Green Plains Inc. Q3 FY2024 Earnings Call

Good morning, and welcome to the Green Plains, Inc. Third Quarter 2024 Earnings Conference Call. Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in a listen-only mode. We will now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations and Finance. Mr. Boggs, please go ahead.

Thank you, and good morning, everyone. Welcome to Green Plains, Inc. Third Quarter 2024 Earnings Call. Participants on today's call are Todd Becker, President and Chief Executive Officer; Jim Stark, Chief Financial Officer, and several other members of Green Plains Senior Leadership Team. There is a slide presentation available, and you can find it on our investor page under the events and presentations link on our website. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's press release and the comments made during this conference call and in the risk factors section of our Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I'd like to turn the call over to Todd Becker.

Yes, thanks, Phil. Good morning and thanks for joining our call today. We reported $83.3 million in EBITDA for the third quarter, inclusive of a $30.7 million gain on the sale of the Birmingham Unit Train Terminal. Our EBITDA from normal operations was $53 million and our standalone consolidated crush margin was $58 million. Before I get too deep into the numbers, I'm sure you saw the announcement this morning regarding Jim Stark retiring from Green Plains and the promotion of Phil Boggs to Chief Financial Officer. These two guys are really well known to all of you, which should make for a seamless transition. When Jim returned to Green Plains and subsequently named CFO, I always knew this day would come, as his goal was to get back to Nebraska and spend more time with his grandkids. One of the things that was part of this succession planning was to set Phil up for success and Jim lived up to his end of the bargain and more. Jim and I spent many years together at Green Plains and he is one of the many who will have made a long-standing impact on the company, and I'm proud to have worked with him. I'll let Jim tell you a bit more, but he will be exiting the public company world to focus on the next stage of his career with smaller private companies and spend more time with his family. Thanks again, Jim, for your dedication and loyalty. So let's get back to the quarter. Our ethanol operating rate reached nearly 97%, and we also delivered a record quarter of ultra-high protein production, as well as maintaining a strong corn oil yield in line with our record rates achieved in the second quarter. Our operating results are demonstrating the success of years of planning and execution to deliver improved operational performance across our platform, and we believe we have room to continue improving on these operating rates. The mid to high 90s run rate should be the new normal for our platform as we still have some more improvements underway to get there and are finishing up some of those in the fourth quarter as well. Earlier this month we completed an extended shutdown at our Mount Vernon location, as we indicated earlier, location performing some of the needed maintenance to bring the plant back to its full run rate capabilities. We are now beginning to scale up production and expect to reap the rewards of additional capacity in the next couple of weeks. We are in the process of upgrading O'Brien in the next coming months and anticipate that plan being able to increase its efficiency in production as well over the next several quarters. The operations team has done a fantastic job safely maximizing the platform, and we continue to find new opportunities to increase throughput and improve production metrics. Margins were solid during the quarter, as we indicated on the prior call, driven by demand of continued strong exports and favorable natural gas and corn prices, even though we did see some rapid compression late into the quarter. We continue to experience tailwinds for ethanol exports with totals through August of 1.2 billion gallons and on pace for a record year of 1.8 billion to 1.9 billion gallons as other countries ramp up their blend mandates and low carbon programs. We believe this will continue to grow, led by Canada, where they are rapidly expanding blends and represent over one-third of where all of our exports go. Overall, we significantly outperformed the prior quarter and we're up prior year as well. We will cover protein, carbon, and corn oil on this call as well, but I would be remiss not to start with clean sugar. While it may have taken longer than we all wanted, the ongoing startup and commissioning of our CST project in Shenandoah was a key focus during the quarter. As we had indicated earlier this week, we have worked through most of the challenges and we have begun to supply product to customers for validation. We also believe we will be executing our first bulk commercial sales and shipping low CI dextrose to customers during the fourth quarter. The production process will continue to be de-bottleneck, ramping up over the coming year, and interest remains very strong despite the delays. Having up to a 40% carbon intensity advantage, it's worth the wait for many of these customers. As we always said, this technology developed by Fluid Quip is massively disruptive to an industry supply oligopoly that has existed for decades and no one thought we could make clear, clean, low-carbon dextrose, but here we are. There was a herculean effort across Green Plains and Fluid Quip to get to this point. We still have plenty to do to scale from here, but this is one of the many steps to realizing the true value of this technology. I'll spend a little bit more time on this later in the call. During the quarter, we completed the sale of the Birmingham Unit Train Terminal and used the proceeds to retire the remaining high-priced debt related to Green Plains Partners. This was an important step, enabling the additional simplification and efficiency gains anticipated when we first began the process of acquiring Green Plains Partners. The Board of Directors continues to progress the strategic review process, working with its financial advisors, BMO and Moelis, as outlined in the press release. And now I'll hand the call over to Jim to provide an update on the overall financial results. I'll come back on the call to provide an updated policy outlook and discuss our progress on all of our initiatives in more detail. Jim?

