Alto Ingredients Inc (ALTO) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pacific Ethanol second-quarter 2016 earnings call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Becky Herrick of LHA. Ma'am, you may begin.

Thank you, Kaley, and thank you all for joining us today for the Pacific Ethanol second-quarter 2016 financial results conference call.

On the call today are Neil Koehler, President and CEO, and Bryon McGregor, CFO. Neil will begin with a review of business highlights and Bryon will provide a summary of the financial and operating results. And then Neil will return to discuss Pacific Ethanol's outlook and open the call for questions.

Pacific Ethanol issued a press release yesterday, providing details of the Company's quarterly and six-month results. The Company also prepared a presentation for today's call that is available on the Company's website at pacificethanol.com. If you have any questions, please call LHA at 415-433-3777.

A telephone replay of today's call will be available through August 4th, the details of which are included in yesterday's press release. A webcast replay will also be available at Pacific Ethanol's website.

Please note that information in this call speaks only as of today, July 28th, and, therefore, you are advised that information may no longer be accurate at the time of any replay.

Please refer to the Company's Safe Harbor statement on slide 2 of the presentation available online, which says that some of the comments in this presentation constitute forward-looking statements and considerations that involve a number of risks and uncertainties. The actual future results of Pacific Ethanol could differ materially from those statements. Factors that could cause or contribute to such differences include, but are not limited to, events, risks, and other factors previously and from time to time disclosed in Pacific Ethanol's filings with the SEC.

Except as required by applicable law, the Company assumes no obligation to update any forward-looking statements.

Also, please note that the Company uses financial measures not in accordance with generally accepted accounting principles, commonly known as GAAP, to monitor the financial performance of operations.

Non-GAAP financial measures should be viewed in addition to and not as an alternative for the reported financial results as determined in accordance with GAAP.

The Company defines adjusted EBITDA as unaudited net income or loss attributed to Pacific Ethanol before interest, provision or benefit for income taxes, fair value adjustments, and depreciation and amortization.

To support the Company's review of non-GAAP information later in this call, a reconciling table is included in yesterday's press release.

It is now my pleasure to introduce Neil Koehler, President and CEO. Neil?

Thank you, Becky, and good morning, everyone. Thank you for joining us today.

Our financial results for the second quarter of 2016 reflect stronger industry fundamentals and our success driving operational excellence throughout the organization.

We reported record net sales of $422.9 million. We achieved record total gallons sold of 233.2 million. Gross profit was $17.7 million. Operating income was $11.6 million. GAAP net income was $4.7 million, or $0.11 per share, and adjusted EBITDA was $20.4 million.

In the second quarter improved fundamentals supported stronger performance across the industry. Gasoline demand in the US market has hit record highs, with lower fuel prices, an increase in large vehicle sales, and a strong summer driving season. This supports the growth of the ethanol industry with both production and demand increasing year over year.

In addition, the new corn crop is off to a tremendous start, indicating high yields, a potentially record-high production year, and the highest ending stocks since the 1960s. Corn prices have dropped to near five-year lows.

The industry also continues to be supported by sustained exports at levels that are on track to exceed 2015, with an expectation of up to 1 billion gallons of exports in 2016. Ethanol remains the lowest-cost and cleanest source of octane to meet the growing demand for octane worldwide.

US ethanol producers are the low-cost suppliers to world markets. World sugar prices have risen to $0.20 per pound, while the equivalent sugar price of corn is approximately $0.07 per pound, making US ethanol significantly lower cost than the competing Brazilian ethanol. Analysts expect sugar prices to remain high for the next couple of years and for Brazilian sugar cane mills to swing some production from ethanol to sugar, creating more demand for US ethanol throughout the world.

Exports of distillers grains also remains strong, driven by the growing demand for proteins in world feed markets.

All of these factors are supporting a continued positive production margin in the industry and for our company.

At the plants we continue to implement projects that provide meaningful near-term production returns and lower our carbon score. We are still on schedule to be in commercial production of our industrial scale membrane system at our Madera facility in the third quarter. This system separates water from ethanol in the plant's dehydration process. We are the first adopter of this technology in the US ethanol industry, which increases operating efficiencies, lowers production costs, and reduces the carbon intensity of the ethanol produced.

Our cogeneration project at the Stockton facility is expected to be completed and in commercial operations by the end of the third quarter as well. This facility converts processed waste gas and natural gas into electricity and steam, which lowers air emissions and reduces energy costs.

