Andrew Strelzik: Hey, good morning. Thanks for taking the questions. I actually wanted to follow up on that last comment on High Pro. And it does sound like to your comments, the volume is kind of tracking. You reiterated the 20%, 30%, but I wanted to ask you about the economics of that revenue stream, High Pro or Sequence, specifically. We’ve certainly seen the broader protein markets evolve in recent months and we’ve heard some demand sensitivity around premium ingredients generally. So just curious what you’re seeing and expecting in terms of protein economics versus kind of your initial expectations in those conversations?
Todd Becker: Yeah, you’re right on all the protein economics. We’ve seen that definitely compress across anybody that makes any type of premium ingredient with the availability of some of these products that have come on to the market, which is why we want to have escape velocity from some of these lower proteins, and we’re focused really on 60 Pro Sequence and above. What’s unique about the 60 Pro Sequence is that it’s a very different type of product that is made in a fermenter, that has specific characteristics that — taste and texture characteristics that our customers are looking for, and it’s a designed product. We have seen that corn gluten meal market compresses well. So, we got to kind of watch that overall. And generally speaking, we believe our product is a premium and minimum corn gluten meal, if not a significant premium to that depending on the use case in the world.
So look, we’re — overall, these are just markets that have been flow, you’ve seen a significant recovery in the last couple of — last week or so in protein markets. So, they’ve been bid up. We’ll see what Argentina does. I won’t make some of the same comments on Argentina I’ve made in the past, but generally speaking, it’s still a bit of a wild card and I think it’s proven itself on the last couple of weeks. But, when we look at 60 Pro, it’s just the first step we have with some of our biggest customers — some of it’s labeling. You can’t — this is a very different type of product. And so, with one of our potential big customers that we’ve been talking to for three years, they finally got labeling approved for this product after many, many tests, many, many use cases, and how we’re going to label the product.
You have to remember this is a combination of protein and yeast. And within that yeast, we can — Leslie and the team have been working on new technologies to embed in that yeast that we’ve been working with our customers on. It’s just a very different product, and I don’t think you should count out even higher proteins from there. We’ve made significant breakthroughs on the bench and at lab scale on higher protein products, and I think that’s our next step with this platform. Sequence is a platform. And while certainly the base protein markets, you’ve seen it, there’s an avalanche coming of High Pro soybean meal, but generally speaking, the market seems to be taking it. It was never really a big concern of ours that the market wouldn’t absorb it, it might be chunky, but I think once it absorbs it, we go back to potentially where we were in the past.
Might take a few years, though.
Andrew Strelzik: Got it. Okay. That’s helpful. And then, my second question, in the prepared remarks, in particular around CapEx, you made some comments around financing. I don’t know if you can elaborate on that. And then just kind of relatedly, more broadly, as you think about evolving the asset base towards some of the very exciting opportunities that you’ve talked about whether that’s expansion in Nebraska or more dexterous opportunities, how do you think about the capacity to fund those currently or the plans behind those would be great? Thank you.
Todd Becker: Yeah, thanks. I’ll talk on the latter point. Jim can talk a little bit about on kind of our financing strategies, because I think we’re in the middle of that, trying to kind of change our debt around and reduce our debt costs. But generally speaking, that’s what we have to do. We have to always look at and be quite frankly realistic with ourselves of what we can do today and where we should allocate capital. When you look at the 45Z opportunity with guaranteed credits that are going to be multiple years ahead of anybody else with Nebraska coming online, we have got to really be honest and take a look to say, where should we allocate capital. Well, those are pretty good returns to expand and do a little bit of an expansion there first because of the margin structure that’s in place for the first two years of 45Z.
And because we have — besides one other person in Nebraska, we have the most gallons in Nebraska today, we have got to take advantage of that position and for our shareholders and for our balance sheet because it’s such generation of high free cash flow returns relative to anything else we can do as quickly as that. On top of that clean sugar, when we — we want to make sure, number one, we’re in site selection now. It’s between three or four states, and there’s going to be a bit of competition there. And then on top of that, when we do make site selection, we want to make sure that we do that with customers in mind and customers that want us to build it, and not just put another dextrose facility on the market. So, we think those will come.
We will build it alongside commitments from customers to take the product, and that’s how exciting this is. So, yeah, we’ll have to look at how we finance that next clean sugar facility. It’s certainly not just cash off the balance sheet, but that’s why we want — we have a lot of unencumbered assets, we have plenty of spare capacity. I would say first and foremost, we would look at putting some debt against some of those new builds, especially in sugar. I think we can do Nebraska off the balance sheet in terms of either financing it with unencumbered capacity and/or cash. And I think that will drive our returns then to give us free cash flows to do with the other things again and come back to building that seventh MSC site once we kind of — once the team really makes significantly really more traction on 60% protein as well.
