Highwater Ethanol's Net Income Plunges 70% Amid Revenue Dip

TL;DR

**Highwater Ethanol's financials are tanking, with net income down 70% and cash halved – steer clear until they stabilize commodity risks.**

AI Summary

HIGHWATER ETHANOL LLC reported a significant decline in net income for the nine months ended July 31, 2025, falling to $1,206,798 from $4,025,810 in the prior year, a decrease of 70%. Total revenues also decreased by 3.78% to $103,167,737 from $107,224,645. This revenue decline was primarily driven by a 25.27% drop in Dried Distillers Grains Sales and a 15.49% decrease in Modified Distillers Grains Sales. Cash and cash equivalents plummeted by 59.08% from $33,830,684 at October 31, 2024, to $13,847,609 at July 31, 2025. The company also saw a substantial reduction in total current liabilities, from $18,414,896 to $8,409,259, largely due to a $9.9 million decrease in accounts payable. Operating income for the nine-month period decreased by 83% to $495,402 from $2,914,942, reflecting challenges in managing commodity price volatility for inputs like corn and natural gas, and outputs like ethanol and distillers grains.

Why It Matters

This significant drop in net income and cash reserves signals potential operational challenges for Highwater Ethanol, impacting its ability to fund future growth or distribute profits to members. The competitive ethanol market, coupled with volatile commodity prices for corn, natural gas, and ethanol, directly affects profitability and investor returns. Employees might face pressure if cost-cutting measures become necessary, while customers could see price adjustments. The broader market for biofuels will watch how smaller players like Highwater navigate these pressures, potentially indicating consolidation trends or shifts in production strategies.

Risk Assessment

Risk Level: high — The company's net income for the nine months ended July 31, 2025, decreased by 70% to $1,206,798 from $4,025,810. Cash and cash equivalents also saw a drastic 59.08% reduction, from $33,830,684 to $13,847,609, indicating significant liquidity strain. Furthermore, the company explicitly states it is "subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs."

Analyst Insight

Investors should exercise extreme caution and consider divesting or avoiding new positions in HIGHWATER ETHANOL LLC. The substantial decline in profitability and cash reserves, coupled with inherent commodity price volatility, suggests a challenging outlook. Monitor future filings for signs of improved operational efficiency or stabilization in commodity markets before reconsidering an investment.

Financial Highlights

revenue

$103,167,737

operating Margin

0.48%

total Assets

$71,694,199

total Debt

$616,245

net Income

$1,206,798

eps

$253.96

gross Margin

3.85%

cash Position

$13,847,609

revenue Growth

-3.78%

Revenue Breakdown

Key Numbers

• $1.2M — Net Income (Down 70% for nine months ended July 31, 2025, from $4.0M)
• $13.8M — Cash and Cash Equivalents (Decreased 59% from $33.8M at October 31, 2024)
• $103.2M — Total Revenues (Decreased 3.78% for nine months ended July 31, 2025, from $107.2M)
• $495K — Operating Income (Decreased 83% for nine months ended July 31, 2025, from $2.9M)
• 70% — Net Income Decrease (Percentage drop for nine months ended July 31, 2025)
• 59.08% — Cash Decrease (Percentage drop in cash and cash equivalents from October 31, 2024 to July 31, 2025)
• $9.9M — Accounts Payable Decrease (Reduction in accounts payable from October 31, 2024 to July 31, 2025)
• 4,752 — Membership Units Outstanding (As of September 12, 2025)
• $1,700 — Distributions Declared Per Unit (For nine months ended July 31, 2025, down from $3,400 in prior year)
• $253.96 — Net Income Per Unit (For nine months ended July 31, 2025, down from $846.83 in prior year)

Key Players & Entities

• HIGHWATER ETHANOL LLC (company) — registrant
• Minnesota Pollution Control Agency (regulator) — approved air permit
• Renewable Products Marketing Group, LLC (company) — 5% investment interest
• Lawrenceville Tank, LLC (company) — 7% ownership interest
• Minnesota State Legislature (regulator) — established Bioincentive Program
• $1,206,798 (dollar_amount) — Net Income for nine months ended July 31, 2025
• $4,025,810 (dollar_amount) — Net Income for nine months ended July 31, 2024
• $13,847,609 (dollar_amount) — Cash and cash equivalents at July 31, 2025
• $33,830,684 (dollar_amount) — Cash and cash equivalents at October 31, 2024
• $103,167,737 (dollar_amount) — Total Revenues for nine months ended July 31, 2025

