Q4 2024 Green Plains Inc Earnings Call
Speaker Change: Good morning and welcome to the Green Plains Inc. 4th Quarter and Full Year 2024 Earnings Conference Call.
Speaker Change: Following the company's prepared remarks, instructions will be provided for Q&A.
Speaker Change: At this time, all participants are in a listen-only mode. I will now turn the call over to your host, Phil Boggs, Chief Financial Officer, Mr. Boggs. Please go ahead.
Speaker Change: Thank you and good morning, everyone. Welcome to Green Plains Inc.'s fourth quarter and full year 2024 earnings call. Joining me on today's call is Todd Becker, President and Chief Executive Officer.
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. During this call we will be making forward-looking statements which are predictions, projections, or other statements about future events.
Speaker Change: These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Speaker Change: 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.
Speaker Change: 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, Phil, and good morning, everyone, and thanks for joining our call today. As part of our ongoing strategic review, as you can see, we have executed a number of actions designed to improve our operating performance going forward and set ourselves up for when carbon comes on later this year in order to realize the maximum benefit from our protein, oil, and carbon footprint.
Todd Becker: Over the last several years, we invested significant capital to get our new products to market, and the time has come to rationalize those costs among other decisions we have made.
Todd Becker: To accomplish significant cost savings and margin expansion, we took the necessary step of reorganizing our corporate and commercial functions to streamline and enhance our agility and resilience and to improve alignment around our core strategic focus.
Todd Becker: We have identified up to $50 million in analyzed cost savings and based on the actions we have already done this week.
Todd Becker: We executed on the first 30 million of improvements already. This included a move to smaller corporate workforce, winding down some of our innovation platform, attacking SG&A expenses, having a smaller executive leadership team with a number of executive departures.
Todd Becker: And lastly, looking at everything we do across the board that does not make us money.
Todd Becker: This was our natural move from innovation to commercialization, including rationalization. We knew this day would come. As a result, we may incur a small one-time restructuring charge in the first quarter, which we do not believe will be significant or material.
Todd Becker: As part of this, as well, in January, we made the difficult decision to shut down our 120 million gallon facility in Fairmont due to market conditions.
Todd Becker: stemming from the flooding last spring in southern Minnesota, which resulted in a short corn crop and elevated basis levels in that area, which we think will last throughout the year.
Todd Becker: We are keeping a skeleton crew to perform maintenance on the facility while it is in cold idle for the foreseeable future. The plant also needs a new upgrade to the grain handling and drying systems, and permitting in Minnesota is just a long slog.
Todd Becker: If market conditions dictate, we can always bring this production back online, but we will be careful and thoughtful on this decision. We are still planning for carbon capture to be in place at this plant, but we will talk more on that with regard to carbon later in the call.
Todd Becker: Now on to the quarter. We reported a net loss for the quarter
Todd Becker: of $54.9 million or 86 cents per share. One thing I want you to notice, though,
Todd Becker: We took a non-cash income tax charge, making our number look worse. Phil will talk about the settlement later in the call, although we were disappointed that our EBITDA was negative for the fourth quarter, yet in full 2024, the company earned $44.7 million in EBITDA positive for the year.
Todd Becker: Still a disappointing result. Phil will review all the specifics shortly.
Todd Becker: Again, when we look at Eva Duffer Green Plains, the SG&A that plagues us is being attacked as we speak and we cannot continue
Todd Becker: to be set up to burn our SG&A like we did this quarter. Our standalone assets performed to the market standard at many of our locations or even sit at the top of the market stack, yet our centralized structure was too large for a smaller production footprint and that is why we announced the restructuring today.
Todd Becker: Well, I can spend all day talking about the deterioration of the ethanol margins. You have heard it many times across industry earnings calls already. Market fundamentals were weak with high levels of production and elevated stocks.
Todd Becker: with the one bright spot being strong exports as we are on pace to set a new record this year of approximately 1.9 billion gallons and we expect 2025 to exceed that.
Todd Becker: We were largely unhedged and open to the crush going into the fourth quarter, which was wrong the wrong choice choice to make
Todd Becker: As many of our shareholders have voiced concerns with our hedging programs, this quarter would have been the one to hedge.
Todd Becker: As we enter into month two of 2025, the market has remained under pressure, yet when you look at where we have been historically in Q1 at this time, the forward curve is in better shape and position than is typical for this time of year, but we need to see either an increase in demand or a decrease in supply or both.
Todd Becker: We are watching planting attentions closely, and we believe the setup for favorable industry fundamentals is in place, although the global market remains very tight on corn, so the U.S. farmer will need to act on putting serious acres in the ground. Otherwise, we are setting up for a higher-priced corn market in the future.
Todd Becker: Despite having extended seasonal maintenance at Mount Vernon during the quarter, which we said was coming on the prior call, we achieved an operating rate of 92% and expect to continue to operate in the mid-90s after the exclusion of Fairmont.
Todd Becker: Our plans continue to operate better and better every month and we are also focused on reducing our op-ex per gallon as well with many programs that are being kicked off as well there.
We continued to track record.
Todd Becker: For strong corn oil yields and yields at our MSC plants, continue to push the upper end on what is possible with corn oil, even exceeding 1.2 to 1.3 pounds per bushel.
Todd Becker: Ultra-high protein yields were also in line with prior quarters, and we are constantly making improvements to the process.
Todd Becker: at our MSC location. The overall volumes were lower than the record levels in Q3 due to the decision to take protein downtime in the quarter at Wood River.
Todd Becker: to re-baseline that plant in anticipation of carbon capture coming online later in the year.
Todd Becker: While the overall protein complex is under significant pressure from oversupply due to expanded domestic soy crushing capacity and it's becoming a bit ethanolized in that industry, there are definitely some bright spots as we move from innovation to commercialization.
Todd Becker: Just last week, we sold one of the largest aquaculture companies in the world, the largest amount of quantities we've sold to date, which will be converted to bulk vessel and is repeat business, as we expect, into South America of 50% protein, which is the result of three to four years of work.
Todd Becker: We see growing interest in our 60% sequence product from those same customers and others abroad as global tightness in corn has resulted in a tightening corn glutamyl market in the destinations.
and the replacement product is, guess what, Sequence.
The progress on carbon has been exceptional.
Todd Becker: The rulemaking is supportive to our company and shareholders, and we remain on track to begin capturing biogenic CO2 in the second half of this year, with these policies in place to support not only our decarbonized ethanol, but our low-carbon renewable corn oil as well.
Todd Becker: We continue to believe that the value of our net Nebraska assets are not reflected in our current share price. Carbon earnings are to begin later this year and will fundamentally transform the earnings power of our business and our valuation.
Todd Becker: We are hearing and seeing individual transactions at a much higher multiple and per gallon valuations than traditional generation one plant without carbon capture.
Todd Becker: With our reduced enterprise value based on the potential market for our decarbonized gallons, the Nebraska assets are more than our market cap alone, and that makes absolutely no sense. And between that and our SG&A rationalization, it sets us up for a significant re-rate once again, and we are looking forward to that.
Speaker Change: And now I'll hand the call over to Phil to provide an update on the overall financial results. I'll come back on the call to provide additional color and outlook on what we just discussed as there are a few really important factors to consider as we move forward together. Phil?
