Green Plains Partners LP

Good morning and welcome to the Green Plains Inc. and Green Plains Partners second 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 welcome to Green Plains Inc. and Green Plains Partners second quarter earnings call. Participants on today's call are Todd Becker, President and Chief Executive Officer, Patrick Simpkins, Chief Financial Officer, and Leslie Vandermuelen, EVC 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 10Q 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.

Thanks, Phil, and good morning, everyone, and thanks for joining our call today. Our second quarter financial and operating results further position the company to succeed in our transformation as we start to gain volumetric critical mass in the last few quarters of 2022 heading into 2023, where we believe we will hit critical inflection points that are proof we are executing on all phases of our plan that we've laid out to you and begin to demonstrate what is possible with our modernized and upgraded platform. Years of planning and execution on our modernization plan have enabled us to run at 97% of operating capacity in the quarter, the highest since Q4 of 2013, and we believe we could still go higher as we continue to optimize the plants that recently started back up in quarters where we don't have turnaround scheduled. During the second quarter, we achieved EBITDA above our indications on a prior call. Overall, EBITDA was $84.4 million, including $27.7 million of COVID relief from the USDA. Even without the payment, our EBITDA from operations was over $56 million as margins remained strong, and the team executed well to deliver the results we reported this morning. Our financial results also benefited from our natural gas hedging strategy, which we had been mentioning on the calls since late last year. On paper, consolidated margins continue to be positive into the third and fourth quarter, with risk mainly from the physical corn market's historically high basis, although we have seen some signs of weakness in some of the geographic areas where we operate. but we are closely watching that and the conditions of the U.S. corn crop. Driving demand remains volatile and could impact overall usage in the last half of the year, but margins have remained steady through July. On paper today, we are tracking mid-teens per gallon consolidated crush in Q3, and in Q4, we are currently tracking much stronger margins with new crop corn factored in, startup of additional MSC facilities, and continued strong contributions from corn oil pricings. Yet, still could be impacted by a smaller than expected corn crop or strong physical corn basis levels continuing through harvest. But overall, we should finish the year in a strong position both financially and strategically based on today's markets. As I indicated, contributions from low-carbon renewable corn oil remain strong as more renewable diesel plants come online over the next year. In addition, our production yields have also trended higher with our platform reaching a new high, led by our MSC locations averaging 1.2 pounds per bushel of oil yield for the month of June as we continue to seek ways to maximize our overall efficiencies and operating performance. We are constantly discovering new improvements from quality to quantity increases that set the company up and, quite frankly, the industry to be a beneficiary of this product contribution for a long time, especially with the latest federal clean energy tax legislation, if it passes, which I'll discuss later on the call. On the commercialization front, we continue to see strong interest in our 50% and 60% protein products from Latin America, Southeast Asia, as well as domestically and other locations worldwide. I will discuss some of our great progress later in the call when we dive a bit deeper. We also announced an exciting partnership during the quarter with the largest trout producer in America, Riverance, which led to other interest globally for our innovative products. Construction on our MSC facilities is moving ahead, and our central city location in Nebraska is currently undergoing commissioning and startup activities for its MSC system, which is very exciting. And commissioning will begin in late August at Mount Vernon and early October at Albion. Construction on these projects is nearing completion. Our team did a great job executing on the project, staying on budget, and delivering major projects within a few months of when we expected them to start up. We have begun engineering the MSC project at Superior, Iowa, and anticipate breaking ground in November. Madison, Illinois is next on the list, and we expect to break ground on that project early next year. These projects will take 7 to 10 months to complete in our estimation. We made some progress for permitting in Minnesota, which may lead to those plants being completed earlier than expected as well. We are planning to break ground on our first commercial clean sugar facility in Shenandoah this month. And equally exciting, construction has started at our MSC turnkey JV with Terrelson ethanol. During July, we converted the remaining $64 million of 2024 convertible notes to common stock, which continues to strengthen our balance sheet. With our new revolving credit facility with sustainability-linked targets completed early in the year, which further cleaned up our balance sheet, we have now reduced any material near-term maturities. When combined with the liquidity we have in our balance sheet with over $600 million of cash and a positive outlook for the balance of the year, we remain in strong financial condition to continue executing and deploying capital toward each of our exciting transformation initiatives. Green Plains Partners increased their distribution for the fourth quarter in a row to $0.45 per unit, and Patrick will dive deeper into the results. And with that said, I'll turn the call over to Patrick to review our financial performance.

