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Green Plains Renewable Energy, Inc. (NASDAQ:GPRE)

Q4 2009 Earnings Call Transcript

February 22, 2010 11:00 am ET

Executives

Todd Becker – President and CEO

Jerry Peters – CFO and Assistant Secretary

Steve Bleyl – EVP, Ethanol Marketing

Jim Stark – VP, Investor and Media Relations

Analysts

Matt Farwell – Imperial Capital

Ian Horowitz – Rafferty Capital Markets

Jinming Liu – Ardour Capital

Ben Kallo – Baird

Paul Resnik – Olympia Capital Markets Group

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter and year-end 2009 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. Jim Stark. Sir, please go ahead.

Jim Stark

Thanks, Karen. Good morning and welcome to our 2009 fourth quarter and full-year earnings call. Today on the call is Todd Becker, our President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; and Steve Bleyl who heads up our Ethanol Marketing as Executive Vice President will be available for questions and answers later in the call. We are here to discuss our fourth quarter and full-year 2009 financial results and the near-term outlook for Green Plains Renewable Energy.

Please remember that a number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains' management 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. Information about these risk factors that could cause such differences can be found in this morning's earnings press release on page two and in our 10-K and other periodic SEC filings.

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.

Todd Becker

Thank you, Jim. Good morning and welcome to our call. We are glad you could join us today. We issued very positive fourth quarter and full-year results this morning before the market opened. The performance of our diversified platform was strong at the end of the year. We are excited about the opportunities going forward for our business.

Let me give a quick run through the numbers. Our consolidated revenues for the fourth quarter were $437 million. We reported net income of $23 million or $0.91 per share for the quarter. We produced 122 million gallons of ethanol during the quarter which is better than our expected production capacity.

All six of our plants ran and performed well as we continued to look for ways to improve the efficiencies of our plants and increase volumes. We believe we have an opportunity to further increase our production in 2010 above our expected annual operating capacity of 480 million gallons with minimal incremental capital costs. Our plants performed better than expectations due to our continued focus on data-driven metrics, continuous improvement and debottlenecking the production process.

The agribusiness segment also had a solid contribution in the quarter as a result of the strong harvest season. We expect to see this business continue to grow its grain volumes and its agronomy business in 2010.

Segment operating income, which is total operating income before corporate expenses, was $34.8 million for the fourth quarter. The positive trend for margins continued through the fourth quarter. Our ethanol production segment generated $28.7 million of operating income for the quarter. On a cash flow basis, if you add back depreciation and amortization for this segment of $7.9 million, the result is $36.6 million on nearly 122 million gallons of ethanol sold. In all, our strong fourth quarter performance led to positive results for the full year of 2009. We generated $1.3 billion in total revenues and $19.8 million dollars of net income or $0.79 per share in earnings for 2009.

We believe our industry is on solid ground. We received some positive news earlier this month from the federal government concerning the renewable fuel standards or RFS2 for 2010 and beyond. In short, the EPA and its Departments of Agriculture, Energy, and Interior are working together and have formulated a feasible plan for our industry. There are some items that will be continue to be refined, but we see that RFS2 validated corn-based ethanol as a permanent part of our quest for energy independence.

All of our plants are eligible for grandfathering from the 20% greenhouse gas reduction threshold in RFS2, and we believe if indirect land use is removed from the calculations our reductions are much greater. We look forward to working with the EPA on the E15 initiative underway as this will allow for more job creation and further penetration into the fuel supply.

With what we had locked in at the end of the quarter combined with the current margin environment; as a low cost producer, we believe we can continue to achieve positive results at these margin levels. This margin environment coupled with the current favorable blending economics and the increased mandate for 2010 of 12 billion gallons has us excited about our prospect and earnings capability of our platform.

While industry fundamentals have shown marked improvement over the past year, I believe Green Plains is particularly well positioned within the industry. We had a very exciting and challenging year in 2009 on a number of fronts. We started the year as a new company coming off the merger with VBV in the fourth quarter of 2008. This transaction occurred during one of the most challenging environments in the recent industry history. Our approach to risk management enabled us to weather this downturn and meet all of our financial obligations in a very tight credit market.

