Yahoo Finance Green Plains Inc. (NASDAQ:GPRE) Q1 2024 Earnings Call Transcript
Green Plains Inc. (NASDAQ:GPRE) Q1 2024 Earnings Call Transcript May 3, 2024
Green Plains Inc. misses on earnings expectations. Reported EPS is $-0.81167 EPS, expectations were $-0.33. Green Plains Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to Green Plains Incorporated First Quarter 2024 Earnings Conference Call. Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in a listen-only mode and I will now turn the call over to your host, Phil Boggs, Executive Vice President of Investor Relations. Mr. Boggs, please go ahead.
Phil Boggs: Thank you and good morning, everyone. Welcome to the Green Plains, Inc. first 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. 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. 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 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.
Todd Becker: Thanks, Phil. Good morning, everyone, and thanks for joining our call today. We were not alone in managing through a challenging market during the first quarter driven by industry oversupply from elevated production during a mild winter leading to an increased stocks position, combined with weaker vegetable oil markets and compressed protein markets as well, leading to a weak first quarter and negative EBITDA of $21.5 million, although an improvement from last year of about 22%. The typical first quarter doldrums hit the industry as well as a quick deep freeze that had an outsized impact on some of our plants. Since we saw the extended margin compression, we took the opportunity to launch two major refreshes in Mount Vernon and Obion so we can run beyond historical norms at some of our best plants when completed, especially at Obion, which was one of our historically strongest margin plants that we've had for the last 15 to 17 years.
As I said, both of these are happening at traditionally strong margin sites, so can have an outsized effect in a low-margin environment. Operationally, we performed well with utilization at about 92%, and another strong quarter of protein production, and in an improved margin environment we can start to push towards high-90% run rates with all the refresh investments we have made and are making. Speaking of margins though, we have recovered a bit, but still a long way to go. Q2 margins now range from the mid-high single digits to the low-teens across the rest of the quarter on average. For the rest of the year, every month has returned to a positive margin on the curve, which is unique for this industry at this time of year. This is at least a $0.25 a gallon improvement off the lows in some months.
We'll talk fundamentals a little bit later on the fuel markets. During the quarter, though, we continued to execute on our transformation strategy across the board, completing the acquisition of Green Plains Partners in early January, started commissioning of the SFCT demonstration facility with our partners at Shell in March, commissioning our CST project in Shenandoah as we speak, as well as bringing our MSC protein joint venture at Tharaldson Ethanol in North Dakota online over the last couple of weeks, in addition to launching our Sequence brand for our 60 Pro product. We achieved these key milestones and I will discuss more about these areas as we go through the call, and may seem like this is all not happening during times of macro weakness, but I can assure you that it is, and we have a lot of positive updates to share on sugar, protein, and carbon, which is part of the reason we see positive margins currently for the rest of 2024.
Of note, the recent Green SAF modeling update demonstrates that if you can make low-carbon fuels, you have an asset more valuable today than you did on Tuesday morning. I will show you that path as well. We continue to anticipate that as spring maintenance and summer driving season progresses, we expect to see seasonal stock draws leading to strengthening base margins and lead us out of the winter doldrums that we have been stuck in for the last several months. Corn plantings look off -- look to be off to an excellent start, which could lead to a more favorable basis values as we move through the summer. We remain primarily open to the margin structure across all of our products. One quick update on the strategic review. The Board and the leadership team are fully engaged with evaluating our strategic options as we have disclosed last quarter.
We continue to believe that value of our platform is not reflected in our stock price even more so after the Green updates that I mentioned. Hopefully you saw during the quarter, we announced our new specialty ingredient brand Sequence for our 60% protein product. We are really excited about this brand and what it represents for the high-value aquaculture, feed, and pet food markets we serve, as well as our ability to begin to custom tailor nutritional solutions for our customers, beyond just selling them protein, which is why we called it Sequence. Leslie and the innovation team have been working hard on a very specific, tailored taste and texture solutions that can be combined with Sequence, another reason we are getting traction with our customers.
Our Sequence sales have been increasing as we approach the equivalent of one plant's production's worth of recurring sales, representing approximately 10% of our production capacity. Interest in this product has been strong and we believe we are on track to exit the year at the 20% to 30% capacity being committed to repeat sales customers, and anticipate expanding it from there with the goal of eventually moving to 100% of our production to Sequence. This product separates us from more commoditized 50 Pro market that has been under pressure from soybean meal to corn -- the spread between soybean meal and corn, which has been influenced by rapidly expanding soy crush capacity, although we have seen soy meal prices elevate quite nicely over the last several days.