Thank you, Todd, and good morning, everyone. Green Plains consolidated revenues for the second quarter were just over $1 billion, $288 million higher than the same period a year ago, driven by higher prices for ethanol, distillers, grains, corn oil, combined with significantly higher run rates. Our plant utilization rate improved year-over-year to 96.9% run rate during the second quarter, comparing favorably to the 79.9% run rate reported in the same period last year. The completion of our modernization program with a focus on continued production improvement reduced fixed-cost absorption and helped improve margins long-term. For the quarter, we reported net income attributable to Green Plains of $46.4 million, or 73 cents per diluted share, compared to $9.7 million for the same period in 2021. EBITDA for the quarter was $84.4 million, inclusive of the USDA COVID payment of $27.7 million, compared to $50.9 million for the same period last year. For the quarter, higher production run rates, improved corn oil yields, and contribution from protein sales allowed the company to exceed prior year same-period performance, which included optimization and mark-to-market gains. For the period, we realized a $0.28 per gallon consolidated crush, significantly higher than the first quarter but lower than the prior year. Our ag and energy segment also came in higher versus 2021 due to improvements in our merchant activities, as well as higher realized margins in our grain handling business. For the quarter, our SG&A cost for all segments was $30.1 million compared to $23.4 million in Q2 of 2021. The increase of approximately $6.7 million is driven by a number of factors, with the majority coming from increased personnel costs driven by higher headcount and wage pressures along with higher professional fees in support of our transformation. We expect SG&A to remain higher for the balance of the year, coming in around $28 million per quarter as we support continuous improvement efforts in digital transformation, plant automation, and commercial development, all necessary for execution of our strategy. We believe these efforts will enable the company to sustain lower operating costs and improve margins long term. Of that amount, we expect corporate SG&A cost, which came in about $16.7 million in the quarter, to be right around $15 to $16 million per quarter for the balance of the year. Interest expense of $7.8 million for the quarter, which includes the impact of debt amortization and capitalized interest, was $11.3 million favorable to the $19.1 million reported in the prior year's second quarter, mainly as a result of a $9.5 million charge related to a private settlement of a portion of our 2024 convertible notes incurred in the prior year quarter. As noted in my last quarter comments, we projected cash interest expense to be on average about $10 million per quarter, but now expect that number to be about $10.5 million per quarter as a result of a higher rate environment. Our income tax expense for the quarter was $2.9 million compared to a tax benefit of $4.8 million for the same period in 2021, resulting from a cumulative valuation adjustment to our deferred tax asset, which is reassessed quarterly. At the end of the quarter, net loss carry-forwards available to the company were approximately $104 million, which may be carried forward indefinitely. Our normalized tax rate for the quarter, excluding any valuation allowance adjustments, was 19.1%. On slide nine of the earnings deck, we provide a summary of the company's balance sheet. As shown, we ended the quarter with $629 million of cash and working capital debt, net of working capital financing, compared to $698 million for the prior year quarter. Our liquidity position at the end of the quarter included $604.2 million in cash, cash equivalents, restricted cash and marketable securities, along with approximately $70 million available under our working capital revolver. For the quarter, we allocated $66.3 million of capital to profit-sustaining and growth projects, including $47.7 million to our MSC protein initiative, about $7.3 million to other growth projects, including our plant modernization initiative, and approximately $11.3 million towards maintenance, safety, and regulatory capital. We continue to anticipate CapEx for the year $250 to $300 million based on our 2022 plan in current construction schedules. Turning to the partnership, we continue to realize consistent performance, earnings, and cash flow, realizing an adjusted EBITDA of $12.9 million, slightly higher than the $12.7 million afforded for the same period a year ago. With volumes now trending upward as a result of higher run rates of the parent, we expect volumes well above MVC levels. As a result, the partnership continues to support higher return to unit holders increasing the quarterly distribution to 45.5 cents per unit, while maintaining a 1.06 times coverage ratio for the quarter. For the partnership, distributable cash flow was $11.3 million for the quarter, in line with the $11.2 million for the same quarter of 2021. Over the last 12 months, the partnership produced adjusted EBITDA of $51.2 million, distributable cash flow of $45 million, and declared distributions of 42 million, resulting in a 1.07 times coverage ratio, excluding any adjustment for the required principal payments amortized over the last year. Now I'd like to return the call back to Todd.