Phil Boggs: Thank you, Todd. Green Plains consolidated revenues for the fourth quarter were 584 million dollars, which was 128.4 million, or approximately 18 percent lower than the same period a year ago.
Phil Boggs: As it has been the last couple of quarters, the lower revenue is attributable to lower market prices experienced for ethanol, dried distillers grains, and renewable corn oil in Q4 of 24 as compared to the same period a year ago.
Phil Boggs: While we have seen a decline in our commodity inputs with corn and natural gas down significantly year over year, the margin opportunity was significantly weaker for the quarter compared to the prior quarter and the prior year due to market oversupply as Todd has talked about.
Phil Boggs: Our plant utilization rate was 92% during the fourth quarter, compared to the 95% run rate reported in the same period last year.
Phil Boggs: For the trailing four quarters, we have averaged a 94% utilization rate, and we anticipate our operating plans to continue to perform in the mid-90% range of our stated capacity for the first quarter, excluding the impact of Fairmont being idled and barring any events outside of our control.
Phil Boggs: For the quarter, we reported a net loss attributable to Green Plains of $54.9 million, or negative 86 cents per share, per diluted share, compared to net income of $7.2 million, or 12 cents per diluted share, for the same period in 2023.
Speaker Change: As Todd mentioned, we had negative non-cash tax adjustment to the quarter that impacted EPS.
Speaker Change: EBITDA for the quarter was negative $18.9 million compared to $44.7 million in the prior year period.
Speaker Change: Depreciation and amortization expense was lowered by $2.9 million versus a year ago at $21.4 million.
Speaker Change: For the fourth quarter, our SG&A costs for all segments, including our plants, was $25.6 million.
Speaker Change: $7.2 million lower than the prior year due to lower personnel costs and adjustments to incentive accruals. Remember, this includes our plant assets and the rationalization was almost all around our non-plant costs.
Speaker Change: Interest expense of $7.7 million for the quarter, which includes the impact of debt amortization and capitalized interest, was $0.9 million favorable to the prior year's fourth quarter. This decrease compared to prior year was primarily due to lower loan balances associated with the payoff of the Green Plains Partners debt, retired in the third quarter of 2024.
Speaker Change: Our income tax for the quarter was seven million dollars compared to a tax benefit of 0.3 million for the same period in 2023.
Todd Becker: As both Todd and I outlined in our earlier comments, during the quarter, we reached a settlement in principle with the IRS Independent Office of Appeals regarding our R&D tax credit for the tax years 2013 through 2018.
Todd Becker: Due to the agreement, we booked $6.2 million of tax for the year to increase our reserve for unrecognized tax benefits related to the R&D tax credit issue, net of our valuation allowance.
Todd Becker: At the end of the quarter, the federal net loss carried forward available to the company was $124.3 million, which may be carried forward indefinitely. Our normalized tax rate on a go-forward basis is around 23 to 24 percent.
Todd Becker: Our liquidity position at the end of the year included $209.4 million in cash, cash equivalents, and restricted cash, along with approximately $200.7 million available under our working capital revolver, a bit weaker due to the margin structure in the quarter.
Todd Becker: For the fourth quarter, we allocated $27 million of capital expenditures across the platform, including $6 million to our Clean Sugar Initiative, about $7 million to other growth initiatives, and approximately $14 million toward maintenance, safety, and regulatory capital improvements.
Todd Becker: On a year-to-date basis, we have incurred capital expenditures of $95 million, in line with our prior estimates. We anticipate plant-related capex for 2025 will be in the range of $20 to $35 million, as we have most of what is needed at this point for our platform.
Todd Becker: This range excludes the remaining balance of approximately $110 million in carbon capture equipment needed for our Nebraska initiatives as we have financing in place to cover those needs.
Now I'll turn the call back over to Todd.
Todd Becker: Yeah, thanks, Phil. And so let's walk through high points for our 2025 initiatives that we want you to focus on.
In carbon, major milestones continue to be hit.
Todd Becker: Tallgrass Trailblazer Project has acquired all the necessary rights-of-way to reach our three Nebraska facilities that we anticipate will be capturing carbon in the second half of this year. Construction of pipeline laterals commenced and they remain on track to be completed late in the third quarter or early fourth quarter of 2025.
Todd Becker: We have spent significant time and effort to outline to you the financial benefit of this project, which continues to hold and could be better under the new rules. So let me focus on some of the recent highlights that are important for you to understand the significant reality of this project.
Todd Becker: First, the proposed rule could not have come out more favorably for Green Plains.
Todd Becker: had we been drafting it ourselves. While not a final rule, it was printed in the IRB, the Internal Revenue Bulletin, and taxpayers can rely on it until such time Treasury or Congress would act.
Todd Becker: Our DCO has the lowest score among all the feedstocks for renewable diesel. Used cooking oil imports are no longer allowed for surface transportation fuels, such as our renewable diesel and biodiesel.
to see this premium materialized for our corn oil.
Todd Becker: As we have a lot of it, the clear winner here is ethanol with carbon capture. A 32 point reduction for plants that are able to execute near term. We see a clear advantage for our Nebraska footprint as we have reiterated to you and this translates to significant cash flow materializing later this year.
Todd Becker: With narrow margins in the House and Senate, we believe it is unlikely that 45Z is eliminated in a reconciliation package and a lot of work is being done to get it actually extended.
Todd Becker: Green Plate has completed the facility registrations for our clean fuel production credit.
for our Advantage Nebraska strategy. So, to close.
Todd Becker: in the Brasket footprint, is on track for at least $130 million using a $70 per ton private carbon credit value. This is net of operating expenses and the tolling fees on the pipeline as well as we are continuing to discount even for monetization.
Todd Becker: We have seen the strengthening in the distiller's corn oil market since mid-December since the guidance and the model were released, as it is given its beneficial treatment under 45Z and LCFS programs.
Todd Becker: We have the capacity to produce around 300 million pounds of corn oil annually With Fairmont down so every 10 cent move in this value is another 30 million in EBITDA And we have seen that help our forward margins
Todd Becker: The state of Minnesota has granted the permits for the Summit Pipeline to reach our Fergus Falls facility, even though they won't grant us a permit to build temporary grain piles. But we remain optimistic and hopeful that that project will make progress on permitting
in 2025.
Todd Becker: Now let's talk about Clean Sugar. This exciting project can now make in-spec sweeteners for use across a wide variety of food and industrial products.
Todd Becker: The wastewater challenge remains as we have outlined, and we can only run the plant at about a third of capacity while we design a solution for either dealing with it on the back end, the front end, or selling all industrial products that skips the ion exchange process, yet leaves beneficial nutrients for fermentation.
Todd Becker: In the meantime, we have received kosher and halal certification, the food production license has been approved in the state of Iowa, and that was the major hurdle to finalize our FSSC or food safety certification.
Todd Becker: Certification Audit and we expect approval any day now. The technology is disruptive and breakthrough. The next build will either be standalone, co-locate,
Todd Becker: Either at a wet mill or a dry mill, expansion of what our current wet mill can do, or all of the above. We're also testing a front-end system used globally in order to not need wastewater solutions over the next few months, at which time we can choose our best path to 100% capacity. Again, it is not a technology issue.
