Q2 2024 Green Plains Inc Earnings Call

Good morning and welcome to the Green Plains in second quarter 2024 earnings conference call.

Operator: Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in listen-only mode. I will now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations and Finance. Mr. Boggs, please go ahead.

Following the company's prepared remarks, instructions will be provided for Q&A.

At this time, all participants are in listen-only mode. I will now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations and Finance. Mr Boggs, please go ahead.

Phil Boggs: Thank you and good morning, everyone. Welcome to Green Plains Inc.'s second quarter 2024 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer, Jim Stark, Chief Financial Officer, and several other members of Green Plains senior leadership. There is a slide presentation available, and you can find it on the investor page under the events and presentations link on our website. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events.

Speaker Change: Thank you and good morning everyone. Welcome to Green Plains Inc. second quarter 2024 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer, Jim Stark, Chief Financial Officer, and several other members of Green Plains senior leadership team.

Speaker Change: There is a slide presentation available and you can find it on the investor page under the events and presentations link on our website.

Phil Boggs: These statements are based on current expectations and assumptions that are subject to risks and uncertainty. The actual results could materially differ because of factors discussed in today's press release. In 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. Now, I'd like to turn the call over to Todd Becker.

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 release. In 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.

Todd Becker: Thanks, Phil. Good morning, everyone.

We do not undertake any duty to update any forward-looking statement. Now I'd like to turn the call over to Todd Becker.

Todd Becker: Thanks for joining our call today. Margins began to turn higher later in the second quarter, driven by a change in the fundamentals, and U.S. ethanol is once again the lowest-priced molecule on the planet. We ended the quarter on track for potentially record exports for 2024, and the world has returned to the U.S. to buy low-carbon fuels, led by expanded use in Canada and many other countries. Even sitting at over 23 million barrels of stocks for most of the quarter, we saw a nice margin expansion as we entered the third quarter. Favorable natural gas and corn prices also helped as fuel prices remained elevated and continued to stay that way with strong driving demand. As everybody knows, air travel is mostly a challenge.

Todd Becker: Thanks, Phil. Good morning, everyone. Thanks for joining our call today. Margins began to turn higher later in the second quarter, driven by a change in the fundamentals, and U.S. ethanol is once again the lowest-priced molecule on the planet.

Speaker Change: We ended the quarter on track for potentially record exports for 2024, and the world has returned to the U.S. to buy low-carbon fuels, led by expanded use in Canada and many other countries.

Speaker Change: Even sitting at over 23 million barrels of stocks for most of the quarter, we saw a nice margin expansion as we entered into the third quarter.

Speaker Change: Favorable natural gas and corn prices also helped as fuel prices remained elevated and continue to stay that way with strong driving demand. As everybody knows, air travel is mostly a challenge.

Todd Becker: Fundamentals remain strong for the balance of the year as we expect Brazil to be short of export products in the fourth quarter, so we have the potential to have this market somewhat to ourselves as we remain competitively priced in the world. As a result, we delivered positive second-quarter EBITDA, significantly higher than last year's second quarter and higher than the prior quarter, but still not to our satisfaction as our operating costs on a per gallon basis were somewhat elevated since we had six scheduled maintenance turnarounds during the quarter.

Speaker Change: Fundamentals remain strong for the balance of the year as we expect Brazil to be short export products in the fourth quarter so we have the potential to have this market somewhat to ourselves as we remain competitively priced in the world.

Speaker Change: As a result, we delivered positive second quarter EBITDA, significantly higher than last year's second quarter and higher than the prior quarter, however, still not to our satisfaction as our operating costs on a per gallon basis were somewhat elevated since we had six scheduled maintenance turnarounds during the quarter.

Todd Becker: This sets us up for strong run rates for the balance of the year. Our utilization remained consistent in the 93% range, inclusive of completing our spring maintenance, as mentioned, which tells you we are really seeing the results of investments made when we were experiencing lower run rates. We also continue to work through some of the equipment refreshes at Mt.

Speaker Change: This sets us up for strong run rates for the balance of the year. Our utilization remained consistent in the 93% range, inclusive of completing our spring maintenance as mentioned, which tells you we are really seeing the results of investments made when we were experiencing lower run rates.

Todd Becker: We mentioned Vernon and O'Bien last quarter and believe we will begin to see the positive impact of that in the second half of the year, which should take our run rates even higher, as both of those plants remain somewhat hampered while we await conveyor replacements for both of them, and for O'Bien specifically, a new thermal oxidizer that should help both ethanol and ultra-high protein production. When this is complete, it will unlock an additional 40 million gallons of capacity, and that can put us up in the high 90s run rates as a percentage. Our renewable corn oil yields had a quarterly platform record of 1.02 pounds per bushel across all of our sites.

Speaker Change: We also continue to work through some of the equipment refreshes at Mount Vernon and Obion we mentioned last quarter and believe we will begin to see the positive impact of that in the second half of the year.

Speaker Change: which should take our run rates even higher, as both of those plants remain somewhat hampered while we await conveyor replacements for both of them, and for obion specifically, a new thermal oxidizer that should help both ethanol and ultra-high-protein production.

Speaker Change: When this is complete, it will unlock an additional 40 million gallons of capacity, and that can put us up in the high 90s run rates as a percentage.

Speaker Change: Our renewable corn oil yields had a quarterly platform record at 1.02 pounds per bushel across all of our sites.

Todd Becker: We challenged our operations team to improve that number after lower Q1, and they certainly delivered. Looking forward, margins for Q3 are all in, ranging in the high 20s to the high 30s per gallon. On paper, the fourth quarter is starting to pick up steam late as well.

Speaker Change: We challenged our operations team to improve that number after lower Q1, and they certainly delivered. Looking forward, margins for Q3 all in, are ranging in the high 20s to high 30s per gallon. On paper, the fourth quarter is starting to pick up steam as late as well.

Todd Becker: We have hedged some of the third quarter production as margins were peaking in July above current levels, and those hedges are at or above current levels to ensure that we can deliver a strong third quarter. If you look at the simple crush, we reached three standard deviations from the mean.

Speaker Change: We have hedged some of the third quarter production as margins were peaking in July above current levels, and those hedges are at or above current levels to ensure that we can deliver a strong third quarter.

Todd Becker: It was just something we could not turn down, but we still have plenty of upside on unhedged gallons. But so far, that absolutely was the right decision. We don't make random decisions from our trading and risk team, and we do consult our board, which we all have been very cautious and thoughtful about these decisions. We review them at every board meeting and on subsequent calls with the board. We discuss current fundamentals and hedging strategies, but we do continue to have a favorable outlook for the balance of the year as the market is backward, so spot margins remain the best.

Speaker Change: If you look at the simple crush, we reached three standard deviations from the mean, it was just something we could not turn down, but we still have plenty of upside on unhedged gallons, but so far that absolutely was the right decision.

Speaker Change: We don't make random decisions from our trading and risk team, and we do consult our board, which we all have been very cautious and thoughtful about these decisions.

Speaker Change: We review at every board meeting and on subsequent calls with the board. We discuss current fundamentals and hedging strategies, but we do continue to have a favorable outlook for the balance of the year as the market has backwarded, so spot margins remain the best.

Todd Becker: The fourth quarter is at the long-term mean, and we have very limited hedging out forward, so we want to take advantage of the strong left half that we are expecting. The corn crop appears to be in excellent shape, which the USDA continues to reaffirm with abundant anticipated ending stocks. The crop that will be harvested this year puts Green Plains in a much better spot in both the eastern and western Corn Belt than in recent years.

Speaker Change: The fourth quarter is at the long-term mean and we have very limited hedging out forward so we want to take advantage of the strong left half that we are expecting.

Speaker Change: The corn crop appears to be in excellent shape, which the USDA continues to reaffirm with abundant anticipated ending stocks. The crop that will be harvested this year puts Green Plains in a much better spot in both the east and western Corn Belt than the recent years.

Todd Becker: Our turnkey JV with Darrylson started up in the second quarter, and we welcome the opportunity to provide additional high-protein production to our growing list of customers. This is the largest project we have built to date, and while we continue to de-bottleneck, we have started shipping product to customers. Commissioning our CST, or Clean Sugar, project in Shenandoah has been ongoing. The start-up of Serial No.

