Green Plains Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 ended December 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 ended December 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 the SEC. Additional risks related to Green 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’s SEC 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 an Iowa corporation founded in June 2004 as a producer of low carbon fuels and has grown to be one of the leading corn processors in the world. We continue the transition from a commodity-processing business to a value-add agricultural technology company focusing on creating diverse, non-cyclical, higher margin products. In addition, we are currently undergoing a number of project initiatives to improve margins. Through our Total Transformation Plan to a value-add agricultural technology company discussed below, we believe we can further increase margin per gallon by producing additional value-added ingredients, such as Ultra-High Protein, while expanding corn oil yields. In December 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, value-added agriculture, food and industrial biotechnology systems and rapidly expand installation and production across Green Plains facilities, as well as 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 own and operate assets throughout the ethanol value chain: upstream, with grain handling and storage; through our ethanol production facilities; and downstream, with marketing and distribution services to mitigate commodity price volatility. Our other businesses leverage our supply chain, production platform and expertise. 36 Table of Contents We formed Green Plains Partners LP, a master limited partnership, to be our primary downstream storage and logistics provider since its assets are the principal method of storing and delivering the ethanol we produce. The partnership completed its initial public offering on July 1, 2015. As of June 30, 2022, we own a 48.9% limited partner interest, a 2.0% general partner interest and all of the partnership’s incentive distribution rights. The public owns the remaining 49.1% 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 in Illinois, Indiana, Iowa, Minnesota, Nebraska and Tennessee. At capacity, our facilities are capable of processing approximately 330 million bushels of corn per year and producing approximately 1.0 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 in North America. • Agribusiness and Energy Services. Our agribusiness and energy services segment includes grain procurement, with approximately 27.0 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, four fuel terminal facilities and approximately 2,530 leased railcars. As part of our transformation to a value-add agricultural technology company, we completed our first MSC™ Ultra-High Protein installation at our Shenandoah biorefinery during the first quarter of 2020. Our Wood River plant began operations in October 2021. Three additional locations are slated to begin operating in the third and fourth quarter of 2022, and installation at certain of our remaining biorefineries is expected over the course of the next several years. Through our value-added ingredients initiative, we expect to produce Ultra-High Protein, a feed ingredient with protein concentrations of 50% or greater, increase production of corn oil as well produce other higher value products, such as post-MSC distillers grains. We have also upgraded our York facility to include USP grade alcohol capabilities. We began pilot scale batch operations at the CST production facility at our York Innovation Center in the second quarter of 2021, which may allow for the production of both food and industrial grade dextrose to target applications in food production, renewable chemicals and synthetic biology. We announced the Shenandoah biorefinery as the first location to deploy FQT CST TM at commercial scale. We also anticipate modifying additional biorefineries to include FQT CST TM production capabilities to meet anticipated future customer demands. In February and April 2021, as part of our carbon reduction strategy, we have committed our Nebraska, Iowa and Minnesota plants to the Summit Carbon Solutions Midwest Carbon Express project to capture and store carbon dioxide produced through the fermentation process. In total, eight of our biorefineries have entered into long-term carbon offtake agreements, which will lower greenhouse gas emissions through the capturing and storing of carbon dioxide at each of the biorefineries, significantly lowering their carbon intensity. 