Business Context and Reporting Period
Company: Green Plains Renewable Energy, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: A vertically-integrated producer, marketer, and distributor of ethanol with operations across the value chain, including agronomy, grain handling, ethanol production (approx. 500 million gallons per year capacity), and marketing/distribution. The company operates three segments: Ethanol Production, Agribusiness, and Marketing & Distribution.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
|---|---|---|
| Revenues | $453,359 | $879,833 |
| Gross Profit | $30,672 | $68,146 |
| Operating Income | $17,075 | $41,580 |
| Net Income (Attributable to Green Plains) | $8,684 | $24,260 |
| Diluted EPS | $0.27 | $0.83 |
| Cash and Cash Equivalents | $172,996 | $172,996 (Balance Sheet) |
| Net Cash Provided by Operating Activities | N/A | $32,540 |
| Total Debt (Current + Long-term) | $454,629 | $454,629 (Balance Sheet) |
| Working Capital | $204,829 | N/A |
Note: Working Capital calculated as Total Current Assets ($356,701) minus Total Current Liabilities ($151,872).
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues increased by $168.7 million (59%) for the quarter and $374.1 million (74%) for the six months compared to the same periods in 2009. This growth is primarily driven by the acquisition of the Central City and Ord ethanol plants in July 2009 and expanded third-party marketing services.
- Profitability: Operating income improved significantly, rising from $4.2 million to $17.1 million for the quarter and from a loss of $3.0 million to income of $41.6 million for the six months. The 2009 period was negatively impacted by operational issues at two plants and a $4.6 million charge for terminating legacy marketing agreements.
- Cost Efficiency: Despite higher volumes, average corn costs decreased by 11% (quarter) and 7.5% (six months), and natural gas costs decreased by 15% (quarter) and 17% (six months) compared to 2009.
- Acquisitions: In April 2010, the company acquired agribusiness operations in western Tennessee (five grain elevators) for approximately $25.7 million, expanding grain storage capacity to 30.3 million bushels.
- Capital Raise: In March 2010, the company sold 6.3 million shares of common stock, raising net proceeds of approximately $79.7 million.
Guidance, Outlook, and Risks
- Outlook: Management believes expanded renewable fuel mandates in 2011 and the profitability of ethanol blending will support margin recovery for the remainder of the year. The company is implementing corn oil extraction technology at its plants (expected completion Q1 2011) to create higher-value co-products.
- Liquidity: The company reported $173.0 million in cash and equivalents as of June 30, 2010, with an additional $43.1 million available under loan agreements. However, approximately $357.0 million of net assets at subsidiaries are restricted from transfer to the parent company due to debt covenants.
- Debt Covenants: All subsidiaries were in compliance with debt covenants as of June 30, 2010. Management forecasts compliance for the next 12 months but notes that a sustained period of unprofitable operations could strain liquidity and covenant compliance.
- Key Risks:
- Commodity Price Volatility: Operations are highly sensitive to corn, ethanol, distillers grains, and natural gas prices. The company uses derivatives to hedge, but mismatches can impact results.
- Regulatory Changes: The expiration of the federal blender's tax credit (scheduled for Dec 31, 2010) and potential changes to the Renewable Fuels Standard (RFS) pose risks.
- Capital Availability: Reduced availability of capital in the ethanol industry could limit access to incremental financing.
Investor Verification Checklist
- Debt Covenant Compliance: Verify continued compliance with working capital, net worth, and fixed charge coverage ratios across all six ethanol production subsidiaries and the agribusiness segment.
- Margin Sustainability: Assess whether the favorable corn and natural gas price environment is sustainable or if margins will compress as input costs rise.
- Regulatory Impact: Monitor the status of the federal blender's tax credit extension and the EPA's decision on the E15 waiver, as these directly impact demand and pricing.
- Acquisition Integration: Review the performance of the newly acquired Tennessee agribusiness assets and the integration of the Central City and Ord plants.
- Derivative Exposure: Evaluate the company's open derivative positions and potential margin call requirements in the event of sudden commodity price shifts.