be lenient puneet <unk>. If you could just walk us.
With the Vegas com, putting some of the <unk>.
EBITDA guidance for the current year.
Yes, I mean, the EBIT range, we've given you on what we control is still intact. It's really just comes down to what is ethanol going to do this year.
And today you know obviously there is some headwinds so we have to watch that closely.
But as we know and as I said it moves very very fast we've seen margin structure improve a little bit on the curve, but it is just going from low to less low and so we're going to have to continue to move that margin structure forward and I think we're going to do it can be some discipline and rationalization across the industry I think the industry has got a little bit tired of giving their fee.
<unk> way too cheap and not earning the return that we should be earning on our asset base and so.
It was a pretty tough quarter in Q4 for ethanol and Q1s are always tougher.
Tougher quarter, but like I said, we're optimistic throughout the year that we will have times again to potentially earn some real returns against just ethanol on top of that with what we're achieving.
<unk> today on protein and the fact that even with this recent reduction in veg oil prices, we still we're still going to generate significant EBITDA from our Cornell program, but even more exciting for corn oil demand. This year is look at the share volume.
The potential.
Renewable diesel production coming online this year, we're not talking like just a small amount. This is their big year, where they don't just don't just add a little bit they potentially double this year and what <unk> been producing in the past, which means the demand for veg oils into that space doubled as well and when you put it all into play relative to.
Even with soy crushing coming online. The real question is we will hit again, where the market will crush for oil even though the oil meal spread has widened out a little bit and people have sold the oil and bought the meal, but we will bring that oil share back into play in my opinion back in 2023, which is very beneficial to our corn oil pricing.
Potentially so.
We're looking forward to it and.
We're really in that same range of the guidance that we that we issued earlier, who just have to watch ethanol closely.
Would add on to Manav is as as you are seeing more and more of these renewable diesel plants want to add sustainable aviation fuel technology, the low Ci score the renewable corn oil we make we'll we'll keep it in a preferred preferred spot.
Demand as we move forward.
Thanks.
Awake leak funnel as you answer that.
Everybody is looking for and I'll, you'll have online.
I've seen buggy in Adm's do some deals will this be a good time to knock off a very good price on on online with some of this new facilities that are coming on which could give you like.
Okay, taking in some of the volatility in the corn oil pricing.
Yes, Manav I don't think youre going to find somebody to do a multi year off take with a high price today I think the view is they you know they would rather remain in the spot market or at least try to lock in volumes of the low carbon I think it's a bit of like.
And we have been in negotiations and discussions with several parties on a potential partnership the volumes of the easy side, it's really how do we structure the pricing side of this and really what's beneficial for our shareholders, what's been beneficial to our shareholders as our patient.
To wait and let this industry get built out.
And with this industry building out and this will be the year, where I start to think.
Locking in.
The ability to source the low Ci waste oils.
That's gonna be.
Really really valuable and we continue to try and unlock that last half pound per bushel of corn oil in the kernel its still sitting there.
And we believe that at 60, and 70 cents, a pound which is $202500 a ton.
Now that is very valuable that you can put some serious R&D behind and I think others are as well not just green plains, you can put some serious.
Research and development behind trying to unlock that last half pound of oil in the kernel because it's still going to be lower carbon than anything else out there other than one others, what other type of waste and residue. So.
I think we're in a really great position can I control, what's going to happen in veg oil pricing globally, no, but I think you see that.
The U S remains an island over global Palm and global global other vegetable oils.
And I think it will remain that way for the coming years, because the demand is just so robust that's coming online for our products.
Well, thanks, guys and thank you again for the update on the protein side I think again. This is Andy appreciate it. Thank you.
Yes. Thank you.
Our next question comes from Kristen Owen from Oppenheimer. Please go ahead. Your line is open.
Hi, Good morning, Thank you for the question.
You mentioned.
Other responses that I was wondering if you could just say more about the tallgrass and United Airlines agreement and specifically I wanted to ask about the progression of that partnership you know what happens as you develop that catalyst.
And just help us understand why this pathway is so different from the other phenomenon that we've seen.
