GREEN PLAINS INC. General
The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements contained in this report together with our annual report on Form 10-K for the year endedDecember 31, 2021 .
Cautionary Information Regarding Forward-Looking Statements
Forward-looking statements are made in accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that involve a number of risks and uncertainties and do not relate strictly to historical or current facts, but rather to plans and objectives for future operations. These statements may be identified by words such as "anticipate," "believe," "continue," "estimate," "expect," "intend," "outlook," "plan," "predict," "may," "could," "should," "will" and similar expressions, as well as statements regarding future operating or financial performance or guidance, business strategy, environment, key trends and benefits of actual or planned acquisitions. Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A - Risk Factors of our annual report on Form 10-K for the year endedDecember 31, 2021 , Part II, Item 1A - Risk Factors in this report, or incorporated by reference. Specifically, we may experience fluctuations in future operating results due to a number of economic conditions, including: disruption caused by health epidemics, such as the COVID-19 outbreak; competition in the ethanol industry and other industries in which we operate; commodity market risks, including those that may result from weather conditions; financial market risks; counterparty risks; risks associated with changes to government policy or regulation, including changes to tax laws; risks related to acquisition and disposition activities and achieving anticipated results; risks associated with merchant trading; risks related to our equity method investees and other factors detailed in reports filed with theSEC . Additional risks related toGreen Plains Partners LP include compliance with commercial contractual obligations, potential tax consequences related to our investment in the partnership and risks disclosed in the partnership'sSEC filings associated with the operation of the partnership as a separate, publicly traded entity. We believe our expectations regarding future events are based on reasonable assumptions; however, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated and do not intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management's views as of the date of this report or documents incorporated by reference.
Overview
Green Plains is anIowa corporation founded inJune 2004 as a producer of low carbon fuels and has grown to be a leading ag-tech innovator. We continue the transition from a commodity-processing business to a value-added agricultural technology company creating sustainable, high-value ingredients. In addition, we are currently undergoing a number of project initiatives to generate higher non-cyclical margins. We believe we can further increase margins by producing additional value-added ingredients, such as Ultra-High Protein, dextrose and more. InDecember 2020 , we completed the purchase of a majority interest in FQT. The acquisition capitalizes on the core strengths of each company to develop and implement proven, agriculture, food and industrial biotechnology systems, rapidly expand installation and production across Green Plains facilities, and offer these technologies to the biofuels industry. Additionally, we have taken advantage of opportunities to divest certain assets in recent years to reallocate capital toward our current growth initiatives. We are focused on generating stable operating margins through our business segments and risk management strategy.
We formed
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2.0% general partner interest and all of the partnership's incentive distribution rights. The public owns the remaining 49.2% limited partner interest. The partnership is consolidated in our financial statements.
We group our business activities into the following three operating segments to manage performance:
•Ethanol Production. Our ethanol production segment includes the production of ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein and corn oil at 11 ethanol plants inIllinois ,Indiana ,Iowa ,Minnesota ,Nebraska andTennessee . At capacity, our facilities are capable of processing approximately 330 million bushels of corn per year and producing approximately 1 billion gallons of ethanol, 2.5 million tons of distillers grains and Ultra-High Protein and 290 million pounds of industrial grade corn oil, making us one of the largest ethanol producers inNorth America . •Agribusiness and Energy Services. Our agribusiness and energy services segment includes grain procurement, with approximately 27 million bushels of grain storage capacity, and our commodity marketing business, which markets, sells and distributes ethanol, distillers grains, Ultra-High Protein and corn oil produced at our ethanol plants. We also market ethanol for a third-party producer as well as buy and sell ethanol, including industrial-grade alcohol, distillers grains, Ultra-High Protein, corn oil, grain, natural gas and other commodities in various markets.
•Partnership. Our master limited partnership provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage tanks, terminals, transportation assets and other related assets and businesses. The partnership's assets include 29 ethanol storage facilities, two fuel terminal facilities and approximately 2,500 leased railcars.
As part of our transformation to a value-add agricultural technology company, we completed our first MSCTM installation at ourShenandoah, Iowa , biorefinery during the first quarter of 2020. OurWood River, Nebraska , plant began MSCTM operations inOctober 2021 . Commissioning on our MSCTM installation at ourCentral City plant began during the third quarter with two additional locations slated to begin commissioning in the fourth quarter of 2022. Installation at certain of our remaining biorefineries is expected over the course of the next few years. Through our value-added ingredients initiative, we expect to produce Ultra-High Protein, a feed ingredient with protein concentrations of 50% or greater and yeast concentrations of 25%, increase production of renewable corn oil and produce other higher value products, such as post-MSC distillers grains. We have also upgraded ourYork facility to include USP grade alcohol capabilities. We began pilot scale batch operations at the CSTTM production facility at our Innovation Center atYork in the second quarter of 2021, which allows for the production of both food and industrial grade low-carbon glucose and dextrose to target applications in food production, renewable chemicals and synthetic biology. InSeptember 2022 , we broke ground at our biorefinery inShenandoah, Iowa , as the first location to deploy FQT CSTTM at commercial scale. We also anticipate modifying additional biorefineries to include FQT CSTTM production capabilities to meet anticipated future customer demands. In February andApril 2021 , as part of our carbon reduction strategy, we committed ourNebraska ,Iowa andMinnesota plants to the Summit Carbon Solutions Midwest Carbon Express project to capture and store biogenic carbon dioxide produced through the fermentation process. These eight biorefineries have entered into twelve-year carbon offtake agreements, which will lower greenhouse gas emissions through the capture of carbon dioxide at each of the biorefineries, significantly lowering their carbon intensity. According to Summit Carbon Solutions, the anticipated completion date for this project is 2024. Our profitability is highly dependent on commodity prices, particularly for ethanol, industrial alcohol, distillers grains, corn oil, soybean meal, corn, and natural gas. Since market price fluctuations of these commodities are not always correlated, our operations may be unprofitable at times. We use a variety of risk management tools and hedging strategies to monitor price risk exposure at our ethanol plants and lock in favorable margins or reduce production when margins are compressed. Our profitability could be significantly impacted by price movements of the aforementioned commodities.