Base margins for our 50 Pro were under pressure from both a tighter protein spread as well as decline in vegetable oil pricing, but we have always said we justified the investment with 50% protein, but built them for 60%/Sequence or higher. Our Sequence protein becomes a differentiator in the long run. Let me tell you why we're getting traction. This is a novel 60% protein. It's the world's first plant-based 60% protein ingredient, made from a combination of corn and yeast. It is fermented for intestinal health. Corn and yeast provide a greater bioavailability and nutritional benefits for the customers we serve. Lastly, on this topic, I'm very pleased to report that in a recent analysis titled Emerging Protein Rich Ingredients for Aquaculture, our protein ingredient received the highest accolades in a recent European report that continues to validate our view that our scalable and low-carbon intensity protein products are a much-welcomed addition to the supply of quality ingredients for aquaculture, of which we are in trials in some of the highest values in the markets -- value markets in the world today.
With ethanol at a roughly $1 gallon discount to RBOB, it makes sense to max blend and we are seeing strong exports and could end up the year -- record year for US exports potentially even exceeding 2018 1.7 billion gallons. And now, I'll hand the call over to Jim to provide an update on the overall financial results. I'll come back on the call to provide an updated strategic outlook and how carbon and sugar will play a larger role going forward.
Jim Stark: Thanks, Todd. And good morning, everyone. Green Plains consolidated revenues for the first quarter were $597.2 million, which was $235.7 million or approximately 28% lower than the same period a year ago. The lower revenue is attributable to lower prices for ethanol, dry distillers grains, and corn oil in Q1 of '24 as compared to the same period a year ago. On average, prices were down in the range of 25% to 30% year-over-year. While we also saw a drop in our commodity inputs with corn and natural gas down significantly year-over-year and with ethanol trading at a significant discount to RBOB, margin opportunities were limited in the first quarter due to the ethanol industry oversupply Todd mentioned earlier. Our plant utilization rate was 92% during the first quarter compared to 87.5% run rate reported in the same period last year and only slightly lower than the fourth quarter of 2023.
We anticipate our plants to continue to perform in the mid-90% range of our stated capacity for 2024, barring any events outside of our control. For the quarter, we reported net loss attributable to Green Plains of $51.4 million or $0.81 per diluted share compared to a loss at $70.3 million or $1.20 per diluted share for the same period in 2023. EBITDA for the quarter was a negative $21.5 million compared to negative $27.7 million in the prior-year period. Depreciation and amortization expense was lower by $3.9 million versus a year ago at $21.5 million. We anticipate that D&A will average approximately $22 million per quarter for 2024. We realized a loss of $9.3 million in consolidated crush in Q1 of '24 that compares to a loss of $12.5 million in the prior year.
With the acquisition of the partnership completed in January, we have combined the partnership segment into ethanol production since the partnership was primarily driven by ethanol-related items, including the throughput fees and storage tanks associated with our ethanol plants. We have previously added much of that back to the consolidated crush, but there are some minor adjustments from combining the entire partnership, which are reflected in the 8-K filed this morning. Also, the operating maintenance expense line was combined into the cost of goods sold. For the first quarter, our SG&A expense for all segments was $31.8 million, which is in line with the prior-year number. Interest expense was $7.8 million for the quarter, which includes the impact of debt amortization and capitalized interest and was $2 million favorable from the prior-year's first quarter.
The decrease is primarily due to lower debt balances offset by slightly higher rates quarter to quarter. Our income tax expense for the first quarter was $300,000 compared to a tax expense of $3.4 million for the same period in '23. At the end of the quarter, the net -- federal net loss carryforwards available to the company were $89.6 million, which may be carried forward indefinitely. Our normalized tax rates for the quarter at Green Plains, excluding minority interest, is around 24%, and we anticipate that our tax rate for '24 will also average at 24% rate. Our liquidity position at the end of first quarter decreased from year-end due to cash used in the completion of the partnership acquisition, capital investments made during the quarter, and the results from operations.
However, I am certain we continue to be well positioned to achieve the next steps of our transformation plan. Our liquidity included $277.4 million in cash, cash equivalents, and restricted cash, along with approximately $230 million available under our working capital revolver. For the first quarter, we allocated $22 million of capital across the platform, including $13 million to our clean sugar initiative, about $4 million to other growth initiatives, and approximately $5 million towards maintenance, safety, and regulatory capital. We anticipate CapEx for the year will now be in the range of $95 million to $115 million in '24. This range excludes the capture equipment needed for our Nebraska carbon capture initiatives. We do have financing lined up to cover those needs and the plan to discuss these items further in the near future as the project progresses.
