Green Plains Inc (GPRE) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to the Green Plains First Quarter 2013 Conference Call. Today's call is being recorded. And at this time, I would like to turn the conference over to Mr. Jim Stark. Please go ahead, sir.

Thanks, Mary. Good morning and welcome to our first quarter 2013 Earnings Conference Call. On the call today are Todd Becker, President and CEO; Jerry Peters, our Chief Financial Officer; Jeff Briggs, our Chief Operating Officer and Steve Bleyl who heads as our Executive Vice President of Ethanol Marketing.

We are 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 today. You can find this presentation on our website, gpreinc.com 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 involves risk and uncertainties, Green Plains' actual results could differ materially from management's expectations. Please refer to Page 2 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.

I will now turn the call over to Todd Becker.

Thanks, Jim, and good morning, everyone. We appreciate you joining our call today. In the first quarter, we continued to execute on our Company's strategy for risk management diversification and operational excellence. We generated revenues of $765 million and net income of $2.6 million or $0.08 a share. This was a significant improvement over the first quarter of last year with nearly a $24 million positive swing in operating income.

Our non-ethanol segments generated $21.2 million in operating income, led by marketing and distribution and corn oil production. In our ethanol production segment, we produced 170 million gallons of ethanol in the first quarter, which is approximately 92% of our stated operating capacity. Margins started to expand during the last four weeks of the first quarter, which positively influenced the end of Q1, but more importantly, allowed us to start locking away Q2, which I will give you more color on later in the call.

Our ethanol yield in the quarter was 2.85 gallons of ethanol per bushel of corn. We have found that running a little slower allows us to extract more starch out of the corn kernel and recapture more ethanol on the back end of the plant, as we focus on improving yields. Corn oil production was 0.64 pounds per bushel in this quarter, a slight improvement from Q4 yields of 0.61 pounds, and in line with our expectations. We constantly monitor whether we run our plants to maximize yield or run them to maximize production volumes. Either way, it shows the flexibility we have within our platform, which we have taken advantage over the last 12 months.

We saw a significant improvement in our marketing and distribution segment for the first quarter. All of our major initiatives within the segment performed well. We were pleased to see that our BlendStar unit train terminal in Birmingham generated strong results in the quarter, as it started up quicker than we thought it would and has exceeded our volume expectation, even as we work through normal startup processes. Our railcar redeployment continued to meet our expectations as well. We also realized some benefit in the first quarter from our new initiative of trading physical products to take advantage of our trade and transportation flows. We have ramped up this initiative and have over 10 new merchant businesses in place. Our marketing and distribution was off to a fast start. We expect Q2 to return to more normal EBIT patterns within this segment and to begin to grow from here, as we hope to see additional growth from our new initiatives.

Q1 operating income is not a new standard for the segment at this point.

The agribusiness segment contributed a small operating income, as we continue on our initiative to rebuild. I will discuss this more in detail later on the call as well.

Now I'll turn the call over to Jerry to discuss our liquidity and financials in more detail. But before I do, I think it is important to point out that our performance over the last 12 months shows the great opportunity that we have in front of us. Coming out of the most difficult industry environment we had seen in our history, the Company still generated over $90 million in operating EBITDA and over $135 million in overall EBITDA, I will come back on the call to discuss trends in the industry and progress on many of our efforts. Jerry?

Thanks, Todd. Good morning, everyone. We're pleased to report to you a second consecutive quarter of profitability. On a consolidated basis, our revenues were $765 million for the quarter, down 1% when compared to the first quarter of 2012. The decrease is related to lower grain prices and agronomy sales resulting from the sale of the 12 grain elevators during the fourth quarter of 2012. This was offset by higher average prices for ethanol and distillers grains this year compared to 2012.

Sales of ethanol from our own production facilities increased 1.2 million gallons, as we continued to run at about 92% of our stated operating capacity. With the improvement we've seen in ethanol margins for Q2, we currently expect to run closer to 95% of capacity across our platform and depending on forward margins, we may stay at that level for the balance of 2013.

We generated operating income before depreciation in the ethanol segment of $0.05 per gallon, compared to $0.01 per gallon realized in the first quarter of 2012. And that was before the nearly $4 million non-recurring charge related to a legal settlement that we took last year. As a reminder, that $0.05 per gallon does not include our operating income from corn oil, which continues to average almost an additional $0.05 per gallon that we produce.

Corn oil production operating income was $7.8 million in the first quarter, which was flat to what we reported in the first quarter of 2012. Revenues in this segment were up due to higher volumes and prices, but cost of goods sold was up about $2.2 million to offset these increases. Remember, most of this increase was due to higher distillers grain that we actually pay to ourselves -- pay back for ethanol plants to reimburse them for the volume that's consumed in the process.