Recent Developments
Convertible Notes Conversion into Common Stock
On
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From
During
Additionally, onSeptember 1, 2022 , approximately$1.7 million aggregate principal amount of the 4.125% notes were settled through a combination of$1.7 million in cash and approximately 15 thousand shares of our common stock. The remaining$23 thousand aggregate principal amount of the 4.125% notes and accrued interest were settled in cash. The 4.125% notes were retired effectiveSeptember 1, 2022 . Results of Operations During the third quarter of 2022, we experienced a weak ethanol margin environment due in part to historically high physical corn basis levels across our entire platform. We maintained an average utilization rate of approximately 90.9% of capacity, resulting in ethanol production of 219.4 mmg for the third quarter of 2022, compared with 181.2 mmg, or 75.0% of capacity, for the same quarter last year. The increase in the average utilization rate was primarily due to completing our plant modernization and upgrade program earlier this year. Our operating strategy is to transform our company to a value-add agricultural technology company. Depending on the margin environment, we may exercise operational discretion that results in reductions in production volumes. It is possible that throughput volumes could be below our minimum volume commitments made to the partnership in the future, depending on various factors that drive each biorefineries variable contribution margin, including future driving and gasoline demand for the industry, demand for valuable coproducts we produce, and the supply and pricing of renewable feedstocks needed to operate our biorefineries. We are currently producing Ultra-High Protein at two locations, commissioned a third plant in the third quarter, and are deploying FQT MSCTM technology at two additional locations, which we expect to be commissioned in the fourth quarter of 2022. We are deploying the FQT MSC™ technology at select locations across our platform to help meet growing global demand for protein feed ingredients and low-carbon renewable corn oil.
According to the EIA, domestic ethanol production averaged 979 thousand barrels per day during the third quarter of 2022, which was 0.5% higher than the 974 thousand barrels per day for the same quarter last year. Refiner and blender input volume was 902 thousand barrels per day for the third quarter of 2022, compared with 919 thousand barrels per day for the same quarter last year. Gasoline demand decreased 0.6 million barrels per day, or 6.6% during the third quarter of 2022 compared to the prior year.U.S. domestic ethanol ending stocks increased by approximately 1.5 million barrels compared to the prior year, or 7.2%, to 21.7 million barrels as ofSeptember 30, 2022 . As of this filing, according to Prime the Pump, there were approximately 2,743 retail stations selling E15 in 31 states, up from 2,555 at the beginning of the year, and approximately 386 suppliers at 113 pipeline terminal locations now offering E15 to wholesale customers.
Global Ethanol Supply and Demand
According to the USDA Foreign Agriculture Service, domestic ethanol exports throughAugust 31, 2022 , were approximately 1,012 mmg, up from the 796 mmg for the same period of 2021.Canada was the largest export destination forU.S. ethanol accounting for 32% of domestic ethanol export volume, driven in part by their national clean fuel standard.South Korea ,India , andthe Netherlands accounted for 13%, 8%, and 7%, respectively, ofU.S. ethanol exports. We currently estimate that net ethanol exports will range from 1.3 to 1.5 billion gallons in 2022, based on historical demand from a variety of countries and certain countries that seek to improve their air quality, reduce green house gas emissions through low carbon fuel programs and eliminate MTBE from their own fuel supplies. The recent strengthening of theU.S. Dollar relative to other currencies has the potential to adversely impact theU.S. ethanol competitiveness in the global market.
Legislation and Regulation
We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Over the years, various bills and amendments have been proposed in theHouse and Senate , which would eliminate the RFS entirely, eliminate the corn based ethanol portion of the mandate, and make it more difficult to sell fuel blends with higher levels of ethanol. Bills have also been introduced to require higher levels of octane blending, and require car manufacturers to produce vehicles that can operate on higher ethanol blends. We believe it is unlikely that any of these bills will become law in the currentCongress . In 37
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addition, the manner in which the
Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol demand in theU.S. Ethanol policies are influenced by concerns for the environment, diversifying the fuel supply, and reducing the country's dependence on foreign oil. Consumer acceptance of FFVs and higher ethanol blends in non-FFVs may be necessary before ethanol can achieve further growth inU.S. surface transportation fleet market share. In addition, expansion of clean fuel programs in other states and countries, or a national LCFS could increase the demand for ethanol, depending on how it is structured. The Inflation Reduction Act of 2022, which was signed into law onAugust 16, 2022 , is a sweeping policy that could have many potential impacts on our business which we are continuing to evaluate. The legislation (a) created a new Clean Fuel Production Credit, section 45Z of the Internal Revenue Code, which runs from 2025 to 2027 of up to$1.00 per gallon, which could impact our fuel ethanol, depending on the level of green house gas reduction for each gallon; (b) created a new tax credit for sustainable aviation fuel of$1.25 to$1.75 per gallon, depending on the green house gas reduction for each gallon, that could possibly involve some of our low carbon ethanol through an alcohol to jet pathway, depending on the life cycle analysis model being used (this credit expires after 2024 and shifts to the Clean Fuel Production Credit, where it qualifies for up to$1.75 per gallon); (c) expanded the carbon capture and sequestration credit, section 45Q, to$85 for each ton of carbon sequestered, which could impact our carbon capture partnership and other potential carbon capture investments; (d) extended the biodiesel tax credit which could impact our renewable corn oil values, as this co-product