We are awaiting final approval from the EPA to qualify the cellulosic ethanol produced at our Stockton facility for generating D3 cellulostic RINs. The process uses the combination of enzyme and mechanical processing of corn fiber to produce up to 1 million gallons of cellulosic ethanol on an annualized basis.

This is key to our strategy to diversify our technology and incrementally increase our production of advanced biofuels.

We continue to develop a number of opportunities to further improve our yields, lower our costs, and reduce the carbon intensity of our ethanol produced.

As an example, we are evaluating a 4-megawatt solar photovoltaic power system at our Madera facility. In addition, we are developing anaerobic digestion at our Stockton facility. This technology will reduce the amount of natural gas used at Stockton, replacing much of it with biogas. Initiatives such as this improve our differentiated production platform and position us well for sustained profitable operations.

Supporting our investment in plant improvement initiatives, particularly those aimed at improving our carbon scores, are regulations such as the Low Carbon Fuel Standard currently enforced in California and Oregon. The LCFS specifically supports demand for the low-carbon ethanol we produce at our facilities in those states as they seek to combat the acceleration of climate change through mandating significant carbon reductions.

The California Air Resources Board has recently updated carbon scores for all participating ethanol facilities under California's LCFS program. Through the adoption of low-carbon technologies we are improving our carbon scores at our western facilities.

The market for carbon credits has been volatile in California over the last year or so, ranging from a low of $22 per metric ton to a high of $130 per metric ton, and currently is trading in the $60 range. This level translates to a price premium on our lower-carbon ethanol produced and sold in California of approximately $0.05 per gallon compared to the benchmark Midwest ethanol with which we compete.

The market is currently looking for a signal from state government that the carbon programs of California will be extended beyond 2020, which will support companies like ours in making more substantial investments in new technologies to more significantly reduce our carbon score.

The footprint for 15% ethanol blended fuel, or E15, continues to grow. Further, this month RaceTrac announced the rollout of E15 in more than 100 stores over the next three years. They join with retailers Mapco, Murphy USA, Sheetz, Minnoco, Kum & Go, Thorntons, and others in bringing E15 to market.

The Renewable Fuel Standard requires refiners to blend a minimum of 14.5 billion gallons of ethanol in 2016, and a proposed minimum of 14.8 billion gallons in 2017, further supporting the increase in ethanol blending.

In summary, our diverse base of production and marketing assets provides us a unique platform to expand our share of the renewable fuel co-product markets. With production in both the Midwest and the West, we have a strong presence in high-production and high-demand regions. This provides us with the ability to spread our commodity and basis risks across these markets and better benefit from regional price opportunities as the markets adjust to supply imbalances, logistical constraints, and availability of feed stocks. We are also able to leverage this diversity in our marketing business throughout the United States.

Now I'd like to hand the call over to Bryon McGregor, our CFO, for a review of the financials.

Thank you, Neil.

Our consolidated financial results for the second quarter were as follows.

We reported net sales of $422.9 million, up 86% compared to $227.6 million in the second quarter of 2015. Cost of goods sold was $405.2 million compared to $221.4 million in the same quarter last year. Gross profit was $17.7 million compared to $6.3 million in the second quarter of 2015.

SG&A &A expenses were $6.1 million compared to $4 million in the second quarter of 2015. Although this represents a significant year-over-year increase, it reflects the additional operational costs associated with the merged companies. Further, our SG&A spend this quarter is lower sequentially by over $2 million, reflecting our efforts to reduce professional fees.

While we remain resolute in these efforts, for conservative purposes we anticipate for the remainder of 2016 that our SG&A expenses will average $7 million to $7.5 million per quarter, consistent with our prior guidance.

Income from operations was $11.6 million compared to $2.3 million in the prior-year period.

Interest expense was $6.5 million compared to $1 million in the second quarter of 2015. The increase in interest expense reflects the debt we assumed in our Aventine acquisition and our decision in the second quarter to capitalize interest in our debt rather than pay cash, an option available to us under our term loan structure. This decision was not taken lightly, given that it represents a higher cost of borrowing, but given the poor margin environment in the first quarter we believe it was important to conserve cash.

Benefit for income taxes was $245,000 compared to $530,000 provision in the second quarter of last year.

Net income available to common stockholders was $4.7 million, or $0.11 per share, which compares to net income of $677,000, or $0.03 per share, in the year-ago period.

