Green Plains Inc (GPRE) 2012 Q3 法說會逐字稿

Good day, everyone, and welcome to the Green Plains third-quarter 2012 financial results conference call. Today's call will be recorded. And now at this time, I will turn the call over to your host, Mr. Jim Stark.

Welcome to our third-quarter 2012 earnings call. On the call this morning are Todd Becker, our President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; Jeff Briggs, our Chief Operating Officer; and Steve Bleyl, our Executive Vice President of Ethanol Marketing.

We're here to discuss our quarterly financial results and recent developments for Green Plains Renewable Energy. There is a slide presentation for you to follow along with as we go through our comments day. You can find this presentation on our website at www.gpreinc.com, and it's on the Investor page under the Events & Presentations link.

Our comments today will contain forward-looking statements, which are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains' management team, and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Green Plains' actual results could differ materially from management's expectations. Please refer to page two of the website presentation and our 10-K and other periodic SEC filings for information about factors that could cause different outcomes.

The information presented today is time-sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Green Plains will not be reviewing or updating this material.

Now I would like to turn the call over to Todd Becker.

Thanks, Jim, and thanks, everybody, for joining our call this morning. We have a lot of interesting news to talk about, so let's get started.

First, a quick rundown on the third quarter. Our risk managers and traders worked diligently in the quarter to produce a positive EBITDA per gallon in our Ethanol Production segment. While that doesn't sound like much, when you consider the margin environment during the defensive quarter, it was a good performance by the team and shows the ability of our overall asset base to perform during cyclical swings as compared to our peers.

In fact, the average daily spot platform crush was a negative $0.14 per gallon for the third quarter compared to a positive $0.02 crush we were able to achieve. Our industry group often reports the margin including corn oils, but, as you know, we break this out separately. If you take this into consideration, our margins would have been high single digits.

Our non-ethanol segments were significant contributors to the third-quarter overall performance, generating a record $20.8 million in operating income. The components were as follows -- $7.8 million from corn oil production; $7.2 million from our marketing and distribution segment, which was up significantly over last year primarily as a result of our railcar program; and $5.8 million from our non-ethanol operating income came from Agribusiness, which had a strong quarter as a result of the early harvest this year.

The early harvest will influence a seasonal earnings pattern of Agribusiness where we anticipate the fourth-quarter results to be more tempered with harvest income accelerated into third quarter. Basically, the quarters will flip-flop positions this year.

On a consolidated level, our revenues in the third quarter of 2012 were $947 million. As we reported a net loss of $1 million or $0.03 a share, that is a $6.5 million improvement over the loss in the second quarter of 2012 and sets us up for a solid finish to the year with a profitable fourth quarter and now a profitable last half expected from ongoing operations.

We produced 161 million gallons of ethanol in the third quarter, down about 13% from last year. The lower production level is a result of slowing a few of our plants down as the industry is still carrying too much inventory, and we took the opportunity to accelerate some scheduled repairs into third quarter so we can take advantage of the margins we locked in for the fourth.

We continually evaluate our operations to determine whether to slow down or shut down. These decisions vary from plant to plant and region to region for Green Plains. Our data tells us to keep running all at this time, albeit some of our plants at a lower rate.

Our ethanol yield in the quarter was 2.84 gallons per bushel of corn, and we had a slight uptick in our yield on corn oil to 0.66 pounds per bushel. We are still assessing new crop processing yields and expect some variation next year, but we will know more as the fourth quarter progresses.

We hit our goal for railcars redeployed to transport crude oil in the third quarter to over 500 cars. We expect that run-rate to remain for these next three quarters as a majority of our agreements we entered into on our rental cars were for a year. We are working to extend some of those (technical difficulty) for the Company. We believe the transaction represents an opportunity for our shareholders to realize value for these high-quality assets.

I also want to be very clear that no means should the sale of these assets be taken as our exit in the US Agribusiness industry. Post closing we will still have nearly 6 million bushels of grain storage at elevators in Iowa, Missouri and Nebraska. We have expansion projects slated for two of these sites, so we will continue to invest in growing this business.

In addition, we have 11 million bushels of storage at our ethanol plants. We have expanded our storage capacity at our Bluffton, Riga and Otter Tail ethanol plants between 750,000 and 1 million bushels at each location this year. These were flat storage facilities at each of these locations that were built for under $1 per bushel. This will give us the ability to take advantage of local harvest corn and earn to carry that commercial grain elevators often earn.

We would like to find additional opportunities to rapidly expand storage capacities at or near our ethanol plants over the next several years with a goal to double or possibly triple our current capacities.

Today in total we have 18 million bushels of storage capacity against our 260 million bushels of demand. If we can triple that capacity, we think we can duplicate most of the grain handling earnings of the assets we are selling but at a reduced cost, both capital and operating. When considering this, we felt that in-line origination will provide more value to our shareholders over the long-term versus assets that don't really support our origination fully.

