Earnings Call Transcript - GPRE Q4 2024

Operator, Operator

Good morning, and welcome to the Green Plains Inc. Fourth Quarter and Full Year 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. I will now turn the call over to your host, Phil Boggs, Chief Financial Officer. Mister Boggs, please go ahead.

Phil Boggs, CFO

Thank you, and good morning, everyone. Welcome to Green Plains Inc. Fourth quarter and full year 2024 earnings call. Joining me on today's call is Todd Becker, President and Chief Executive Officer. There is a slide presentation available and you can find it on the Investor 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-Ks, Form 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now, I'd like to turn the call over to Todd Becker.

Todd Becker, CEO

Thanks, Phil, and good morning, everyone, and thanks for joining our call today. As part of our ongoing strategic review, we have executed a number of actions designed to improve our operating performance going forward and set ourselves up for when carbon comes on later this year in order to realize the maximum benefit from our protein oil and carbon footprint. Over the last several years, we invested significant capital to get our new products to market, and the time has come to rationalize those costs among other decisions we have made. To accomplish significant cost savings and margin expansion, we took the necessary step of reorganizing our corporate and commercial functions to streamline and enhance our agility and resilience and improve alignment around our core strategic focus. We have identified up to $50 million in annualized cost savings, and based on the actions we have already taken this week, we executed on the first $30 million of improvements. This included a move to a smaller corporate workforce, winding down some of our innovation platform, attacking SG&A expenses, having a smaller executive leadership team with a number of executive departures, and lastly, looking at everything we do across the board that does not make us money. This was our natural move from innovation to commercialization including rationalization. We knew this day would come. As a result, we may incur a small one-time restructuring charge in the first quarter which we do not believe will be significant or material. As part of this as well, in January, we made the difficult decision to shut down a 120 million gallon facility in Fairmont due to market conditions. It is not just the macro ethanol market, but the acute issues stemming from the flooding last spring in southern Minnesota that resulted in a short corn crop and elevated basis levels in that area, which we think will last throughout the year. We are keeping a skeleton crew to perform maintenance on the facility while it is in cold idle for the foreseeable future. The plant also needs a new upgrade to the grain handling and drying systems, and permitting in Minnesota is just a long slog. If market conditions dictate, we can always bring this production back online, but we will be careful and thoughtful on this decision, and we are still planning for carbon capture to be in place at this plant, but we will talk more about that with regard to carbon later in the call. Now on to the quarter. We reported a net loss for the quarter of $54.9 million or $0.86 per share. One thing I want you to notice, though, is we took a non-cash income tax charge making our number look worse. Phil will talk about the settlement later in the call, although we were disappointed that our EBITDA was negative for the fourth quarter. Yet in full 2024, the company earned $44.7 million in EBITDA positive for the year. Still a disappointing result. Phil will review all the specifics shortly. Again, when we look at EBITDA for Green Plains, the SG&A that plagues us is being attacked as we speak, and we cannot continue to be set up to burn our SG&A like we did this quarter. Our standalone assets performed to the market standard at many of our locations or even to sit at the top of the market stack, yet our centralized structure was too large for a smaller production footprint. And that is why we announced the restructuring today. I could spend all day talking about the deterioration of the ethanol margins. You have heard it many times across industry earnings calls already. Market fundamentals were weak with high levels of production and elevated stocks, with the one bright spot being strong exports as we are on pace to set a new record this year of approximately 1.9 billion gallons, and we expect 2025 to exceed that. We were largely unhedged and open to the crush going into the fourth quarter, which was the wrong choice to make. As many of our shareholders have voiced concerns with our hedging programs, this quarter would have been the time to hedge. As we enter into month two of 2025, the market has remained under pressure. Yet, when you look at where we have been historically, in Q1 at this time, the forward curve is in better shape and positioned than is typical for this time of year. But we need to see either an increase in demand or a decrease in supply or both. We are watching planting intentions closely, and we believe the setup for favorable industry fundamentals is in place, although the US global market remains very tight on corn. So the US farmer will need to act on putting serious acres in the ground; otherwise, we are setting up for a higher priced corn market in the future. Despite having extended seasonal maintenance at Mount Vernon during the quarter, which we said was coming on the prior call, we achieved an operating rate of 92% and expect to continue to operate in the mid-nineties after the exclusion of Fairmont. Our plans to continue to operate better every month, and we are also focused on reducing our OPEX per gallon as well as with many programs that are being kicked off. There continues to be a track record for strong corn oil yields, and yields at our MSP plants continue to push the upper end of what is possible with corn oil, even exceeding 1.2 to 1.3 pounds per bushel. Ultra-high protein yields were also in line with prior quarters, and we are constantly making improvements in the process at our MSC location. The overall volumes were lower than the record levels due to the decision to take protein downtime in the quarter at Wood River to rebaseline that plant in anticipation of carbon capture coming online later in the year. While the overall protein complex is under significant pressure from oversupply due to expanded domestic soy crushing capacity, it is becoming a bit ethanolized in that industry. There are definitely some bright spots as we move from innovation to commercialization. Just last week, we sold one of the largest aquaculture companies in the world the largest amount of quantities we've sold to date. This will be converted to both vessel and is repeat as we expect. Into South America of 50% protein, which is the result of three to four years of work. We see growing interest in our 60% sequence product from those same customers and others abroad as global tightness in corn has resulted in a tightening corn gluten meal market into destinations, and the replacement product is our sequence. We are determined to keep this position as a premium product and not let it be commoditized, and we are pricing it accordingly. Our legacy pet food customers extended their contract with us once again, and we continue to focus on the growing market share in premium markets with our team and distribution partnerships on pet food. The progress on carbon has been exceptional. The rule making is supportive to our company and shareholders, and we remain on track to begin capturing biogenic CO2 in the second half of this year. With these policies in place to support not only our decarbonized ethanol but our low-carbon renewable corn oil as well. We continue to believe that the value of our net Nebraska assets is not reflected in our current share price. Carbon earnings are to begin later this year and will fundamentally transform the earnings power of our business and our valuation. We are hearing and seeing individual transactions at a much higher multiple and per-gallon valuations than traditional generation one plants without carbon capture. Our enterprise value is reduced based on the potential market for our decarbonized gallons; the Nebraska assets are worth more than our market cap alone, and it makes absolutely no sense in between that and our SG&A rationalization. It sets us up for a significant rerate once again, and we are looking forward to that. Now I will hand the call over to Phil to provide an update on the overall financial results. I will come back on the call to provide additional color and outlook on what we just discussed, as there are really a few important factors to consider as we move forward together.

