Green Plains Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results; dollar figures below are in millions unless noted. Green Plains produces ethanol and related products, provides agribusiness and commodity-marketing services, and operates fuel storage and transportation assets. Management is transitioning the business toward higher-value agricultural technology and products.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,012.4 | $724.4 | $1,793.8 | $1,278.1 |
| Operating income (loss) | $33.8 | $31.0 | $(14.1) | $62.4 |
| Net income (loss) attributable to Green Plains | $46.4 | $9.7 | $(15.1) | $3.2 |
| EPS, basic / diluted | $0.87 / $0.73 | $0.21 / $0.20 | $(0.28) / $(0.28) | $0.08 / $0.07 |
| Adjusted EBITDA (non-GAAP) | $56.7 | $54.8 | $28.9 | $70.2 |
| Gross margin | $91.1 | $85.0 | $100.0 | $129.4 |
Q2 revenue rose 39.8%, mainly on higher prices and sales volumes for ethanol, distillers grains and corn oil. Gross margin was about 9.0% of revenue, versus 11.7% a year earlier. Six-month revenue rose 40.4%, but gross margin fell to about 5.6% from 10.1%; management attributed the weaker year-to-date results primarily to lower ethanol production margins. Q2 adjusted EBITDA increased modestly, while the six-month measure declined 58.8%.
Q2 results included a $27.7 million USDA Biofuel Producer Program grant recorded in other income. The grant increased GAAP earnings but was excluded from adjusted EBITDA. For comparison, 2021 results included a $33.1 million gain on asset sales in the first half and debt-extinguishment losses that increased reported interest expense.
Cash flow, liquidity and debt
- Cash and cash equivalents were $508.2 million at June 30, 2022; restricted cash was $71.1 million and marketable securities were $25.0 million. The company reported $70.0 million available under a committed revolving facility, subject to lending conditions.
- Current assets were $1,159.7 million and current liabilities $647.6 million. Total debt book value was $902.6 million, including $308.4 million of short-term borrowings and $99.2 million of current maturities. Debt fair value was estimated at $984.4 million.
- For the first six months, operating cash flow was negative $106.6 million, investing cash flow was negative $35.3 million, and financing cash flow was positive $160.3 million. Capital expenditures were $128.3 million, largely for Ultra-High Protein expansion and maintenance.
- Management said the company was in compliance with debt covenants at quarter-end and believed it had sufficient working capital for existing operations. Approximately $109.5 million of subsidiary net assets were restricted from transfer to the parent.
Material changes, outlook and risks
- Q2 ethanol production was 231.4 million gallons, up 21.2% year over year; average plant utilization was approximately 96.9%, compared with 79.9% in Q2 2021. Management said modernization and upgrade work was nearing completion, while noting that construction and margin conditions could limit future production.
- Management estimated remaining-2022 capital spending of $120 million to $170 million, including Ultra-High Protein projects. It estimated 2022 net ethanol exports at 1.4 billion to 1.6 billion gallons. These are estimates, not formal earnings guidance.
- The company is expanding MSC Ultra-High Protein technology: it was producing at two locations and expected three additional deployed locations to become operational in Q3 or Q4 2022. Carbon-capture agreements cover eight biorefineries; the Summit Carbon Solutions project was anticipated to be completed in 2024.
- On March 25, 2022, subsidiaries entered a five-year, $350 million sustainability-linked revolving credit facility, with an accordion feature of up to $100 million. At quarter-end, $280 million was drawn. The company also completed the remaining $75 million draw on its facility-level loan during Q1.
- After quarter-end, $64 million of 4.00% convertible notes due 2024 converted into approximately 4.3 million common shares and were retired by July 8, 2022. This reduces debt but increases shares outstanding.
- Principal risks include volatile corn, ethanol, natural gas and coproduct prices; commodity hedging and margin-call liquidity needs; dependence on fuel demand and government policies such as the RFS, RIN rules and E15 availability; and execution of growth projects. Management cautioned that sustained unprofitable operations could strain liquidity. The filing also notes uncertainty around proposed 2022 legislation and future EPA renewable-fuel requirements.
- Two customers represented 14% and 12% of Q2 revenue, respectively, creating customer-concentration exposure. Management said ordinary-course litigation was not expected to have a material adverse effect. Disclosure controls were deemed effective, with no material change in internal control reported.
Important facts for investors to verify
- Whether ethanol crush margins recover, and how higher input costs and commodity-price volatility affect cash generation.
- Whether planned Ultra-High Protein installations meet timing, cost and operating targets and deliver expected value-added margins.
- Actual capital spending, available borrowing capacity, working-capital needs and covenant headroom, including potential cash requirements from derivative margin calls.
- The impact of the 4.00% note conversion on diluted share count, and the company’s ability to manage remaining debt, including the 2022 convertible notes.
- Developments in RFS/RVO rulemaking, E15 policy, carbon incentives and other biofuel legislation, as well as customer concentration and export demand.