Business Context and Reporting Period
Company: Green Plains Renewable Energy, Inc. (Green Plains)
Reporting Period: Quarter and nine months ended August 31, 2006
Status: Development stage company focused on constructing dry mill, fuel-grade ethanol plants.
Operations: Construction began in April 2006 on a 50 million gallon plant in Shenandoah, Iowa, and in August 2006 on a second similar plant in Superior, Iowa. The company has no operating revenues and is currently funded by equity offerings and debt financing.
Key Financial Metrics
| Metric | Three Months Ended Aug 31, 2006 | Nine Months Ended Aug 31, 2006 |
|---|---|---|
| Revenues | $0 | $0 |
| Operating Expenses | $598,622 | $1,177,522 |
| Net Income (Loss) | $(43,490) | $78,376 |
| Cash and Equivalents (End of Period) | $54,442,948 | |
| Total Assets | $91,149,638 | |
| Total Liabilities | $6,088,202 | |
| Stockholders' Equity | $85,061,436 | |
| Long-Term Debt (Total) | $400,000 |
Note: Net income for the nine-month period was driven primarily by interest income ($1,178,510) and unrealized gains on derivatives ($77,388) offsetting operating expenses.
Material Changes vs. Prior Period
- Liquidity Surge: Cash and cash equivalents increased from $5.8 million (Nov 30, 2005) to $54.4 million (Aug 31, 2006), driven by a secondary equity offering in July 2006 raising approximately $48 million and warrant exercises.
- Asset Growth: Total assets grew from $34.6 million to $91.1 million, primarily due to cash accumulation and capitalization of construction in progress ($27.9 million).
- Profitability Shift: The company moved from a net loss of $563,027 for the nine months ended Aug 31, 2005, to a net income of $78,376 for the same period in 2006. This reversal is attributable to interest income on raised capital rather than operational revenue.
- Debt Financing: The company secured a $47 million loan commitment for the Shenandoah plant, though only $400,000 in long-term debt was drawn as of the reporting date.
Guidance, Outlook, and Risks
Outlook and Guidance
- Shenandoah Plant: Expected to be in production by May 1, 2007. Estimated total project cost is $84.7 million. Management believes current funding is sufficient to complete this project.
- Superior Plant: Construction commenced August 2006. Estimated total cost is $97.6 million. The company is in the process of securing debt financing (term sheet received from CoBank) but has not finalized agreements.
- Expansion: Plans for third and fourth plants are on hold due to high construction costs, drops in oil/ethanol prices, and share price declines. Focus is currently limited to the two plants under construction.
Risks and Contingencies
- Construction Costs: Costs have risen due to raw material prices (steel, cement) and soil stabilization requirements (geo-piers).
- Financing Risk: No assurance that debt financing for the Superior plant will be finalized or that additional capital can be raised for future projects.
- Rail Line Reimbursement: The company paid $3.5 million to renovate a rail spur. Reimbursement is contingent on meeting annual volume thresholds; if not met, the cost may not be recovered.
- Market Risk: Future profitability depends on corn and natural gas prices. The company holds corn futures contracts to hedge supply, which carry mark-to-market volatility.
Investor Verification Checklist
- Debt Closing: Verify the finalization of the debt financing agreement for the Superior plant, as the term sheet is not yet a binding commitment.
- Construction Budget: Monitor actual construction costs against the $84.7 million (Shenandoah) and $97.6 million (Superior) estimates, given recent cost overruns.
- Rail Rebate Status: Confirm whether the company is on track to meet the volume thresholds required to recover the $3.5 million rail line investment.
- Interest Income Sustainability: Note that current profitability is derived from interest on cash reserves; this income will decline as funds are deployed for construction.
- Warrant Exercise: Track the exercise of outstanding warrants (793,221 shares from IPO; 320,014 shares from secondary) which could provide additional capital if share prices rise above strike prices ($30 and $60).