We were successful in expanding our ethanol production by 45% in July of last year with the addition of the two plants in Nebraska. We have also added two plants during the course of 2009 for which we have provided ethanol marketing services.

We are a much bigger company today than a year ago, but our priorities remain the same.

Margin management is priority one. When opportunities present themselves we move quickly to lock in margins for our production. For example, at December 31, we locked in forward margins of 72 million gallons of production, most of which is weighted towards the first half of 2010.

We are a commodity processing business that requires a disciplined approach every day, day in and day out. We will continue to effectively utilize our proprietary risk management system to generate more stable results for our ethanol segment.

Safety is a priority; providing our employees a safe and quality place to work is important to all of us. We take safety seriously and had no major safety incidents during the year.

Operational excellence remains a focus. Improving our process can increase our bottom line. We can do this by higher yields and more production output across our ethanol production platform. This is one of the key reasons we brought in Jeff Briggs as our COO to keenly bring focus on improving our processes at our plants and leverage our vast operating knowledge.

In our agribusiness segment, we can increase our grain origination to yield a higher utilization and better return on our assets. We believe this business segment has a strong potential going forward as corn production in the areas we serve will continue to grow to meet the needs of ethanol producers as well as grain processors.

Expanding our platform is another priority for the future.

Blendstar has become a more strategic to us as proven recently by the opening of Collins, Mississippi facility which created a direct market for ethanol out of our Obion, Tennessee plant. We also recently added Bossier City, Louisiana to the network and we will continue to find underserved biofuels markets and create new blending opportunities for our Blendstar customers.

We want to expand our agribusiness segment. We continue to search for opportunities to expand this business as this is core and strategic to our growth plans. Adding ethanol production is also on our roadmap and we will look to acquire more assets. Our platform is now right for growth.

We are looking for opportunities to bring in production assets that lower our overall cost of production and provide a path to liquidity for shareholders of locally owned plants. We have a unique opportunity as we have continued to prove the capability of our platform and its ability to drive shareholder value back to our investors.

We continually look to add more third-party marketing plants as well. Our critical mass and customer base has given the plants we market for the ability to manage risk better as we provide them complete transparency to the marketplace. A key point is we do what they do. It’s is all in our best interest to be successful as we believe marketing ethanol for third parties is a partnership. This is very different from our competitors in this part of the space. We have a vested interest in our customers doing well. It means the industry will be stronger which benefits our shareholders and all shareholders of the industry.

We want to grow bigger and better along all parts of our diversified platform. Growth, though, will not come at the expense of our top priorities or just for the sake of growth. Right location, right valuation, right technology and right time all play a key role in our decision to expand. Our goal is to be the low-cost producer in the industry, continue to build cash, produce solid results that will reward our shareholders for their faith in our approach to the business.

Now I would like to turn the call over to Jerry to review our financials in more detail.

Jerry Peters

Thanks, Todd. Good morning everybody. For the fourth quarter of 2009, our comparison of results will be year over year, as the fourth quarter of 2008 was close to a full quarter of operations.

A quick reminder is that VBV merger took place October 15, 2008, so that fourth quarter is a couple of weeks short of a full period for some of our businesses, which includes our Shenandoah and Superior ethanol plants as well as our agribusiness segment; in addition, the Obion plant we brought online in November of last year; then in 2009, we ramped up our third-party marketing activities and acquired Blendstar early in the year; finally, we acquired the Ord and Central City plants in July of 2009. So needless to say, there are number of factors to keep in mind that caused the significant change in our operating results between the periods.

The reported revenues of $437 million for the fourth quarter of 2009, that’s a $254 million increase over the fourth quarter of 2008 revenues of $183 million.

For the full-year 2009, revenues totaled $1.3 billion. Consolidated gross profit was $44.3 million for the quarter, which is a $29 million improvement over the fourth quarter of 2008. The increase is attributable to significantly higher ethanol production volumes from the factors I mentioned previously and improved margins on that production.