Todd Becker: This has the same potential we have discussed in the past. We continue to remain very excited on our successes so far. Unlike many technologies that have been developed around our industry, whether around alcohol to jet fuel.
Todd Becker: or Cellulose to Gethinol. We can actually make product, we can sell once we get our last certification. New technologies as you know are not easy to stand up, yet our team has done an amazing job getting to a point where we are very close and know where the last step has to be addressed but we need to be certain of that step before we put the last capital in.
As noted earlier in the call...
Todd Becker: We had lower production volumes of ultra-high protein during Q4 at our Green Plains plants due to the major project.
Todd Becker: at the Mount Vernon ethanol facility we told you about last year.
Todd Becker: as well as taking downriver to baseline the plant so we can understand the true total plant opportunity when carbon starts up.
Todd Becker: Margins remain under pressure in the protein space due to the availability of cheap competing product ingredients.
Todd Becker: Yet, we did generate positive EBITDA at all of our plants last year in the protein investment.
Todd Becker: While paybacks are taking a little longer than expected, we know that markets move over time. We are starting to see a better uptake of our products globally that traded a premium or potentially get sequins off the ground as discussed earlier. We continue to increase our sales to domestic pet and international aqua customers, our key target growth areas.
Todd Becker: While we are still making adjustments to our production process for sequence, we have started to increase production due to the demand and anticipate growing our sequence business substantially in 2025.
Todd Becker: We have also de-bottlenecked the ability to make 60% protein on the fly, as our last run and current run that's taking place at Central City has little or no impact to plant operations as we have cracked the code on the biological formula to do this, and we will try and roll out these findings across the platform.
Todd Becker: What we learned in Q4 last year was that it's time to move on from investing and getting products to market acceptance.
Todd Becker: and now try to fully monetize what we have done. This cannot be done without making the hard decisions on SG&A and assets like we have announced as we have set ourselves up for the remaining 2025 and the imminent startup for carbon.
Todd Becker: Our investments have been made, and we have very limited CapEx going forward other than carbon, which does not use our balance sheet cash.
Todd Becker: We will focus on executing on the total $50 million of savings identified.
monetizing carbon
Todd Becker: Simplifying our structure, reducing or eliminating term debt, reducing our OPEX per gallon, and continuing.
Todd Becker: Our strategic review, as our complexity, will be significantly reduced and we will be a much leaner and simpler company as carbon and protein earnings, along with baseline corn oil cash flows, reposition our company for the future.
Let me reiterate on the last point.
Todd Becker: When we look at our current asset base, most of our plants...
Todd Becker: stand-alone, generate EBITDA positive or significant positive EBITDA at places like Central City, Obayan, Shenandoah, and now Wood River as we add carbon. Adding carbon to the Nebraskan, those plants will be some of the highest margin plants in the country starting around Q4 or late Q3.
Todd Becker: Fairmont has been shut down for now, which will position our stack better, and Mount Vernon and Madison are now once again back at rate, even record rates, after significant improvements. As we look forward, we must look back at what worked.
Todd Becker: We are focused on aggressively driving significant efficiencies across the organization.
Todd Becker: including in our corporate and trade SG&A as we work to deliver the $50 million in cost savings we outlined this morning.
Todd Becker: And we will, once again, be targeting $0.02 to $0.03 a gallon.
Todd Becker: per gallon of SG&A at Corporate and Trade as we are taking actions to get there from our current eight to nine cents per gallon.
Todd Becker: I took our first steps this week and expect to be aggressive in the next 60 days to achieve our goals. Added up, we will use 2025 as the year where we position Green Planes for future earnings power as we have outlined in the past. Thank you for joining our call today. We can now start the Q&A session.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Craig Irwin from Roth Capital Partners. Your line is open.
Good morning and thanks for taking my questions.
Speaker Change: So Todd the last several years you've had a bunch of initiatives to take out costs like project 24 and others We I guess we don't have to go through the list this 50 million dollars is a big move and 30 million dollars already implemented this week
Speaker Change: You know, can you can you maybe get granular for us? where this is coming from and You know how this cuts in to the overall profitability of the platform
Well, what it does is increases the overall profitability.
focused on innovation and getting our products to market.
Speaker Change: And we have reached the point where we have penetration in the markets that we want to go and now it's more around commercializing and marketing.
Speaker Change: trading those products correctly, and then obviously rationalizing those costs. You know, we really don't need to feed fish anymore.
Speaker Change: Our customers, they have accepted our products. They've used our products. We've had great, we had a great trial in Norway with salmon, those were great results. We consider it to be a gold standard product. Once that was kind of finished.
Speaker Change: are getting close to being finished, the market understood, the premium of our products. And I think another thing that's really helping us right now is the global tightness in corn where corn and gluten meal prices have continued to increase globally.
Speaker Change: You know what we did is we invested a lot of money to get our products to market we invest a lot of money in innovation and research and When one full swoop this week we decided we were going to move on from that and just focus on
Speaker Change: expanding our margin structure, reducing our SG&A costs all around that, while keeping a core group that is focused every single day on making money.
Speaker Change: So then just to follow up on aquaculture, right, this was one of the potentially most attractive markets you could sell Hypro into.
Speaker Change: You know, can you maybe talk a little bit about your project in South America? You mentioned in the prepared remarks. Do you need to feed fish yourselves to continue to penetrate these customers?
Speaker Change: No, in fact, the penetration has been made. We have sold our first largest quantities, which could be actually converted now.
Speaker Change: on a little bit more volume and to bulk quantity shipping on a vessel, which is the first time we've been able to achieve that. If we can get some of our products out of the United States in the weak protein market we have here to service customers that are looking for different...
Speaker Change: characteristics and feed than traditional soy proteins or soy protein isolates. You know, it's really what we're replacing now in the world as well as the corn gluten meal market, but it took us
Three to four years.
Speaker Change: to get to this point. And I would say, while certainly in a weaker global protein market, we would have liked to seen it higher than we are today, it will start to pay dividends for us and our shareholders in the future. You know, this is, it took a lot longer than we thought.
Speaker Change: But again, we had to be patient. We had to invest the capital to get there. We had to show our customers we understood
Speaker Change: What the use of our products would be for them and they had to do their own testing You have to go through a two-year full cycle to grow salmon And those are some of the things that we we were dealing with and while frustrating to all of you and to all of us
Speaker Change: We're starting to feel better about this opportunity, and we felt at this point, we basically won full swoop.
Speaker Change: took care of the or closed down much of our innovation and research platform. As we know now that our products are commercialized and we're really excited about the the future of that and we have a great team that positions us for that but I think at this point we're going to focus on making money.
Speaker Change: That sounds good. So my last question if I can squeeze another one in
Speaker Change: CCS sounds like it's tracking right to schedule. Can you maybe talk a little bit about where we stand with the potential delivery of equipment and the pipeline interconnects? You know, when could we possibly see first EBIDTA off these projects? Any other details you could share with us would be helpful.
Speaker Change: Our in-service date is somewhere in late Q3, very early Q4. Chris and the team are heading out to Ohio next week to take a first-hand look at our compression equipment being built.
Speaker Change: to make sure that we remain on track. We're not the general contractor on the project. Our partners at Tallgrass, who own the Trailblazer Project, are.
