Green Plains Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Green Plains operates ethanol production, agribusiness and energy services, food and ingredients, and fuel logistics through Green Plains Partners. Green Plains sold 50% of Green Plains Cattle Company (GPCC) in 2019; GPCC is now accounted for as an equity-method investment, so prior-period GPCC results are presented as discontinued operations.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $418.0 million | $630.6 million | $1,050.9 million | $1,069.2 million |
| Operating loss | $19.4 million | $46.6 million | $73.7 million | $85.3 million |
| Net loss attributable to Green Plains | $8.2 million | $45.3 million | $24.7 million | $88.1 million |
| Adjusted EBITDA | $17.9 million | $(19.5) million | $20.6 million | $(37.8) million |
| Operating cash flow | Not stated for the quarter | $65.9 million | $(43.1) million |
Q2 gross profit was approximately $27.1 million, or 6.5% of revenue, compared with a gross loss of approximately $3.4 million in Q2 2019. For the first half, gross profit was approximately $42.8 million, versus $0.9 million a year earlier. These figures are calculated as revenue less cost of goods sold; adjusted EBITDA is a non-GAAP measure.
- Cash and liquidity: June 30 cash and cash equivalents were $163.4 million, plus $20.2 million restricted cash. Management reported $294.0 million available under committed revolving facilities, subject to restrictions and lending conditions. Approximately $66.4 million of subsidiary net assets were restricted from transfer to the parent.
- Debt: Balance-sheet debt was approximately $509.3 million, including $131.4 million of short-term notes and borrowings. Green Plains reported compliance with debt covenants at quarter-end. Its debt fair value was estimated at $520.7 million.
- Investing and financing: First-half investing cash outflow was $68.0 million, including $63.9 million of net property and equipment purchases. Financing cash outflow was $84.3 million. Cash, cash equivalents and restricted cash declined by $86.3 million during the half.
- Margins and production: Ethanol production averaged 53.5% of capacity in Q2; ethanol sold was 149.9 million gallons, down 33.1% year over year. Management attributed lower volumes to weak margins and reduced motor-fuel demand. Higher-protein feed and industrial-grade alcohol sales supported improved ethanol-segment results.
Material changes and unusual items
- Revenue fell 33.7% in Q2, mainly from lower production volumes; first-half revenue declined 1.7%. Despite lower Q2 sales, operating loss narrowed and adjusted EBITDA improved, reflecting better ethanol margins and GPCC equity earnings.
- First-half results include a $24.1 million noncash goodwill impairment in ethanol production, recorded after COVID-19 uncertainty, lower oil prices and the stock-price decline triggered an interim assessment. Partnership goodwill was not impaired but was described as potentially at risk in the future.
- Income tax benefits were $11.5 million for Q2 and $55.7 million for the first half. The first-half benefit included CARES Act-related tax-loss carryback benefits and valuation-allowance adjustments; it materially affected reported net losses.
- GPCC contributed $12.0 million of equity-method income in Q2 and $19.8 million in the first half. This makes comparisons with 2019, when GPCC was consolidated and later presented as discontinued operations, less directly comparable.
- Green Plains Partners amended its credit facility in June, reducing it from $200 million to $135 million, with a $130 million term loan and $5 million revolver. The amended facility matures December 31, 2021 and includes scheduled principal payments, cash-sweep provisions, financial covenants and limits on distributions.
Outlook, risks and contingencies
- The filing provides no consolidated earnings or revenue guidance. Management said production may be reduced at its discretion if margins and demand remain weak, and production could fall below minimum-volume commitments. Driving demand in July was reported at approximately 90% of prior-year levels.
- Management expected $40 million to $55 million of capital spending in the second half of 2020, including high-protein expansion and maintenance projects. A definitive term sheet had been approved for a proposed $75 million, 15-year project loan to support the protein strategy; closing was expected in Q3 2020, so the facility was not yet presented as completed financing.
- Project 24 is intended to reduce operating costs, while high-protein investments are intended to improve margins. The first high-protein installation was completed at Shenandoah in Q1, with dried-product shipments beginning in April; additional locations were expected over several years.
- Key risks include COVID-19 and fuel-demand uncertainty, volatile oil and commodity prices, margins and derivative-related cash margin calls, changes to renewable-fuel mandates and small-refinery exemptions, export barriers, and customer, supply-chain and operational disruptions. The filing also notes variable-rate debt exposure and the impending LIBOR transition.
- Management stated that ordinary-course litigation was not expected to have a material adverse effect. No material COVID-19 contingencies had been incurred to date, and management reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether fuel demand, plant utilization and ethanol margins recovered after Q2, and how quickly production returned toward capacity.
- Whether the proposed $75 million project financing closed, on what terms, and whether planned capital spending remained within the stated range.
- How much of first-half earnings and operating cash flow depended on CARES Act tax benefits, working-capital movements and GPCC equity earnings.
- Whether Green Plains and its subsidiaries continued meeting debt covenants and maintaining adequate liquidity, especially under prolonged weak operating conditions.
- Developments in renewable-fuel policy, small-refinery exemptions, export access, and the partnership facility’s repayment and distribution restrictions.