We will also continue to seek out investment opportunities for acquisitions for other first-handled elevators in the corn belt as well, but we will focus on locations that support our internal demand. While we sold two clusters of assets, we are still able to broadly acquire assets that fit our supply chain and expect to do so. Our acquisition strategy remains driven by location, price and timing.

Now I'm going to turn the call over to Jerry, and we will discuss our liquidity and financials in more detail. Then I will come back on the call, discuss forward ethanol margins, where we stand on industry fundamentals and the BioProcess Algae business.

Thanks, Todd. Good morning, everyone.

Looking at the consolidated income statement for the third quarter of 2012, our revenues were $947 million for the quarter, down 1% when compared to the third quarter of 2011. The decrease is mainly due to lower average prices for ethanol and corn oil sold and lower volumes of distillers grains sold. Total ethanol volumes sold were up slightly due to an increase in open market purchases in our marketing and distribution segment.

Ethanol volumes sold from our ethanol plants were down just over 23 million gallons compared to the third quarter of 2011 as a result of our decision to slow our production down in the quarter due to margins. We experienced a 10.2% increase in the average cost per bushel of corn in the third quarter of 2012 compared to 2011.

But if you take a look at slide five, we generated operating income before depreciation of $0.02 per gallon compared to $0.17 per gallon realized in the third quarter of 2011. The $0.02 per gallon in the third quarter was a slight improvement over the first and second quarters of 2012. With better margins and our plant maintenance shutdowns completed, we anticipate our fourth-quarter production rate to be closer to about 92% or 93% of our expected operating capacity.

Corn oil production revenue and operating income were down slightly from the third quarter of 2011 with a 17% reduction in average price offset by a 13% increase in pounds produced in the quarter compared to last year. The increase in Q1 oil production year over year is attributable to improving our corn oil yield per bushel to 0.66 pounds compared to 0.5 pounds in 2011.

Agribusiness segment revenues were up $32 million or 22% over last year, driven mainly by higher grain prices in 2012. Operating income for the segment more than doubled from the 2011 third quarter from what is normally a seasonal low for this business. The summer's drought resulted in an increase in commodity prices and an early harvest season. This has caused some of our first-handled grain margins to be realized in the third quarter rather than in the fourth quarter under the normal seasonal pattern.

The marketing and distribution segment also had a strong quarter with operating income of $17.2 million compared to $1.9 million last year. Our railcar initiative provided a nice addition to operating income for this business segment, and we realized good margins with open market purchases and our program to arbitrage our internal commodity flows.

To summarize, our consolidated operating income decreased by approximately $20.4 million compared to the third quarter of 2011. But that is net of an improvement in our non-ethanol operating income of nearly $8 million. Earnings before interest, income taxes, depreciation and amortization or EBITDA was $21.7 million for the third quarter of 2012, which was a $10 million improvement over the second quarter. On a trailing 12-month basis, EBITDA totaled approximately $80 million.

Our liquidity has remained strong with a total cash position as of September 30 of nearly $160 million on the balance sheet. We continue to pay down our long-term debt with a net reduction during the quarter of approximately $12.8 million. As of September 30, our total ethanol plant debt was $411 million or $0.56 per gallon. That's the lowest mark in our history, and based on our current complement of ethanol plants, we should see plant debt drop to about $0.48 per gallon by the end of 2013.

Capital expenditures were approximately $9.5 million for the third quarter with the Birmingham project representing the majority of those expenditures.

As you saw in our announcement from Monday and as Todd mentioned earlier in the call, we will add approximately $104 million in cash to the balance sheet once we complete the sale of the 12 grain elevators. We will also eliminate more than $110 million in debt, both term and revolvers.

From an earnings perspective, we anticipate booking a pretax gain of approximately $46 million from the transaction or about $0.80 per share after tax in the fourth quarter when we close the sale. So we expect to finish 2012 with a very strong balance sheet.

In summary, we had an improved third quarter compared to the first half of the year and look forward to closing out 2012 on a positive note.

Now I'll turn the call back over to Todd.

Thanks, Jerry. Construction of our 96-car unit train terminal in Birmingham is nearly complete. We expect the first delivery of ethanol into the terminal in late November. We continue to evaluate similar opportunities in other markets, as we believe the opportunity to upgrade to other BlendStar facilities to unit train receivers could provide additional income for the Company.

Construction of the three acres of BioProcess Algae's Phase 3 project is complete. We have ceded all four of the new grower harvester reactors, and we anticipate first harvest next week, and soon we'll be delivering algae to our first customer, a subsidiary of Bioseutica. These new reactors are 12 times larger than the initial outdoor reactors built back in Phase 2. We're excited about the prospects of BioProcess Algae and continue to work on expanding our strategic relationships with other customers in coming months. If Phase 3 meets our expectations, we will move quickly on the next buildout of 40 to 50 acres in Shenandoah, hopefully sometime in 2013.