Thank you, Todd, and good morning, everyone. Green Plains consolidated revenues for the third quarter were $658.7 million, which is $234 million or about 26% lower than the same period last year. As in recent quarters, the decline in revenue is due to lower prices for ethanol, dry distillers grains, and renewable corn oil compared to the same period last year. We also observed a decrease in our commodity input costs, with corn and natural gas significantly lower year-over-year, leading to a better margin opportunity this quarter compared to both the previous quarter and the previous year. Our plant utilization rate was 97% during the quarter, up from 94% during the same time last year. Last year’s quarter included production from the Atkinson plant, which was sold in the third quarter of last year. Thus, utilization rose even as production gallons slightly decreased compared to last year. Over the past four quarters, we have maintained a 94% utilization rate, and we expect our plants to keep operating in the mid-90% range of capacity for the fourth quarter, assuming no unexpected events arise. For the quarter, we reported a net income attributable to Green Plains of $48.2 million, or $0.69 per diluted share, compared to net income of $22.3 million, or $0.35 per diluted share, for the same period in 2023. I want to note that the diluted share count for the third quarter for both the current and previous year includes the dilutive effect of the 2027 converts under the as if-converted method, as long as it wouldn’t be anti-dilutive, which it wasn't. EBITDA for the quarter was $83.3 million, including a $30.7 million gain from the sale of the Birmingham Unit Train Terminal, compared to $52 million in the previous year. Adjusted EBITDA for Q3 2024 was $53.3 million, up from $42.9 million for Q3 2023 after excluding one-time items from both periods. Depreciation and amortization expenses increased by $2.2 million year-over-year to $26.1 million, which includes a one-time $3.5 million impairment charge related to R&D intangible assets recorded in Q3. We incurred $58.3 million in consolidated costs for the quarter, compared to $52.9 million in the previous year. In the third quarter, our SG&A costs across all segments were $26.7 million, which is $8.6 million lower than last year due to reduced personnel costs and adjustments in incentive accruals. Interest expense for the quarter was $10.1 million, reflecting an increase of $0.5 million from the same period last year, primarily due to loan fees associated with the repayment of Green Plains Partners debt in the third quarter of 2024. Our income tax situation for the quarter showed a benefit of $0.8 million, compared to a tax benefit of $7.8 million in 2023. At the end of the quarter, we had $10.8 million in federal net loss carry-forwards, which can be carried forward indefinitely. The NOLs decreased significantly from Q2 2024 as they were used to offset the gain from the Birmingham Unit Train Terminal sale and our profitability during the quarter. Our normalized tax rate for the quarter was around 25%. Our liquidity at the end of the quarter improved from the previous quarter due to strong operational results, totaling $252 million in cash, cash equivalents, and restricted cash, plus about $228.5 million available under our working capital revolver. For the third quarter, we allocated $28 million across our platform, with $9 million going to our Clean Sugar initiative, roughly $8 million to other growth initiatives, and approximately $11 million for maintenance, safety, and regulatory capital. Year-to-date, we have incurred capital expenditures of about $67.8 million, and we expect total CapEx for 2024 to be around $90 million to $100 million, not including the roughly $110 million for carbon capture equipment for our Nebraska initiatives, as we have financing in place for those needs. In closing, my time at Green Plains has been incredibly fulfilling. I am thankful for the opportunities I have had to grow both professionally and personally during my 14 years here. I appreciate Todd and the Board for welcoming me back to Green Plains at the executive level in 2022 to be closer to my family and grandchildren. I have complete confidence in Phil Boggs and believe he will thrive in his well-deserved new role as CFO, supported by the finance and accounting team as the company progresses. I look forward to my next chapter and appreciate having worked with all of you on this call over the last nearly 16 years in the renewable fuels industry. Now I will hand the call back to Todd.

