Brookfield Property Partners L.P. Q3 FY2023 Earnings Call

Good morning and welcome to the Green Plains Inc. and Green Plains Partners Third Quarter 2023 Earnings Conference Call. Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in a listen-only mode. I will now turn the call over to your host, Phil Boggs, Executive Vice President of Investor Relations. Mr. Boggs, please go ahead.

Thank you, and good morning, everyone. Welcome to Green Plains Inc. and Green Plains Partners third quarter 2023 earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer, and Jim Stark, Chief Financial Officer. There is a slide presentation available, which you can find on the Investor page under the Events and Presentations link on both corporate websites. During this call, we will be making forward-looking statements which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press releases, in the comments made during this conference call, and in the risk factors section of our Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. Now I'd like to turn the call over to Todd Becker.

Thanks, Phil, and good morning, everyone, and thanks for joining our call today. This morning we reported $52 million in EBITDA for the third quarter and an ethanol operating rate of 93.9%, along with very strong Ultra-High Protein production and sales. These results begin to demonstrate our platform's capabilities, and we believe we can and we will build on these record rates moving forward and start to see the real benefits in Q4 and beyond. The team was focused on bringing our platform back to consistent operations after our first half headwinds, some of which continued into July of this quarter. But we really started to gain positive momentum as the quarter progressed and it has continued into Q4. We executed on the market opportunities that were and continued to be available. As I said, we have maintained the same focus in the fourth quarter and have positioned ourselves, based on current market dynamics, to perform better across every product we produce. We remain largely open to the expanded margins in the fourth quarter, although we were able to lock in our veg oil pricing higher than the current market and now own our winter gas at or below market. In addition, corn basis, which has been a significant headwind for the past two years, has moderated significantly on the forward look. While we still have some needs to buy in for the quarter, we are generally covered at or below market as well as on a physical corn basis. In Q3, for reference, the corn basis in our areas was $0.44 higher than the five-year average. We finished up bringing in the last of the old crop during Q3. Additionally, as ethanol remains slightly inverted on the curb, and as we always try to reduce our inventories, this always represents a slight negative when the market is and was set up like that against the end of the quarter. During the quarter, we restarted our Wood River MSC Protein System late in July and operated at consistent rates across the entire platform. We achieved new record production levels for Ultra-High Protein in the third quarter and are on pace to set new highs in the fourth quarter. Not only did our entire platform operate more consistently, but we continue to see higher average yields per bushel. We continue to refine our process and apply learnings across our five locations. For example, last month in Shenandoah, we averaged over four pounds per bushel. You will recall that our original investment thesis was based on three to three and a half pounds per bushel, so we could achieve our 2025 targeted volumes with fewer locations, but with investments – and lower than we originally anticipated. Although we are continuing to roll this out through our platform, our JV with Tharaldson, which will be the largest MSC facility ever built, is slated to come online in Q1 of 2024. Later in the call, I will dive deeper into protein economics, production, 60 Pro, current dynamics, and some other exciting ingredient opportunities that are coming our way. I'll also update you on our decarbonization clean sugar launch and veg oil marketing. Our liquidity improved in the third quarter, with our platform turning to free cash flow generation and also benefiting from the sale of our Atkinson plant above that. With strong margins on paper today, we expect even better free cash flow in the fourth quarter and to end the year stronger yet. Last month, we executed a definitive merger agreement with Green Plains Partners. We are continuing to work through the process and anticipate completion before the end of the year. We expect that the proposed transaction will simplify our corporate structure and governance, generate near-term earnings and cash flow accretion, reduce SG&A expenses related to the partnership, improve the credit quality of the combined enterprise, and align the strategic interests between Green Plains shareholders and the partnership unitholders. There will be some one-time deal expenses that will hit Q4 and Q1, but we will call those out for you after the close. And now, I'll hand the call over to Jim to provide an update on the overall financial results.