Speaker Change: Our turnkey JV with Arilson started up in the second quarter, and we welcome the opportunity to provide additional high-protein production to our growing list of customers. This is the largest project we have built to date, and while we continue to de-bottleneck, we have started shipping product to customers.

Speaker Change: Commissioning our CST, or Clean Sugar, project in Shenandoah has been ongoing. The start-up of Serial No. 1 is not without its fits and starts, but our Green Plains engineering and operations team, along with flu-equipped engineering teams,

Todd Becker: 1 is not without its fits and starts, but our Green Plains engineering and operations team, along with flu-equipped engineering teams, have worked non-stop to sort out some manufactured equipment challenges while de-bottlenecking to best optimize this exciting new facility. Most of the issues so far are from construction and equipment and not from the technology. Customers have been very patient with us as we work through this startup, and interest in our products remains very, very strong.

Speaker Change: have worked non-stop to sort out some manufactured equipment challenges while de-bottlenecking to best optimize this exciting new facility. Most of the issues so far are from construction and equipment and not from the technology. Customers have been very patient with us as we work through this startup, and interest for our products remain very, very strong.

Todd Becker: Finally, in our carbon capture strategy, we are pleased that our ADDvantage Nebraska approach is on track as we have the compression equipment needed for our three Nebraska plants ordered. We are very happy with the short lead times and expect construction of our compression sites to begin later this year. The Trailblazer project remains on pace for starting up in the second half of 2025. We can talk about economics later in the call, but we feel strongly the value of decarbonized ethanol assets is not correctly reflected in our current enterprise value, and we continue to closely monitor the progress of our Iowa and Minnesota assets on Summit as they continue to work through permitting. We're also looking at our Indiana asset as we feel there's plenty of opportunity in the eastern Corn Belt to sequester carbon in geologic formations in and near Indiana.

Speaker Change: Finally, in our carbon capture strategy, we are pleased that our Advantage Nebraska approach is on track as we have the compression equipment needed for our three Nebraska plants ordered.

Speaker Change: We are very happy with the short lead times and expect construction of our compression sites to begin later this year.

Speaker Change: The Trailblazer project remains on pace for starting up in the second half of 2025. We can talk economics later in the call, but feel strongly the value of decarbonized ethanol assets are not correctly reflected in our current enterprise value.

Speaker Change: We continue to closely monitor the progress of our Iowa and Minnesota assets on Summit as well, as they continue to work through permitting. We are also looking at our Indiana asset, as we feel there is plenty of opportunity in the eastern Corn Belt to sequester carbon and geologic formations in and near Indiana. Again, more later on the overall carbon strategy and economics.

Todd Becker: Again, more later on the overall carbon strategy and economics. However, one final update on the strategic review. As we indicated in the morning's release, the special committee of the board assisting the full board in evaluating alternatives has engaged Bank of America and Vincent & Elkins, LLP, as financial and legal advisors. As we continue to execute on our strategic review and transformation strategy, we have announced the sale of the Birmingham Unitrain Terminal as only one part of that.

Speaker Change: One final update on the strategic review. As we indicated in the morning's release, the Special Committee of the Board assisting the full Board in evaluating alternatives have engaged Bank of America and Vincent & Elkins, LLP, as financial and legal advisors.

Speaker Change: As we continue to execute on our strategic review and transformation strategy, we have announced the sale of the Birmingham Unit Train Terminal as only one part of that. We will apply these proceeds to help retire the remaining balance of high-priced partnership debt.

Todd Becker: We will apply these proceeds to help retire the remaining balance of high-priced partnership debt and strengthen the overall financial position of the company. This will allow us to complete the streamlining and efficiency gains we anticipated after the acquisition of Green Plains Partners in early January. Again, this sale is only one piece of the broader initiative. And now, I'll hand over the call to Jim to provide an update on the overall financial results. I'll come back on the call to provide an updated policy outlook and discuss our progress on our initiatives in more detail.

Speaker Change: strengthened in the overall financial position of the company.

Speaker Change: This will allow us to complete the streamlining and efficiency gains.

Speaker Change: We anticipate it after the acquisition of Green Plains Partners in early January . Again, this sale is only one piece of the broader initiative.

Speaker Change: As of now, and now, I'll hand over the call to Jim to provide an update on the overall financial results. I'll come back on the call to provide an updated policy outlook and discuss our progress on our initiatives in more detail.

Jim Stark: Thank you, Todd, and good morning, everyone. Green Plains consolidated revenues for the second quarter were $618.8 million, which was $238.8 million, or approximately 20% lower than the same period a year ago. The lower revenue is attributable to lower prices for ethyl and dry distillers grains in Q2 of 24 as compared to the same period a year ago. While we also saw a drop in our commodity inputs with corn and natural gas down significantly year over year, margin opportunities did improve in the second quarter compared to the prior year and prior quarter as a result of these lower input prices.

Jim Stark: Thank you, Todd, and good morning, everyone.

Jim Stark: Green Plains consolidated revenues for the second quarter were $618.8 million, which was $238.8 million, or approximately 20% lower than the same period a year ago.

Jim Stark: The lower revenue is attributable to lower prices for ethyl and dry distillers grains in Q2 of 24 as compared to the same period a year ago.

Speaker Change: While we also saw a drop in our commodity inputs with corn and natural gas down significantly year-over-year, margin opportunities did improve in the second quarter compared to the prior year and prior quarter as a result of these lower input prices.

Jim Stark: As Todd stated earlier, our plant utilization rate was 93% during the second quarter, compared to the 81.5% run rate reported in the same period last year, which was impacted by the shutdown of Wood River. Q2 2024 was slightly better than the first quarter this year, and for the trailing four quarters, we have averaged a 94% utilization rate. We anticipate our plants to continue to perform in this mid-90% range of our stated capacity for the rest of this year, barring any events outside of our control.

Jim Stark: As Todd stated earlier, our plant utilization rate was 93% during the second quarter, compared to the 81.5% run rate reported in the same period last year, which was impacted by the shutdown of Wood River.

Todd Becker: Q2 2024 was slightly better than first quarter this year, and for the trailing four quarters, we have averaged a 94% utilization rate.

Jim Stark: We anticipate our plants to continue to perform in this mid-90% range of our stated capacity for the rest of this year, barring any events outside of our control.

Jim Stark: For the quarter, we reported a net loss attributable to Green Plains at $24.35 million, or $0.38 per diluted share, compared to a net loss of $52.6 million, or $0.89 per diluted share, for the same period in 2023. EBITDA for the quarter was $4.8 million, compared to $-15 million in the prior year period. Appreciation and amortization expense was lowered by $3 million versus a year ago of $21.6 million. We realized $22.7 million in consolidated crush for Q2 of 2024 compared to $4.6 million in the same period of 2023.

Jim Stark: For the quarter, we reported net loss attributable to Green Plains of $24.35 million, or $0.38 per diluted share, compared to net loss of $52.6 million, or $0.89 per diluted share for the same period in 2023.

Speaker Change: EBITDA for the quarter was $4.8 million compared to $-15 million in the prior year period.

Speaker Change: Depreciation and amortization expense was lower by 3 million versus a year ago of 21.6 million. We realized at 22.7 million dollars in consolidated crust for Q2 of 2024 compared to 4.6 in the same period of 2023.

Jim Stark: For the second quarter, our SG&A costs for all segments were $34 million, slightly higher than the prior year's number of $33.3 million due to some higher property taxes at some of our locations. Interest expense was $7.5 million for the quarter, which includes the impact of debt amortization and capitalized interest. This was $2.2 million favorable to the prior year's second quarter. This decrease is primarily driven by lower debt balances offset by slightly higher interest rates quarter-to-quarter.

Jim Stark: For the second quarter, our SG&A cost for all segments was $34 million, slightly higher than the prior year's number of $33.3 million due to some higher property taxes at some of our locations.

Speaker Change: Interest expense was $7.5 million for the quarter, which includes the impact of debt amortization and capitalized interest. This was $2.2 million favorable to the prior year's second quarter. This decrease is primarily driven by lower debt balances offset by slightly higher interest rates quarter to quarter.