Phil Boggs, CFO

Thank you, Todd. Green Plains consolidated revenues for the fourth quarter were $584 million, which was $128.4 million or approximately 18% lower than the same period a year ago. As it has been the last couple of quarters, the lower revenue is attributable to lower market prices experienced for ethanol, dried distillers grains, and renewable corn oil, in Q4 of 2024 as compared to the same period a year ago. While we have seen a decline in our commodity inputs with corn and natural gas down significantly, the margin opportunity was significantly weaker for the quarter compared to the prior quarter and the prior year due to market oversupply, as Todd has talked about. Our plant utilization rate was 92% during the fourth quarter compared to the 95% run rate reported in the same period last year. For the trailing four quarters, we have averaged a 94% utilization rate, and we anticipate our operating plans to continue to perform in the mid-ninety percent range of our stated capacity for the first order, excluding the impact of Fairmont being idled and barring any events outside of our control. For the quarter, we reported a net loss attributable to Green Plains of $54.9 million or negative $0.86 per diluted share compared to net income of $7.2 million or $0.12 per diluted share for the same period in 2023. As Todd mentioned, we had negative non-cash tax adjustments to the quarter that impacted EPS. EBITDA for the quarter was negative $18.9 million compared to $44.7 million in the prior year period. Depreciation and amortization expense was lower by $2.9 million versus a year ago, at $21.4 million. For the fourth quarter, our SG&A costs for all segments, including our plants, was $25.6 million, $7.2 million lower than the prior year due to lower personnel costs and adjustments to incentive accruals. Remember, this includes our plant assets, and the rationalization was almost all around our non-plant costs. Interest expense of $7.7 million for the quarter, which includes the impact of debt amortization and capitalized interest, was $0.9 million favorable to the prior year's fourth quarter. This decrease compared to the prior year was primarily due to lower loan balances associated with the payoff of the Green Plains Partners debt retired in the third quarter of 2024. Our income tax for the quarter was $7 million compared to a tax benefit of $0.3 million for the same period in 2023. As both Todd and I outlined in our earlier comments, during the quarter, we reached a settlement in principle with the IRS Independent Office of Appeals regarding our R&D tax credit for the tax years 2013 through 2018. Due to the agreement, we booked $6.2 million of tax for the year to increase our reserve for unrecognized tax benefits related to the R&D tax credit issue, net of our valuation allowance. At the end of the quarter, the federal net loss carryforward available to the company was $124.3 million, which may be carried forward indefinitely. Our normalized tax rate on a go forward basis is around 23% to 24%. Our liquidity position at the end of the year included $209.4 million in cash, cash equivalents, and restricted cash, along with approximately $200.7 million available under our working capital revolver; a bit weaker due to the margin structure in the quarter. For the fourth quarter, we allocated $27 million of capital expenditures across the platform, including $6 million to our clean sugar initiative, about $7 million to other growth initiatives, and approximately $14 million toward maintenance, safety, and regulatory capital. On a year-to-date basis, we have incurred capital expenditures of $95 million, in line with our prior estimates. We anticipate plant-related CapEx for 2025 to be in the range of $20 million to $35 million, as we have most of what is needed at this point for our platform. This range excludes the remaining balance of the approximately $110 million in carbon capture equipment needed for our Nebraska initiatives, as we have financing in place to cover those needs. Now I'll turn the call back over to Todd.