So there are two basic metrics we are focusing on for algae production at this point. The first is the capital cost per acre, and the second is the EBITDA per ton of production. As we have indicated in the past, the reactors have a capability to produce 40 to 50 tons per acre per year of biomass, and that continues to be the case. With that in mind, one way to look at this opportunity is a 40- to 50-acre farm producing 40 to 50 tons per acre of product based on target economics could potentially service all of our ethanol plant debt at that specific plant. We view this as another potential source of non-ethanol operating income that could further de-risk our platform, and we'll keep you informed as we continue to make progress on our buildouts over the next couple of months.

With this quarter's performance, we have reached over $63 million in operating income from our non-ethanol segments over the last 12 months. Looking forward, we expect to continue to earn over $60 million of non-ethanol operating income with our railcar program, our Birmingham terminal and our grain storage expansions able to offset the earnings streams from the Agribusiness segment that we are selling. This was a very important factor in our decision to sell this asset.

I want to talk a little bit about the ethanol industry. The comment period for the renewable fuel standard waiver request has ended, and a decision from the EPA should be made and announced by the middle of November. It is our belief that the EPA will not grant a waiver to the RFS for several reasons already mentioned in previous calls. Things like ethanol has not caused economic harm, the drought has; ethanol is still cheaper than gasoline; reduced run rates and reduced corn consumption is already happening; and, finally, obligated parties have approximately 3 billion gallons of RINs available to meet their obligation under the renewable fuel standard without a waiver from the EPA.

US ethanol exports totaled 534 million gallons for the first eight months of 2012, but we have seen larger imports of sugarcane ethanol into the US market to take advantage of the arbitrage on the advanced biofuel RIN or the D5 RIN. Over the last two months, 147 million gallons of cane ethanol has been imported into Florida for a total of 230 million imported in 2012. We are hopeful that Brazil will increase our ethanol blend back to 25% of their country's gasoline, which should hopefully take up an access supply that is available from Brazil.

So while we expect to be profitable in the last half of 2012 as a Company, what does that mean for 2013? As usual, the forward curve does not give us much visibility to margins going forward. So we have to look at the current market condition extrapolate what could change.

First of all, the mandate is scheduled to increase in 2013. The industry is currently running well below that mandate, and the only buffer of a rapid stocks draw is the Brazilian imports I have outlined. Our best intelligence says imports should slow between December through June and increase in Q3 of next year again.

In addition, the current industry run rate of approximately 800,000 barrels per day of production, stocks could get tighter and stable at 19 million barrels, which could lead to some further regional tightness. All of this could help the overall forward curve. So the question is whether all the idle production would come back on line or whether more will come off.

That is a hard one to answer. In the last nine months, it has been the longest period of compressed margin in the industry's history. The plants that have gone down completely could have working capital or corn origination constraints compared to previous cycles. The plant that slowed may be more reluctant to ramp up as this could start the cycle all over again. So hopefully some discipline will be remaining at this point.

There was an announcement a couple weeks of a ethanol plant purchase by one big refinery company already invested in the industry. When you do the math, the valuation of that trade was somewhere between $1.30 and $1.40 per gallon before working capital of operating capacity. The plan is a quality path located in the cornbelth and an identical technology, in some cases identical in size to six of the plants that we own. If you equate that per gallon valuation to our assets, our stock certainly would be higher than today, based on 740 million gallons of production.

In terms of the sum of the parts, the sale we recently announced will effectively monetize our Agribusiness value that we calculated at approximately $4 a share. Once closed, this transaction should take our cash balance to over $8.50 per share. The sale will also result in a major delevering of the balance sheet. Our Company will be in the strongest financial position it has ever been in.

Our non-ethanol operating income will continue to provide a great buffer during the cyclical downturn we're experiencing. We will continue to be a growth company expanding grain origination near our production assets and opportunistically looking at acquisitions along the whole value chain. Our commitment to creating shareholder value is unwavering, and hopefully our actions demonstrate that commitment to you.

With that, I will end my comments, and we will open up the call for our question and answer session. Thank you.

(Operator instructions). Farha Aslam.

First question is on the ethanol group and balancing that with your corn oil. In the quarter, it looks like you definitely balanced production in ethanol with what you earned in corn oil extraction. Could you just share with us your strategy going forward? If we see a negative quarter, is that how you are going to try and run the two segments?

Yes. What we do is we actually look at -- we do a variable cost analysis literally every day, and corn oil is part of that cost analysis. So based on that, we never really saw a time, because of the earnings from corn oil, that we needed to slow down any further or shut down our plants. While we reported separately, we do take it into consideration in our decisions we make to slow or shut down our production.

And so, going forward, if we see negative ethanol margins, can we assume that you are going to slow down to the degree that corn oil offsets that?

Well, we may not slowdown. It just depends on that related to variable costs related to corn oil. So yes, we look at all that. But it doesn't necessarily mean that we slow down in a negative environment.

Okay. And then on rail, your earnings were above our expectations. Could you just share with us again some more detail on exactly how you are thinking about rail and what the earnings potential of that business is?

Yes. So basically, we put about 500 cars in the program. As we indicated on the last call, these rates were north of $3000 per car per month over a year basis. Our average cost of cars are significantly lower than that. So we expect that, over the full 12-year period of a lease, the expected return for us will be somewhere between $12 million and $14 million in that year, potentially going on into a second year.

