Green Plains Inc. 10-Q Summary: Quarter Ended March 31, 2011
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011 for Green Plains Renewable Energy, Inc. (Green Plains). The Company is a vertically-integrated producer, marketer, and distributor of ethanol with operations spanning agronomy, grain handling, ethanol production (approximately 740 million gallons per year capacity as of period end), and downstream marketing and distribution. The quarter included the acquisition of the Otter Tail ethanol plant in Minnesota on March 24, 2011.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenues | $812.2 million | $426.5 million |
| Gross Profit | $37.5 million | $37.5 million |
| Operating Income | $19.8 million | $24.5 million |
| Net Income (Attributable to Green Plains) | $7.7 million | $15.6 million |
| Diluted EPS | $0.20 | $0.58 |
| Cash and Equivalents (End of Period) | $151.9 million | $182.1 million |
| Total Debt | $734.1 million | $669.0 million |
| EBITDA | $32.0 million | $33.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 90% to $812.2 million, driven by the inclusion of acquired operations (Lakota, Riga, and Otter Tail plants) and higher commodity prices.
- Profitability Decline: Despite revenue growth, Net Income decreased 50% to $7.7 million. Gross profit remained flat while operating income fell $4.7 million due to a 76.9% increase in the average cost of corn and higher selling, general, and administrative expenses.
- Cash Flow: Net cash used by operating activities was $91.2 million, a significant reversal from the $19.6 million provided in Q1 2010. This was primarily due to a reduction in accounts payable and increased investment in inventories and deposits.
- Debt Levels: Total debt increased to $734.1 million, reflecting financing for the Otter Tail acquisition and the issuance of $90 million in convertible senior notes in late 2010.
Guidance, Outlook, and Risks
- Capital Expenditures: The Company incurred $11.6 million in capital expenditures in Q1 2011 and expects to spend approximately $24.0 million for the remainder of 2011, focusing on grain storage expansion and corn oil extraction technology installation.
- Liquidity: Management believes available borrowings and operating cash flows will be sufficient for working capital and debt service. However, $489.5 million of net assets at subsidiaries are restricted from transfer to the parent company.
- Legal Proceedings: In April 2011, Aventine Renewable Energy, Inc. filed a complaint in bankruptcy court alleging $24.4 million to $28.4 million in damages related to preferential or fraudulent transfers and breach of termination agreements. The Company intends to defend vigorously.
- Market Risks: Operations are highly sensitive to commodity price volatility (corn, ethanol, natural gas). The Company utilizes derivative instruments to hedge these risks, though sudden price changes can trigger margin calls requiring significant liquidity.
Investor Verification Checklist
- Verify the impact of the 76.9% increase in corn costs on future gross margins given the Company's reliance on corn feedstock.
- Review the status of the Aventine Renewable Energy litigation and potential financial exposure.
- Monitor compliance with debt covenants across subsidiaries, particularly given the restricted net assets and variable interest rate exposure ($525.4 million).
- Assess the progress and ROI of the corn oil extraction technology rollout, which is a key strategy for margin improvement.
- Confirm the renewal status of the Green Plains Grain revolving credit facility, which faces maturity and reduction in capacity in mid-2011.