Todd Becker, CEO

Thanks, Phil. Let’s walk through high points for our 2025 initiatives that we want you to focus on. In carbon, major milestones continue to be hit. The Tallgrass Trailblazer Project has acquired all the necessary rights of way reach our three Nebraska that we anticipate will be capturing carbon in the second half of this year. Construction of pipeline laterals commenced 2025 and remains on track to be completed late in the third quarter or early fourth quarter. We have spent significant time and effort to outline to you the financial benefit of this project, which continues to hold and could be better under the new rules. First, the proposed rule could not have come out more favorably for Green Plains. Had we been drafting it ourselves. While not a final rule, it was printed in the IRB, the Internal Revenue Bulletin, and taxpayers can rely on it until such time as treasury or congress would act. Our DCO has the lowest score among all the feedstocks for renewable diesel. Used cooking oil imports are no longer allowed for surface transportation fuels such as hard renewable diesel, biodiesel, and with the import of finished fuels also not qualifying under this producer credit, which is approximately one billion gallons annually. We anticipate a material appreciation in domestic vegetable oil values related to oil. Had to become to see this premium materialize for our corn oil. As we have a lot of it. The clear winner here is ethanol with carbon capture, a thirty-two point reduction for plants that are able to execute near term, which presents a clear advantage for our Nebraska footprint as we have reiterated to you, and this translates to significant cash flow materializing later this year. With narrow margins in the house and senate, we believe it is unlikely to forty-five z is eliminated in a reconciliation package, and a lot of work is being done to get it extended. Green Plains has completed the facility registrations for our clean fuel production credit for our advantage Nebraska strategy. So to close, our outlook for the annualized run rate financial contribution for Carbon across our 287 million gallons in Nebraska footprint is on track for at least $130 million using a $70 per ton private credit carbon credit value. This is net of operating expenses and the tolling fees on the pipeline, as we are continuing to discount even for monetization. We have seen the strengthening in the distillers corn oil market since mid-December since the guidance and the model were released. We have the capacity to produce around 300 million pounds of corn oil annually; with Fairmont down, every ten cent move in its value is another $30 million in EBITDA, and we have seen that help our forward margins. The state of Minnesota has granted permits for the summit pipeline to reach our Fergus Falls. Even though they won't grant us a permit to build temporary grain piles, we remain optimistic and hopeful that that project will make progress on permitting in 2025. Let's talk about clean sugar. This exciting project can now make InSpec sweeteners for use across a wide variety of food and industrial products. The wastewater channel remains as we have outlined, and we can only run the planet about a third capacity while we design a solution for either dealing with it on the back end, the front end, selling all industrial products that skips CI and exchange process. Yet, leaves beneficial nutrients for fermentation. In the meantime, we have received kosher and halal certification, and the food production license has been approved in the state of Iowa, which was the major hurdle to finalize our FSs or food safety certification certification audit. We expect approval any day now. The technology is disruptive and a breakthrough. The next build will either be standalone, co-located, either at a wet mill or a dry mill, expansion of what our current wet mill can do, or all of the above. We're also testing a front-end system used globally to not have wastewater solutions over the next few months, at which time we can choose our best path to a hundred percent capacity. Again, it is not a technology issue. This has the same potential we discussed in the past. We continue to remain very excited about our successes so far. Unlike many technologies that have been developed around our weather, around alcohol to jet fuel or cellulose gas, we can actually make a product. We can sell it once we get our last certification. Few technologies, as you know, are not easy to stand up, yet our team has done an amazing job getting to a point where we are very close and know where the last step has to be addressed. But we need to be certain of that step before we put the last capital in. As noted earlier in the call, we had lower production volumes of ultra-high protein during Q4 at our Green Plains plant due to the major project at the Mount Vernon ethanol facility we told you about last year, as well as taking down Wood River to baseline the plant so we can understand the true total plant opportunity when carbon starts up. Margins remain under pressure in the protein space due to the availability of cheap competing project ingredients. Yet, we did generate positive EBITDA at all of our plants last year in the protein investment. While paybacks are taking a little longer than expected, we know that markets move over time. We are starting to see a better uptake of our products globally that traded a premium or potentially get sequenced off the ground, as discussed earlier. We continue to increase our sales to domestic pet and international aqua customers, our key target growth areas. While we are still making adjustments to our production process for sequence, we started to increase production due to the demand and anticipate growing our sequence business substantially in 2025. We have also debottlenecked the ability to make sixty percent protein on the fly as our last run and current run that's taking place at Central City has little or no impact on plant operations as we have cracked the code on the biological formula to do this, and we'll try and roll out these findings across the platform. What we learned in Q4 last year is that it's time to move on from investing in getting products to market acceptance and now try to fully monetize what we have done. This cannot be done without making the hard decisions on SG&A and assets like we have announced, as we have set ourselves up for the remaining 2025 and the imminent start-up for Carbon. Our investments have been made, and we have very limited CapEx going forward other than Carbon, which does not use our balance sheet cash. We will focus on executing on the total $50 million of savings identified, monetizing carbon, simplifying our structure, reducing or eliminating term debt, reducing our OPEX per gallon, and continuing our strategic review as our complexity will be significantly reduced, and we will be a much leaner and simpler company as carbon and protein earnings along with baseline corn oil cash flows reposition our company for the future. Let me reiterate on the last point. When we look at our current asset base, most of our plants standalone generate EBITDA positive or significant positive EBITDA at places like Central City, Obai, and Shenandoah. Wood River, as we had carbon, adding carbon to Nebraska, and those plants will be some of the highest margin plants in the country starting around Q4 or late Q3, has been shut down for now, which will position our stack better. Mount Vernon and Madison are now once again back at rates, even record rates after significant improvements. As we look forward, we must reflect Back at what worked. We focused on aggressively driving significant efficiencies across the organization, including in our corporate and trade SG&A as we work to deliver the $50 million in cost savings we outlined this morning, and we will once again be targeting two to three cents a gallon as per gallon of SG&A at corporate and trade, as we are taking action to get there from our current eight to nine cents per gallon. We took our first steps this week and expect to be aggressive in the next sixty days on our goals. Add it up, we will use 2025 as the year where we position Green Plains for earnings power. As we've outlined in the past, thank you for calling and thank you for joining our call today. We can now start the Q&A session.