So we can think of $12 million to $15 million of EBIT -- is that EBIT or EBITDA, and then for the next one to two years out of that segment?

Yes, that's both EBIT and EBITDA, but since these railcars our leased, that's all net of the railcar costs.

And then my final question is, kind of going forward, how should we think about the earnings potential of your Agribusiness segment, given that you have sold off a portion, but it sounds like you are expanding other areas of the business? What is the EBITDA annually that we should factor into our model?

Yes, the remaining EBITDA in that segment will be somewhere between -- based on the assets that are remaining, we think will be somewhere between $1 million and $2 million a year with the expansions that we will put in place. Then from there, anything above that will just be further acquisitions or expansions or retooling that group. But, again, we are limited by the agreement we made with the Andersons on where we are going to operate, which is in our filings. But if it is in line with our ethanol production, we are fully free to build that origination base.

Brent Rystrom, Feltl & Company.

Congratulations. Good job in a tough environment. Looking just real simply, Todd, when you think of next year, from my perspective, I think you have -- you have got maybe the endgame and the risks coming here, and I would think the two that I view from a model perspective would be the bidding for acres period in January and March where everybody is bidding commodities higher to get the acreage commitment. Then, just looking at the final mid to late summer corn supply, can you give me your thoughts on how you might look at that relative to the model next year and just quick thoughts on what you are thinking right now about those two timeframes?

Yes. So first thing we always look at is the Wednesday EIA report to base some of our decisions we make, and I will bring that back to how we think about the two questions that you asked.

So what we look at now is that relationships between ethanol and RBOB still remains at a discount. And so, when we look at that, we then equate that to the 19 million barrels of storage that's in place in ethanol against the 800,000 barrels of production per day, and we start all of our analysis based on that.

So we look at that, and we say there's a relationship between ethanol and RBOB looks potentially cheap relative for next year, based on any kind of rapid stocks draw.

So when we fight for acres, which I'm pretty sure that fight probably started already, when we see the way that beans are acting, the way that corn is staying firm in this low $7 range against low $15 beans, you can see that that fight is already happening. And while we certainly believe that we will see what is a normal pattern in the planting fight, it's going to be hard for corn just to decide it's going to go to $8 or $9 to buy bushels from our standpoint because, again, as we talk about transfer or ownership, it is very difficult at those levels. And that's where you start to reach levels again against current prices where a lot of these sectors go negative on the margin.

And so we think the fight has already started. We think values are already showing that, based on current corn prices and current soy prices. The late summer corn supply, if we have an early harvest, could be somewhat subsided. If we have a late harvest, it will be somewhat of an issue in those last kind of August and September periods. And that's really going to be probably the most volatile period in any of the commodities that we trade, only because we will be -- and if we have a big corn crop coming, it will probably be translated in the end of your corn basis and the end of your corn spreads more than it will be translated into the overall flat price. If we have a weather problem, then it's going to be a whole game-changer at that point as well.

In theory, your old crop could actually work quite well if new crop corn reflects rebounding yield?

Yes, absolutely. And if we then add that into in the first six months we could see some pretty good stocks draw, so it will be the job of the ethanol market to actually give the producer of margin if that actually happens. But we've got to wait and see if that actually happens.

And then last week, Bungee had made some comments about how surprised they were at the limited amount of (technical difficulty) or just rationing on the protein side of the industry. Are you seeing any issues with that in your regions at all?

I missed half the question. The limited amount of what?

Bungee was saying that they felt protein demand was surprisingly strong. They haven't seen price rationing or demand destruction like they would have expected in their green and oilseed operations. And I'm just curious if you are seeing a reflection of that, particularly Iowa and Nebraska, or is that really not as much an issue?

We had seen the same thing. You start right with China and then make its way back to the US. We just haven't seen a drop-off from that perspective in the soy complex.

And then odd question, but I was talking to a couple of green elevator guys down in Nebraska, and they were saying that they are starting to see a little bit of a shift because of that big EGT facility out in Longview, Oregon shipping lots and lots of beans but also corn going to Asia from there. Has that had any influence, particularly in the western part of your operations?

We are very small on the been side. It's just not -- we handle some beans at harvest at all of our grain elevators. But, in general, that impact doesn't affect us a lot.

Okay. Then a final question for you. In the previous questions asked, what was -- in relation to that, what was the trailing 12 months EBITDA of the Agribusiness assets that are being sold?

Well, trailing 12 months -- you have two harvest quarters in there. So while we can certainly look at that, our run rate that we've been talking about over the last year or so is a $15 million to $16 million annual run rate capability of the asset as of today. The trailing 12 will show stronger, mainly because of two harvest quarters in one year. (multiple speakers)

Apples to apples.

Yes, the trailing 12 will be higher than that, actually, because of that strong third quarter.

Laurence Alexander, Jefferies.

Good morning. Two questions. First, on the uses of cash, will you be actively reducing the debt level at the plant level, or will you just be keeping the cash at a corporate level for additional M&A?

