Green Plains Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Green Plains is a diversified commodity-processing business spanning ethanol production, agribusiness and energy services, food and ingredients, and fuel storage and transportation. The filing was signed May 9, 2019.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $642.3 million | $1,045.3 million |
| Operating income (loss) | $(40.0) million | $(3.9) million |
| Net income (loss) | $(37.9) million | $(19.5) million |
| Net loss attributable to Green Plains | $(42.8) million; $(1.06) per diluted share | $(24.1) million; $(0.60) per diluted share |
| EBITDA | $(18.7) million | $23.1 million |
| Cash from operating activities | $(20.8) million | $(41.1) million |
Gross profit, derived as revenue less cost of goods sold, was approximately $6.7 million (about 1.0% of revenue), versus $57.0 million (about 5.4%) a year earlier. Operating margin was approximately -6.2%, compared with -0.4%.
At March 31, 2019, cash and cash equivalents were $214.1 million, with another $59.2 million restricted. Working capital was approximately $317.0 million. Debt totaled about $883.3 million: $526.5 million of short-term borrowings, $55.7 million of current long-term debt, and $301.0 million of long-term debt. The company reported $472.8 million available under committed revolving credit agreements, subject to restrictions and lending conditions. It was in compliance with debt covenants at quarter-end.
Investing cash outflow was $7.7 million; financing cash outflow was $16.5 million. Capital expenditures were $10.8 million. The company declared and paid a $0.12-per-share quarterly dividend.
Material changes versus the prior comparable period
- Revenue fell 38.6%, while operating loss widened and EBITDA swung from positive to negative.
- The comparison is substantially affected by the Q4 2018 sale of three ethanol plants and Fleischmann’s Vinegar. Q1 2019 also had lower output at remaining ethanol plants and lower cattle volumes.
- Ethanol production was 155.0 million gallons at approximately 56% utilization, versus 280.4 million gallons and 76.5% utilization in Q1 2018. Ethanol segment operating loss increased to $44.2 million from $27.5 million.
- Food and ingredients reported a $1.4 million operating loss, compared with $12.6 million income, reflecting the vinegar divestiture, fewer cattle sold, severe winter weather, and unfavorable cattle basis. Cattle sold were approximately 127,000, versus 137,000.
- Interest expense declined to $14.4 million from $22.1 million, primarily following repayment of the $500 million senior secured term loan in Q4 2018.
- Cash used in operations improved year over year, primarily due to working-capital movements, but remained negative.
Outlook, commentary, risks and unusual items
- No consolidated earnings or revenue guidance was provided. Management estimated 2019 ethanol exports of 1.6–1.7 billion gallons and expected approximately $40 million of capital spending for the remainder of 2019.
- Management said it believed working capital was sufficient and expected to maintain covenant compliance, but cautioned that prolonged unprofitable operations could strain liquidity. Future dividends remain subject to board approval and may change.
- Severe winter weather and flooding disrupted plant performance and product transportation. Management also cited a weak ethanol-margin environment and reduced production in response.
- Key risks include volatile corn, ethanol, cattle and other commodity prices; derivative margin calls and timing mismatches; changing Renewable Fuel Standard policy and small-refinery exemptions; tariffs and export restrictions; and uncertain market adoption of higher ethanol blends.
- The company recorded a $3.3 million inventory valuation adjustment in ethanol production. Derivative losses and gains affected reported results; management stated that $12.5 million of net-of-tax accumulated unrealized derivative losses were expected to be reclassified into operating income over the next 12 months as forecast transactions occur.
- Adoption of the lease standard added $60.9 million to assets and liabilities at January 1, 2019, without affecting Q1 operating results. The company also received $6.7 million related to shareholder short-swing profits, recorded in additional paid-in capital.
- Debt and refinancing dates warrant attention: the Green Plains Grain revolver matures in July 2019; $54.6 million of 3.25% convertible notes mature October 1, 2019; the cattle revolver matures in April 2020; and the partnership revolver matures in July 2020. Management noted that LIBOR is expected to be phased out after 2021, with replacement-rate effects not yet known.
- Management did not believe ordinary-course litigation would materially affect financial position, results or cash flows. Disclosure controls were assessed as effective, with no material change in internal control reported.
Investor verification priorities
- Assess whether ethanol utilization and margins recover, and how much of the year-over-year decline reflects divestitures versus ongoing operating weakness.
- Verify liquidity availability and covenant headroom at subsidiaries, including restrictions on transferring approximately $143.6 million of subsidiary net assets to the parent.
- Track repayment, refinancing or conversion of the October 2019 notes and the July 2019 grain facility, as well as subsequent maturities.
- Review working-capital cash movements, planned capital spending, and the sustainability of the parent dividend amid operating losses and negative operating cash flow.
- Monitor RFS and EPA actions, export-market access, weather disruptions, and derivative exposures, including the expected timing and earnings effect of hedge reclassifications.