Green Plains Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 7, 2019. Amounts below are in millions of dollars unless stated otherwise. GPCC results are presented as discontinued operations, and 2018 comparisons also reflect businesses sold in late 2018.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $632.4 | $789.0 | $1,701.6 | $2,400.4 |
| Operating loss from continuing operations | $(42.4) | $(3.8) | $(127.6) | $(13.0) |
| Net loss attributable to Green Plains | $(39.0) | $(12.5) | $(127.1) | $(37.6) |
| Diluted loss per share | $(1.06) | $(0.31) | $(3.25) | $(0.94) |
| Adjusted EBITDA | $(13.4) | $32.3 | $(51.2) | $97.7 |
- Q3 cost of goods sold was $632.1 million against revenue of $632.4 million. The resulting near-zero gross spread preceded operating and other expenses.
- Q3 interest expense was $10.5 million, down from $19.7 million, mainly reflecting repayment of the $500 million term loan in Q4 2018. Q3 income tax benefit was $12.5 million.
- Continuing-operations operating cash flow was $(17.8) million for the first nine months, versus $58.1 million in 2018. Including discontinued operations, total operating cash flow was $(0.4) million, versus $84.4 million.
Liquidity, debt and capital
- At September 30, cash and cash equivalents were $235.5 million and restricted cash was $18.5 million. The company reported $328.4 million available under committed revolving facilities, subject to restrictions and lending conditions.
- Balance-sheet debt was approximately $530.4 million, including $149.1 million in short-term borrowings, $133.0 million in current maturities of long-term debt, and $248.3 million in long-term debt. The $132 million Green Plains Partners revolver was classified as current because it matures in July 2020.
- Capital expenditures were $43.4 million for the first nine months; management expected a further $20–25 million for the remainder of 2019. The company was in compliance with debt covenants at quarter-end. About $63.5 million of subsidiary net assets were restricted from transfer to the parent.
- The company suspended its quarterly dividend after the June 2019 payment. It repurchased approximately 1.66 million shares for $16.0 million during Q3. After quarter-end, the board increased the repurchase authorization from $100 million to $200 million.
Material changes and operating trends
- Revenue fell 19.9% year over year in Q3 and 29.1% for the first nine months. Management attributed the declines primarily to the 2018 sales of three ethanol plants and Fleischmann’s Vinegar, as well as weaker ethanol margins, lower production and lower realized prices.
- Q3 ethanol production-segment revenue declined 16.0%; the segment recorded an operating loss of $49.3 million, compared with a $16.0 million loss a year earlier. Ethanol sold fell 21.8% to 238.5 million gallons.
- Capacity utilization improved to 84.2% in Q3 from 80.0% in Q2. Management cited its operating-cost initiative and plans to continue pursuing higher utilization.
- Effective September 1, Green Plains sold a 50% interest in Green Plains Cattle Company for approximately $77.2 million and now accounts for the venture using the equity method. GPCC’s pre-disposition results are shown as discontinued operations; its net income was $3.4 million in Q3 and $1.0 million for the nine-month period.
- Green Plains issued $115 million principal amount of 4.00% convertible notes due 2024 and used part of the proceeds to repurchase its 3.25% notes due 2019. At September 30, the reported carrying amounts were $82.2 million for the 4.00% notes and $147.6 million for the 4.125% notes due 2022.
- After quarter-end, the company agreed to sell its 50% interest in JGP Energy Partners for $29 million plus its share of working capital; closing was expected by December 15, 2019.
Outlook, risks and contingencies
- No formal earnings or revenue guidance is provided. Management expected higher average plant utilization and continued investment in Project 24 and high-protein production. The first high-protein installation was expected to finish at the Shenandoah plant near year-end 2019, with dried product distribution anticipated in Q1 2020; remaining installations were planned over three to four years.
- Management cited weak ethanol margins, severe weather and flooding that affected logistics and raised corn prices, and lower production as pressures on results. It warned that sustained unprofitable operations could strain liquidity and make covenant compliance more difficult.
- Commodity-price volatility and hedging can create losses, counterparty exposure and sudden cash demands for margin calls. The company disclosed $281.1 million of variable-rate debt; a 10% increase in interest rates was estimated to raise annual interest cost by about $1.3 million. The planned LIBOR phaseout also creates uncertainty for borrowing costs.
- Ethanol demand is exposed to U.S. Renewable Fuel Standard decisions, small-refinery exemptions and litigation, as well as trade barriers and foreign-market policy. The filing discusses the E15 summer-sales rule and pending challenges. Management’s 2019 net ethanol export estimate was 1.4–1.5 billion gallons.
- The filing reports ordinary-course litigation that management did not expect to have a material adverse effect. It also discloses $51.6 million of unrecognized tax benefits and contingent earn-out provisions related to GPCC for which amounts were not considered reasonably estimable.
Investor facts to verify
- How continuing ethanol margins, production volumes and plant utilization developed after Q3, and whether the stated utilization and cost-saving initiatives translated into improved results.
- Whether available liquidity, revolver access and covenant headroom remain adequate if operating losses or commodity-driven margin calls continue.
- The status and terms of the Green Plains Partners revolver renewal or replacement before its July 2020 maturity.
- Whether Project 24 and high-protein investments meet timing, cost and expected margin objectives, and how remaining capital spending is funded.
- Completion and proceeds from the announced JGP Energy Partners sale, and the financial impact of the expanded share-repurchase authorization and suspended parent-company dividend.
- Changes in RFS policy, refinery exemptions, E15 litigation and export-market restrictions that could affect ethanol demand and pricing.