Adjusted EBITDA was $20.4 million compared to $5.4 million last year.

Now turning to our balance sheet, cash and cash equivalents were $31.7 million at June 30, 2016, compared to $52.7 million at December 31, 2015. The decrease in cash was primarily due to over $17 million in debt reductions paid out in the first quarter. On a sequential basis, cash increased $12.5 million due to stronger cash flow from operations.

Working capital was $138 million at June 30, 2016, compared to $125 million at December 31, 2015.

Our second-quarter capital expenditures were approximately $2.5 million, mostly related to plant improvement initiatives. We continue to focus on investments to generate meaningful near-term results through improving plant performance and carbon emission reductions. Consistent with our prior guidance we expect our full-year 2016 CapEx spend to approximate $15 million. We also continue to explore lease financing options that would fund CapEx for the remainder of the year and preserve adequate cash balances.

In our efforts to lower our cost of borrowing and strengthen our balance sheet, we are actively evaluating various options to refinance our term debt. It is important to recognize that this plant debt does not mature until September 2017. We are beginning to see a long overdue thawing in the capital markets and the integration and benefits of the acquisition are now bearing fruit.

Accordingly, we believe that it is in the best interests of the Company and our shareholders to take advantage of these trends and use the time available to optimize our refinancing options, and to do so on the most advantageous terms to the Company. Nonetheless, we are cognizant of the shareholder sensitivity regarding this obligation and refinancing this term debt remains one of our top priorities.

With that, I'll turn the call back to Neil.

Thanks, Bryon.

With the strengthening of the margin environment and the growing demand for ethanol as a low-carbon, high-octane renewable fuel, we are seeing the benefits of our diversified market position and investments in plant improvements.

Our strategy for growth is supported by the following initiatives. First, we are leveraging our diverse base of production and marketing assets to expand our share of renewable fuel and co-product markets. Second, we are continuing to implement plant improvement initiatives to generate meaningful near-term returns. Third, we are continuing to evaluate opportunities to reduce our cost of capital and further strengthen our balance sheet. And, fourth, through initiatives such as cogeneration, anaerobic digestion, and solar power generation, we are working on ways to significantly lower our carbon score and generate higher-value production at our facilities.

In summary, we continue to strengthen our leadership position in the production and marketing of ethanol and co-products. Our focus on operational excellence, along with the strengthening market environment, support our confidence in our ability to further grow our share of the market.

With that, Kaley, we are now ready to open the call for questions.

(Operator Instructions) Eric Stine; Craig-Hallum.

It's Aaron Spychalla on for Eric Stine. Congrats on the quarter. Maybe first on corn basis, can you talk about your directional view from here? Are you seeing tighter conditions there as corn has moved lower? And maybe talk about your ability to lock that in, whether you've done that or whether you're exploring that right now.

There is, as you mention, a relationship often between the movement on the board and basis. So with the very rapidly dropping corn price we have seen the farmers get a little stingier and wanting to hold onto that corn. And enough end users of corn are not contracted and so that will tend to create a bit of a supply/demand situation where the basis increases. And we have seen that.

There still is so much corn not only in inventory today, but with this bumper crop in the works now there's really only so far that the basis can go in strengthening. But we have definitely seen it. We've also seen some logistic issues, so out West, that -- we're seeing some freight premiums.

So marginally higher, and our view is that that could be the case until we get closer to the new harvest. And then we would expect basis to moderate, possibly very significantly, and corn prices to continue to go lower. So we're bearish corn prices, which is obviously a very good situation for an ethanol producer.

We do pick spots and lock basis. We have locks in forward corn basis at all of our facilities. So we actually are not having to pay the current basis numbers. But (technical difficulty) that as an opportunity to lock in lower prices.

Okay. Good. Thanks for the color there. Maybe secondly, on the LCFS, you kind of talked about it, but there's been a lot of noise about potential legislative steps to maybe adjust the program slightly. Curious to your thoughts there, and could you just talk about that a little bit?

Sure. The State of California is very committed to its carbon policies. For the few seconds that Jerry Brown was talking at the Democratic Convention last night that was pretty much all he focused on, was climate and clean energy. So we're very confident in those programs.

What the situation is is that the programs, both the cap and trade and the LCFS, which are separate programs but connected as the bulwark of the carbon policies in California, are scheduled to end in 2020. And from a Company standpoint and an industry, we need the regulatory certainty beyond 2020, because we are looking at substantial investments that have an investment horizon beyond 2020.