Speaker Change: They're fully focused on breaking ground very soon and getting the buildings stood up. And if you come across Nebraska and you drive around our plants and other plants, you'll see that laterals are being laid right now and construction is fully underway so we can attack the first couple of years of 45Z. Thank you.
Thanks again for taking my questions.
Speaker Change: Your next question comes from a line of Jordan Levy from Truist Securities. Your line is open.
Speaker Change: Good morning, all, and thanks for all the details. Maybe just following up on Craig's question.
Where you all stand I appreciate
Speaker Change: on the protein side of things. But if you could just talk to that in reference to sugar given it's still kind of earlier in the kind of rollout of that.
Speaker Change: Can you follow up with some clarification on what you're looking for in the answer?
Maybe a little more. Yeah, yeah.
Speaker Change: Yeah, just kind of the level of detail you gave around protein, I'm just looking at something similar in terms of where market development is in CST.
Okay, yeah, thank you. No, look, I mean...
Speaker Change: I don't think we're going to be short of customers. You know, we are waiting for food safety certification. We have already sent some of our products to beverage makers, food makers, industrial users, everything from insulation to pancake syrup and everything in between. I think you could, I assure you our sales...
Speaker Change: A group in our marketing group has spent significant time with customers and now it's just really waiting for us to get the proper certifications
Speaker Change: and with our partners get the hummus free yeast so that we when we make halal and kosher as well
Speaker Change: We're in spec, and that's coming probably in the next week when we start using the yeast in our process. Look, I think one thing we have to realize is that running at a third is not the best economic thing for our shareholders, so we will probably move to more of a campaign.
Speaker Change: program where when we make a sale we'll make the product and we'll start it back up and running at 24 hours a day 365 days a year you know at that rate we can make more money making running Shenandoah at full rate on the on the grind side to make alcohol and sugar and or I'm sorry alcohol protein and
Speaker Change: and oil. So we're going to go more in a campaign mode here.
And because we know we can make it.
Speaker Change: We've got to get that food safety certification, but I think the last clear path on that was getting our Iowa food processor certification. That has been approved, which I think continues to show the validation of our technology.
Speaker Change: and that it works. And that we make products on spec that can be used in everything, like I talked about, from beverages to pancake syrup to industrial products. And so we're there. It's really now just a function of what we expected.
Speaker Change: The capability of the local wastewater treatment plants to be able to take our products, they're focused on building a new one right now, and so we have to focus on how do we get this plant up to 100%.
Speaker Change: co-locating or licensing our technology globally in countries like Brazil and Europe.
Speaker Change: As well as with even in the United States, you know, since the beginning even before we acquired FluEquip.
Speaker Change: You know, they had interest across both wet milling and dry milling for their technologies as a bolt-on to expand their capabilities. As you see with other results that are out there, sugar margins and sweetener margins have not really gone down with everything else. It's not an oversupplied market, nor do we anticipate that anytime soon.
Speaker Change: I appreciate that and then just for clarification 30 million of the restructuring this week if I sorry if I missed it but did you you kind of give a timeline to get to that 50 million is it should we think year-end or something like that
Speaker Change: No, we want to try to be there within 90 days on an ongoing $50 million run rate. So our Phase 2 starts Monday, you know, Phase 1 was this week. We resized our corporate and trade infrastructure and NSG&A.
We've several senior executives have departed the company as
Speaker Change: As we had indicated, in addition with the significant downsizing of our innovation platform at the York Innovation Center, our Optimal Feed Mill, our labs, as well as our aqua lab, you know, I think the most important thing is
Speaker Change: We had to get our products to market and that all cost a lot of money, call it sales and marketing or marketing, advertising, and promotion if you're a food company, MAP spend, but we're not spending any more on that at this point. I think our products have gotten what we needed to this point, so no, that was our first.
our first
Speaker Change: Action this week and we start on Plan B or the Phase 2 on Monday to try and get this all wrapped up within 90 days.
Thanks for all the details.
Thank you.
Speaker Change: Your next question comes from the line of Somya Jain from UBS. Your line is open.
Somya Jain: Hey, good morning guys. So is DCO getting a score of 13 in soybean oil, getting 38 should we expect corn oil to trade at a four to five cents per pound premium to soybean oil or how are you guys looking in the past?
Somya Jain: Yeah, thanks for that question. And by the way, that is the bid today. I mean, I think we would have no problem selling four to five cent premium to soybean oil
Somya Jain: For for the ongoing market at this point based on the value
Somya Jain: Bean oil at 45 cents, I think 50 cents is not.
Somya Jain: a hard value to trade today for our product. If you think about it, even since the last call,
Somya Jain: We are probably in the high 30s, low 40s over the last couple of calls, starting to increase the bottom, or come off that market in the soybean oil. Look, the soybean oil market is tight globally. We just have to rationalize some things going on here.
Somya Jain: But for us, you know, we've seen you know, our view is it should trade at a seven to ten cent premium
Somya Jain: And I think that that will ultimately come to bear with our products across, not just us, but the industry in general.
Somya Jain: you know we are we are seeing opportunities like that and I think I think one thing is also really important for our product every one of our plants now
Somya Jain: is now CORSEA certified, and we even get a premium for that. That means you can use our products to produce products for European jet fuel markets, etc., and fuel markets, so that is another thing that we were able to achieve during...
Somya Jain: You know late last year and early into this year was all of our plants are now Corsea certified eligible for even more value Including even Shenandoah, so you know we're excited about this opportunity Which we wish was 80 cents a pound that would change the margin structure significantly, but I think that
Somya Jain: You know, we've seen the soybean oil market bottom out just based on what we're seeing globally in domestic vegetable oil pricing, but overall, we're really optimistic about our placement of our low-CI product into markets like renewable diesel and Corsia markets.
Speaker Change: Got it, thank you. And then how are you guys considering tariffs under Terms and the Impact in your production, maybe with VCO and Chinese Biodiesel in particular?
You know, uh...
Speaker Change: And that was a good thing to happen for our industry. We're going to have to take it day by day, step by step. The Canadian fuel market is an important market for us. But if you looked at some of their proposed retaliation, it did not include ethanol.
Speaker Change: So I think when you're talking about motor fuels around the world that have certain requirements a lot of times when you blend ethanol You've changed the base fuel around
Speaker Change: And you just can't change that overnight. So put the tariff on or not put the tariff on, people are still going to buy our alcohol to go around the world. We have a low CI product. And I think we're going to start to see even more interest in our products as we sequester carbon.
Speaker Change: We put tariffs on our products and then we get a tariff on Mexico to take our corn. Obviously, we'd have to weigh that, but a cheaper corn market wouldn't be so bad for green plants today or our industry, as we've seen the corn market rally and ethanol hasn't been able to keep up.
Speaker Change: So, you know we got to get through this winter doldrums of high stocks and we've been here before We were starting to see a little bit of a slowdown Although we had elevated production this week Maybe catching up a little bit, but we're gonna have it flow and you know the tariff situation is we've been doing this a long time and
You know, ultimately it becomes a zero-sum game.
Got it. Thank you.
Thank you.
Speaker Change: Your next question comes from a line of Puran Sharma from Stevens Inc. Your line is open.
Adam Shepard: Good morning, this is Adam Shepard on for Perron. Thanks for taking the question.