The first quarter of our agribusiness segment saw revenues decrease by $30 million or 26% over last year, due to completing the sale of the 12 grain elevators in early December. We are still working off corn inventories retained at the Tennessee location after the sale and expect this inventory to last through the second quarter of 2013. We reported about $370,000 in operating income and anticipate that being an approximate run rate for this segment for the next couple of quarters.

The marketing and distribution segment had an excellent quarter with reported operating income for the first quarter of 2013 of nearly $13 million, compared to $0.5 million last year. The increase between the two periods is mainly due to our railcar initiative, a strong contribution from the Birmingham unit train terminal, which began operations in December of 2012 and our trading and logistics activities around our assets and data flows.

Our income tax expense was $1.6 million for the quarter, which was an effective tax rate of 38.5%. We expect this rate to continue for the balance of 2013. Earnings before interest, income taxes, depreciation, amortization, or EBITDA, was $24.8 million for the first quarter of 2013, compared to $1.5 million in the first quarter of last year. As Todd said, on a trailing 12 month basis, EBITDA totaled approximately $139 million, which included a $47 million gain on the sale of certain elevators in the fourth quarter of 2012.

Overall, our balance sheet position is strong and getting stronger. Total cash was approximately $242 million at the end of the quarter. We paid off the $27 million note for the repurchase of shares from NTR that we completed in March of 2012 and also paid down ethanol plant debt by another $11 million this quarter. In addition, after quarter end, we also completed the refinancing of our Bluffton term note, extending out the maturity to January 2015 and reducing the principal balance by $10 million. We were also successful in reducing the amortization of this term note by approximately $4 million on an annual basis. As a result, our ethanol debt service going forward is around $0.09 per gallon, which again, allows us more flexibility in the future.

In April, we also closed on a new $130 million asset-based loan, led by PNC and Merrill Lynch for our Green Plains Trade Group. This replaces our existing $70 million credit facility in this business. The syndication was well over-subscribed and will expand our capability to finance ethanol inventories, as well as our trade receivables. This is a very important step in the evolution of our capital structure, allowing us to better align the financing of our working capital under our two ABL facilities, one financing grain inputs and the other financing our ethanol inventories and receivables downstream. This was also a catalyst to the Bluffton refinancing I just mentioned, allowing us to utilize some of the working capital that was freed up to reduce the balance in the amortization of that facility.

As of March 31, our total debt, excluding these ABL revolvers was $481 million or about 3.5 times trailing 12 EBITDA. Capital expenditures were approximately $1.9 million for the first quarter. We have plans in place to begin the grain storage expansions around your ethanol plants, where we currently expect to invest about $5 million between now and September on the build-out of about 8 million bushels of storage capacity at the plants.

In summary, we saw a strong contribution from our non-ethanol segments and solid improvement in the ethanol margin structure that is carried over into the second quarter of 2013. We continue to execute on our strategies and look forward to opportunities to expand our Company going forward.

I'll turn the call back to Todd.

Thanks, Jerry. The ethanol industry continues to rationalize production, keeping rates down to some of the lowest level seen since the EIA began tracking data. As a result, ethanol inventories were reduced this morning to around 17 million barrels, which is the lowest we have seen it heading into the summer driving season and the lowest since December 2011. There's still a gap in ethanol production versus the mandate, which continues to have a positive effect on the margin environment. Another positive is that Brazil is fully priced out of the US market throughout 2013. Unlike last year at this time, excess needs will be need to be met with either better domestic production or continued draw on stocks, like we talked today.

We expect better Company performance in the second quarter. Margins have improved during the quarter, even with the latest weather spike in corn. We have very little left to lock away as we started aggressively during Q1 to lock away Q2. After experiencing the volatility of 2012, we felt it prudent to move quickly to do this, or we might have probably -- well, we probably might have missed some of the highest spot margins we have seen for while. We are satisfied with maintaining our disciplined approach to managing risk.

The third quarter remains undefined, but it's much improved from where we were at same time last year. The fundamentals of ethanol will need to take shape and we believe under the current environment, we will have better opportunities to lock margins away in the third quarter. And in the fourth quarter, we're not focusing on that quite yet, as the farmer still needs to get the crop planted and we like to get some extended physical coverage on our physical side of corn. While we certainly don't like the planting progress to-date, the velocity of the planting has improved dramatically. It can adjust upward very quickly. Under current conditions, even with a slight decline in acres, the carryout could be burdensome with some return to normal yield.

