Green Plains Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 12 speakers on the call.

Operator

Morning, and welcome to the Greenspan Inc. And Greenspan Partners First Quarter 20,003 Earnings Conference Call. Following the company's prepared remarks, instructions will be provided I would now like to turn the call over to your host, Bill Boggs, for Vice President, Investor Relations, Mr. Boggs. Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Welcome to Green Plains Inc. For Green Plains Partners' Q1 2023 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer for Jim Stark, Chief Financial Officer and Leslie Vandermuellen, EVP of Product Marketing and Innovation. There is a slide presentation available, and you can find it on the Investor for the Q4 of 2019.

Speaker 1

During this call, we will be making forward looking statements, which are predictions, projections or other statements about future events. For today's call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press releases, in the comments made during this conference call and in the Risk Factors section of our Form 10 ks, Form 10 Q and other reports and filings with the Securities and Exchange Commission. For today's call.

Speaker 1

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

Speaker 2

Thanks, Bill, and good morning, everyone, and thanks for joining our call today. Concurrently, with our earnings announcement this morning, we announced an offer to acquire all of the publicly held common units of Green Plains Partners. For the company's prepared remarks, instructions will simplify our corporate structure and governance, generate near term earnings and cash flow accretion, for the company's prepared remarks, reduce SG and A expense related to the partnership, improve the credit quality of the combined enterprise and align strategic interest between Green Plains Inc. Shareholders for customers and the partnership unitholders by regaining full ownership and control of Green Plains total platform, including our terminals. For the Q1.

Speaker 3

All of

Speaker 2

this will allow us to be more flexible with our long term asset and company strategy. This is as much commentary as we can provide on this potential transaction at this time. So let's get the Q1 results out of the way. As indicated, ethanol margins were very weak in the Q1 and began to recover too late for us to take advantage if we look backwards. For But since we are looking forward, things have changed significantly from the lows we saw in January as market fundamentals look very interesting for the remainder of the year for all of our products and we'll get to that later.

Speaker 2

This was further validated with yesterday's EIA data. Our overall consolidated crush margin was negative 0 point for the quarter leading to a negative EBITDA of $27,700,000 Corn basis has continued to be high, particularly in the West. For the Q1. We experienced a basis that was approximately $0.25 a bushel over the prior year and $0.40 over the prior 5 year average. For the Q1.

Speaker 2

Ultimately, margins needed to adjust to this and they have started to in the Western Corn Belt for the rest of the year based on the current forward curves and markets. For veg oil pricing was weaker than the highs we experienced in 2022, which was also a factor during Q1 even though we had most of our corn oil presold for the quarter. I'll give you some insight on current events later as it gets starting to get interesting for low carbon intense oils again,

Speaker 3

for the quarter, which is where we sit

Speaker 2

with our product. We also saw weak driving demand in the quarter and coupled with continued excess ethanol production, which resulted in a challenging margin environment. For the last 15 years, we made sure we owned our natural gas for our winter production and for the Q1. And that was the right thing to do historically, but with the unusually warm winter we saw, natural gas pricing decreased below our costs causing a drag on the spot crush margin. For the quarter.

Speaker 3

Because of this, we are limited in our ability to benefit from the reduction in

Speaker 2

spot pricing. Having our natural gas purchased early impacted our crush margins negatively as well. For future growth. We will assess the best coverage strategy in the future for winter, but we believe this ownership is and always was the prudent approach. Recently, we have experienced significant improvement in overall ethanol margins as U.

Speaker 2

S. Production has trended lower, while gas and driving for the quarter. Now we have to see if that holds. We believe since 2019, our inputs have driven for Q1 2019 to lower margins overall as an industry other than a few quarters as the world balance sheet for corn tightened between COVID and the Ukraine situation as well and weather. For the next quarter.

Speaker 2

This may turn in our favor in 2023 2024. We are seeing strong early indications that this year's corn acreage will be expanded for the next few years. We're going to continue

Speaker 3

to see the growth of our business and our business continues to grow.

Speaker 2

We're going to continue to grow our business and grow our business. We're going to continue to grow our business and grow our business. We're going to continue to grow our business and grow our business. We're going to continue to grow our business and grow our business. We're going to continue to grow our business for the Q1.

Speaker 2

Going forward, we will choose our spots to lock in available ethanol crush margins to our hedging strategy as there are opportunities along different parts of the curve to lock in for But it's been a while since we've been able to say this about the forward curve. While this is really a great setup, our main focus continues to be on executing on the transformation to add incremental recurring margins and cash flow opportunities from our biorefinery platform through expanded protein and ingredients, low carbon, renewable corn oil, for clean sugar and decarbonization to insulate us from the volatility that we've experienced. While the Q1 was tough, we are well underway. For the Q1. With approximately 10% of our plant utilization capacity offline during the Q1 because of margins, our overall production utilization came in at about 87%.

Speaker 2

Improvements in the margin gave us the opportunity to bring back all of our facilities back online, but it was just in time for us to enter maintenance and turnaround season. So for So we anticipate only slightly higher run rates nearby and strong run rates for the 3rd Q4 where the actual highest margins are. Q2 will be impacted from having Wood River offline for a period of time as we had an explosion of a whole stillage tank when the plant was not operating because of routine maintenance. For current engineering and construction estimates to complete repairs, we are targeting to bring that facility back online by the end of the quarter, at which time we will return to full rates across our platform. For any additional questions.

Speaker 2

Anything longer than that will be covered by business interruption insurance, so we don't believe this will ultimately have a material effect on 2023. For the Q1. Well, we hope to be up and running before that kicks in as demand for ultra high protein from Wood River continues to be very strong. For the Q1 and early in the Q2, our transformation strategy began to hit an important inflection.

Speaker 3

For the Q1.

Speaker 2

With improved ethanol margins, we brought our ethanol production capacity fully back online and all 5 of our MSC systems were lined out for commercial and commercial products to benefit our animal nutrition customers and business. For 21 days at the end of March for the Q1 of 2019. At the end of the quarter and into the first half of April, we averaged over 900 tons per day of ultra high protein production with some days achieving over 1,000 tons of production. For the Q1 of 2019. Some of these days exceeded our initial investment expected volumes, and we still have more to go as we've just begun to truly optimize our process.

Speaker 2

We have achieved yields that exceeded £4 per bushel pushing close to £5. We believe the MSC technology is the best and only system to ever see these type of yield numbers for the most consistent in producing high quality suite of animal nutrition products. Continuing to optimize these systems to maximize for production. Our platform was performing as designed and at rate and demonstrates for the annual run rate exceeding 330,000 tonnes per year for these five locations only and is achievable and more. For the Q1.