We will be keeping the cash at the corporate level, mainly because, again, our structure of our debt at the plant level is still unchanged. It's project finance debt, non-recourse to the parent, 5% or so interest rate. And so -- and really, we only have one maturity in 2013 that we are focused on right now.

So from that standpoint, our cost of funds remain at the lower end of the range, and we probably wouldn't change that very much. And then having a buildup of funds at corporate will both drive our ability to manage the business, will also drive our ability to look at other opportunities for growth. That's correct.

And then on the algae side, at what point will you have confirmation on actual process economics, and can you give an update on how the discussion has been going with other potential partners in the refining industry?

Yes. As we move through this last bit of opening here, we will know a lot more about process economics and what markets we can service. We still believe we can service everybody from fish meal through the high-value Omega 3s profitably. We just want to verify that, make any last-minute design changes in terms of the bigger reactors that you can see pictures on our website of, but they are very, very minor at this point.

Our discussions with customers along -- there's three distinct ideas that we think about this. The first one is around the carbon emitters that are looking for a chance to or a tool where they can reduce their carbon emissions. And this is one of them. We have several discussions going on there. Again, that's driven around that cost per acre of CapEx and how far we can reduce that, depending on what markets they are trying to service. We are in several discussions with them.

We're also in several discussions with the nutraceutical/pharmaceutical food and feed type companies, around what can we give them, how much volume, what's the cost of it. Part of the issue is that we are actually prepared to give them volume, and a lot of these guys aren't prepared for us to give them -- to take the volumes. So -- because we can produce it a high-quantity at a lower cost than what they've seen before. Now they've got to figure out can they get it into products at an increased pace.

And then it will look like also co-location opportunities with other emitters, non-refining-based emitters that have CO2 that they would like to mitigate. And then it's the co-location on our own ethanol plants, which is what we are focused on.

We view this -- really, what it has come down to is we view this as a bolt-on technology, almost like corn oil at this point, where we can take those 40 to 50 acres, take the 40 to 50 tons per acre, use the economics that we feel are achievable and potentially have that project pay the debt at the plant, the full ethanol debt, where we can get to a point where we are producing ethanol almost for CO2 so that we can use that CO2 to grow and harvest algae, and the EBITDAs per ton on that would drive an EBITDA per gallon similar enough to hopefully pay our ethanol debt. That's what we're focused on today. That's what we're trying to get to. That's our end game.

And then lastly, in terms of the incremental process improvements, the fine grind technology rollout, can you give an update there and if you are seeing the gains that you expected?

Yes. We have -- we have one plant running and one plant starting, and Jeff can maybe talk a little bit about that. And again, we are making sure; we are being very thoughtful about our investment in this. And so we want to -- we did it at -- and Jeff can talk about it -- the different types of plants we are deploying this at.

Right. Our first rollout was actually at one of our lower yielding plants, and we did see some improvements at that location.

Commensurate with that, we also slowed down our plant's optimized yield both on corn oil and ethanol yields in the current margin environment. And so on the outgrowth of that, we are actually taking it to one of our higher yielding plants. And we want to see the results at that plant, at the current run rates as well, before we actually embark on a full-blown capital expenditure on the fine grind projects as well.

So, as we speak, that capital expenditure is going on. And we hope to have some early results of that by the end of Q4 and then some clarity certainly into Q1.

Patrick Jobin, Credit Suisse.

Congrats on the strong quarter again. I guess, could you walk us through your CapEx outlook, I guess doubling the 18 million bushels of storage and some of the other initiatives, what you're thinking about for 2013?

I think we wanted to do is test the theory of growing origination at or near our ethanol plants directly in line with the process. And so we took three of our sites -- one in Minnesota, one in Indiana, one in Michigan -- and we put somewhere between 750,000 and 1 million bushels of flat storage at each of those sites at a cost of about $0.60 per bushel. And we wanted to test the fact can an ethanol plant fill a pile, cover it, put it away and potentially earn the carry over the first handle margin.

And so we've seen confirmation of that. And so, when we look at now the plants that we are focused on, those, among all the others, we believe that we can redeploy capital at a significantly reduced cost to operating a commercial grain company, but more in line with the origination and being able to put away more harvest directly at our plants and earn that.

So when we look at that, we have 6 million of storage external at our small grain segment, which will be remaining after the sale. We have 11 million at the plants. We would like to double or triple that at a cost of sub $1 per gallon, and with opportunity then to, over the next couple of years, kind of regrow the earnings that we are going to lose from our Agribusiness segment and get those back through the CapEx and the ethanol segment with a lot larger storage capacity. Does that make sense?

Yes. And then so the $60 million of non-ethanol production operating income you are targeting for next year, you mentioned $1 million to $2 million of the remaining Agribusiness. In addition, that would include some of the on-site storage that you are (multiple speakers)?

No, in that number, not yet. No, basically when we look at it, we look at it as the corn oil, the marketing and distribution segment, the rail car leasing, which is in that marketing and distribution segment, and then our small Agribusiness segment, that segment that will be remaining. Any --

As well as BlendStar.

