Green Plains Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. Comparisons are with the corresponding 2020 periods.
Business context
Green Plains produces ethanol and related co-products, markets agricultural and energy commodities, and operates fuel storage and transportation assets through its consolidated partnership. Management is shifting toward higher-value products and agricultural technology, including Ultra-High Protein processing, industrial alcohol, and Clean Sugar Technology. The food and ingredients segment had no activity in the periods presented.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $724.4 | $388.0 | $1,278.1 | $1,020.9 |
| Operating income (loss) | $31.0 | $(19.4) | $62.4 | $(73.7) |
| Net income (loss) | $16.1 | $(5.5) | $14.1 | $(15.8) |
| Net income (loss) attributable to Green Plains | $9.7 | $(8.2) | $3.2 | $(24.7) |
| Diluted EPS | $0.20 | $(0.24) | $0.07 | $(0.71) |
| Adjusted EBITDA (non-GAAP) | $54.8 | $17.9 | $70.2 | $20.6 |
Q2 revenue increased 86.7%; six-month revenue rose 25.2%. Management attributed the improvement mainly to higher ethanol, distillers grains and corn oil prices and volumes, increased trading revenue, and improved ethanol production margins. Q2 ethanol utilization averaged 79.9%, with production of 190.9 million gallons versus 149.9 million gallons a year earlier. Six-month ethanol sold was 368.9 million gallons, down 5.5% from 2020.
Q2 operating margin was approximately 4.3% of revenue, compared with an operating loss in the prior-year quarter. Six-month reported operating income included a $33.1 million net gain on asset sales; the comparable 2020 period included a $24.1 million goodwill impairment. Q2 interest expense included a $9.5 million loss on the exchange of 4.00% convertible notes. Six-month interest expense also reflected a $22.1 million loss on extinguishment of 4.125% notes. Adjusted EBITDA is a company-defined non-GAAP measure.
Cash flow, balance sheet and liquidity
- Cash and restricted cash: At June 30, cash and cash equivalents were $496.9 million, up from $233.9 million at year-end 2020; restricted cash was $118.4 million, up from $41.0 million. Restricted cash is not generally available for corporate purposes.
- Cash flows, first half: Operating activities used $30.2 million, versus $65.9 million provided in 2020, primarily reflecting working-capital changes. Investing activities provided $9.9 million, including asset-sale proceeds, compared with $68.0 million used in 2020. Financing activities provided $360.8 million, principally reflecting equity and debt issuance.
- Debt: Balance-sheet short-term borrowings, current long-term maturities and long-term debt totaled approximately $715.0 million. The filing separately reports debt book value of $726.2 million excluding debt issuance costs. Green Plains reported $226.0 million of variable-rate debt and estimated that a 10% interest-rate increase would raise annual interest cost by about $0.6 million.
- Liquidity and covenants: Management reported $294.2 million available under committed revolving and term facilities, some subject to restrictions or conditions. Subsidiaries had $169.4 million of net assets restricted from transfer to the parent. The company reported compliance with debt covenants at June 30.
- Capital spending: First-half capital expenditures were $59.9 million. The company expected $94–$119 million of capital spending for the remainder of 2021, primarily for high-protein projects, Project 24 and maintenance.
Material changes and transactions
- In March, Green Plains issued $230 million of 2.25% convertible notes due 2027 and used approximately $156.5 million of net proceeds to repurchase about $135.7 million principal amount of 4.125% notes due 2022.
- In March, the company completed a public offering of 8.75 million shares at $23 per share, generating $191.1 million net proceeds. In May, it exchanged 3.57 million treasury shares for $51 million principal amount of 4.00% notes. These transactions affected share count and potential dilution.
- The March sale of the Ord ethanol plant and related assets generated a $35.9 million pretax gain; the six-month statement reports a net gain on sale of assets of $33.1 million. The company also sold its Hereford plant in December 2020 and acquired a majority interest in Fluid Quip Technologies in December 2020, affecting comparability.
- Effective January 1, 2021, Green Plains early adopted amended convertible-debt accounting guidance, increasing reported debt principal by $39.4 million and reducing additional paid-in capital by $49.5 million, with an $11.4 million retained-earnings adjustment.
- The 2020 comparative revenue and cost of goods sold were revised for an approximately $30 million overstatement in each line item; the revision did not change net income.
Outlook, management commentary and risks
Management described the Q2 ethanol margin environment as stronger, while noting it may reduce production when margins are compressed or construction affects operating rates. The company expects additional high-protein systems to come online in stages: Wood River shipments were expected to begin in October 2021, and Central City shipments in Q2 2022. Eight biorefineries had entered long-term carbon offtake agreements with a project anticipated to begin operating in late 2024. These are expectations, not guarantees.
No company-wide earnings guidance is provided in the supplied filing text. The company estimated 2021 net ethanol exports of 1.2–1.4 billion gallons. Management identified commodity-price spreads, weather, counterparty and trading risks, COVID-19 uncertainty, and changes in fuel policy as material uncertainties. The EPA had not yet released 2021 or 2022 renewable volume obligations; the Supreme Court’s June 2021 ruling added uncertainty around small refinery exemptions, and a July 2021 court decision vacated the federal year-round E15 waiver. Green Plains also noted that sustained unprofitable operations could strain liquidity and that it could not assure financing for future needs on reasonable terms.
After quarter-end, Green Plains Partners refinanced its credit facility with a $60 million facility maturing in July 2026, bearing interest at three-month LIBOR plus 8.00%. It has no required principal payments, subject to covenant terms, and removed the prior distribution cap of $0.12 per unit. The partnership’s board announced an intention to target a 1.10x coverage ratio on normalized trailing-12-month distributable cash flow.
Most important facts for investors to verify
- Whether ethanol and co-product margins, utilization, and working-capital trends support sustained positive operating cash flow; first-half operating cash flow was negative.
- Whether planned high-protein capital projects meet cost, timing, production, and customer-validation expectations, given the remaining 2021 capital-spending estimate.
- How EPA renewable-fuel obligations, small-refinery exemptions, E15 rules, and export-market policies affect demand and margins.
- Debt maturities, covenant headroom, variable-rate exposure, and the cost and distribution implications of the partnership’s post-quarter refinancing.
- The recurring earnings contribution versus one-time items, including the Ord sale gain and convertible-note settlement and extinguishment losses; also assess dilution from share issuance, exchanges, warrants, and convertible notes.
- Whether cash reported as restricted or held in subsidiaries is available to meet parent-company needs; $169.4 million of subsidiary net assets were restricted from transfer.