The spread between wholesale gasoline and ethanol has declined to a range of $0.40 to $0.50 per gallon on the forward curve, but there is still a significant economic incentive to blend, especially when you include the current value of the RINs. For every gallon of ethanol we sell to a blender or a refiner, the RIN is free to the buyer and it travels with the gallon. The noise that was generated that ethanol was going to cause gas prices to rise is nonsense, as retail prices for gasoline are down $0.35 a gallon this year compared to last year. We believe this is a classic short squeeze and the merchant refiner, without adequate downstream distribution systems, may be getting hurt, but other large owners of this distribution and blend capacity are getting the value of the RIN and passing this on to consumer and lower gas prices. Well, some of the companies that are short RINs may be getting hurt to try and [scare] the consumer into believing this cost will be passed on to them. We believe this is disingenuous.

On our last call, I talked about two of our key growth initiatives, rebuilding our agribusiness segment and expanding our trading and logistical activities around our trade flows. As Jerry mentioned earlier, we have plans to invest $5 million in building about 8 million bushels of storage, starting now and being completed by September. This will expand our GPG own grain storage to approximately 17 million bushels, not including grain storage that existed already when we built our ethanol plants, which has put us in a solid position to compete for first hand of corn from the producer this fall. Our current plan is to build an additional amount of storage in 2014, roughly taking us to 25 million bushels of storage. Most of the storage is in line with our supply chain [to service] our own internal demand, but in many locations there will be flexibility to sell externally as well.

One final point to our ethanol segment. There is only about a month and a half worth of needs for the crush, so we're going to continue to assess additional capacity at or around our demand base as these projects come online. We're starting to monetize our trade flows in and out of our ethanol plants and logistical assets. We continue to hire physical cross-country merchants to build this business over the next 12 to 18 months. Both of these growth initiatives are meeting our timelines and our expectations for 2013.

Now a quick update on the BioProcess Algae venture. Last week, BioProcess announced being selected to receive a matching funds grant up to $6.4 million from the US Department of Energy. This grant is for a pilot scale project aimed at the production of hydrocarbon fuels meeting military specifications. The project will utilize our Grower Harvester technology platform, co-located at our ethanol plant in Shenandoah, Iowa. The initial contact for the award was a pilot project to use algal biomass, combined with renewable sugars to further process into fuel using a technology already developed. BioProcess was the award recipient, but there are two other parties also involved in the specific pilot project. There is a 90-day pilot period required to run the project. There is no further obligation on our behalf after that. We were certainly pleased with BioProcess Algae being the only algae platform chosen to be part of the project by the DOE that was submitted back in the September of 2012, which we believe gives immediate credibility to what we are trying to accomplish in Shenandoah.

As we said in our past, our technology is all about growing and harvesting algae at commercial scales, efficiently and cost effectively as possible. The grant will help offset some of the build of the 900-foot reactors being built in Shenandoah. Because of this partnership, we're changing some plans for the 2013 project as outlined in the past and we'll push construction back a bit, as our scale and scope is increasing. We expect to get started within 30 days with a revamped construction schedule, all really driven by the grant that we just received. We're excited about teaming up with the DOE on this project and furthering our ability to grow and harvest algae.

Before we open it up for questions, I'd like to summarize where Green Plains stands today. We continue to find innovative ways to derisk the ethanol segment, but we understand that the value of our business comes from the earnings power of our production. We continue to work on growing our non-ethanol operating income, could help diversify our Company's earnings. We value the flexibility that a strong liquidity position brings to our business and continue to improve our capital structure. Our employees, all listed in our Annual Report, take initiative every day to make things better and find opportunities to improve our performance, both operationally and financially.

Thanks for calling in today, and I'll ask Mary to start the question-and-answer session.

(Operator Instructions) Laurence Alexander, Jefferies.

Good morning.

Good morning, Laurence.

I guess, first of all, can you give a little bit more detail on the amount of CapEx you're applying to building out the marketing and distribution segment and how you think about how much of a lift that might give to earnings over the next, call it, two to three years?

Yes, everything we're doing in marketing and distribution, at this point, requires very little capital in terms of capital expenditure. A lot of it is really just utilizing our balance sheet and our capital structure to take advantage of trade flows. And even then the margins we earn really take very little capacity off the balance sheet.

In terms of capital, we are still evaluating several projects, terminal projects around our BlendStar platform. And, in fact, we're in late stage development of one of our other sites into a similar terminal as Birmingham. So we'll keep you updated on that. But at this point, it's very little capital around the marketing and distribution segment for the next 12 months.

And then, on the railcar leasing program, what's the run rate for that and how should we look at that going forward?

Laurence, for the quarter, we had about $4.6 million of operating income from our crude oil transportation activities. Todd, do you want to --.