Jim Stark: With the sale of the Birmingham terminal anticipated this quarter and the subsequent payoff of the partnership debt, we expect our interest expense to decrease by approximately $1.8 million per quarter starting in Q4 of 2024. Our income tax for the quarter was a benefit of $300,000 compared to a tax benefit of approximately $1 million for the same period last year. And at the end of the quarter, the federal net loss carry-forwards available to the company were $92.6 million, which may be carried forward indefinitely. A normalized tax rate for the year excluding minority interest is around 24%. We anticipate that our tax rate in 2024 will continue to be around that 24% mark.

Jim Stark: With the sale of the Birmingham terminal anticipated this quarter and the subsequent payoff of the partnership debt, we expect our interest expense to decrease by approximately $1.8 million per quarter starting in Q4 of 2024.

Speaker Change: Our income tax for the quarter was a benefit of $300,000 compared to a tax benefit of approximately $1 million for the same period last year.

Speaker Change: And at the end of the quarter, the federal net loss carry-forwards available to the company were $92.6 million, which may be carried forward indefinitely. A normalized tax rate for the year excluding minority interest is around 24 percent.

Speaker Change: We anticipate that our tax rate for 2024 will continue to be around that 24% mark.

Speaker Change: Our liquidity position at the end of the quarter decreased $52 million from the prior quarter due to capital investments and results from operations.

Speaker Change: Our liquidity included $225.1 million in cash, cash equivalents and restricted cash, along with approximately $219.6 million available under our working capital revolver.

Speaker Change: As a reminder, in May of this year, we did refresh our S3 as a routine transaction due to expiration of our prior shelf filing. We have no intent of issuing equity execute on the foreseeable transformation plan.

Speaker Change: For the second quarter, we allocated $18 million of capital across the platforms, including $5 million to our Clean Sugar Initiative, approximately $4 million to other growth initiatives, and approximately $9 million towards maintenance, safety, and regulatory capital.

Speaker Change: On a year-to-date basis, we've incurred capital expenditures of around $39.5 million, and we anticipate CapEx for the total of 24 will be in the range of $90 to $110 million.

Speaker Change: This range excludes approximately $110 million in cart and capture equipment needed for our Nebraska initiatives that we have financing lined up to cover those needs. Now I turn the call back over to Todd.

Todd Becker: Thanks Jim. So when we laid out a vision of our transformation, Green Plains 2.0, we capitalized on the opportunity to increase our focus on ingredients that matter and invest in technology to transform our ethanol plants into a true low-carbon biorefinery platform. So I want to look back at what we've accomplished and what there's left to do for the future. Our first MSC system came online during 2020. We all know the challenges of that year, and we started shipping product in April of that year with a pet food customer that we still have today and continues to grow their volume.

Todd Becker: Thanks, Jim. So when we laid out a vision of our transformation, Green Plains 2.0, we capitalized on the opportunity to increase our focus on ingredients that matter and invest in technology to transform our ethanol plants.

Todd Becker: into a true low-carbon biorefinery platform. So I wanted to look back at what we've accomplished and what there's left to do for the future. Our first MSC system came online during 2020. We all know the challenges of that year. And we started shipping product in April of that year with a pet food customer that we still have today and continues to grow their volumes.

Speaker Change: Since then, we have completed the MSC deployment at four other facilities, as well as our turn-key JV partner facility, bringing total production capacity to over 430,000 tons a year. So as we know, this is a long game to introduce products that sell at a premium. And while the domestic markets

Speaker Change: have ebbed and flowed, our global reach continues to grow and that is where we achieve our best margin profile outside of the US pet sales that we have.

Speaker Change: These are high-value, nutritious feed ingredients that the market was looking for, but didn't exist four years ago. And we continue to make inroads with our sequence products as well.

Todd Becker: Our innovation teams are constantly focused on developing and improving the way we make sequence, with the customer always front of mind, through enzymatic and biological enhancements and potential reconfigurations of mechanical processes to further increase yields.

Speaker Change: Sequence production involves a series of biological and mechanical processes that are being used in different ratios to lower the cost of production while increasing digestibility and nutritional uplift for our customers.

Todd Becker: Our 50% protein is now a stable, ongoing business, and we achieved our highest yield yet across the MSC platform in June of 3.5 pounds per bushel. While this was the target yield of our original investment thesis,

Todd Becker: We believe we will continue to make improvements and achieve higher production from our current platform as every quarter we tweak these systems to run more efficiently and learn a lot as we're doing it.

Todd Becker: In addition to producing these nutritious ingredients, this technology increases our renewable corn oil yields, and while we have seen our yields increase across the platform, even to a record, we still have additional opportunities to improve those yields and increase production across our existing asset base in both protein and corn oil.

Speaker Change: More importantly, as of late, we've seen protein markets remain strong during the backdrop of a weaker corn market, which was really the opposite in the first four or five months of the year.

Speaker Change: We are trending back to the original price spread of $200 a ton and with higher Cornell contributions.

Speaker Change: As we saw corn oak trade over soil oil as of late, we are beginning to see better margins for all of our products. As we said, protein markets will absorb new production quicker than anyone can imagine, and we still believe that.

Speaker Change: In our sequence development, we have trials and negotiations ongoing with multiple large customers, some using the product today and some that could take at least one of our plants' entire production capacity for sequence and enough identified

Speaker Change: We continue to optimize how the sequence system operates with new enzyme cocktails, and we are in the process of making some minor capital investments to support that production in Wood River in Central City.

Speaker Change: We expect to make progress on our sequent sales book and grow that throughout 2024 and 2025 as we lock in business and complete our capital improvements to make the product more efficiently. We have a customer base that is ready to grow with us and some are now becoming repeat customers.

Speaker Change: We have also built the world's first clean sugar facility with dextrose that has up to 40% lower carbon intensity than that of competing products. This innovative technology was a primary reason we bought and invested in FluEquip and seeing this project through the completion position of the company for a transformative future.

Speaker Change: While carbon sequestration, protein, oil, and ethanol are all really exciting for the future, there still remains nothing more transformative to our financial future and enterprise value than CST.

Speaker Change: The margin profile remains consistently better than anything else we can do straight up.

Speaker Change: and from a risk-adjusted point of view as well. Yes, we will have some big margins across ethanol from time to time.

Speaker Change: But that is a true commoditized product, while Dextrose is completely opposite.

Speaker Change: While it may be taking a little bit longer than expected, owning and controlling this technology in what could be a breakthrough moment for the company is really the big opportunity that we have. It is a product that has a moat and a technological advantage that it's hard to replicate.

Speaker Change: And finally, over the last four years, we have positioned the company for the future of decarbonization and to be in the position as an early, large-volume, low-carbon-intensity feedstock provider to both fuel markets and, in the future, alcohol-to-jet, sustainable aviation fuel industry as it develops.

Speaker Change: With four facilities committed to Summit Carbon Solutions and three Nebraska-Phillips facilities committed to Trailblazer and the Indiana Opportunity Mention,

Speaker Change: We stand ready to capitalize on decarbonization to significantly lower the carbon intensity, or CI score, of our biofuels, providing the world with an advantaged liquid transportation fuel.

Speaker Change: While these projects weren't on our radar five years ago when we launched our transformation, the impact of the IRA has caused us to focus more on projects related to decarbonizing our production, especially with the first-mover advantage in Nebraska. To repeat,

Speaker Change: We strongly believe the value of a decarbonized asset is not at all reflected in the current share price or enterprise value.

Speaker Change: So we visited this topic on the last call as well, but with its importance, it's worth revisiting again.

Speaker Change: The 40B SAF regulations were favorable to U.S. corn ethanol with CCS or carbon capture, as we have no reason to believe this will not be reflected in 45Z regulations.

Speaker Change: when those are published as well, possibly even more favorable on how they treat climate-smart ag.

Speaker Change: We believe we could be in the catbird seat with our Advantage Nebraska strategy with 287 million gallons of low-CI ethanol, which could attract serious interest from ATJ, Sustainable Aviation Fuel Producers, related to new products needed to supply, as well as low-carbon fuel markets.

Speaker Change: We considered multiple election scenarios and we believe the repeal of the 45Z Clean Fuel Production Credit is highly unlikely in any case.

Speaker Change: The CO2 pipeline in Nebraska is on track for second half 2025 startup, and the Trailblazer project could be the first sizable decarbonization play in the ethanol industry, and having three facilities connected to that should put us in an advantaged position.