serves as a low-carbon feedstock for renewable diesel and biomass based diesel production; (e) funded biofuel refueling infrastructure, which could impact the availability of higher level ethanol blended fuel; (f) increased funding for working lands conservation programs for farmers by$20 billion ; and (g) provided credits for the production and purchase of electric vehicles, which could impact the amount of internal combustion engines built and sold longer term, and by extension impact the demand for liquid fuels including ethanol. The RFS sets a floor for biofuels use inthe United States . When the RFS was established in 2010, the required volume of conventional, or corn-based, ethanol to be blended with gasoline was to increase each year until it reached 15 billion gallons in 2015, which left theEPA to address existing limitations in both supply and demand. As of this filing, theEPA has finalized RVOs reducing the conventional ethanol levels for 2020 and 2021 to reflect lower fuel demand during the pandemic, and finalized an RVO at the statutory 15 billion gallons for 2022, with an additional 250 million gallons of supplemental volume to reflect a court-ordered remand of a previously-lowered RVO. TheEPA has agreed to consent decree from theU.S. District Court for D.C . to propose an RVO for 2023 (and possibly 2024 and 2025) byNovember 16, 2022 , and finalize the rule byJune 14, 2023 . It is possible the expand the types of fuels that can qualify for credits under the RFS, including the so-called e-RINs for electric vehicles. According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, theEPA is required to modify, or reset, statutory volumes through 2022, the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total RVO was more than 20% below the statutory volume levels. Thus, theEPA was expected to initiate a reset rulemaking, and modify statutory volumes through 2022, and do so based on the same factors they are to use in setting the RVOs post 2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development. However, in late 2019, theEPA announced it would not be moving forward with a reset rulemaking in 2020. The currentEPA has indicated they will not propose a reset rulemaking, though they have stated an intention to propose a post-2022 set rulemaking byNovember 16, 2022 , and finalize byJune 14, 2023 , in compliance with a consent decree from theU.S. District Court for D.C . Under the RFS, RINs and SREs are important tools impacting supply and demand. TheEPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use in each annual RVO based on their percentage of total production of domestic transportation fuel. Obligated parties use RINs to show compliance with the RFS mandated volumes. Ethanol producers assign a RIN to each gallon of renewable fuel they produce and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and can influence purchasing decisions by obligated parties. As it relates to SREs, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition theEPA for a SRE which, if approved, waives their portion of the annual RVO requirements. TheEPA , through consultation with theDOE and theUSDA can grant a full or partial waiver, or deny it outright within 90 38
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days of submittal. TheEPA granted significantly more of these waivers for the 2016, 2017 and 2018 reporting years than they had in prior years, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, theEPA effectively reduced the RFS mandated volumes for those compliance years by those amounts respectively, and as a result, RIN values declined significantly. In the waning days of the previous administration, theEPA approved three additional SREs, reversing one denial from 2018 and granting two from 2019. A total of 88 SREs were granted under theTrump Administration , erasing a total of 4.3 billion gallons of potential blending demand. TheEPA , under the current administration, reversed the three SREs issued in the final weeks of the previous administration, and in conjunction with the RVO rulemaking for 2020, 2021 and 2022, denied all pending SREs. There are multiple legal challenges to how theEPA has handled SREs and RFS rulemakings. The One-Pound Waiver, which was extended inMay 2019 to allow E15 to be sold year-round to all vehicles model year 2001 and newer, was challenged in an action filed inFederal District Court for the D.C. Circuit . OnJuly 2, 2021 , theCircuit Court vacated theEPA 's rule so the future of summertime, defined asJune 1 to September 15 , sales of E15 is uncertain. TheSupreme Court declined to hear a challenge to this ruling. OnApril 12, 2022 , the President announced that he has directed theEPA to issue an emergency waiver to allow for the continued sale of E15 during the summer months, and that the temporary waiver should be extended as long as the gasoline supply emergency lasts. As of this filing, E15 is sold year-round at approximately 2,743 stations in 31 states. InOctober 2019 , theWhite House directed theUSDA andEPA to move forward with rulemaking to expand access to higher blends of biofuels. This includes funding for infrastructure, labeling changes and allowing E15 to be sold through E10 infrastructure. TheUSDA rolled out the Higher Blend Infrastructure Incentive Program in the summer of 2020, providing competitive grants to fuel terminals and retailers for installing equipment for dispensing higher blends of ethanol and biodiesel. InDecember 2021 , theUSDA announced they would administer another infrastructure grant program. The recently enacted Inflation Reduction Act provided for an additional$500 million inUSDA grants for biofuel infrastructure from 2022 to 2031. To respond to COVID-19 health crisis and attempt to offset the subsequent economic damage,Congress passed multiple relief measures, most notably the CARES Act inMarch 2020 , which created and funded multiple programs that have impacted our industry. The CARES Act also allowed for certain net operating loss carrybacks, which has allowed us to receive certain tax refunds. InDecember 2020 ,Congress passed and then the President signed into law an annual spending package coupled with another COVID relief bill which included additional funds for the Secretary of Agriculture to distribute to those impacted by the pandemic. The language of the bill specifically included biofuels producers as eligible for some of this aid, and inMay 2022 , theUSDA distributed funds to us in the amount of$27.7 million pursuant to this bill.