Thank you, Todd. Good morning, everyone. Green Plains consolidated revenues for the third quarter were $892.8 million, which was $62.2 million or approximately 6.5% lower than the same period a year ago. The lower revenue is attributable to lower prices for ethanol and dry distillers grains in Q3 of 2023 compared to the third quarter of 2022. As Todd stated earlier, our plant utilization rate was 93.9% during the third quarter, compared to the 90.9% run rate reported in the same period last year, significantly improving from the 81.5% in the second quarter of this year. We anticipate our plants to continue to perform targeting utilization rates in the mid-90% range of our stated capacity. For the quarter, we reported net income attributable to Green Plains of $22.3 million, or $0.35 per diluted share. That compares to a net loss of $73.5 million, or $1.27 loss per diluted share for the same period in 2022. EBITDA for the quarter was $52 million. That compares to a negative $35.6 million in the prior year period. Our depreciation and amortization expense was slightly lower by $0.7 million versus a year ago at $23.9 million. We realized $48.5 million in consolidated crush for Q3 of 2023, compared to a negative $20.5 million in the prior year. Our ag and energy segment performed well, recording $12.2 million in EBITDA, which was about $5.6 million higher than the prior year. This increase was driven by opportunities in our merchant businesses. For the third quarter, our SG&A cost for all segments was $35.5 million, compared to $29.1 million reported in Q3 of 2022. This increase was driven by legal fees associated with the GPP buy-in and other legal activities during the quarter. Interest expense was $9.6 million for the quarter, which includes the impact of debt, amortization, and capitalized interest. This was in line with the prior year's third quarter. Our income tax benefit for the quarter was $7.8 million, compared to a tax benefit of $1.9 million for the same period in 2022. The increase in the tax benefit year-over-year is a result of a decrease in our total deferred tax assets, allowing us to reduce our valuation allowance against those deferred tax assets. At the end of the quarter, the net loss carry forwards available to the company were $128.9 million, which may be carried forward indefinitely. We continue to anticipate that our normalized tax rate for the year for Green Plains Inc. excluding minority interest should be around 23%. Our liquidity position at the end of the quarter remained solid, which included $366.2 million in cash, cash equivalents and restricted cash, along with approximately $200 million available under our working capital revolver. Our financial strength is growing due to the strong execution of our platform and favorable industry fundamentals as we are well positioned to execute on the next steps of our transformation plan. As a reminder, we have no debt maturities until 2026, and two-thirds of our debt is locked in at a fixed rate, leading to our overall cost of borrowing during the quarter being around 7.2%. For the third quarter, we allocated $29 million of capital across the platform, including $15 million to our Clean Sugar build in Shenandoah and other MSC Protein initiatives, about $8 million for other growth initiatives, and approximately $6 million for maintenance, safety and regulatory capital. For the remainder of 2023, we anticipate CapEx will be in the range of $25 million to $45 million as we continue to work diligently on the timing of permitting for MSC technology deployment at a couple of our larger plants. For Green Plains Partners, we reported net income of $9.4 million and adjusted EBITDA of $12.7 million for the quarter, in line with the $13 million reported for the same period a year ago. The partnership declared a quarterly distribution of $0.455 per unit with a 0.99x coverage ratio for the quarter. The partnership had distributable cash flow of $10.7 million for the quarter, slightly lower than the $11.3 million for the same quarter of 2022. Over the last 12 months, the partnership produced adjusted EBITDA of $50.6 million, distributable cash flow of $42.9 million, and declared distributions of $43.2 million, resulting in a 0.99x coverage ratio, excluding any adjustment for the principal payments made in the past year. Now I'd like to turn the call back over to Todd.