I will expect that somewhat to be consistent for the remainder of the year. And so we -- obviously, as ethanol margins get better, we may pull some of that back into our fleet if we want to expand our run times over and above kind of 100% of capacity or 740 million gallons. If we have any capability to expand beyond there, we may pull some of the [cuts] back, but at this point we've become very efficient in our transportation flows and have great utilization on our fleet. So right at this point there should be some more consistent run rate for the remainder of the year.

And then on the BioProcess site, can you give a little bit more detail on progress towards commercialization, like are the price points on products and acceptability, product checking out and also any discussions with other potential partners on the industrial side?

Yeah. Thus far, the reason we are building the 900-foot reactors is because as we scale, we continue to see the benefits of scaling. Most of that scaling efficiency is coming through the processing of the algae into a finished product, either the paste form or into the dried wholesale like form. And as we scale, where we're at in terms of building the reactors is going to be pretty steady and where we get the benefit is in our processing capacity.

In terms of our development, our goal is to get to one ton a day of production. While it doesn't sound like a lot, in relative terms there is plenty of demand for high quality product and we are in development stages with multiple large-scale users that are looking at it from either a high value protein standpoint, looking at it from an Omega-3 standpoint and also looking at it as a feed, an animal feed as well in the fish meal market. So we are also in many development projects there. And then, finally in terms of -- what was the last question actually?

Just in terms of the substantial partners on the industrial side.

Yeah. As I mentioned, we are in late stage development on that and we continue to work with many partners, none at this point we are at liberty to mention, but we'll keep you updated on that, except to say that our efforts are ongoing and they are aggressive and they are widespread.

Okay. Thank you.

Farha Aslam, Stephens, Inc.

Hi, good morning.

Good morning.

Congratulations on a good quarter.

Thank you.

And then, just -- first a quick one to follow on to Laurence's question. That one ton a day of production, in terms of timing, if you had to put a time horizon on that, is there a time goal for that?

Yeah, by the end of this calendar year we hope to have the project up and running and producing one ton a day of production.

That's end of calendar year 2013?

End of calendar year 2013, that is correct. It may go into the first quarter of 2014, but in general we should have -- most of the CapEx was engineered. By getting the award it threw a little bit of a -- we had to pause just a bit to make sure that we reconfigured to meet the specifications of the award, as we really didn't know when that would come or if we would win, if we would be a recipient of that. So, because of that we have to reconfigure [a bit] of this project and so that reconfiguring comes in because we're going to actually use renewable sugars, combined with a catalyst technology to convert the algae into a hydrocarbon fuel and we'll see the economics of that. We have no commitments in terms of the overall -- what those economics are going to be, except the fact that we will share that with the government to see whether it's a viable long-term program or not.

Okay. And then, longer-term, what do you hope to scale this BioProcess algae, from one ton to what clarity scale to?

You know, we have indicated, one ton a day, we really have to -- we have to really focus our efforts down on a few long-term counterparties, because we just won't have enough production for the demand that exists out there. So if you look at the fish meal market, the 10 million ton a year market, if you look at other high value commodity markets, it's much greater than what we're going to produce. And because we've been very -- had a very wide distribution to many parties that are doing a lot of work on the product, we're really now focusing on scaling into potentially one or two long-term partners that see the value of the product in either their -- one of their downstream initiatives and really focus on getting something nailed down, where most of what comes off the farm will go to only one or two counterparties. And that's kind of what we are focusing on right now. And as we kind of grow that and grow the demand, we'll determine how fast we grow the footprint and our goal has always been to kind of get to 40 to 50 acres quickly in Shenandoah, and as the demand base starts to line out, we think we'll probably start to think about that project going forward.

Okay, that's helpful. And if we could turn back into your base business of ethanol, your thoughts on import of Brazilian ethanol, as the Brazilians are ramping up seasonal production?

Yeah, I think even as the Brazilians ramp up seasonal production, what we've seen is that they are really priced out of our markets. With the drop in corn, when you look at the value of what corn converts into sugar it's about $0.11 a pound. And if you look at wholesale sugar around the world it's about $0.18 a pound, and that's kind of what we're competing with -- what they're competing with right now. So when you look at the price of ethanol relative to that price of corn-based sugar, then you could see that they're not going to be very competitive with us, at least in 2013. As well as, their own internal demand is increasing, because of their own expanded blends. And so, when you look at kind of all of that and put it altogether, we don't expect a heavy return into 2013. Maybe some will come into California and California may need to be a differentiated market, where -- because of the low-carbon fuel standard there and the requirements that they will have to import some sugar, but -- sugar-based ethanol out of Brazil. But I would I would argue that anything we import going forward will be exported equivalent out of the US, either back to Brazil for their own internal demand or somewhere else in the world.

So I think, when you look forward, at least the rest of the year, we will most likely be, a worst-case scenario, a breakeven exporter against imports and probably most likely we'll be a net exporter for the rest of the year as well, which then continues to -- should continue to either draw stocks or tighten up the situation in the US.