Yes, and Thats why its really exciting actually is that this was a competitive process with P&L. This wasn't like Green plains in tallgrass showed up and all of a sudden got it got a technology. There were other parties that you are very aware of their names, which we won't comment on that we're trying to get this technology as well and is unique and again I'm not I'm not a.
<unk>, a biologist, but I can I'll give you the Todd Becker view and then we can certainly do a teach in later on on this technology, but.
The traditional Saf alcohol to jet technologies is a four step process to a five step process.
And it's breaking the carbon chain, the double bond between carbon and carbon.
And thats the difference its ethanol ethylene and ethylene through the through the traditional.
Steps of alcohol to jet what's different about this technology. Its a three step process and it's a double bond between carbon and oxygen much easier to break and that's what the catalyst really sets us up for so first thing we have to do.
As we have to optimize the catalyst we knew we had to do that.
When we partnered first with tallgrass to get control of the technology with P&L to develop it we knew we had to optimize the catalyst we quickly quickly.
Our approach to by Airlines, and specifically, United where we felt we wanted a partner we knew we could sell the alcohol to jet we were worried about that we knew that we knew that that was easy to do but the vision of United to say, we're committed we want to help optimize the catalyst we want to partner with you financially we want to make sure we get the fuel in either.
Denver or and be efficient in Denver, and or Chicago, we want tallgrass can move it for us and we want Green plains to supply as the low carbon alcohols through both what we're doing on a direct injection the east versus carbon pipelines in the west end.
And when you put all that together, it's a very very valuable partnership so first and foremost this year optimized catalyst move as fast as we can we're working with global experts to do that secondly, while we're doing that start to.
Think about what the pilot plant will look like and where it will be located close to a green plains plant are on site with one of our plants in between what I would say Denver and Chicago. So you can use your imagination of where that will go but.
And then from there we are we engineer we put a pilot plant in place we are each committed upon successful.
Optimization of the catalyst that we would.
Fund a pilot facility for our share and we haven't we haven't.
What each of our shares are but you know you could basically to three partners. So.
And then from there we will.
We'll then move quickly to look upon success of that to look to commercialize the technology. Its a three step process you don't make ethanol ethylene. It's a ketone process. So you can certainly do research on that as well.
But we believe that this is a very interesting technology now.
That doesn't mean, it's going to be the only technology. There are several others out there we hope they're all successful we hope <unk> is successful and I think there'll be many choices for.
Not only industry, but also airlines to make as well as.
How we're going to produce how we're going to produce it as well so excited about it I think.
Most important is the fact that.
The recognition is that if you want to decarbonize jet fuel you're going to have to come through alcohol for volume for share of volume and that could really be the most interesting part of the story, which is you go from.
You go from excess to deficit very very quickly because if you think about it 16 billion gallons of production.
Production today really is only going to convert into 10 or 11 billion gallons of jet, which really isn't that much globally.
So it's.
It's not just going to come down to get a net of credit that's not how this world is going to work, it's going to come down to the fact that it will probably be more expensive than jet fuel.
But in general this is a pull through now they pushed through.
No that's super helpful and I think we'd all.
Thank you up on that.
And if I can I'll tell Phil.
Ill fill that.
If I can follow up with slightly less interesting question more more on the ethanol business and just how youre thinking about the export out outlook for 2023, how much demand do you see moving.
And just your ability to serve that market. Thank you.
Canada's robust I mean, they continue to really drive down or drive programs around low carbon fuels and ethanol is a key component of that we're excited about the volumes that go there everyday but we need the other world and many other parts of the world to engage for sure. We're very competitive as a molecule. If you look at our discount to gasoline and our.
Bob today, we remain at a discount probably still right now the cheapest molecule on the planet for octane octane values still remain very very intact.
So I think its engagement is as I said the world needs to continue to open up and I know, it's a broken record and I can't even believe we're still talking about it but we.
We still need China to open up post COVID-19 and and bring demand back online and I think that's going to be the real driver of that probably puts a bid back into gasoline, but also.
Puts a bit in the molecules. They can go in the fuel tank as well.
I think what's also really interesting is not just exports, but when you look at and I know these are easy states, Minnesota, and Iowa blend rates are up to over 12% now and up to 12 12 or 12% is because.