Operator, Operator

Thank you. We will now begin the question and answer session. We ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Craig Irwin from Roth Capital Partners. Line is open.

Craig Irwin, Analyst

Good morning, and thanks for taking my questions. So, Todd, the last several years, you've had a bunch of initiatives to take out cost, like project 24. I know we don't have to go through the list. This $50 million is a big move, and $30 million already implemented this week. Can you maybe get granular for us? Where is this coming from and how does this cut into the overall profitability of the platform?

Todd Becker, CEO

Well, what it does is increase the overall profitability. Listen, we spent the last four years focused on innovation and getting our products to market. We have reached the point where we have penetration in the markets that we want to go, and now it's more around commercializing and marketing and trading those products correctly and then obviously rationalizing those costs. We really don't need to feed fish anymore. Our customers have accepted our products. They've used our products. We've had great trials in Norway with salmon, and those were great results. We consider this to be a gold standard product. Once that was finished or getting close to being finished, the market understood the premium of our products. I think another thing that's really helping us right now is the global tightness in corn where corn gluten meal prices have continued to increase globally. But look, what we did is we invested a lot of money to get our products to market. We invested a lot of money in innovation research, and, in one full swoop, this week, we decided we were going to move on from that and just focus on expanding our margin structure, reducing our SG&A costs all around that. While keeping a core group focused every single day on making money.

Craig Irwin, Analyst

So then just a follow-up on aquaculture. This was one of potentially most attractive markets you could sell high-pro to over the next number of years. We always expected it to take a while to get in there. You know, can you maybe talk a little bit about your projects in South America? You mentioned in the prepared remarks, do you need to feed fish yourselves to continue to penetrate these customers?

Todd Becker, CEO

No. In fact, we've made the penetration. We have sold our first largest quantities, which could be actually converted now on a little bit more volume into bulk quantity shipping on a vessel, which is the first time we've been able to achieve that. If we can get some of our products out of the United States in a week, we have a protein market we have here to service customers that are looking for different characteristics and feeds than traditional soy proteins or soy protein isolates. It's really what we're replacing now in the world, as well as the corn gluten meal market. But it took us three to four years to get to this point. I would say while certainly in a weaker global protein market, we would have liked to see it higher than we are today, it will start to pay dividends for us and our shareholders in the future. This took a lot longer than we thought, but again, we had to be patient. We had to invest the capital to get there. We had to show our customers we understood what the use of our products would be for them, and they had to do their own testing. You have to go through a two-year full cycle to grow salmon. Those are some of the things that we were dealing with. And while frustrating to all of you and to all of us, we're starting to feel better about this opportunity, and we felt at this point, we basically won full swoop. We took care of much of our innovation and research platform. As we know now that our products are commercialized, and we're really excited about the future of that. We have a great team that positions us for that. But I think at this point, we're going to focus on making money.

Craig Irwin, Analyst

That sounds good. So my last question, if I can squeeze another one in. CCS sounds like it's tracking right to schedule. Can you maybe talk a little bit about where we stand with the delivery of equipment and the pipeline interconnects? When could we possibly see first EBITDA off these projects? Other details you could share with us would be helpful.

Todd Becker, CEO

Yeah. Look, our current service date is somewhere in late Q3, very early Q4. Chris and the team are heading out to Ohio next week to take a firsthand look at our compression equipment being built to make sure that we remain on track. We're not the general contractor on the project. Our partners at Tallgrass, who own the Trailblazer project, are fully focused on breaking ground very soon and getting the building stood up. If you come across Nebraska and you drive around our plants and other plants, you'll see that laterals are being laid right now, and construction is fully underway. So we could attack the first couple years of forty-five z.

Craig Irwin, Analyst

Thanks again for taking my questions.

Jordan Levy, Analyst

Morning, Alan. And thanks for all the details. Maybe just following up on Greg's question. Just now, I'm kind of level setting where you all stand. I appreciate the commentary you gave on the protein side of things. But if you could just talk to that in reference to sugar, given or CST, given it's still kind of earlier in the rollout of that. I'm just curious how you're thinking about that in terms of the cost initiatives?

Todd Becker, CEO

Can you follow up with some clarification on what you're looking for in the answer?

Jordan Levy, Analyst

Maybe a little more. Yeah. Just kind of the level of detail you gave around protein. I'm just looking at something similar in terms of where about where market development is in CST.