Okay. And just two more questions. The first one is on ethanol production in the US. You've recently seen a bit of a pick-up in production as ethanol profitability has improved. Are you at all concerned about that pick-up in production?

We're watching really closely, and if you look at today's EIA data numbers, we saw a small uptick in production, we saw a large draw on production. We saw net export and no imports. That's all a formula that says 850 barrels per day -- 850,000 barrels per day of production is still not quite there yet. So even small upticks from this point are not going to probably have a big impact on a stock's build. When we get to kind of these type of levels, where we're watching it very closely, we have ramped up our production, as Jerry had mentioned, and we're watching that very closely. And we always kind of look at that forward curve, and since Q3 is really not developed yet and Q4 is still far away from now, while some people may come up today, they have to make a decision whether they want to look at Q3 and determine whether they want to come up today or not and that's kind of the thing that might be holding back production a little bit. But in general, we kind of believe those fundamentals for Q3 will continue to develop and continue to get better. So, yeah, I mean we watch it closely, but at 850,000 barrels a day with draws on stocks at this point, we're running below the mandate and any increase in production will be met with enough demand to take care of that we believe.

Great. And my last question is on the RFS. Do you anticipate any changes in the RFS as oil companies and obligated parties have expressed concern about meeting it potentially in 2014 and into 2015?

Yeah, that's something we monitor very closely. I mean, when you look at what the rhetoric is coming out of the government and the EPA and the White House on the RFS, they've given a program, which is E15 to the market to meet their obligation and if all we ever did was get to an E11 blend nationally, they meet all their obligations relative to production and relative to their RFS mandate. And so, while we certainly understand that there is definitely some barriers to any widespread expansion to get to the whole US E15, to get to E11, we think -- which basically takes care of the mandate all the way through 2015 -- just about takes care of the mandate through 2015. And we believe the program exists that the government may stand firm. We'll have to watch more closely around the advance in the cellulosic side and determine whether they'll be required to blend something that doesn't exist today. Obviously, biodiesel does, but in terms of cellulosic or advanced ethanol that will be the question that we'll have to look at. But there's enough corn-based ethanol out there to meet their obligation through 2015 at an E11 blend. And we think at this point, obviously, Congress can do what they want to do, but it still has to get through the White House and we believe we have strong support in the White House today.

Okay. Thank you.

Thank you.

Brett Wong, Piper Jaffray.

Hi, good morning, guys.

Good morning, Brett.

Just kind of going back to the supply and demand side of the industry, historically, as margins improve production come on and just kind of wondering why you don't think that we're seeing the increase in supply, given the strong margins and the run room for -- up until the blend wall?

Well, there's a couple of reasons for that. Number one, you may -- if you've an ethanol plant and you are down, while you might have strong margins in the spot, you have to believe you'll have those strong margins in Q3 and Q4, and the curve isn't fully developed, so if you want to finance yourself coming up, you probably have to -- if you don't have a balance sheet like we do and a belief like we do that margins continue to roll forward, it'll be hard to get excess capital to get yourself up and running. That's kind of the first thing.

The second thing is, what you have to watch very carefully, and I think people aren't really looking at this closely, is that we have -- when we build an ethanol plant, we basically register our maximum run rate, which is -- whatever we call it, Steve? -- our baseline, I'm sorry, our baseline run rate.

And so, the thing is that if you run over your baseline, then you're going to be short of the RIN. So I'll give you an example of what that means. When we built Bluffton, we built Bluffton as a 100 million gallon ICM, Fagen-built plant. We registered our baseline at 120 million gallons. In a year when RINs were very cheap, we were able to run over our baseline, buy the RIN and satisfy (inaudible) and have the RIN travel with the gallon. Today, when you have the baseline, you don't want to run over your baseline, because as an ethanol producer you could end up being short of the RIN. But that puts an overall cap on capacity, albeit at above this level today, so we can continue to run as an industry above this level, but you're not going to run full out, like you might have ran in Q4 of 2011, when you just ran full out and you didn't take any consideration to baseline capacity.

So that's where you may not get back -- may not be able to get back up to that [950] run rate even on a stocks draw, because of that baseline capacity. I don't think people are taking that into consideration today. Can we run enough to satisfy the mandate? Absolutely. Will we run much harder than that? I think people are much more disciplined today than that.

Okay.

Patrick Jobin, Credit Suisse.

Good morning. Thanks for taking the question. And congrats on the strong quarter.

Thanks, Patrick.

Just want to follow up on the marketing and distribution segment. I guess you broke out the railcar initiative. Is it possible to also break out kind of the trading logistics and then the blending operations?