As well as BlendStar increases. Well, that's within marketing and distribution as well. That should get us to around the $60 million mark. Any investment at our ethanol plant in expanded grain storage is not included in those numbers.

Okay, got you. And then lastly, on the BioProcess Algae, I didn't hear the CapEx number per acre. Do you have a sense of where will shake out and what milestone you need to seed before you try to build out the next phase?

We are not disclosing it right now, but we have always said at $500,000 per acre and below is when we would start to see the ability to expand that rapidly and use that CapEx against the EBITDA achieved on the per-ton rate against the algae. And we are tracking towards those type of numbers, and once we get to that is when you make the decision on the rollout.

So, while we don't want to give the number, we have not given the number out yet, but we are tracking in that range or lower.

Craig Irwin, Wedbush Securities.

This is David for Craig. He's dealing with Sandy right now. Thanks for taking my question. Most of my questions have been answered, but I was hoping you could give us a little detail into plant slowdown in the quarter. In the past, you've given us details as to the number of plants and then roughly the percentage of slowdown for the bad margin time. I was hoping you could give us details there, please.

Yes. I think Jerry mentioned in his comments that we will be running somewhere between 92% to 93% of total capacity this quarter for the fourth quarter.

And what about in Q3, please?

Yes, Q3 total production was about 161 million gallons, and we had slowdown capacity at three of our -- actual, four of our plants, I believe, and have been running the other plants at close to full capacity.

Jeff, maybe you want to --

And additionally, we took a significant maintenance outage at one of the locations as well, which wouldn't actually show up in the run rate. That would be a chunk that wouldn't be repeatable in terms of the run rates.

Ian Horowitz, Topeka Capital Markets.

Just a quick question, a lot of the stuff has been answered. But can you just go over a little bit more in detail the logic behind the transaction? It seems like we have a pretty good -- even as you said, a pretty good mark the other week on ethanol capacity, very similar to Green Plains' capacity. And when you look at the two businesses, it just seems like some significant uncertainty around their volatility, I guess, around cash flows for ethanol. Whereas from a secular standpoint, it would seem to me that storage capacity Agribusiness would be a much more steady cash flow play over time. So if you could just give me a little bit -- and it seems like you could have replicated the financial impact by just selling one asset rather than over 80% of the Agribusiness capacity.

Well, what we have always done is looked at the sum of the parts of our business. And so one thing to keep in mind and what I've indicated is that while the Agribusiness segment certainly was a good earning component in our business, it didn't provide a lot of origination for our ethanol plants.

And so when we looked at that, we said is there a better formula for us to maximize our ability and understanding of the US grain markets while potentially achieving value for our shareholders?

And so, when we looked at our Agribusiness, we knew that we had something unique. We knew that there is a scarcity value of assets, and we knew that we built a very, very good base business there. But it would be hard for us to take that from where we had grown up so fast over the last several years to where it is today at 40 million bushels to take it to 80 million bushels, let's say.

So our growth was going to slow down pretty rapidly, yet selling into a company that can then put it into a bigger platform, there is obviously rationale for that and achieving the value for our shareholders.

So when we look at the value we were able to get, the cash we put on the balance sheet, the debt that we are able to pay off overall because of our reduced working capital lines and our reduced overall term loans, we looked at the overall, and it's an over $200 million swing on our balance sheet, roughly a $200 million swing on our balance sheet, which we looked at that as a very favorable transaction for our shareholders. And so, while we certainly won't have the $15 million of earnings or EBITDA anymore, we will have a significantly stronger position overall as a company, in fact, the most healthiest we are financially since the beginning of time.

So we made all those -- as well as we did replace some of those earnings with the railcar income over the next couple of years with very little capital investment. And now our strategy of redeploying some of that capital at a much reduced per-bushel cost to put in line with our ethanol plants and actually, we believe, will earn potentially the same amount of earnings that these have earned in the past at a significantly lower capital cost.

So we have put all that into a formula. We also took into consideration the employees and the stakeholders in that business, and we probably would not have sold it to just anybody. When we met with the Andersons, we knew that our employees and these assets would be in good hands. Some of these assets were bought from family businesses, and we made commitments to them that we would make sure that we take care of the stakeholders. And we felt the Andersons were the right party to do that.

So from a lot of different reasons, both financial, morally and ethical, we felt like this was the right transaction to make.

Okay. Great. And then just one last question around it, and I apologize if you went over it earlier, but it's kind of crazy here. Was the business sold at a profit? If so, are there any details around the profit, and will this still be kind of sheltered under any NOLs?

The gain we expect to report is about $46 million pretax from the transaction. Actually, we haven't talked about tax situation. But we have a fairly low basis in the assets. So we will have a pretty considerable tax gain to report. But fortunately, we have a large amount of NOLs to offset that. So, net-net-that, we don't expect a lot of cash taxes resulting from this.

Okay. Great. Thanks a lot.

Matt Farwell, Imperial Capital Markets.