Speaker Change: We continue to evaluate how to best leverage this opportunity and look to possibly increase the production capacity of those while further decreasing carbon intensity. By extension, this will increase the profitability of those sites with such an outsized return on capital in the near term.

Speaker Change: As indicated in our press release, our construction management agreements have all been executed.

Speaker Change: And also keep in mind, the plants in Nebraska currently produce about 800,000 tons of carbon, but the equipment was upsized to 1.2 million tons, both for expanded production as well as other opportunities like post-combustion carbon, which continues to drive even better returns than we expected.

Speaker Change: In summary, Q2 is a quarter focused on executing on the initiatives we have laid out over the past years.

Speaker Change: As we tick off more and more of these important milestones, the vision of where we can be post-transformation

Speaker Change: continues to come more clearly into view, which we can see some of this play out in Q3 as we expect a return to profitability, of course, based on current markets across all of our products. Thanks for joining in our call today, and we can now start the Q&A session. Thank you.

Operator: Thank you, and now we are open to questions. To ask a question, please press star 1 to raise your hand and join the queue. We do request that you please limit your questions to one and one follow-up today, and when called upon to ask your question, that you please unmute your device. Again, that's star 1 to raise your hand and join the queue, and your first question comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead.

Adam Samuelson: from here and when you think you'd be making some of those.

Speaker Change: Thank you and now we are open for questions. To ask a question please press star 1 to raise your hand and join the queue.

Speaker Change: We do request that you please limit to one question and one follow-up today, and when called upon to ask your question, that you please unmute your device. Again, that's star 1 to raise your hand and join the queue, and your first question comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead.

Adam Samuelson: Yes, thank you. Good morning, everyone.

Adam Samuelson: Good morning. Good morning. This is Todd. There was a lot of discussion on future kind of projects and initiatives in your script and especially at the end there.

Adam Samuelson: You outlined a capital budget for this year of $90 to $110 million. You spent a little bit of a step up from the first half run rate, but not much. Can you help us think about...

Speaker Change: The gating items that would drive you to allocate incremental capital, either to expansion in ethanol production in Nebraska, the next clean sugar facility,

Speaker Change: And it was kind of nice to see that now we're coming to a quarter where we could generate free cash flow over and above.

Speaker Change: As soon as we get positive results on that, we'll start to look at where should we increase Shenandoah or should we look to move that to a second site as well.

Adam Samuelson: But at this point, construction costs still remain high to do that, and we want to make sure we do the very best thing for the very best returns today.

Adam Samuelson: as a proportion of the sales mix by the end of the year, and more broadly, what...

Speaker Change: premium you're realizing on all the UHP you're actually selling right now and especially the 60 Pro that is in the sales mix. Thank you.

Speaker Change: We're starting to produce towards our maximum levels that we indicated. What we saw early in the year was really a compression of higher corn prices and lower protein prices, and that really compressed margins during the beginning of the year to levels almost where...

Speaker Change: was then you saw soymilk prices rally, protein prices rally, and corn prices go down, widening us back out to kind of our original thesis.

Speaker Change: We saw corn gluten meal prices come down a little bit against soy prices, so that spread narrowed a little bit between kind of the 50 and the 60 pro, but that really wasn't affecting us much this year. We're really focused on next year.

Speaker Change: And we continue to remain on track to try and get that. But relatively speaking, it does cost money to make 60-Pro. We've got to make sure that spread widens back out.

Speaker Change: You know, to numbers that we saw early on when we made this investment. We still believe that will happen. We know these markets have been slow.

Speaker Change: Make that the cost of making 60 Pro cheaper and cheaper and we have some initiatives around that which we've talked about in the script.

Speaker Change: And that will allow us to get better returns. So absolutely 100%. We have a team focused on it every day, both on 50 and 60 Pro. There's no de-emphasizing this at all in our platform. And as we continue to make progress on that, we will always continually look at where should the technology be next? Blue Equip continues to try to find ways to

Speaker Change: to build those at cheaper cost. And we've seen some of the construction costs come down and they're working on other things like MSC light and other areas of improvement. And then our own internal team as well is looking at how do we improve this product and even get to higher proteins, which we believe we, in the next couple of years, we can see some breakthroughs in that as well, so.

Speaker Change: We're very focused on that because that's where we earn money today while we're gearing up for a low-carbon Nebraska next year.

Collar: All right. Great. I appreciate that, Collar. I'll pass it on.

Speaker Change: Thank you.

Speaker Change: Your next question is from the line of Heather Jones. Of Heather Jones Research, please go ahead.

Speaker Change: Good morning. Thanks for the question.

Heather Jones: I just wanted to go to CST and just was wondering if you could give us an update of what your estimated

Heather Jones: sales pounds for 25 will be and given the much lower CI score are you anticipating a premium to to the conventional corn wet millers product?

Speaker Change: Making product in spec, and that's what we're focused on every day, and once we have that, we're certain that we can sell that product into the market. You know, the capacity of the system is between 2 and 250 million pounds a year.

Speaker Change: Carbon scores, you know, I think when we look at pricing, obviously there is sensitivity about pricing, yes, a low-carbon ingredient certainly has some interesting

Speaker Change: opportunities for for CPG companies and beverage companies and other types of companies but generally speaking it's more about market share getting that but the market is so big when we look at the CST market or the sugar market dextrose market in the United States

Speaker Change: We believe it's a 15 billion-plus pound market, and bringing on 2 or 250 million pounds is not going to disrupt anything. We believe the margins will stay intact.

Speaker Change: Okay, thank you. And my second question is on ethanol margins. So, according to my calculations, they're down roughly 15 to 20 cents from the recent peak, but they're still really strong. And I was just wondering, I mean, because if you look at

Speaker Change: And I know that stocks, they're above last year and they're materially above the five-year average. So I just was curious if you could give us some color on what you think's driving the strength in these margins.

Speaker Change: Is there anything besides the Brazilian short ethanol position in Q4 that you think will help sustain these levels?

Todd Becker: It's really exports, exports, exports. I mean, although we have seen good domestic driving demand as well and good uptake there. But generally speaking, when you look at exports, and you look at what we've been able to do year to date, the capacity that has been that has been sold out of this country, you know, it really has kept everything in check. And, and remember what you see on a weekly basis in the stock; some of it ends up in the Gulf, and it gets re exported. So you might see a 23 million barrel

Speaker Change: It's really exports, exports, exports. I mean, although we have seen good domestic driving demand as well and good uptake there, but generally speaking, when you look at exports and you look at what we've been able to do year-to-date,

Speaker Change: The capacity that has been that has been sold out of this country, you know It really has kept everything in check and and remember what you see on a weekly basis in these stocks Some of it ends up at the Gulf. It gets re-exported. So you might see a 23 million barrel

Speaker Change: position, but a lot of that may sit in the Gulf and not really back at origin or, and then some of it's even in transit. So, disappearance has been really good, and I think that'll continue through the end of the year, mainly because Brazil really doesn't have the extra capacity in kind of September forward.

Speaker Change: And we remain, if you look at the export R, both to Europe and anywhere else, we remain

Speaker Change: Very competitive by 15 to 20 cents a gallon over Brazil at this time, especially as we get later in the year and I don't think demand is going to go away, especially with our low-price molecule that we have. But, yeah, I mean, I'm surprised too. Sometimes I look at 23 million barrels and you've been around long enough to know that.

Speaker Change: Those margins that we're seeing probably are what we've not seen historically.

Speaker Change: But we also, in the last several years, have not seen exports like this either, you know, when we went from a record to a few years ago, you know, five years ago, to really getting down to 1.3 million barrels, and now we're driving back up towards...

Speaker Change: You know, 1.8, 1.9 million barrels potentially, that's a lot of uptick. And I think what we always say is while we see these strong weeks on supply or on production,

Speaker Change: At 1.1 million barrels. Don't think that's sustainable. The industry continues to get older. While we see capacity come on, we see capacity go off. And then we get back into shutdown season here. And it's not very far away for the rest of the industry as well. So, these are kind of the peak areas of production. And then we'll see probably a little bit of that in...

Speaker Change: In the fourth quarter, but you are right, margins have come down from the highs, but that really was driven, not necessarily from the simple crush.

Speaker Change: More than it has been driven from maybe some end-of-the-year high corn basis pockets, but those are coming down as well.