Speaker 2

After the events that occurred in Wood River location in mid April, the protein location has been offline. And when we started back up, we believe

Speaker 3

for the Q2. We will once again be running at 900 tons per day, plus or

Speaker 2

minus day in and day out. Our anticipated MSC volumes for the 2nd quarter on the 60,000 to 70,000 ton range and as a result of this downtime moving to 80,000 to 90,000 tons per quarter going forward. Later in the call, I will review our pricing and financial metrics associated with protein production. As you can see in the volume table in the press release, we added a line for ultra high protein. And we get to full production, we will give you more breakout of financial outcomes as well.

Speaker 2

I will also review some of the things we are seeing for the last half of the year sales channels and higher proteins as well. But even more exciting than this is our Clean Sugar facility in Shenandoah is making great progress and we have recently gone vertical, for which we have posted pictures online and you can see the walls of the securification tanks are being installed. It's very exciting to see this progress and we hope to share our vision for the future and our company. And I'll go later in the call, I will go deeper on this topic. I won't spend a lot of time on the regulatory front except to say things are trending our way as well.

Speaker 2

Between RVO staying steady on ethanol for potential upside for renewable diesel, higher blends like E15 taking hold as we enter into our 5th straight summer of year round sales the company to help our low carbon renewable corn oil production achieve higher values, all the way to the IRA, which we have spent a lot of time on our past calls and you could see it for future quarters. I will cover decarbonization briefly later in the call, but I'm happy to announce for June 15 at 10 am Central Time for our teach in that we have been promising on the IRA and the impact to the future of our company. Our decarbonized alcohol will be a valuable feedstock to produce alcohol to jet and sustainable aviation fuel at scale, But that is the end game. In the meantime, there are many positives to unpack for our shareholders, and we are excited to educate all of you on this. Our balance sheet and liquidity remains strong, ending the quarter with $408,000,000 in cash.

Speaker 2

Jim will provide a summary of our financial results and an update to our capital allocation for the balance of 2023. And now, I'll hand the call over to Jim to provide an update on the overall financial results.

Speaker 4

Thanks, Todd, and good morning, everybody. For the Q1 were $832,900,000 That was $51,500,000 higher than the same period a year ago, for continued growth. Driven by higher run rates, which enable us to produce more ethanol, high protein ingredients and renewable corn oil. For our plant utilization rate improved year over year to 87.5% during the Q1 as compared favorably to the 83.1 for the Q2. As Todd mentioned, we are working to restart our Wood River plant, for the Q2 utilization rate as that plant represents nearly 13% of our stated capacity.

Speaker 4

For the quarter. For the quarter, we reported a net loss attributable to Green Plains of $70,300,000 or a loss of $1.20 per diluted share.

Speaker 3

For the quarter. That compares to a loss

Speaker 4

of $61,500,000 or a loss of $1.16 per diluted share for the same period in 2022. For the Q4. When we look at the bigger cost variances between the two periods, higher corn and natural gas prices combined with higher railcar lease expense were the main drivers. For the quarter. The higher railcar expense is a result of moving to a compliant DOT 117 fleet of rail tankers, which was common across the industry.

Speaker 4

For the quarter was a negative $27,700,000 which was in line with the prior year. We did experience a $4,500,000 increase in for the full year of 2019. Our current expectation is that D and A will remain in the range of 23,000,000 $25,000,000 per quarter for 2023. The increase is mainly due to the addition of MIC Technology bills at 5 of our locations. For We realized a negative $0.07 per gallon consolidated crush for Q1 of 2023, which was in line with the prior year.

Speaker 4

For the Q4 of 2020. On a sequential quarter to quarter basis, we saw the consolidated crush margin per gallon weaken $0.10 per gallon when compared to Q4 of 2022, for And that tends to be the seasonal pattern that we see with the Q1 of the year traditionally being the weakest.

Speaker 3

For the Q1.

Speaker 4

Our Ag and Energy segment recorded $5,200,000 in EBITDA, about $5,500,000 lower than the prior year. This decline was driven by for volatility in our merchant trading and distribution businesses and our distillers grain flows and natural gas storage. Yet, we expect the year to come in largely in line with for previous years. For the Q1, our SG and A cost for all segments was $31,800,000 compared to $30,900,000 for reported in Q1 of 2022. This approximately 3% increase was driven by higher wages across the platform, for especially at our industrial sites as competition is fierce for plant employees, in addition to higher consulting and professional fees.

Speaker 4

For the quarter. Interest expense was $9,700,000 for the quarter, which includes the impact of debt, amortization and capitalized interest. This was higher than the $8,800,000 reported in the for the Q1 of last year. This is due to rising interest rates on floating rate debt and reduced capital interest in the quarter as certain projects have been completed. The majority of our outstanding debt is at a fixed rate, and higher interest rates did not have a for significant impact on our balance sheet.

Speaker 4

We have no near term maturities for the next 3 years. And also note that our cash interest paid in the quarter was $10,100,000 for 2020. We do continue to anticipate interest expense for 2023 to be approximately $40,000,000 with the current interest rate environment and anticipated debt balances in 2023. For the quarter. With our strong cash balance, we did realize interest income of $3,200,000 in the Q1, which did offset the increase in interest expense.

Speaker 4

Our income tax expense for the quarter was $3,400,000 compared to a tax benefit of $1,200,000 for the same period of 'twenty two, for even though we incurred a loss during the quarter.

Speaker 2

At the end of

Speaker 4

the quarter, the net loss carry forwards available to the company were $108,200,000 for We do anticipate that our normalized tax rate for Green Plains for 2023, for excluding minority interest should be around 21%. Our liquidity position at the end of the quarter included $408,000,000 in cash and cash equivalents and for restricted cash along with approximately $159,000,000 available under our working capital revolver. For the Q4. We remain well positioned to execute on the 4 pillars of our transformation. On Slide 9 of the earnings deck, we do provide a summary of our company's balance sheet.

Speaker 4

For the Q1. As shown, we ended the quarter with $376,900,000 of cash and working capital, net of working capital financing compared to $464,400,000 at the end of 2022. For the Q1, we allocated $33,000,000 of capital across the platform, for the company's prepared remarks, including $24,000,000 to our MSC protein initiative, about $4,000,000 to other growth initiatives and approximately $5,000,000 towards maintenance, for safety and regulatory capital. For the remainder of 2023, we anticipate CapEx will be in the range of the Q1 of 2019. We expect to be approximately $120,000,000 to $160,000,000 and that will depend on the spend at Madison and when it wraps up.

Speaker 4

For Green Plains Partners. We reported net income of $9,900,000 and an adjusted EBITDA of $12,500,000 for the quarter. For the quarter. That was in line with the $12,600,000 reported for the same period a year ago. Again, our plant utilization rates at Green Plains were higher than the prior year, increasing the storage and throughput volumes for the partnership by 5.5% for the quarter versus the same period a year ago.