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 May 25, 2022, the company gave notice calling for the redemption of all its outstanding 4.00% Convertible Senior Notes due 2024, totaling an aggregate principal amount of $64.0 million. The conversion rate was 66.4178 shares of 37 Table of Contents common stock per $1,000 of principal. From July 1, 2022 through July 8, 2022, all $64.0 million of the 4.00% convertible notes were converted into approximately 4.3 million shares of common stock. All $64.0 million were retired effective July 8, 2022. Results of Operations During the second quarter of 2022, we experienced a stronger ethanol margin environment. We maintained an average utilization rate of approximately 96.9% of capacity, resulting in ethanol production of 231.4 mmg for the second quarter of 2022, compared with 190.9 mmg, or 79.9% of capacity, for the same quarter last year. The increase in the average utilization rate was primarily due to nearing the completion of our plant modernization and upgrade program during the current quarter. Our operating strategy is to transform our company to a value-add agricultural technology company. However, in the current environment, we may continue to exercise operational discretion that results in reductions in production. Additionally, we may operate at less than our capacity resulting in lower production rates due to various construction projects. It is possible that production could be below minimum volume commitments in the future, depending on various factors that drive each biorefineries variable contribution margin, including future driving and gasoline demand for the industry. We are currently producing Ultra-High Protein at two locations and have also deployed FQT MSC TM Ultra-High Protein process technology at three additional locations, which we expect to be operational in the third and fourth quarter of 2022. We are striving to deploy the MSC™ protein technology across our platform to take advantage of the world’s growing demand for protein feed ingredients and low-carbon renewable corn oil. U.S. Ethanol Supply and Demand According to the EIA, domestic ethanol production averaged 1.01 million barrels per day during the second quarter of 2022, which was 1.1% higher than the 1.0 million barrels per day for the same quarter last year. Refiner and blender input volume was steady 898 thousand barrels per day for the second quarter of 2022, compared with 903 thousand barrels per day for the same quarter last year. Gasoline demand decreased 0.2 million barrels per day, or 2.3% during the second quarter of 2022 compared to the prior year. U.S. domestic ethanol ending stocks increased by approximately 1.2 million barrels compared to the prior year, or 5.4%, to 22.7 million barrels as of June 30, 2022. As of this filing, according to Prime the Pump, there were approximately 2,690 retail stations selling E15 in 31 states, up from 2,555 at the beginning of the year, and approximately 390 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 through May 31, 2022, were approximately 726 mmg, up from the 582 mmg for the same period of 2021. Canada was the largest export destination for U.S. ethanol accounting for 25% of domestic ethanol export volume. India, Brazil, and the Netherlands accounted for 11%, 8%, and 7%, respectively, of U.S. ethanol exports. We currently estimate that net ethanol exports will range from 1.4 to 1.6 billion gallons in 2022, based on historical demand from a variety of countries and certain countries that seek to improve their air quality, reduce GHG emissions through low carbon fuel programs and eliminate MTBE from their own fuel supplies. 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 the House 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 current Congress. In addition, the manner in which the EPA administers the RFS and related regulations can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply. Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol demand in the U.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 in U.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. 38 Table of Contents The Inflation Reduction Act of 2022, which was introduced on July 27, 2022, is a broad budget reconciliation bill that has many potential impacts on our business which we are still evaluating. As proposed, the legislation would (a) create a new Clean Fuel Production Credit which could impact our fuel ethanol, depending on the level of GHG reduction for each gallon; (b) create a new tax credit for sustainable aviation fuel, 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; (c) expand the carbon capture and sequestration credit, section 45Q, to $85 for each ton of carbon sequestered, which could impact our carbon partnership; (d) extend 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) fund biofuel refueling infrastructure, which could impact the availability of higher level ethanol blended fuel; and (f) provide for the production and purchase credits for electric vehicles could impact the amount of internal combustion engines on the road longer term, and by extension impact the demand for liquid fuels including ethanol. The RFS sets a floor for biofuels use in the 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 the EPA to address existing limitations in both supply and demand. As of this filing, the EPA 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. According to the RFS, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA 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, the EPA 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, the EPA announced it would not be moving forward with a reset rulemaking in 2020. The current EPA has indicated they will not propose a reset rulemaking, though they have stated an intention to propose a post-2022 "set" rulemaking by November 16, 2022, and finalize by June 14, 2023, in compliance with a consent decree from the U.S. District Court for D.C. Under the RFS, RINs and SREs are important tools impacting supply and demand. The EPA 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 domestic transportation fuel sales. 