Green Plains Renewable Energy, Inc. — Q1 2014 Form 10-Q
Business context and reporting period. This unaudited report covers the three months ended March 31, 2014. The company, now known as Green Plains Inc., described itself as North America’s fourth-largest ethanol producer, with operations across ethanol and distillers-grains production, corn oil, agribusiness, and marketing and distribution. Results include operations from plants acquired in 2013; the Fairmont plant began operating in January 2014.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $733.9 million | $765.5 million |
| Gross profit / margin | $100.7 million / 13.7% | $27.2 million / 3.6% |
| Operating income / margin | $78.3 million / 10.7% | $12.7 million / 1.7% |
| Net income | $43.2 million | $2.6 million |
| Diluted EPS | $1.04 | $0.08 |
| Cash used by operating activities | $50.2 million | $11.9 million |
Revenue declined 4.1%, while gross profit rose substantially, primarily reflecting improved ethanol-production margins, lower corn costs, and gains from merchant trading. Ethanol production’s segment operating income was $66.2 million, versus a $2.3 million loss a year earlier; marketing and distribution operating income increased to $32.5 million from $13.0 million. Corn oil operating income was broadly unchanged at $7.7 million, and agribusiness operating income was $0.9 million versus $0.4 million.
Ethanol revenue fell by $49.5 million, mainly because of lower revenue per gallon, partly offset by greater sales volumes. The company sold 230.8 million gallons of ethanol in its production segment, up from 170.8 million, and reported production at approximately 95.5% of average daily capacity. Corn use rose 37%, while average corn cost per bushel fell 39%. Higher trading activity also contributed to marketing and distribution results.
Net income was positive, but comprehensive loss was $42.1 million, reflecting $85.3 million of after-tax other comprehensive losses, principally from derivatives. The company expected accumulated derivative losses at quarter-end to be reclassified into operating income over the following 12 months as forecast transactions occurred; realized results could change with commodity prices.
Balance sheet, debt, liquidity, and cash flow
- At March 31, cash and cash equivalents were $207.0 million, down from $272.0 million at year-end; restricted cash was $22.9 million. Current assets were $616.6 million and current liabilities were $430.9 million.
- Total debt was approximately $642.5 million, comprising $514.1 million of long-term debt including current maturities and $128.4 million of short-term borrowings. This was down from approximately $735.2 million at December 31, 2013. The company reported covenant compliance at quarter-end.
- Management reported up to $138.5 million available under subsidiary revolving facilities, subject to borrowing-base and other conditions. Approximately $686.9 million of subsidiary net assets were restricted from transfer to the parent.
- Operating cash outflow included working-capital demands, notably a $127.3 million cash use from changes in derivative financial instruments and a $21.4 million increase in inventories. Investing cash outflow was $14.8 million, primarily capital expenditures. Financing cash flow was approximately neutral, after substantial gross revolver borrowing and repayment activity.
- Capital expenditures were $14.8 million in Q1, primarily for fine-grind technology and Fairmont improvements. Management expected approximately $36.0 million of additional capital spending during the remainder of 2014.
Material changes, outlook, and risks
- Nearly all of the $90.0 million 5.75% convertible notes were converted into 6.53 million common shares; the remainder was redeemed, and all were retired by March 20. Shares outstanding increased to approximately 37.4 million at March 31. The company also had $120 million of 3.25% convertible notes due 2018.
- On April 25, 2014, after quarter-end, $19.2 million of Otter Tail senior notes were extinguished, with $2.2 million forgiven under the financing terms.
- The company declared a quarterly cash dividend of $0.04 per share. Management said it anticipated regular future dividends, subject to board approval and changes in cash needs and market conditions; this was not a firm commitment.
- No specific earnings or operating guidance was provided. Management said it believed working capital was sufficient for existing operations, but warned that sustained unprofitable operations could pressure liquidity and covenant compliance. It also cautioned that margin calls can require significant cash with little notice; margin deposits were $130.4 million at quarter-end.
- Key exposures include volatile corn, ethanol, distillers-grains and natural-gas prices; derivative and counterparty risk; weather and transportation constraints; and uncertainty around renewable-fuel policy, blending limits, and consumer acceptance of higher ethanol blends. The filing also flags potential rail-tank-car retrofit or replacement costs under possible new safety standards.
- The company reported ordinary-course litigation but did not expect pending matters to materially affect its financial position, results, or cash flows. It also guaranteed the value of certain tax credits in a New Markets Tax Credits transaction; management considered recapture or reduction remote and recorded no liability.
Important facts for investors to verify
- Whether the improved ethanol margins and trading results are sustainable, given commodity-price volatility and the significant derivative-related OCI loss.
- How operating cash flow and liquidity develop as inventory, hedging-related margin requirements, and working-capital needs change.
- Near-term debt maturities and refinancing or repayment plans, including the Fairmont/Wood River loan due in November 2014 and other facility maturities disclosed in the filing.
- Whether the expected 2014 capital program can be funded while maintaining covenant compliance and the dividend.
- Actual benefits and integration costs from the 2013 plant acquisitions, including the contribution of the newly restarted Fairmont facility.