Yes, thanks, Jim. And again, thank you and good luck in the future. So let's talk carbon. Our advantage of Nebraska strategy to decarbonize our 287 million gallon footprint in the state remains on track. And along with our pipeline partners, we have made great progress again this quarter. Of note, Wyoming, which is one of three states with primacy for issuing Class 6 permits, approved the first sequestration well for the Trailblazer project in September, and we expect additional well approvals for the project to follow in the coming months. The long-lead time carbon compression equipment has been ordered and is on schedule for delivery in Q2 of 2025, and we expect to begin construction on these facilities in the next month or so. The operations are on track for the second half of 2025 operations and cash flows. This is another game-changing and differentiating project for Green Plains shareholders that we will be one of the earliest and largest platforms sequestering carbon. Our carbon earning estimates remain intact with the expectation we will generate approximately $130 million per year starting in the second half of 2025, assuming 45Z values and the $70 ton carbon credit or LCFS credit even after discounting the value of the tax credits. Nebraska as an asset alone with this type of base earnings is not at all reflected in our share price of our company in my opinion, and in our opinion as well. During the quarter, we saw a decarbonized ethanol production facility exchange hands for a price over $3 per gallon, so you could do the math. The value of our 287 million gallons in Nebraska would be higher than our current market cap those plants alone. While the Summit Carbon Solution projects continue to make progress with permitting right away, we anticipate that the Nebraska pipeline will be on prior to that, giving us some of the largest volumes of low CI ethanol gallons during the existing 45Z runway of 2025 to 2027. With the 12-year 45Q credit available if it is not extended. And what some misunderstand is that the 12-year credit is from the date when the facility is placed in service, not from when the IRA was enacted. And I think that's a really important point when we look at the availability of our long-term cash flows. We do believe that 45Z will be extended beyond 2027 when the new Congress considers a broader tax package next year. Regardless of how this election plays out, there is bipartisan support for this measure and support across a diverse set of industries, but we will still be waiting for proposed regulations to come out. Now on to distillers corn oil. We have seen some stabilization in oil prices as the market has tightened up, as evidenced by the rise in palm and soy oil prices during the quarter. We look forward to 2025 as we know DCO becomes an advantaged feedstock, and we continue to push record yields as a platform with more to come in the future. When you add corn oil and carbon, those two account for over $220 million of combined EBITDA contribution beginning in the last half of 2025. In protein, as noted on the top of the call, we had record production of ultra-high protein during Q3 at our Green Plains plants and we will continue to grow from there in the future. Our commercial and operations team have continued to execute and improve our processes to maximize the flexibility and efficiency at each of those locations. Our Tharaldson joint venture also ramped up production during the quarter and continues to get to max run rates. Commercially, we continue to open up new markets and win new customers for our 50 Pro ultra-high protein product, both in the U.S. and internationally. We now ship to many Asian destinations and started commercial shipments to our strategic customers in Latin America. With joint venture production, we now also have better access to customers in the Western U.S., opening another new market for us from a transportation standpoint. The team is making great progress increasing our sales to our pet and aquaculture customers. While operationally, we've been improving, margins are somewhat lower than expected due to the availability of cheap competing products. We believe this will work itself out in due time and continue to believe that adding optionality and flexibility to our bio-refinery platform to maximize what can be achieved with a kernel of corn positions us for long-term success. For our 60 Pro Sequence product, we have been making additional upgrades to our production capabilities and continue to refine and improve our product. Our upgrade at Wood River is expected to be online in the first quarter of next year to allow that plant to better and more efficiently and cheaper produce more sequence. More importantly, we just completed a new run at Central City, and we were up to spec of sequence in less than six hours with little disruption to daily operations as we continue to ship and sell sequence to customers. There is a lot of interest in this agreement, but we are limiting volumes until we finish these upgrades during the first quarter of 2025. We also have some really exciting potential process breakthroughs for 60 Pro on deck for early next year, so stay tuned. Lastly, we will wait and see how the margin structure shakes out this quarter once the corn crop is fully harvested. The forward-looking ethanol margins is a bit of an unknown as usual, but we know export and demand overall does not support this margin structure tone, as evidenced by yesterday's EIA report showing stocks now under 20 days of production and the crush yesterday finally improving $0.04 per gallon on this news. If you compare year-over-year at this time last year, relative to much similar numbers, margins were significantly higher and hopefully yesterday began the months to start to match some of those numbers, but we have a little bit of ways to go. With regard to sugar, our outstanding operational and engineering teams work tirelessly to prove out this groundbreaking technology at commercial scale and we have been consistently producing at the facility with product already sent to key customers for formulation testing. We will continue to work over the coming quarters to optimize the Shenandoah facility to increase production volumes, including addressing additional bottlenecks. Learnings from our York Innovation Center pilot and now building and operating this commercial-scale facility in Shenandoah puts us in a much better place for when we decide to execute on cereal number two. The critical piece here is that what we have proven is the technology at scale, and now it's a matter of building out that infrastructure and reshaping an industry that has never been disrupted. Our Q3 performance demonstrated the capabilities of our platform with strong run rates and yields, allowing us to capture the positive margin environment. We intend to keep checking off milestones of our decarbonization strategy and as we ramp up the clean sugar technology to improve shareholder value. Thanks for joining the call today, now we can start the Q&A session.

Your first question comes from the line of Jordan Levy with Truist Securities.

Good morning, all. And Jim, thank you for everything and best of luck in the next venture. And Phil, congratulations on the new role. All right. Todd, you mentioned it on the call, but your equity value here is certainly not reflecting the value of Advantage in Nebraska on the CCS side and maybe even more so the other initiatives in protein and sugar. Can you just talk to outside of the strategic review process you have, what you think the market needs to see from you all to get more value reflected there on what the work you guys are doing?

I believe the upcoming milestones, particularly in carbon, are crucial, and we expect to initiate this project within the next 30 to 45 days. Once we begin, we anticipate a rapid increase in interest for the credits we will generate, including both 45Z credits and voluntary low LCFS credits for California. It’s important to note that these programs are established, and we expect that once they launch, the value of our company will likely rise. The industry has experienced fluctuations, impacting sectors like agriculture, renewable fuels, and ethanol. Some of this pressure on overall values seems exaggerated, particularly regarding our asset base, which is undervalued on a per-gallon basis. Despite facing several tough quarters, our performance this quarter under normal margin conditions shows we can produce free cash flow. While the delay in sugar won’t have an immediate earnings impact, we maintain our belief that our CST technology, developed at Fluid Quip and operational at Green Plains, is transformative, albeit its benefits will emerge over the long term. Overall, we have faced challenges, and the margin environment remains highly unpredictable. However, our financial standing is robust, and our generic per-gallon valuation remains low compared to replacement costs and other market transactions. It’s a gradual process to re-establish our appropriate valuation.