Comparability of our Financial Results
As ofSeptember 30, 2022 , we, together with our subsidiaries, own a 48.8% limited partner interest and a 2.0% general partner interest in the partnership and own all of the partnership's incentive distribution rights, with the remaining 49.2% limited partner interest owned by public common unitholders. We consolidate the financial results of the partnership, and record a noncontrolling interest for the economic interest in the partnership held by the public common unitholders. There are various events that affect comparability of our operating results from 2022 to 2021, including ethanol production rates and the disposition of ourOrd, Nebraska plant inMarch 2021 . During the normal course of business, our operating segments do business with each other. For example, our agribusiness and energy services segment procures grain and natural gas and sells products, including ethanol, distillers grains and corn oil of our ethanol production segment. Our partnership segment provides fuel storage and transportation services for our agribusiness and energy services segment. These intersegment activities are treated like third-party transactions with origination, marketing and storage fees charged at estimated market values. Consequently, these transactions affect segment performance; however, they do not impact our consolidated results since the revenues and corresponding costs are eliminated. Corporate activities include selling, general and administrative expenses, consisting primarily of compensation, professional fees and overhead costs not directly related to a specific operating segment and the loss (gain) on sale of assets. When we evaluate segment performance, we review the following segment information as well as earnings before interest, income taxes, depreciation and amortization, or EBITDA, and adjusted EBITDA. 39
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Segment Results
The selected operating segment financial information are as follows (in
thousands):
Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Revenues:
Ethanol production:
Revenues from external customers $ 811,015 $ 588,349 37.8% $ 2,309,734 $ 1,567,344 47.4%
Intersegment revenues - - * - - *
Total segment revenues 811,015 588,349 37.8 2,309,734 1,567,344 47.4
Agribusiness and energy
services:
Revenues from external customers 142,926 157,412 (9.2) 436,119 454,208 (4.0)
Intersegment revenues 6,836 5,362 27.5 19,914 15,997 24.5
Total segment revenues 149,762 162,774 (8.0) 456,033 470,205 (3.0)
Partnership:
Revenues from external customers 1,036 1,030 0.6 2,953 3,297 (10.4)
Intersegment revenues 19,030 18,221 4.4 55,867 56,061 (0.3)
Total segment revenues 20,066 19,251 4.2 58,820 59,358 (0.9)
Revenues including intersegment
activity 980,843 770,374 27.3 2,824,587 2,096,907 34.7
Intersegment eliminations (25,866) (23,583) 9.7 (75,781) (72,058) 5.2
$ 954,977 $ 746,791 27.9% $ 2,748,806 $ 2,024,849 35.8%
Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Cost of goods sold:
Ethanol production $ 843,843 $ 597,854 41.1% $ 2,310,224 $ 1,507,035 53.3%
Agribusiness and energy
services 139,922 154,427 (9.4) 418,017 440,682 (5.1)
Intersegment eliminations (26,908) (22,102) 21.7 (77,561) (68,897) 12.6
$ 956,857 $ 730,179 31.0% $ 2,650,680 $ 1,878,820 41.1%
Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Gross margin:
Ethanol production $ (32,828) $ (9,505) 245.4% $ (490) $ 60,309 (100.8)%
Agribusiness and energy services 9,840 8,347 17.9 38,016 29,523 28.8
Partnership 20,066 19,251 4.2 58,820 59,358 (0.9)
Intersegment eliminations 1,042 (1,481) 170.4 1,780 (3,161) 156.3
$ (1,880) $ 16,612 (111.3)% $ 98,126 $ 146,029 (32.8)%
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Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Operating income (loss):
Ethanol production (1) $ (64,121) $ (44,192) 45.1% $ (87,773) $ (30,969) 183.4%
Agribusiness and energy services 5,205 3,225 61.4 25,894 15,720 64.7
Partnership 11,993 12,417 (3.4) 35,906 37,204 (3.5)
Intersegment eliminations 1,042 (1,481) 170.4 1,780 (3,161) 156.3
Corporate activities (2) (15,999) (14,644) 9.3 (51,748) (1,089) *
$ (61,880) $ (44,675) 38.5% $ (75,941) $ 17,705 *
(1)Operating loss for ethanol production includes an inventory lower of cost or
net realizable value adjustment of $11.2 million for the three and nine months
ended September 30, 2022 .
(2)Corporate activities for the three and nine months ended September 30, 2021 ,
includes a $1.8 million loss on sale of assets and a $31.2 million gain on sale
of assets, respectively.
Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Depreciation and amortization:
Ethanol production $ 21,555 $ 25,644 (15.9 %) $ 59,101 $ 62,655 (5.7 %)
Agribusiness and energy services 1,280 870 47.1 2,214 2,072 6.9
Partnership 1,194 1,089 9.6 2,915 2,771 5.2
Corporate activities 618 677 (8.7) 1,783 1,995 (10.6)
$ 24,647 $ 28,280 (12.8 %) $ 66,013 $ 69,493 (5.0 %)
* Percentage variance not considered meaningful.
We use EBITDA, adjusted EBITDA, and segment EBITDA as measures of profitability
to compare the financial performance of our reportable segments and manage those
segments. EBITDA is defined as earnings before interest expense, income tax
expense, depreciation and amortization excluding the amortization of
right-of-use assets and debt issuance costs. Adjusted EBITDA includes
adjustments related to gains or losses on sale of assets, other income
associated with the USDA COVID-19 relief grant, and our proportional share of
EBITDA adjustments of our equity method investees. We believe EBITDA, adjusted
EBITDA and segment EBITDA are useful measures to compare our performance against
other companies. These measures should not be considered an alternative to, or
more meaningful than, net income, which is prepared in accordance with GAAP.
EBITDA, adjusted EBITDA, and segment EBITDA calculations may vary from company
to company. Accordingly, our computation of EBITDA, adjusted EBITDA, and segment
EBITDA may not be comparable with a similarly titled measure of other companies.
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The following table reconciles net loss including noncontrolling interest to adjusted EBITDA (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Net loss $ (67,903) $ (54,411) $ (71,055) $ (40,273)
Interest expense (1) 9,576 9,488 26,182 60,225
Income tax expense (benefit) (1,888) 7 (146) (2,914)
Depreciation and amortization (2) 24,647 28,280 66,013 69,493
EBITDA (35,568) (16,636) 20,994 86,531
Other income (3) - - (27,712) -
Loss (gain) on sale of assets, net - 1,823 - (31,245)
Proportional share of EBITDA adjustments
to equity method investees 45 45 135 139
Adjusted EBITDA $ (35,523) $ (14,768) $ (6,583) $ 55,425
(1)Interest expense for three and nine months ended September 30, 2022 , includes
a loss on settlement of convertible notes of $419 thousand , and for the nine
months ended September 30, 2021 , includes a loss upon extinguishment of
convertible notes of $22.1 million and a loss on settlement of convertible notes
of $9.5 million .