Congratulations, again. So I'm wondering, do you foresee any decline in corporate overhead as a result of the sale of the Agribusiness assets, or is it going to be steady as previous quarters?

Yes. We actually didn't have a large corporate staff supporting this business. And so, with that said, we don't expect a large decrease in our corporate overhead numbers.

Okay. The other question is regarding liquidity. I know you had mentioned some other options that the Company may be pursuing to expand its liquidity profile. Are those still on the table, or do you feel that with the new cash on the balance sheet and all of the revolver capacity that your liquidity at present is sufficient?

Yes. With the sale of the asset base in grain and the injection of the cash on the balance sheet, the reduction of the overall debt on the balance sheet, what it leaves us with is the term debt for the ethanol plants, our convertible debt and then some revolving debt in our marketing segment.

With that, I would say we are in pretty good shape against the cash held across the whole Company, which would be increasing in that $240 million to $250 million range. And so with that type of liquidity, based on the ability of our non-ethanol operating income right at this point, we think we are adequately equipped to handle the current market on our balance sheet, but we still have additional levers to pull. I think we still remain invested in our risk management programs to the tune of $30 million to $50 million, depending on the day, which can be easily converted to cash.

So we have other liquidity levers, but at this point we don't really feel like any of them need to get pulled.

Would you ever consider buying back the convert or paying it off?

At this point, we are going to inject the cash into the balance sheet, let it ferment there for a while. And we will do what's best for our shareholders, but we also want to see what the forward curve looks like before we make any decisions on anything other than growth opportunities around the Company.

Last question is, could you finally comment on this recent transaction by Coke? I think this is the third transaction that's well in excess of your evaluation. Clearly your stock is one of the cheapest ways to acquire ethanol assets. Why do we keep seeing these transactions and how can we rationalize the current trading level of your stock?

Well, we ask ourselves that as well. So good assets in good locations with good technology are not for sale in any kind of excess form. So these are hard assets to buy, hard to replace. There is a scarcity of the right location, right technology asset. And Coke, whatever decision they make, is probably based on those facts.

When we look at our price and our asset base, we have similar assets. We have some that are same technology, maybe a smaller asset. We think most of our locations have similar economics to that plant. It just might have -- it's a little different makeup, but we have some very specific plants that are exactly almost carbon copies of that plant that traded.

The rationale behind our current stock price, we sometimes fluctuate with the ethanol crush, not based on value of the asset or book value. And that's something that, again, is something we face. By monetizing the grain business equity, I think it shows our shareholders are very serious about getting them valued for the overall asset base with [$850 million] or so of cash on the balance sheet against where our stock is today. It doesn't give us a lot of credit for our ethanol plants. And at that point, we will just wait and see as the market changes.

So as the curve changes, so does our stock. And, for the right or wrong reasons, that's the way our stock trades today. But ultimately, over the long-term, we feel like everything we are doing today -- the cash we are building on the balance sheet, the debt we are paying down, the ability to sell the -- or the sale of the grain assets, the expansion of grain storage around our ethanol plants, the algae venture, the expansion of Birmingham will all add value and ultimately will be realized by our shareholders. But it is frustrating, yes.

Excellent. Well, congratulations again.

[Chris Cooks], [Dizove].

Just one quick question. Should we expect ethanol yields to decline as the quality of the corn, this year's corn crop works its way through the system? (multiple speakers) -- ethanol yield of 2.84 gallons, I think it was, in the quarter?

Yes, we've seen a little bit of degradation at some of our plants. Some of our plants are holding steady. We've made a lot of investments to get all the excess alcohol that we can get out of the starch of the kernel, as well as we are seeing better enzyme performance.

So overall, some of that -- as we saw quality decline this year is being taken up by that. But yes, overall I think the yields are coming down a bit, but not to the tune that we've seen early in the days of the industry, but more towards 2.80 gallons to 2.82 gallons range. But again, that's very early to say. We have some plants that are actually performing better and some plants that are actually performing worse. It really just depends on the pocket of corn and where you are at and the quality that's coming in.

So I think it's a little early to say it's going to be anything more than maybe a 0.5% type of decline, maybe up to 1%, but not enough that it's going to throw off anything that we are doing.

Michael Cox, Piper Jaffray.

Congratulations on the asset sale. It was a great move for you guys. My first question -- I agree with you that this waiver for the RFS seems highly unlikely. But I would be curious in your view on what it would mean to your industry if it was approved.

Well, as we said, even if upon approval it's still needed from an octane standpoint, and it will be very hard to replace that octane very easily at the price that we are trading against gasoline. So from that perspective, that is something that we don't see a huge decline in demand from that.

Secondly, when you look at what the refiners are producing, they are still producing 84 octane. It's working well for them. They are using ethanol as their base plan stock.

So they are making more money, and it is not just because they need 113. It's because once they figure out what to do with 113 octane as a blend stock, we are still at $0.31 a gallon under gas for all of 2013 and 2014 and 2015, I think. We're still a big discount to gasoline.