I appreciate that. And then maybe just kind of building on the CSP side that you mentioned, I don't think it's quite as well understood market certainly as ethanol, but even as much as protein. But maybe just help differentiate about the long-term value you see from that business and from some of the more near-term challenges we've seen in protein and maybe just give a little more detail on how you view the sugar dextrose market evolving?

The market and demand for dextrose remain strong, particularly for low-carbon dextrose, as consumer packaged goods companies focus on reducing the carbon footprint of their products. This interest spans a wide range, from pancake syrup to industrial chemicals. It's important to clarify that a significant portion of fermentation or sweeteners is used in various sectors, and that’s what we are producing. We have begun receiving our certifications, and now that we are producing product, our immediate goal is to obtain our food grade certification so we can start selling into consumer markets. This is just the first of many steps we plan to take to monetize this product. Our margins are robust; producing dextrose yields significantly higher margins compared to alcohol. The results seen from other dextrose producers in the wet mill industry support this, as their margins remain strong, especially for this product. Our technology has garnered interest globally, and we continue to receive inquiries from Blue Equip regarding the work they are doing. In the U.S., we are focusing our efforts where there is notable demand; we’ve seen a clear need from food industries through chemicals. We expect to deliver some commercial volumes to customers and secure offtakes within the next 30 to 90 days, which we are very excited about. Our team has worked diligently, and throughout this process, our margins have consistently held firm and have not declined relative to industry trends. This is a long-term endeavor, but establishing control over our intellectual property and technology to demonstrate the commercial viability of low-carbon dextrose and sweeteners is groundbreaking, as this has never been achieved at this scale in agriculture. The ability to use a dry grind facility for producing dextrose for food and industrial applications is exhilarating and a significant achievement for our team.

Your next question is from the line of Lawrence Alexander with Jefferies.

Hey, good morning. This is Kevin on for Lawrence. I've got two questions. One on clean sugar and one on ethanol margins. I guess, I know that you said that margins don't really reflect current conditions. And I guess just given the direction that ethanol prices have moved in the last several weeks, months, I mean, could you foresee producers possibly lowering rates like timber production to sort of lift pricing? And just curious how your outlook has changed from margins and prices into last earnings. And I guess, I think you said last call that the corn basis was coming down into Q3. Just did that play out as expected?

Yes, we are currently in a wait-and-see phase regarding margins this quarter. There was some compression late in the quarter that everyone noticed, which carried into October. However, as we finish October, the numbers we reported recently indicate that our production is being absorbed at a run-rate of 1,080. The market will likely need to adjust to this situation. We faced pressure from declining oil and gasoline prices during the quarter, which also affected ethanol. Overall, I hope we are nearing a bottom; we saw some increases recently and would like that trend to continue in the coming weeks. We still have turnarounds in the industry and other areas likely to take some production offline naturally. However, I don't foresee a significant reduction in production at this time. Looking ahead to next year, if we can maintain our stock levels and successfully navigate the first quarter leading into driving season, that should positively impact margins. We expect exports to remain strong for the rest of the year. Generally, we are utilizing our production well, but larger draws would be preferable. With demand days under 20, we typically see a return to normal margin structures. On the corn front, we've emerged from harvest stronger than expected, with the corn basis in Q3 being at least $0.50 a bushel better than the previous three years. The market has adjusted, benefiting margins for the entire industry, including ours. Although our basis is somewhat lower compared to the last couple of years as we exit harvest, it is firmer than anticipated. We're not facing issues purchasing corn; it’s primarily a situation where flat prices with futures approaching $4 will keep the basis stable throughout the year.

Understood. Thank you. Understood. Thank you. And then just on clean sugar, as you announced earlier this week, the first commercial clean sugar tech deployment examples going to customers. Just curious what your feedback has been from those customers? I mean whether or not you've received feedback on those samples? And I guess, just curious about the geographic makeup. I mean, are most of them North American customers or any color there would help be helpful. Thank you.

I'll answer your last question first. All of our current customers are based in North America. This is where sugar is being directed. We are witnessing a global interest in our technology from customers. I want to discuss with Fluid Quip about expanding their technologies to other countries, and we are open to that. I believe this will create significant value for them and Green Plains as well. Regarding customer feedback, they have already observed products from our York Innovation Center that are structurally similar to what we are producing in Shenandoah, and the product from Shenandoah will be even better. So for us, it’s really about timing now. We need to manufacture the product before we can begin the food grade certification process, and that's our current stage as we initiate that process. We have received GMP approvals, and other approvals are pending. I expect our product to become well-accepted. Our primary objective is to ship our products into industrial markets right now, as those markets do not require food grade certification, although they have their own standards. Early feedback on our shipments has been positive, but we are just beginning to roll it out. Therefore, it will take some time. This is a long-term endeavor, and having ownership and control over this intellectual property and technology is a significant disruption and game-changer. We have now demonstrated that it functions effectively at scale, but there are still some issues we need to resolve in Shenandoah. Looking to the future, our next product will be better engineered and constructed, particularly concerning cost and efficiency. We are on a lengthy journey, but this technology is genuinely disruptive and unprecedented, and we are very proud of the team that has achieved it. Thank you.