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 the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The EPA, through consultation with the DOE and the USDA can grant a full or partial waiver, or deny it outright within 90 days of submittal. The EPA 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, the EPA 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, the EPA approved three additional SREs, reversing one denial from 2018 and granting two from 2019. A total of 88 SREs were granted under the Trump Administration, erasing a total of 4.3 billion gallons of potential blending demand. The EPA, 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, they denied all pending SREs. There are multiple legal challenges to how the EPA has handled SREs and RFS rulemakings. The One-Pound Waiver, which was extended in May 2019 to allow E15 to be sold year-round to all vehicles model year 2001 and newer, was challenged in an action filed in Federal District Court for the D.C. Circuit. On July 2, 2021, the Circuit Court vacated the EPA’s rule so the future of summertime, defined as June 1 to September 15, sales of E15 is uncertain. The Supreme Court declined to hear a challenge to this ruling. On April 12, 2022, the President announced that he has directed the EPA 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 2,690 stations in 31 states. 39 Table of Contents In October 2019, the White House directed the USDA and EPA 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. The USDA 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. In December 2021, the USDA announced they would administer another infrastructure grant program. Congress is considering legislation that would provide for an additional $500 million in USDA 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 in March 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. In December 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 in June of 2021, USDA announced a $700.0 million Biofuel Producer Program to distribute these funds to impacted producers of ethanol, biodiesel and other renewable fuels, and they provided the specifics for the application process in December of 2021. Applications were due in February 2022, and the USDA distributed funds to us in the amount of $27.7 million in May 2022. Comparability of our Financial Results As of June 30, 2022, we, together with our subsidiaries, own a 48.9% 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 49.1% 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 our Ord, Nebraska plant in March 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. 40 Table of Contents Segment Results The selected operating segment financial information are as follows (in thousands): Three Months Ended June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Revenues: Ethanol production: Revenues from external customers $ 861,166 $ 555,273 55.1% $ 1,498,719 $ 978,995 53.1% Intersegment revenues — — * — — * Total segment revenues 861,166 555,273 55.1 1,498,719 978,995 53.1 Agribusiness and energy services: Revenues from external customers 150,316 167,975 (10.5) 293,193 296,796 (1.2) Intersegment revenues 7,243 5,512 31.4 13,078 10,635 23.0 Total segment revenues 157,559 173,487 (9.2) 306,271 307,431 (0.4) Partnership: Revenues from external customers 912 1,170 (22.1) 1,917 2,267 (15.4) Intersegment revenues 18,742 18,531 1.1 36,837 37,840 (2.7) Total segment revenues 19,654 19,701 (0.2) 38,754 40,107 (3.4) Revenues including intersegment activity 1,038,379 748,461 38.7 1,843,744 1,326,533 39.0 Intersegment eliminations (25,985) (24,043) 8.1 (49,915) (48,475) 3.0 $ 1,012,394 $ 724,418 39.8% $ 1,793,829 $ 1,278,058 40.4% Three Months Ended June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Cost of goods sold: Ethanol production $ 804,821 $ 493,656 63.0% $ 1,466,381 $ 909,181 61.3% Agribusiness and energy services 143,656 170,181 (15.6) 278,095 286,255 (2.9) Intersegment eliminations (27,163) (24,429) 11.2 (50,653) (46,795) 8.2 $ 921,314 $ 639,408 44.1% $ 1,693,823 $ 1,148,641 47.5% Three Months Ended June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Gross margin: Ethanol production $ 56,345 $ 61,617 (8.6)% $ 32,338 $ 69,814 (53.7)% Agribusiness and energy services 13,903 3,306 320.5 28,176 21,176 33.1 Partnership 19,654 19,701 (0.2) 38,754 40,107 (3.4) Intersegment eliminations 1,178 386 205.2 738 (1,680) (143.9) $ 91,080 $ 85,010 7.1% $ 100,006 $ 129,417 (22.7)% 41 Table of Contents Three Months Ended June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Operating income (loss): Ethanol production $ 27,506 $ 33,543 (18.0)% $ (23,652) $ 13,223 (278.9)% Agribusiness and energy services 10,281 (851) * 20,689 12,495 65.6 Partnership 12,104 11,916 1.6 23,913 24,787 (3.5) Intersegment eliminations 1,178 386 205.2 738 (1,680) (143.9) Corporate activities (1) (17,228) (13,961) 23.4 (35,749) 13,555 (363.7) $ 33,841 $ 31,033 9.0% $ (14,061) $ 62,380 (122.5)% (1) Corporate