Speaker 4

The partnership declared a quarterly distribution for $0.455 per unit with a one times coverage ratio for the quarter. For the partnership again, distributable cash flow was for $10,800,000 for the quarter, slightly lower than $11,200,000 for the same quarter of 2022. Over the last 12 months, for the company's prepared remarks. The partnership produced adjusted EBITDA of $51,000,000 distributable cash flow of $44,100,000 and declared distributions of $43,100,000 resulting at a for the Q2.0 times coverage ratio, and that excludes any adjustment for the principal payments made in the past year. Now, I'll turn the call back over to Todd.

Speaker 2

For the Q2. Thanks, Jim. We are making great progress in customer acceptance moving into new species, new parts of the ration and targeting new product replacements. For the Q1. Over the past 6 months or so, we've experienced a 25% increase in annual commitments from our PetSpace customers, for the Q1 of 2019.

Speaker 2

And have sold out approximately 75% of our 2023 anticipated production through a combination of contracted and repeatable committed customer sales. For the Q1 of 2019. We have included some customers as we have had some customers start small before becoming much more strategic to us. For the Q1. As we continue to earn repeat business for our ingredients, we are beginning to see improvements in overall pricing, which we always believed would be the case.

Speaker 2

For continued growth. We believe there's a huge opportunity to move into and substitute corn gluten meal and soy protein concentrate in parts of the ration and anticipate having a portion of our portfolio for the Q2 of 2019. We will continue to be dedicated to that late in the year as we move into 2024 with a 60% protein product, which will start to show the real earnings power of this technology upgrade for the Q2 of 2019. Our MSC operations continue to work towards expanding our average daily production close to 1,000 tonnes per day from our first five installs as I indicated earlier, which should put us on track to hitting our original MSC volume goals for the entire platform for the company's capital efficiency of our investments. From a financial point of view, as we indicated, our premium achieved with approximately $200 per ton since inception and that basically held in Q1.

Speaker 2

In Q2, we have widened that premium out $2.17 a tonne based on the current book and we are seeing $2.30 a tonne in Q4 as corn has gone down for the Q2, while meal and equivalent

Speaker 3

pricing has remained steady.

Speaker 2

Our path forward for the next MSC protein build is becoming clearer. For the Q4. We are on track to receive our permit in Illinois for our Madison location late in the 3rd or very early in Q4 of this year based on current discussions with the state. For our turnkey JV with Derelsman is on track for an early 2024 startup. And finally, we're still working through the permitting with the state of Minnesota for Fairmont, for But we have seen some more optimistic paths on this process than previously discussed.

Speaker 2

As we indicated, the best locations for Protein Technologies will be larger plants, so for. So we continue to explore reshuffling of the portfolio to capitalize on that strategy. This is a multi pronged approach. We will look to expand at MSC sites, for protein sites in order to increase ultra high protein production, corn oil production and as a result some ethanol production unless it's a CST site for the Q1. At which point that grind will help us use the back end of the plant, which would not be used for additional ethanol.

Speaker 3

We will

Speaker 2

look to partner or potentially acquire larger plants where we can permit quickly and efficiently to get our technology installed. We are early engineering grind expansions right now, so more to come on this over the for the next few quarters as we find the right locations to discuss, we will not install protein systems at plants less than 100,000,000 gallons per year until we move into much higher value products like 60 Pro and expand the suite of animal nutrition products that the MSC platform can deliver. As many of you have seen through the visits to our plants and innovation centers, we have a strong pipeline of proof points and products that will increase the value of the ingredients for the Q4. Remember, this is more than a protein system. It is a precision separation technology, for the company's results, which we believe is global leading, where we can isolate many different high value products, which we could never tap into the past.

Speaker 2

Another very appealing point of this is the carbon intensity of our products. We are getting significant attention because of the volumes we produce today for the future. And the plan to increase over the next several years from companies who remain concerned with the carbon intensity of their products that they put into the diet of pets and animals. For the future. Like we have mentioned in the past, we did not build these systems just to produce and sell 50% protein.

Speaker 2

That was only the initial investment justification. What we have learned, for the company's prepared remarks, instructions will be provided for the company's technology that we believe very few in the world can is produce fermented clean proteins as just one example. For the company's prepared remarks, instructions will be provided for the

Speaker 3

company's continued to work on

Speaker 2

augmenting specific functional characteristics of our protein in conjunction with our partners that will make the product even more attractive. For the next several years. We are in final stages of development of this project and believe that this work is unique in the world of animal nutrition, let alone the U. S. Grain processing industry.

Speaker 3

For the next quarter. This is another example of the power of our

Speaker 2

fermentation platform over traditional solvent extracted feed ingredients. We have now developed a for clean fiber fraction for a variety of animal feed markets paving the way to add fermented fiber to our portfolio of animal nutrition ingredients and offering yet another new and scalable source of feed to markets, both domestic and international. Scientific validation and fingerprinting of the clean fiber fraction for a variety of for Animal feed markets is ongoing, and this can add a significant financial uplift to a plant where our precision separation technology is installed. For Overall, our commercial product testing and validation activities have created significant traction in the aquaculture opportunity. For the company's prepared remarks, instructions will be provided for the company's portfolio on both 50 and 60 Pro continues to show areas of real value differentiation for between our fermented products and traditional solvent extract and concentrated ingredients.

Speaker 2

We are being very careful to make sure that we get the real value for our products in aquaculture for future generations and not buy our way into this ration. We just completed a trial on specific species with significant global demand for and have once again confirmed that our products nutritionally perform as designed, but are seeing increased availability of key certain nutrients in our products for continued growth. For While we have been delayed in some of our builds by a quarter or 2 or it took longer to get the full rate than we originally thought, including now having our Wood River facility offline through the end of the quarter, for the Q1. We are seeing the full potential of this product long term. While the first half of the year has been challenging, the back half of the year is in line with our original projections for the company's prepared remarks, instructions will be provided for the company's continued to grow if we are successful at hitting higher production goals and moving more towards the 60 Pro product.

Speaker 2

For the year. Demand for renewable low carbon corn oil continues to grow and we believe the incremental renewable diesel capacity that comes online throughout the year. For the quarter. We continue to discuss monetizing our corn oil cash flows for consumers. And we would do that in the right situation with the right economics, but it's worth letting the demand for low CI beef stock accelerate later in the year for the Q4 with a significant increase in demand right around the corner.

Speaker 2

Our corn oil is advantaged to other feedstocks due to its lower carbon intensity and will be a crucial feedstock for these startups. However, with pricing coming off the 2022 highs and now in the low to mid-50s per pound for soil, We've also seen a drop in corn oil pricing as well. But most interesting is as of late, we started trading at a premium to soy again as high as $0.07 or $0.08 a pound. For the Q1 and early in the second, corn oil was trading at a discount to soy, which is absolutely crazy. But with our new increased for production from existing renewable diesel capacity that changed very quickly to our advantage.