Your next question is from the line of Sumara Jain with UBS.

Hi, hey guys, congrats on the quarter. I guess I just wanted any color on how the partnership with Shell is progressing and if you guys have any updates on Tharaldson as well?

Yes, I'll let Leslie comment on our SFCT partnership. There's some exciting things going on there. Leslie, you want to comment on that to start?

Sure. So the process has successfully started up in New York and the first cellulosic ethanol has been produced. The process will now switch to really a one-of-a-kind opportunity, the DCO or what we call the second-gen DCO is the next in line to line out. So that's basically the previously unattainable corn oil. And then the last piece is going to be the alignment of protein. Once that all is up and running, then the process will switch to campaign mode and that's when we'll be producing more products for validation efforts on the protein side.

Thanks, Leslie. What was your second question?

Any update on Tharaldson?

Yes, Tharaldson startup, obviously it took a little bit longer than we wanted, construction took a little bit longer and we continue to debottleneck there, but we're starting to push towards the upper end of the rates that are available of the production capacity there bringing on that much protein on the market. We had to wait for customer approvals, but the quality of the protein is excellent. The toxin levels at Tharaldson are the lowest in the country, which is nice because there are certainly customers that wanted North Dakota product because of the absolute zero toxin in corn that is there. And so that's getting opening us new markets as well as the West Coast where we really did not have a freight advantage out of our terminals or out of our facilities to get to the West Coast. We're seeing some new demand out of there as well. So again, these are long games, but I think as we go to max production over the next several quarters, we're just excited about the fact that we have a really great product and as Sequence starts to kick in 2025. So more on that next quarter.

Your next question is from the line of Andrew Strelzik from BMO Capital Markets.

Hi guys, this is actually Ben on for Andrew. I just want to say congratulations Jim and to Phil as well. Jim, wish you all the best of luck there. So my question has to do with carbon capture. Can you just walk through the key milestones that we should be tracking in order to hit the second half 2025, $70 a credit target? Thanks.

We are closely monitoring the lead-time for our equipment order, which is on schedule according to the manufacturer, who anticipates delivering by the second quarter. We expect to begin construction in the coming weeks, which will be a significant milestone. Most engineering work is complete, and we have the necessary permits to operate in all our locations. Nebraska has a unique approach to carbon capture approvals, and we are receiving strong support from the state. We are also awaiting news about when Trailblazer will commence building their laterals, which will be crucial for our plans. We have air permits expected soon, typical for any construction project, with no anticipated delays. Our partner is tasked with ensuring the pipeline is operational and the laterals are constructed, as well as continuing work on Class 6 wells in Wyoming. The implementation of the 45Z rules expected early next year is also important to us, and we believe they will positively impact our operations. By the third quarter of next year, we aim to have the rules finalized to start sequestering carbon and earn the 45Z tax credit. Additionally, there's potential for voluntary credits and the LCFS credit. We are in the process of preparing to compress carbon by the third quarter, and we have confidence that our partner will be operational as well. The interest in low-carbon ethanol is increasing, both domestically and globally, which we believe will yield positive outcomes. We are also receiving inquiries about carbon credits, highlighting the significant undervaluation of our assets in the current share price. We expect this will have to change, considering the future cash flow potential these assets represent. The investments in corn oil and protein enhancements at our Nebraska plants further elevate the value of our asset base, which we believe is not accurately reflected in our stock price. By the end of this year or early next quarter, we expect to have nine out of ten plants approved for D3 RIN generation, contributing significantly to our capabilities. The corn fiber program in California also adds potential for earnings from carbon in the coming years. Our efforts encompass more than just carbon sequestration, particularly with D3 RIN generation and our capacity for producing next-generation ethanol. Every step we take leads us closer to our goals, and we believe we are on track to meet our targets by the third quarter of next year.

Hey, thanks guys. I'll leave it there.

Thank you.

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

Thank you very much. Firstly, I want to check a little bit on any update on Blue Blade energy. I think the plan was you test the SAF technology and if it works, you start construction of the power plant this year 2024. So where do we stand on that?

From our perspective at Blue Blade, we evaluated a partnership and several potential catalysts we could control, but we have decided not to move forward with that particular catalyst. There are other technologies available that can reach the market more quickly. Based on our experience with Clean Sugar and other protein projects, we understand that scaling up new technologies is a lengthy process. Technologies from companies like UOP and Honeywell offer a faster route to market for alcohol-to-jet fuels. Our main objective is to become a provider of low-carbon fuels, energy, and ingredients. Before we advance in the sustainable aviation fuel sector using alcohol-to-jet, it is crucial to decarbonize the alcohol. A key advantage for Green Plains is that we will have significant supplies of decarbonized alcohol available by the middle of next year, and that will be our primary focus. Building an alcohol-to-jet plant is not currently part of our strategy, as we believe we can generate considerable returns for our shareholders by being a reliable supplier of low-carbon ingredients and fuels.