activities for the three and six months ended June 30, 2021, includes a $3.8 million loss on sale of assets and a $33.1 million gain on sale of assets, respectively. Three Months Ended June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Depreciation and amortization: Ethanol production $ 19,114 $ 18,483 3.4 % $ 37,546 $ 37,011 1.4 % Agribusiness and energy services 470 595 (21.0) 934 1,202 (22.3) Partnership 823 795 3.5 1,721 1,682 2.3 Corporate activities 560 659 (15.0) 1,165 1,318 (11.6) $ 20,967 $ 20,532 2.1 % $ 41,366 $ 41,213 0.4 % * 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. The following table reconciles net income (loss) including noncontrolling interest to adjusted EBITDA (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income (loss) $ 52,720 $ 16,117 $ (3,152) $ 14,138 Interest expense (1) 7,800 19,058 16,606 50,737 Income tax expense (benefit) 2,895 (4,783) 1,742 (2,921) Depreciation and amortization (2) 20,967 20,532 41,366 41,213 EBITDA 84,382 50,924 56,562 103,167 Other income (3) (27,712) — (27,712) — Loss (gain) on sale of assets, net — 3,825 — (33,068) Proportional share of EBITDA adjustments to equity method investees 45 50 90 94 Adjusted EBITDA $ 56,715 $ 54,799 $ 28,940 $ 70,193 42 Table of Contents (1) Interest expense for the three and six months ended June 30, 2021, includes losses on settlement of convertible notes of $9.5 million and $31.6 million, respectively. (2) Excludes amortization of operating lease right-of-use assets and amortization of debt issuance costs. (3) Other income for the three and six months ended June 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 June 30, % Variance Six Months Ended June 30, % Variance 2022 2021 2022 2021 Adjusted EBITDA: Ethanol production $ 74,680 $ 52,052 43.5% $ 41,954 $ 50,263 (16.5)% Agribusiness and energy services 10,750 (254) * 21,473 13,697 56.8 Partnership 13,123 12,880 1.9 26,005 26,813 (3.0) Intersegment eliminations 1,657 386 329.3 738 (1,680) (143.9) Corporate activities (1) (15,828) (14,140) 11.9 (33,608) 14,074 (338.8) EBITDA 84,382 50,924 65.7 56,562 103,167 (45.2) Other income (2) (27,712) — * (27,712) — * Loss (gain) on sale of assets, net — 3,825 * — (33,068) * Proportional share of EBITDA adjustments to equity method investees 45 50 (10.0) 90 94 (4.3) $ 56,715 $ 54,799 3.5% $ 28,940 $ 70,193 (58.8)% (1) Includes corporate expenses, offset by a loss on sale of assets of $3.8 million and a $33.1 million gain on sale of assets for the three and six months ended June 30, 2021, respectively. (2) Other income for the three and six months ended June 30, 2022 includes a grant received from the USDA related to the Biofuel Producer Program of $27.7 million. * Percentage variance not considered meaningful. Three Months Ended June 30, 2022 Compared with the Three Months Ended June 30, 2021 Consolidated Results Consolidated revenues increased $288.0 million for the three months ended June 30, 2022 compared with the same period in 2021 primarily due to higher prices and higher volumes sold on ethanol, distillers grains, and corn oil. Net income increased $36.6 million and adjusted EBITDA increased $1.9 million for the three months ended June 30, 2022, compared with the same period last year primarily due to 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 offset by slightly lower ethanol crush margins. Interest expense decreased $11.3 million for the three months ended June 30, 2022, compared with the same period in 2021 primarily due to a loss on settlement of convertible notes of $9.5 million for the three months ended June 30, 2021. Income tax expense was $2.9 million for the three months ended June 30, 2022, compared with income tax benefit of $4.8 million for the same period in 2021 primarily due to an increase of a valuation allowance against deferred tax assets included in AOCI for the three months ended June 30, 2022, compared to a decrease of the valuation allowance recorded against deferred tax assets included in AOCI during the three months ended June 30, 2021. The following discussion provides greater detail about our second quarter segment performance. 43 Table of Contents Ethanol Production Segment Key operating data for our ethanol production segment is as follows: Three Months Ended June 30, 2022 2021 % Variance Ethanol sold (thousands of gallons) 231,413 190,913 21.2% Distillers grains sold (thousands of equivalent dried tons) 593 494 20.0 Corn oil sold (thousands of pounds) 72,232 54,875 31.6 Corn consumed (thousands of bushels) 80,218 65,424 22.6% Revenues in our ethanol production segment increased $305.9 million for the three months ended June 30, 2022, compared with the same period in 2021, primarily due to higher prices and higher volumes sold of ethanol, distillers grains and corn oil. Cost of goods sold for our ethanol production segment increased $311.2 million for the three months ended June 30, 2022, compared with the same period last year primarily due to higher volumes sold and corn costs. Operating income decreased $6.0 million for the three months ended June 30, 2022, compared with the same period in 2021 primarily due to decreased margins on ethanol production. Depreciation and amortization expense for the ethanol production segment was $19.1 million for the three months ended June 30, 2022, compared with $18.5 million for the same period last year. Agribusiness and Energy Services Segment Revenues in our agribusiness and energy services segment decreased $15.9 million while operating income increased $11.1 million and EBITDA increased $11.0 million for the three months ended June 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 and EBITDA increased primarily as a result of higher trading margins. Partnership Segment Revenues generated by our partnership segment decreased $47 thousand for the three months ended June 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 $0.3 million primarily due to an increase in average volumetric capacity provided. Terminal services revenue decreased $0.2 million due to lower minimum volume commitments. Trucking and other revenue decreased $0.2 million primarily as a result of lower non-affiliate freight volume. Operating income and EBITDA both increased $0.2 million for the three months ended June 30, 2022 compared with the same period in 2021. Intersegment Eliminations Intersegment eliminations of revenues increased by $1.9 million for the three months ended June 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. Corporate Activities Operating income was impacted by an increase in corporate activities of $3.3 million for the three months ended June 30, 2022, compared to the same period in 2021, primarily due to increased personnel costs and professional fees during the three months ended June 30, 2022. 44 Table of Contents Income Taxes We recorded income tax expense of $2.9 million for the three months ended June 30, 2022, compared with income tax benefit of $4.8 million for the same period in 2021. The increase in the amount of tax expense recorded for the three months ended June 30, 2022 was primarily due to an increase in the valuation allowance recorded against deferred tax assets included in AOCI, compared to a decrease of the valuation allowance recorded against deferred tax assets included in AOCI during the three months ended June 30, 2021. Six Months Ended June 30, 2022 Compared with the Six Months Ended June 30, 2021 Consolidated Results Consolidated revenues increased $515.8 million for the six months ended June 30, 2022, compared with the same period in 2021 primarily due to higher prices and higher sales volumes on ethanol, distillers grains and corn oil. Net loss increased $17.3 million and adjusted EBITDA decreased $41.3 million for the six months ended June 30, 2022, compared with the same period last year primarily due to decreased margins on ethanol production. Interest expense decreased $34.1 million for the six months ended June 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 six months ended June 30, 2021. Income tax expense was $1.7 million for the six months ended June 30, 2022, compared with income tax benefit of $2.9 million for the same period in 2021 primarily due to the increase of a valuation allowance recorded against increases in deferred tax assets included in AOCI for the six months ended June 30, 2022, compared to a decrease of the valuation allowance recorded against decreases in deferred tax assets included in AOCI during the six months ended June 30, 2021. 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: Six Months Ended June 30, 2022 2021 % Variance Ethanol sold (thousands of gallons) 427,761 368,913 16.0% Distillers grains sold (thousands of equivalent dried tons) 1,109 967 14.7 Corn oil sold (thousands of pounds) 131,527 101,438 29.7 Corn consumed (thousands of bushels) 148,522 127,020 16.9% Revenues in our ethanol production segment increased $519.7 million for the six months ended June 30, 2022, compared with the same period in 2021, primarily due to higher prices and higher volumes sold of ethanol, distillers grains and corn oil. Cost of goods sold for our ethanol production segment increased $557.2 million for the six months ended June 30, 2022, compared with the same period last year primarily due to higher corn prices and volumes sold. Operating loss increased $36.9 million and EBITDA decreased $8.3 million for the six months ended June 30, 2022 compared with the same period in 2021 primarily due to decreased margins on ethanol production. Depreciation and amortization expense for the ethanol production segment was $37.5 million for the six months ended June 30, 2022, compared with $37.0 million for the same period last year. Agribusiness and Energy Services Segment Revenues in our agribusiness and energy services segment decreased $1.2 million while operating income increased 45 Table of Contents $8.2 million and EBITDA increased $7.8 million for the six months ended June 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 and EBITDA increased primarily as a result of higher trading margins. Partnership Segment Revenues generated by our partnership segment decreased $1.4 million for the six months ended June 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 the Ord ethanol plant in the first quarter of 2021. Railcar transportation services revenue decreased $0.1 million primarily due to slightly lower capacity fees. Terminal services revenue decreased $0.1 million due to lower minimum volume