Todd Becker, CEO

Okay. Yeah. Thank you. Now, look, I don't think we're gonna be short of customers. We are waiting for food safety certification that we have already sent some of our products to beverage makers, food makers, industrial users; everything from insulation to pancake syrup and everything in between. I think you could assure you our sales group and our marketing group has spent significant time with customers, and now it's just really waiting for us to get the proper certifications. And with our partners, get the comments for yeast so that we, when we make halal and kosher as well, we're inspect and that's coming probably in the next week when we start using the yeast in our process. Look, I think one thing we have to realize is that running at a third is not the best economic thing for our shareholders. So we will probably move to more of a campaign program where, when we make a sale, we'll make the product and we'll start it back up and running it twenty-four hours a day, three hundred sixty-five days a year. At that rate, we can make more money, making, running Shenandoah at full rate on the grind side to make alcohol and sugar and, sorry, alcohol, protein, and oil. We're gonna go more in a campaign mode here, and, because we know we can make it, we gotta get that food safety certification, but I think the last clear path on that was getting our Iowa food processor certification. That has been approved, which I think continues to show the validation of our technology and that it works. We can make products on spec that can be used in everything from beverages to pancake syrup to industrial products, and we're there. It's really now just a function of what we expected the capability of the local wastewater treatment plants to be able to take our products. They are focused on building a new one right now, and so we have to focus on how do we get this plant up to a hundred percent. In the meantime, we're in significant discussions with other potential users of this technology, both domestically and global. We have interest in collocating or licensing our technology globally in countries like Brazil and Europe, as well as, even in the United States. Since the beginning, even before we acquired FlueEquip, they had interest across both wet milling and dry milling for their technologies as a bolt-on to expand their capabilities. As you see with other results that are out there, sugar margins and sweetener margins have not really gone down. With everything else, it's not an oversupplied market, nor do we anticipate that anytime soon.

Jordan Levy, Analyst

Appreciate that. And then just for clarification, $30 million of the restructuring this week. If I’m sorry if I missed it, but did you kind of give a timeline to get to that $50 million? Is it should we think year-end or something like that?

Todd Becker, CEO

Star, we want to try to be there within ninety days on an ongoing $50 million run rate. So our phase two starts Monday. Phase one was this week. We resized our corporate and trade infrastructure and SG&A. Several senior executives have departed the company as we had indicated, in addition to the significant downsizing of our innovation platform at the York Innovation Center, our optimal feed mill, our labs, as well as our aqua lab. I think the most important thing is we had to get our products to market, and it all cost a lot of money, call it sales and marketing or marketing, advertising, promotion if you were a food company, maps spend, but we're not spending any more on that at this point. I think our products have gotten what we needed to this point. No. That was our first action this week. We start on plan B, or the phase two on Monday, and we want to try and get this all wrapped up within ninety days.

Sumara Jain, Analyst

Hey. Good morning, guys. So DCL getting a score of thirteen, soybean oil getting thirty-eight, and we expect corn oil to trade at a, you know, four to five cents per pound premium to soybean oil? How are you guys looking in the past?

Todd Becker, CEO

Yeah. Thanks for that question. And by the way, that is the bid today. I think we would have no problem selling four to five cent premium to soybean oil at the ongoing market at this point based on the value of the advantage feedstock that we have today. So we're seeing indications like that already. We're seeing the market trade like that already with an oil at forty-five cents. I think fifty cents is not a hard value to trade today for our product. If you think about it, even since the last call, we are probably in the high thirties, low forties over the last couple of calls starting to increase the bottom of or off that market in the soybean oil. Look, that soybean oil market is tight globally. We just have to rationalize some things going on here. But for us, we're seeing opportunities like that, and I think one thing is also really important for our product, every one of our plants now is now Corcia certified, and we even get a premium for that. That means you can use our products to produce products for for European jet fuel markets and fuel markets. So that is another thing that we were able to achieve during late last year and early into this year, was all of our plants are now Corcia certified, eligible for even more value, including Shenandoah. So yeah, we're excited about this opportunity, which we wish was eighty cents a pound. It would change the margin structure significantly, but I think that we are seeing these soybean oil market bottom out, just based on what we're seeing globally in domestic vegetable oil pricing. But overall, we're really optimistic about our placement of our low CI product in the markets like renewable diesel and Corsia markets.

Sumara Jain, Analyst

Got it. Thank you. And then how are you guys considering tariffs under Trump and the impact on your production, maybe with BCO and Chinese Pride Eagle in particular? You know, if you look at the first action, which is the Chinese Yuko situation. I think that is a really beneficial thing first and foremost, and that was a good thing to happen for our industry. Yeah. We're gonna have to take it day by day, step by step. The Canadian fuel market's an important market for us, but if you looked at some of their real their proposed retaliation did not include ethanol. I think when you're talking about motor fuels around the world that has certain requirements, a lot of times when you blend ethanol, you've changed the base fuel around, and you just can't change that overnight. So put the tariff on or not put the tariff on; people are still gonna buy our alcohol to go around the world. We have a low CI product and I think we're gonna still start to see even more interest in our products as we sequester carbon and even getting a lower CI ethanol and continue to focus on that as well. So you know, we'll take it day by day. If we put tariffs on our products and then we get a tariff on Mexican, you know, Mexico to take our corn; obviously, we'd have to weigh that. But, you know, a cheaper corn market wouldn't be so bad for Green Plants today or in as we've seen the corn market rally. That all hasn't been able to keep up. We gotta get through this winter doldrums of high stocks, and we've been here before. We're starting to see a little bit of a slowdown, although we had elevated production this week, maybe catching up a little bit. But we're gonna have it flow, and you know, the tariff situation is, we've been doing this a long time. Ultimately, it becomes a zero-sum game.

Adam Samuelson, Analyst

Morning. This is Adam Shepherd on for Peron. Thanks for taking the question. Just in terms of the updated greet model, and you mentioned that's essentially like, y'all wrote it for your assets. Can you just give some more color in terms of how much of an incremental benefit you expect to see versus your previous expectations, and how that might impact your, you know, longer-term margin potential?