Total selling, general and administrative expenses were $14.5 million in the fourth quarter, which was roughly the same as the fourth quarter of 2008. Now accounting for approximately $2.7 million in merger costs that we had included in the fourth quarter of 2008, we do show a modest increase considering the overall change in the scope of our operations; however I believe was a reasonable and modest increase between the two periods.

Concerning our business segments; first the ethanol production segment, we reported revenues of $236 million for the fourth quarter of 2009. That was a significant increase over the $131 million reported for the fourth quarter of 2008. Again, the increase is driven primarily by producing 60 million gallons more in 2009 compared to 2008. This is mainly attributable to the addition of the two Nebraska plants in the middle of 2009, as well as the startup of the Obion plant in November of 2008. Operating income for the ethanol production segment was $28.7 million for the current quarter versus about breakeven for the fourth quarter of 2008. Obviously, the increase in production volumes was a major factor, but as Todd mentioned, our margins in the current period were much improved over the tough environment we saw in late 2008.

Our agribusiness segment generated $71.1 million of revenue for the quarter compared to $68.8 million for the fourth quarter in 2008. We did not see any significant effects of the late harvest for our agribusiness segment other than a compressed harvest season, more grain drying, and as a result, some long hours for our people. Operating income for the segment was down slightly compared to a very strong fourth quarter of 2008 and also mainly due to higher administrative costs in various categories.

Marketing and distribution segment revenues were $368.6 million for the fourth quarter 2009, compared to $71 million for the fourth quarter of 2008. Our third-party marketing activities were launched in the first quarter of 2009, and we added two ethanol plants during the course of the year bringing our expected third-party marketing gallons to 360 million gallons on an annual basis. Of course, we also saw volume increases as a result of our own production increases. In total, the segment sold nearly 187 million gallons of ethanol during the fourth quarter of which 122 million gallons were produced by Green Plains. That compares to approximately 62 million gallons marketed in the fourth quarter of 2008.

Segment operating income or total operating income before corporate, selling, general and administrative expenses was $34.8 million in the fourth quarter of 2009 compared to $5.2 million in the fourth quarter of 2008. For the full year of 2009, segment operating income was nearly $51 million. We watch our corporate SG&A pretty closely, and I believe that $700,000 increase for the current quarter up to about $5 million over 2008 really reflects that.

Our business activities expanded dramatically in 2009 with a modest increase in our corporate staffing. So consolidated income before income taxes was $23.6 million for the fourth quarter of 2009. Income tax expense was minimal at about $300,000 during the quarter. Now income tax for the current period reflected a tax benefit for the reversal of the valuation allowance carried against our deferred tax assets. We expect to realize further reductions in future periods as the remainder of our valuation allowance of about $5.1 million is available to reduce our future effective tax rate.

The fourth quarter results were strong as our net income attributable to Green Plains was $23.1 million of $0.91 per share on a diluted basis, compared to a loss of $1.8 million or $0.08 a share in the fourth quarter a year ago. The full-year 2009 results were net income attributable to Green Plains of $19.8 million of $0.79 per diluted share.

Turning to EBITDA; during the quarter, our earnings before interest, income taxes, non-controlling interest, depreciation and amortization or EBITDA was $37.8 million which was a $31 million improvement over the same quarter of 2008. EBITDA for all of 2009 was $67.7 million. A quick remainder, EBITDA is a non-GAAP financial measure, and I would direct your attention to information included in the news release, including reconciliation to our GAAP net income.

So our liquidity position remains very strong with a $102 million in cash at the end of the quarter and $36.4 million available under committed loan agreements bringing our total available liquidity to about $138.7 million at the end of the year.

Now I would like to turn the call back over to Todd for his comments.

Todd Becker

Thanks, Jerry. Before we open up the call for questions, I wanted to provide a brief update on our algae project. We continue to see good progress in our BioProcessAlgae

Grower Harvester pilot project in Shenandoah. We are finalizing the scope of the work for Phase II of the pilot project; and while we have completed all the analysis of Phase I, we will let everyone know the result of our findings.