Jim Stark: And I would add, Andrew, that there’s been no shortage of infrastructure partners who want to look into financing carbon capture equipment. We do have firm funding in place. As we get closer to finalizing that, and when we can come to you and say that we’ve made the commitment, we’ve gotten everything ready in the schedule for building, we’ll provide more details. But as we said on the last call, we’re probably somewhere around $100 million in capital for the three Nebraska plants today. And again, I think Todd reiterated earlier that that’s a one-year payback based on the EBITDA or actually under that, based on the EBITDA it’ll generate. So — from the standpoint of being able to find longer-term capital at good rates, it’s not been any shortage of that for us when we look to put dollars around the carbon capture equipment that we were going to deploy in Nebraska.
Todd Becker: Hey, Andrew, one last thing. I’ll just tell you this. There’s also — besides what Jim just said, there’s no shortage of people that will monetize your forward cash flows. As soon as you start sequestering carbon and you have 45Z backed credits, you can get very interesting advances on future cash flows at very interesting rates, at very interesting advance rates. So, that’s — there’s plenty of that that is starting to look at it. We’ve also seen, I think, more interestingly, demand for voluntary credits starting to rear its head here. And it’s not coming from, I would say, an airline or a transportation company. It’s coming from technology. I mean, it’s coming from commitments that players have made to decarbonize because of the increased use of, call it, data center emissions and electricity.
There’s — those are — there’s significant demand showing up for high-quality carbon credits generated off of biogenic carbon. Now, where will it go? Don’t know. But I don’t think there should be any thought that our view is it’s a starting point of $50 a ton, maybe a little bit lower to start, but generally speaking, there is a — you could actually make a case for significantly higher biogenic carbon credit values, even with the lower low carbon fuel standard values in California.
Andrew Strelzik: Got it. Very helpful comments. I appreciate it very much.
Todd Becker: Thank you.
Operator: And we will take our next question from Manav Gupta with UBS. Your line is open.
Manav Gupta: So, my question relates more to, what you think on the corn oil pricing side because as you pointed out, I think Martinez is ramping from 22,000 barrels towards 50,000 barrels and then Rodeo is ramping from 28,000 towards 50,000 again. So, big demand pull coming on that side, but as some of these operators are also saying is, look, we are starting with soybean oil, in some cases refined soybean oil, because it’s easier to process, but once we get along the learning curve, we will move over to lower CIC stocks. So, just trying to understand, obviously, as these new plants start up, the demand for vegetable oil will go up, but do you think there’s a proportionally significantly bigger increase because the carbon intensity of corn oil is so much lower than soybean oil that the actual demand pull on corn oil is even harder than soybean oil as these new plants start up?
Todd Becker: Well, I mean, a 50,000 barrel a day plant is more than the ethanol industry produces every day in corn oil. So, we’re very excited that that plant — that those plants are going to ramp up later this year. And when you look at it, any way you shape it, maybe during this year they can start up with soybean oil, but when you look at the economics next year, and the going away of the biodiesel tax credit, and the advantage that corn oil has in the 45Z and 40B, right, Devin, and 40B economics, there’s no — going to be no shortage of corn oil needs next year. And again, I think we’re starting to see some pressure on imports of Uco, but we’re putting more pressure on the US government to say what are we really importing?
Somebody’s got to figure out that that’s not all Chinese use cooking oil, otherwise known as what we would say palm oil. So, we’re going to put a lot of pressure on those sources as well, but generally speaking, when all — there will be a moment in time when you have all of these big plants hitting, and they’re going to need all of just about everything they can buy, especially in the low-carbon oils. And even recently, we maintain our advantage, and Devin can talk a little bit about that basis, the new guidance that just came out, we maintain our advantage on corn oil. Correct, Devin?
Devin Mogler: That’s correct. Yeah, so, the new modeling, and we expect that to tie into 45Z, which the administration has told us they’re going to start working on before the ink is even dry on 40B, but you’ve got your corn oil, which is at an advantage to soybean oil. And even with the climate smart ag practices that they allow for soybeans, it only allows them to reduce their carbon intensity by about five points. So, corn oil should still be at an advantage. Now, we do expect them to expand all those climate-smart ag practices across the board in 45Z, which could help soybean oil, but it will also help us on the corn ethanol side.