Speaker Change: As well as, you know, some DDG pricing that came down. So, most of that recent downtick was coming from really not the simple crush, but we do believe that basis levels are coming back down and will subside. And we're able to procure some fourth quarter basis.

Speaker Change: and some of our eastern plants at what I would say is below traditional levels that we've seen over the last couple of years just because the crop carryout is so big and the crop coming in is going to be just potentially massive.

Speaker Change: Okay, all right, thank you so much.

Speaker Change: And your next question is from the line of Salvator Tiano from Bank of America. Please go ahead.

Salvatore Tiano: Yes, thank you very much. So, firstly, I want to follow up on, as I know, the export strength.

Salvatore Tiano: Obviously, you know, Canada's more recent regulations are helping, but how should we think about next year and, you know, 2025, 2026, essentially, are there any...

Speaker Change: other dynamics including regulatory ones in key regions or countries that can further increase export demand or are we approaching pretty much a new normal for U.S. exports?

Speaker Change: Listen, if we could stay here as the new normal I think we'd be really in good shape at a 1050 run rate on average.

Speaker Change: Domestic demand sitting where it's at, and exports up here as the new normal. That would be really good, and I also think that, you know, when we're looking at Brazil...

Speaker Change: and you look at kind of the relationship between ethanol and sugar.

Speaker Change: I think they continue to see challenges down there making ethanol, and the demand down there continues to grow as well, so export availability, while certainly at certain times of the year, is good out of Brazil.

Speaker Change: We still believe that we will remain competitive in the world, especially when we start to make lower carbon fuels as well. So those are game changers when you have a low CI.

Speaker Change: This is a list of some of the fuel that you can make in Nebraska or some made in North Dakota, maybe some in Indiana, Ohio that are going to come online. And then obviously the second pipeline down the road.

Speaker Change: You know, these are game-changer times, but, you know, and also E15, you know, now you have permanent E15.

Speaker Change: in eight states.

Speaker Change: That's the first time, I think, ever that we're going to see now that's permanence.

Speaker Change: And we're really working on California as well. So while California is more of an E85 state at this point, the industry continues, and the industry groups continue to work with them as well.

Speaker Change: We're getting more acceptance. I mean, I think you've seen even recently so you've seen

Speaker Change: Some larger refiners calling for an expansion in RVOs.

Speaker Change: And that's probably the first time where I think we're aligned as a fuel industry between ethanol and gasoline, as we know what the battle's against, it's against electrification. And so today we're aligned that whatever we can do to continue to drive

Speaker Change: Higher blends and higher volumes, it's good for everybody and you've seen that recently from some of the refiners and refining organizations supporting E15 nationally and asking for higher RBOs. If we get some of that, that would be really interesting at that point.

Speaker Change: Perfect. And I wanted to check a little bit, you know, you post the...

Speaker Change: high-protein.

Speaker Change: volume sold.

Speaker Change: But can you elaborate a little bit more on the production? If I remember correctly, for the past few quarters, you've been producing more than you're selling. Was this still the case in Q2, and at which point should we expect a volume inflection on top of the production?

Speaker Change: So, like...

Speaker Change: We continue to really sell everything we have. I mean, maybe at the end of the quarter, we might have some stocks in transit or something like that, but we don't really sit on a lot of stocks. Unless we wanna, what we're gonna really try to do is as we ramp up for...

Speaker Change: We'll probably make a little bit of extra 60 pro and hold that for the program as it starts because it just takes time to build up those stocks.

Speaker Change: But generally speaking, we don't really sit on a lot of anything, quite frankly, and we were at our lowest, some of our lowest ethanol stocks in history as a company, some of our lowest internal, some of our lowest DDG stocks as history as a company, and ultra-high protein is really the same. So we expect...

Speaker Change: As we go forward right now, this quarter, around 70,000 tons from Green Plains plus another 25,000 tons at capacity from Arthurillus and JV. So we're going to start to get to 90,000 to 100,000 tons a quarter plus.

Speaker Change: And all of that we'll find at home as well. So, especially as we've seen kind of the protein markets stay at a nice premium to corn.

Speaker Change: Great. Thank you very much.

Speaker Change: And your next question comes from the line of Andrew Strelzik from BMO Capital Markets. Please go ahead.

Ben: Hey guys, this is Ben on for Andrew. Thanks for taking the question. And I just have one today, sort of a longer question though. So what are the key policy milestones that Green Plains and the ethanol industry have on the radar through First Half 25?

Speaker Change: And given some of the recent unfavorable decisions, like the reversal on SREs, and what seems to be delayed deferrals overall, like the 2026 RVO, has your sentiment on the probable outcomes changed at all? And what might be holding back key biofuel policy commitments?

Speaker Change: Thanks.

Speaker Change: You know, I think from our standpoint,

Speaker Change: We've been doing this for a long time, and these questions, you know, obviously continue, and none thus far has really been impactful and positive, you know, in a negative way for us. And we've seen growth in...

Speaker Change: E15, we got the IRA which has 40B regulations, we think there'll be positive upticks on Carbon Smart, ag, agricultural for farmers, we think the last policy came out as a placeholder, we think the 45Z rules.

Speaker Change: are going to be beneficial to us for what we're going to do in Nebraska as well as going back on to the farm and gaining some more...

Speaker Change: Reduction in carbon intensity points as well. And then on top of that, you know, we're watching the low carbon fuel markets and seeing what those values are. But generally speaking,

Speaker Change: From our standpoint,

Speaker Change: , . . . . . . . .

Speaker Change: different types of things that they want to advocate for and they're supporters for carbon sequestration on both sides of the aisle especially on these pipelines coming out of

Devin: Out of the Midwest, as it wasn't really just a Democrat policy, it was a Democrat and Republican policy to sequester carbon and reduce RCI scores. I'll let Devin...

Devin: Follow up on that, anything that you're seeing that is the big impact, Devin? Yeah, Andrew, I'll just add, you know, if you look at the calendar, we still expect to see at least proposed rules or some sort of a safe harbor statement from the administration around 45Z, since we have the

Joe Smith: And I'm going to be talking about the state of California's biodiesel tax credit expiring here at the end of the year. Also, I could see California finally come out with their updated LCFS numbers here. That may slip until after the election. And they've indicated the RVOs aren't going to be proposed until the early part of the year. And look, while we could see something come back with small refinery exemptions, as Todd mentioned earlier in the call, you know, we got refiners calling for higher RVOs in general.

Joe Smith: All of that is predicated on increased renewable diesel production, but a rising tide lifts all boats in that scenario, particularly for our corn oil. So all that to say, we have no reason to believe that 45 Zregs will not be beneficial to our production.

Speaker Change: Thanks. Thank you.

Joe Smith: Thanks.

Speaker Change: Your next question is from Lawrence Alexander of Jeffreys. Please go ahead.

Kevin Estacon: Hey, good morning. This is Kevin Estacon for Lawrence. Thank you for taking my question. Actually, a few of mine have been asked already, but I guess I wanted to hear more about your staff demand expectations, I guess, and what you're seeing in the market. I guess in the past few, maybe, months, I've been hearing

Speaker Change: some like recalibrations of sort of what's going to be considered SAF in different places and basically the tax benefits associated with that. I'm just curious like how you expect that to sort of evolve.

Speaker Change: Yeah, we're waiting for those rules to be written. I mean, our view is...

Speaker Change: is in the United States. That's going to be a very important molecule. We've already seen coming through renewable diesel or the half a feedstocks into SAF.

Speaker Change: to the D.C. politicians as well as administrators is that if you want volume, you're going to have to come to Alcohol to Jet.

Speaker Change: and others on that pipeline, there could be up to a billion-plus gallons available of very low-CI ethanol. And that is the first step to making sure that feedstock is available to produce sustainable aviation fuel from alcohol, which will give, then, I believe...

Speaker Change: The courage and the strength for people to start to build these plants. The technology exists to convert the molecule.

Speaker Change: What airlines are willing to buy or not buy, but at the end of the day, it's going to be fungible. And we're going to see airplanes powered with SAF from alcohol to jet, without any question in our mind. We believe we are in a great position as Green Plains to supply that molecule as the base.

Speaker Change: I mean, look, we moved.

Speaker Change: The base margin of Simple Crush moved three standard deviations to the right. I mean, that's what we really saw. And so what adjusted out of that first was corn basis got firm because obviously the demand...