I have to say that we are pleased with the progress we are making in the verification of bringing this technology from the lab to a commercial-sized application. Remember, we are concentrating our focus on growing and harvesting a high-quality feedstock efficiently and capturing carbon dioxide while doing so.

We own 25% of this business with great partners all focused on the same thing. BioProcessAlgae owns the worldwide technology rights for the Grower Harvester technology. We are optimistic that this technology may have applications across several industries. Our focus at Shenandoah is to determine scalability in an industrial environment while creating a better carbon footprint than before.

Finally, I have to say that I am proud of the way our employees came together to expand this business and put up a strong financial performance to finish 2009. All of our employees and shareholders know that we are not done. We believe we are just getting started with the opportunity of our diversified platform to create long-term shareholder value.

Again, I would like to thank you for calling in today. Now I will ask Karen to start the question-and-answer session.

Question-and-Answer Session

Operator

(Operator instruction) Our first question is from the line of Matt Farwell of Imperial Capital.

Matt Farwell – Imperial Capital

Good morning and congratulations on a successful quarter. I am curious about, on the ethanol production side, corn consumption was around 2.77 gallons of ethanol per bushel, and I am wondering in 2010 if you see that number going up?

Todd Becker

We are focused on yields all the time. We think we have a good opportunity to continue to increase that. We are a little concerned with the lower test weight of the US corn crop this year, but what we’ve seen is the starch has held pretty well intact and yields for us are held intact very well. That’s continually are focus. We think there are some opportunities for some upside to that yield, but we will have to wait and see how the crop plays out. But so far what we have seen is kind of what we like.

Matt Farwell – Imperial Capital

Could you provide any commentary on the mix of revenues within the ethanol segment?

Jerry Peters

Matt, I think the revenue disclosure will be coming out in our 10-K here in next few days. But let me just look to that. Well, I take it back I guess in terms of the – within the segment we are not disclosing the mix of revenues inside the ethanol segment. We are disclosing total consolidated revenues, and of our $1.3 billion in revenues for the year about $1 billion of that is from ethanol and about $145 million, $150 million of that is from distillers grain, I think that in terms of the combination of the production segment as well as the marketing and distribution segments.

Matt Farwell – Imperial Capital

Okay, good. Now I notice you have Steve Bleyl on the call, and I was wondering if you could discuss the ethanol demand environment now with ethanol trading at $0.40 below gasoline. It seems kind of at odds with the increased mandates, and I am wondering if seasonality in the gasoline market will become more of a factor with ethanol going forward?

Steve Bleyl

You are seeing – with the blend economics, right now you are seeing good incremental blending into new marketplaces and this is the winter blending where there is periods right now that will blend now but don’t in the summer. So the biggest factor is probably the gasoline demand, but the elasticity for ethanol blending is still there. It is still very strong.

Matt Farwell – Imperial Capital

Okay. My last question is there was an acquisition announced in January, Kinder Morgan acquired three ethanol terminals for around $200 million, and I thought this really validates your strategy to capture value in the downstream. These terminals had a large amount of storage and handling capacity. They also appear to handle some other fuels besides ethanol. But could you comment on how do these assets compare to Blendstar and how this affects your growth plans for the marketing business?

Todd Becker

Yes. They are little bit different and those are a lot of storage, big footprint. Blendstar is low storage, low footprint but high velocity. We are focused on moving a lot of volumes through a smaller footprint and we are able to turn our volumes or turn our assets several times during the year much more than a bigger terminal would. In addition, those are big destination terminals and big destination markets. We are focused on niche markets. We like the transaction, don’t get us wrong; we thought that did validate some of what we are looking for. They were continuing to build out our destination marketing platform as well as making sure that we get close to consumer, but it’s a much different business model than a high velocity, low storage type terminal that we are building. But we are able to really achieve what we want to with the Blendsar terminals which is getting closer to niche market that are underserved that we can find an advantage site, which is what happened on Collins. It was a market that before we got down there was blending very little, 300,000 gallons, 400,000 gallons a month. We think that market was a 4 million to 5 million-gallon a month market; and it is going to come directly – a lot of that volume is going come directly out of our Obion terminals. So we are going to continue to look for markets like that, open them up, have our footprints small, investment low and getting a high throughputs and high turn volumes of those assets.