Thank you
Adam Shepard: Just in terms of the updated greed model, and you mentioned it's essentially like y'all wrote it for your assets.
Speaker Change: Can you just give some more color in terms of how much of an incremental benefit you expect to see versus your previous expectations and how that might impact your longer term margin potential?
Speaker Change: Yeah, I think when we looked at our assets and we looked at the new modeling and we got really excited about it because the starting points are lower, and in fact...
Speaker Change: Even York, which has a different type of plant, is eligible for 45Z now and is leaving the 45Q behind for a second here, so that gives us the courage.
Speaker Change: to even look at low energy distillation there as well, which is something we're focused on.
Speaker Change: The starting point was even better than expected, which gave us more confidence that we'll be able to achieve our numbers. We haven't really changed them much with the guidance that we have.
Speaker Change: Except to say that if you actually did the math you would see that those numbers are even higher basis degree model But I think we want to be conservative and say look, you know, this is just a validation of what we have been saying We even have more
Speaker Change: confidence in our numbers today. We are working on now finalizing agreements to get our credits and our voluntary credit our voluntary carbon offsets to market as well.
Speaker Change: in addition to looking at the tax credit situation and where we can help to use those forward cash flows to help monetize. Again, our goal also, when we look at all of this, is to get our term debt paid off sometime here by either looking at.
Speaker Change: you know that the situation we're in with carbon or or other aspects of cash flow generation as well as looking at our stock price as well I think that's gonna be important as we start to generate free cash flows from these projects and
Speaker Change: And look at the say, you know, where's the best place to allocate capital and what's the most accretive to our shareholders as we get to later in the year. But, you know, overall it was a positive both from corn oil.
Speaker Change: and Carbon. And when you add those two together, you know, I think it's very beneficial for Greenpoint shareholders. It doesn't show up this quarter because we had a really
Speaker Change: Weak ethanol market that we were coming off of with a bunch of oversupply But this is why we're doing what we're doing and by the way part of the 50 million dollars We identified was shutting shutting Fairmont down
Speaker Change: You know what, that game's up and we're going to focus on absolutely every aspect of what we do, every line item of what we do, starting with SG&A, going through our cost to get products to market, looking at our assets to say what's going to run or not run, and we're not going to run and lose money anymore.
Speaker Change: We're going to take actions and we're going to make them swift and very quick.
Speaker Change: Okay, thank you. That's very helpful. I'll hop back in the queue. Thank you very much. Appreciate it.
Speaker Change: Your next question comes from a line of Matthew Blair from TPH. Your line is open.
Matthew Blair: Thank you and good morning. I have a few questions on 45Z.
Speaker Change: Good morning. I have some questions on the 45Z in regards to your carbon capture efforts.
Speaker Change: The one you mentioned that it's unlikely the 45Z will be repealed. You know, is it fair to say that that's a shift in sentiment relative to perhaps earlier in the year?
Speaker Change: And if so, could you talk about, you know, what gives you confidence in that? And then two, to monetize the 45Z, you'll need to find a buyer on the other side, right?
Speaker Change: And so could you talk about, you know, are there any concerns that the 45Z would technically be in place but it might be hard to find a buyer? How would you go about monetizing those credits? Thanks.
Speaker Change: Yeah, I mean, it's a tax credit, so I think, you know, finding buyers who can buy tax credits and we've seen some potential opportunities that allows them to, you know, they're going to trade at a bit of a discount anyways, and they have, but we've seen a good...
These high-quality gold standard credits and volume
Speaker Change: To and carbon offset programs are still active at companies No matter you know what what we think about some of these programs people are still have their targets
Speaker Change: And certainly, there's still a market for these. These are tax credit offsets. So, I mean, really...
When you're looking at...
Speaker Change: And they're trading not at 100% so I mean and our models don't show them trading at a hundred percent So we're being conservative from that perspective look if we had a lot of profits. We wouldn't have to find Markets for our tax credits. We just use them We don't have those today, but we expect to have those in the future so we got to work through our NOLs first
Speaker Change: But ultimately, some of those could be used ourselves to offset tax obligations. So I don't think that will be a hard thing to market.
Speaker Change: And then we get the offsets, you know, look at LCFS markets today in California and Oregon and other places. Oregon already has a CCS pathway
for LCFS.
Speaker Change: So that will be an important market, especially for early gallons that come off, and California will take a couple years after that. So we have kind of a baseline market for what carbon offsets are worth, and that's in the LCFS market.
Speaker Change: And we also have customers that want to buy the tax credits and then buy the offsets and using that savings to buy the offsets and achieve two things. You've got to remember, 45Z is not necessarily...
Speaker Change: Reducing your carbon offsets. It's just reducing your tax liability if you buy it so tax credit markets are very active in our view I don't think we'll have any trouble from that perspective
Speaker Change: Sounds good and thanks for the commentary on just the current margins and trends into the first quarter. We're looking at pad to ethanol utilization that last week was
Speaker Change: 95%, the three-year average for this time of year is closer to 87, 88%. So is it fair to say this is more of a supply problem? And are you aware of any industry upcoming turnarounds that might help knock down this utilization figure?
Speaker Change: Yeah, I mean, this is the this is the time of the year that it's nice and cool out and we can run all the whole Industry can run their plants full out
Speaker Change: Cooling capacity has always been a bit of a bottleneck here, which is during the hot months and the summer months during driving season which is why you see a little bit down a little bit of a downtick in utilization only because
Speaker Change: When it gets warmer and hotter out there, you can't run your plants as efficiently. So, where we're at right now.
Speaker Change: Blends work really good. Gas demand is pretty good. We just need to get through this.
Get to driving, Susan!
Come out of these winter doldrums.
Speaker Change: Keep exports and we think they could exceed 2 billion this year as long as obviously we'll have to watch tariffs and everything like that, but
Speaker Change: Demand for our products is really good. E15 potentially as well will give us a little bit. Look, that's going to be a long game. We finally have what we need, but it's still going to be a long game to get to full utilization, 1%.
Speaker Change: E15 uptake in addition to everything else would be Taking us to any 11 blend would clear that clear the clear the surplus So it just takes a little bit of moves here on top of everything else but I think when you kind of look at where we're going to
Speaker Change: Even though we're in the middle of the winter doldrums, getting to driving season will be great. Gas demand is good. Weather has been pretty clear for people to drive. We saw that in the blends.
Speaker Change: And I think you're right to look at it that way, and I think if that was happening in May or June or July, margins would be significantly different than they are today.
Speaker Change: Just because we're in the middle of winter running at a 1050 to 1120 pace It's going to be a little bit hard to to draw stocks yet But when we draw we should we expect them to draw fast and curious especially with ramping up this export program in 25
Sounds good. Thanks for your comments.
Thank you. Thanks.
Speaker Change: Your next question comes from a line of Salvatore Tiano from Bank of America. Your line is open.
Salvatore Tiano: Yes, thank you. Firstly, I want to ask about the high-protein business. I mean, the, you know, the production level was pretty much the lowest, I think, quarterly since you added capacity in earnest.
Salvatore Tiano: and you mentioned the good river with baselining but I'm not really sure I understand what that means and given all the discussions about the ramp-up of demand throughout the year I'm still not really sure why
Salvatore Tiano: things shouldn't have been much more favorable so that you should have increased your production rather than, you know, as you said, do this rebaselining. So can you explain to us this? And also...