Speaker 2

These lower overall prices have reduced the contribution from oil overall, but for the quarter. It remains one of the biggest value drivers above base crush for quite a while. But we have seen a recent resurgence of interest in premiums. For the year and next. Our Clean Sugar Technology construction is in full swing right now in Shenandoah, as I mentioned, for commercial partners and on track to be completed by the end of the year.

Speaker 2

Even more exciting are the potential commercial partners and the progress we are making in those discussions. For we are building a first of its kind clean sugar facility sized initially to produce £200,000,000 to £300,000,000 with options to expand that to £500,000,000 for the next quarter. By diverting a portion of the corn grind, we can separate the starch and convert it to dextrose while sending the remaining protein fibers for the Q2 and Q3 and Q3 and Q3 and Q3 and Q3. While certain volume buyers will want to validate the product once this facility starts up, We are confident in our ability to meet and even exceed our customer expectations because of the success we've had producing these innovative ingredients for our innovation center at York and in many discussions with potential customers who have trialed our products, which meets or exceeds other wet milling dextrose performance products on the market today. The gating item has been electrical gear and continues to be so.

Speaker 2

We are trying every which way we can to for accelerate as our construction will outpace the gear delivery. Mechanical completion is tracking for year end and MCC gear will determine when we turn it on. Let me give you a few updates on this initiative. Our lower carbon intensity of our clean sugar product has been reaffirmed by Lifecycle Associates for the Q4 of 2017. In the month of May, we have devoted the York CST Semi Works facility for the company's prepared remarks.

Speaker 2

To finalize our capability to produce 43 DE products, which is used in confectionery and fruit products at a much higher value. For the Q1. We already know when we turn the plant on, we can produce a 95 DE from the start, both refined and unrefined. For the Q1. The last step we will explore is using our systems to make crystal and dextrose, and we believe we can crack that as well.

Speaker 2

It will take 3 to 6 months after start up to get food safety certified, for So our initial customers will be industrial and we are seeking into discussions on early offtake agreements as we speak. For the Q1. Remember, we're already food safety certified in New York, so getting Shenandoah there will just be a process and time as it will be the most modern for an efficient facility in the world producing this product. More to come on that, but customer engagement is high. And by the way, for the Q1.

Speaker 2

Margins are even higher as evidenced by recent validation of this by current companies that own and operate wet mills. Our decarbonization strategy remains on track. For the company's pipeline project, which continues to make progress, has over 2 thirds of the right of way purchase and we anticipate this pipeline to be operational sometime in 2025, for the company's financial results, which can benefit from early days of the 45Z Clean Fuel production credit. The future of this industry is low carbon and we are at the forefront of these efforts. For Our JV with United Airlines and Tallgrass Blue Blade Energy is in the process of optimizing the catalyst for our exclusive ketone technology from PNNL and depending on the success of key gating items, could be constructing a pilot facility as early as 2024.

Speaker 2

For We continue to evaluate other technologies out there as well and there are many promising that we are looking at. All roads lead SAF and ATJ, for. Though it is a second half of the decade story. Bottom line, it provides a valuable additional outlet for ethanol volumes and increases the value of our assets significantly when we get there. For the Q4.

Speaker 2

With bipartisan support for certain provisions in the IRA bill, such as the 45z Clean Fuel Production Credit, we remain confident that decarbonization will be a crucial factor for driving the future of our industry. We are developing strategies to deploy combined heat and power systems, direct injection for carbon capture for the Q1 of 2019 and beyond. At the teach in, we will do a deep dive on all of this, so I'll leave it with you with the programs that are in place that we discussed. What you have heard today have some common intersections. The value of our IP portfolio for Q2.

Speaker 2

We believe this is truly underappreciated. For the Q1. Some examples additionally that we are working on are 70% protein upgrades. There is an ongoing initiative to achieve this level for the company's prepared remarks and

Speaker 3

could accelerate in late 2023,

Speaker 2

which would be a big value driver to the future increased oil yields as we continue to use our technology portfolio for the company to press towards £1.5 per bushel with a goal of proof of concept in mid-twenty 24 moving to an engineered solution. We believe Fluidip as the world's leading separation precision separation technology for growth in synthetic biology and other industrial applications. In almost all cases, solids need to be separated from the process and we have some of the largest solutions operating today in the world. Quite frankly, it's our MSC systems. This part of the business alone can be very valuable.

Speaker 2

We expect in the last half of twenty twenty three to be able to deliver some exciting news on several initiatives we are working on. I assure you that's going to be very exciting. Please stay tuned. Lastly, when we deliver our first load of DEXTROS from a drygrant facility, the world will know what the value of our IP portfolio is and in turn the value of Green Plains. For the Q1.

Speaker 2

Through our 4 pillars of protein, oil, sugar and decarbonization combined with our Gen 1 platform and the potential for alcohol to jet, ATS Sustainable Aviation Fuel, It sounds like we have a lot going on, but first and foremost, we are focused on delivering right now. These initiatives are complementary and aligned with one another. We have confidence in this strategy and remain squarely dedicated to achieving our vision. Thank you all for joining the call today. I know it was a little long, but we can start the Q and A session now.

Speaker 3

For

Operator

Our first question comes from the line of Adam for Samuelson from Golden.

Speaker 5

Good morning, Todd, everyone. For

Speaker 6

Good morning, Adam. Hi. I'm trying

Speaker 5

to catch to get my notes down from the litany of things that you just for But for I guess maybe if I was to pick out a few of the newer items there, I think this is the first time we'd heard you allude to for Maybe thinking about expanding corn grind capacity, and I was hoping you could just clarify that just in terms of thinking about the size for Of what that would entail and the incremental just how much that's actually of that starch is actually ethanol versus thinking about clean sugar, just new ethanol capacity on its own has not been something that we've needed as much in the United States in the last for the Q2. No, I understand.

Speaker 2

So we have probably 3 plants where we have MSC for the Q2. We'll see installed today where we'd like to get more grind. But if you take a plant like Shenandoah, where we're going to have some of that grind diverted to for clean sugar as well as the but when we do that, the protein and the oil and the for feed stays the same. So you're really just diverting some of that starch from ethanol into sugar. It does free up some of the back half of the plant which will go unused.

Speaker 2

And really the key at that point is while you might make a little more ethanol if you and grind expansions that are not very high in CapEx. So while you for expand the grind. The most important thing to expand and grind is, as I said, you make a little more ethanol, but you make a lot more protein and oil. And that's really what pays for it, while you're for the quarter. Also then increasing potentially down the road, moving that back and forth between making more dextrose as well.

Speaker 2

With dextrose margin so high, obviously, the more grind

Speaker 3

for the next quarter. We can convert to dextrose the better at

Speaker 2

Shenandoah and other plants, but it does free up other capacity to increase as well. So for We kind of mentioned that on the last call and have been talking about it for probably 6 months or so. So it shouldn't be anything new. We just haven't we're starting to look at really for plants like Shenandoah, plants like Obayan and plants like Central City, which are easily expandable, have the corn that they need. For And then looking at our other parts of the platform where we have maybe some smaller suboptimal plants that either can look at for monetizing those or using those for other ingredients as well.

