Good day, ladies and gentlemen, and welcome to the Green Plains Incorporated and Green Plains Partners First Quarter 2019 Results Conference Call. [Operator Instructions]. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Jim Stark. Sir, you may begin.

Thank you. And welcome to the Green Plains Inc. and Green Plains Partners First Quarter 2019 Earnings Call. Participants on today's call are Todd Becker, President and Chief Executive Officer; John Neppl, our Chief Financial Officer; and Patrich Simpkins, our Chief Development Officer. There is a slide show available and you can find that presentation on the Investor page under the Events and Presentations link on both corporate websites. During this call we will be making forward-looking statements, which are predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in yesterday's press releases and the comments made during this conference call and in the Risk Factors section of our Form 10-K, 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. Now I'd like to turn the call over to Todd Becker.

Thanks, Jim. And thanks, everybody, for joining us today. Early yesterday morning, you saw the announcement that John Neppl is leaving us to become the CFO of Bunge. I do want to say to John that we appreciate his hard work, partnership and dedication over the last few years and wish him the best in his new position. With that change, I'm happy to announce that Patrich Simkins, who is currently our Chief Development Officer and has been with us since 2012, will become Chief Financial Officer. Patrich has a deep understanding of finance and financial strategy and will be a critical partner for us as we continue to roll-out our new initiatives and close out the portfolio optimization plan. Paul Kolomaya will become Chief Accounting Officer for Green Plains. Paul has worked tirelessly for the last 10 years for the company and he has been here since the beginning and his contributions have been immeasurable to the company's success. We reported a net loss of $42.8 million or $1.06 per diluted share. Our financial results continue to be impacted by the weak ethanol margin environment and our first quarter was also affected by the severe winter weather and flooding in the Midwest. Green Plains produced approximately 155 million gallons of ethanol in the first quarter. We again decided to temporarily idle plants as a result of the poor margin environment and the rail service delays also impacted our production. Prior cutbacks overall enhanced our financial performance whereas this time it negatively impacted us by approximately $0.06 a gallon. Consolidated crush margin was a negative $0.08 a gallon for Q1 as we ran our plants at 56% of operating capacity. Our goal is to return to our historical operating run rate at 90% or greater. This is our target in…

Thank you, Todd. Green Plains Inc. consolidated revenues were $642.3 million in the first quarter, down $403 million or 39% from the first quarter a year ago. The decrease in revenue was driven primarily by the disposal of three ethanol plants and the sale of Fleischmann's Vinegar during the fourth quarter of 2018 along with lower run rates at our remaining plants. Our consolidated net loss for the quarter was $42.8 million versus a net loss of $24.1 million a year ago. As Todd mentioned earlier, our Q1 financial performance was affected by weak ethanol margins and severe weather impacting our cattle operations. We recognized a tax benefit of $14.4 million in the first quarter of 2019 resulting in an effective tax rate of 27%. EBITDA for the first quarter was a negative $18.7 million compared with a positive EBITDA of $23.1 million for the first quarter last year. SG&A decreased $5.4 million over 2018, primarily due to a reduction of controllable expenses and the asset sales completed in the fourth quarter of 2018. Interest expense decreased $8.3 million to $14.4 million for the quarter compared to last year. This was driven primarily by paying off the term loan B in the fourth quarter of 2018 offset in part by higher LIBOR rates and a higher debt balance at our cattle feeding operations. CapEx for the quarter was about $11 million with approximately $4 million of maintenance capital for the ethanol production and cattle operations and an additional $7 million of growth capital, primarily for the high protein feed project in Shenandoah. On Slide 8 of the investor deck you will see our balance sheet highlights. We had $373 million of net investment in cash and working capital at the end of the first quarter compared with $427 million at…

Thanks, John. So, we're now in the ninth month of what we believe is the longest negative margin environment the ethanol industry has ever witnessed. The solution remains the same as we have prescribed -- as we have prescribed, we need a higher ethanol demand driven by stronger exports and higher blending levels in the United States. We are still tracking to export approximately 1.7 billion gallons of ethanol in 2019. A trade resolution with China could easily add an additional 400 million gallons of demand annually and much greater possibly of export volume. While there are certainly headline risks to what is happening on the trade negotiations, we do still strongly believe a positive outcome is coming as it relates to ethanol. We have also seen other opportunities start to open up in other parts of the world. Whether it's the EU, Brazil, Japan, or Mexico; demand remains strong for our product globally. We stand behind our E15 year-round demand growth of at least 200 million gallons of annualized incremental demand as only the starting point. Once past hopefully June 1 of this year, the real test will be 2020. I am in the camp of a very strong E15 demand base coming. This will be the first time in history our industry will have access on day1 of more than 7 billion gallons of new ethanol demand. It's our job as an industry to go after that and get the job done as our cost competitiveness is very favorable to gasoline even with lower RINs as it looks to stay that way with low corn and soy prices sticking around for a while. The EPA took comment on the E15 RIN reform rule through last Monday and are on track to finalize the rule to allow year-round sales…

[Operator Instructions]. Our first question comes from Ken Zaslow with Bank of Montreal.