Yeah, thanks, Patrick. Okay, so let's get into it again this quarter. Our progress since we began our transformation has been remarkable, but in some ways we are only getting started as we believe what we are doing with our company is in the early innings of what is truly possible. Our plant utilization levels and corn oil yields are hitting new highs. This is important. As we have said many times, our modernization of the Gen 1 platform was in preparation for our technology transformation in order for the Gen 2 technology platform to run every single day. The financial transformation to recurring, predictable, growing, and non-volatile cash flows is predicated on the total production unit running well, operating safely, and protecting our team members at the same time. Despite gasoline usage being depressed by high prices at the pump, we have seen ethanol blending remain strong and at times some of the highest levels ever as a percentage of the gallon. We are still the most affordable clean octane molecule on the planet and having the ability to sell E15 year-round for the fourth straight summer. With potential growth in state and national low-carbon fuel standards, we believe this will continue to provide tailwinds to the Gen 1 business. It looks like Congress might be on track to pass a clean energy bill that has potential to be positive for many aspects of what we do at Green Plains. As proposed, the legislation would extend the dollar per gallon biodiesel tax credit for two more years, which impacts positively our low carbon renewable corn oil, create a clean fuel production credit starting in 2025 for all renewable fuels, depending on greenhouse gas emission levels, create a new tax credit for sustainable aviation fuel, which could include corn ethanol alcohol to debt in a positive way, expanding the 45Q tax credit for carbon capture to $85 a ton, which can help decarbonize our company faster, and provide $500 million in infrastructure funding to fuel retailers for E15 for higher blends. So we believe Green Plains is uniquely situated at the nexus of agriculture, technology, and energy to deliver solutions to the market and value to our shareholders. After our successful protein trial we discussed last quarter, we have turned to executing a global sales and outreach program and are beginning to see success. What is unique about Green Plains is that we not only own and control an amazing IP portfolio, but we can do things with our units that are truly only possible because of this. Some of you have seen the end-to-end system that has been built around innovation with three centers, all focused on product use and development. Our customers have seen the benefit and can see the benefit of using our MSC ultra-high protein products or for what we refer to in commercial circles as corn fermented protein, firsthand from feed formulations to feed production to feeding that product to their animals to seeing the outcome of the use of the product in everything from salmon to tilapia to pet food to swine to poultry. The results of all of this is better customer engagement and commitments. As we said, we are excited to be partnering with Riverance on the development of nutritious feeds aimed at trout and salmon markets domestically and globally, and we're beginning to work on the feed mill in Idaho that will be part of the JV. We continue to see great progress in our discussions with customers in Latin America, Southeast Asia, and domestic markets, as well as other global markets in both our 50% and 60% protein products. We are in the final stages of securing in-country distribution agreements in key markets that allow us to partner with companies with existing infrastructure to reach customers without having to expand our own logistics in those markets, allowing us to achieve market penetration more quickly. We expect to have several finalized over the next few weeks. You have to remember, in some markets, these ingredients trade in as little as 50-pound bags, but the opportunity for expanded margins and good volumes are even greater. This is on top of all the work we are doing with some of the largest customers in the world in pet and aquaculture and swine and poultry. Lastly, on these points, as you are seeing, the global protein market shows some of its true colors as prices have accelerated higher recently, which has been beneficial to our margin structures going forward. It is our expectation that our primary product from MSC in 2024 and beyond, as well as increasingly during 2023, will be the production of 60% protein. even as our day-to-day production continues to be around 50% since our primary customers were in the pet space when we started up Wood River and Shenandoah. As we build more and more customer demand, we will pivot to 60% protein as the need for this product remains very strong based on early indications. As I said, one of the strategic reasons we partnered and subsequently purchased Fluidquip with our partners was the fact that the technology had a lot of upside in terms of performance. One example of the success is our best 30-day run at Shenandoah happened during the quarter with corn oil yields near 1.2 and protein yields exceeding four pounds per bushel. And we are now starting to see yields exceed four and a half and five pounds per bushel as well. To revisit, our Thurlson JV will be the largest MSD project in the world, and we are taking every step to ensure a successful build and launch. We anticipate that this facility begin commissioning in mid-2023. We're also in discussions with additional potential JV partners, not just domestically, but also globally. I'm confident that some of these will come to fruition over the next several quarters, but our focus remains completing our platform first. Low-carbon renewable corn oil continues to be a strong contributor to our bottom line. Second quarter had a record high, with MSP plants pushing towards their stated goals of 1.2 pounds. FluEquip's launch of technology that increases oil yields in a single unit of operation for third parties continues to garner significant interest as a game-changing technology to expand the plant's ability to produce more low-carbon renewable corn oil. With the demand growth from renewable diesel continuing unabated, we believe strong pricing for low-carbon vegetable oils should continue no matter how much corn oil is made in the U.S. As I mentioned earlier, it is further advantaged under the newly proposed federal tax credit program. We have yet to make any announcements about potential partnerships, but we continue to engage in substantive discussions and see strong and growing benefits from our low-carbon renewable corn oil strategy in the meantime. We have always believed this goes beyond merely an offtake agreement, and we can remain patient on this front as the earnings remain a significant contributor to our overall business. We are planning to break ground on our first full-scale clean sugar technology deployment in Shenandoah this month. We believe that our growing bio campus in Shenandoah will be truly revolutionary for our company and the bio economy. While we have great confidence in our ability to produce significant quantities of low-carbon dextrose and glucose from a dry mill plant, we also know we have to demonstrate the potential to the market. With that said, because of our work to produce product at our semi-commercial facility in York, we have ongoing discussions with several potential colocation partners and off-takers. As we speak, our product continues to be validated and accepted as a direct replacement for what a wet mill makes with a lower carbon intensity and we can customize the grade on the fly. We recently signed a letter of intent with a co-location partner who is anxious to work with us on completing their project so they can begin to deploy their own revolutionary process in food production. We believe this is the first of many to come from food to chemicals to bioplastics and even more innovative partnerships than that in other areas that need dextrose and glucose in their process. In the meantime, once the facility is complete, we will be able to ship product by truck and rail car to end customers while the over the fence initiatives are completed. We believe our sugar strategy can accelerate quickly from here, but getting the first one done is our current focus. The last of our strategic pillars is our strategy around carbon, or better said, decarbonization. If the new bill passes with the 45Q increases with direct pay, just about any carbon project can be viable from clean biogenic carbon we produce to the other types as well. The opportunity set will only grow from here. With regard to the Summit Pipeline, they continue to make good progress on the right-of-ways, and we are on track for a 2024 and 2025 startup. At $85 a ton, our eastern plants become very interesting for other potential opportunities, and we should be able to monetize those as well, and we continue to look at these opportunities. And I also think patience will be rewarded on any of these programs. We believe alcohol to jet will be a reality in the future, which can substantially revalue the whole industry. And we are positioning ourselves to take advantage of that opportunity as well. And I will close with that on our strategic topics. So as you can see, we have many initiatives that are going to be beneficial for our shareholders now and into the future. We have never quite seen a time like this in the industry that is on the verge of incredible outcomes. And so while we still deal with the volatility of the Gen 1 assets in business, We can see the future, and it has never been more exciting for Green Plains. Thanks for joining the call today, and we can now start the Q&A session.

Certainly. Ladies and gentlemen, if you have a question at this time, you will need to press star 1-1 on your telephone. And we ask that you please limit your questions to no more than two at this time. If you wish to ask additional questions, please rejoin the queue. Please stand by while we compile the Q&A roster. And our first question comes from the line of Jordan Levy with Truist.

Morning, all. Can you hear me?

We can hear you. Thanks, Jordan.