Speaker 2

So, again, we're just starting to look at it. But When you look at the paybacks just from protein and oil alone to expand a little grind, it will certainly take care of the rest.

Speaker 5

Okay. For That's helpful. And then in the prepared remarks as well, there was discussion around the realized premiums that you were getting on your HyPro sales, both in the Q1 and those expanding to, I believe you said, dollars 2.30 a ton in the Q4. As we think about that level of premium for Q4 volumes. I mean, how should we think about the protein concentration of that sales book?

Speaker 5

Just trying to think about how much

Speaker 2

for Sunproteens. That's still based solely on the 50 Pro Premium. So when we look at what's happened in the market with our inputs going down for on forward corn and really we've seen soybean meal equivalent go down as well but not quite as much as the input side. That's widened out the margin on paper. That doesn't include any uplift from any other products.

Speaker 2

When we look at we made some early small sales for 60 Pro and we've seen those premiums at another $300 to $400 a ton over what we're selling for the 50 Pro products. So that's really the juice of the opportunity for That if we can start to make an impact into those products and we're pricing them right now. We're in for evaluations with several very large customers right now for 2024 to use our products as a replacement to gluten meal and for soy protein concentrates in their rations and that will just widen out those margins as we get later in the year. We do have initiatives for this year for to sell some 60PRO and we're in those discussions as we speak, but none of that is included in that forward guidance.

Speaker 5

Okay. Now that's very helpful. And if I could just for Squeeze one more in as you maybe just on Summit, as we think about their permitting and getting the rights for the next question. How are you currently thinking about the timing of when you could start actually shipping on that for And thinking about the contributions from CI and 45Z that might come with it.

Speaker 2

I mean, they're making great progress. Their numbers are in the high 60s now across their platform from what I understand. They've gone into South Dakota to go and start to increase those numbers as well through certain programs. For And they have their floor space. And I think that's the key and is a project that doesn't have their floor space lined up today Probably doesn't have much of a chance to get operating in 2025.

Speaker 2

So it's really going to be a function of can they for the next fiscal year. Continue on with their right of ways, get the permitting that they need later hopefully later this year, get in front of the agencies in these states.

Speaker 3

For the Q1. And then from there start construction and start to move very fast. But I would

Speaker 2

say if I had to estimate hopefully at sometime in 2025 when we start to achieve some of these values. For the Q4. Remember the 45Z is 2025 through 2027. So you want to make sure you get some of that. And our view is the 45Z does get extended.

Speaker 2

It's going to be a battle, but I don't I think there's a lot of interested parties, not just the ethanol industry. It's the it's everybody from airlines to for the rest of the year. So strange bedfellows, but we all want the 45z expanded. But we're hoping and we're optimistic that sometime in 2025, for Some of these projects will be online and we're working with other projects as well. And when we do our teach in, we hopefully have some interesting for discussions around other carbon intensity reduction projects and partners that we're working with to do that as well.

Speaker 5

Okay. It's all very helpful. I appreciate it, Carl. I'll pass it on.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Kristen Owens with Oppenheimer.

Speaker 7

For Shin. I fear I may regret this, but I'm ready to write down the notes here. So can you just give us a sense for the full year 2019 guidance of the moving parts that you've identified for 2Q between the ethanol crush, Trane Wood River being down, some of the maintenance. For Just help us understand what the buildup for crush margin can look like in 2Q and then how we should think about for any changes in baseline EBITDA bridge exiting 2023. And if we could start there that would be great.

Speaker 2

Yes. So with Q2, it's a shutdown. The first thing we have to start with Q2 is that's typically a shutdown quarter for us. So that traditionally impacts for Q2 for the really the industry as well and we've seen that in the recent EIA numbers. On paper, if we kind of look at the next three quarters, for Q1.

Speaker 2

Including base crush and everything else we're doing, you have to remember that when we started probably the last call we had last earnings call margins were significantly negative out on the forward curve for the whole industry. And they've really moved a lot since then. We believe they still have room to go. For When we kind of take a look at least on paper today and let's just call that unhedged on paper, what we're seeing in for Q2 is a fully loaded margin of everything kind of in that $0.12 to $0.17 a gallon range just depending on for Q3. What part of the quarter we can get some of these shutdowns finished and get Wood River back up and running.

Speaker 2

In Q3 on paper fully loaded with the ethanol crush kind of coming back at least is for us $0.15 to $0.20 a gallon on paper today and in Q4 for on paper today it's $0.22 to $0.25 a gallon with some volatility every day just depending on the movements of the window in Chicago. But right now it feels like it's tighter. It's nice to have a baseline crush somewhere near positive or more than positive in the last half of the year. And as we exit 2023, we'll have to wait and see for I think the interesting thing about this industry and again I may be wrong on this, but these plants are getting older. For So while everybody gets excited about running at a 1,100,000 barrel per day rate, I think that's going to be the forever.

Speaker 2

It's a lot easier to run it at 9.50 to 1,000,000 barrel a day rate, for keep your plants running than it is to push towards 1,100,000 barrels, which that was the bottleneck number that kind of was the maximum we've seen. I think that's going to be very limited for the Q1. As this industry gets older, shutdowns take longer, everything is a little more expensive for the quarter. And it's just harder to run these plants with the labor that we have. So it's really interesting dynamic that we're seeing right now.

Speaker 2

Again, I for Maybe off a little bit on that, but it kind of feels that way from an industry perspective because we should be running harder with the margins that we have on paper as an industry, but I think that all those come into play. For 2019. So overall, as we exit 2023, I don't know that this industry has a carrying capacity of 1,100,000 barrels on a 3 55 day rate anymore. For the quarter. I think as these assets get a little bit older, it's harder to run that hard, which is beneficial, I think, overall.

Speaker 2

And then driving season is driving demand is very, very helpful right now.

Speaker 7

Okay. Awesome. Thank you for that. And then you mentioned the potential for a new fiber product. I'm I'm just wondering where does that sit within your overall ingredient opportunity?

Speaker 7

How easy is that to pull off the line? And how should we think about something a sales process around something like fiber. How should we think about that process evolving?

Speaker 2

I'll talk a little bit about how it evolved and I'll have Leslie kind of for the company. Come in and talk a little bit about the product overall. So what we've discovered is and around our IP only, for the Q1. We can come up with a clean fiber fraction that we've been able to modify through fermentation for the Q1 and then use our precision separation and add a component to that to make a fraction that is more valuable than say a traditional distillers grain, Maybe less valuable than the high proteins, but a lot more volume of it. So we have it's part of our patented process.