Speaker Change: It was very high. You saw our production levels as an industry go to 1.1 million barrels a day. So we have firmer corn baits, that's more DDGs. But on top of that, though, what we've really seen nicely...

Speaker Change: Was the premium move, or the corn oil price move from a discount to soil oil to a premium to soil oil?

Todd Becker: And that's been a change, a nice change that we've seen where that really hurt us in the first half of the year when we saw very weak vegetable oil prices overall, including a discount on our product. But what we're finally seeing is the uptick and the uptake of the fact that we produce the second lowest carbon content, dozens of countries to even feed that demand, and so that's something that we're really fighting to say, making sure that, you know, what we're importing meets the qualifications, and making sure that our corn oil and our renewable corn oil that we produce remains in the mix with a very good score.

Speaker Change: of the fact that we produce the second lowest carbon intents.

Speaker Change: HEPA feedstock, veg oil feedstock available to renewable diesel producers.

Speaker Change: And that's distiller's corn oil. And if you just look at one plant in California that came online here recently at 50,000 barrels a day.

Speaker Change: you know, dozens of countries.

Speaker Change: to even feed that demand, and so that's something that we're really fighting to say, making sure that...

Todd Becker: And we're starting to see the premium of that over vegetables, as we thought would happen as we exited 24. Going into 25, when we have a very advantageous position relative to the regulations that corn oil has as an advantaged feedstock, we're finally starting to see that approach, as well as making sure that what's imported into this country meets the standards. And, you know, obviously, we know that some of that has slowed down already. So we think we're in a really good position from that standpoint.

Speaker Change: Going into 2025, when we have a very advantaged position relative to the regulations that corn oil has as an advantaged feedstock. We're finally starting to see that approach.

Speaker Change: Your next question is from the line of Matthew Blair of TPH. Please go ahead.

Speaker Change: Yeah, I'm not going to comment too much on kind of what's left to do from Trailblazer standpoint. Obviously, you can kind of look at that, but just have to say that we're highly confident that all of those questions that you have are being addressed.

Speaker Change: from Permitting and Counties in Nebraska. Remember, this isn't like...

Speaker Change: All of these are county permits. Most of those are going really well. Right-of-Way is going really well. They already had a pipeline in place anyway. So these are just spurs, whether it's 10 miles or 40 miles or 5 miles.

Speaker Change: Thus far, the farmer has been very, and the landowners have been very cooperative in Nebraska knowing that quote-unquote advantage in Nebraska. They really like that idea that they're going to be ahead of the rest of the United States by multiple years.

Speaker Change: And so a lot of that has gone well. I think you saw recently that.

Speaker Change: That what we have is is something very unique as a company and I think what's really interesting is that lead times

Speaker Change: When we originally, we thought, when this project started...

Speaker Change: It went through kind of a year plus lead times.

Speaker Change: To get your carbon equipment, what we ordered recently, we were indicated 30 to 40 week lead time. So you see that, that's going to be available. That hits our targets. We signed a construction management agreement. We fully financed the project and we expect to have...

Speaker Change: Sometime next year, 287 million gallons of decarbonized alcohol that earns in excess of a hundred million dollars extra free cash flow per year with a very quick payback on the investment.

Speaker Change: Sounds good. Thanks for all the helpful commentary there. And then you mentioned the hedges for the third quarter.

Speaker Change: But I guess not for the fourth quarter. Could you give us a sense of what percent of your production is hedged for Q3? And is it fair to say that it's at a pretty attractive level relative to that high 20s to high 30s all-in ethanol margin that you referenced earlier?

Todd Becker: Yeah, I mean, what we've seen is we took advantage of some of the simple crush when it moved kind of that far away from, you know, historical means, and thus far, that has been the right decision. In the meantime, obviously, as we mentioned to Heather earlier, corn base has rallied a bit. The distiller's grain price has reduced a bit, although we did see a corn oil uplift as well.

Speaker Change: Yeah, I mean, what we've seen is we took advantage of some of the simple crush when it moved kind of that far away from...

Speaker Change: historical means, and thus far that has been the right decision.

Speaker Change: In the meantime, obviously, as we mentioned to Heather...

Speaker Change: Earlier, corn bases rallied a bit, distiller's grain prices reduced a bit.

Todd Becker: But generally speaking, anything we've done, and we're not going to give specific numbers, has been above, at, or above the current market. So we're very happy about those results. But it's not, you know, we still have a significant amount open for the third quarter, and we have de minimis hedging in the fourth quarter. Look, all we're going to look at is, in consultation with, you know, our board and committees on the board, to say at certain levels, we want to make sure we can lock down these quarters, generate the cash flow needed to support the business, and generate free cash flow for our

Speaker Change: Although we did see it in Cornell Uplift as well. But generally speaking, anything we've done, and we're not going to give specific numbers, has been above, at or above the current market. So we're very happy about those results. But it's not, you know, we still have a significant amount open.

Speaker Change: for the third quarter, and we have de minimis hedging in the fourth quarter. Look, all we're going to look at is in consultation with, you know, our board of committees on the board.

Speaker Change: Is to say at certain levels we want to make sure we can lock down these quarters, generate the cash flow needed to...

Todd Becker: And as we said, what we're really excited about as we wind down, kind of what we said, as we're winding down this investment program over the last several years, you start to see, you know, easier free cash flow generation to start to rebuild structural cash on the balance sheet, as well as give us other opportunities to look at where we're going to go with the company. But, you know, that's just the start of it.

Speaker Change: Support the business, generate free cash flow for our shareholders.

Speaker Change: And as like we said, what we're really excited about as we wind down, kind of what we said, as we're winding down this investment program.

Speaker Change: Over the last several years, you start to see an easier free cash flow generation to start to rebuild structural cash on the balance sheet, as well as give us other opportunities to look at...

Todd Becker: And as we get into the mid-25s, and we look at the free cash flow generation from 60 pro, from 50 pro, from carbon, and then also being an advantaged feedstock in veg oils, you know, we think we're reaching these points where we will continue to strengthen this company back to where it was and start to deliver quarters. Great. Thank you.

Speaker Change: to look at where we're going to go with the company. But, you know, that's just the start of it. And as we get into mid-25.

Speaker Change: Thank you. We have a question from Eric Stine of Craig Hallam, please go ahead.

Operator: Good morning. Maybe just on Hypro. Maybe it doesn't matter given the demand you're seeing internationally, but I'm just curious, you know, what

Speaker Change: but some volatility so just curious your thoughts on that.

Speaker Change: Well, as we said, you know, when we started to make our 50% protein product,

Speaker Change: You know, we did everything so far to get to sequence. I mean, that was really the thing that we really wanted to do with the system. We knew 50 Pro.

Speaker Change: ultimately really gets commoditized, although we do have a special product.

Speaker Change: It is a 25% yeast, 75% protein, it tastes better than traditional soy-based products.

Speaker Change: Although what we've seen here, which is favorable, is...

Speaker Change: is we saw soy prices rally because of some of the Argentina issues and those type of soy protein prices, which helped us a lot while corn prices sit in this three.

Speaker Change: You know, overall, we're still in, we believe, is absolutely the right thing to do. You know, we invested about $330 million across our platform.

Speaker Change: But that was a little bit due to more so than when we started it, we didn't really have the IRA and the IRA drove a massive capacity increase in soy protein, but we're very happy with it because once you get to 60 pro down the road.

Todd Becker: You start to see those paybacks really, really accelerate. So, like we said, the money's been invested. We now want to generate the returns that we expected, and we're really excited about the future. I don't know if it's ever 100%, but I would say we want to continue to drive the cost of producing 60-pro lower. And we have some breakthrough opportunities, we believe, that we can get some of that done, as we have found different ways to look at taking our protein production higher from 60, potentially even into the 70s.

Todd Becker: We've seen some things as of late that give us good confidence that we're going to make progress really across the board, both from making a better 50-pro product. And sometimes we have to reassess how fast we really want to move.

Speaker Change: Corn gluten meal prices collapse against soy prices.

Todd Becker: Now we've seen that start to recover in the world, but there still remains, because of the cheaper corn, there's cheaper corn gluten meal. Now we know, and historically, when we made our investment basis, 25 years of data, and it spreads between corn, soybean meal, and corn gluten meal. And we've seen those move around through the last 25 years. This is just one of those times where corn's just a cheaper commodity than soy.