There he is. A clearly nice, clean quarter you all put up, both from the higher crust rather than just operationally. It looks like it was a really clean quarter. I wonder if we compare this to 2Q21 and where we saw kind of a similar margin environment. Can you maybe walk us through how you're thinking about GPRE today compared to a year ago, both operationally and from a financial performance perspective? And what I'm getting at here is I know you all don't break out Hypro and the other segments just yet, but what are sort of the barometers we should be looking at to track that all the work you all are doing and have done and continue to do in the transformation are starting to flow through to the results there?

Yeah, I'll talk a little about it and let Patrick talk more specifically, but Q2 of last year included some one-timers from optimization and mark-to-market. This was a much cleaner quarter, just kind of shows the capability of our system. Higher operational run rate, better contributions from corn oil, better contributions from protein, and all of our initiatives that are taking place. So I think when you look at it, we don't really compare those two very well. I think what you're seeing is the future of our company this quarter. versus last year at the same time, you saw a lot of noise that was still happening within our business. I think our ability to increase the capabilities of the plants that we have, even back then, some of those plants weren't even online or they were online at a very low operating rate. So I think really where we're at today going forward is that what we had said is we've got to have a really strong Gen 1, Generation 1 platform So the generation two can be built and operate and succeed every single day. And that's really what we're seeing. So from the technology side, we have more deployments coming on. And we have Shenandoah and Wood River running a full quarter. And overall, I think the company is in a very different position than it was a year ago.

That's great. Maybe as a follow-up, if we can jump back to a release a few months back with the Riverint announcement. I know you mentioned in your prepared remarks the feed mill you're starting to do the work on. Maybe if you could just walk us through some of the timeline there and then the implications of that partnership both with Riverint and with other customers in the aqua space.

I think the key point there is they're a great partner, good friends of the company. We're working together on best outcomes for their production using our products in many different ways and working together on developing those rations. And I think what we get out of that, you know, they have some of the leading genetics, if not the leading genetics in salmon in the world, and we get to see how our product performs. And if you've been to Shenandoah, and many of you have on the call, we're actually doing trials right now on those products. So what that really did is it garnered attention globally from the industry, and we've seen our related activity accelerate because of that with large players around the planet that need alternatives to what they've had in their rations before to feed, whether it's a variety of aquaculture species. So I think what it did is it put us on a map to say we have unique solutions for the global aquaculture industry where they can get into plant-based corn fermented products that we've shown in the past on some of these calls and in our investor meetings what it looks like when you feed a product like this from flesh to performance to feed conversion ratios to the ability to start to reduce their dependence on soy and the anti-soy nutritionals. And I think it was just the first step in a multi-step process, but it really put us on the map from that perspective. I think what's unique about Green Plains, and I said it in my remarks, was because we do own the technology, we can do different things with this technology that really nobody else can in the world. Whether we want to increase yield of pounds per bushel or whether we want to increase protein or additional characteristics, we can start to maneuver back and forth on all of those depending on the customer needs. We have a lot of interest in this product in aquaculture globally and especially towards the 60% protein because of that announcement.

That's great. I'll take the rest of those questions offline. Thanks, guys.

Thank you.

Thank you. And our next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning, everyone.

Good morning, Adam.

Good morning. So, Todd, I was hoping to maybe talk a little bit about some of the actions in Congress right now and... As you look at your network today, that Clean Fuel Producers Credit in 2025, what do you think the CI score of the footprint would be or could be at that point when you factor in Summit and the sequestration there? And just to confirm, because my understanding is you wouldn't be able to double dip between 45Q and the Clean Fuel Producers Credit. the legal entities would be separated so that you could still participate in both programs as needed economically?

Yeah, I'll just talk a little bit about CI score. And we have Devin Mogler here, who's our government relations VP as well. And he can maybe comment a little bit on that as well while you ask the question. So from a CI perspective, we know the first step that we're going to do is reduce the CI because of carbon sequestration. And obviously, whether it's on a pipeline or whether it's direct inject, whether it's in other products, whether it's something like that, our CI starts to go down significantly. And then beyond that, even on some of our products as well, we're seeing opportunities around taking some of our platform and doing something called in situ fermentation, which reduces CI scores on a portion of that into an advanced biofuel opportunity as well. And that's happening in Gen 1 right now. which is not commonly known in the world, but the Gen 1 platform will start to produce probably across the board in many plants some advanced biofuels as well because of how fermentation has been changed over the years. So from our standpoint, when we look at Congress and what they're talking about, obviously the biodiesel extension is helpful to renewable corn oil. The sustainable aviation fuel, we strongly believe and have a great conviction now that corn ethanol to, or ethanol to jet and alcohol to jet is going to become more of a reality, I think, than people are giving this industry credit for. And obviously, $85 really allows us to focus on projects that we maybe were on the edge of being successful to now can be very successful. Things like our eastern plants where maybe we didn't have perfect geologic formations underneath the plant, but now you can start to thinking about piping at 5 or 10 miles to a better geologic formation because the tax credit allows you to do that, and I think that's beneficial to us as well. So when we kind of get to 2025, just on the base business, a lot of our plants that are on pipelines or are doing projects could be going from an average score of 65 or 70 down to an average score of somewhere between kind of 30 and 40 for this, before we even get started on other opportunities like The way that we produce energy, you know, is there combined heat and power is a topic we have basically to take ingredients that we produce or maybe sell cheaply to convert that into energy. Those are all on the verge as well. So this industry is decarbonizing right in front of our eyes, and it might take a few more years, but I would say this industry is somewhere going to be somewhere between zero to 35 on average overall. Devin, do you want to talk a little bit about the clean production fuel credit?