Hey, thanks, Jim. Our path forward continues to be focused on maximizing what we can produce from a kernel of corn at each of our biorefineries, and all of our initiatives tie back to one consistent theme: making low carbon ingredients that matter. We consistently pointed to the need to operate our core business well to maximize the opportunity in protein and higher renewable corn oil yields, and we are starting to achieve those higher run rates once again. Our assets have aged and we needed to put a lot of care into them. We hired a new operations executive leadership team fully focused on modernization and automation, and they know how to do it correctly. We've been investing in technology and are making great progress towards the goal across the platform. Today, we have five facilities operating our MSC Ultra-High Protein technology. Construction of both Madison, Illinois and Fairmont, Minnesota continues to be pending favorable outcomes from the permitting process in both states, which continues to take longer than we thought. We are on a good path in Illinois as the permit will unlock the full potential of a plant in terms of total volume of all of our products, in addition to the MSC installation. What I'm really excited about is our MSC turnkey joint venture with Tharaldson is on track to begin commissioning and startup in the first quarter of 2024. This will be the largest plant ever built with the Fluid Quip technology and will bring approximately 100,000 tons of production to our sales platform. We remain on our path to have our total annual capacity with 580,000 tons at the base yield of 3.5 pounds per bushel. Yet we are also starting to achieve higher yields at almost all of our locations, with some consistently achieving over four pounds per bushel daily, and we believe that over the long run, we could achieve improved yields across the entire platform. Our production was significantly higher than in the prior quarter and continues to grow. Our commercial team focused on protein successfully worked with our diverse customer base to sell all of the product we produce. This confirms what we have always believed: that we have a great product that is in high demand, we have a solid customer base, and we continue to have access to new business opportunities. We increased the number of customers by 25% to 30% during this quarter alone. Our protein product is also experiencing growing demand around the world, and we are now selling our protein to North and South America, Europe, the Middle East and Asia. Now let's talk about the 60% protein initiative because that's one of the most important and exciting things that we're going to be doing over the next several years. We executed a successful full-scale 60% protein production run during the third quarter at Wood River and began to deliver commercial quantities of 60% protein to end customers and are in position to begin delivering additional 60% protein sales in the fourth quarter. We are continuing to debottleneck the production process around this, both mechanically and biologically, as we learn how to transition these MSC systems from 50% to 60% protein production at full scale. Once we lined out the system in Wood River, we consistently produced our 60% protein product and achieved as high as 62.3% during the quarter. The team overall at the plant and in our office here did a great job in a very difficult task, which is why we know we have something unique. We now have our first repeat 60 Pro business, and the product is being utilized in several large-scale commercial diets along with additional trials in the U.S. and around the world. We remain committed to achieving our goal of dedicating 20% to 30% of our portfolio to 60 Pro during 2024. We can see the business in front of us, and customers are starting to ask for it. In addition to the high-quality nutritional, digestibility, and taste profiles of our protein, we are already getting value from our lower carbon intensity from our Ultra-High Protein relative to corn burr mill from wet mills, and received updated data during the quarter on the advantage we have. Now that we've been running our platform for several months, we anticipate the fourth quarter Ultra-High Protein production will be higher than what we achieved in the third quarter and growing. As we look at the EBITDA opportunity in 2024 based on the five facilities we have operating, plus a partial year impact from our turnkey JV, EBITDA contributions could be $80 million to $120 million during the 2024 fiscal year. In corn oil, our renewable corn oil remains a feedstock of choice among renewable diesel producers, and even in the face of new soybean crush capacity coming online, our corn oil maintains a distinct advantage due to its lower carbon intensity. I don't think we need to spend a lot of time on this. Most of you know everything you need to know about this great product. Pricing was strong during Q3, and we sold most of our Q4 production at higher values than the current market, so we're happy about that. We believe our renewable corn oil platform is well positioned to take advantage of industry drivers towards advantaged feedstocks. The low carbon premium has developed, and we believe renewable corn oil beginning in 2025 is even more advantaged in the IRA, so don't ignore that positive factor as we get into next year and the year beyond. Decarbonization continues to be a crucial strategy that we are pursuing. The most significant step we can take is participation in carbon capture and sequestration opportunities. Four of our facilities, representing approximately 316 million gallons per year, are committed to the Summit Carbon Solutions Project. We are confident this project gets completed. Although Summit is now indicating a 2026 startup, they continue to make great progress on permitting and right away. We expect that many of the stranded navigator plants will end up on this project. As noted over the past quarter, three of our facilities are now on a separate CCS project in Nebraska: Central City, Wood River, and York represents about 287 million gallons. This project appears to be on track for a 2025 startup. We have expanded and diversified our partnerships for carbon capture and sequestration and believe that we will be in a significant advantage beginning in early 2025 when 45Z goes into effect. Decarbonization through carbon capture and storage provides a critical milestone to lower the carbon intensity of the fuel ethanol we produce and also further drive delineation in all of our ingredient pathways. Ultimately, having a decarbonized ethanol platform positions fuel ethanol as a crucial low carbon intensity feedstock for the development of sustainable aviation fuel, which, as you know, we are keeping a close eye on. We expect to get some more clarity from the administration on SAF before the end of the year. We are approaching completion of the world’s first commercial clean sugar technology facility in Shenandoah, Iowa, as it is on track to be mechanically completed by the end of the year, and we are still only waiting for the final electrical gear. We believe we should have it in time to begin commissioning in Q1 of 2024. The interest from potential customers exceeds anything we could have anticipated, and we have been looking at plans to quickly expand the capacity at Shenandoah as well as completing additional installations elsewhere when we can. This is truly disruptive and game-changing for Green Plains. Our clean sugar is up to a 40% lower carbon intensity than from a wet mill, and as before we have carbon capture deployed. We look forward to demonstrating to the market a true value of this technology. Our ongoing commercial sales discussions regarding our dextrose product reflect the value of the lower carbon intensity of which we got brand new results during the quarter, which have basically shown that we are at least a 40% lower carbon intensity score than the incumbent products. So where does that leave us with regard to our path to our 2025 EBITDA and transformation that we laid out to you a couple of years ago? For 2024, starting with the five MSC facilities plus a partial year for the Tharaldson JV to drive EBITDA contributions of $80 million to $120 million, excluding any uplift for 60% protein, our base renewable corn oil business excluding the corn oil uplift from our MSC will contribute to about $250 million, and depending on how veg oil pricing goes, could be $130 million to $160 million annual contribution as well. We have recently seen veg oil prices drop, so once again, we’ll see what develops in 2025 as more renewable diesel projects come online, and we’ll see what impact it has. And if the government will continue to allow Chinese used cooking oil to receive our tax credits. Our ag and energy business consistently generates $20 million to $30 million in EBITDA annually, and our corporate SG&A is approximately $65 million to $70 million. Just to be clear, we have pre-invested both in protein marketing and technology as well as our sugar marketing and technology, so that when we kick off these new products, we are fully ready to go. I’ll let you put in your own assumptions for ethanol margins, but we do believe the fundamentals for ethanol demand will remain strong for the foreseeable future, notwithstanding those normal ups and downs we see seasonally or from quarter to quarter. We are also focused on consistent operations for our core products as well. As we move into 2025, which is the incremental value from additional MSC facilities, but most critically will be the startup of our decarbonization strategy with our platform having a significant advantage in terms of timing to completion relative to other projects that are out there. I’m incredibly proud of our entire team for pulling together and delivering a solid quarter and positioning us for even greater success that’s possible in Q4, based, of course, as we always say on current markets. We have made significant changes to our executive team throughout the organization over the past 12 to 24 months. We assembled a new senior management team and leadership team in operations with hires from industry leaders in wet milling and value-added production who can also maximize the capabilities of our plants. This team has many decades of operational expertise. We’ve built new commercial leadership that’s focused on building value-added marketing and distribution that was needed for our new products, while also having expertise in traditional commodity margin management. We also have new leadership in human resources as we focus on taking care of our team members' needs and recruiting great talent. And of course, I can’t leave this out, Jim taking over as CFO. We also have a great bench of leaders and employees from sales to marketing to trade to production to nutrition to technology and, of course, our plant management who all help us continue to execute our transformation and deliver results from many industry leaders we compete with on many of our new products. We knew this would be a challenging process, and of course, I’m humbled by the dedication inspired by the passion of all of our team members across the organization in every position, weekend and week out. Finally, our commitment to the safety of our employees is first and foremost before anything else we do, and we will never put profits before safety, and I preach this continuously anytime I can. And with that, I’ll leave it there. Thanks for joining our call today. We can start the Q&A session.