Salvatore Tiano: How are sales, actually, in the quarter? Because, obviously, you record the production, but...
Salvatore Tiano: Were sales actually higher Q on Q? Did you actually bring higher premiums versus the past as we're expecting earlier in the year?
Salvatore Tiano: Thanks for the question. So, let's address the first question. As we indicated to you, our modernization program at Mount Vernon was underway in early into the fourth quarter, which reduced that plant was almost fully offline.
Salvatore Tiano: For about half of the half of the month in October and we didn't bring the protein system on back until we brought the full plant back online
Salvatore Tiano: We modernized all of the conveyor systems, several of the older bin systems.
Salvatore Tiano: Lots of upgrades around the plant to get that plant modernized as we go on to the future as we as we look at what we need to do there and so protein was down there for a significant significant part of the month. On top of that what we wanted to do when we talk about rebaselining a carbon plant
Salvatore Tiano: We have to run it with and without the drying system.
Salvatore Tiano: in carbon score, but you have to you have to take the hard decision to rebaseline that plant. Because it's really, our central city plant is a little bit different animal. So, you know, we may have to do that at some point here before we go back online.
Salvatore Tiano: Make more relative to the 45Z and offset programs, we'll do that. If it means make more protein, we'll do that. You know, this plant is a plant that you may not be able to take protein down because
Salvatore Tiano: They'll live because of the drying capacity in a local market for feed. So we made a decision this quarter, and it was the right decision from a market perspective. You saw the weakness.
Salvatore Tiano: the middle of Iowa trading at 50-50 on their soybean meal futures and weaker than that. So it was the right quarter to do that. We continue to ship to our pet food customers.
Salvatore Tiano: But we had to compete as well in some of the pork and the poultry markets that are a bit weaker based on some of the physical soybean meal basis that we've seen out there. But, you know, we're basically running everywhere at this point, running back at all of the operations and protein are turned on.
Salvatore Tiano: And again, we're in our next 60 Pro run in Central City. We just did one last month as well, so these are multiple runs in a row, in multiple months that I think would give you us confidence that
Salvatore Tiano: We're going to start to hit some of the targets of 60Pro and Sequence. Again, just starting to see some really interesting...
Salvatore Tiano: opportunities there that we've been waiting for. And some of it's about, again, what we talked about. If you look at the global tightness in corn, other than the United States, which by the way, which has become tighter as well.
Salvatore Tiano: Corn gluten meal has become tight in the world as well. And again, a replacement for corn gluten meal is our sequence product and we're seeing that both domestically and globally.
Okay, thank you.
Also on the, I guess,
Salvatore Tiano: The SG&A, I mean, you got a few questions earlier and you addressed it, but what I'm trying to understand is the why now. I mean, I understand the concept that we reached, you know, another phase, but
Salvatore Tiano: Based on, you know, your earnings, the volumes you're doing, it doesn't seem like we've reached, you know, full commercialization and that there's not a lot of work to do be done there. So I'm not really sure what what has changed.
Salvatore Tiano: at the start of 25 verse 24-23 that would warrant these actions now and as opposed to for example one or two years ago or instead continuing the same path for another one or two years. So why now exactly?
Salvatore Tiano: Well, I can only say why not. I think when we look at SG&A, we've invested a lot in everything from
Through making
Salvatore Tiano: feeds that we wanted to use in testing and show our customers what's capable and we did that for them.
Salvatore Tiano: All the way through our innovation center and doing things around getting dextrose to, you know, you can't just do everything on the fly while you're building a commercial facility. York Innovation has a fully operating dextrose facility there as well as fermentation facility. All that costs a lot of money.
Salvatore Tiano: On top of that, when we look at some of the systems that we have in place, you know, we look at what we'll be doing. You know, we have a little less volume in our biggest product, which is ethanol, because we shut down our York facility, and that saves us a minimum of $10 million a year just in ethanol.
Salvatore Tiano: market savings alone not including in savings in SG&A and so when we look at all of that why not and I think and it's great for our shareholders and it's great for
Our stakeholders, it's good for cash flow generation.
Salvatore Tiano: And we're going to continue to be laser focused on it. You know, you invest, we had to over-invest in SG&A to get products to market. Well, we just sold one of the largest, if not the largest aquaculture company in the world, our 50% protein product and potentially our 60% protein product may go there as well.
Salvatore Tiano: You know, they don't need to see us doing this anymore. It was a bit of validation of our products. They had never seen products like this before in the market. Yes, you could buy 50 Pro Soybean Meal, but no, you could not buy...
You could not buy fermented...
Salvatore Tiano: with significant palatability uplifts in pad and aqua that do things differently than in the past. And we had to use our research to get into the door.
Salvatore Tiano: Yeah, if I could even go back, I probably would have spent less doing it. But I can't go back, so now I'm going to spend less doing it going forward. And it's time to do that, and I think...
Salvatore Tiano: even looking at all the way to the top of the house and saying to ourselves, what do we need going forward in the future? We need...
Finance, we need commercial, we need...
Salvatore Tiano: operations, and also our fluca business is starting to kick in again as well. 85% of their business was done outside of our company.
Salvatore Tiano: They are not relying on green planes for their revenues, and they're generating positive cash flows and positive bottom line earnings, and that's something we're going to focus on as well. So when we look at it, we're setting ourselves up for when carbon comes online to have the maximum ability to generate free cash flows.
Salvatore Tiano: And having all that extra SG&A does not give us that maximum capability. And then we can decide what to do with those free cash flows and ultimately have the luxury of making those decisions. And that's focused on debt as well as getting our share price higher.
Salvatore Tiano: You did make the comment that perhaps if you could go back
Salvatore Tiano: to ask on the Clean Sugar Initiative, you know, it wasn't even mentioned, I guess, on your expectations for earnings. You mentioned the 180 million EBITDA from SG&A in carbon, then ethanol, high-protein and
Salvatore Tiano: and corn oil but not clean sugar. So how would you judge the success of this initiative at this time and what would you do differently, you know, if you could go back two or three years ago?
Thanks for watching!
Salvatore Tiano: If I could go back two or three years ago, the next time we build clean sugar, it will be at a site that has on-site wastewater treatment.
Salvatore Tiano: Whether it's one of our sites or somewhere else and set it because we don't you know The last thing you want to do is invest in a wastewater plant
Salvatore Tiano: And I think when we relied on local communities to take our waste water...
Salvatore Tiano: A lot of what happens is during that time of build, that capacity potentially becomes stressed or older and they just weren't able to take it. If we could get all of our wastewater today to go somewhere, we would be running at 100%.
Salvatore Tiano: And so that's something that we have to focus on. But what the team is actually focused on, there are technologies running all over the world to clean up what goes in it so you don't generate the wastewater that comes out of it. So sure, we could have...
Salvatore Tiano: You know, we could have looked at it, you know, built wastewater right to the front, but then I don't think we would have built it in Shenandoah. We would have built it somewhere else that has wastewater alongside of it. I think when we look going forward, that's probably the one thing that I think is the biggest challenge. But in the end...
We can make product we can make it on spec
Salvatore Tiano: It's an exact duplicate of what comes out of another sweetener facility around the world.