Matt Farwell – Imperial Capital

Good. Congratulations again.

Todd Becker

Thank you.

Operator

Thank you, sir. Our next question is from the line of Ian Horowitz of Rafferty Capital Markets.

Ian Horowitz – Rafferty Capital Markets

Good morning, guys.

Todd Becker

Good morning, Ian.

Ian Horowitz – Rafferty Capital Markets

Congratulations on a great quarter. Couple of questions for all of you. Jerry, is there any – I think you commented in the past that from an SG&A standpoint we should look at roughly $0.11 a gallon, and I think if you look at ‘09 on average, we’re a little bit higher that that, more closer to $0.12 than we are to $0.11. Is that $0.11 to $0.12 range still what you are thinking going forward?

Jerry Peters

No. Ian, actually, I mean the thing we focused on is corporate SG&A, and I think the guidance we have given on that is we are focused on holding that to about $0.03 a gallon. I think our Q4 was slightly above that. But on a full-year basis, $0.03 a gallon corporate SG&A is kind of what we would expect. The SG&A at a plant level should be pretty consistent and that will just be driven by – if we acquire additional assets, you’d see the plant level SG&A go up.

Todd Becker

The $0.11 a gallon if you reference a lot, Ian, is typically our debt service, what it takes to service our debt from an EBITDA standpoint.

Ian Horowitz – Rafferty Capital Markets

Right. And then any outlook on either D&A or CapEx.

Jerry Peters

The CapEx for full year was about $13 million during 2009 and that’s kind of spread out all over the different business segments. D&A, again, should hold in there fairly consistent with what we are currently reporting.

Ian Horowitz – Rafferty Capital Markets

Do you expect similar more CapEx spent for 2010?

Jerry Peters

It depends a lot on growth projects. As we have mentioned we are really focused on debottlenecking the plants, looking for those opportunities to increase production on a very efficient basis. So we would like to find those projects and probably ramp up our CapEx to some extent, but it should pretty immediately contribute to higher volumes in the segment.

Ian Horowitz – Rafferty Capital Markets

Thanks, okay. Jerry, have you – is there a way that we can figure out the agribusiness segment going forward? I know it's so early in the performance of the group from a modeling standpoint. It is kind of hard to tell how to look at this on a quarterly basis. Is there anything you can give us to help us to kind of look at this segment in terms of its contribution to the overall income statement?

Jerry Peters

Again, I think we have guided that there is a significant amount of seasonality to the business. So you typically have – the planting and harvest quarters are the strong quarters, the other two quarters in the year generally are breakeven to slightly positive. I think in terms of metrics, we disclosed the bushels of grain sold during the quarter. It was about $10.5 million bushels, as well as the fertilizer sales at 22,800 tons really, those are the metrics that are going to at a high level move the needle. But of course, we also have application income and grain handling income; for example in the fourth quarter we had very strong grain revenue. There are just so many different services and sources of revenue that it is difficult to really guide you to one metric that’s going to really change the outlook of the business.

Ian Horowitz – Rafferty Capital Markets

Todd, couple of questions for you. On the forward sales, Jerry mentioned I think it was 72 million gallons at December 31, the first half 2010. When you were writing those was that – did you see things more occurring in the first quarter, would you say the majority of that’s first quarter locked up, or is it kind of spread throughout the first half?

Todd Becker

I think it is more heavily weighted towards the first quarter. And if you think about how we run our business, we have continued to lock margins since the beginning of the year as well. So some of those 72 million gallons have been realized already in January, and we never stopped selling. So we are pretty well done for the first quarter and we are now focusing on the second quarter.

Ian Horowitz – Rafferty Capital Markets

Has the appetite for forward sales changed at all since the end of the year?

Todd Becker

Yes. We are still able to sell second quarter. We were never really able to sell third and fourth quarter with any volume, especially the structure of the commodity curve with carrying the corn market and the flat ethanol market; so we kind of focus on one to two quarters out. The third and fourth quarter, we don’t really focus on till we get closer there as the margins aren’t really favorable out there and we just wait. And that’s a structure issue of the market that gets addressed as the markets move through the quarters. So we are focused on the second quarter now. We are not seeing much opportunity in the third just yet. But right now that’s where our focus stands.