(2)Excludes amortization of operating lease right-of-use assets and amortization
of debt issuance costs.
(3)Other income for the nine months ended September 30, 2022 includes a grant
received from the USDA related to the Biofuel Producer Program of $27.7 million .
The following table reconciles segment EBITDA to consolidated adjusted EBITDA
(in thousands):
Three Months Ended Nine Months Ended
September 30, % September 30, %
2022 2021 Variance 2022 2021 Variance
Adjusted EBITDA:
Ethanol production (1) $ (42,471) $ (18,524) 129.3% $ (517) $ 31,739 (101.6)%
Agribusiness and energy services 6,536 3,818 71.2 28,009 17,515 59.9
Partnership 13,270 13,679 (3.0) 39,275 40,492 (3.0)
Intersegment eliminations 1,042 (1,480) 170.4 1,780 (3,160) 156.3
Corporate activities (2) (13,945) (14,129) (1.3) (47,553) (55) *
EBITDA (35,568) (16,636) 113.8 20,994 86,531 (75.7)
Other income (3) - - * (27,712) - *
Loss (gain) on sale of assets, net - 1,823 * - (31,245) *
Proportional share of EBITDA
adjustments to equity method
investees 45 45 - 135 139 (2.9)
$ (35,523) $ (14,768) 140.5% $ (6,583) $ 55,425 (111.9)%
(1)Operating loss for ethanol production includes an inventory lower of cost or
net realizable value adjustment of $11.2 million for the three and nine months
ended September 30, 2022 .
(2)Includes corporate expenses, offset by a loss on sale of assets of $1.8
million and a $31.2 million gain on sale of assets for the three and nine months
ended September 30, 2021 , respectively.
(3)Other income for the nine months ended September 30, 2022 includes a grant
received from the USDA related to the Biofuel Producer Program of $27.7 million .
* Percentage variance not considered meaningful.
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Three Months Ended
Consolidated Results
Consolidated revenues increased$208.2 million for the three months endedSeptember 30, 2022 compared with the same period in 2021 primarily due to higher average prices and higher volumes sold on ethanol, distillers grains, and corn oil. Net loss increased$13.5 million and adjusted EBITDA decreased$20.8 million for the three months endedSeptember 30, 2022 , compared with the same period last year primarily due to lower ethanol crush margins, offset by the$27.7 million USDA COVID-19 relief grant received, which is excluded from adjusted EBITDA, and also higher margins on agribusiness and energy services. Interest expense increased$0.1 million for the three months endedSeptember 30, 2022 , compared with the same period in 2021. Income tax benefit was$1.9 million for the three months endedSeptember 30, 2022 , compared with income tax expense of$7 thousand for the same period in 2021 primarily due to a decrease in the valuation allowance recorded against deferred tax assets included in AOCI for the three months endedSeptember 30, 2022 .
The following discussion provides greater detail about our third quarter segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Three Months Ended
September 30,
2022 2021 % Variance
Ethanol sold
(thousands of gallons) 219,166 181,214 20.9%
Distillers grains sold
(thousands of equivalent dried tons) 586 492 19.1
Corn oil sold
(thousands of pounds) 72,975 55,397 31.7
Corn consumed
(thousands of bushels) 75,308 62,524 20.4%
Revenues in our ethanol production segment increased $222.7 million for the
three months ended September 30, 2022 compared with the same period in 2021,
primarily due to higher ethanol, distillers grains and corn oil volumes sold
resulting in increased revenues of $95.7 million , $16.5 million and $11.2
million , respectively, as well as higher weighted average selling prices on
ethanol and distillers grains resulting in increased revenues of $60.4 million
and $29.5 million , respectively. Revenues also increased as a result of hedging
activities by $5.0 million .
Cost of goods sold in our ethanol production segment increased $246.0 million
for the three months ended September 30, 2022 compared with the same period last
year primarily due to higher corn volumes processed, higher weighted average
corn prices and hedging activities, resulting in increased costs of $87.6
million , $60.6 million and $19.4 million , respectively, with the remainder of
the increase primarily driven by higher utilities, freight and chemical costs.
Operating loss in our ethanol production segment increased $19.9 million for the
three months ended September 30, 2022 compared with the same period in 2021
primarily due to decreased margins as outlined above. Depreciation and
amortization expense for the ethanol production segment was $21.6 million for
the three months ended September 30, 2022 , compared with $25.6 million for the
same period last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment decreased
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revenues was primarily due to a decrease in ethanol and corn oil trading volume. Operating income increased primarily as a result of higher trading margins.
Partnership Segment
Revenues generated by our partnership segment increased$0.8 million for the three months endedSeptember 30, 2022 compared with the same period for 2021. Storage and throughput services revenue was consistent with the prior year. Railcar transportation services revenue increased$0.9 million primarily due to an increase in capacity provided. Terminal services revenue decreased$0.1 million due to slightly lower throughput volumes compared to the prior year. Trucking and other revenue was consistent with the prior year. Operating income decreased$0.4 million for the three months endedSeptember 30, 2022 compared with the same period in 2021.
Intersegment Eliminations
Intersegment eliminations of revenues increased by$2.3 million for the three months endedSeptember 30, 2022 , compared with the same period in 2021 primarily due to increased intersegment marketing and services fees within the agribusiness and energy services segment as a result of higher production volumes as well as increased storage and throughput fees paid to the partnership segment. Corporate Activities
Operating loss was impacted by an increase in corporate activities of
Income Taxes
We recorded income tax benefit of$1.9 million for the three months endedSeptember 30, 2022 , compared with income tax expense of$7 thousand for the same period in 2021. The increase in the amount of tax benefit recorded for the three months endedSeptember 30, 2022 was primarily due to a decrease in the valuation allowance recorded against deferred tax assets included in AOCI.
