Green Plains Inc. (NASDAQ:GPRE) Q4 2023 Earnings Call Transcript

Green Plains Inc. (NASDAQ:GPRE) Q4 2023 Earnings Call Transcript February 7, 2024

Green Plains Inc. misses on earnings expectations. Reported EPS is $0.1228 EPS, expectations were $0.16. Green Plains Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the Green Plains Inc. Fourth Quarter and Full Year 2023 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, Executive Vice President, Investor Relations. Mr. Boggs, please go ahead.

Phil Boggs: Thank you, and good morning, everyone. Welcome to Green Plains Inc. fourth quarter and full year 2023 earnings call. Participants on today’s call are Todd Becker, President and Chief Executive Officer; Jim Stark, Chief Financial Officer and several other members of Green Plains’ senior leadership team. There is a slide presentation available, and you can find it on the investor page under the Events and Presentations link on our website. During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today’s press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Q, and other reports and filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward-looking statement. Now I’d like to turn the call over to Todd Becker.

Todd Becker: Thanks, Phil, and good morning, everyone, and thanks for joining our call today. We reported a solid quarter this morning with $44.7 million in EBITDA and a plant utilization rate of 95%. In addition, this was our highest quarter yet of Ultra-High Protein production, along with our highest ever corn oil yields, but we still have further to go and more to unlock. Our team continues to execute on maximizing the opportunity across our entire platform, and we believe there is additional upside on our portfolio of assets that we aim to achieve as we move through 2024. This quarter and the start of 2024 had many events that has led us to this point, where our structure has been simplified and we are ready to bear the fruits of our labor on the path we laid out a few years ago and feel highly confident in our ability to achieve our goals.

Before I dive into the quarter, we also announced a strategic review this morning. As you can see in the 8-K we filed, we have entered into a cooperation agreement with Ancora. Our board believes our company is undervalued, and we will embark on a strategic review to best determine how to maximize our value for all shareholders as we aim to achieve new milestones over the coming months, which I will talk about later in the call. These are, as you know, far-reaching processes, and we will explore all paths to value realization. We will have nothing further to announce or discuss regarding the strategic review at this time. Moving on to the results, we were largely open and unhedged in the fourth quarter, which started out quite strong, as we talked about, and then rapidly tailed off as the quarter progressed.

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Q&A Session

Market fundamentals remained weak in the start of the year with higher stocks numbers and production has remained stubbornly high with the exception of some weather-related slowdowns, although this cold snap tempered this weakness, it may have been the recipe we needed to change the 2024 outlook back to a more normal environment and more positive. As we get into spring maintenance and summer driving season, we anticipate that the base margin could strengthen, as it has historically with our strong run rates and simplified structure. We are well-positioned for this opportunity. Our team has done a great job bringing consistency back to our operating metrics, but we still have opportunities to further improve efficiencies and bring our operating costs per gallon down as inflation is tempering across our plant stack.

Plants across the industry are getting older, which we believe we’ve been articulating for the last year. More and more, we believe, others in the industry are experiencing this as run rates seem unable to sustain the peak at 1.1 million barrels per day. We believe this represents a great opportunity to drive additional margin to the bottom line. We are really excited for our protein production in 2024, and the fourth quarter was another good quarter of production with 66,000 tons of sales and a bit of a build on inventory because we produced 60% protein at a commercial scale in Wood River, and we have now just started to ship some early adopters, some volumes. I will get more into that after Jim’s comments, but great progress is being made.

Looking forward, we are excited for the opportunity to add these volumes with our JV — add to these volumes with our JV at sales [ph] in Ethanol beginning commissioning as we speak and set to start protein production in the next couple of months. This will be the world’s largest fluid-equipped MSC system, and we are eager to apply our learnings from prior startups to this partnership. The conversion of 735 million gallons of capacity, including the Tharaldson JV, to ultra-high protein has set us up well to service a global demand base whose demands have not waned or wavered one bit. Our renewable corn oil production saw another impressive quarter with the highest yield for our platform yet. We benefited from pricing some of our fourth quarter early before veg oil prices came under further pressure as well.

Start-ups have been slower than expected from the new R&D capacity coming online, but we still expect them to start or ramp production over the next quarter or two. Liquidity in the fourth quarter improved again as our platform ran consistently and we were able to capture the available margins. In early January, we completed the acquisition of Green Plains Partners. In all, we issued 4.7 million shares of Green Plains stock and $29 million in cash, which included the $2 per unit in cash plus the unpaid distribution, in exchange for the outstanding public units of the partnership. We will also look at the assets in this portfolio to determine the right mix and opportunity to strengthen the story and balance sheet and drive value to our shareholders.

And now I’ll hand the call over to Jim to provide an update on the overall financial results. I’ll come back on the call to do a deeper dive on 60 Pro, the start of our Dextrose facility and Shell project, as well as exciting carbon opportunities shaping up in Nebraska.

Jim Stark: Thank you, Todd, and good morning. Green Plains’ consolidated revenues for the fourth quarter were $712.4 million, which was $201.7 million, or approximately 22% lower than the same period a year ago. The lower revenue is attributable to lower prices for ethanol and dry distillers grains in Q4 of ’23 as compared to the same period a year ago. We saw a drop in our commodity inputs with corn and natural gas down significantly year-over-year, contributing to a solid improvement in operating income for the fourth quarter compared to an operating loss in the same quarter of 2022. As Todd stated earlier, our plant utilization rate was 95% during the fourth quarter. That compares to a 93.4% run rate reported in the same period last year and slightly improved from 93.9% from Q3 of 2023.