So if there was a waiver, I don't know that would have a very big impact to demand. Obviously, it would be an interesting thing to watch. But again, we don't anticipate that will happen.

No, that makes sense. And a separate question, waiver-related, I guess, to some extent, two parts on your subsidiary level debt. Is the corn oil extraction included in any debt to EBITDA calculations on the sub-debt? And second, if we were to see a similar type of margin environment continue throughout the fourth quarter here into Q1, at what level will some of your waivers of cash infusion to cover any sort of covenant shortfalls -- at what point would those start to kick in?

Michael, our cash flow from corn oil is all outside of the debt facilities down at the plant level. The benefit that the lenders at the plant level receive is they are reimbursed for the value of the distiller's grain by weight that becomes corn oil. So those cash flows come unencumbered up to the parent company level, and I'm not sure I understood the second part of your question.

Well, I guess I'm curious as to what level of margin environment would, over the next quarter or two, would trigger some of the waivers you have in place for your debt covenants to infuse cash to offset any sort of tripping of those covenants?

Oh, I see. Well, again, our debt service is about $0.10 a gallon, and it varies a little bit by plant. But generally speaking, across the platform, it's about $0.10 per gallon. And, of course, that's before considering the cash flow from corn oil.

So what has happened in recent quarters has been any shortfall in the ethanol cash flow is shored up with corporate cash, and a good amount of that corporate cash has been sourced from corn oil.

So I think, going forward, if we see margins north of $0.10, then our cash flow is directly supported by our ethanol operations and corn oil is fully unencumberd going to the parent company.

AJ Strasser, Cooper Creek Partners.

Congratulations on a solid quarter. Can you maybe just give us a little color on how we should think about your ability to manage ethanol EBITDA per-gallon margins? In the fourth quarter, obviously I know you have a bunch of hedges or the equivalent in place. But absent that, maybe you could -- in the context of the fact that you were able to do $0.02 per gallon in Q3, which is pretty impressive, if we looked at Q4, what kind of margins are you looked to be getting?

We are not giving any specific guidance on the margin that we expect in the fourth quarter, except to say that by our actions earlier in the year when margins -- and late last year when margins were in the high teens, low 20s to mid-20s, we locked enough away to dampen the negative margins that we are seeing today.

So with that standpoint, all we really have left to do, and everyday we are doing it, is finish the quarter out. If we finish the quarter out, even at the current margin levels, we will remain profitable as a Company. And we still have plenty of buffer even from there if margins went further or got lower, we would still have plenty of room to still be profitable in the fourth quarter.

So we, by doing what we did earlier in the year, ensured us what is probably going to be a profitable last half and what will be a profitable last half and a profitable fourth quarter, notwithstanding any, obviously, production issues that could happen or any outside influences that we don't know about. But, in general, everything we did allowed us to get there.

I would say that part of our ability to do that is by having the strong cash balance and the strong balance sheet, and now we even have a stronger cash balance and a stronger balance sheet, which then just continues to support our hedging programs.

And even into third quarter, we came into third quarter pretty well uncovered, as we indicated on our last earnings call, and we saw minutes, hours and days of the ability to lock the quarter away and not days, weeks and months. So when we saw that, we had to move very quickly into tunes of 30 million gallons or 40 million gallons a day, and that happened on several days over the quarter and then locked it all away with what we do. So these are sometimes not weeks and months, but sometimes they're hours and days.

Great. And I just had a follow-up question, if I can, on the algae initiative. I thought you said that you thought at some point you will be able to service the ethanol debt, which by math would be about $75 million of EBITDA. Is that right? Am I thinking about that right? And then at what point, how many years down the line do you expect it to be doing that run rate?

Yes, so we will focus on Shenandoah first. And Shenandoah is a 70 million gallon plant with a sub $0.10 a gallon debt service, I think, Jerry, right? That's one of our lowest debt plans.

So when we think about the 40 to 50 acres against 40 to 50 tons per acre, that would -- and based on the CapEx that we have indicated getting below that level, serving the higher value algae markets would then allow us to take that EBITDA and service our ethanol debt with it. If we are the owner of that solely -- our partners may want to invest in that as well -- but if we solely invest in that ourselves and own that, then we think the economics would support that, and that's the only way we would go through with it. So we are working very closely with all of our shareholders of that venture to try and achieve those type of things.

And once we build that and prove that out, I think people will understand the value of what we have been doing in algae.

And that will conclude our question and answer session for today. I'll turn the call back over to Todd Becker for any additional or closing remarks.

I just want to thank everybody for coming onto the call. Obviously, we had a lot of exciting things happen during the quarter and actually after the quarter was over. As you can see, we are continually working on bringing value to our shareholder by doing all the things that we have committed to do, and we are ending this quarter or we'll end the end of the year with the strongest position we have ever been in from a financial perspective looking forward to 2013 and what awaits for us then.

So we appreciate your support, and then we will talk to you next quarter. Thanks. Bye.

And, ladies and gentlemen, that will conclude your conference for today. We do thank you for your participation.