And the administration -- the legislature is very cognizant of that. But it is a political process, so as they try to piece together both legislation and regulations to extend the program there has been, as you mention, chatter, political chatter, around what that looks like and are there some revisions to the program. There might be. But we're very confident any revisions will continue to support a very strong carbon policy and a very strong signal for companies like ours to continue to make investments and continue to recognize premiums and good returns for the lower-carbon ethanol that we're producing.

Okay, thanks. And then maybe last for me, you touched on E15, but saw recently a terminal operator in the Midwest planning to offer E15 at the terminal. Can you just talk a little bit about the significance of that for the overall market and if you think that this is the start of a broader trend? Thanks.

We do think it is. And certainly, having E15 available at the terminal network becomes a very key part of the infrastructure. It's really quite simple to put in the computer programming and adjust your tankage to make it available. And as the market is demanding more of that, we would expect other terminals to adopt similar strategy.

So the E15 clearly has been slower growing than many of us would like to see. Part of that is because we're so successful in expanding the E10 market with higher gasoline demand, so there's been less pressure to move to E15 under the RFS. But with the high RIN prices that we're seeing today, clearly the market is signaling that there will be a need to move to higher level blends. And while it will not be a material part of the market, every incremental increase helps and we do expect to see that as we move forward.

Okay. Thanks for taking the questions.

Craig Irwin; ROTH Capital Partners.

Congratulations on the strong result. So my first question is about the utilization. So 95% is a very healthy number. Your western plants have operated at much higher levels of utilization in the past when spreads have been as positive as we're starting to see them now. Can you maybe comment on where you're operating today, after the end of the quarter, and where you see potential maximum utilization given the complete fleet, just post acquisition of Aventine?

95%, as you mention, is a high number. I think achieving 100% and above, while it's possible, it may not be sustainable, particularly as we continue to focus on the highest efficiencies, highest yields, which often means holding back a bit from maximum production.

We also are seeing in the summer months, which was indicated by the EIA numbers that when it's very hot, like this particular week we're having throughout the United States, cooling capacity becomes a limit at ethanol facilities. And you tend to see production come off a bit with that as well.

So we're seeing that at our plants and we're seeing that in the industry. We think that when the margins are good, running at a 95%, possibly a bit above, is certainly achievable and would be our target. But we are also cognizant of the fact that we are enjoying good margins because we have a reasonably good demand between supply and that demand, and we need to continue as an industry to focus on that as well.

So it's both plant-specific, company-specific, and we really do, as a significant player in the market, try to have a view towards doing our part to make sure that we keep that supply/demand balance in a good tight balance.

Great. Thank you for that. Also, marketed gallons, a little north of 110 million gallons in the quarter was an all-time record for Pacific Ethanol. So, again, congratulations there. I was previously under the impression that maybe we would see the marketed gallons come in a little bit with your team at Kinergy maybe supplying some of the West Coast demand out of internal production instead of trading it from outside.

Can you comment on how the trading of gallons, the marketing of gallons of third parties, is continuing to progress? Is this just an unusually strong quarter or is this a number that can continue to go up?

Our Kinergy brand is a very strong brand, Craig. And we've shown that in the West, where we have the largest market share of any ethanol producer or marketer. And we did make a point when we announced the acquisition that our intent was not to cannibalize our existing and growing market, but to incrementally add to it.

And what we found at the Aventine business is that they were just on a spot basis applying those produced gallons. And it created an opportunity for us to take that Kinergy model and trade around those assets. We really view ourselves as a -- it's a producer/marketer model and by being able to trade around our production assets creates not only a strong basis from which to maximize profitability at our plants, but to also extend our market share and provide value to other producers that we work with.

So we have seen incremental growth not only in the West, but we've been able to introduce that same strategy into other parts of the country and we'll continue to endeavor to do that.

Great. And then last question if I may -- your co-product return dipped a little bit sequentially. Can you comment about whether or not this is the corn to DDG ratio out there or maybe a mix of DDG and yeast and other products from your Aurora plant?

It's principally the corn and DDG, and consequently where we sell a lot of WDG, wet distillers grain, relationships. So we have seen sequentially some softening of that relationship. It's actually -- seasonally you expect it this time of year when there's a lot more grass and the cattle are out on the grass and that impacts the overall market.