We anticipate our plants to continue to perform in the low-to-mid 90% range of our stated capacity for 2024, barring any events outside of our control. For the quarter, we reported net income attributable to Green Plains as $7.2 million, or $0.12 per diluted share. That compares to a net loss of $38.6 million, or $0.66 loss per share, for the same period in ’22. One thing I’d like to note, our diluted share count for the quarter and year was 58.9 million shares. This share count excluded the shares representing our outstanding convertible notes because using the as-if converted method would have been anti-diluted for the periods I stated. EBITDA for the quarter was $44.7 million compared to the $5.7 million in the prior year period. Looking at the last two quarters of 2023, when our platform utilization was strong and we ran at our targeted level, EBITDA for these six months totalled approximately $97 million, a vast improvement over the negative $43 million in EBITDA recorded in the first half of 2023.

Depreciation and amortization expense was lowered by $2.4 million versus a year ago and came in at $24.3 million for the quarter. For modelling in 2024, depreciation and amortization should average approximately $24 million per quarter. We realized $49.7 million in consolidated crush for Q4 2023 compared to the $7.9 million in the prior year. Again, when you add in Q3 of ’23, consolidated crush for the back half of the year totalled $98.2 million. For the fourth quarter, our SG&A cost for all segments was $32.8 million compared to $28.9 reported in Q4 of ’22. The increase was driven by higher consulting and professional fees and higher stock-based compensation. Interest expense was $8.7 million for the quarter, which includes the impact of debt amortization and capitalized interest.

It was $2.2 million higher than the prior year’s fourth quarter. This increase was primarily due to capitalized interest being recorded in the prior year period as our MSC projects were under construction. Our income tax benefit for the quarter was $0.3 million compared to a tax expense of $4.9 million for the same period in ’22. At the end of the quarter, the federal net loss carry forwards available to the company were $37.3 million, which may be carried forward indefinitely. A normalized tax rate for the year, including minority interest, was around 28%. We do anticipate that our tax rate for 2024 will be around 24%. Our liquidity position at the end of the quarter increased from the prior quarter due to continued strong execution and favourable industry fundamentals, leaving us well-positioned to achieve the next steps of our transformation plan.

Our liquidity included $378.8 million in cash, cash equivalents and restricted cash, along with approximately $251 million available under our working capital revolver. I want to note that our acquisition of Green Plains Partners closed in early January. The final vote was supported by 92% of the unit holders that took the time to vote. This provides us with the opportunity to simplify our corporate structure and governance, generate near-term earnings and cash flow accretion and reducing our SG&A expenses related to the partnership, improve our credit quality of the combined enterprise, as well as streamlining our reporting structure in 2024. Going forward, net income from non-controlling interest will no longer be included in anything from the partnership since we now own 100% of it, which represents about $5 million a quarter.

Our non-controlling interest on the balance sheet will be adjusted as well. I do want to give you a reminder that we have no debt maturities until 2026, and our average cost of brokering during the quarter was approximately 7%. For the quarter, we allocated $31 million of capital across the platform, including $17 million to our Clean Sugar Initiative, about $6 million to other growth initiatives, and approximately $8 million toward maintenance, safety and regulatory capital. Our total capital spend for 2023 was approximately $109 million. As of today, and considering the strategic view Todd spoke of earlier in this call, we anticipate CapEx will be in the range of $125 million to $150 million this year. Our plan is to deploy capital in the highest and best returning projects with shorter-term paybacks.

Now, I’d like to turn the call back over to Todd.

Todd Becker: Hey, thanks Jim. And so we have so many game-changing, exciting things happening at Green Plains, I could take a few hours to go over it, but I’ll give you some highlights instead. We are in the process of beginning to commission our first, and the world’s first, commercial-scale Clean Sugar technology system that enables a dry-grind processing facility to make commercial quantities of dextrose for use in industrial food and chemical processes and this is located at our Shenandoah plant in Iowa, and we believe we will be ready to begin delivering product in the beginning of the second quarter. On the customer front, we continue to have strong interest in our low-carbon intensity dextrose products. Stay tuned for some announcements on commercial agreements as we are in late-stage negotiations with several current counterparties for a significant portion of our production over the next several years.

With up to 40% lower carbon intensity than a wet mill, and we validated that in 2023 and continue to with life-cycle assessment for our dextrose compared to life-cycle assessments for U.S. corn wet-milling industry and the other European industries as well and we believe, and it’s actually happening, it would be a game-changer for us and could ultimately reshape our entire company. We expect to see results quickly, and our team is already working on a second, even bigger location, where to put it, but we will have further insights on that to share in the future as well. Our protein, we continue to see strong demand for our ultra-high protein products. We are nearing some commercial agreements on 60% protein, but before we get to that, the fourth quarter was our strongest quarter yet on 50% production and sales, and we continue to broaden our domestic and export customer base, yet we feel the international markets are proving to be more valuable to us for realization of better pricing, and we expect that in the future.