Speaker 2

For And we are now working with customers domestically and globally on this fraction. It can provide significant uplift for the quarter. In the future as

Speaker 3

we think about protein,

Speaker 2

protein was again was never just about making 50 Pro and getting a little bit of oil upgrade. It was all about these other fractions that we're going to go after for That a wet mill goes after today and even other companies go after in other things that they do around grain processing. But I'll have Leslie will talk a little bit about The product that we have and some of the things that we're working on.

Speaker 8

Yes. Thank you, Todd.

Speaker 9

So, Kristen, in terms of the development cycle, for We really look at this as Todd is indicating as a holistic product development approach. So as we make improvements to the protein because The protein fraction comes from the original distillers grain fraction. We are keeping a close eye on what the potential is of the fiber. So it really goes hand in hand and we are seeing improvements that make the products very interesting for specific markets That would actually be almost companion products to the protein. You asked a question in terms of how we fit this in on the sales force side of things.

Speaker 9

As we built out the team and went deep into some of these markets with the Rolodexus of our sales team, this really becomes another for product that they can sell to our customers. So we actually expand our opportunity and really build on to the view that we have an animal nutrition platform that really comes off for this precision separation technology.

Speaker 7

Thank you. I'll leave it there.

Speaker 2

Operator, can you get us the next person please?

Operator

The next question comes from the line of Amanda Gupta with UBS.

Speaker 10

See guys, I just wanted to talk a little bit more on the policy and macro side. For We had all these renewable diesel plants which were supposed to start in 1Q, number of them faltered. Looks like now they are finally starting to come on. For MPC indicated there at 260,000,000 gallons probably going to 7:30. And at the same time now we are finally starting seeing for progress on the sustainable aviation fuel side, again, which you'll be very integral part of.

Speaker 10

So help us understand what you're seeing out there in terms of for Finally, things picking up from the IRA benefit, where you're actually seeing tangible benefits in terms of demand for your for both corn oil and eventually ethanol picking up as both RD and SAF start to gain momentum.

Speaker 2

Well, let's talk about the oil first. As we indicated, we went from a weak market as the U. S. Was importing for some offshore used cooking oil of which some of those are still sitting offshore because they are getting rejected because of quality, for the Q1. That helped us as well.

Speaker 2

But that caused a bit of a weak tone to the fast market earlier for the year. That's changed significantly. I think our low CI oil becomes more valuable over time for the Q1 of 2019 as more plants start up because of the value from the programs that are in place to monetize that low CI relative to soybean oil. So for So, soybean oil will always be the most volumetrically available for this industry and the easiest for the

Speaker 3

company to buy and

Speaker 2

probably the best logistics. So they will always have their place and it's the right product to use for some of these processes, but we fit in very well. And as I said, we have seen now moving from soybean oil price to a little bit of a discount to now again a $0.05 to $0.10 a pound for premium to soybean oil futures which is somewhere in that 10% to 15% range We're starting to get towards that. And even LCFS coming back, it's going to help us a little bit as well as we've seen those values come back as well. That's helping the value of our oil.

Speaker 2

For So we have our place. More plants that come on is a good thing. Plants that run better is a good thing. I mean that's what's happening as well is that for any industrial processes as we've seen through MSC as well, anything that starts up just takes longer than you might think. For some of these RD plants that come online take a little bit longer than you might think.

Speaker 2

But once they kind of get through that initial debottlenecking bring on the oil and that's really good for us. For the Q1 of 2019. And we're pleased with the progress we've made in the past several years. So we'll see where that goes. But the first thing is you have to decarbonize your alcohol and you have certainty of that.

Speaker 2

We're not going to what's happening in SAF around for best boils and half of feedstocks, that doesn't have a ton of an impact to the alcohol market for us. It does on the veg oil market only. But for We're more of the last half of the decade on ATJ and SAF coming out of the ethanol industry.

Speaker 10

Perfect. Next is a simple technical question, which sometimes our clients ask us and someone would ask you straight away. Sometimes people ask if GPRE would be able to benefit from IRA if the government doesn't change the CIS code model from Coursera to the GREET. So if you could help us understand that a little better.

Speaker 2

Yes, I know we need Greit. I mean without a doubt we're pressing for that. I mean it's harder. I mean you make more money for the

Speaker 3

rest of the

Speaker 2

year. With GREET, but even without GREET, the first 30 points of carbon sequestration gets you to a good place. And then on top of that another 5 to 10 points on our combined heat power systems which is cogeneration Which are easily financeable or people would just actually put them on your sites and you get all the CI point credits for that. There's a lot to do there, but I think you can't just look at it and say, well, GREET versus California GREET. It's not quite that easy.

Speaker 2

While certainly easier with Greek coming from the government side, for the Q2. We'd like that. I think the industry would like that as well. But overall, certainly, we're going to benefit from it either way. As soon as you sequester, You're in the game.

Speaker 2

And then beyond sequestration and beyond the combined heat and power, there's another 5 to 20 points to go after for the Q1 of 2019. We're also seeing a lot of pressure on the gas in multiple different areas, post combustion fermentation or post combustion gases that we can for And carbon that we can sequester that's worth quite a bit. We've got on farm programs that are worth quite a bit. I think it's a big long program, but it's for It's not necessarily we have to have it, but we'd like to have it.

Speaker 10

Thank you for a very detailed response. Thank you.

Speaker 2

Thank

Operator

you. Your next question comes from the line of Andrew Storzlik from BMO.

Speaker 6

Hey, good morning. Thanks for taking the questions. My first one, I think if I did the math rate for that you mentioned on some of the Florida consolidated crush margins, it gets you to like a run rate of $100,000,000 EBITDA in the back for See if

Speaker 2

I have that right with

Speaker 6

kind of towards the low end of the medium term range you've talked about in the past. So number 1, I guess correct me if I'm wrong there. Number 2, how much of that You actually have hedged out over those quarters and is it at those levels or different levels? And then number 3, excuse me, for the Q1. What are the moving pieces left I guess to achieving that type of margin?

Speaker 2

Well, I think the moving pieces to start out with the last part of your question. As you know, ethanol crush keeps moving around, for the quarter. Having corn and your inputs lower, the last part of it, some of it's where the opportunity may exist as well as basis levels in the West towards the end of the year. We've been able to buy some corn, but we think those have an opportunity, especially late in Q3 with the crop coming on and getting planted early. For Finally having crop in the United States, that's going to be helpful.

Speaker 2

Corn oil prices recovering a little bit. Hopefully in the last half, that's not included in those numbers. For getting to a bit of a 60% protein market not included in those numbers. But we think overall, I continue to remind people, for the Q1. Even though we've come off the lows that we saw earlier in the year of the deferred curve and the margin, Relative to what we should have and what we've seen in the past, it's still not high enough.

Speaker 2

And I appreciate that people are excited about This movement from the lows to where we're at today. But our belief and we've seen it and we saw it last year and I think we'll see it potentially again this year because I think we have actually A better fundamental backdrop for our fuel than we had last year. I think there's more to go. And I'm sure now that I say that it's probably going to go straight down. For But I don't think it is.