Speaker Change: You know, sometimes we had to reassess, do we really want to, how fast do we really want to move? Now we've seen that start to recover in the world, but there still remains, because of the cheaper corn, there's cheaper corn gluten meal. Now we know, and historically, when we made our investment basis, 25 years of data, and it spreads between corn,

Speaker Change: Soybean meal and corn gluten meal and we've seen those move around all through those last 25 years This is just one of those times where corn is just the cheaper commodity than soy

Todd Becker: I think that we'll probably see other times when corn is going to rally again, and soy doesn't necessarily keep up, and corn gluten meal will be the better commodity. But generally speaking, once we start going, and we supply customers, we know we're in the ration permanently. We still are focused on a couple of plans for next year, which, when you look at it against our total capacity, you know, those plants are in the range, as discussed.

Speaker Change: I think that we'll probably see other times when corn is going to rally again.

Speaker Change: And soy doesn't necessarily keep up, and corn gluten meal will be the better commodities. But generally speaking, once we start going and we supply to customers, we know we're in the ration permanently. You know, we still are focused on a couple of plants for next year, which is when you look at it against our total capacity, you know, those plants are in the range as discussed.

Speaker Change: Okay, thank you.

Speaker Change: Your next question is from the line of Jordan Levy from Truist Securities. Please go ahead.

Jordan Levy: Morning all, and appreciate all the details. Todd, in your prepared remarks you talked about some of the some of the early challenges in getting CST at Shenandoah ramped here. Maybe if you could just expand a little more, and I think you mentioned there was...

Speaker Change: on the equipment side. Maybe just talk about some of those and how the team is working to address those and what remains to be done in that.

Speaker Change: I'll give you one example, and I'm not going to get too deep into it, but again, mostly from what we've seen is quality of construction.

Speaker Change: You know, some issues there, not because we hired bad construction firms, just because it's in the era of where we live in. You know, it continues to be a challenge sometimes to find good tradespeople. And so whether it's...

Speaker Change: Water flushing through the system and finding the leaks to literally, I'm going to give you this one example, is that we put a brand new chemical holding tank, brand new tank.

Speaker Change: And it was leaking. It had nothing to do with our technology, it was just the fact that this was literally a brand new tank.

Speaker Change: I think we've been facing, and we're getting hopefully to the end of some of those, some of it's learning how to use some of these unit operations as well. You know, when we look at our ion exchange system, you know, that's being used in the world today to make dextrose. You know, there's one system set up in Brazil, another one being built in Iowa, we think.

Speaker Change: Alright, we have continued time and continued effort to get up and running and yeah, you know, it's really kind of how we think about It, it's an any day now kind of thing. And you'll be the first to know. And we hope that over the next kind of

Todd Becker: In a little bit of time here, we're going to start making product in spec, and that product is ready to be sold to customers who are waiting for that product. Maybe just a little bit more about how you're doing.

Speaker Change: A little bit of time here, we're going to start making product in spec, and that product is ready to be sold to customers who are waiting for that product.

Todd Becker: Yeah, I mean, owning one terminal as a company was a nice thing to have. It's really not our core focus of what we want to be from an ingredient standpoint and a low-carbon molecule producer, and so it's a great terminal. We built it many years ago, and it's paid itself back many times already, and we just felt the opportunity was to monetize it in a good market to monetize that terminal because what we had is, while low interest rates were really nice, it was a debt related to SOFR and SOFR Plus, and you saw SOFR rally, and so that debt became really just what we thought was eating up all the free cash flow for that terminal.

Speaker Change: Well, it's a nice thing to have. It's really not our core focus of what we want to be from an ingredient standpoint.

Speaker Change: And so it's a great terminal, you know, we built it many years ago, it's paid back itself many times already. And we just felt the opportunity was to monetize, you know, in a good market.

Speaker Change: to monetize that terminal because what we had is, while low interest rates were really nice, it was a debt related to SOFR and SOFR Plus, and you saw SOFR Rally.

Speaker Change: And so that became really just what we thought was eating up all the free cash flow for that terminal. So, you know, we could have obviously refinanced that, maybe at a lower rate, but look, it's...

Todd Becker: So we could have obviously refinanced that, maybe at a lower rate, but look, we're not a terminal company. We've sold our MLP. We still had to support that like an MLP based on some of the debt terms you can look at online. So we're going to be able to pay off that debt, and this will help do that and reduce our interest costs overall and also let us focus really on what we do really well and strengthen our balance sheet, and that was really the driver behind it. It's one part of when we look at our strategic review, but certainly only a small part of it.

Speaker Change: Thank you.

Speaker Change: And your next question is from the line of Kirsten Owen from Oppenheimer. Please go ahead.

Kirsten Owen: Hi, good morning. Thank you for taking the question. I wanted to come back to a few of the questions that have come up on

Speaker Change: I think in the prepared remarks you mentioned you're sort of getting back to that $200 premium over the reference price. You've also noted in some of the responses a lot of movement in those reference prices.

Speaker Change: So, I'm just wondering, can you help us think about, like, how sustainable or how sticky that premium is, and to your point on sort of the payback period.

Speaker Change: For that assessment, when we should start to think about breaking out that EBITDA or crush margin contribution, you know, especially now that you've got Geraldson up and running, there's a lot of volume coming off the platform, so it would be helpful to be able to track that payback in your financials.

Todd Becker: Yeah, look, when we started this investment several years ago. Again, we said the IRA didn't exist.

Speaker Change: Yeah, look, when we started this investment...

Speaker Change: several years ago. Again, we said the IRA didn't exist. So since then, 10 to 20 million more tons of product is going to hit this market. And the market got ahead of itself in terms of weakness.

Todd Becker: So since then, 10 to 20 million more tons of product are going to hit this market, and the market got ahead of itself in terms of weakness for soybean meal when we didn't even have new capacity coming online yet. Now we're starting to see some new capacity come online, and we've seen those margins compressed. But, you know, generally speaking, we've seen pretty good margins relative to the amount of soy meal coming online. Number one, because we saw this recent increase in soybean oil as well.

Speaker Change: for a soybean meal, when we didn't even have new capacity coming online yet. Now we're starting to see some new capacity come online. We've seen those margins compressed.

Todd Becker: But, you know, we've ebbed and flowed on the margin, and some of it becomes chunky when the market thinks all this extra soybean meal capacity is coming online. But the market's doing a really good job of taking it. And then once they work through it and realize that we have a really good product and it's not just always about price, then we get additional opportunities to sell our product at different rates.

Speaker Change: But you know generally speaking we've seen we've seen still pretty good margins relative in relatively speaking to the amount of soy meal coming online number one because we saw this recent increase in soybean oil as well but

Speaker Change: You know, so look, we've ebbed and flowed on the margin, and some of it becomes chunky when the market thinks all this extra soybean meal capacity is coming online, but the market's doing a really good job of taking it.

Speaker Change: And then once they work through it and they realize that we have a really good product and it's not just always about price.

Speaker Change: Then we get we get additional opportunities to sell our product into different different rations And we're in we're in every ration for every animal that that that buys any type of protein today from aqua to pad to

Todd Becker: And we're in every ration for every animal that buys any type of protein today, from aqua to pet to... We're in all different types of rations today. It's a long game. You know, when we built it, you know, at the time, it was about the $280 premium we were able to achieve. We saw that compressed as low as, for one quarter, $120 premium, now pushing back to $180 to $220 premium, depending on the customer.

Speaker Change: to chickens, to hogs, to cattle, you name it. We're in all different types of rations today.

Speaker Change: It's a long game. You know, when we built it, you know, at the time, it was about the $280 premium is what we were able to achieve.

Speaker Change: We saw that compressed as low as...

Speaker Change: For one quarter, $120 premium, now pushing back to $180 to $220 premium, depending on the customer.

Todd Becker: So you know, overall, we think it's a very long game. The protein, the world is going to remain protein short, notwithstanding, lots of capacity comes online, and they're going to take it. That's our view, and it remains that way, and we're seeing that. So, the spread between corn and soy is widened out, but then that hurts a little bit on the spread between corn, soy, and corn gluten meal. That's something that we'll just wait for, and we'll price accordingly, but we also believe our product is a premium to corn gluten meal.