Just two questions. One is can you talk about the costs that are associated with your improvement of your facilities and what's the return associated with that?

That's pretty easy. So, it's about $0.10 a gallon so for our -- $0.09 to $0.10 a gallon. So for our 50 million to 60 million gallon plants, the costs will be $5 million improvement and for our 100 million gallon plants or bigger, it will be about $10 million CapEx. The recovery of that is 1 year or less in most cases. What -- really what it's driven by, Ken, is that the energy cost in our non-ICM plants are significantly higher. But what we're doing with this exclusive arrangement with ICM on technology is that would drive a large part of the savings and from there, you -- once you go right down all of our OpEx savings, it's a bunch of different areas. But it's something that we've developed in-house initially. We brought it to ICM, they had a solution as well and together -- we worked together to develop the final version of this and the great thing is we have a multiple year head start against any other deployments after we're done with the final upgrade.

Okay. And then the second question is if there was a U.S.-China deal to be signed, can you frame right now where margins are obviously negative, how much that would impact and then the parameters to which you think that would increase from that and what are the key drivers? And I'll leave it there.

So Ken, margins right now are slightly negative, you are correct. But so what we did is we went back and looked at pre-trade war levels with China for 200 million to 300 million gallons and looking at that related to where the margins were and where they are today, where stocks are and where they are today and so on. And so our belief is before this trade war and before we really saw gallons come out from multiple different factors, margins were somewhere between kind of $0.15 and $0.22 a gallon right before the drop and you could see it right on. Literally you could see the start of the trade war and what it did to put our market in a bit oversupply position. And so our view is we will go back at minimum to those type of levels and it's really going to come down to the discipline of the industry. And what we're seeing is there's definitely more discipline in this industry today driven by a few factors, which is obviously the cash burn that the industry has faced depending on where you are in the cost curve and more so I think people are really reluctant to say let's just push a bunch more gallons into the market as an industry. So our view is, again I reiterate, prior to the trade war, margins were positive in that $0.15 to $0.25 a gallon range depending on the plant and we think we could go back there pretty easily. Right now we're just a little bit over last year's stocks. Last year's margins were better than they were today, which is something that obviously we're looking at. I think the corn market is moving in favor of the ethanol industry and ethanol remains strong from a demand standpoint as we go into summer driving season. So I think there's a few things that are lining up, but I think overall it is positive. And if you overlay with that, Ken, as we kind of look at the next 12 to 18 months, the fact that our OpEx per gallon last quarter because we slowed down so we had negative absorption was $0.36 a gallon, which is awful. Last year's OpEx was about $0.32 a gallon, which was more like a normal run rate that we've been experiencing as we bought these high priced plants. So if you take that and overlay the fact that we are highly confident with a high degree of confidence that by this time next year and a little after that our OpEx will start going towards $0.24 a gallon, you could see the opportunity that Green Plains has in a market like that. I know that's a long answer for such a short question, but...

And our next question comes from Eric Stine with Craig-Hallum.

So just sticking with the plant investments. I know last quarter it sounded like it was something that you were going to take a little bit of a measured approach and now with the ICM agreement, clearly you're moving full speed ahead. Just some thoughts there. I mean is this your thought process? Is it because you're -- the same reason you're going to get back up to near maximum plant utilization that you're just tired of waiting for market improvement and want to drive the cost down? Is it that ICM you think in partnering with them you can do it better and quicker or feeling better about the outcome of the portfolio optimization program? Just what combination of that or what went into your thought process to speed that up?