Nine Months Ended
Consolidated Results
Consolidated revenues increased
Net loss increased$30.8 million and adjusted EBITDA decreased$62.0 million for the nine months endedSeptember 30, 2022 compared with the same period last year primarily due to decreased margins on ethanol production. Interest expense decreased$34.0 million for the nine months endedSeptember 30, 2022 compared with the same period in 2021 primarily due to the loss upon extinguishment of convertible notes of$31.6 million for the nine months endedSeptember 30, 2021 . Income tax benefit was$0.1 million for the nine months endedSeptember 30, 2022 , compared with income tax benefit of$2.9 million for the same period in 2021 primarily due to a decrease in the valuation allowance recorded against increases in deferred tax assets included in AOCI for both the nine months endedSeptember 30, 2022 and the nine months endedSeptember 30, 2021 . 44
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The following discussion provides greater detail about our year-to-date segment performance.
Ethanol Production Segment
Key operating data for our ethanol production segment is as follows:
Nine Months Ended
September 30,
2022 2021 % Variance
Ethanol sold
(thousands of gallons) 646,927 550,127 17.6%
Distillers grains sold
(thousands of equivalent dried tons) 1,695 1,459 16.2
Corn oil sold
(thousands of pounds) 204,502 156,835 30.4
Corn consumed
(thousands of bushels) 223,830 189,544 18.1%
Revenues in our ethanol production segment increased $742.4 million for the nine
months ended September 30, 2022 compared with the same period in 2021, primarily
due to higher average selling prices on ethanol, distillers grains and corn oil
resulting in increased revenues of $278.1 million , $59.1 million and $42.5
million , respectively, and higher ethanol, distillers grains and corn oil
volumes sold resulting in increased revenues of $217.8 million , $45.3 million
and $22.8 million , respectively. Revenues also increased as a result of hedging
activities by $79.5 million .
Cost of goods sold in our ethanol production segment increased $803.2 million
for the nine months ended September 30, 2022 compared with the same period last
year primarily due to higher weighted average corn prices, higher corn volumes
processed and hedging activities, resulting in increased costs of $277.3
million , $206.4 million and $133.7 million , respectively, with the remainder of
the increase primarily driven by higher utilities, freight and chemical costs.
Operating loss increased $56.8 million for the nine months ended September 30,
2022 compared with the same period in 2021 primarily due to decreased margins on
ethanol production as outlined above. Depreciation and amortization expense for
the ethanol production segment was $59.1 million for the nine months ended
September 30, 2022 , compared with $62.7 million for the same period last year.
Agribusiness and Energy Services Segment
Revenues in our agribusiness and energy services segment decreased$14.2 million while operating income increased$10.2 million for the nine months endedSeptember 30, 2022 , compared with the same period in 2021. The decrease in revenues was primarily due to a decrease in ethanol and corn oil trading volume. Operating income increased primarily as a result of higher trading margins.
Partnership Segment
Revenues generated by our partnership segment decreased$0.5 million for the nine months endedSeptember 30, 2022 compared with the same period for 2021. Storage and throughput services revenue decreased$0.7 million due to a reduction in the contracted minimum volume commitment as a result of the sale of theOrd ethanol plant in the first quarter of 2021. Railcar transportation services revenue increased$0.9 million primarily due to an increase in capacity provided and higher fees charged on the volumetric capacity. Terminal services revenue decreased$0.3 million due to lower minimum volume commitment fees earned. Trucking and other revenue decreased$0.4 million primarily as a result of lower non-affiliate freight volume. Operating income decreased$1.3 million for the nine months endedSeptember 30, 2022 , compared with the same period in 2021. Intersegment Eliminations Intersegment eliminations of revenues increased by$3.7 million for the nine months endedSeptember 30, 2022 , compared with the same period in 2021 primarily due to increased intersegment marketing and service fees within the 45
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agribusiness and energy services segment as a result of higher production volumes.
Corporate Activities
Operating loss was impacted by an increase in corporate activities of$50.7 million for the nine months endedSeptember 30, 2022 compared to the same period in 2021, primarily due to the$31.2 million net gain on sale of assets recorded in the same period last year, as well as increased personnel costs, professional fees and memberships, and travel costs during the nine months endedSeptember 30, 2022 .
Income Taxes
We recorded income tax benefit of$0.1 million for the nine months endedSeptember 30, 2022 , compared with income tax benefit of$2.9 million for the same period in 2021 primarily due to a decrease in the valuation allowance recorded against deferred tax assets included in AOCI for both the nine months endedSeptember 30, 2022 and the nine months endedSeptember 30, 2021 .