Exports continue to be strong. China has not taken as much as they have in past years. And they can be a real swing factor in that relationship between corn and distillers. So there has been, as you mentioned, a slight softening in that co-product return principally driven by the DDG market.

That being said, we continue to see protein demand very strong in the world. And we would anticipate as we move into the fall that we would see some further strengthening of the co-product relationship.

Thanks, again, for taking my questions. I'll hop back in the queue.

Jeff Osborne; Cowen and Company.

This is Chris on for Jeff. Can you please quantify the level of the LCFS certificates in inventory and give us an idea of the plan to monetize those in the second half of the year?

In the Q that we will be putting out, I believe the inventory is approximately $13 million. And that's down from $17 million at the end of last quarter. So we have been monetizing some of that. It's part of our strategy to not only be a market maker, but to have credit available to support our contractual commitments to our customers. So it's not really a speculative play; it's our being active in that market and providing a backstop to make sure that we're providing the level of carbon intensity that the customers want.

Great. And then, would you also be able to provide an update on the LCFS program in Oregon and how that's coming along?

Yes. And that program, while it was in a reporting phase until this year, is now in full compliance phase. So that program, we're just now -- with the first reporting requirements at the end of June, we're just now starting to see a system set up to be able to comply and trade credits. We're starting to see some incremental, yet-small premiums for product up there.

So it's really at its infant phases but we think that, combined with California's program, that we are going to see more of a regional market in carbon pricing that looks fairly similar between Oregon and California over the next year. But I would say that it will probably take the better part of 2016 for that program to mature and be a little clearer in terms of the price signals.

Perfect. Thanks, guys. I'll get back in the queue.

Amit Dayal; Rodman & Renshaw.

Congrats, guys. Most of my questions have been asked. Just maybe one on the EPA approval that's pending for the cellulosic ethanol. Can we expect this to come through before the end of the year?

That would absolutely be our expectation. We thought we would have had it by now. We don't see any reason for it not to be approved. But, as we've seen from the EPA in their delays in implementing the RFS program and the annual RVOs, it's hard to fully know when the EPA will act. But we have complied with all of the data requests and feel that we have a very strong application in. There's been some follow up where there was some need for third-party validations that we have also provided.

So as far as we can tell, there's no other information that's needed and we're just awaiting a final approval. And not only would we expect that before the end of the year, I would hope that we would see that in this quarter.

Thank you. And just maybe one more. Neil, you commented on trying to grow market share in third-party sales and co-products, et cetera. What's the path to achieve this? Are we going to spend some real resources towards this effort? Any clarity on this would be helpful.

Sure. The investment in many respects has already been made. And we do have the ability to grow without further investments. We have a very strong production base. We have a very strong fleet of rail cars and trucking relationships and downstream terminals that we lease. So we could take on some additional tankage on a lease basis. We are looking at around our system some opportunities to make capital investments as well, to further expand the market. And when we have more concrete plans we can share them with you at that time.

Thank you. Appreciate it.

(Operator Instructions) Carter Driscoll; FBR Capital Markets.

I was hoping you could maybe talk about -- you mentioned a couple issues about how you're lowering your carbon intensity score at individual facilities, both from the feedstock and increasing yields. Could you talk maybe more high level about how you can effect this at individual facilities and maybe compare and contrast those located on the coastal versus your Midwest facilities, and how much regulation plays into it? And obviously subsidization is very important from California's perspective, but maybe potential migration for all of those policies. As Oregon adopts it could you see some similar types of policies in some of the other Midwestern states in which your plants are located?

Yes. Starting with your more macro question, we are seeing interest in other states, other regions. The Northeast in particular has been looking at LCFS-type programs. Really the RFS in effect is also a carbon program, and over time you might see it migrate more to a performance standard that is even more specifically focused on carbon. British Columbia has a program. The State of Washington has been talking about a program.

So we definitely are seeing an adoption of these programs. We have an international treaty on reducing carbon worldwide. So our view is that both carbon and the octane values of ethanol are very large drivers for future growth.

As it relates to our company and the program specific, it's all about reducing your petroleum inputs in the process. So starting upstream and working with farmers, they have become a lot more carbon efficient and in some places are actually sequestering carbon in the soil. We think farmers need to get more credit for that and we're working with both the farmers and the regulators to recognize that. Of the 70 points of CI, carbon index, about 15 of those are upstream and we think there's an opportunity to lower that.