Thank you. Our first question is from Jordan Levy with Truist Securities. Your line is open.

Good morning, all. Nice quarter.

Good morning.

Maybe to start on the protein side of things, it seems like we’re getting into that time of year when you start to look at allocations. I think if we just start looking back 12 months or so versus where we are now, if you could just talk to how those are shaping up, what sort of the customer mix and how that’s changed? And how the economics look now versus how they did maybe a year ago?

So let’s talk first about the economics. What we’ve seen is with corn prices somewhat stabilizing and protein prices increasing against that. The economics on paper have clearly gotten better just basically financial to financial. During the last quarter, we saw weakness in the soybean meal basis, which affected the overall margin structure, but that has come roaring back, as well as the overall price for protein has come roaring back as well. So we’re optimistic in terms of our price competitiveness relative to incumbent products. We get a lot of calls around that, and the use of our product is increasing. In general, we’ve seen good uplift in terms of new demand showing up for our products across all species. We’re happy to report we renewed our pet food contract for 2024. We secured 100% of that business back, and it’s growing from there. The company that we’re partnered with continues to expand their volumes every single year from when we started in Shenandoah by selling part of that plant out as well. So relatively speaking from 12 months ago, we continue to see uplift in all the species and continue to see growing volumes across our whole customer base, even with more volumes coming into the market.

Thanks, Todd. And then maybe just moving on to the carbon side of things. I appreciate the commentary you provided and sort of the diversification strategy you all are continuing to pursue. With some of the recent headlines around some of the other plants in the market, could you talk to how you’re thinking about and the confidence you have over the next few years in being able to execute on the carbon strategy?