FAQ

Risk Factors

• Commodity Price Volatility [high — market]: The company is exposed to significant price fluctuations for key inputs like corn and natural gas, as well as outputs such as ethanol and distillers grains. This volatility directly impacts cost of goods sold and revenue, as evidenced by the 83% decrease in operating income for the nine months ended July 31, 2025.
• Declining Cash Position [high — financial]: Cash and cash equivalents decreased by 59.08% from $33,830,684 to $13,847,609 between October 31, 2024, and July 31, 2025. This substantial reduction raises concerns about liquidity and the company's ability to meet short-term obligations.
• Reduced Profitability [high — financial]: Net income for the nine months ended July 31, 2025, fell by 70% to $1,206,798 from $4,025,810 in the prior year. Operating income saw an even steeper decline of 83%, indicating significant challenges in operational efficiency and profitability.
• Decreased Sales Volume [medium — operational]: Total revenues decreased by 3.78% to $103,167,737, primarily due to a 25.27% drop in Dried Distillers Grains Sales and a 15.49% decrease in Modified Distillers Grains Sales. This suggests potential issues with demand or pricing power for key products.
• Reduced Distributions to Members [medium — financial]: Distributions declared per unit decreased from $3,400 for the nine months ended July 31, 2024, to $1,700 for the same period in 2025. This reflects the company's reduced profitability and cash generation.

Industry Context

The ethanol industry is highly sensitive to commodity prices, including corn (a primary feedstock) and natural gas (an energy source). Fluctuations in these input costs, coupled with volatile ethanol and co-product (like distillers grains) prices, create significant margin pressure. The market is also influenced by government policies, such as biofuel mandates, and global energy demand.

Regulatory Implications

While specific regulatory risks are not detailed in this section, companies in the ethanol sector are subject to environmental regulations concerning emissions and waste disposal. Compliance with biofuel mandates (e.g., Renewable Fuel Standard in the US) is crucial for market access and demand. Changes in these policies can significantly impact the industry's economics.

What Investors Should Do

1. Monitor commodity price trends
2. Analyze cash flow generation
3. Assess operational efficiency improvements
4. Evaluate co-product market demand

Key Dates

• 2025-07-31: Nine months ended — Reporting period for significant declines in net income, operating income, and revenue, alongside a sharp decrease in cash and cash equivalents.
• 2024-10-31: Fiscal year end — Prior period balance sheet date, showing higher cash and cash equivalents ($33,830,684) and accounts payable ($17,161,828) compared to July 31, 2025.

Glossary

Dried Distillers Grains (DDG)

A co-product of the ethanol production process, often used as animal feed. (A significant revenue stream for Highwater Ethanol, with sales declining 25.27%.)

Modified Distillers Grains (MDG)

Another co-product of ethanol production, typically with higher protein content than DDG. (Another key revenue source, experiencing a 15.49% sales decrease.)

Derivative instruments

Financial contracts whose value is derived from an underlying asset, index, or security. Often used for hedging price risk. (The company held $347,771 in derivative instruments as of July 31, 2025, down from $725,159, indicating potential changes in hedging strategies or market conditions.)

Members' Equity

The residual interest in the assets of the company after deducting liabilities. For Highwater Ethanol, this is represented by membership units. (Decreased from $69,646,378 to $62,753,926, reflecting the reduced profitability and distributions.)

Operating Income

Profitability from a company's core business operations before interest and taxes. (A sharp decline of 83% to $495,402 indicates significant operational challenges.)

Year-Over-Year Comparison

Compared to the prior year's nine-month period, Highwater Ethanol has experienced a significant downturn. Total revenues decreased by 3.78% to $103.2 million, driven by substantial drops in distillers grains sales. Profitability has been severely impacted, with net income plummeting 70% to $1.2 million and operating income falling 83% to $495,402. This decline is attributed to commodity price volatility. Correspondingly, cash and cash equivalents have decreased by 59% to $13.8 million, and distributions declared per unit were halved. Total current liabilities were significantly reduced, largely due to a $9.9 million decrease in accounts payable, indicating improved short-term liquidity management despite the overall financial strain.

