Green Plains Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 6, 2020. Financial statements are unaudited. Green Plains operates ethanol production, agribusiness and energy services, food and ingredients, and fuel storage and transportation businesses.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $632.9 million | $438.6 million |
| Operating loss | $54.3 million | $38.6 million |
| Net loss attributable to Green Plains | $16.4 million | $42.8 million |
| Diluted loss per share | $0.47 | $1.06 |
| Adjusted EBITDA (non-GAAP) | $2.7 million | $(18.3) million |
| Cash from continuing operating activities | $17.8 million | $2.2 million |
- Revenue rose 44% year over year, primarily reflecting higher ethanol, distillers grains and corn oil volumes. Ethanol sold increased 55% to 240.5 million gallons; average ethanol-plant utilization was 85.9%, versus 56.0%.
- Ethanol production reported a $60.8 million operating loss, including a $24.1 million non-cash goodwill impairment. Management said segment results excluding impairment improved with ethanol margins, although the overall margin environment remained weak.
- The $44.3 million income tax benefit included approximately $28.4 million related to carrying back a 2019 tax loss under the CARES Act and also reflected release of a valuation allowance. Equity-method income was $8.0 million, primarily from Green Plains Cattle Company (GPCC).
- At March 31, cash and cash equivalents were $194.3 million, plus $11.2 million restricted cash. Total debt was approximately $545.0 million; $297.2 million was variable-rate debt. Management reported $330.6 million of availability under committed revolving credit agreements, subject to restrictions and lending conditions.
- Investing activities used $39.9 million, including $38.8 million of capital expenditures. Financing activities used $42.3 million. Cash, cash equivalents and restricted cash declined $64.4 million during the quarter.
Material changes and unusual items
- Compared with Q1 2019, revenue increased substantially, but operating loss widened by $15.7 million. The comparison is affected by GPCC’s 2019 results being presented as discontinued operations following its 2019 disposition; Green Plains now accounts for its 50% GPCC interest using the equity method.
- The company recorded a $27.7 million lower-of-cost-or-net-realizable-value inventory adjustment, compared with $6.6 million a year earlier, and a $24.1 million ethanol-production goodwill impairment following weaker industry prospects and a decline in Green Plains’ market capitalization.
- Derivative-related gains and losses affected reported results: the filing reports $54.2 million of net gains in revenue and $2.5 million of net gains in cost of goods sold from derivatives during the quarter. Commodity-price volatility can make derivative results differ in timing from related physical transactions.
- Comprehensive income attributable to Green Plains was $25.6 million, despite the net loss, mainly reflecting its share of equity-method investees’ other comprehensive income.
- Green Plains repurchased 880,979 shares for approximately $11.5 million during the quarter. The company had repurchased 7.4 million shares for approximately $92.8 million cumulatively under its authorization.
Outlook, management commentary and risks
- Management said the COVID-19 outbreak, travel restrictions and falling oil prices sharply weakened fuel demand and increased uncertainty. The filing states that approximately 50% of industry ethanol production capacity had shut down. Green Plains said it may reduce production, including below minimum-volume commitments, to preserve liquidity; it gave no full-year earnings guidance.
- Management estimated 2020 U.S. ethanol exports at 1.1–1.5 billion gallons, excluding potential exports to China. It expected $15–$20 million of capital spending for the remainder of 2020, after $38.8 million in Q1, primarily for maintenance, Project 24 efficiency work and high-protein expansion. The first high-protein installation was completed at Shenandoah, with dried-product shipments beginning in April.
- A major near-term financing risk is Green Plains Partners’ $200 million revolving facility, with $130.2 million drawn and maturity on July 1, 2020. The partnership was working with lenders on an extension, but had not formalized an extension or secured replacement funding as of the filing. It was in covenant compliance; management believed refinancing was probable but provided no assurance.
- After quarter-end, on April 16, the partnership cut its quarterly distribution 75% to $0.12 per unit, expecting to free approximately $33.8 million annually for debt reduction.
- Other material risks include continued weak ethanol and gasoline demand, commodity-price and margin volatility, derivative margin calls, changes in renewable-fuel policy and small-refinery exemptions, export barriers, and the possibility that sustained unprofitable operations could strain liquidity. Management said the company was in compliance with debt covenants at March 31.
- Management reported no material COVID-19-related contingencies to date, no material adverse effect on operating or financial-reporting controls, and no litigation expected to materially affect financial condition, results or cash flows.
Investor verification points
- Track ethanol demand, plant utilization, production decisions and realized margins as COVID-19 effects evolve.
- Verify whether Green Plains Partners extends, refinances or repays the $130.2 million facility due July 1, 2020, and assess any effect on distributions.
- Reconcile liquidity and debt availability with restrictions on subsidiary cash, collateral-based borrowing limits, and potential commodity-derivative margin requirements.
- Assess the sustainability of results excluding the non-cash impairment and the effects of derivative gains, inventory adjustments, CARES Act tax benefits and GPCC equity-method earnings.
- Monitor planned capital spending, high-protein project execution, and whether Project 24 and other initiatives deliver the expected margin and cost benefits.