Speaker 2

I think there's more fundamentally to take out of this market. And I think that's probably where you can achieve some higher values both in oil, for both on base crush and hopefully we start to see even some of our wider expansion of our protein margins in the last half of the year. For Yes, we have begun to hedge as we indicated on the last call. We last year, reluctantly Did not hedge as much as we normally would have. And I think we left some opportunity on the table as evidenced by the movement of the crush.

Speaker 2

This year, we're not going to let Let it get in our way, but we're also not going to hedge everything. So I mean right now we're somewhere between now and end of the year, 50,000,000 to 100,000,000 gallons hedged versus the rest of our production of 600,000,000 or 700,000,000 gallons left to produce. And we'll just take our we'll pick our points. I mean when you look at that Q4 right now, It's very interesting using base crush and everything else you know to hedge a $0.22 to $0.25 a gallon margin on paper. For Now you do have some basis corn basis risk, but the rest of it's pretty well you could lock down most of that opportunity.

Speaker 2

Well, we haven't seen that for quite a while. And remember 2 years ago in the Q4 with similar backdrop and fundamentals had a much higher value. So we're watching it closely, for But I think the opportunity is there. Yes, I mean, we're assessing and moving around with the moving pieces. Obviously, the Q1 crush didn't help us relative to some of our guidance.

Speaker 2

Wood River accident in the second quarter, which is why we want to get or the explosion in the second quarter, so So I want to get that plant up and running very quickly. That's 20% of our MSC production and our customers want that product. And so We need to get that plant up and running very quickly. So yes, we've had some moving pieces. But the fundamental backdrop on every component of what we do today It's better than we've seen in quite a while in ethanol and protein margins to Brella or protein values related to corn values.

Speaker 2

For And what we're finally seeing again on our oil margin and then finally getting to our sugar start up. When you look at sugar margins, I wish I had it running today. We're talking about over $1 a gallon contribution margin from DEXTROS if you had it running today. So that's where we're heading with for the company's platform. We own the technology.

Speaker 2

We control the technology. We control the IP. And I think we have to really think about long before we start a plant number 1 for on DEXROS, where is plant number 2 going to be? Because you're going to we you can't think about it on the day you ship your first truck, you'll be 2 years behind. For the Q1.

Speaker 2

And we have to think right now, but we would like to lock in some offtakes to prove to the market that we can achieve those margins. And then from there, for Start to think about plan number 2 very quickly.

Speaker 6

That's really great color. I appreciate that. And the second question for kind of on offtake agreements. It sounds like from a corn oil perspective, 2024 is kind of the right time for you guys in your view, which for I think it's maybe a little different. I mean, you had talked about waiting for a while.

Speaker 6

So I'm curious why you think that's the right time. Is it just a function of for once we get RD, etcetera, all the plants online that will have reached some steady state of value and so that will be kind of for Reasonable or is it something else that's going on there?

Speaker 2

Look, how we think about offtake is if somebody wants to own part of our corn oil cash flows and control and have access to all of it. We want to get paid for that. For the quarter. And we're not just going to do that because we could stay in the spot market for quite a while. We believe corn oil will trade at a premium for the higher for most of any given year to soybean oil only because well, we know why because the CI value is so much more valuable to buy corn oil and these new RD plants have learned how to use it.

Speaker 2

In offtake, nobody's going for There isn't many people, if any, that are going to do a 5 year off take at a fixed price today. That's just not how it works. For Now could we get a potential fixed premium? We've had offers on that. Could we get some people that want to take a small amount of our for the Q4.

Speaker 2

Forward curve or forward cash flows and monetize some of that, sure, that's easy to do. But I think there's better opportunities out there. And I think those opportunities, as you say, will come. For

Speaker 3

the Q1 of 2019. And the true value

Speaker 2

of our corn oil business and really quite frankly the corn oil business of this industry comes when we get later in this year and those projects turn on and it's not just the soybean oil play, it's going to be low carbon and they're going to have to meet low carbon numbers if they want to go into SAF. So we feel like we're in a very valuable place right now and don't want to rush too much into it. We've been in lots of discussions. For But at this point, I think being patient has paid off. It wouldn't have mattered if corn oil went to 80 or 50.

Speaker 2

For That's not what these offtakes are all about. It's a matter of the premium. It's a matter of the check upfront.

Speaker 6

Great. Thank you very much. I'll leave it there.

Operator

Your next question comes from the line of Eric Stine with Craig Hallum.

Speaker 11

Yes, good morning. It's Aaron Spahal on for Eric. Thanks for taking the questions. Maybe first, Todd, you talked a little bit about partnering for MSC with other third parties. Can you just give a little bit more color on the opportunity there?

Speaker 11

Is there an active pipeline? And just what might capital needs look like there for

Speaker 2

Okay. I didn't hear that first part of the question. Can you repeat?

Speaker 11

Yes. Just on for Partnering on MSC with 3rd parties.

Speaker 2

Yes. We continue to look at that approach. It's not a cheap capital investment for when you look at it. But as we gain more proof points and we gain more and the industry understands for what our system can do because it's a unique system with a unique product that is very, very consistent in what we produce and has other opportunities that we're working on much different than maybe anything they've ever seen. I think our first proof point on partnerships will be for the company's prepared remarks, instructions will be provided for the company's Q1 of 2019.

Speaker 2

When we turn on our Thirlsen joint venture and have 170,000,000 tons or I'm sorry, 170,000,000 gallons for the next quarter. And by that point, for the company's prepared remarks, instructions will be provided for the company's prepared remarks. The benefit of that joint venture is all the work that we put in to date to gain premiums for our products. And I think when for Quite frankly, the market sees that. There's some that will want to invest and build their own systems, but a lot of them will just want to for Potentially partner to access our suite of innovation.

Speaker 2

And again, as I said, if you've been to Omaha And taking the tours, you see the innovation that's happening around this product. It's just not a protein concentration product. It's well beyond that. There's so many opportunities that we're working with so many customers on enhancing different opportunities to change taste, texture, profiles, nutritional characteristics, Those type of things which we all can do which increases the value of our products overall. So it's a step by step process.

Speaker 2

We're actually talking to people not just domestically but globally as well for the Q1 of 2019. On partnerships in different markets where maybe they have unique opportunities around things like non GMO or other opportunities that we can take advantage of as well. So for This is the beginning stages of what we believe will be a really exciting rollout of this technology. And again, it's not just protein. It's going to be protein.

Speaker 2

It's going to be clean fiber. It's going to be for taste, texture, nutritional changes, those type of things, things we can do in fermentation that nobody else we believe can do in the world. So for the Q1. We're in a very, very good place. But again, it's just a step by step process.