You can blend 15 pretty much year round and a lot of states at this point and so we think that will continue to increase as our value proposition remains and ultimately this E 50, just get one more percent blend on average across the whole.
The whole industry or the whole gasoline supply in the United States, that's pretty much cleaned up our excess and it really changes the view of where this ethanol industry can go. So if you kind of look into your Crystal ball and you say to yourself Yeah, Canada is really strong we're still doing business with the rest of the world are still exporting some ethanol we're still exporting some b grade those type of things are still happening.
But you can kind of take a look at what little more percentage of blend in the United States, a little more export demand moving to SaaS you can move very quickly on this margin structure and I think that's what we're all looking forward to.
Mark.
Thank you so much.
Thank you.
Our next question comes from Laurence Alexander from Jefferies. Please go ahead. Your line is open.
Hi, Good morning. This is actually on for Laurence. Thank you for taking my question.
So actually most of my questions have been asked but I'm just to hop back on the SaaS JV that you guys announced recently.
So just wondering.
Thank you sure how much you thought maybe this could contribute once it's up and running on a run rate business when rate basis to your earnings, but if you could share any thoughts around that I'd appreciate it.
And maybe just an adjacent question I guess I guess, how you guys think about IRR for the project and JV you get involved in.
So any color on that would be helpful. Thank you.
Yes, I mean first of all I mean, when we look at the IRR is of all the stuff that we do whether it's protein, which I think as we indicated.
Our long term.
And short term now.
Projections, we're still remain intact.
As we spread as we open up more of these msc's everyday.
<unk>.
The projected rate of returns.
We will be.
What we believe is something that we can do because of even where we're selling the first products.
Top of that with corn oil finally, spreading real volumes across these costs cost of startups are high and so we have to we have to always take that in consideration and just takes time to scale up.
But over the long term, we absolutely are on track and our Cornell systems. Obviously, they they are they returned very well our sugar system. When we look at the cost.
<unk>.
Construction and getting these things up and running versus the margin.
Opportunity if today, we are up and running it will be pretty close to almost a one year payback, but we're not up and running so we don't really know where that's.
Going to be when we get there, but even in our initial thoughts.
Base margin available was.
It was in the 60 cents a gallon range just for <unk>.
Producing sugar at at the traditional value of production and additional sales price.
And cost, we think is less than less than.
Two times that so less than a two year payback on traditional pricing and potentially better than that on current pricing for dextrose. So.
When we go when we moved to that obviously rate of returns are high and then and then it comes down to alcohol to jet alcohol to jet is a multi step process for us on a returns first return is the fact that we decarbonize our alcohol.
We get opportunities to increase our margins just from that alone from the IR E from putting putting carbon in the ground and monetizing the alcohol all the way through then producing the jet.
At a full scale facility, which at this point, we're still determining what the economic model would be for that and whether we need to really on a a T J plant or whether whether our supply agreement will be adequate and we will just sell the technology or or have somebody else build it with our technology. So there's obviously things we can look at there as well.
What expertise do we have in house versus versus others, but.
I think the <unk> will be consistent with everything else that we've been doing.
Great. Thank you.
Okay.
Our next question comes from Eric Stine from Craig Hallum. Please go ahead. Your line is open.
Hi, everyone. Thanks for taking the questions.
Thank you.
So just on high pro.
I know you talked about 50% spoken for you expect.
Repeat buys here as the year progresses.
Maybe first could you just talk about the nature of the contracts. The typical length of the contracts and then maybe from a high level. What do you think the right number is in terms of locking that in.
Just when you think about moving.
Moving up the J curve and also given pricing dynamics in the market yeah.
That's something we face that we face a question daily.
It's not just spoken for by the well, let's just make sure we're clear it's sold.
Sold and priced so I think that's important for our <unk>.
Investors and our shareholders and our stakeholders to understand it.
<unk>.
Almost sold out for the first half of the year. So we did want to keep some volume back because we do have new customers showing up every day, we've had to say our first nose to customers as well.
Which is a which is good and bad right. Because we do know that pricing then becomes more interesting, but we've had we've put a sales plan together before we reach 2023 and where we thought.