Yeah. I think we start with our core pipeline strategy, which has been to partner with Summit. They’ve done a great job securing 75% to 80% of the right-of-way. Nobody else building a new pipeline has been able to achieve that. While they certainly have faced some headwinds in terms of overall permitting, we strongly believe they’ll get through that and establish their route. A lot of what it takes is ensuring the route aligns with local communities and that they get what they require. I think Summit is fully prepared to make those concessions and they continue to negotiate. First comes the Iowa permit; we’re confident in North Dakota and we’re also very confident that they’ll navigate the South Dakota process as well with some rerouting. That’s really what it takes—having that line running from Iowa to North Dakota. Strong from the standpoint of early funding raised; obviously, they still need to secure final permits to raise the final funding. We’re confident in the team and their ability to execute, and it’s going to be a massive project that will uplift our industry overall. Regarding the other pipeline that decided to cease their operations, I think that’s advantaging Summit relative to where they are building, enabling them to pick up additional plants and increase their volumes, which increases economic feasibility in the end. It’s absolutely the right move to make. Now, without any pipeline has its normal challenges, we’re confident that we made the right choice with our early investment. We are shareholders, and we like our position there. It may take a little longer, but overall, very executing well so far. In terms of Nebraska, we mentioned a different project that we believe startup will occur in 2025, and the economics for that are also very favorable to Green Plains. Those will be early economics that we outlined during our earlier calls and discussions, but we feel like we’re in a great advantageous position, especially for early startups. When Summit comes online, it significantly drives our capability to earn from the carbon initiative for our shareholders.

Thanks so much. Appreciate the color. I’ll leave it there.

Thank you.

The next question is from Manav Gupta with UBS. Your line is open.

Hi. I was wondering if you could help us understand when we can expect guidance from the treasury regarding 45Z. I’m also trying to understand how we have seen a little bit of a pullback in corn oil prices. I think that’s more a function of D4. You have a lot of capacity coming on, which would need that corn oil. As LCFS prices move up, demand for corn oil should rise. So, I’m trying to glean more guidance on 45Z and how you see near to medium-term corn oil pricing?

Yes, thanks. I have Devin here with me who led our IRA call. I’ll let him comment on our status.

Hey, Manav. The government has previously indicated they would come out with 40B SAF guidance by September 15; obviously, that date has passed. We’re still expecting that guidance by the end of the year, and I believe the lifecycle modeling they put out regarding SAF will likely inform your thinking on 45Z in terms of the model they’re using and how farm carbon and carbon capture can play into that. We remain optimistic that we will see 45Z guidance by the end of the year, but it could slip into early next year.

From that perspective, as we move to your second and third question on corn oil and LCFS, we have seen a drop. I think that was due to the market dynamics of the unwind between meal and oil. We saw meal rally and oil retreat from the highs, though we locked in a good amount of our corn oil at higher values for the fourth quarter, which we’re pleased with. That was a priority for us on the pricing front. I think it was influenced by some delayed start-ups, as well. Overall, it’s worth noting the major impact, as I mentioned in the script, is the Chinese used cooking oil, which, to us, is disgraceful that it has the ability to come into the United States and earn our tax credits. It’s impacting overall veg oil prices as well. We’ll monitor that closely and defend our position as a U.S.-made product against foreign products receiving our tax credits, and we’re very focused on that. Overall, we’ve observed oil prices stabilize in the mid-50s, and we’re still trading at a premium to that on any given day.

Todd, very quickly. The fundamentals in ethanol are even better in Q4 versus Q3. I hope you would agree that you weren’t fully hedged for Q4, so you could benefit from this market rally. If you could clarify?

Yes, we’ve seen better margin structures available during Q4. It’s been volatile in the last couple of weeks; if you watched it, you’ve seen it come off the highs. So there are days when I wish I had hedged some volume. But we remain open on a daily basis, other than small positions we have, as we mentioned. Generally speaking, the crush margin structure is better than what we have seen, but it has come off its highs. We'll see what transpires every Wednesday as we say. Overall, demand has remained solid; we’ve seen it slightly below 9 million a day, which is good for ethanol with solid export demand coming out of our products at about 100,000 barrels a day. We just need to monitor production closely as more plants try to start back up; we generally anticipate stability. Our industry has aged, and I have stressed that over the last several calls. We faced challenges over the last 12 to 18 months due to that aging, and to address that, I built a new operational team.

Thank you so much, and congrats on a good quarter.

Thank you.

The next question is from Craig Irwin with ROTH MKM. Your line is open.

Good morning, and thanks for taking my questions. So Todd, I wanted to ask about 60 Pro. You mentioned 25% in 2024, which is up from last quarter. Can we interpret that as maybe the majority of High Pro production becoming 60 Pro in the back half of the year, or possibly more? Can you provide some context around that?