Our capital strategy continues to be to deploy capital into the highest and best-returning projects. Now, I'd like to turn the call back over to Todd.
Todd Becker: Thanks, Jim. So, when we embarked on our journey several years ago, the IRA did not exist. So while our go-forward mix of opportunities may have changed, the forward outlook, in aggregate, remains the same for 2025. Because of the IRA and the 45Z Clean Fuel Production Credit and the opportunities these present to produce low-carbon intensity fuels, it is driving a reprioritization of our overall capital allocation strategy because of the guaranteed returns backed by the full faith and credit of the US government. We remain confident that our advantaged Nebraska approach in carbon capture could begin to yield significant returns as early as next year. Our three Nebraska facilities, which represent 287 million gallons of capacity at present, will be on a pipeline project that already has its trunk line in the ground as a converted natural gas pipeline, so building the laterals to our plants is relatively straightforward.
Currently, our pipeline partners continue to make solid progress and we are on track for starting up in the second half of 2025, and we plan to begin ordering the capture equipment in the next several months and expect construction to start later this year. Given that we have first-mover status, we are actively exploring redeploying capital to expand the production capacities for our Central City and Wood River, Nebraska facilities by 30 million to 40 million gallons to take advantage -- each, to take advantage of the early days of the 45Z Clean Fuel Production Credit and position ourselves as a preferred early feedstock supplier to alcohol to jet sustainable aviation fuel producers. We have already seen interest in the supply from multiple different parties, especially with the GREET SAF update announced.
These are a couple of our premier facilities already have MSC deployed and have abundant local corn supply. With York, we plan to decarbonize distillation with a small CapEx project to reduce energy usage, which reduces carbon intensity as today qualifies for 45Q and we want to change that and opportunistically take advantage of early 45Z economics But it really doesn't stop in Nebraska. We have four other plants on the Summit Carbon pipeline and they continue to make good progress as well on permitting in the states that we will operate in. With all of that said, at current econs, once up and running, we expect Nebraska alone to contribute over $100 million per year in carbon EBITDA starting in the second half of 2025. With the current progress we have made, again, all backed by the 45Z tax credit.
Our MSC -- on MSC and protein, since our Fairmont and Madison locations have faced permitting delays for the proposed MSC protein projects for some time now, and we literally received our Illinois permit yesterday, we previously made the decision because of the carbon economics to put the capital allocation -- capital allocation for that on hold for the time being and only for the time being while we turn our attention to our significant return profile of the advantaged Nebraska strategy, along with potential clean sugar facility which would be two to three times larger than what we have in Shenandoah, Iowa today. The returns associated with both carbon capture and clean sugar are driving this and are significantly better than anything else we can do.
We will continue to evaluate our overall asset mix and we are focused on the future of decarbonization and clean sugar as our top two priorities after 60% protein or Sequence going forward when we evaluate our portfolio. Part of the permit in Illinois is also the ability to run the plant at an expanded rate to reduce OpEx per gallon and improve margins at that site as we always have had spare capacity we could not run under the previous permit. We also have several projects to be able to capture carbon in Mount Vernon and Madison under review as well. Those will just be a little further out. While we have not issued a press release, I'm happy to update you on our CST project, clean sugar project in Shenandoah. It is now mechanically complete and we have begun commissioning over the last month and we expect to produce on-spec product in the next week or so.
In addition, we are negotiating multi-year contracts for our low-carbon intense dextrose corn syrups, and we are continuing with substantive late-stage discussions for all of our 2025 volumes, to take all of our capacity. We expect to start to sign some agreements in -- even in the next week or so. The Clean Sugar Technology is a game changer for Green Plains and sets us apart as we actively explore plans for Site Number 2. Lastly, based on current markets and pricing, the uplift and converted margins have remained the same at a minimum of $0.60 a gallon uplift with some products and volumes significantly higher in the $0.80 per gallon or $0.90 per gallon range. This is another reason we want to allocate capital to this versus protein at this point, especially now that we have Shenandoah beginning to operate.