Sure. Sure. So as Todd mentioned, after two years, the biodiesel tax credit shifts from a $1 across the board to being based on greenhouse gas reductions. And so that further advantages our DCO. So it gets the CI credit not only at the federal level for being low CI waste oil, as well as a California or a Canada or a Washington state or Oregon credit as well. So I believe there's a lot of upside there on being able to double dip on that low CI of DCO. But just to be clear, the ethanol as well would qualify that you sell just generically apart from just the renewable diesel from corn oil? Correct. With a low enough CI, as long as it has greater than a 50% GHG reduction, it can qualify for that program as well, in addition to any California credits. Yeah. Okay, perfect. That answers my question, so I'll pass it on. Thanks so much. Thanks.

Thank you. And our next question comes from the line of Kristen Olin with Oppenheimer.

Great. Good morning. Thank you for taking the question. I wanted to ask a little bit about the 2022 outlook that you provided last quarter, the 140 to 160 corn oil, 40 to 60 protein outlook. How much of that roughly would you say we've captured to date? And I'm really just trying to think about sort of the exit velocity of that business as you get these additional facilities online in the back half of the year and what that means for those businesses in 2023.

Yeah, I mean, we're still basically on track to hit within the ranges of those numbers. Subject, obviously, we want to make sure the plants start up well. Cornell pricing is still remains, it's off its highs, but overall still remains at a premium to soybean oil today in the market. And I think with more plants coming on in the last half year and into next year, I think we'll continue to remain strong relative to soybean oil pricing. And we have a great product with a low carbon score, and we're seeing a lot of strong demand from that. From the protein standpoint, we're really focused on escape velocity out of 2022 into 2023. When we leave the year, we will have about 560 million gallons of our 950 million gallons converted and operating into 2023, and more coming on in 2023. So when we start to look at our 2023 outlook, our corn oil volumes will go up, our protein volumes go up, and that's really when we start to see critical inflection points, especially if we can get our partnership in North Dakota started up in the middle of next year, it gets superior online as well as quickly as we can. We're learning how to build these a lot better, faster, quicker, and potentially even cheaper with some of the material pricing coming down. So right now, we remain kind of on track with our guidance through 2024 and 2025, and we're seeing some things even within that that makes us very confident we can hit those numbers and beyond.

That's really helpful, Todd. I wanted to ask one follow-up question related to the reverence agreement. You sort of talked about what that means for this particular market, but I'm just wondering what the cadence of customer conversations has been like since you made that announcement. You touched on it briefly, this particular market, but I'm just wondering what the cadence of customer conversations has been like since you made that announcement. You touched on it briefly in your prepared remarks, but just wondering if you could expand on that for us. Thank you so much.

Yeah, thanks. I'll talk a little bit about it now, Leslie. Yeah, basically now because of that announcement, you know, that is a really important announcement just on its own merit. I mean, I think the partnership is extremely valuable to both parties. I think what we're doing in potential product development is going to be valuable. But What it allowed us to do is really kind of go around the world and talk about and meet with players that need replacement protein products as you see reduction in production, whether it's going to be from the Black Sea, whether it's going to be from South America. You know, we're seeing some of the true colors of the protein markets collide, especially what we're seeing in fish meal as well with Peru and some of the quotas there. So as we indicated, we have from that, we are in process of finalizing several distribution agreements that we believe will not only be completed over the next several weeks, but we'll start to execute on those. And those are everywhere from South America into Southeast Asia, into the Mediterranean and Africa, as well as even in Mexico, that we're working on distribution agreements. Those are countries that Green Plains has a has a nice reach around the world, but we're not in-country storing and distributing products. And so we found great partners around the world that have great customer contacts, whether it's going to be in aquaculture, swine, and other areas, and pet even in some markets, that now we can really move our product more efficiently and quicker into markets. And so it really led to the reach out back to Green Plains from global customers wanting to see the results from trials in aquaculture, wanting to see the positive results that we get in the pigmentation and sometimes the opposite from ingredients derived from corn. So I think generally it really has led to expanded activities, not only in country distribution agreements, but really with some global players that are looking for alternative protein ingredients. Leslie, you want to just close on that?

Yeah, I think the other thing to recognize is that the river agreement or an announcement came on top of our 60 Pro announcement from earlier this year. So when we made the decision that we wanted to go deep in aquaculture because we see the tremendous growth opportunity, a lot of things have been set in motion. So, you know, to put it in a positive perspective, it was really more a positive tidal wave that is coming to us from the response from not just the critical players in the feed industry, but just the embrace to continue development on the ingredients by doing the test, as Todd mentioned, showing data for growth, absorption, digestibility. So everything came together really nicely. So it's another piece of confirmation. And that partnership, yes, it really shows how participants in the value chain can really deliver better quality ingredients and better quality fish.

Great. Thank you so much.

Thank you. Thank you. And our next question comes from the line of .

Hi, guys. I want to quickly revisit this entire reconciliation bill, climate bill. Finally, it looks like the administration is doing a lot more on-to-flight climate change, and there are multiple provisions in there, blenders, tax credit extension, sustainable aviation fuel, and 45Q credits. Now, you are directly impacted by BTC, but directly impacted by 45Q credits. Help us understand, when you look at that bill, which are the things which excite you the most and you think GPRE benefits the most from?