Yes, I think what we’ve learned and are seeing is that the demand for the product is due to its quality—not just from a protein standpoint, but also digestibility and feed conversion ratios. Those results are coming out of long trials that we’ve completed. The biggest thing for us moving forward is to produce as much 60 Pro as quickly as we can starting in 2024 and into 2025. If I could wave my magic wand, I’d make 100% today. However, it takes time for the market to uptake these new products, and there’s never been a new product like this for quite some time. All roads will lead to 60 Pro for us. We have initiatives in place to evaluate what we need to do to bring a second plant online next year, and we’re exploring options to potentially move to a 100% 60 Pro production model. Our experiences with this current product have been promising—this shows the importance of faster transition and scaling as we’ve faced challenges with both mechanical and biological adjustments. We will ensure sourcing options and demand exist at every phase of production.

Thank you for that. My follow-up question, perhaps directed at Devin. Recently, when I was in DC, talking with lobbyists from both the renewable fuels and oil industry, several suggested that the delay regarding credits we are waiting for stems from updates made in the GREET model or potentially proposed adjustments. Can you give us context around why you feel confident this will be finalized by year-end? Are there any changes being proposed that might influence the carbon credits as you see it, in relation to SAF or anything concerning ethanol?

Go ahead, Devin. Real quick.

Yes, Craig. We’ve received similar feedback. They are reviewing renewable natural gas and potentially revising the GREET model for it. Ultimately, we believe they will arrive at something that will accommodate us. We’ve heard indications from the administration that they want ethanol and soy-based feedstocks to have an adequate role in the sustainable aviation fuel discussions. We’ve even heard those sentiments expressed by the President, who will be visiting Minnesota tomorrow and may comment on this subject. While timing remains uncertain, and they are reconsidering the GREET model, we are optimistic about finding a place for our interests there.

Perfect. Thank you, and thanks for taking my question.

Appreciate it. Thanks.

The next question is from Ben Bienvenu with Stephens. Your line is open.

Hey, thanks. Good morning.

Good morning.

Todd, I wanted to pick up on your commentary that you offered around the contribution from Tharaldson and then the five MSC facilities. You talked about the $80 million to $120 million in next year’s EBITDA. Can you help us think about what determines that range? Is it the ramping and scaling of production or is there something else?

Yes, it’s a little bit about timing and also observing the spreads between corn and soy, and what will happen there. When we consider producing 560 million gallons converted plus Tharaldson earnings, which is about 85 million gallons, it brings us to 640 million gallons. We will look at what we previously guided—around $0.15 a gallon—putting us right in the middle of that range. We will monitor the ratio of corn against soy meal. Value from exports fluctuates as the prices for domestic markets get more favorable and vice versa. A fair bit of that depends on the volatility we’ve been seeing with the soybean meal basis lately. It has improved significantly again. The 60 Pro metric is not factored into that at this stage. We’ve structured it that way so we can track how well the market dynamics unfold.

Okay, great. Super helpful. My second question concerns the Clean Sugar Technology. You mentioned the commissioning of Shenandoah and the overwhelming demand you’re recording there, which is really encouraging. As you consider expanding production, could you elaborate on your pacing for this? Do you see yourself in a position to self-fund that as some of your other CapEx projects begin to wind down and your cash flow picks up from previous investments?

Yes, we first look at Shenandoah, which represents the easiest expansion. We’re working with customers on exploring that. We must confirm that, relatively, all resources we require locally—electricity, gas, water, etc.—are in place. Simultaneously, we evaluate potential other locations for expansion. Funding for Shenandoah would be manageable. Once we ascertain capital generation potential, we’ll evaluate which additional plants we can bring online. We’ve successfully set ourselves up for a sustainable free cash flow generation, which allows us to fund these projects, although we still carry a solid cash balance and generate increased capital. Our setup from low debt levels, coupled with high cash availability, positions us favorably. Hence, we envision funding the second plant quite comfortably within the next 12 to 18 months as we explore cash generation.

Okay, great. Very good. Thanks, and best of luck.

Thank you.

The next question is from Adam Samuelson with Goldman Sachs. Your line is open.

Yes, hello, good morning. This is stepping in for Adam. I was wondering if you could provide some information on the corn basis and how it has affected your margins this quarter. What are your expectations looking ahead?