commitments. Trucking and other revenue decreased $0.5 million primarily as a result of lower non-affiliate freight volume. Operating income decreased $0.9 million and EBITDA decreased $0.8 million for the six months ended June 30, 2022, compared with the same period in 2021. Intersegment Eliminations Intersegment eliminations of revenues increased by $1.4 million for the six months ended June 30, 2022, compared with the same period in 2021 primarily due to increased intersegment marketing and service fees within the agribusiness and energy services segment as a result of higher production volumes. Corporate Activities Operating income was impacted by an increase in corporate activities of $49.3 million for the six months ended June 30, 2022, compared to the same period in 2021, primarily due to the $33.1 million gain on sale of assets recorded in the same period last year and the $3.8 million loss on sale of assets in 2021, as well as increased personnel costs and professional fees during the six months ended June 30, 2022. Income Taxes We recorded income tax expense of $1.7 million for the six months ended June 30, 2022, compared with income tax benefit of $2.9 million for the same period in 2021 primarily due to the increase of a valuation allowance recorded against increases in deferred tax assets included in AOCI for the six months ended June 30, 2022, compared to a decrease of the valuation allowance recorded against decreases in deferred tax assets included in AOCI during the six months ended June 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. On June 30, 2022, we had $508.2 million in cash and equivalents, excluding restricted cash. Additionally, we had $71.1 million in restricted cash and $25.0 million in marketable securities at June 30, 2022. We also had $70.0 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. At June 30, 2022, our subsidiaries had approximately $109.6 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 $106.6 million for the six months ended June 30, 2022, compared with net cash used in operating activities of $30.2 million for the same period in 2021. Operating activities compared to the prior year were primarily affected by a higher net loss as well as increases in inventory of approximately $31.3 million primarily due to higher trade and ethanol inventory as a result of higher production volumes when compared to the same period of the prior year. Net cash used by investing activities was $35.3 million for the six months ended June 30, 2022, compared with net cash provided by investing activities of $9.9 million for the same period in 2021. Investing activities compared to the prior year were primarily affected by the purchases of fixed assets offset by proceeds from the sale of marketable 46 Table of Contents securities during the first quarter of 2022. Net cash provided by financing activities was $160.3 million for the six months ended June 30, 2022, compared with net cash provided by financing activities of $360.8 million for the same period in 2021, primarily due to proceeds from the issuance of common stock and debt offerings 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 paid capital expenditures of approximately $128.3 million during the six months ended June 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 $120.0 million and $170.0 million for various projects, including the Ultra High-Protein expansion at our Obion, Central City and Mount 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 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 ended September 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 second quarter of 2022. To date, we have repurchased 7,396,936 of common stock for approximately $92.8 million under the program. On May 25, 2022, the Company gave notice calling for the redemption of all its outstanding 4.00% convertible notes, totaling an aggregate principal amount of $64.0 million. The conversion rate was 66.4178 shares of common stock per $1,000 of principal. From July 1, 2022 through July 8, 2022, the remaining $64.0 million of the 4.00% convertible notes were converted into shares of common stock and were retired effective July 8, 2022. 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. We cannot provide assurance that we will be able to secure funding necessary for additional working capital or these projects at reasonable terms, if at all. 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 ended December 31, 2021. We were in compliance with our debt covenants at June 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. 