GPRE

Business Context and Reporting Period

Company: Green Plains Renewable Energy, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: A vertically-integrated producer, marketer, and distributor of ethanol with approximately 480 million gallons per year (mmgy) of production capacity. Operations span the value chain from agronomy and grain handling to ethanol production and downstream marketing/distribution.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased by $205.4 million (93%) compared to Q1 2009. This was driven by the inclusion of the Central City and Ord ethanol plants (acquired in July 2009) and expanded third-party marketing services.
• Profitability Turnaround: The company shifted from a net loss of $9.3 million in Q1 2009 to a net income of $15.6 million in Q1 2010. Q1 2009 results were negatively impacted by a $4.6 million one-time charge for terminating legacy marketing agreements and $4.0 million in operational issues at two plants.
• Equity Capital Raise: In March 2010, the company sold 6.3 million shares of common stock at $13.50 per share, generating net proceeds of approximately $79.8 million.
• Segment Performance:
  • Ethanol Production: Operating income improved from a $4.3 million loss to a $29.2 million gain, aided by lower average corn costs (down 4%) and higher volumes.
  • Marketing & Distribution: Revenues surged $209.7 million due to increased volumes from own plants and additional third-party marketing.

Guidance, Outlook, Risks, and Unusual Items

• Outlook: Management noted that while margins compressed slightly toward the end of Q1 2010, they have since expanded and are expected to improve with the onset of the summer driving season.
• Subsequent Event: On April 21, 2010, the company acquired agribusiness operations in western Tennessee (five grain elevators) for approximately $25.7 million, increasing total grain storage capacity to 30.3 million bushels.
• Liquidity and Debt Covenants: The company is currently in compliance with all debt covenants. However, management warns that a sustained period of unprofitable operations could strain liquidity and make maintaining covenant compliance difficult. Approximately $310.9 million of subsidiary net assets are restricted from transfer to the parent company.
• Market Risks: Operations are highly sensitive to commodity price volatility (corn, ethanol, distillers grains, natural gas). The company utilizes derivative instruments to hedge these risks, though sudden price changes can trigger margin calls requiring significant liquidity.
• Legislative Risk: The federal blender's tax credit is set to expire on December 31, 2010. While management expects an extension, uncertainty remains.

Investor Verification Checklist

• Debt Covenant Compliance: Verify continued compliance with working capital, net worth, and coverage ratio covenants across all six ethanol production subsidiaries, given the sensitivity to commodity margins.
• Margin Sustainability: Assess whether the improved operating margins in Q1 2010 are sustainable given the volatility in corn and ethanol prices and the expiration of the blender's tax credit.
• Capital Expenditures: Review the impact of the recent Tennessee acquisition and planned facility expansions on future cash flow and debt levels.
• Derivative Exposure: Evaluate the company's open derivative positions and the potential cash impact of margin calls in the event of adverse commodity price movements.
• Equity Dilution: Consider the impact of the recent $79.8 million equity offering on future earnings per share and the company's capital structure.