Yes, with us today we have Grant Kadavy, our EVP of Commercial Operations. He can provide a quick comment regarding the corn basis and what he has seen. I’d like to introduce everyone to Grant, who will be on future calls, as well. Grant now runs all of our marketing and proteins, and he handles all commercialization across the platform. So Grant, please share your insights on the corn basis.

Sure. Good morning, and thanks for the question. During the third quarter, we observed the transition from old crop to new crop, resulting in a material decrease in the overall corn basis. Heading into the fourth quarter and the new crop season, we’ve seen more normalization of corn basis during harvest, with a potential for some normalization over the remaining year.

That’s super helpful. As a follow-up, could I ask about your outlook for ethanol exports? What are your expectations going forward?

As we noted, we’ve seen relatively consistent export capacity at around 100,000 barrels a day. Occasionally it’s slightly higher or lower. The world is quite dynamic right now, and we must monitor where we’re shipping our products. Importantly, the price of octane produced domestically continues to be advantageous globally. Canada has maintained a strong low carbon fuel program, and we’re seeing great uptake there. The EU market has also opened back to us, and we’re beginning to see volumes from the Middle East again, although this situation may fluctuate depending on regional developments. However, we forecast strong exports from the U.S. to continue throughout the year.

That’s super helpful. Thank you. As we’ve seen discrepancies between DDGS prices and soybean meal, how has that impacted HiPro pricing competitiveness?

We noticed that soymeal was weak earlier in the quarter, but it has come roaring back. I believe the spreads have narrowed recently, while some areas are experiencing very strong distillers prices. Generally, the spread has widened to historical levels that enable us to attain our margins. With soymeal futures around 425, and Indiana sitting at 175 or Shenandoah at 190, that’s a notable spread. Overall, I think we’re in a better position today.

Thank you. Congrats on the quarter.

Thanks. The next question is from Eric Stine with Craig-Hallum. Your line is open.

Good morning, everyone. Thanks for all the details. I know for EBITDA for 2024 provided earlier, it’s roughly $200 million or more, excluding ethanol. Not sure if you provided guidance for 2025—I might have missed that. I know previously you’d mentioned $400 million to $600 million at an annual rate in 2025. With commentary around Summit and opportunities in carbon capture, should we anticipate being more aligned to the lower end of that range? Is it possible to think of it as better to wait for 2026 for definite upside?

Yes, I don’t know that we gave an explicit $400 million to $600 million, but I will say what we’re talking about in 2025 is consistent with previous thoughts. It starts with the competitive advantage Summit brings and the position we anticipate in 2026. When you factor in 60 Pro, overall veg oil yields, and expanded protein production as we approach 2025, we remain within our prior guidance expectations. And to add, ethanol margins will contribute even more to that base positioning.

No, I think Todd's point is well made. We're in those ranges we provided earlier. The path forward to 2025 is driven by completing our facilities and bringing them online in 2025.

Okay, thank you.

Thank you.

The next question is from Salvator Tiano with Bank of America. Your line is open.

Yes, thank you very much. Firstly, I want to understand your comments about the aging assets and the corresponding changes you're implementing. Can you provide more details on what this entails in terms of CapEx spending in the next few years? Also, should we expect meaningful contributions from this plan?

What we produced this quarter was an operating rate rounded to 94%, but we can still achieve more. We are beginning to unlock the capabilities of these plants, building off the previous CapEx round. A portion of that evolution includes automation, making operations more efficient without high costs. We operate round the clock and aim to incorporate more automation as quickly as we can. This improvements are crucial in areas like enzyme application consistency and fermentation management to eliminate human error, which we previously learned could be a headwind. Our CapEx is forecasted to remain around the previous guidance while we gain operational improvements. Jim, can you provide our normal CapEx range?

I would estimate historically we typically spend around $30 million to $35 million in maintenance CapEx and an additional $30 million to $35 million on growth initiatives excluding the larger MSC or dextrose projects we have ongoing. If you combine those, you’re looking at about a $60 million to $70 million spending range annually. Our focus will be on maintaining that while seeking further operational efficiency. You should expect totals around a capital expenditure range of about $150 million next year, including a significant MSC to be accomplished during the year. That’s a decrease from the heavier spending of previous years.

Perfect. Additionally, about the 60 Pro side, you mentioned renewals; what percentage should we expect for Q4? Could you clarify how the contribution of HiPro impacts your bottom line? Can you quantify the upside and identify what factors will determine if you achieve that upside?