We would sell all of our production.
And that ebbs and flows again, depending on who shows up and when they show up and we're already working on 2024 partnerships to replace corn gluten meal and certain rations around the world today. So just to let you know we're already focused on 2020 forward looking past 2023 at higher protein levels. So we have to keep some back because of the last half of the.
Year is really when.
When our sales team is going to believes we're going to hit and aqua as well, but more globally than domestically because we are already shipping <unk>.
Volumes into global Aqua players and they are in the rations today. So we're holding some of those volumes back for the last half of the year. We also know that.
Some of these large customers.
Have put us in the ration and expect us to be there when they come back for the rest of the year.
So we understand how we price and I've indicated to you on that we also understand that we have made a commitment to say that we will be there for you.
Two by supply from Us and we've had customers that we had in for 3000 tonnes and our sales estimate they came in for 30000 tons. We had 5000 tons. They came in for 50000 tons.
I mean, what we're seeing is truly.
Game changing from our perspective and they are realizing there is something very special about this product is very different than traditional proteins that they've had before the amino acid profile is very very different the fact that they get 20% to 25% east in their product very very different than Brian just corn gluten meal or Jeff.
Soybean meal and so those will all get fat Theres no worry we're not displacing demand we're nowhere supply I mean, the demand is growing so fast for all proteins it'll all get fed, but what we're finding is that we have a unique characteristic that the market's liquid looking at and we continue to develop from there. This is a taylor we can tailor this.
Project.
Taste and nutritional profiles and we believe that.
In the coming year, we will make breakthroughs on that as well so and I gave you a little bit of a hand in the script on that so look.
We don't want to sell out for the year, because if we do we don't have anything for even higher value customers. When they show up understanding that we're going to have everything from 50 pro customers that more of a.
As a soybean meal type pricing or.
DDG plus pricing versus customers that we move up to a higher protein levels, where we can now start to get towards corn gluten meal pricing.
Soy concentrate pricing and moving towards potentially somewhere.
Towards fishmeal pricing, depending on the product. So I will tell you one thing that is our fluid quip team is.
Absolutely focus on not just on 60 pro but higher than 60 pro they believe that they will have products that will go all the way up and that's the thing we really need to start focusing on is that yes.
Yeah, we wanted to make sure we put base volumes in place we wanted base load out we wanted to show the market number one we could sell the product we can achieve the returns we can get inclusion rates.
Yes, I mean, it certainly hasn't been easy, but once we have real volume customer showed up and I think that's the most important thing.
Okay. Thanks Todd.
Thanks I appreciate it.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question comes from Salvator Tiano from Bank of America. Please go ahead. Your line is open.
Yes.
So my first question is on the some of the.
Partnership for CNS.
It's going to be I guess, that's part of the first project is gonna be gone in less than two years and as I said 495.
<unk> have some income here. So can you start quantifying it will be to whether we should expect because it's very easy obviously to do the marshalls the.
Carbon sequestration, we said.
IRA payments and some of your expenses, but this.
Clearly project, where youre, putting more capital, but also you are making on your fraction.
Benefits. So can you help us size the benefits of 225 personally and secondly, given the irate pregnancy it somehow.
I guess they are for.
For a local Ccs projects, where ethanol windup.
Doing the project by yourself, which could yield.
40 to 50 million Brophy.
Per year.
Yes, we're going to have a wide variety across our platform of different things, we could do with carbon.
Obviously don't forget the IAA the big part of the IRA the clean fuel production credit is 2025 to 2027, so we do need that extended.
And yes, you could certainly.
Gain a large advantage in the early years.
But it still takes time to get direct inject classics wells in approved and that's something you have to weigh versus the timing of 25% to 27% Greenfield production versus having a <unk>.
Partnership with a summit in the ground early and achieving some of those returns early and so.
Summit realizes as well that you know there's a lot of dollars on the table and.
I think they've already.
Are they understand that the opportunity for the whole universe has become bigger in and there is no question in my mind that.
Our opportunity is bigger, but I think.
Where we're really at his speed, which is critical if you look at the pipeline. We're on there are two thirds done in Iowa.
They have poor space done and number.