Perfect. And I wanted to ask also what's kind of your view for ethanol exports next year and essentially demand from some key end-markets or key producing markets like Brazil and India given what's happening in sugar production among others.

We believe this trend will persist as we navigate into global markets that have raised their blend rates. Brazil has made this move, and other countries have followed suit. We are also making inroads into some European markets where the EU remains strong, and we are optimistic that this will gain momentum, particularly if we receive favorable developments from U.S. ethanol and its modeling based on outdated 20-year data. It's clear that we are producing more per acre than we did two decades ago, which lowers our overall carbon scores. Overall, global demand is still strong, and I expect that to remain the case since we are a cost-effective product. Currently, we are priced at about $0.40 to $0.50 less than wholesale gasoline at minimum, plus the benefits from the RIN in the U.S. Internationally, we are highly competitive, and we have demonstrated our ability to ship large volumes, which I anticipate will continue next year. Additionally, we expect to see an increase in blends in the U.S. as demand continues to rise, and recent driving patterns have been encouraging with good mileage reported in the last couple of months. If we can manage our stock levels as we approach year-end, I believe we have a strong chance for a favorable margin environment in 2025.

Perfect. Thank you very much.

Your next question is from the line of Kristen Owen with Oppenheimer.

Hi, thank you for taking the question. A couple here that I wanted to ask on. First is the protein margins. You touched on this being a little bit lighter than what you were hoping for that spread over traditional soybean meal, not quite where you want it to be yet, but as we look at some of the soybean crush capacity and the transition in the policy in 2025, how are you thinking about the premium for ultra-high protein as we come into this transition year next year.

It's really going to depend on which market we enter. As we expand our international presence, we often see a strong alignment with our expectations, typically within a few percentage points. Our demand for pet food is robust, and we've just renewed our contract with a long-term customer, increasing volumes for the first quarter of next year. We continue to fully access our 50 Pro product, with a new plant set to come online next year. There's a lot of protein entering the market, and while we've already seen a substantial amount, our spread has stabilized. Demand remains strong, but we'll need to observe developments from South America. While 14 to 15 million tons of soy meal sounds significant, if it arrives all at once, it could flood the market. However, similar to when ethanol production increased and added 40 million tons of distillers, I believe we will absorb this supply over time. It may take a few more quarters or up to another year, but we are still generating margins and returns on our investments. Although we have experienced some erosion in the soy to corn spread, that trend is likely stabilizing. We continue to produce and sell all our output. In the past, we’ve emphasized our ability to develop high-protein products, and we're currently pursuing even higher protein options. Leslie's team is making tremendous progress, and we're discovering ways to reduce production costs, which should enhance our margin contributions next year along with technological improvements that lower production expenses. It’s a learning process, but I’m confident that within the next 18 months, much of the incoming protein will be absorbed by the market. Additionally, there isn't a significant increase in soy crush capacity expected, and the current flow of supply seems to be more controlled, with investments being made in export capacity to help move some of this protein out of the country.

Okay. That's helpful. I was actually thinking there's some soybean crush capacity that's not coming on and potentially flowing. So that could be a tailwind for your margins next year as well.

Yes. We've seen some of that where projects were abandoned because of the cost versus the overall margin structure, and we believe that's happening as well that it will come on slower or not come out at all. And I think that will be helpful overall. And then we get into next year and let this RD market settle out and see where that settles out from the oil standpoint as well.

Super. So then my follow-up question, as you said, the $250 million to $300 million run-rate value of carbon just from those Nebraska assets, probably not baked into most folks models at this point in time, help us understand now that is becoming much more within the next 12 months timeframe, help us understand the mechanics of those credits, how you think about monetization of them, like what sort of tolling fees you might have to pay to use that pipeline? Just give us a little bit more granularity so that we can build that into our forecasts.