No, we really don't -- we really typically don't do that. We only broke out on the railcar initiative, obviously, because it's something we have done in the past. But, overall, we have strong contributions from all the others. As we continue to grow that segment, we'll make determinations in the future what is broken out or not, but at this point it's basically an all-in-one number. We did have strong performance during the quarter by taking advantage of some of our trade flows. So I will tell you a lot of that increase came from that overall, but some of it also came from our terminal operations.

Okay. Then just a follow-up on the high RIN price environment. I guess, do you capture any of that value with the blending operations downstream and is it possible -- I guess, you mentioned you do have one blending facility or a train under consideration right now. So what that capacity might look like going forward?

Yeah, we don't really -- from a standpoint of directly capturing the value of the RIN, we don't sell blended gallons in many places to do that. Obviously, in some markets where we have the terminal capacity, we may do that through a better margin structure in our merchant trade, but in general we see very little impact or benefit of that. In terms of the other facility we are looking at, it would be somewhat similar to a Birmingham type facility, where four unit trains a month on kind of the minimum -- right, Steve, is that correct?

Ballpark, yeah.

Yeah, ballpark, with possible increases from there and that facility doesn't handle that today. So -- and that CapEx will be actually smaller than Birmingham, because we do have a bigger capital there as well. So would not be a very large CapEx to expand to a larger terminal operation.

Okay. Then just two quick housekeeping items. First, can you mention the CapEx you expect for the BioProcess Algae venture, both getting to the one ton and just what that capital utilization or capital intensity would be if you grew that to your targets longer term? That's the first point. The second point, just on the railcar contract extensions, if you can give us an update there? I believe -- recall they're starting to expire in September? Thanks.

Yes. So in terms of the Algae capital intensity, so you know, obviously, the $6.4 million grant is a matching grant that we, as all partners, have to put up our share minimum. So we own today 52% of the Algae venture. So in terms of -- to build out the equivalent of about $13 million of CapEx, our minimum capital contribution will be 52% of $6.4 million and that's going to have great leverage in terms of the grant and then the ongoing CapEx that returns back to the Company. So that will be our 2013 spend. So not too much obviously, a little bit of normal SG&A, above that.

And then as we look at 2014, as we see success at the 900-foot reactor levels, which are 900-foot horizontal reactors that are laid out on the ground, all connected up with processing capabilities. As we see success from there, and start to really build end-market contractual obligations with users which we've very focused on, on getting to, at some of the highest value points early on, as well as potential long-term contracts with global fish meal users, we'll make a determination of how and what that next level of financial velocity or funding velocity will be and whether that gets funded from the partners or that gets funded externally at some point. So that's obviously something that we'll have to look at down the road. But we're really focused on truly improving out to get to a ton a day of finished production at a high quality selling price that can actually be put into product consistently next year. And that's kind of what we're focused on right now.

In terms of railcar leases, we're renewing the leases right now, and we continue to focus on that. And looking at what the best optimal use of our fleet is, and whether that kind of returns back in ethanol production, we'll look at other opportunities around using our tank cars in trade and transportation flows. But in general, we don't have a lot coming due in 2013. So, in general, we're looking out on the curve and determining what's the best thing to do for the Company long term and whether that's to continue to lease or look at other alternatives.

Thank you very much.

Thank you.

Craig Irwin, Wedbush Securities.

Thank you. Most of my questions have been answered, but I wanted to dig in a little bit into SG&A. That ticked down about $6.5 million sequentially. Obviously $2.5 million of that was corporate. Can you discuss with us whether or not there are any one-time items or anything that maybe was shifted into later in the year or if we should look at this more sort of a different level given your financial discipline?

Craig, no. There really aren't any one-time items in SG&A. As I had mentioned earlier, actually in cost of goods sold there was a one-time item in 2012 related to that legal settlement, it was about $4 million. But in SG&A, there really wasn't anything that's non-recurring. The main difference, though, once you account for the corporate SG&A which you mentioned, the reduction other than that is our grain company, on those 12 grain elevators that we sold had a fairly significant amount of expenses that were reported in the SG&A line.

Great. And then one thing I wanted to ask for just a little bit more color on. You clarified for us non-crush EBITDA of $0.05 a gallon, roughly $8.8 million. If we look at the non-ethanol production operating income or just approximate that and your marketing and distribution in there, it appears that the marketing and distribution for Green Plains itself has become materially more profitable over the last handful of quarters. Can you discuss specifically if this is related to something maybe strategic in your end markets, a change in approach, if this is likely to be sustainable or if maybe this is more of a short-term phenomenon that's benefited you while the market has been dislocated?