Well, I mean, you basically mentioned what's really exciting about that bill. It just basically cements the fact that the ingredients we're making and the products we make are in demand, and decarbonization is the path forward. And so we focus on, obviously, lowering our carbon scores across the board on all of our products. A low-carbon corn oil, it's going to be low-carbon proteins. We're going to have low-carbon sugars. sugar is going into clean chemicals, green chemicals. I mean, all of this is basically telling us that we were ahead in our thought process around investing behind these products across the board. And from the standpoint of alcohol to jet, that's probably the one that I think is really underplayed relative to what this, our company and even this industry, because this industry capability to really make alcohol, sustainable aviation, sorry, sustainable aviation fuel a reality. There is only one industry that can gain critical mass to give the world significant quantities of sustainable aviation fuel, and that's going to be the ethanol industry and the alcohol we produce. Now, technologies have to continue to get pulled forward, but whether it's what you've seen out in the market already or things that are in the background because there's other technologies that I think you're going to see get pulled forward, there's going to be multiple opportunities to create sustainable aviation fuel from alcohol as well. So, you know, I just think when you look at all of this, even the infrastructure on E15 and higher blends, the $500 million allocation there, you know, and we continue to press and try to get MLPs, even though somewhat a nascent industry today of MLPs, there has been some talk of even going to renewables and MLPs as well, and we continue to press forward on that. So, I think across the board, generally very positive to ourselves, our industry, others that make renewable diesel, any company that really can benefit from any of these, including carbon capture. Evan, do you want anything else on that? No.

Perfect. My quick follow-up here is I think on the last quarter call, you were very clear that as you took this transformative process, there were initial parts where there was a negative cost absorption. And that was one of the reasons your earnings were coming in a little weaker, both in 4Q and 1Q. And what you had indicated was that the majority of that negative cost absorption part had already been done. So when we look at 2Q, it looks like it's in line. And I'm just trying to understand, does that statement still stand true that a majority of that negative cost absorption associated with the transformation process is now behind GPRE?

I think that is correct in general. We had absorbed a lot of negative costs as we were modernizing our plants so that we could set ourselves up well to execute against our transformation. Because a Generation 1 plant has to run every day, has to run well, and has to run at lower cost. And so that's the reason we spent a lot of time and money on getting our plants with high energy use down to lower energy use. Now, I still think from the standpoint of where the industry is today and where we're at today, we've seen significant inflation in some of the chemicals that we use. So I think some of that ultimately, as inflation subsides over time, will come back down. That has driven the general cost of the industry higher. Labor costs obviously had gone higher. It probably won't reverse. And then some other things that have inflated during the last couple of years potentially will drive costs lower. But it's really for us, it's about running these plants as hard as we can every single day, making sure our whole platform runs well. As the wet millers say, it's all about grind, baby, grind. But from a dry mill standpoint, and what we do in conversions, we look a lot like a wet mill after our conversion. That means you have to grind every single day as hard as you can. And the plants, for the most part, are fully set up to do that. We have some final little things that we continue to work on that seem to stay a little bit longer. But overall, our modernization program is effectively complete. But it's never done. I think we're going to continue to see where we can drive costs more out of it in the future.

Thank you for the detailed response. Congrats on a good quarter, and we all hope this bill passes so we can decarbonize faster. Thank you. Thank you.

Thank you. And our next question comes from the line of Eric Stein with Craig Hallam.

Hi, everyone. Hey, guys. How are you? Hey, doing well. How about you? Good. Good. So, you know, I just want to talk a little bit about Clean Sugars. You know, just curious, as you think about that, obviously you started with High Pro and you're progressing there. I mean, for Clean Sugars, do you expect a similar timeline in terms of when you get the commercial momentum? Is that a few years out? Or, you know, kind of given some of the progress you're making in other areas, does that potentially speed up the timeline further? on the clean sugar side.

Yeah, I think what we laid out for 24 and 25 is still holds, at least from the rollout standpoint. You know, clean sugar is a little bit of a longer game. You know, we start to build our Shenandoah plant as we speak, and we're working with large customers that need dextrose for their processes. And so, you know, the great thing about what we do is it's lower carbon. We make the exact same product. that comes out of the current production of a wet mill. We can make it in 95 DE, 43 DE, and give them product refined or unrefined, filtered or unfiltered, and we can give them anything they want to do on the fly. And that's a very different proposal than what they can get traditionally in the past at a co-location because a lot of them don't really want some of the sugars that are only available to them. We give them a different alternative. We're talking with customers that range from 20 to 30 million pounds a year to 300 million pounds a year and bigger right now as we speak. And we're trying to convince them that we are the best alternative to build their co-location site, and we're starting to make great progress. In our first site in Shenandoah, the great thing is it's a great community and a great county, and with excellent workforce. And that's part of when you co-locate next to Green Plains. You want to make sure the workforce is there for the co-location plant. And we're starting to see that as our first step in Shenandoah. So we signed our first LOI, which we're very excited about. It's a fantastic opportunity to prove out and continue to prove out our technology. We think that ultimately, you know, as we had said, the margin structure is significantly greater in sugar than it is in protein to start. Now, at 60 pro, it starts to get up there. But in terms of the first cut margin in sugar, it's still significantly better than anything we can do in protein. Again, quantities may be a little bit smaller to start. But ultimately, over the next kind of five to 10 years, our view is that we own the leading technology. We have the leading technology. We're willing to put our our money where our mouth is, build the plant, and we have significant customer engagement opportunities both domestically and globally for these products, and I'm very excited about it.

Got it. That's great color. Maybe last one for me, just turning to the renewable corn oil and renewable diesel space. I mean, just your updated thoughts on whether you prefer long-term contracts, potentially spot, or... a mix of both, maybe where your expectations are now, knowing you're working towards something in the future?