Let's begin by discussing the pipeline. We have an agreement with Trailblazer for transport and injection, which involves a fixed fee without sharing any potential revenue gains or credit values associated with it. Therefore, we pay a standard transport fee based on our established relationship with Tallgrass or their subsidiary, Trailblazer. It’s a straightforward arrangement. Our revenue will come from 45Z, 45Q, and various credits, including voluntary and LCFS credits. We've previously outlined our carbon score reductions at Central City, Wood River, and York, with a focus on the pipelines. I will elaborate on York shortly. Regarding the revenue aspect, we generate $0.2 per gallon per point from our starting carbon score for anything under a 50 score, which applies to the revenue generated from 45Z. Additionally, we're set to produce over 800,000 tons of high-quality carbon credits, potentially flowing into California's markets, allowing us to monetize through LCFS or voluntary markets. We have well-established markets for monetizing both 45Z incentives and carbon credits, and we've observed trades at 90% to 95% of face value, which is reflected in our financials. We plan to sell these credits and capitalize on them rather than using them internally unless necessary down the line, aiming for full revenue realization from these credits. We summarize our total revenue, applying a discount of about 5% to 10% to compute our net revenue, and then subtract our transport costs along with some operational expenses to arrive at our EBITDA figure. Now, focusing on York, it’s currently a 45Q plant because of its higher carbon score, but we plan to lower that score through low-energy distillation. We aim to have this technology operational within the first six to twelve months to enable the plant to qualify for 45Z, which would expand our revenue potential. After that, we will explore additional avenues for reducing our carbon scores to enhance our financial outlook. We're looking at 287 million gallons producing over 800,000 tons of carbon credits. We currently have interest from brokers in the market looking to take our credits or develop structures to monetize them right from the start. Interestingly, we could even begin selling credits before commencing carbon sequestration with a projected schedule. Generally, the demand for alcohol remains robust among alcohol-to-jet producers, and there's a strong demand for credits across tax credit markets, from large tech companies needing offsets to direct monetization into the LCFS market. Is that clear? Have we lost anyone?

No, we must have lost her. Operator, time for the next call.

Your next question is from the line of Matthew Blair with TPH.

Thanks, and good morning and congrats Jim and Phil on your respective moves here. I wanted to ask about the election risk to the IRA and the associated credits like 45Z and Q. I think the Wall Street Journal had a story yesterday talking about how a potential candidate for Treasury Secretary was talking about scrapping the entire IRA. What do you make of that? And how much does that concern you? And is there anything you can be doing today to potentially mitigate some of that risk?

I'll let Devin comment on that first, and I'll close off after that.

Sure. So thanks for the question, Matthew. We saw that article and there's been a lot of talk in this campaign of this Republican sweep of trying to eliminate the entire IRA. You recall that they tried to do this with the debt ceiling lift back in April of 2023 and there were seven Republican House members, all of whom had voted against the IRA who blocked that from happening as it relates to 45Z. So there remains bipartisan support for not only preserving but extending 45Z. Several bills have been introduced with both Republican and Democratic support to extend that credit. And you got to remember that there's now multiple industries that are interested in this. It's not just biodiesel and renewable diesel and ethanol, it's also sustainable aviation fuel because the 40B credit rolls into the 45Z. So we believe that regardless of the election outcome, there will be support for that program. And while some aspects of the IRA may be curtailed, if Republicans control all three corners, we think the prospects are bright for having that extended to have a much longer runway.

And one last thing, Matthew, regarding the 45Q, let's consider the worst-case scenario where 45Q remains the only program. If that were to occur, which we do not anticipate, it is not included in the IRA. Although it was expanded during the IRA, it is not fundamentally part of it. This is an important distinction. The 45Q program lasts for 12 years and commences when carbon sequestration begins. It remains effective for 12 years after that start date, rather than expiring in the next couple of years or within the next decade. It has been a permanent fixture in the program for a long time and includes a direct pay option for the first five years. While we would prefer not to rely solely on this program, as we see greater opportunities with 45Z, even in that worst-case scenario, revenue from carbon would be lower, but the project would still be quite profitable. Instead of achieving payback in under a year, it might take a year and four months, which is not a massive difference for us. However, having the 45Z is certainly more favorable, and we are confident it will remain in place.

Thanks. That's helpful. And then earlier in the call, there was some talk about Mount Vernon and Obion increasing capacity. What's the total capacity increases that you're expecting? And does that shift anything on your product slate? Would you expect to increase your exports as a result of that new capacity?

So Mount Vernon is complete. We've redone all the full conveyor systems among other bins and tanks and systems and processes, and that was needed. We're starting to ramp that plant back up as we speak, and that should add about 20 million gallons of yearly production run rate capacity there. And when we add gallons, we had pounds of corn oil and we add tons of protein on top of that, that has a protein system down there as well. So it's going to be all three components there. In Obion, we're waiting for a final construction of the RTO or instead of a TO, thermal oxidizer through a regenerative thermal oxidizer and that will allow the plant then to get back to the traditional run rate. That is another 20 million to 25 million gallons of opportunity per year as well. And that project should be completed in the first quarter of next year. That plant should be running at a much higher rate, but because of the longer-term effects of this piece of equipment, we haven't been able to and then we brought protein on. And now combined, it's just overloading all of the systems, and we're going to be able to get that back in line sometime, hopefully early in the first quarter of next year as well. So the two of those combined should add 40 million to 50 million gallons, about 40 million gallons of additional capacity that we bring online. But it doesn't necessarily change where we ship, it's just shipping more product to the same markets, and those markets are ready to absorb everything we bring on.

Thank you.

Your next question is from the line of Craig Irwin with ROTH Capital Partners.