Yes. So in terms of -- when you said $0.05 a gallon of non-ethanol, that's actually -- that was our corn oil, which Jerry indicated that there was an uptick, in terms of thinking about it and applying that back into our business. Overall, what we have guided on is that we're still on track to achieve $60 million of non-ethanol operating income. When you kind of break that down, around half is coming from our corn oil and the other half coming in that marketing and distribution and agribusiness segments, even before the rebuild. For the marketing and distribution, obviously we had a very strong quarter. As we indicated earlier in the call, while we don't expect that necessarily to be the run rate that you should think about, returning more to kind of what you see in the last quarter or so, at least for a little while it could continue to build up, we still may have strong quarters in marketing and distribution going forward. As of now, we continue to rebuild or continue to build that segment out with expanded terminal operations, expanded merchant operations and other things that we're looking at within that segment.

So, overall, very strong, very good quarter, the guys did a great job there, taking advantage of all the opportunities that they saw in front of them, including the ramp-up of Birmingham. And we expect that our goal is to kind of get back up to those numbers and depending on where the opportunities are within a certain quarter, we may see some of that in the future. But right now, we're kind of going back to what our average run rate has been to get to that total of about $60 million for 2013.

Great. And then just to be perfectly clear, so I myself and everybody else on the call understands how you're looking at this. Do you intend on including marketing and distribution more in your crush operations when you calculate the sort of the crush returns of your facilities? Or is this going to be a component of the non-crush EBITDA, like it has at some point in the past?

It always has been in the past and it always will be in the future as part of non-crush component.

Thank you.

Brent Rystrom, Feltl & Company.

Hi guys, this is Shawn Bitzan sitting in for Brent Rystrom.

Hi, Shawn.

On the gross profit for marketing and distribution segment, I know you'd said you don't really break that out or won't break that out this quarter. And you just stated that we shouldn't look for marketing and distribution for that to be the run rate going forward. Is it going to be kind of sequential going up and down, or is there any consistency whatsoever to expect from that?

Yeah, what we kind of said is, is when you look back at Q4, and I don't know Jerry what was Q4? Do you have that Jim? Into that -- back into that historical EBIT range, obviously, this quarter was $3 million or $4 million better than the prior quarter if we go kind of back into that last quarter range. Basically if you have $30 million coming off of corn oil, we should expect somewhere in that $7.5 million, $8 million range per quarter right now, going forward for the rest of the year. And then depending on if we see any other great opportunities or we accelerate some of the projects that we're working on, that may go up from there. So that will be your normal run rate. And then from there we hope to grow it very quickly. And hopefully down the road, this will be more of the norm than the exception.

Yes. And our operating income for Q4 in marketing and distribution was about -- just under $7 million.

Thanks, guys.

Thank you.

Matt Farwell, Imperial Capital.

Hey, good morning. Just a question on the current and the forward margin outlook. Spot margins are clearly higher. What are you seeing today at the plant level and in the forward market and how exposed are you to that curve?

Yeah, as we indicated in the call, Matt, we're basically done for Q2. We're focusing on Q3. Forward curve in Q3 isn't developed yet. But if you kind of go back and look at the last two years at this time, I would tell you that this call -- at this time we would -- that was repeated. And each year, the curve developed in the next kind of 30 to 45 days. And once we see that curve develop we'll move to lock margins away. If you look at the underlying fundamentals, that curve has to develop at some point here, because you can't afford to take production down at this point, based on the current stocks draws, current demand base, summer driving season, no Brazilian imports. So that curve out in Q3 has to start to develop at some point or we could put ourselves into even a tighter situation going forward.

Q4 has been ranging. We actually have locked in some Q3 for our Tennessee facilities, as those are some of the best margins we saw out on the curve. And we have focused a little bit on Q4. But we're really waiting on Q4 until the farmer comes out of the field, he's comfortable with what he's planted, get the acres in, has adequate moisture and starts to sell some of their physical corn into the commercial channels. This is the year where I think we have, as an industry, the lowest, as a grain industry in general and probably as an ethanol industry, some of the lowest coverage forward farmer producer sales that we've seen in many years. And so, with that said, with the basis volatility that we've seen in the last couple of years in Q4, I'm not sure a lot of companies are willing to go short in the U.S. corn bases and put on the financial crunch at these levels.

So in terms of the demand outlook, we could see -- it seems like the current spot, we should see demand continue to grow or the production continue to grow. You mentioned earlier in the call, you think the demand will be there. Are you suggesting that if we see production grow to the [$13.5 billion, $14 billion] per gallon for your run rate, we won't encounter any blend law issues?

I don't think we're going to see that production come on like that because I think in order for it to come on like that, a lot of people have to go above their baseline capacities. And so, I don't think you'll be able to get to that that number that easily and be short of the RIN. And so, I think -- and I also think if you kind of look at it, the industry has been somewhat disciplined about the ramp-up and kind of stayed in this [800 to 850] range for a little while here, even with a better margin [of our RIN].