Liquidity and Capital Resources
Our principal sources of liquidity include cash generated from operating activities and bank credit facilities. We fund our operating expenses and service debt primarily with operating cash flows. Capital resources for maintenance and growth expenditures are funded by a variety of sources, including cash generated from operating activities, borrowings under bank credit facilities, or the issuance of senior notes or equity. Our ability to access capital markets for debt financing under reasonable terms depends on numerous factors, including our past performance, current financial condition, credit risk profile and market conditions generally. We believe that our ability to obtain financing based on these factors remains sufficient and provides a solid foundation to meet our future liquidity and capital resource requirements. OnSeptember 30, 2022 , we had$420.8 million in cash and equivalents, excluding restricted cash. Additionally, we had$66.6 million in restricted cash and$25.0 million in marketable securities atSeptember 30, 2022 . We also had$155.0 million available under our committed revolving credit agreement, subject to restrictions and other lending conditions. Funds at certain subsidiaries are generally required for their ongoing operational needs and restricted from distribution. AtSeptember 30, 2022 , our subsidiaries had approximately$115.4 million of net assets that were not available to use in the form of dividends, loans or advances due to restrictions contained in their credit facilities. Net cash used in operating activities was$34.5 million for the nine months endedSeptember 30, 2022 , compared with net cash used in operating activities of$27.9 million for the same period in 2021. Net cash used in operating activities compared to the prior year were primarily affected by a higher net loss as well as increases in cash used related to derivative financial instruments, offset by decreases in cash used related to accounts receivable and a decrease related to the gain on sale of assets when compared to the same period of the prior year. Net cash used in investing activities was$90.3 million for the nine months endedSeptember 30, 2022 , compared with net cash used in investing activities of$43.5 million for the same period in 2021. Investing activities compared to the prior year were primarily affected by the increased purchases of fixed assets, offset by proceeds from the sale of marketable securities during the first quarter of 2022. Net cash provided by financing activities was$51.2 million for the nine months endedSeptember 30, 2022 , compared with net cash provided by financing activities of$517.4 million for the same period in 2021, primarily due to proceeds from the issuance of common stock and debt offerings and proceeds during the same period in 2021. Additionally,Green Plains Finance Company ,Green Plains Trade ,Green Plains Grain and Green Plains Commodity Management use revolving credit facilities to finance working capital requirements. We frequently draw from and repay these facilities, which results in significant cash movements reflected on a gross basis within financing activities as proceeds from and payments on short-term borrowings. We had capital expenditures of approximately$183.2 million during the nine months endedSeptember 30, 2022 , primarily for Ultra-High Protein expansion projects at various facilities and for various maintenance projects. Capital spending for the remainder of 2022 is expected to be between$70.0 million and$100.0 million for various projects, including the Ultra-High Protein expansion at ourObion ,Central City andMount Vernon locations, which are expected to be financed with cash on hand and by cash provided by operating activities. Our business is highly sensitive to the price of commodities, particularly for corn, ethanol, distillers grains, corn oil and natural gas. We use derivative financial instruments to reduce the market risk associated with fluctuations in commodity prices. Sudden changes in commodity prices may require cash deposits with brokers for margin calls or significant liquidity with little advanced notice to meet margin calls, depending on our open derivative positions. We 46
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continuously monitor our exposure to margin calls and believe we will continue to maintain adequate liquidity to cover margin calls from our operating results and borrowings. For each calendar quarter commencing with the quarter endedSeptember 30, 2015 , the partnership agreement requires the partnership to distribute all available cash, as defined, to its partners, including us, within 45 days after the end of each calendar quarter. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by the general partner, including those for future capital expenditures, future acquisitions and anticipated future debt service requirements, plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter. Our board of directors authorized a share repurchase program of up to$200.0 million of our common stock. Under the program, we may repurchase shares in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers or by other means. The timing and amount of repurchase transactions are determined by our management based on market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. We did not repurchase any shares during the third quarter of 2022. To date, we have repurchased 7,396,936 of common stock for approximately$92.8 million under the program. We believe we have sufficient working capital for our existing operations. A continued sustained period of unprofitable operations, however, may strain our liquidity. We may sell additional assets or equity or borrow capital to improve or preserve our liquidity, expand our business or acquire businesses.
Debt
For additional information related to our debt, see Note 8 - Debt included as part of the notes to consolidated financial statements and Note 12 - Debt included as part of the notes to consolidated financial statements included in our annual report on Form 10-K for the year endedDecember 31, 2021 . We were in compliance with our debt covenants atSeptember 30, 2022 . Based on our forecasts, we believe we will maintain compliance at each of our subsidiaries for the next twelve months or have sufficient liquidity available on a consolidated basis to resolve noncompliance. We cannot provide assurance that actual results will approximate our forecasts or that we will inject the necessary capital into a subsidiary to maintain compliance with its respective covenants. In the event a subsidiary is unable to comply with its debt covenants, the subsidiary's lenders may determine that an event of default has occurred, and following notice, the lenders may terminate the commitment and declare the unpaid balance due and payable. As outlined in Note 8 - Debt, we use LIBOR as a reference rate for ourGreen Plain Partners term loan. The administrator of LIBOR ceased the publication of the one week and two month LIBOR settings immediately following the LIBOR publication onDecember 31, 2021 , and the remaining USD LIBOR settings immediately following the LIBOR publication onJune 30, 2023 . TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rate Committee, a steering committee comprised of largeU.S. financial institutions, is considering replacingU.S. dollar LIBOR with a new reference rate, the SOFR, calculated using short-term repurchase agreements backed byTreasury securities. The potential effect of any such event on interest expense cannot yet be determined.
Corporate Activities
InMarch 2021 , we issued$230.0 million of 2.25% convertible senior notes due in 2027, or the 2.25% notes. The 2.25% notes bear interest at a rate of 2.25% per year, payable onMarch 15 andSeptember 15 of each year, beginningSeptember 15, 2021 . The initial conversion rate is 31.6206 shares of the company's common stock per$1,000 principal amount of 2.25% notes (equivalent to an initial conversion price of approximately$31.62 per share of the company's common stock), representing an approximately 37.5% premium over the offering price of the company's common stock. The conversion rate is subject to adjustment upon the occurrence of certain events, including but not limited to; the event of a stock dividend or stock split; the issuance of additional rights, options and warrants; spinoffs; the event of a cash dividend or distribution; or a tender or exchange offering. In addition, the company may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including the company's calling the 2.25% notes for redemption. We may settle the 2.25% notes in cash, common stock or a combination of cash and common stock. AtSeptember 30, 2022 , the outstanding principal balance on the 2.25% notes was$230.0 million . InJune 2019 , we issued$115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes were senior, unsecured obligations, with interest payable onJanuary 1 andJuly 1 of each year, beginningJanuary 1 , 47
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2020, at a rate of 4.00% per annum. The initial conversion rate was 64.1540 shares of our common stock per$1,000 principal amount of the 4.00% notes, which is equivalent to an initial conversion price of approximately$15.59 per share of our common stock. The final conversion rate was increased to 66.4178 in connection with the company's calling the 4.00% notes for redemption onMay 25, 2022 . InMay 2021 , we entered into a privately negotiated agreement with certain noteholders of the company's 4.00% notes. Under this agreement, 3,568,705 shares of our common stock were exchanged for$51.0 million in aggregate principal amount of the 4.00% notes. Common stock held as treasury shares were exchanged for the 4.00% notes.