Ian Horowitz – Rafferty Capital Markets

Okay. And the last time, one of the last times we spoke you had yet to see the vomitoxin or mycotoxin issues in distiller grains. Is that kind of still the case?

Todd Becker

There were some toxin issues on the East Coast this year, and the facility that was most affected in our platform was really only one of them, which is Bluffton. But what we do is we actually discount that corn and we sell the DDGs at a similar discounts. So from a standpoint of big impact to our financials, we haven’t really seen it. I think that’s the key of having a platform spread across many geographies. When something hits the East it typically doesn't hit the West or the South or something like that. So we like having a diversified geographic platform as well. Overall, we have been able to work through the one plant that has the issues and we really haven’t seen that affect us too much.

Ian Horowitz – Rafferty Capital Markets

And then, last question, I will get back in queue, how is the – looking at new alliance partners or new marketing partners, what is kind of the environment there kind of both in terms of people’s appetite to switch marketing relationships, and kind of the economics that you are going have – you are having to compete against. Just can you give us an update on where that business is right now?

Todd Becker

I think it is still – you have got the environment right now where people realize to go to the marketplace they need the relationships and they need a bigger platform to go to the market because of what they are selling into the energy industry. So that perspective hasn’t changed. And there is people looking all the time, looking to change relationships and maybe a new way to sell or a new platform to sell into or with. And that’s kind of the ones that we concentrate on, the ones that look at the marketplace similar to what we do and there are those individual marketers out there that still are – individual plants still look for that type of new marketing agreement.

Ian Horowitz – Rafferty Capital Markets

All right. Has it’s become more price sensitive recently or stay the same?

Todd Becker

The RFA, the National Ethanol convention was last weekend and that was a topic that there was a little bit of change going on in that part of it, yes.

Ian Horowitz – Rafferty Capital Markets

I would assume on a lower price basis, right?

Todd Becker

Yes.

Ian Horowitz – Rafferty Capital Markets

All right, guys, congratulations again. I will get back in queue.

Operator

Thank you, sir. Our next question is from the line of Jinming Liu of Ardour Capital.

Jinming Liu – Ardour Capital

Good morning, gentlemen.

Todd Becker

Good morning.

Jinming Liu – Ardour Capital

My first question is on the macro level. You mentioned that you are looking at acquiring more ethanol production assets, but I know that currently the industry is not only seeing the old big agriculture companies but also big petroleum companies; what is your strategy to compete with those players in terms of acquiring new assets?

Todd Becker

First of all, with what we have as a platform, we think it is very attractive. What it allows investors to do at local plant is really we provide a path to liquidity. We provide a little different path than, say, the people you’ve talked to, we’re a little more heavily weighted towards ethanol as an asset structure. So if you have a local ethanol plant that’s looking for a path to liquidity, it is not just because they want to exit the space, and maybe because they want to have – get out of part of their investment, but stay invested in ethanol. So that’s what we provide them. If we can use our stock and cash and acquisition strategy it allows for some of these individual plants that still want to maintain exposure into the market, but want to have some liquidity, it allows them to continue to maintain exposure more heavily weighted towards instead of taking stock from a heavier, bigger agriculture or energy company where that weighing would be much lower. And so that’s what I think we provide them. In addition, I think we are just a good destination. We are looking for plants that are in the right location with the right technology and that’s very important to us. And when we find that plant, we certainly understand the valuation of the plant and what’s important and how to get a deal done with partners across the table. So that’s basically what we’re focused on.

Jinming Liu – Ardour Capital

Okay. My next question is related to your cash management. It was a very strong quarter so far your first quarter, and it looks like this trend will continue at least for the next two quarters. My question there is whether or what’s your strategy of use of cash. Whether you will use it to acquire more assets or to restructure some of your bad debt –? Okay, go-ahead.