Key Financial Figures

• $0.16 — ucers of cellulosic ethanol may receive $0.16 per gallon of cellulosic ethanol produc

Filing Documents

• highwater-20250731.htm (10-Q) — 655KB
• a311-certification7x31x2025.htm (EX-31.1) — 10KB
• a312-certification7x31x2025.htm (EX-31.2) — 10KB
• a321-certification7x31x2025.htm (EX-32.1) — 4KB
• a322-certification7x31x2025.htm (EX-32.2) — 5KB
• 0001371451-25-000017.txt ( ) — 3938KB
• highwater-20250731.xsd (EX-101.SCH) — 25KB
• highwater-20250731_cal.xml (EX-101.CAL) — 49KB
• highwater-20250731_def.xml (EX-101.DEF) — 93KB
• highwater-20250731_lab.xml (EX-101.LAB) — 393KB
• highwater-20250731_pre.xml (EX-101.PRE) — 254KB
• highwater-20250731_htm.xml (XML) — 487KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION 3

Financial Statements

Item 1. Financial Statements 3

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 26

Controls and Procedures

Item 4. Controls and Procedures 27

OTHER INFORMATION

PART II. OTHER INFORMATION 27

Legal Proceedings

Item 1. Legal Proceedings 27

Risk Factors

Item 1A. Risk Factors 27

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28

Defaults Upon Senior Securities

Item 3. Defaults Upon Senior Securities 28

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 28

Other Information

Item 5. Other Information 28

Exhibits

Item 6. Exhibits 28

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements HIGHWATER ETHANOL, LLC Condensed Balance Sheets ASSETS July 31, 2025 October 31, 2024 (Unaudited) Current Assets Cash and cash equivalents $ 13,847,609 $ 33,830,684 Derivative instruments 347,771 725,159 Accounts receivable 2,768,838 3,280,357 Inventories 18,281,521 14,246,991 Prepaids and other 301,070 817,885 Total current assets 35,546,809 52,901,076 Property and Equipment Land and land improvements 13,223,836 13,210,145 Buildings 40,119,360 40,119,360 Office equipment 1,314,146 1,251,682 Plant and process equipment 93,311,751 88,359,673 Vehicles 193,039 160,259 Construction in progress 3,997,311 4,681,641 152,159,443 147,782,760 Less accumulated depreciation ( 122,258,884 ) ( 118,140,653 ) Net property and equipment 29,900,559 29,642,107 Other Assets Investments 5,205,978 5,029,580 Right of use asset - finance lease 583,499 686,469 Deposits 457,354 442,724 Total other assets 6,246,831 6,158,773 Total Assets $ 71,694,199 $ 88,701,956 3 LIABILITIES AND MEMBERS' EQUITY July 31, 2025 October 31, 2024 (Unaudited) Current Liabilities Accounts payable $ 7,257,881 $ 17,161,828 Accrued expenses 1,006,147 1,113,693 Current portion of finance lease liability 145,231 139,375 Total Current Liabilities 8,409,259 18,414,896 Long-Term Liabilities Finance lease liability, net of current portion 531,014 640,682 Total Long-Term Liabilities 531,014 640,682 Commitments and Contingencies Members' Equity Members' equity, 4,752 and 4,754 units outstanding 62,753,926 69,646,378 Total Liabilities and Members' Equity $ 71,694,199 $ 88,701,956 Notes to Condensed Unaudited Financial Statements are an integral part of this Statement. 4 HIGHWATER ETHANOL, LLC Condensed Unaudited Statements of Operations Three Months Ended Nine Months Ended July 31, 2025 July 31, 2024 July 31, 2025 July 31, 2024 Revenues $ 34,858,115 $ 37,444,831 $ 103,167,737 $ 107,224,645 Cost of Goods Sold 32,407,682 32,026,594

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View this 10-Q filing on SEC EDGAR