Speaker Change: Overall, we think it's a very long game. The world is going to remain protein short, notwithstanding lots of capacity comes online and they're going to take it. That's our view, and it remains that way, and we're seeing that.

Speaker Change: The spread between corn and soy is widened out, but then that hurts a little bit on the spread between corn, soy, and corn gluten meal. That's something that we'll just wait and we'll price accordingly, but we also believe our product is a premium to corn gluten meal. When we sell 60 Pro, we're not going to sell it at a discount.

Todd Becker: When we sell 60 Pro, we're not going to sell it at a discount. We actually cleanse the product, we expect a premium, and those are the conversations that we're having because it does better things in the ratio than the alternative. And we're really excited about those opportunities.

Speaker Change: We actually cleanse product. We expect a premium and those are the conversations that we're having because it does better things in the ration than the alternative and we're really excited about those opportunities.

Operator: I appreciate that. The other comment that's come up quite a bit, just looking out the curve, obviously, we can all see what's happening with corn prices and corn costs for you guys. You've mentioned your hedging strategy and where we are this year, but maybe it's a little bit more of a near-term question. What are you having to pay to get corn in the door? Are you starting to see farmers loosen up on their stocks and actually transact? Just some of that near-term color on bringing that corn in the door would be helpful for us. Thank you.

Speaker Change: I appreciate that.

Speaker Change: The other comment that's come up quite a bit, just looking at the curve, obviously we can all see what's happening on corn prices and corn costs for you guys.

Speaker Change: You mentioned your hedging strategy and where we are this year, but maybe it's a little bit more of a near-term question. What you're having to pay to get corn in the door, you know, are you starting to see farmers loosen up on their stocks and actually transact?

Speaker Change: Just any, some of that near-term color on bringing that corn in the door would be helpful for us. Thank you.

Todd Becker: Yeah, I mean, besides some really tight pockets in Nebraska, we've had no problem buying corn across our platform, really closer to our bid than ever before. Now, Nebraska, again, notwithstanding, went to 80 or 90 over for some spot corn, but we didn't really have to participate in that. As we came into August, 85% covered in physical corn across our platform, so we're really happy with the way the team executed. We own basis levels at or below the market, and we haven't really had to reach for corn, really, anywhere across our platform, which has been really nice.

Speaker Change: Yeah, I mean, besides some really tight pockets in Nebraska.

Speaker Change: Really closer to our bid than ever before. Now, Nebraska, again, notwithstanding, went to 80 or 90 over for some spot corn, but we didn't really have to participate in that. As we came into August , 85% covered on physical corn across our platform, so we're really happy with the way the team executed. We owned basis levels at or below the market, and we haven't really had to reach for corn really anywhere across our platform, which has been really nice.

Todd Becker: And we believe as we get to the end of the year, basis levels are subsiding. There's a robust amount of carryout that's going to have to hit this market. The farmer is staring at his fields, and we're all staring at it as we drive through to say, you know, will we have 181?

Speaker Change: And we believe as we get to the end of the year, you know, basis levels are subsiding.

Speaker Change: There's a robust amount of carryout that's going to have to hit this market. The farmer is staring at its fields, and we're all staring at it as we drive through to say, you know, will we have 181?

Todd Becker: You know, I'm not sure that we hit that. Maybe we get to one, you know, potentially even higher than that. And then, you know, we'll have to wait to see what the impact of some of this some of this excess rain in some of these northwest Iowa counties have. But generally speaking.

Speaker Change: I'm not sure that we hit that, maybe we get to one, potentially even higher than that. And then we'll have to wait and see what the impact of some of this excess rain in some of these northwest Iowa counties have, but generally speaking...

Todd Becker: We are going to have more opportunities at what I think are better basis levels that we've seen really since the last four or five years. And we've been able to now get even some new crop corn in the east at levels that we really haven't seen in the availability of that in OND or October, November, December, the fourth quarter. So I don't think there's really anybody upstairs, at least on our corn procurement and trade desk, that believes that there's any reason at all for $3.85 corn to $4.00 corn that basis levels are going to do anything but stay steady or subside. And I think that's favorable for us, favorable for our industry, to really know that we have the supply that we need every single day to produce our molecules.

Speaker Change: We are going to have...

Speaker Change: more opportunities at what I think are better basis levels that we've seen really since the last four or five years.

Speaker Change: And we've been able to now get even some new crop corn in the east at levels that we really haven't seen and the availability of that in OND or October , November , December , the fourth quarter.

Speaker Change: So I don't think there's really anybody upstairs, at least on our foreign procurement.

Speaker Change: And Trade Desk that believes that there's any reason at all at $3.85 corn to $4.00 corn that basis levels are going to do anything but...

Speaker Change: Both stay steady or subside, and I think that's favorable for us, favorable for our industry to really know that we have the supply that we need every single day to produce our molecules.

Operator: If I can sneak in one last one here, Trailblazer, I believe that the first well comes out of public comment tomorrow. Just to the extent that you're able to discuss, like, what are the milestones that we can be tracking once that that public comment period is over, kind of think about the timing of that well approval and the activities as it relates to your expenditures.

Speaker Change: If I can sneak in one last one here, Trailblazer, I believe that first...

Speaker Change: Well, comes out of public comment tomorrow, just to the extent that you're able to discuss what are the milestones that we can be tracking once that public comment period is over, how to think about timing of that well approval, and the activities as it relates to your expenditures.

Todd Becker: I mean, we're highly confident that Trailblazers is a great, great team, great company, great project, backed by a great company. And they know what they're doing, that's for sure.

Speaker Change: I mean, we're highly confident that Trailblazers is a great, great team, great company, great project, backed by a great company, and they know what they're doing, that's for sure. They are a pipeline company, they are an infrastructure company, and that's why we're so excited that we're there in the Nebraska project.

Todd Becker: They are a pipeline company, they're an infrastructure company, and that's why we're so excited that we're there on the Nebraska project. Coming out of public comment, I don't know exactly how that all works in Wyoming, but I think it's within a couple of weeks or whatever they're going to get. We hope they're going to get a permit and notice to construct, and then off they go. These are people that have done this before with significant experience, and thus far, there's nothing that tells us we're not on track to get our carbon in the ground sometime middle of next year, middle of late next year. We're going to build accordingly. We're not stopping. Anything.

Speaker Change: Coming out of public comment, you know, I don't know exactly how that all works in Wyoming, but I think it's within a couple of weeks or whatever they're going to get. We hope they're going to get a permit and notice to construct and then off they go. You know, this is not

Speaker Change: These are people that have done this before with significant experience and thus far there's nothing that tells us we're not on track to get our carbon in the ground sometime middle of next year, middle of the late next year.

Speaker Change: We're going to build accordingly. We're not stopping.

Todd Becker: Because of the public comment process, we've ordered all the equipment, and we've signed a construction management agreement. We expect to start breaking ground on moving dirt here in the next... 60 days, probably somewhere in that range, maybe 60 to 90, max. And we expect to be up and running as expected. So we're really excited about it. I think you're going to see positive things come out.

Speaker Change: Anything, because of the public comment process, we've ordered all equipment, we signed a construction management agreement, we expect to start breaking ground on moving dirt here in the next 60 days, probably, somewhere in that range, maybe 60 to 90 max.

Speaker Change: And we expect to be up and running as expected.

Todd Becker: Wyoming is a very supportive state, much like North Dakota is on the summit project, just to give equal affirmation. I mean, those two states have primacy. They don't have to go to EPA Class 6 wells. I think there's one other state, too. There are only three states. Louisiana is the other state. They have primacy. They don't have to go through EPA permitting, which is a great advantage. And the states are extremely supportive, especially Wyoming and North Dakota, of both of these projects. They bring significant economic impact to each of these states, and that's why these projects all have great opportunities.

Speaker Change: We're really excited about it. I think you're going to see positive things come up. Wyoming is a very supportive state, much like North Dakota is on the summit project, just you know to give equal

Speaker Change: They have primacy, they don't have to go to EPA permitting, which is a great advantage, and the states are extremely supportive, especially Wyoming and North Dakota, of both of these projects. They bring significant economic impact to each of these states, and that's why these projects all have great opportunities.

Operator: Thanks so much. Yeah, thanks. Is that everything, Phil?

Speaker Change: And that concludes today's Q&A session. I'd like to hand back over to Todd for closing remarks.