Green Plains Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. Green Plains produces ethanol and related co-products, provides agribusiness and energy services, and operates fuel storage and transportation assets. Comparisons with 2019 are affected by GPCC being deconsolidated in 2019 and reported as discontinued operations.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $424.1 | $632.4 | $1,445.0 | $1,701.6 |
| Gross profit (revenue less cost of goods sold) | $30.1 | $0.2 | $72.9 | $1.1 |
| Operating loss | $(14.2) | $(42.4) | $(87.9) | $(127.6) |
| Net loss attributable to Green Plains | $(34.5) | $(39.0) | $(59.1) | $(127.1) |
| Adjusted EBITDA (non-GAAP) | $8.8 | $(13.4) | $29.4 | $(51.2) |
| Operating cash flow | — | — | $76.4 | $(0.4) total, including discontinued operations |
| Capital expenditures | — | — | $87.3 | — |
Q3 operating margin was approximately negative 3.3%, compared with negative 6.7% in Q3 2019. Q3 revenue fell 32.9%, while operating loss narrowed and adjusted EBITDA improved, principally because ethanol margins improved despite lower volumes. Nine-month revenue declined 15.1%; improved ethanol margins and equity earnings from GPCC helped results, while a $24.1 million noncash goodwill impairment was recorded in Q1. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
At September 30, cash and cash equivalents were $150.4 million and restricted cash was $31.9 million. Current assets were $508.7 million and current liabilities $331.5 million. Total debt book value was approximately $526.0 million, including $146.6 million of short-term borrowings; total long-term debt on the balance sheet was $345.1 million. The company reported $349.8 million of availability under committed revolving and term facilities, some subject to restrictions or lending conditions. Approximately $67.5 million of subsidiary net assets were restricted from transfer to the parent. Stockholders’ equity was $803.6 million.
Changes and notable items
- Q3 ethanol production sold was 189.2 million gallons, down 20.7% year over year; utilization averaged 66.8%, versus 84.2% a year earlier. Management attributed lower output mainly to weak margins and reduced motor-fuel demand amid COVID-19.
- Q3 ethanol production segment operating loss improved to $21.4 million from $49.3 million. The agribusiness and energy services segment moved to $4.3 million of operating income from a $0.5 million loss. Partnership segment operating income was $13.0 million, up from $12.3 million.
- The company identified an immaterial Q2 2020 presentation error and revised revenues and cost of goods sold downward by $30.0 million each for the three- and six-month periods ended June 30, 2020. The revision did not change earnings.
- In September, subsidiaries entered into a $75 million delayed-draw loan for Wood River and Shenandoah high-protein systems and other capital expenditures. $10 million was drawn by quarter-end; the loan matures in 2035 and is secured by facility assets and guaranteed by Green Plains.
- After quarter-end, Green Plains sold its remaining 50% GPCC interest for $80.5 million cash plus closing adjustments. The sale was effective October 1, 2020; management reported no material gain or loss and noted contingent earn-out provisions.
- Year-to-date operating cash flow benefited from working-capital changes and equity-method distributions. Investing cash flow was $(89.5) million, largely reflecting capital spending.
Outlook, commentary, and risks
- Management described a strategic transition toward a value-added agricultural technology and bio-refining platform, emphasizing ultra-high-protein products and operating-cost reductions under Project 24. Shenandoah’s high-protein installation was completed in Q1 2020; Wood River installation began in Q3, with shipments expected in Q2 2021.
- Management expected $30–$35 million of capital spending in the remainder of 2020, including Wood River high-protein expansion. It estimated $56 million of tax refund proceeds and cited the GPCC sale proceeds and remaining delayed-draw loan availability as liquidity sources. These are management estimates, not guarantees.
- The company estimated 2020 net ethanol exports of 1.2–1.4 billion gallons, excluding significant exports to China. No formal earnings or production guidance is provided in the filing.
- COVID-19, reduced gasoline demand, oil-price volatility, commodity price movements, and potential changes to renewable-fuel mandates or small-refinery exemptions could adversely affect volumes, margins, and liquidity. Management said COVID-19 had not materially disrupted operations through the reporting period, but future effects remained uncertain.
- Commodity hedging can create margin-call cash needs. At September 30, $262 million of $526 million in debt carried variable rates; a 10% increase in interest rates was estimated to increase annual interest cost by approximately $1.1 million. LIBOR phaseout also creates refinancing and rate-transition uncertainty.
- The partnership credit facility matures December 31, 2021 and includes tightening leverage covenants and limits on distributions. The company reported compliance with debt covenants at September 30, 2020, while noting forecasts may not be achieved. Litigation is described as ordinary-course and not expected to have a material adverse effect.
Investor facts to verify
- Reconcile reported and adjusted EBITDA, including the effects of derivative timing, the goodwill impairment, and GPCC equity-method earnings.
- Review the $30 million Q2 revenue and cost-of-goods-sold revision and its treatment in subsequent filings.
- Assess unrestricted parent-level liquidity, facility availability conditions, subsidiary cash restrictions, and the timing and receipt of the stated tax refunds and GPCC sale proceeds.
- Monitor ethanol plant utilization, high-protein project spending and ramp-up, and the impact of gasoline demand and commodity margins.
- Review the GPCC sale closing adjustments and any contingent earn-out, along with partnership debt maturities, covenant headroom, and refinancing needs.