The balance really is, in our case, the natural gas and electricity that we use in our plants that is from nonrenewable resources. We have an inherent advantage out West in that the electricity grid is already weighted towards more renewable product than in the Midwest, where the coal is predominant. So that is one of the advantages we already have. But there is still a fair amount of natural gas generation of electricity in California. And that's why we are looking at initiatives like the solar project, to be 100% renewable. And we can pick up a couple of points on CI that way.

The biggest driver is natural gas, so really the process energy to produce the steam to drive the process. That is approximately 15-plus points. If we were to completely displace that with biogas or some other renewal resource, that is a big mover.

The regulations are critical. And that's why the extension of this program beyond 2020 is important, because these are substantial investments. If you're looking at anaerobic digestion, many millions of dollars and beyond a investment horizon of 2020. And so we need that certainty.

Natural gas is plentiful. It's inexpensive. We would not, without some ability to monetize the carbon value, we would have no reason to replace the natural gas with biogas, given the high capital cost. But with the premium pricing, even at today's number -- and we expect that to go significantly higher -- the investment becomes very attractive.

So that's what we're looking at, in the Midwest facilities particularly in Nebraska, where the spreads on freight are very good. Going to the western United States, we are in the preliminary phases of looking at investments at that facility to be able to ship unit trains of product into California and single cars into Oregon.

The Illinois plant at this point, until we see carbon markets mature outside of the West we're not focused at this point on that plant for carbon reductions.

Okay. And then maybe just talk about that in context of your efforts to increase cellulosic ethanol, obviously in particular with Stockton, the ability to port that technology to other facilities. Any near-term impact or is it still going to be a very small percentage of total revenue generation going forward?

Small percentage, correct. But we see it as a very viable strategy that will have a meaningful impact on our bottom line. So even 1% you're looking at up to that million gallons plus of ethanol at a facility, when you have a D3 RIN that next year will probably be trading at close to $2 a gallon. We do have some incremental cost, obviously, to produce that, higher cost of enzymes, which we're continually trying to improve upon.

But that is a very significant part of what could be an expanding role for cellulose ethanol in our platform. And it is technology that we can adopt at the other facilities.

So first step is to get the D3 RIN certification from the EPA and to fine tune and optimize the process in Stockton. And then we absolutely would look to extend that to other facilities.

And it becomes meaningful from an industry standpoint. We see that. While it's great that there have been some greenfield cellulose ethanol plants built, that's a very, very expensive route to go. And we think that the nearer-term opportunity for the industry will be looking at the corn fiber, looking at other incremental bolt-ons of new technologies and feedstocks where you already have existing infrastructure and that will provide some significant cellulose ethanol gallons to the market. And that's what the Renewable Fuel Standard is calling for.

Okay. And just a quick follow-up. What is, in your estimation, a typical, let's say, 100-million-gallon facility -- pick a number -- for a cellulose ethanol greenfield plant CapEx perspective?

To build a pure cellulose ethanol plant?

Correct.

Well, first of all, the ones that have been built have been $20 million, $25 million. I think building 100-million-gallon cellulose ethanol plant, given the logistical constraints on feedstocks -- the beauty of corn, the beauty of oil, is that it's such a well established supply chain. It's a very concentrated form of energy and feed.

And with the cellulose products, whether it's corn stover, wheat straw, orchard prunings or green waste, it's a very different animal. So managing the supply of that I think is going to lead to plants that are significantly smaller than 100 million gallons. So that 20 million to 30 million I believe would be more the norm.

And the numbers, because it's been a research and development effort, have been really quite high. And there's an effort to bring that down. But it's been in the range of $10 to $20 an installed gallon. So we've seen hundreds of millions of dollars invested in these smaller plants. We think that that could migrate down and be in the, say, $5 per gallon range, but that's still $100 million on a 20-million-gallon plant and more than twice the cost of building a corn ethanol plant.

So that capital cost remains a significant hurdle, in our estimation, on the greenfield development. That's why a certainty around the RFS and these carbon policies are critical, because there is a role for these plants and it's going to require a very strong and clear regulatory environment to justify that much higher capital cost.

Appreciate all the color. Thanks.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Koehler for closing remarks.

Thank you, Kaley. And, again, thank you all for joining us. We're very pleased with the performance of the Company and encouraged by the strong market signals. And we look forward to speaking with you next quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.