Yeah, there's nobody willing today to anybody in the world that's going to say, I'll pay you this. Well, they would if it's cheap enough, but I'll pay you this much for your oil for the next 10 years. That's not what's happening in the market. It's a little bit more of what's the opportunity set? How do Green Plains shareholders benefit from that? If I want to just sell oil and lock in price, I have three years of a forward curve in Chicago Mercantile Exchange. I can go and start to hedge oil or find somebody in the over-the-counter market to do that as well. So if I just want to hedge oil, I can do that. I'm never worried that I won't have a home for the industry, actually, in general. We're not worried that we won't have a home for this oil. It's a significantly lower carbon intensity than what happens in soybean oil. And other veg oils, there's only one lower than us today. I think we're going to continue to drive those carbon scores lower. We'll see what happens if CARB takes a re-look at that again because of the carbon sequestration and how oil qualifies in low-carbon fuel markets. So we're very confident that what we have is very valuable. As we get to the end of our program building out our own plants, we'll be pressing towards 400 million pounds a year. while not the biggest in the world. We're, you know, top five of corn oil producers. And we think we provide a very strategic feedstock to somebody who wants to make it very compelling for us to lock our volumes in. But it's more, you know, we're not just looking for an offtake. We're looking for a partnership. We're looking for some opportunities that really drive above and beyond just us selling oil as a company. And I think we're going to get there We continue to remain in discussions with several parties on different opportunities that we think would be beneficial, and I think it's just a matter of time. But in the meantime, look, if we stay and we don't do anything, it's going to be a fantastic contribution to cash flows in the future. Yep, understood. Thank you.

Thank you. And our next question comes from the line of Ken Zaslow with BMO Capital Markets.

Hey, good morning, guys. Good morning. Can you talk about the economics of high pro? How much were you actually realizing profitability of what the economics imply?

Yeah, so we initially said when we rolled out our 50 pro, or basically as an alternative to soybean meal at 48 to 50 pro, We initially said that that initial margin is 12 to 15 cents a gallon equivalent. And we also said when you kind of go higher than that, it goes a little bit higher in the low 50s, it goes 15 to 25 cent a gallon equivalent. And then we're still in the 60% protein in that 40 to 50 cent a gallon equivalent as well. And that obviously has some contribution from the oil uplift. On top of that, the protein per unit value of protein, as we said, maintains a higher value because of the finite amount of 60 Pro and above versus 50 Pro and below. So we're still on track for all of those. That's going to be what the product mix will be. You know, the interesting thing, what we found with our technology is that if we have a customer who says, I only need 48% protein, we could run our plants a lot harder and actually increase our margin structure because when we talk about making and we initially said we were going to make three to three and a half pounds per bushel. We are now talking to four to four and a half to five pounds per bushel. So our yields are going higher, which then allows us to run harder. And if we see maybe a 48% protein customer in large volumes, we might make more money doing that than selling a 50% or 52% customer in small volumes. So we're really starting to play around with product mix and yield and production. And that's the uniqueness of of owning a technology versus buying a technology. When we have the founders and we have 40 engineers that all they do all day is build these things and add technology around these things, we get to see what the best of the best is relative to this technology. And as I indicated, we can yield as high as five pounds per bushel, which is literally unheard of in high protein relative to who we compete with around the world in corn. You know, it's a bit of a product mix, but overall, all of the margins are holding. And in fact, if you press harder with even maybe a lesser protein, you actually could make more money because of yields. So there's a little bit of that going on as well, but we're very positive on the margin structure that we've laid out and some increases that are even going on from there.

So my second question is, in 2023, what do you expect your product mix to be? Like, how do you kind of give some ranges of what you think? How much will be 60 percent? How much will be 48? And how do you do that? And is there a composite profitability that you can assign to that? That would be very helpful.

Yeah, I think that's something we'll probably work on over the next several quarters as we look at our portfolio. our takeaway capacity at the end of 2022. And we're just gonna start to go into negotiation season for 23 and 24 with customers. And I think it'll be a mix, probably a bigger mix still towards 50s, low 50s versus 60 for 2023. But once we get into 2024, our goal and everything we're doing at Green Plains around this technology, around our product development, around our customer development is to flip the script in 2024 and start to produce higher levels of 60-pro versus 50-pro. And that's really when we believe 2024 will be the time when we start to get a good critical mass in those higher proteins and even looking at ways that we could drive proteins even higher than that. So I think it's a bit of a mix in 2023, and we'll give you more guidance on that towards the end of the year. And then 2024 is when we think we'll be able to flip that a little bit more.

I look forward to hearing from you. Thanks.

Thank you.

Thank you. And our next question comes from the line of Michael Sheck with Roth Capital.

It's Craig Irwin. Thank you. Todd, you know, you were really clear in your prepared remarks that, you know, the second half of this year should be a pretty healthy financial outlook. During the quarter with geopolitical events and some of the other happenings, the volatility in corn has been a fairly active discussion among shareholders and people looking at the stock to potentially accumulate here. Can you maybe unpack for us what volatility in corn looks like, potential positives, negatives for the third and fourth quarters? Can you maybe give us a little bit of color on your position for these quarters? and how should we think about, you know, the fact that corn's been coming off since a certain country started exporting again? Is this something that maybe does help us a little bit more in the back end of the year?