And in North Dakota, they've got they've got storage. That's ahead of everybody else at this point announced now obviously some people may not announced but we havent heard much on the right of ways from others. We haven't heard much on floor space for others are the.
Permits are being pulled you know our projects got pulled in Illinois on.
On these big these big storage spaces, but.
We like where we're at I mean look in Indiana, we're focused on on a direct inject project in Illinois and in Tennessee, We're focused with two of tallgrass in Osaka on converting that.
Two.
Two syngas <unk> methane fuels.
In Iowa, and Nebraska were focused on sequestering, our carbon and yeah. You can look at different economics, but at the end of the day.
Now the IAA is going to be really really important and can make us a lot of money, everybody and it's going to but more importantly, decarbonising our products for the long term, having low protein extra or low carbon dextrose member dextrose already before we even decarbonize.
Is 40% to 50% lower carbon intensity than what comes out of a wet mill today.
We've gotten we've gotten that analysis done that's before we even sequester carbon to the value of low carbon dextrose will be very very high and what you do with that and chemicals down. The road, we will be very very big opportunity. So you've got to kind of weigh capital efficiencies, we're very capital efficient with what we're doing on the pipeline because there is no capital so while.
The return maybe a little bit lower we could still do things at each of those plants around combined heat and power systems.
That's 5% to 10 carbon points at <unk> <unk> per point per carbon per Ci score, that's federal cap better capital efficiency than necessarily putting it investing in making sure that we do direct inject so.
I think there's pluses and minuses at what we have to focus on is what's the very very best return for our shareholders and how do we allocate capital where do we get the capital from so.
When we look at cogeneration combined heat and power, we have plenty of tax equity interest in that plenty of partnership interests on people that do cogeneration everyday they'll look at it from a 20 year standpoint, while we get the rest of it so.
We're focused on all of that.
But I think theres going to be many many ways to play the IRA many ways to play the clean fuel production credit how long will it last and what we wanted to focus on first and foremost at Green Plains.
As things that arent subject to government policy risks and pen stroke risk protein.
Sugar Dextrose, that's not a government policy risk and the margins there are significant so we want to be set up for all opportunities.
But this this IRA certainly is something we didn't anticipate and it's going to bring significant value for our shareholders in many many different areas.
I guess.
I'm back.
So at some point that my comment.
It was mostly on the IRA credits, where you got it.
There is no need to carry out that there is no plan to 25% to 27 need to be online I guess, that's where I think most of their general account.
Just one actually if I could just there is a you want to be in as fast as you can to those three years will be very robust. So you want to go after all of that that you can as fast as you can.
And if you just go direct inject everywhere you will not get all your classics wells done so you're going to have to kind of make your bets depending on how fast you can be online.
And you want to go after some of that stuff very very early in the process because after 27, it reverts back to the.
The 45, Q and whatever the programs right now we believe I will tell you. This from our discussions is that the CFPB will get extended.
But today the program in place as you want to be as fast as you can sequestering carbon as early as you can into 25 to 27 time area time time area.
Okay perfect. Thank you very much.
Thank you very much.
We have no further questions I would like to turn the call back over to Mr. Becker for closing remarks.
Yeah, Thanks, everybody for being on the call a little over an hour I know it went a little long, but it was the end of the year and we had a lot to update as you can see we're making great progress on our four pillars protein. We gave you more of a look under the hood than we ever have before and our confidence grows every single day that we're going to move up the curve and higher values and higher protein.
Levels.
Oil and renewable low carbon oils veg oils opportunity is still there.
Values are still strong, yes, a little off from the highs, but with a lot of demand coming out of this year and even more importantly, their transformation from.
Renewable diesel to sustainable aviation fuels sugar business.
Our enthusiasm there we are on track we want to be there the margins are robust best in.
Anything we can do today, and lastly de carbonization and our opportunities and you can see the importance.
Of Decarbonize the alcohol in all of these processes exciting about that kind of deal with the headwinds we get it we'll get past it.
We have we're in a great position financially at this point.
And we think we're set up very well to start to achieve our $2425 26 guidance that we laid out with opportunities for upside. So thanks for supporting US and we'll talk to you next quarter. Thanks.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Okay.
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