Todd Becker

Okay, sorry. Our cash position has continued to grow, which we are fortunate that we are in this position. But it is a commodity business and a cyclical environment and so we look at our cash from defensive standpoint today. We want to continue to have a strong balance sheet, right now at $102 million of cash and cash equivalents; it’s almost two years of debt service, decades of comfortable. And then what we do is we will focus on using stock and a combination of stock and cash in acquisition strategies and so we’re very fortunate that we have the ability to do that. But we have been in a cash-build mode and we wanted to do that all year while we have a strong performance of our platform. We’d just want to make sure that we have a strong balance sheet going forward and we will make the best decision at that time whether we use cash or stock as an expansion strategy.

Jinming Liu – Ardour Capital

Okay.

Todd Becker

Today, I don’t see us in any kind of debt restructure. And Jerry, maybe, just talked a little bit about it. But the structure of our debt, we think, is very favorable.

Jerry Peters

That’s right. All of debt is non-recourse to the parent with amortizing term loans, and so we would expect to just keep making those debt payments as they come due and stay in a very, very liquid position.

Jinming Liu – Ardour Capital

Good. My last question is related to your agribusiness. It looks like the revenue for that segment increased year over year, but operating income decreased. You mentioned that – Jerry mentioned early it is may be due to some increase in administrative costs, but your overall G&A expense stays flat. Can you give me more color on that?

Jerry Peters

Like I said, there were number of categories throughout the income statement that caused that roughly $700,000 decrease in our operating income from agribusiness. We had strong drawing income and service revenues offset by slightly lower margins on corn and soybeans that were realized; sometimes during harvest the margins aren’t fully set at that point. But then in terms of the operating expenses, I think probably the thing that hit us the hardest was the fact that with the compressed harvest, we had more overtime. So our personnel costs were up maybe about $400,000; and then just other operating expenses, our depreciation was slightly higher, slightly higher insurance costs had all in about $500,000 to $700,000 change in operating income between the two quarters.

Jinming Liu – Ardour Capital

Okay. Thanks a lot.

Jerry Peters

Thank you.

Operator

(Operator instructions) Our next question is from the line of Ben Kallo of Baird.

Ben Kallo – Baird

Good morning. Nice quarter. Based on the timeline of some of your previous acquisition, are we likely to see 2010 numbers be affected by some of the targets we are looking at now or is it more likely a 2010 event?

Jerry Peters

We won’t comment on any specific acquisitions or the timeline that might result from that. But we do have a pretty full set of deals that we are looking at in any point of time all the time. So I would say that there is always a possibility that we can have acquisitions closed during 2010 and actually contributing in 2010. We are early enough that we’ve shown the ability to announce and close acquisitions fairly rapidly. So I wouldn’t rule out for 2010 that we wouldn’t have any effect from acquisitions. But again, I would comment on any specific deals.

Ben Kallo – Baird

Great. Thank you.

Todd Becker

Thank you.

Operator

Thank you, sir. (Operator instructions) Our next question is from the line of Paul Resnik of Olympia Capital Markets Group.

Paul Resnik – Olympia Capital Markets Group

Good morning, great quarter.

Todd Becker

Thank you.

Paul Resnik – Olympia Capital Markets Group

Couple of questions. Some specific, couple of gallons on the ethanol margins, ethanol prices seem to have been weaker than gas prices recently. Do you think that because producers are busy locking in in advance and that’s created – that’s brought some of the selling near term? Or how does one justify or explain will be better the narrowing difference between – the expanding difference between ethanol and gasoline prices?

Todd Becker

What we’ve really seen is that while gasoline is more volatile, ethanol prices were pretty sticky or very sticky during 2009. So there were times when ethanol was over gas or times when ethanol is under gas, and it’s more the volatility of the gas market than really is the ethanol market. Ethanol margin is where they were is more related to the crush between corn ethanol natural gas and distillers grains than it was the absolute value of RBOB. And so we’ve seen that kind of range from basically where we are at today at 30 or 40 under to 5 to 10 over; and we’ve seen that range in some destination markets were even 20 over at certain times of 2009. So I would say that there is – there’s not always a direct correlation between ethanol and gasoline, except to say that ethanol prices were much more sticky.

