Green Plains Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparison with Q1 2016. Green Plains operates ethanol production, agribusiness and energy services, food and ingredients, and fuel storage and transportation businesses. Results include acquisitions made in 2016, notably three ethanol plants and Fleischmann’s Vinegar.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 / prior balance |
|---|---|---|
| Total revenue | $887.7 million | $749.2 million; up 18.5% |
| Operating income (loss) | $17.4 million | $(22.6) million |
| Consolidated net income (loss) | $1.7 million | $(19.8) million |
| Net income (loss) attributable to Green Plains | $(3.6) million; $(0.09) per share | $(24.1) million; $(0.63) per share |
| EBITDA, as defined by the company | $43.8 million | $(5.8) million |
| Cash from operating activities | $(38.4) million | $(79.8) million |
| Cash and cash equivalents at period-end | $256.5 million | $304.2 million at Dec. 31, 2016 |
| Total debt, including short-term borrowings | Approximately $1.125 billion | Company describes debt as approximately $1.1 billion |
Product revenue was $886.2 million; service revenue was $1.5 million. Cost of goods sold was $811.9 million, implying gross profit of approximately $75.8 million (about 8.5% of revenue); operating margin was about 2.0%. Interest expense rose to $18.5 million from $10.8 million. A $2.4 million income tax benefit was recorded, versus $14.9 million in Q1 2016.
At March 31, cash plus restricted cash was $295.4 million; restricted cash was $39.0 million. The company reported $129.2 million available under revolving credit agreements, subject to restrictions and lending conditions. Current assets were $919.9 million and current liabilities $524.2 million. Approximately $886.9 million of subsidiary net assets were restricted from transfer to the parent under credit agreements. The company reported compliance with debt covenants at quarter-end.
Investing cash outflow was $21.4 million, including $14.9 million of property and equipment purchases and $4.1 million for a cattle-feedlot acquisition. Financing cash inflow was $12.0 million. Capital expenditures were $14.1 million for the quarter; management expected approximately $38.6 million of additional spending for the remainder of 2017.
Material changes versus Q1 2016
- Revenue increased 18.5%, primarily from higher ethanol, corn oil and cattle volumes and the addition of Fleischmann’s Vinegar; reduced grain trading volumes and lower average grain and cattle prices partly offset growth.
- Operating results improved by $40.0 million, reflecting stronger ethanol production and cattle margins. Ethanol production rose 32.2% to 326.4 million gallons, with acquired plants contributing approximately 53.2 million gallons.
- Segment operating income improved in ethanol production (loss narrowed to $6.6 million from $29.6 million), agribusiness and energy services ($6.4 million versus $3.7 million), food and ingredients ($9.6 million versus a $1.4 million loss), and partnership ($16.6 million versus $13.1 million).
- Depreciation and amortization increased to $26.1 million from $18.1 million, and interest expense increased by $7.7 million, mainly due to higher average debt and borrowing costs.
- Operating cash use narrowed by $41.4 million year over year but remained substantial. Working-capital movements included cash use from lower accounts payable and accrued liabilities, partly offset by collections of receivables.
Outlook, risks and unusual items
- No specific full-year financial guidance is provided. Management expected ethanol production and consumption to be more balanced in the remaining quarters of 2017; spring and fall maintenance typically reduces production, while summer driving was expected to support gasoline demand and ethanol consumption.
- Management cited commodity-price exposure—especially corn, ethanol, distillers grains, corn oil, natural gas and cattle—and uses derivatives and physical contracts to manage it. Hedging can itself produce losses, and price moves may create margin-call liquidity needs. The company had $28.9 million in broker margin deposits at quarter-end.
- Policy and market risks include possible changes to the Renewable Fuel Standard, ethanol blending rules and E85 incentives, as well as tariffs and other trade measures. The filing notes proposed legislation that could repeal or reform the renewable-fuel program. Management cautioned that sustained unprofitable operations could strain liquidity and covenant compliance.
- About $857.0 million of debt carried variable interest rates; management estimated a 10% increase in rates would raise annual interest cost by approximately $4.6 million. Debt agreements contain financial tests and distribution restrictions.
- Subsequent events: an April 12 exchange of 1,344,298 shares plus accrued interest for approximately $24.1 million of 3.25% convertible notes left $95.9 million principal outstanding. A planned $36.7 million acquisition of two cattle feedlots, subject to closing conditions, would add 155,000 head of capacity and be funded with cash. The cattle revolver was amended to increase commitments to $200 million through July 31, 2017, then $300 million, and extend maturity to April 2020.
- Management estimated approximately $5.5 million may be due to the company in litigation over a prior plant acquisition, but treated it as a gain contingency and had not recognized it; the amount remains disputed and appealable. Other ordinary-course litigation was not believed to be material.
- Quarterly cash dividends were $0.12 per share. Future declarations remain subject to board approval and liquidity, business and market conditions. Management expected to continue regular dividends but gave no assurance.
Most important facts for investors to verify
- Whether ethanol and cattle margins improve sustainably, separating operating performance from acquisition-related volume and contribution.
- Cash conversion and working-capital demands, including the effect of commodity prices, inventory levels, and potential derivative margin calls.
- Debt maturities, variable-rate exposure, covenant headroom, and the restrictions that limit subsidiary cash transfers.
- Closing, financing and integration of the cattle-feedlot acquisition, and the economics of the related exclusive cattle-supply arrangement.
- Developments in ethanol mandates, blending policy and trade restrictions, and their effect on demand, pricing and export markets.
- Resolution of acquisition-related litigation and finalization of preliminary purchase-price allocations, including vinegar-related goodwill and intangible values.