On
FromJuly 1, 2022 throughJuly 8, 2022 , the remaining$64.0 million of the 4.00% notes were converted into approximately 4.3 million shares of common stock and were retired effectiveJuly 8, 2022 . InAugust 2016 , we issued$170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which were senior, unsecured obligations with interest payable onMarch 1 andSeptember 1 of each year. The notes were convertible at the Holder's option. The initial conversion rate was 35.7143 shares of common stock per$1,000 of principal which is equal to a conversion price of approximately$28.00 per share.
In
DuringAugust 2022 , the company entered into four privately negotiated exchange agreements with certain noteholders of the 4.125% notes to exchange approximately$32.6 million aggregate principal amount for approximately 1.2 million shares of the company's common stock. Additionally, onSeptember 1, 2022 , approximately$1.7 million aggregate principal amount were settled through a combination of$1.7 million in cash and approximately 15 thousand shares of the company's common stock. Pursuant to the guidance within ASC 470, Debt, the company recorded the exchanges as a conversion and recorded a loss of$419 thousand , which was recorded as a charge to interest expense in the consolidated financial statements during the three months endedSeptember 30, 2022 .
Additionally, on
Agribusiness and Energy Services Segment
Green Plains Finance Company ,Green Plains Grain andGreen Plains Trade have total revolving commitments of$350.0 million and an accordion feature whereby amounts available under the Facility may be increased by up to$100.0 million of new lender commitments subject to certain conditions. Each SOFR rate loan shall bear interest for each day at a rate per annum equal to the Term SOFR rate for the outstanding period plus a Term SOFR adjustment and an applicable margin of 2.25% to 2.50%, which is dependent on undrawn availability under the Facility. Each base rate loan shall bear interest at a rate per annum equal to the base rate plus the applicable margin of 1.25% to 1.50%, which is dependent on undrawn availability under the Facility. The unused portion of the Facility is also subject to a commitment fee of 0.275% to 0.375%, dependent on undrawn availability. AtSeptember 30, 2022 , the outstanding principal balance was$195.0 million on the facility and the interest rate was 6.11%. Green Plains Commodity Management has an uncommitted$40.0 million revolving credit facility which maturesApril 30, 2023 , to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to SOFR plus 1.75%. AtSeptember 30, 2022 , the outstanding principal balance was$11.1 million on the facility and the interest rate was 4.73%.Green Plains Grain has a short-term inventory financing agreement with a financial institution. The company has accounted for the agreement as short-term notes, rather than revenues, and has elected the fair value option to offset fluctuations in market prices of the inventory. The agreement is subject to negotiated variable interest rates. The company had no outstanding short-term notes payable related to the inventory financing agreement as ofSeptember 30, 2022 . 48
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Ethanol Production Segment
OnFebruary 9, 2021 ,Green Plains SPE LLC , a wholly-owned special purpose subsidiary and parent of Green Plains Obion and Green PlainsMount Vernon issued$125.0 million of junior secured mezzanine notes due 2026 with BlackRock for the purchase of all notes issued. AtSeptember 30, 2022 , the outstanding principal balance was$125.0 million on the loan and the interest rate was 11.75%.Green Plains Wood River and Green Plains Shenandoah, wholly-owned subsidiaries of the company, have a$75.0 million delayed draw loan agreement, which matures onSeptember 1, 2035 . AtSeptember 30, 2022 , the outstanding principal balance was$75.0 million on the loan and the interest rate was 5.02%.
We also have small equipment financing loans, finance leases on equipment or facilities, and other forms of debt financing.
Partnership Segment
OnJuly 20, 2021 , the partnership entered into an Amended and Restated Credit Agreement ("Amended Credit Agreement") with funds and accounts managed byBlackRock andTMI Trust Company as administrative agent creating a$60.0 million term loan to fund working capital, capital expenditures and other general partnership purposes. The amended term loan maturesJuly 20, 2026 . The amended term loan does not require any principal payments; however, the partnership has the option to prepay$1.5 million per quarter beginning twelve months after the closing date. Under the terms of the Amended Credit Agreement, BlackRock purchased the outstanding balance of the existing notes from the previous lenders. Interest on the term loan is based on 3-month LIBOR plus 8.00%, with a 0% LIBOR floor and is payable on the 15th day of each March, June, September and December, during the term, with the first interest payment beingSeptember 15, 2021 . OnFebruary 11, 2022 , the amended term loan was modified to allowGreen Plains Partners and its affiliates to repurchase outstanding notes. On the same day, the partnership purchased$1.0 million of the outstanding notes from accounts and funds managed by BlackRock and subsequently retired the notes. As ofSeptember 30, 2022 , the term loan had a balance of$59.0 million and an interest rate of 11.19%.
Contractual Obligations and Commitments
In addition to debt, our material future obligations include certain lease agreements and contractual and purchase commitments related to commodities, storage and transportation. Aggregate minimum lease payments under the operating lease agreements for future fiscal years as ofSeptember 30, 2022 totaled$75.1 million . As ofSeptember 30, 2022 , we had contracted future purchases of grain, natural gas, and distillers grains valued at approximately$366.0 million and future commitments for storage and transportation valued at approximately$27.8 million . Refer to Note 13 - Commitments and Contingencies included in the notes to consolidated financial statements for more information.
Critical Accounting Policies and Estimates
Critical accounting policies, including those relating to impairment of long-lived assets and goodwill, derivative financial instruments, and accounting for income taxes, are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. Information about our critical accounting policies and estimates are included in our annual report on Form 10-K for the year endedDecember 31, 2021 .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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