Paul Resnik – Olympia Capital Markets Group

Couple of industry questions. What’s your view regarding renewal or the prospects for renewal on VEETC and the tariff and the decision on the waiver to 15%?

Todd Becker

The waiver of 15%, we are working very closely having a positive EPA Department of Ag and federal government review of the corn-based ethanol plants as well as the ethanol industry in general and focusing on our expanding capacity over the next several years, and really the big commitment for government to help do that, I think bodes well for our chances to get the waiver for expanded blending. So I think we are very optimistic about that. We work every day between all of our industry organizations to make sure that we are focused on the VEETC and continuing to get the tax credit. Remember, it’s a credit; it’s not a direct payment to the industry. It’s a reduction of federal income tax, excise tax at the fuel pump. And so if you think about the benefit that this industry has given in tax revenue, in reduction in direct payments to farmers and so on, you would see that the VEETC is a very small piece of that. And net-net to the government, it’s a net savings overall to have this industry profitable and active. I think that we should see positive results from the VEETC.

Paul Resnik – Olympia Capital Markets Group

Thank you.

Operator

Thank you, sir. Does that conclude your question?

Paul Resnik – Olympia Capital Markets Group

That’s it.

Operator

Thank you. We still have one more question in queue. Our next question is from Matt Farwell of Imperial Capital.

Matt Farwell – Imperial Capital

I just wanted to ask about the 2010, 2011 harvest. I know you have some insights through the agribusiness. USDA is projecting a slight increase in harvested acreage and a slight decrease in yields to around 160 bushels per acre and overall reduction in stocks; I am wondering how does that compare with what you are seeing? Do you think that those estimates should increase or should decrease over the next few months when the planning season becomes more evident?

Todd Becker

We’re actually more optimistic on the estimates than what you are seeing. We think planted acres could expand towards 90 million. If you go just kind of a trend at 161 bushels per acre, we would see an expanding environment in ending corn stocks next year. I think we are going to have a stocks to use ratio of somewhere between 14% and 15% this year and we think it could expand 16%, 18% next year. If we take a look at even 161 yield and you could see the potential versus this year’s 165ish, you can see that even from the numbers that are published, we have good potential for the US next year. I think we will see expanded acres and I think we could see expanded yields. So overall, we are not – we are actually very happy about what we are seeing from the farmers and producers. We had a – I think everybody in the industry have seen a good applications for the spring planting season. And I think people are still focused on planting corn.

Matt Farwell – Imperial Capital

And one other question on ethanol marketing. It doesn’t appear your marketing the full 360 third party gallons. It appears that Lincolnway and Bushmills are operating at full capacity and what’s the limitation there, is it a particular plant or a particular market. Could you just provide some more guidance on how we should model that this year?

Todd Becker

I think there are two points here. Number one, some of the plants weren't with us in the beginning of the year versus the end of the year. I think as well as you probably read (inaudible) did some major improvements in one of the plants that we market for in North Dakota. Did some major improvements to make sure that their drawing capacity is much more consistent and now that plant is running very well. That should bring us back in line, back into our 360 million gallons for 2010.

Matt Farwell – Imperial Capital

Okay. Thank you very much.

Todd Becker

Thank you.

Operator

Thank you, sir. There are no further questions in queue. I’ll turn things back to Todd Becker for any concluding remarks.

Todd Becker

Thank you everyone for calling in today. We are obviously are very happy with the quarter that we just finished and the year. I think it’s very important we turned in a strong financial finish to become both profitable for the quarter and profitable for the year. And if you think back to the beginning of the year, it would be a big challenge to have said this would have happened. We are optimistic about the future of ethanol. We like what’s coming out of the federal government. We think the industry is on solid footing. We’ve seen good interest in strategic players coming in and making an investment as well. Overall, we are just very optimistic about our future and we are looking forward to 2010. Thanks for calling today.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may now disconnect. Everyone have a good week. Thank you.

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Source: Green Plains Renewable Energy, Inc. Q4 2009 Earnings Call Transcript

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