Well, I think it's like anything. Protein -- if you look at protein, I'm going to start with protein, I know we're going to get back to OpEx. But that technology really didn't exist 5 years ago or 3 years ago in any kind of way, shape, or form that we rolled out. Now relate that to OpEx equalization, it didn't really exist to do these things in an engineered fix in any large manner, what we would consider kind of when we bought these plants. And so, we had to do a bunch of things first to these plants before we do the final stage of this upgrade. And so we bought plants anywhere in the last 10 years from $0.30 to $1 a gallon, replacement still is $1.50 to $2.00 a gallon. So, we have gotten to this point to do the final stages. What we did, internally we engineered that final fix and we thought to ourselves let's go and talk to the -- what we consider best in class in the industry and compare notes and say is there something we all can do together number one, to accelerate it; and number two, to be very confident that what we're going to do will work. Now they have done similar things not in total to other plants, but this will be the full retrofit fix in certain areas that will really drive -- it's very easily measurable to drive our OpEx down. And so our view and we verify this with ICM is that if we're at $0.24 a gallon, it will put us squarely back in the top 10% or 15% of this industry and that's any technology, any size. And so that's going to be a game changer we think for our company, which…

Maybe last one for me and you may have said it and I missed it. Just you gave what you think the incremental volumes could be if there's a trade deal with China, but did you give that for E15 provided that the rule making is in place by June 1?

So our view -- my view and again I am much more bullish E15 than I think others and my counterparts are in the industry at this point and outside the industry when analysts look at it. I'm extremely bullish of the opportunity. I think we could be in an aggressive environment, we could have 1 billion gallons of demand next year for E15 and I think we're well set up to do that. We'll have 2,000 stations by the end of this year, but I think there's other stations that want to go. Our view is there's 10,000 stations in the waiting. And so if you kind of extrapolate that, that can move very fast and I'm going to tell you why it's going to move very fast because ethanol is a significant discount to gasoline and there is still RIN value. So if you're sitting there as a retailer, why wouldn't you go after $1 a gallon on 5% more blending. And what we're seeing even in the Omaha market Unleaded 88 is selling out at certain convenience store locations -- at certain C-store locations because number one, when you buy a car today [Technical Difficulty] come off the production line with an E0 to E15 cap. So now your new car, which was $17 million a year last year, you know what car sales were. When your new car -- when you get a new car in the E9 to E15 and then you pull up to an Unleaded 88 station or even an E15 station, you have another option and quite frankly there is really no mileage drag. So basically for $0.05 less a gallon, that's what you're going to buy. And so we're starting to see evidence that with the OEMs coming out with these…

And our last question will be from Pavel Molchanov with Raymond James.

We've covered a lot of ground vis-a-vis federal issues, the E15 and China trade. I wanted to ask about Washington State and the low carbon fuel standard where they seem to be very close to approving that. Given that California's LCFS has had some kind of mixed impact on corn ethanol, I'm curious what you make of what Washington State is doing on that front?

So we really as growth energy -- we belong to growth energy, we're working on that with the local lawmakers. So, our view is obviously the LCFS has been going on in California. We have several plants that can ship into California today. In fact we just sold and we continue to sell more that meet the standard. And as we continue to drive energy costs out of and energy use down in all of the other plants, we will start to have more and more plants meet -- have the ability to meet the standard for the time being. So, our view is obviously they're going that direction, we'll see if it gets to conclusion. It's something that we're working with them on. It's -- we're already low carbon fuel and I think what they are realizing in California or in Washington or in New York is the fact that this is 1 of the only alternatives that they have for fuel and E15 is something that I think you're starting to see them embrace this fuel as 1 of the options they can use to help satisfy their targets and their emissions targets. Obviously electrification is some of the motivation for the West Coast states. I'm looking at that, but our view is ethanol will still play a role and E15 is really what I believe will be a critical driver in helping them achieve their targets.

Question as it relates to GPP. It has been close to two years since the last dropdown and obviously you guys are in ethanol divestiture mode rather than acquisition mode. Any sense of when the next dropdown into the partnership might come and if it's presumably not ethanol related, what it might be?

So, first let's talk about JGP. So, JGP obviously we started that terminal up at the beginning of a trade war, right, so it's an export terminal. So, we wanted to wait until we kind of got through this time period. We have been using it as a company. We're happy with how it's operating and we just want to wait until kind of some sort of resolution or vision of a resolution is going to happen and then we'll get ready to drop JGP and we started to work on that process now. The board -- GPP has the first right for that drop before we do anything else and our view between as a JGP or as a GPP shareholder is imminently in the next quarter or maybe a little bit longer. Our goal is to get JGP dropped into GPP, a lot of initial steps. But that's the first step. The second step is, as you know, we have tried to do acquisitions. We tried to do 1 last year. We spent a lot of time with the government and they just would not give us approval. So, we spent a lot of time getting a terminal acquisition, mainly fuel terminal; liquid fuels, transportation fuels, non-ethanol related and we just couldn't through the competitiveness because we had partners involved as well. So, we continue to actively seek fuel terminal -- liquid fuel terminal type acquisitions that we could make into GPP. While certainly not much has happened, our goal is still to continually support that. We believe it's still an incredible growth platform for us. Nothing has changed. Not a lot of transactions have taken place in terminals. But we believe as we kind of come out of this uncertainty around trade and everything else going on, we will, -- we continue to actively seek acquisitions and we believe that sometime in the next year we will be able to accomplish one. So, we're not at all thinking that GPP is a stranded MLP. We absolutely believe it's something that we're going to focus time, energy, capital and effort on and the first step will be getting JGP dropped into there.