Todd Becker, CEO

Yeah. I think when we look at our assets and we look at the new modeling, we've kind of gotten really excited about it because the starting points are lower. In fact, even York, which has a different type of plant, is eligible for forty-five z now and not forty and it is leaving the forty-five q behind for a second here. So that gives us courage to even look at low energy distillation there as well, which is something we're focused on. The starting point was even better than expected, which gave us more confidence that we'll be able to achieve our numbers, and we haven't really changed so much with the guidance that we have, except to say that if you actually did the math, you would see that those numbers are even higher based on degree model. But I think we want to be conservative and say, look, this is just validation for what we have been saying. We even have more confidence in our numbers today. We are working on now finalizing agreements to get our credits and our voluntary credits are voluntary carbon offsets to market as well. In addition to looking at the tax situation, tax credit situation where we can help to use those forward cash flows to help monetize. Again, our goal also when we look at all of this is to get our term debt paid off sometime here by either looking at, you know, the situation we're in with carbon or other aspects of cash flow generation as well as looking at our stock price as well, I think that's gonna be important, as we start to generate free cash flows from these projects and look to say where is the best place to allocate capital, and what's the most accretive to our shareholders as we get to later in the year. The overall is it was positive both from corn oil and carbon, and when you add those two together, I think it's very beneficial for Greenpoint shareholders. It doesn't show up this quarter because we had a really weak ethanol market that we were coming off of with a bunch of oversupply, but this is why we're doing what we're doing. By the way, part of the $50 million we identified was shutting Fairmont down. Fairmont would have cost us almost $10 million if not more, and part of that was we have to make decisions to do what is best for our shareholders. In the past, maybe we would have run a plant like that to wait for a better margin structure. That game is up, and we're gonna focus on absolutely every aspect of what we do, every line item on what we do. Starting with SG&A, going through our cost to get products to market, looking at our assets to say what's gonna run or not run. We're not gonna run and lose money anymore. So, we're just gonna take actions and we're gonna make them swift and very quick.

Matthew Blair, Analyst

Thank you, and good morning. Had a few questions on the forty-five z. Good morning. I have some questions on the forty-five z in regards to your carbon capture efforts. The one you mentioned that it's unlikely the forty-five z will be repealed. Is it fair to say that that's a shift in sentiment relative to perhaps earlier in the year? If so, could you talk about what gives you confidence on that? And then two, to monetize the forty-five z, you'll need to find a buyer on the other side. Right? And so could you talk about, are there any concerns that the forty-five v would technically be in place, but it might be hard to find a buyer? How would you go about monetizing those credits? Thanks.

Todd Becker, CEO

Yeah. I mean, it's a tax credit. So I think finding buyers who can buy tax credits, and we've seen some potential opportunities that allow them to, you know they're gonna trade at a bit of a discount anyways and they have, but we've seen a good market for these types of credits start to avail and we've seen those marketed today. Part of it is it's a combined package between credits and offsets, and I think we have both. I think it'll be really interesting, because the market hasn't been able to source these high quality gold standard credits and volume to help carbon offset programs that are still active at companies, no matter what we think about some of these programs. People still have their targets, and certainly, there's still a market for these. These are tax credit offsets, so really when you're looking at and they're trading not at a hundred percent. So, in our models, we don't show them trading at a hundred percent. So we're being conservative from that perspective. Look, we had a lot of profits; we would have to find markets for our tax credits. We just use them. We don't have those today, but we expect to have those in the future, so we gotta work through our NOLs first. But ultimately, some of those could be used ourselves to offset tax obligations. So I don't think that'll be a hard thing to market, and then we get the offsets. Look at LCFS markets today. California, Oregon, and other places. Oregon already has a CCS pathway for LCFS. But that'll be an important market especially for early gallons that come off that, and California will take a couple years after that. So we have kind of a baseline market for what carbon offsets are worth, and that's in the LCFS market. We also have customers that want to buy the tax credit and then buy the offsets and using those savings to buy the offsets and achieve two things. You gotta remember, forty-five z is not necessarily reducing your carbon offset. It's just reducing your tax liability if you buy it. So tax credit markets are very active. In our view, I don't think we'll have any trouble from that perspective.

Matthew Blair, Analyst

Sounds good. And thanks for the commentary on just the current margins and trends into the first quarter. We're looking at head to ethanol utilization that last week was ninety-five percent. The three-year average for this time of year is closer to eighty-seven, eighty-eight percent. Is it fair to say this is more of a supply problem, and are you aware of any industry upcoming turnarounds that might help knock down this utilization figure?

Todd Becker, CEO

Yeah. I mean, this is the time of the year that it's nice and cool out, and we could run the whole industry could run their plants full out. Cooling capacity has always been a bit of a bottleneck here, which is during the hot months and the summer months during driving season. Which is why you see a little bit down a little bit of a downtick in utilization, only because when it gets warmer and hotter out there, you can't run your plants as efficiently. So know, where we're at right now, blends work really good. Gas demand's pretty good. We just need to get through these winter doldrums, get to driving season. Coming out of these winter doldrums, keep exports, and we think they could exceed two billion this year. As long as obviously, we'll have to watch tariffs and everything like that. But the demand for our products is really good. E-fifteen potentially as well will give us a little bit. Look, that's gonna be a long game. We finally have what we need, but it's still gonna be a long game to get to full utilization. One percent E-fifteen uptake in addition to everything else would take us to an E-eleven point which would clear the surplus. So it just takes a little bit of moves here on top of everything else. And I think when you kind of look at where we're gonna, yeah. Even though we're in the middle of the winter doldrums, getting to the driving season will be great. Gas demand is good. Weather has been, you know, been pretty clear for people to drive. We saw that in the blends. I think you're right to look at it that way. And I think if that was happening in May or June or July, margins would be significantly different than they are today. Just because we're in the middle of winter, it's running at a, you know, ten fifty to eleven twenty pace. It's gonna be a little bit hard to draw stocks yet, but when we draw, we expect them to draw fast and furiously, especially with ramping up this export program in twenty-five. Thank you. Thanks.

Salvator Tiano, Analyst

Yes. Thank you. Firstly, I want to ask about the high-protein business. The production level was pretty much the lowest I think quarterly since you added capacity in earnest. And you mentioned the Wood River with baselining, but I'm not really sure understand what that means. And given all the discussions about the ramp-up of demand throughout the year, I'm still not really sure why things shouldn't have been much more favorable, that you should have increased your production rather than, you know, as you said, do this re-baselining. So kind of explain to us this. And also, how are sales actually in the quarter? Because, obviously, you report the production, but were sales actually higher on a quarter? Did you actually bring higher premiums for the past as we're expecting earlier in the year?

Todd Becker, CEO

Yeah. Thanks for the question. So let's address the first question. As we indicated to you, our modernization program at Mount Vernon was underway in early into the first in early in the fourth quarter, which reduced that plant was almost fully offline for about half of the month in October. We didn't bring the protein system back until we brought the full plant back online. We modernized all the conveyor systems, several of the older bin systems. Lots of upgrades around the plant to get that plant modernized as we go into the future. As we look at what we needed to do there. When we talk about re-basing a carbon plant, we have to run it with and without the drying system that we run in our protein operations that does cause a change potentially in carbon score but you have to you have to take the hard decision to rebase that plant. Because it's really our our central city plant is a little bit different animal. So, you know, we may have to do that at some point before we go back online, but it takes quite about ninety days to rebase a plant to look at all the aspects and all the calculations to understand when carbon hits we will do what's most profitable for our site and for our company. And if that means to run the plant full out and not run protein so we can make more relative to the forty-five z and offset programs, we'll do that. If it means make more protein, we'll do that. That plant is a plant that you may not be able to take protein down because they will lift because of the drying capacity in the local market for feed. So we made the decision this quarter, and it was the right decision from a market perspective. You saw that we in soybean meal, and soybean meal physical is even weaker when you look at the middle of Iowa trading at fifty fifty under soybean meal futures and weaker than that. So it was the right quarter to do that. We continue to ship to our best food customers, but we had to compete as well in some of the pork and poultry markets that are a bit weaker based on some of the physical soybean meal basis that we've seen out there. But, you know, we're basically running everywhere at this point, running back at all of the operations, and protein are turned on. And again, we're very and we're in our next sixty pro run in Central City. We just did one last month as well. So these are multiple runs in a row, and multiple months that I think is would give us confidence that we're gonna start to hit some of the targets of sixty Pro and Sequence. Again, just starting to see some really interesting opportunities there that we've been waiting for. And some of it's about, again, what we talked about. If you look at the global tightness in corn, other than the United States, which by the way, which has become tighter as well, corn gluten meal has become tighter in the world as well. Again, a replacement for corn gluten meal is our sequence product and we're seeing that both domestically and globally. Yeah. Thank you very much.

Salvator Tiano, Analyst

And also on SG&A, I mean you got a few questions earlier. You addressed it, but what I'm trying to understand is why now. I mean, I understand the concept that we reached another phase, but based on, you know, your earnings, the volumes doing, it doesn't seem like we've reached full commercialization and that there's not a lot of work to do be done there. So I'm not really sure what has changed at the start of twenty-five versus twenty-four, twenty-three, that would warrant these actions now as opposed to, for example, one or two years ago. Or it said continuing the same path for another one or two years. So why now exactly?

Todd Becker, CEO

Well, I can only say why not. I think when we look at SG&A, we've invested a lot in everything from taking trout and salmon to full full weight and feeding the fish through making feeds that we wanted to use in testing and show our customers what capable. We did that for them all the way through our innovation center, and doing things around getting dextrose to know, you can't just do everything on the fly while you're building a commercial facility. The York Innovation has a full operating dextrous facility there as well as fermentation facility; all that costs a lot of money. On top of that, when we look at some of the systems that we have in place, we look at what we'll be doing, you know, we have a little less volume in our biggest product, which is ethanol because we shut down our York facility, and that saves us a minimum of ten million a year just in market savings, while not including savings and SG&A. And so when we look at all of that, why not? I think it's great for our shareholders, and it's great for our stakeholders. It's good for cash flow generation, and we're gonna continue to be laser-focused on it. You know, you invest, we had to over-invest in SG&A to get products to market. Well, we just sold one of the largest, if not the largest aquaculture company in the world our fifty percent protein product, and potentially our sixty percent protein product may go there as well. They don't need to see us doing this anymore. It was a bit of validation of our products. They'd never seen products like this before in the market. Yes, you could buy fifty pro soybean meal. But no, you couldn't buy fermented proteins with significant palatability uplifts in pet and aqua that do things differently than in the past, and we had to use our research to get into the door. If I could even go back, I probably would have spent less doing it, but I can't go back, so now I'm gonna spend less doing it going forward. It's time to do that, and I think even looking at all the way to the top of the house and saying to ourselves, what do we need going forward in the future? We need finance, we need commercial, we need operations. Our Fluke business is starting to kick in again as well. Eighty-five percent of their business was done outside of our company. They are not relying on Green Plains for their revenues, and they were generating positive cash flows and positive bottom line earnings, and that's something we're gonna focus on as well. So when we look at it, we're setting ourselves up for when Carbon comes online to have the maximum ability to generate free cash flows. Having all that extra SG&A does not give us that maximum capability; we could decide what to do with those free cash flows and ultimately have the luxury of making those decisions. And that's focused on debt as well as getting our share price higher. Well, I appreciate the opportunity today and thank you.

Eric Stine, Analyst

Hi, Todd. Hi, Phil. I just want to sneak one in here at the end. Good morning. You know, I know you've talked about it's unlikely that the forty-five z is repealed. But, you know, obviously, there are ongoing questions and regulatory uncertainty. So just I mean, when you look across your business, and I know that some of these areas are impacted by varying degrees, but do you kind of have a plan B, or is there, you know, the potential that in some of these areas, it may change your plans based on the changes that potentially you see or are possible coming down the road?

Todd Becker, CEO

Yeah. I think there's always a plan B on carbon. That's forty-five q. That's not gonna go away. It really that's been in place. It's a long-standing rule. And it's a cash pay for the first five years. So there is always a backstop, and then we'll have to determine the value of the credit from that standpoint. But our view is forty-five z is gonna continue to hold. We have strong support from our Midwest Republican senators and congressmen. I don't think that they would vote for a repeal. I think we have strong support from our interior secretary, who is also, you know, in has the energy committee that he's also chairing. I think that when we look at the investors in some of these projects, and who’s really interested in seeing these successful, I think we just got very, very strong support for everything across the board. Look, they might repeal a bunch of other things in IRA, but our view is forty-five z continues to make the cut. Even then, it's a bit like the Affordable Care Act; it continues to try to get repealed, but in the end of the day, that's kind of what's in law. What really gave us great confidence last week was when the IRS put out their guidance in the IRB. That's what people are going off of, and when that usually happens, not much changes from that point forward. So will they look at the forty-five c? Sure. Will they look at the IRA? Sure. And they should look at the IRA. But we've already spent the money, and there's a lot of capital being spent from large companies across the United States based on this forty-five c tax credit. This is equal opportunity making sure that we at least get the attention from ourselves all the way through the largest companies in the world that are investing in behind this initiative as well.

Kristen Owen, Analyst

Hi. Good morning. Thank you for taking my question. I wanted to ask, as you're going through this sort of strategic review process and understanding the asset footprint in sort of a different light, you idled the the Fairmont facility just wondering how you're thinking about maybe going forward. What are the options for that asset? Would you maybe look to monetize that? Just help us understand how to think about your production capacity with that facility down and what the options are going forward.

Todd Becker, CEO

Yeah. I mean, we wanna get our permit from the state of Minnesota to build a new drying system and a new grain system. We put the money into the middle of the plant, and that all operates at standard. After seventeen years or twenty years, these plants being built, things wear out. We've done, that's one plant that we under-invested in because it was a lower margin structure. In our plant stack. One thing we were counting on is obviously the carbon pipeline to go up there, and we still count on that. That will give us the confidence we need to invest behind that plant. In the meantime, sure, we could always monetize that plant if we want to. That's something that we've looked at in our strategic review, but it is a carbon pipeline capable plant, and we're counting on the project to make progress this year. If that happens, that plan will be very valuable as well. So we look at all of our assets like that. This strategic review that we're under, you know, we've embarked on this over the last year. What we're trying to do is uncomplicate our SG&A, both in corporate and trade, as well as some of the things that we do around some of these innovation assets that we put in place and make it very, very simple. When you look at our plant stack, generally speaking, most of our plans are always EBITDA positive, if not very positive. Central City, Shenandoah, even Otter Tail up in Fergus Falls. That is one of our seventy million-gallon plants that competes with a hundred and forty million gallon structure. But, in the end of that, we have plants like Fairmont that was a cash burn for us, and we have the SG&A that we're rationalizing that was a cash burn for us. We're just not gonna do it anymore, and we gotta focus now on our products at market, Krishna, and they are we selling them today, and now we gotta be able to realize instead of spending six or seven cents a gallon on SG&A to do that, we're gonna take that SG&A right out and get back down to a little bit Back to the Future where we have a smaller middle of the company less complicated, and our clients get to show what they can really do because I don't think we've been able to do that in order to get new products to market. As we're getting new product products to market along came fifteen million twenty million more tons of soybean meal, that kind of derailed twenty-five years of backtesting. So we'll have to work through that. As we know, commodity markets ebb and flow, and we will work through this excess protein. It might take a little bit longer than we think, but hopefully, we get paid through some of the other things that we're doing. Thank you very much.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.