First, I would say, congratulations, Phil, on the promotion, Jim, going to miss you. It's been great working with you these last many years. My question is around Clean Sugar. I wanted to ask for a little bit more color. So Todd, do you feel some of the projected economics that you've talked about these last couple of years are starting to be confirmed by the plant startup, and then if we rewind about a year, there was some optimism that we couldn't start seeing additional facilities once this plant was up and running. What do you expect to see out of Shenandoah, what do you need to see out of this plant to make a go decision to invest in the next facility? And can you remind us maybe on the CapEx and project returns that we should be thinking about?

We are very hopeful about this product and its production process. We plan to make significant improvements in a larger facility compared to what we did here, addressing earlier issues with some equipment. The engineering for the second plant will differ from the first, enhancing the asset's capabilities. Economically, our projections remain unchanged since we initially stated that the uplift would be between $0.67 to $0.87 a gallon relative to alcohol production. This still holds true, especially considering current sugar and sweetener prices, alongside lower corn and input costs. We expect further developments on additional facilities. It’s only been a week since we've started; we ask for a bit more time. We have already demonstrated that we can produce and ship the product, which will soon reach consumers for evaluation. While we still need to achieve food grade certification and optimize our processes for better product quality, our goal includes producing various dextrose equivalents to enter the food market. Before deciding on the second cereal or plant, we want to validate our findings. Based on initial results, we are highly optimistic about the transformative potential of this technology, not just in our operation but across the industry in the long term, though this won't happen in the next six to twelve months. We are still finalizing our capital expenditures, noting that while some costs have decreased, others have risen, and labor remains a hurdle in construction. Furthermore, long lead times for electrical gear are significant challenges due to high demand from data centers and other sectors. Nevertheless, we are successfully implementing what many thought was impossible in dry grind facilities, thanks to Fluid Quip's innovative technology. While there is still work to do, we remain very optimistic about the future of this technology as a whole.

Thank you for that. My follow-up question is actually two parts. First, can you share the sales mix of high-pro products, specifically the 50 versus 60 Pro, as we exit the year? What do you think is a reasonable target for Green Plains in 2025? Second, regarding the promising economics at high-pro, can you provide an update on the partnership with Novozymes and any developments we should anticipate in the upcoming quarters?

I'll start by discussing our efforts regarding product and nutritional quality and collaboration with our customers. We have ended our agreement with Novozymes. This decision was made quietly while we worked on multiple products and opportunities together. The partnership between Green Plains and Novozymes has been remarkable, particularly in developing higher proteins and various nutritional characteristics. We are pleased that our pet food customer has begun to renew for 2025, and we've just completed the first quarter with higher volumes for that year. We are excited to collaborate on different recipes with Novozymes, including generating D3 RINs. Over time, we've evolved our technologies. Initially, we focused on incorporating protein everywhere, but with the IRA, we're now investing in carbon sequestration for significant returns. I'm confident we'll keep developing protein systems in the market since we have a unique product tailored to different species that yields interesting results. We're working with major pet food customers on 60 Pro inclusions for 2025 and anticipate a substantial increase in demand from this year to next. Currently, we are producing and shipping 60 Pro products globally. As we often say, it takes longer than expected, but our team has done an excellent job securing placements for the product, and we're still collaborating with large pet food clients to integrate 60 Pro into their systems. It's crucial that we ensure consistency in our product delivery from all locations, which led us to invest in Wood River and Central City for reliable shipping. We're also exploring new markets in Asia and South America and expect volumes to rise significantly from January through June, with a substantial increase starting in July next year. We have promising opportunities for additional volume sales without negatively affecting other operations, which will have positive impacts. Overall, while everything tends to take longer than anticipated, the demand for our product is strong, and we're poised to make significant progress in the 60 Pro market next year. Leslie can share more about our quality initiatives.

Sure. Yes, as Todd mentioned earlier, I think you're kind of looking at a bookend where we're looking at consistency on the product side by really making sure that that is where our customers can actually go to increased inclusion levels. And then the other side, which was already mentioned, is really the cost reduction. So that's been an opportunity for us to really tailor the use of our biological system to fine-tune it. On top of that, the team has been working on increased protein concentrations, which is again almost a third-generation product that we're working on. But I think the main focus has been between that consistency and the OpEx reduction side.

Excellent. Well, thanks again for taking my questions, and congratulations on the really strong crush margins this quarter. It's good to see those come through.

Thank you.

I would now like to hand today's call back over to Todd Becker, CEO, for any closing remarks.

Yes, thanks everybody for jumping on the call and participating in today's call. Our teams continue to execute at a high-rate. We look forward to sharing our continued progress with you in the coming months. We also want to make sure that we provide you with the information you need to make the best decisions around our company. And as you can see with our carbon strategy, which is very unique and very advantaged and very early in the cycle is going to be providing significant what we believe shareholder value creation. On top of that, all of our products are starting to kick in, and obviously, when strong margin environments exist in the base product of fuel, which we believe will start to ramp back up as we get into 2025. I think we're well positioned to capitalize on all that we have invested and all the strategic advantages that we have as a company. And again, we wish Jim best of luck. And Phil, best of luck in his new role, and we really appreciate your support. And we look forward to talking to you next quarter. Thank you for everybody being on the call.

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