Speaker 2

First thing you do is run your systems well. For You got to run Gen 1 well, which is a continual sometimes a continual challenge on these older plants, but we'll continue

Speaker 3

for the Q2. And then from there, we just build off

Speaker 2

of all the initiatives we've talked about.

Speaker 11

Right. Thanks for that. And then just maybe as a follow-up on Carbon Capture. Can you just talk a little bit about the plans for other plants that are not on the pipeline and potential timing and just capital needs there as well?

Speaker 2

Yes. I mean for the most part, at this point, everything that we have in the West is on a pipeline. And we talked about that a little bit earlier in the East. We are working on a project in Mount Vernon that hopefully in the next couple of months for Will come to fruition where we can determine what we're going to do with that carbon. And I think there's some pretty interesting opportunities there.

Speaker 2

Those economics, anytime you can do for your own project, if you have something close where you can sequester are always better. It may take a little longer, but it's certainly worth the wait. So we have that going on. We've got for the Q1. We're looking at Obayan and what the alternatives are there.

Speaker 2

It's a little far away from some sequestration sites, but there could be rail options, there could be pipe options for the quarter. And then shipping down barges will liquefy carbon as well. And so we're looking at those as well as the for Osaka Gas Tallgrass Partnership where maybe some of that gets piped not as far away but into some type of synthetic gas that gets and shipped through the LNG terminal in the Gulf. So more to come on most of that, but we are working very hard really in any of those plants, especially in like a Madison and Mount Vernon. The first thing we want to do there even before sequestration happens is look at combined heat power systems for reverse turbines cogen.

Speaker 2

And the most interesting thing there is the fact that you can do that with a very for investment light opportunity because others want to build them for you and you get most of the benefit while they're getting a return on CroGen. For the quarter. And so it doesn't it's very capital like for Green Plains to get 85% of the benefit with almost 0 capital investment. So for We're looking at that and that reduces we have a very high power cost in our East that makes those plants long term less competitive with the West. By doing cogen, we will be able to have Western prices in Mount Vernon and Madison and potentially even cheaper than being on the grid.

Speaker 2

And And that's where the next big opportunity I think in carbon reduction. That's 5 to 10 carbon points right there, but we still have to get the sequestration to get the MAX benefit.

Operator

For questions. Our next question comes from the line of Jordan Levy with Truist Securities.

Speaker 8

For Good morning, Todd and team. Maybe just to take a step back quickly and for Talk to FluidQuip. I'm curious, you guys clearly have your plate full with for initiatives going on, but I'm curious how you're thinking about Fluid Equipment as its own business as we move through the next couple of years. And I know for There's turnkey initiatives and that sort of thing, but what's the appetite there to grow that business outside of the work they're doing for you all?

Speaker 2

For Yes. We are we have a strategic initiative around FlukeUp to increase revenues, increase profitability, continue to have that as a it's a standalone P and L for us within our system. They can do everything from what we do in our Gen 1 plants through MSC for clean sugar hits. That's a big win for FluidQip. On top of that, there's several initiatives about expanding things like I talked about.

Speaker 2

For If we get the 1.5 yield on oil that's a fluid quick technology upgrade. They're working on that. We don't work at that at Green Plains. For the next quarter. They will get to 70% protein that they fluid equip initiative that they're working on and we'd like to do as much of that mechanically as we can to go as far as we can.

Speaker 2

For We're even looking at different ways to even get closer mechanically to 60 Pro, which we think we have some opportunities to look at that. But fermentation is very interesting as well. For the company. They're working with everybody from dry mills to wet mills to other types of industries on separation to sell their technology and sell their machinery. It's for It's very undervalued, I believe, in our valuation from a portfolio perspective, yet to be proven out for some.

Speaker 2

For But when you look at the value of the IP they have, the value of potentially what they're developing, and doesn't take a lot of money allocation capital allocation to get to some of these end games because a lot of it a lot of the work has been done prior to acquisition. They just have a really great franchise and we just don't have enough sales people quite frankly. So if you know anybody that wants to sell our some of our technologies we're hiring at Fluequip because we for We have some great things. Like I said, we're talking to all different industries domestically and globally. From Canada to Europe to Brazil, we help those plants for both in all types of grain processings and everything in between.

Speaker 2

So we've got a lot of stuff to do there. It's totally, in my opinion, an underappreciated asset of Green Plains. For But again, you got to wait and see the contribution for that. And it's probably a little while away, but they contributed last year. They'll contribute this year.

Speaker 2

And overall, we think the future is very, very bright for that technology provider.

Speaker 8

That's good to hear. And then just Quick follow-up. Any thoughts on the current landscape for ethanol assets? I don't know if you're seeing any ethanol M and A activity or anything there?

Speaker 2

Yes. I mean, it's hit and miss right now. I think the bigger, More efficient plants are more valuable than the smaller, I would say, substandard size. So you either got to make those bigger or just like we said we assess our portfolio every day. If we can't apply some type of technology for any one of these plants that we have.

Speaker 2

It probably doesn't fit long term with our portfolio, but we're not worried that somebody else won't could take good care of them either. So We evaluate our portfolio and we think there's probably room for some optimization of that Moving in and out. And we also look at what's in the market today. There isn't a lot in the market today for acquisitions of large plants. For I think especially again as this curve has gotten better, attitudes are better in the industry.

Speaker 2

We still have a ways to go again as I said. I try to caution people that while they think that this move is really, really good, I think it could still continue to get better. So I think there There's some opportunities there. But in our view is that you got to have a plant that you can apply carbon, protein, for the next several years. Oil extraction further, dextrose, fiber, nutritional products, for If those plants can't do all of those things, it's probably something we'll look at in the future to say should it be in our portfolio and how do we go get more that are in our portfolio.

Speaker 2

For One way is through acquisition and one way is through partnerships.

Speaker 8

Thanks for all the details.

Speaker 4

Thanks, George.

Operator

There are no further questions at this time. I would now like to turn the call back over to Mr. Becker for closing remarks.

Speaker 2

Yes, thanks. We really appreciate you being patient for this call. We know they go long sometimes, but for We try to give you as much information on what we're working on as we can, so there's a lot. And we think it's very valuable for our shareholders and stakeholders to understand for the future opportunities. When we look at one of the most valuable opportunities for us is getting this clean sugar system up and running.

Speaker 2

For And our view is that we want to have 200000000 to 300000000 gallons converted to sugar by 2027, Which is a significant increase, then from what we are building today. And that really is where the game changing starts to happen relative to everything else that we've been doing on top of everything else we've been doing. And so we're working on all of that and we're working on behalf of all of you. For Hopefully, in the next couple of months, we have some more good news around the things that are important to you, around technology and demand and offtakes for And having a nice steady ethanol market for a little while would be nice too. So we'll see you next quarter and thanks for all of your support.

Operator

For today's call. Thank you for joining. You may now

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Green Plains Q1 2023
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