I don't think it's just the corn story necessarily. You know, I think when we look at corn, certainly, you know, we had a view that overall – Corn, we were fundamentally at 8.50 bearish corn at that point because we felt like Ukraine became the storage of the world and the U.S. became the residual supplier to the world and that kind of all happened and now we've seen the market structures come back where the job of the U.S. market again is to be the residual supplier to the world and we're seeing that in the term structure and we're seeing that in the ultimate price of corn today. Now, how we finish this crop is going to be critical to the ability for the U.S. to have a good crop. And I think there's definitely areas of fantastic results, and I think we've seen some probably slip in yield over the last couple of weeks because of this weather and what you see of this record heat wave that will last another five to 10 days. But notwithstanding that, the rains in the Midwest have set at least Iowa, Nebraska, Minnesota, South Dakota, North Dakota up well to deliver, and that's kind of the most important states. I think the Mid-South, a little bit dry, but overall, we probably anticipate today yields lower than what the USDA had probably put out, but, you know, you haven't made any money in the last five years betting against the corn crop and weather, and I think that's mainly the driver here of the reduced prices overall, as well as, obviously, you start exporting out of the Black Sea, you've got tens of millions of tons of more corn hitting the market. On top of that, as we had said earlier, the Russian wheat yields were significantly better than we expected, and those are hitting the market as well, which is why you saw the wheat market help drive the corn market lower. So when you look at it, ethanol still remains a significant discount to gasoline. whether it's $0.50 or $0.80, plus you have the RIN on top of that, you can go a long way in corn before you really start to affect this industry in terms of higher, because the economics of blending ethanol are so favorable. It helps reduce gas prices today. The RIN market helps reduce gas prices today. We've seen expanded blends. And even with some of these higher stock levels, we've seen margins maintain themselves. We're going to watch it closely. I think the bigger thing that we have to watch in the U.S. is we saw some very elevated corn basis levels this summer. But we are still able to make a margin with those elevated corn basis levels. And I think we're really a lot higher than the historical highs. When you're paying $150 and $200 over the futures for corn in Nebraska and you're still able to make a positive margin I think it tells you that ethanol is not going to go away anytime soon. It's an important part of our fuel supply. And we see more and more demand for the product every day. And we've seen good exports as well. I mean, it hasn't been what it is in some years, but I think the world wants cheap molecules. So overall, I think from here, not a lot of downside left in the corn market and probably more risk to the up. But corn crop's pretty smart, and betting against weather in the last five years hasn't done very well.

Yeah, no, that makes a lot of sense. My next question is about corn fermented protein. So in your press release, you're very clear that you expect this current quarter to be one of your strongest in new orders. You know, I assume that's maybe predominantly 50 pro, maybe a little bit of 50 pro. But more importantly, would you expect these to be, excuse me, would you expect these to be announceable orders? Or orders that we might have to wait until the next earnings call to hear about? And is there a possibility we start to hear about tonnage commitments in these different contracts?

You know, I think the thing we have to do is be very careful about what an announceable order is because, you know, we announced our pet food relationship and anybody that makes any product with any protein now is trying to steal the business away. But we have a great relationship with them. So we don't want to just lay out our playbook to everybody in the world to see where we're going to sell this product. But we have product moving into many markets globally. I'll let Leslie just talk a little bit about that. But we have now great momentum coming into this quarter, whether it's going to be 50 pro. If somebody wants a little lower with higher yield, we can do that. If you want 60 pro, we can do that. I think we're going to see a variety of orders come in this quarter. not just for nearby, but also for the, really what we're waiting for is the programs to start to kick off for 2023 and the campaigns. And that's really what we're setting ourselves up for. But I think we could see strong interest in our 60 Pro product for 2023 volumes. I think we'll have very strong interest in our 50 Pro Plus product for later in the year in 2023 volumes. And we've been setting ourselves up. Remember, we haven't had any product to sell. We've had Wood River and Shenandoah. And they always want, customers that buy high value products don't want, they want to see the production running before they give you big orders that are bigger than what you can produce today. And I think we're finally able to show these customers globally that we can provide a volume into 2023 that have never been available before. Leslie, I'll talk a little bit about maybe some of our progress we're making specifically in some countries and without kind of giving our whole playbook away.

Yeah, let me try. I think the point you're making here, and I'd like to echo that, is it's imperative for us that as we've established and positioned ourselves to build very strong and deep relationships with some of the major players in the world, again, those names would not come as a surprise to you, that they also have a certain sense of view on their own proprietary diets. And as we're trying to help them, it's to our advantage to really become a nutritional partner to them. that solves problems because when we move into a diet, other people move out of the diet. So it's a very delicate balance that we're trying to address here. We understand, of course, that the market would like to see all of this broken out, but for us it's really that going deep in those relationships You can imagine that the multinational companies, feed companies in the world have markets that we can access today, some of them that need some more development for tomorrow. But we started this journey several years ago and I mentioned earlier response to the other question about the aquaculture progress it's really picking up so we have to respect the fact that some of our partners are even saying we want to we want to benefit from your technology platform from your ability to make our products better but it's also not something that they want to announce immediately due to as I said the aforementioned position in the market thanks for taking my thank you

And now I'll hand the call back over to President and CEO Todd Becker for any closing remarks.

Hey, thanks everybody for being on the call. As you can see, we're making great product, progress and product, by the way. So we are really optimistic for our departure out of 2022, operating well over half or over half our platform with more coming on in 2023. And I think that's really when we will start to see the critical mass that we need to start putting up good results in all of our segments, including our corn fermented protein or ultra high protein production. We are seeing great evolution of this product, innovation around this product, customer acceptance of this product, and we could see inflection and almost to a point where we know in 2023 when we really start to see a different green plains appear in your eyes. So until then, as I said, we're in great financial shape. should finish the year with positive margins. We've got to watch some things to make sure of that. But based on today's market, it's there for us to deliver. And we have a lot to do, but right now we're executing well. So thank you for your continued support, and we will talk to everybody next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.