And our final question comes from Laurence Alexander with Jefferies.

Hi. Adam Bubes here on for Laurence today. I was wondering for protein investments, what kind of scale should we expect and also if you could give any color on potential ROIC targets?

Potential, what was the last question? The potential what?

Return on invested capital targets.

So for us looking at protein depending on the different technologies that are available and there it's evolving fast, I will tell you that right now. We're evaluating several new technologies that we didn't even evaluate last year. So from our standpoint, the current goal of our protein technology investment is somewhere between 25% to 35% IRR target and we believe we can achieve higher than that based on a baseline of high pro comparison to distillers grains from a profitability standpoint. We believe that there will be alternative technologies that will evolve that will drive the cost of this lower, but not low enough where we believe that you're going to start to see rapid adoption at 200 ethanol plants because it's still an expensive capital project. Our goal in the next several years is to roll this out throughout the platform. First step is to show the market and show everybody that follows our company how profitable this project is and what it does to increase the margin at Shenandoah in a consistent manner. And that's why we're already starting to look at 2020 as a target to break ground or possibly late 2019 on another unit. But it's going to be -- it's going to be definitely a rollout that is going to take some time. We wanted -- we still want to get portfolio optimization finished from the standpoint of looking at cattle and ethanol plants. And then at that point, we also believe there's opportunities to then besides obviously what we talked about on debt reduction and stock buybacks, which we've started to achieve those, to allocate capital to this. But we are being patient, it's not going to all happen at once. But when completed, we believe long term it will add $0.15 to $0.20 a gallon and the cost is similar to what we've outlined in the past and we believe will come down slightly from there as we drive the rollout and get better at building these things and look at different technologies. So, it's going to be very disciplined to make sure we accomplish everything else first. But what we're doing and what we're seeing with this product is making us much more optimistic and certain of its ability to contribute to the earnings stream of Green Plains going forward because it is a -- it is moving into a very high value market that is deep on demand and needs products like this. So, everything we've seen continues to validate continue moving forward with this product and project.

And then I just have one last question, I was wondering if you're seeing any signs in this environment for smaller farmer co-ops curtailing production?

I think what we're seeing is when you look at production rates sitting here in this low 10 to 10.20 to 10.30 kind of moving up and down 10 or 20, is that our belief is the industry over the last 6 months has definitely burned some cash. Obviously some haven't, but some have. We think that in -- in the smaller plants or smaller operators, some of that was financed with working capital lines and now have to be converted to term lines. So, we think that there is a -- there's some level of cash conservation taking place, which we're starting to see through production numbers. Interestingly enough while we're still -- while we are increasing our production rates, we are not seeing that throughout the weekly EIA data because we believe that some of those that have burned cash are being much more conservative on pushing too hard to operate at this point and we think that's probably the right move from our standpoint. Like we said by June 1 with our first round of OpEx equalization, we will be at $0.285 a gallon across our platform, which will be the lowest probably in 7 or 8 years that we've been able to achieve since we started our acquisition. And by this time next year and within 3 or 4 or 5 months after that, we should be at $0.24 plus platform. That is allowing us to kind of return to a normal operating company and really spread our costs across more gallons and start to get back into an advantaged position. Still hard to solve for negative margin environment, but it certainly puts us in a better position to retain our very strong liquidity position and look at other opportunities going forward.

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back over to Todd Becker for any closing remarks.

Yes. Thanks, everybody, for coming out. Obviously a lot to discuss. We're very excited about Project 24, which we think is a foregone conclusion that we'll be able to get there. We wouldn't say that if we didn't think it. We are still working hard on our portfolio optimization plan. We are engaged with several parties in each of the aspects of that plan today and feel like we'll make good progress this quarter. Obviously since we started the plan, the degradation in the margin environment has slowed it a little bit, but we have great assets that we think we can still monetize for our shareholders, provide a few more of these wins and then allocate capital correctly as we outlined on this call. And so between that and our validation of protein, China and E15, there's a lot going on and any and all of those could hit; it would be a very different environment and that's kind of what we're looking forward to. So, thanks for coming on the call and we'll talk to you guys next quarter.

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