Are people ramping up? Sure. Are we ramping up a little bit? Absolutely. I also think people realize that they ramp slower, their yields went up. And as your yields go up, you have to actually replace out on the curve that yield with better margins. And at single digit margins, that's a calculation you have to decide, and at single digit margins, you would run slower and kind of get into that mid or low teens margin, you run faster. So it's just one of those environments that you can come up and down very quickly based on the margin, based on a yield. And I think people in the last 12 months have realized that.

There are plans right now that won't come up, because the curve isn't developed enough. And I don't know if we can get the financing to come up. So I think when you look at all that and you've kind of put that on a piece of paper, at a [13-3] demand base, [13-8] mandate and exports net of imports, I still think you could handle more, and draw on stocks, you could handle more production increases if people have the balance sheet to come up.

That's helpful. Last question is on the new working capital facility. Could you just elaborate a little bit on how that improves the Company's liquidity and the financing position, does it release any restricted cash, maybe give some more color on that?

Sure, Matt. Yes, I mean what we did in Bluffton is kind of the prime example and we hope to do it at other plants, but what we're doing is, we're transferring the grain ownership at our plants gradually over to our grain company, and we'll finance that under our grain revolver. And then the ethanol that's in tank at the plants, we intended to transfer that over to our trade group, basically transfer it early and use our ABLs to finance that inventory. Again, that will drive liquidity. In this case, it added about $5 million or $7 million of liquidity to Bluffton, just as an example that then was used to pay down that term debt at Bluffton. If we replicate that overall nine plants, you know, it could be a $50 million, $60 million impact to the total platform.

That's great. Thanks a lot.

Thanks, Matt.

Brett Wong, Piper Jaffray.

Hi, guys, sorry. I think I got cut off a little bit earlier. Thanks for taking my follow-up. I just wanted to clarify around the CapEx expansions for your on-site facilities. You said $5 million to build out 8 million bushels and is that correct?

Yeah, yeah. If you look at our CapEx around building additional grain storage, it's $5 million this year for 8 million bushels and probably another $5 million next year for 8 million bushels of storage. That is correct.

Okay. So then we should expect that that $0.60 per bushel crop for new grain storage, is that correct.

That is correct. And it's utilizing -- I think what's important is the way we're able to keep down a lot of these costs as it utilizes a lot of the infrastructure that exists today, the road, the scale, the employees, that has also been -- and we also have rail at all of our ethanol plants as well. So when you kind of just look at building flat storage as well, and capturing that first-handle margin, we've designed these to be very high velocity as well. So we have multiple high-velocity dumpsites that we'll be able to keep up with commercial grain elevators in our local area.

And also, I think what's important there is, as we build that out, we will divide that into an agribusiness segment, it's not part of our ethanol cross segment, and ultimately that 25 million bushels of storage will then accrue to the agribusiness segment, and those earnings will then hopefully replace a large portion of the earnings that we sold last year when we sold the 12 grain elevators.

Okay, great. Thanks a lot.

Thank you.

Paul Razmik, Uncommon Equities.

Thank you. Good morning.

Good morning, Paul.

Good morning. A lot of questions were asked and answered. One question with regard to exports. Do you think the European Union ethanol anti-dumping duty is going to be a problem for ethanol exports?

Yeah, it will be this year, obviously.

Yeah. It will be somewhat, but I think when you look at it, it sounds a lot bigger than it is. When you look at it X-dollars per ton, is only X-cents per gallon, and that X-cents per gallon, when you look at that in terms of what that exactly is and the relative price of our forward curve of ethanol, at $2 a gallon, if you add $0.25 a gallon to that, or $0.35 a gallon to that, you still would come into Brazil cheaper -- or into the EU, cheaper than a lot of the world capability and the world supply. So while that might be a somewhat disadvantage on paper, we believe that some of that can be captured back in our lower price of ethanol if corn continues to make its move.

Thank you. That's it.

Thanks, Paul. Okay.

And that conclude today's question and answer session. I'd like to turn the call back over to Todd Becker for any closing remarks.

Thank you very much for coming on the call. Obviously, we're pleased with the quarter's results and the increase versus last year at this time. Obviously, we are still staring at a curve that has to get defined. But overall, the fundamentals are much better for us in terms of the ethanol production segment. All of our initiatives are on track and we're going to continue our program to grow our non-ethanol operating income with all of the other initiatives we have in place. Hopefully that will provide some opportunities in the future for you as well. Thanks for your support and we'll talk to you next quarter.

And that does conclude today's call. Thank you for your participation.

Thank you.