Yes, much like 50 Pro, it takes time for products to reach full uptake. We have notable demand and have identified production capacity well ahead of time. 60 Pro’s target is to contribute 20% to 30% of our total portfolio shipping in 2024. We’ve mapped the demand against all production on 50 Pro. The outlook for 60 Pro continues to grow as we avoid delays in execution. Overall, the contribution to EBITDA is foundationalized on achieving 560 million gallons converted today plus earnings from Tharaldson. Incremental contributions are dependent on market dynamics and shifts, including meal and corn spreads. We’ll continue to watch the elements closely.

Okay, perfect. Thank you very much.

Thank you.

The next question is from Andrew Strelzik with BMO. Your line is open.

Hey, good morning. Thanks for taking my questions.

Thank you. Sorry for the wait.

Not a problem. I know there’s a lot to ask. First, on the corn oil side, could you elaborate on your decision to lock some pricing in at higher levels? How far out did you go with that? Has anything changed regarding your willingness to do so in the future?

I think corn oil pricing operates within different market dynamics. We noted veg oil prices fluctuating while we locked most of our Q4 product at higher prices, which we feel positive about. We missed an opportunity to lock them in at a higher price, but believe we’ve done well compared to market trends. Perhaps $0.05 to $0.07 above current market prices. That does not alter our long-term perspective. We expect strong performance in 2024 and excellent conditions in 2025 as revenues rise. Current market fluctuations may cause volatility; we’ll remain focused short-term.

Got it. That makes sense. Regarding developments in carbon sequestration, with all the recent news, I’m interested in your confidence level regarding Nebraska plants. Are there challenges that might arise yet, or are there any remaining hurdles you foresee?

Yes, we feel strongly. The projects are on track with secured funding. The majority of infrastructure required for future phases has also been expanded. We are not anticipating delays or obstacles impacting the captured volume. We are confident with our Nebraskan plans and foresee advantages in terms of timing versus comparative industry projects. As we’ve maintained strategies for growth, we posit a favorable position in the marketplace, further leading to positive shareholder value.

Got it. Lastly, could you clarify baseline estimates for corn basis? Could you quantify any delta or contributions as we proceed with these changes?

I'll let Grant elaborate a bit more on what we have seen regarding Nebraska and Iowa corn basis. Initially, we were not seeing the typical seasonal patterns, but as we’ve stabilized, we expect a resumption of traditional levels while monitoring these developments closely.

Yes, what we noted in Nebraska was a significant year-over-year production increase compared to the previous crop year’s shortfalls. As a result, our corn basis was previously exceeding a dollar over the CME. We’re now closer to normalization of that basis as production rebounds alongside traditional market fluctuations. The overall forecast should reflect continued improvements towards historical averages.

Great. Thank you very much.

Thank you.

The next question is from Kristen Owen with Oppenheimer. Your line is open.

Hi, thank you for taking the question. Two quick ones from me. First, regarding MSC protein, can you talk a little bit about the spread over DDGS? And also, Todd, you mentioned looking at the soybean meal versus corn ratio. Soybean stocks are very tight, while corn isn’t. With that in mind, how much pricing are you willing to lock in for 2024?

Most people have transitioned from hedging toward sales based on basis. For the majority of our transactions, business is done quarterly rather than for the entire year—only for longer-term customers, like our pet market contracts moving forward. The outlook for commodity prices presents a favorable position overall, with our DDGS still demonstrating solid value against soymeal based on analyses of the current dynamics in production costs and pricing trends.

The dextrose market is experiencing a favorable backdrop given limited capacity and growing demand. How quickly can you scale up production in Shenandoah in the first half of the year, and can you discuss the current offtake discussions in that space?

Yes. Once dextrose production begins at Shenandoah, we are prepared to respond quickly to customer demand pressures. The off-take arrangements should be in place to support a strong launch. We need to ensure correct timing as we advance to market introduction and closely observe customer demand for an efficient scaling process. We anticipate securing offtake agreements within the next few months.

Thank you so much.

Thank you.

No further questions at this time. I’ll turn it to Todd Becker for any closing remarks.

Well, thanks for being patient with us; we've had a lot to cover. We feel on track and believe there is more potential in our core business, particularly in securing additional oil, alcohol, and distillers grains while gaining momentum in our new technologies. We wish we could accelerate our pace of expansion, but market demand has been evident, and we’ll continue to focus on cleaning sugar in Shenandoah at the beginning of next year. We aim to conclude 2025 with positive earnings from some of our carbon initiatives. Overall, this quarter has provided tangible results, and as we appropriate focus on operational stability, we encourage all to participate in the ongoing market opportunities.

This concludes today’s conference call. Thank you for participating. You may now disconnect.