47 Table of Contents As outlined in Note 8 - Debt , we use LIBOR as a reference rate for our Green Plain Partners term loan and our inventory financing agreement with Macquarie. The administrator of LIBOR ceased the publication of the one week and two month LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rate Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new reference rate, the SOFR, calculated using short-term repurchase agreements backed by Treasury securities. The potential effect of any such event on interest expense cannot yet be determined. Corporate Activities In March 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 on March 15 and September 15 of each year, beginning September 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. At June 30, 2022, the outstanding principal balance on the 2.25% notes was $230.0 million. In June 2019, we issued $115.0 million of 4.00% convertible senior notes due in 2024, or the 4.00% notes. The 4.00% notes are senior, unsecured obligations, with interest payable on January 1 and July 1 of each year, beginning January 1, 2020, at a rate of 4.00% per annum. The initial conversion rate will be 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 conversion rate will be 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, we may be obligated to increase the conversion rate for any conversion that occurs in connection with certain corporate events, including our calling the 4.00% notes for redemption. We may settle the 4.00% notes in cash, common stock or a combination of cash and common stock. In May 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. At March 31, 2022, the outstanding principal balance on the 4.00% notes was $64.0 million. On May 25, 2022, we gave notice calling for the redemption of all our outstanding 4.00% convertible notes, totaling an aggregate principal amount of $64.0 million. The conversion rate was 66.4178 shares of common stock per $1,000 of principal. From July 1, 2022 through July 8, 2022, the remaining $64.0 million of the 4.00% convertible notes were converted into approximately 4.3 million shares of common stock and were retired effective July 8, 2022. In August 2016, we issued $170.0 million of 4.125% convertible senior notes due in 2022, or 4.125% notes, which are senior, unsecured obligations with interest payable on March 1 and September 1 of each year. The notes are convertible at the Holder’s option. The initial conversion rate is 35.7143 shares of common stock per $1,000 of principal which is equal to a conversion price of approximately $28.00 per share. The conversion rate will be 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 March 2021, concurrent with the issuance of the 2.25% notes, we used approximately $156.5 million of the net proceeds of the 2.25% notes to repurchase approximately $135.7 million aggregate principal amount of its 4.125% notes due 2022, in privately negotiated transactions. At June 30, 2022, the outstanding principal balance on the 4.125% notes was $34.3 million. We anticipate we will settle the 4.125% notes in a combination of cash and common stock. 48 Table of Contents Agribusiness and Energy Services Segment Green Plains Financing Company has 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. At June 30, 2022, the outstanding principal balance was $280.0 million on the facility and the interest rate was 4.69%. Green Plains Grain has entered into a $50.0 million 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. This agreement is subject to negotiated variable interest rates, which equaled 4.66% as of June 30, 2022. The company had $17.5 million short-term notes payable related to the inventory financing agreement as of June 30, 2022. Green Plains Commodity Management has an uncommitted $40.0 million revolving credit facility which matures April 30, 2023, to finance margins related to its hedging programs. Advances are subject to variable interest rates equal to SOFR plus 1.75%. At June 30, 2022, the outstanding principal balance was $10.9 million on the facility and the interest rate was 3.25%. Ethanol Production Segment On February 9, 2021, Green Plains SPE LLC, a wholly-owned special purpose subsidiary and parent of Green Plains Obion and Green Plains Mount Vernon issued $125.0 million of junior secured mezzanine notes due 2026 with BlackRock for the purchase of all notes issued. At June 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 on September 1, 2035. At June 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 On July 20, 2021, the partnership entered into an Amended and Restated Credit Agreement (“Amended Credit Agreement”) with funds and accounts managed by BlackRock and TMI 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 matures July 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 15 th day of each March, June, September and December, during the term, with the first interest payment being September 15, 2021. On February 11, 2022, the amended term loan was modified to allow Green 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 of June 30, 2022, the term loan had a balance of $59.0 million and an interest rate of 9.83%. 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 of June 30, 2022 totaled $78.7 million. As of June 30, 2022, we had contracted future purchases of grain, natural gas, and distillers grains valued at approximately $511.9 million and future commitments 49 Table of Contents for storage and transportation valued at approximatel y $25.6 million. Refer to Note 13 – Commitments and Contingencies included in the notes to consolidated financial statements for more information. Critical Accounting Policies and Estimates Key accounting policies, including those relating to revenue recognition, 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 ended December 31, 2021. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements.