Green Plains Inc.

Good morning and welcome to the Green Plains Incorporated and Green Plains Partners third quarter 2022 conference call. Following the company's prepared remarks, instructions will be provided for Q&A. At this time, all participants are in a listen-only mode. I will now turn the call over to your host, Phil Boggs, Executive Vice President, Investor Relations. Mr. Boggs, please go ahead.

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

Thanks, Phil, and good morning, everyone. During the third quarter, we experienced a challenging margin environment, resulting in a negative nine-cent-a-gallon margin, some of which were one-time events, and the rest largely driven by the record corn basis we experienced across Midwest, southern Indiana, and Tennessee. With impacts from the drought lowering corn yields, which tightened ending grain stocks as a result of three lower-than-average crops in a row in the north, the south, and, again, the northern hemisphere, We saw higher corn basis ahead of this year's harvest, but we kept our plants running through that. The world is not running out of corn. It's just tighter than normal, and it was a quarter where the industry needed to adjust. Our average corn basis was more than $1 over futures, with some plants in excess of $1.50, which was higher than last year and nearly $1 higher than the five-year average. The third quarter margins were lower because of this tightness, and farm ownership is in tight hands. The first impact other than corn basis is that because of these Because of the fundamental situation in corn, we decided to pull all of our seasonal maintenance shutdowns forward, completing these at 10 of our 11 plants, which impacted our operating utilization rates and also increased our repairs and maintenance costs for the quarter. These shutdowns impacted our margins by about $0.04 a gallon. In addition, as a result of the higher corn bases and the inverted ethanol market, we recorded an $11.2 million LCM, or lower cost-to-market inventory adjustment, which has also impacted our margins by about $0.05 a gallon. But to be clear, this is a non-cash adjustment. Excluding these two items, our consolidated crush margin would have been near break-even. Overall, our EBITDA for the quarter was $35.6 million negative. But right now, for the fourth quarter, margins are positive for ethanol and have expanded in recent days, even before corn oil contribution, which I know a lot of you focus on that fact. Even with higher harvest corn basis levels and with the fundamentals across liquid fuels, Q4 is significantly better than Q3, but corn basis volatility still needs to be watched closely, although our physical corn coverage grows every day and is approaching 70% for the remaining of the quarter. The Gen 1 volatility quarter to quarter has been unprecedented, and we remain exposed to that for a portion of our business as we continue to transform. Our third quarter financial and operating results remain strongly influenced by the company we are transforming from, rather than the company we are transforming to. Operationally, we are seeing strong Q4 run rates and record high renewable corn oil yields. With our seasonal maintenance program completed in Q3, we anticipate that the fourth quarter should be the highest quarter of the year for throughput and corn oil yields. Our MSC technology construction projects with FluEquip for 2022 are wrapping up, and we are preparing, actually have started up the dryer in Central City and are getting ready to start the loadout system up as well. The MSC build at Mount Vernon, Indiana began commissioning in October, and our Ovi and Tennessee plants should begin commissioning in the next few weeks. One very interesting point is during commissioning, the plants begin to benefit from higher renewable corn oil rates well before we bring the dryer online and the loadout structures are completed. The ability to extract oil individually is the basis of a new offering from FluoQuip called DCO Tech, which we believe we'll discuss later in the call. This increase during startups contributed to a strong renewable corn oil yield in the third quarter, and we should continue to expand that in the fourth quarter as commissioning continues on additional locations. Pricing for this product remains very firm, as there is only a finite amount of low-carbon intense feedstocks, and this sets us up well for 2023. As our company has been undergoing a transformation, we made a decision to dedicate a senior member of our team to those efforts full-time. Patrick Simpkins has been at the company for over 10 years, serving in a number of senior roles, most recently as CFO, and we are pleased he chose to take on the new challenge of Chief Transformation Officer. This was a natural time to dedicate resources for the next several years to all of these important strategic efforts. Jim Stark, who many of you know from his time in investor relations, has a dynamic background in finance, and he'll take over as CFO. We also welcome Grant Kadavy as EVP of Commercial, who comes with a deep commercial experience in agricultural processing and global trade, and Jamie Herbert as CHRO, who joins the organization to further enhance our team and brings a long history of success. These additions bring added depth and leadership to our organization at this pivotal time in our history and proves our ability to attract talent needed who can not only execute our plan but also believe in our transformation. We broke ground on our CST facility in Shenandoah to produce low-carbon intense dextrose where we are deploying FluoEquips clean sugar technology Our developing bio campus in southwest Iowa has long been a showcase plant for us with our first MSC facility, Aqua Lab, and now our first commercial-scale dextrose facility under construction. We'll talk more about that later as well. Our company continues to transform, and we are firmly committed to completing that transformation. What began with a vision to explore ultra-high-protein technology years ago has morphed into a pivot of our entire company to focus on customer-centric ingredients, innovative ag tech, and decarbonization. We are executing on that transformation plan and remain on track, and we remain on track to deliver on these initiatives and guidance laid out for 2024 and 2025. The growing strength of our commercial operation continues to win new customers from our ultra-high protein product suite. Customer acceptance and interest continues to accelerate, and we are generating orders and interest around the world across multiple species. We executed a 25% increase in our 2023 volumes already in our pet food vertical for the upcoming product marketing year. Many customers have indicated they have been waiting for volume, scale, redundancy, and we are finally in a position to deliver on that as we exit 2022. Having over 330,000 tons of annual capacity for these innovative products now available to the market each year for Green Plains, when novel proteins were historically in much smaller quantities, has really been a game changer in our discussions. While there are a few one-offs here and there that can make a product somewhat similar, no one else can supply the quantities customers are beginning to look at in this novel protein space like we can, which is a critical differentiating factor. Commercial demand is growing in bigger quantities now that we are able to provide a product with unmatched scale and redundancy. With our expanding scale, we are executing sales to customers in aqua, pet, swine, poultry, and dairy globally, some of which are leaders in each of the respective industries. Developing a customer-centric market for these new products takes time, but we are achieving baseball volumes of the 50% ultra-high protein product today across multiple species and from customers around the world. I will talk about the importance of this as we develop our 60% protein market later in the call. During the third quarter, we settled the remaining $34.3 million of 2022 convertible notes through a combination of common stock and cash, leaving us without any near-term maturities in our capital structure. We ended the quarter with over $500 million in cash on the balance sheet and remain in a strong position to deliver on the strategy we have laid out for you. Green Plains Partners continues to deliver consistent results and will benefit from the strong throughput utilization rates our platform is capable of operating. For the fifth consecutive quarter, Green Plains Partners increased their distribution, raising it to 45.5 cents per unit. Once again, I'd like to welcome Jim to the call and hand it over to him to provide you an update on our overall financial results.