The SAF tax credit and updated GREET model from earlier this week sets the stage for an increased asset valuations for any plant that can decarbonize. The SAF guidance has given us a starting point for rulemaking for the all-important 45Z Clean Fuel Production Credit, which begins this coming January, just eight months from now, and we remain optimistic this will carry through to that rulemaking. A couple of takeaways here and I think they're really important for everybody to understand. The guidance for SAF was in line with our expectations, and to their credit, they actually lowered some of the unreasonable land use change penalties associated with corn as a feedstock for alcohol to jet. Climate smart ag practices also allowed to count towards CI reduction in corn.
It's important to remember that 40B for SAF is just a stepping stone to the 45Z Clean Fuel Production Credit. One really important and lastly really important point, the common misconception this week on the recent SAF guidance is that low CI corn will be required to qualify, and this is just not the case. With CCS or carbon capture, you can get your score low enough to qualify for SAF, and after that, the lower CI corn is just additive to those economics, and we have a significant program around that as well. Bottom line, there is now a path for US corn-based ethanol to qualify as a feedstock for producing alcohol at the jet SAF, and the plants that can decarbonize are going to be at a distinct advantage. And this gives us an increased confidence in our Advantage Nebraska strategy, and believe that ATJ sustainable aviation fuel has the potential to fundamentally revalue our asset base or any other plant that's on a pipeline today.
By the way, we were just checking, but to build a new ethanol plant in the United States in our view could be as high as $2.50 a gallon because we have priced them to see the econs related to when alcohol to jet becomes a reality and that's a minimum price at this point. We continue to see Chinese “Uco” weighing on the domestic veg oil prices, including our renewable corn oil, hopefully new and expanded our decapacity coming online to help to rectify this imbalance, and we remain bullish on the long-term value of our low-carbon intensity corn oil. However, there is recent pricing pressure from our prior projections when we were using $0.70 a pound that is now currently in the high-30s to low-40s, resulting in EBITDA from our base corn oil uplift to the base ethanol margin of $80 million to $90 million for 2024.
Our MSC uplift has always included an uplift from corn oil yield increases as well, which is where some base pressure came from, combined with the pricing pressure from lower soybean meal spreads during Q1. Although, starting to recover with a $40 a ton rally from the lows, we are experiencing an MSC uplift of $0.07 to $0.12 gallon. We believe Sequence margin will more than make up this difference and more, which is why we are focused on customer conversions every day, in every market around the world. When we look forward ahead to the opportunity in front of us in 2025, if we assume some normalization while our mix has changed, our guidance has not. We are still on track for a near $300 million EBITDA contribution from our protein, corn oil, clean sugar, and decarbonization pillars, excluding any income contribution from base ethanol, corporate overhead, or ag and energy segments, which by the way, has performed well last year and off to a good start this year.
I tried every which way I can, but we keep coming up with this result, which is consistent with what we outlined at the beginning of our transformation in 2025. In protein, our 640 million gallons of converted capacity, including half of our ownership in our joint venture, could generate a base load of 80 million to 120 million. As protein spreads widen back out, we will increase and we will see an increase as we -- as 30% to 50% of our platform moves to Sequence we believe in 2025. We'll also look to add another one production facility in the future as we mentioned earlier, but we want to make sure we allocate capital to the best projects today. Corn oil contributions on the base business are fully reliant on prices, but 2025 should see some recovery as we are approaching the end of the biodiesel tax credit on December 31, and corn oil is an advantaged feedstock relative to those valuations.
The contribution should be a base of $100 million and grow from there. In sugar, our belief that Shenandoah will be fully lined out as we go through this year, and the facility could generate a baseload $15 million to $25 million a year on a full year basis, depending on what the customer mix ends up. Again, we have strong customer demand and as mentioned, we expect food-grade certification in around 90 days after we make the on-spec product, hopefully in the next week or so. Finally, in decarbonization, the Nebraska First strategy is on track and based on the latest GREET model, could generate up to and possibly exceeding $110 million a year on an annualized basis from our Nebraska assets alone beginning in 2025 and then grow from there if we are able to quickly expand those assets and additionally when Summit Carbon pipeline comes online as well.
We will also continually review our asset mix and where we have opportunities to monetize an asset pay off debt and delever our balance sheet while focusing on our Nebraska first-mover advantage where a combined expansion of 50 million to 70 million gallons could have an outsized return due to carbon capture we will do that. Much of our asset base is unencumbered, and we have no near-term maturities and remain in a strong cash position. We are also focusing, though, on reducing our cost of debt as well as we've seen some opportunities to do that as well. So, while you see that the mix has changed from where we originally laid out the transformation, our efforts to transform this earnings power have not wavered, notwithstanding a weak Q1 we just reported.
Thanks for joining our call today. We can now start the Q&A session.
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