Salvatore Tiano: You know, we know that we can scale this. You know, there's probably a couple of things we could do around ion exchange a little bit better, as we told you early on, but that system is working as well.
Salvatore Tiano: And, you know, number two will look different than number one, but...
Salvatore Tiano: You know, at this point, you know, we've got to get this thing running at full rate. And if we don't get it running at full rate, you know, we'll have some contribution, but it's not where we want it to be, but it's also...
Salvatore Tiano: It's not a technology that doesn't work, and I think that's the most important thing. We have customers in food, beverage, and industrial that want our product. The last certification should come here in the next couple of weeks.
Great, thank you very much.
Thank you.
Salvatore Tiano: Our next question comes from a line of Eric Stein from Craig Hallam. Your line is open.
Good night, Phil.
Okay.
Speaker Change: Hey, just want to sneak one in here at the end. Good morning. You know, I know you've talked about it's unlikely that the 45 Z is repealed. But you know, obviously, there are ongoing questions and regulatory uncertainty. So just I mean, when you look across your business,
Speaker Change: And I know that some of these areas are impacted to varying degrees, but do you kind of have a plan B, or is there the potential that in some of these areas it may change your plans based on the changes that potentially you see or are possible coming down the road?
Speaker Change: Yeah, I think there's always plan B on carbon, that's 45Q.
That's not going to go away
Speaker Change: Our view is 45Z is going to continue to hold. We have strong...
committee that he's also chairing.
and and who's really
Speaker Change: Interested in seeing these successful. I think we just got very very strong support for everything across the board Look, they might repeal a bunch of other things in IRA but our view is 45 Z continues to make the cut and and even then it's a little bit like
Speaker Change: The Affordable Care Act continued to try to get repealed, but at the end of the day, that's kind of what's in law. I think what really gave us great confidence was last week.
Speaker Change: When the IRS put out their guidance in the IRB, that's what people are going off of. And when that usually happens, not much changes from that point forward. Will they look at the 45C? Sure. Will they look at the IRA? Sure. And they should look at the IRA, but we've already spent the money.
Speaker Change: There's a lot of a lot of capital being spent from large companies across the United States based on these 45c tax credits
Speaker Change: So this is an equal opportunity making sure that we at least get the attention from ourselves all the way through the largest companies in the world that are investing behind this initiative as well.
Alright, thank you.
Thank you.
Speaker Change: Your next question comes from a line of Kristen Owen from Oppenheimer. Your line is open.
Hi. Good morning. Thank you for taking my question.
Speaker Change: I wanted to ask, as you're going through this sort of strategic review process and understanding the asset footprint in sort of a different light, you idled the Fairmont facility. I'm just wondering how you're thinking about maybe going forward, what are the options for that asset? Would you maybe look to monetize that? Just help us understand how to think about your production capacity with that facility down, what the options are going forward.
Speaker Change: Yeah, we want to get our permit from the state of Minnesota to build drying, a new drying system and a new grain system. We put the money into the middle of the plant and that all operates at the standard.
Speaker Change: And so yet, after 17 years or 20 years of these plants being built, things wear out. That's one plant that we under-invested in because it was the lowest-margin structure.
Speaker Change: in our plant stack. You know, one thing we were counting on is obviously the carbon pipeline.
and we're counting on that project to...
Speaker Change: To to make progress this year and if that were to happen it makes out that plan very valuable as well So, you know, we look at all of our assets like that, you know, this strategic review that we're under, you know, we are
Speaker Change: You know, when we kind of have embarked on this over the last year, what we're trying to do is uncomplicate our, the middle of the house, which is our SG&A, both the corporate and trade, as well as some of the things that we do around.
Speaker Change: You know, some of these innovation assets that we put in place and make it very, very simple. When you look at...
our plant stack.
generally speaking.
Speaker Change: Most of our plants are always even the positive, if not very.
Positive. Central City.
Shenandoah
Speaker Change: Even Otter Tail up in Fergus Falls, that is one of our, it's a 70 million gallon plant that competes with a 140 million gallon ICM margin structure.
Speaker Change: But in the end of that, we have plants like Fairmont that was a cash burn for us, and we have the SG&A that we're rationalizing that was a cash burn for us, and we're just not going to do it anymore, and we've got to focus now on, our products are at market, Krista, and they are
Speaker Change: There we are selling them today and now we've got to be able to realize instead of spending
Speaker Change: 6 or 7 cents a gallon on SG&A to do that.
Speaker Change: We're going to take that SG&A right out and get back down to a little bit of back to the future where we have a smaller middle of the company, less complicated, and our plans get to show what they can really do because I don't think we've been able to do that in order to get new products to market.
Speaker Change: And as we were getting new products to market, along came 15 million to 20 million more tons of soybean meal that kind of derailed 25 years of backtesting. So we'll have to work through that, and as we know, commodity markets ebb and flow.
Speaker Change: We will work through this excess protein, it might take a little bit longer than we think, but hopefully we get paid through some of the other things that we're doing.
Speaker Change: understood and and recognizing that today's announcement is not new it's it's a reflection of all of the reflection that you've had over the last year but the the question that I have for you is as you're kind of going through this process hindsight 2020
Speaker Change: Now that you've cleared the decks on SG&A, are there also some new implementation, maybe some hedging strategy, hedging governance? You mentioned in your prepared remarks this would have been the quarter to hedge.
Speaker Change: I'm just wondering how you're structurally addressing that feedback that you've received.
Speaker Change: Yeah, listen, we listen to all our shareholders, and I think that, you know, we came into middle of last quarter, and the fundamentals looked very solid, and we kind of remained unhedged all of last year.
Eileen Lippert: What are some threw talks and predicted ры Qi Hong, Oct? Im Eileen Lippert, www.imtheiff.com
Eileen Lippert: you know, from the top to the bottom and, you know, we're staring at very good margins, the last, you know, at least better margins the last time we talked.
Eileen Lippert: And, you know, you've got to also manage your balance sheet and manage your cash and make sure you can make the margin calls, but...
Eileen Lippert: You know look I think we will assess it quarter by quarter and what's best for our shareholders, but you know when we see
Eileen Lippert: Some bigger numbers again, obviously we'll have to look at those decisions, our board is involved, we talk to our board a lot on what we're going to do relative to our overall programs.
Eileen Lippert: And as we kind of get through the year and get our SG&A down...
Eileen Lippert: Get carbon working, corn oil contributions continue to go up because of our advantaged feedstocks, you know, hopefully we have to have less and less reliance on stuff like that, but
Eileen Lippert: But I think generally speaking, we've done a good job over the years when we have hedged, maybe one quarter notwithstanding the largest margins in history that nobody ever expected either. But we'll assess it quarter by quarter and we work with our board.
Eileen Lippert: and management and our risk team to determine what the best option is for the company.
Eileen Lippert: And we'll just continue to take it on a case-by-case basis relative to the markets that we're in.
Thank you, Todd.
Thank you.
Speaker Change: Your next question comes from a line of Lawrence Alexander from Jeffries. Your line is open.
Lawrence Alexander: Good morning. Could you just help on two things? One is the free cash flow impact or the cash charges for the restructuring and any other impacts on the cash flow bridge for this year and next year?
Lawrence Alexander: And then separately, after the restructuring, how you're thinking about, based on kind of the market feedback, on the likely kind of equilibrium return on capital of the protein and the clean sugar sides of the business.
Yeah, thanks. I think...
Lawrence Alexander: It's going to be not a huge charge in Q1 Certainly under 10 million if not under 5 million and some of it maybe even non-cash to write off So it's not going to really be a massive effect to our balance sheet. You know, we are we even
Lawrence Alexander: Some of planning for this over the last several months and really focused on the things that we can do very quickly and and Had some accruals already in place that we were able to use to offset some of that So, you know, I think overall it's not going to have a very big impact to to our income statement or our cash flows
Lawrence Alexander: And then when we look at kind of return on assets, you know, certainly we wanted them to be better
Lawrence Alexander: The amount of soy protein hitting the market, if you look at that margin structure as well.
Lawrence Alexander: As I said, it's become a bit ethanolized. They have too much capacity. I'm not sure slowing down is going to matter at this point. But when we look at that, certainly not the returns we wanted, but we have generated free cash flow off of these assets.
Lawrence Alexander: Yet, our SG&A ate a lot of that up and then obviously the ethanol margin came down. So sugar is going to take a little bit longer as we know, but it's also not the largest part of our investment thesis. So when we look at over the last couple of years, we invest in a protein
Lawrence Alexander: We put some investment in oil yields, which by the way, it continues to make records across many of our plants.
Lawrence Alexander: We invested in the sugar platform, which we believe we have a working technology that is at scale, again, only hampered by one factor. If that factor wasn't there, we'd be running at 100%, albeit it is there and we have to deal with it, so we're going to work on that in the next couple of months.
Lawrence Alexander: And then lastly, carbon. And when you look at all of those together, carbon, some oil uplift.
Lawrence Alexander: oil, and maybe a little bit from sugar, but probably not a lot. You know, overall the investment is the total investment is working, but it's outsized obviously by carbon at this point. But we anticipate protein to contribute more in the future as well.
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Thank you.
Thank you.
Speaker Change: Your next question comes from a line of Andrew Strelzick from BMO. Your line is open.
Speaker Change: Hey, good morning. Thanks for taking the questions. Sorry to have you laugh. That is just fine. Okay. First thing, on my side, I wanted to ask about, kind of, maybe you better understand how you're thinking about the base ethanol environment.
Speaker Change: You know, is it your view that as we get stronger demand over the summer, maybe inventory drawdowns, that that is enough to kind of solve things coming out of the summer and when we, you know, kind of this time next year we're having a better conversation or, you know, that these production levels is, you know...
Speaker Change: is ethanol demand, how much do you think that's going to be up? I'm just trying to better understand kind of how to think about the base ethanol margin environment kind of post the summer.
Speaker Change: Yeah, we'd like to understand that as well. I mean, I think we've got to get to summer driving. It's going to be...
Speaker Change: I think we're going to have our peaks and our valleys and it's going to move very, very fast.
Speaker Change: You know, overall right now what we're looking at is elevated stocks and elevated production because we're in the middle of winter and we've got to get the turnarounds, which should be, as somebody asked earlier, should be late in March or April.
Speaker Change: And that's right at the beginning of summer driving season, although setting ourselves up well with demand. But no, this is going to be a continued battle between production and supply and stocks and demand.
Speaker Change: And we really need to push for a couple things to happen. Can we increase exports more than we think?
Speaker Change: our plant in Fairmont going down among about three or four other smaller plants that have gone down. Will that rationalize supply? Will we have E15 uptake greater than we think that we may think with this administration really pressing?
Speaker Change: Ethanol make its way into certain markets and so you know all that combined it's a bit of a bit of a stretch to see that we could have an outsized massive uplift in ethanol margins but we should be able to bounce off the bottom here pretty significantly but I don't know that we're going to have a peak margin environment anytime in 2025.
Speaker Change: okay all right that's helpful and then my last question is just on
Speaker Change: The corn oil side, I'm curious what you're seeing from a demand perspective so far, post kind of the guidance from 45Z. Are you seeing
Speaker Change: Either demand or the intention around demands pick up, and what's your expectation for the demand lift and pricing on a go-forward basis? Thanks.
Yeah, I think when you look at...
Speaker Change: Renewable diesel, ebbs and flows obviously you know what's going on at some of the plants getting their SAF up and running which is fantastic you know yeah and you've heard that through several of the other earnings calls we are really excited for companies like that to
Speaker Change: But generally speaking, when you look at the overall, and I think we shared some of that with you guys, when you look at the overall balance sheet for veg oils, domestically and globally.
It probably justifies much higher if not significantly higher prices
Speaker Change: But I think oil share versus meal share is something that we're fighting with today and that's ebbing and flowing a little bit so
Speaker Change: As we look at it, we believe vegetable oil demand will continue, especially for our products.
Speaker Change: We'll continue to be very strong during the year, and we're seeing more interest that we've seen in a very long time for longer term.
Longer tenor contracts at a premium price to soybean oil.
I would say before it was like next month.
Speaker Change: We would be able to sell some good product, but now we're starting to see people approach us to say, can we buy 50 million, 70 million, 80 million pounds from you over a longer period of time instead of buying 5 or 7 million pounds at a crack so they can get their hands on low CI Advantage Feedstock, Corsia approved.
Distillers corn oil that is a significant advantage.
Speaker Change: over soybean oil and the fact that used cooking oil from China is not coming in the United States anymore. Well, watch Tallow closely, because that's really another advantaged feedstock, but that'll get all used up pretty quick as well, and I think that's why when you look at...
Speaker Change: You know, we're watching renewable diesel margins closely. They can expand their margins significantly by buying lower CI feedstocks, and we have some of that, but we're not going to give it away for free.
Great. Thank you for all that, Colin. I appreciate it.
Yeah, we appreciate it as well. Thank you.
Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Todd Becker for closing remarks.
Speaker Change: Yeah, thank you everyone. As you see, we've been pretty busy over the last several weeks. I think our focus on
Speaker Change: reorganizing our cost structures and our initiative that we announced today of which we've already
Speaker Change: We've gotten closer to pushing towards that $30 million number this week, and then with phase two starting on Monday to get to the $50 million number over the next 90 days.
Across the board, we've made significant changes to our platform.
Speaker Change: focusing on profitability per site, focusing on reducing our SG&A per gallon.
Speaker Change: Looking at our products where we can we can generate more and higher returns
Speaker Change: with significant less investment in getting those products to market and then working our way towards the last half of the year getting carbon up online as we said.
Speaker Change: The laterals are under construction, just drive through Nebraska. If you don't believe it, come and see it. We'll take you on a tour. That's the Tallgrass Trailblazer Project. It's an amazing project across the state, generating significant jobs for the state of Nebraska, significant opportunities for Nebraska agriculture and Green Plains as well.
Speaker Change: And we're really excited about that, and I think we have a great opportunity coming out with significant low-carbon feedstocks that we believe should trade at a premium to the traditional feedstocks. It's what we've been setting ourselves up for.
Speaker Change: We have to watch global protein markets, obviously, but generally speaking, I think we're well set up as we get through 2025 and then into 2026 as carbon really starts to kick in. So we really appreciate your time today, and we'll talk to you next quarter.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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