Green Plains Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing was signed February 20, 2020. Although the request refers to 2019 Q4, this is an annual report; fourth-quarter figures are noted separately where available.
Business context
Green Plains operates ethanol production, agribusiness and energy services, food and ingredients, and fuel storage and transportation businesses. It operated 13 ethanol plants with stated annual capacity of approximately 1.1 billion gallons. Management described a strategic shift toward high-protein feed ingredients, operational cost reductions, and export growth. The company consolidated Green Plains Partners LP and held a 50% equity-method interest in Green Plains Cattle Company (GPCC) after selling half of GPCC in September 2019.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $2.417 billion | $2.984 billion |
| Operating income (loss), continuing operations | $(142.6) million | $90.0 million |
| Net income (loss) attributable to Green Plains | $(166.9) million | $15.9 million |
| Adjusted EBITDA (non-GAAP) | $(35.1) million | $225.8 million |
| Net cash from (used in) continuing operating activities | $(27.0) million | $29.5 million |
| Capital expenditures | $76.5 million | $38.3 million |
The 2019 effective operating performance was pressured by weak ethanol margins and lower production volumes. Ethanol production segment adjusted EBITDA was $(114.5) million, compared with $(31.6) million in 2018. Ethanol facilities operated at approximately 76% of daily average capacity. The filing does not provide a clear consolidated gross-margin percentage.
For Q4 2019, revenue was $715.7 million, operating loss was $14.9 million, and net loss attributable to Green Plains was $39.7 million. Q4 2018 included a $150.4 million net gain on asset sales and reported net income attributable to Green Plains of $53.5 million.
At year-end, cash and cash equivalents were $246.0 million, restricted cash was $23.9 million, and current assets and current liabilities were $667.9 million and $541.8 million, respectively. Total debt was approximately $564.4 million, including $319.9 million at variable interest rates. The company reported $289.7 million available under committed revolving credit agreements, subject to restrictions and lending conditions. It was in compliance with debt covenants at December 31, 2019.
Material changes versus the prior period
- Revenue fell by $566.7 million year over year, primarily reflecting the 2018 sales of three ethanol plants and Fleischmann’s Vinegar, as well as lower production volumes and realized prices.
- Operating income declined by $232.5 million and adjusted EBITDA by $260.9 million. The prior year included the $150.4 million asset-sale gain; 2019 also had lower ethanol volumes and margins.
- Interest expense declined to $40.2 million from $87.4 million, primarily following repayment of the $500 million term loan in 2018 and GPCC’s deconsolidation.
- GPCC became a 50%-owned equity-method investment in September 2019; its pre-sale results were presented as discontinued operations. Green Plains received approximately $76.9 million in cash for the 50% interest.
- The company sold its 50% interest in JGP Energy Partners for $29 million plus estimated working capital and recognized a $4.8 million gain.
- Green Plains issued $115 million principal of 4.00% convertible notes due 2024 and used part of the proceeds to repurchase the 3.25% notes due 2019. The 2024 notes had $83.5 million outstanding at year-end.
- The board suspended the company’s quarterly dividend after the June 2019 payment and increased the share repurchase authorization to $200 million. Green Plains repurchased approximately $61.6 million of stock during 2019.
Outlook, management commentary, and risks
- Management planned approximately $80 million to $120 million of 2020 capital spending, subject to review, primarily for Project 24, high-protein technology, and maintenance. Project 24 was expected to be completed in the third quarter of 2020.
- Management said it sought higher plant utilization and lower operating costs, while expanding high-protein feed production. It estimated net U.S. ethanol exports of approximately 1.5 billion gallons in 2020, excluding potential exports to China; this is an industry outlook, not earnings guidance.
- Operating cash flow from continuing operations was negative in 2019. Management stated that sustained unprofitable operations could strain liquidity, and that additional asset sales, equity issuance, or borrowing might be considered.
- Green Plains Partners’ $200 million revolving credit facility, with $132.1 million outstanding, matured July 1, 2020. The partnership intended to renew or replace it; at filing, refinancing had not yet been completed. The partnership believed appropriate funding was probable.
- Key exposures include volatile corn, ethanol, distillers grains, corn oil and natural-gas prices; weak ethanol supply-demand margins; hedging and counterparty risks; and potential liquidity demands from derivative margin calls. Weather and flooding affected operations and transportation in the first half of 2019.
- Federal renewable-fuel policy, small-refinery exemptions, RIN values, and export tariffs or trade restrictions could affect demand and prices. The filing describes ongoing regulatory and legal uncertainty, including challenges to EPA actions.
- The company recorded a $25.3 million valuation allowance against deferred tax assets because of uncertainty about future realization. Goodwill testing found no impairment, though management said ethanol-production goodwill could be at risk if conditions worsen. Ordinary-course litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether ethanol margins and plant utilization improved after the weak 2019 environment, and whether Project 24 and high-protein investments deliver expected cost savings and returns.
- Completion and terms of refinancing Green Plains Partners’ maturing revolving facility, plus the effect of debt maturities, variable rates, and restricted subsidiary cash on liquidity.
- Cash generation and working-capital needs, including derivative margin requirements, in a sustained low-margin scenario.
- Actual 2020 capital spending versus the stated $80 million to $120 million range, and the funding sources used.
- Developments in EPA renewable-fuel requirements, refinery exemptions, RIN pricing, E15 access, and export markets and tariffs.
- Effects of GPCC’s equity-method results and the company’s remaining exposure to the cattle-feeding business; also review the 2024 convertible notes’ potential dilution and repurchase terms.