REGI - Earnings call transcript Q4 2017 | Renewable Energy Group, Inc.

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Operator

Good day, ladies and gentlemen. And welcome to the Renewable Energy Group Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. to conference like to now would turn over the Mr. I Treasurer. Robinson, Todd you begin. Sir, may

Todd Robinson

Brian. And our Vice today and Thank fourth afternoon, Chad Haer, Randy Good you, everyone. our Financial Chief of earnings and Executive Officer, call. Marketing. Manufacturing; Howard; President Gary our quarter Brad welcome Sales conference With President our President me Albin, of is Stone; Chief Officer, Vice XXXX our to and

over before me to a call housekeeping turn Let Randy. items I cover the few

would the Investor I everyone this website need accompanying at webcast will deck, this manually of First, be webcast, to afternoon. to like that is advance website will call an remind and the webcast with available available we includes is but The on beginning regi.com. our prompt you. slides you Relations being which A later slide as automatically replay will at our the appear section

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described subsequent could actual of our core Form speak XX-K assess in could detail sections factors These of publicly difficult uncertainties such help to information update report company’s reconciliation some for Form or on assumptions cause contained file the two. a press statements. expectations. the Turning that advise a and are These factors in Several you differ on or factors results contain new business. only statements. contribute on are to the this involve of call information company like measures. forward-looking The differences. release discussed discussion statements statements of date risks, revised any undertakes of in with operating to are annual performance. on of materially from these slide to Please We the appendix this metrics are forward-looking and would forward-looking deck that conference and the or SEC. to reports to guarantee such to of statements those our other those the predict will and forward-looking risk not financial non-GAAP performance believe on We slide obligation The will call. which measures. based Today’s the see GAAP as no the non-GAAP investors XX-Q, includes the quarterly accompanying also statements the comparable most measures These

and in Chief on the me benefit of that the or quarter. filing our our the updated reflect to made XXXX February reinstatement of Randy our Mixture As yesterday and turn of Because first The relates the reinstatement X, the of of adjusted Credit process XXXX. statements the for on XXXX operations, EBITDA the was Tax you BTC for Excise be gallon over process net BTC With net benefit reflected President for guidance will aware refunds. adjusted it’s Executive IRS quarter call allocation and and each for the to sold income net have those based Howard. begun we the on XXXX credit for are likely that, financial Officer, the filing in Biodiesel XXXX, our let retroactive refund GAAP the

Randy Howard

everyone, you, the thank and Todd, you, Thank for joining call.

word my let have the dropped clarify interim. we First, me as title,

our accomplish the that goal. We shareholders. level place I we capture next to execute for future. XXXX to performance excited to to I to with us I XXXX. with growing for look leading to our our returns are and growth see plans today XXXX opportunities her transition through in our to am vision forward to that forward you while on I’m REG of for a a and step our in share increasing all take XXXX. performance seeing in and REG plans look change

We for designed of REG to to next will review I growth make prepare period initiatives that are have are team which it a a its strong happen. momentarily, of committed leadership and we number strategic together with

review we XXXX. accomplished in let Now what me

cover years. we we think are development and Last thought QX, terms a REG in but over the I how next will our in course, long We develop business out vision Day New of of should an we conducted of the York, cycle year. we the June for few business of where Analyst laid

the The that simple, of reinstated. We outcome especially we goals achievable, BTC our given assuming the the goal would in for beat year. likelihood also of we outcome at the we achieved, the only We generation least goal. thought were of the trade trade targeted was and the that case million BTC offered EBITDA tangible views not adjusted and immediate successful reinstatement the the be financial of case $XXX

This result. by the these results. month produced high the $XXX for we enabling previous year of annual I team, their efforts than us With Board our adjusted customers of BTC, regenerated higher management records $XXX XXXX. want of and record to Further, outstanding employees, $XX for sold. is to our Directors, of than our XX% is the and for and in set our an adjusted champions each our sincerely legislative million we achieve gallons reinstatement vendors, thank last more best million million This exceeds previous of in EBITDA EBITDA.

increase last diesel see doubled biodiesel of and more the a less or can third-party our in sales driven by slide than XXXX in price. spread spread. and four, This EBITDA. you improvements crack our our improvement meaning XXXX Impacts an richer gallons, co-products adjusted equivalent than year HOBO selling on was renewable more adjusted mainly from As mix, EBITDA

reinstatement a cash of measure shows the Orleans, uncertainty. GAAP large due REG cost delayed renewable the our large of at feedstock purposes. Geismar with biodiesel focus, prudent can do to with reflects margins our through capacity Our GAAP demonstrate continue reinstatement. BTC inherently to annual per gallon and business margins BTC lower ran and can and our not The will earnings nameplate refinery We grow believe to New net against those earnings, the our we a which renewable measure, of regulatory ability and high-capacity, inclusive for also its with our of strategic history retroactive our of a near the generate the of to XX% strong diesel because later, any By adjusted $X.XX resilient, is Geismar impairment largely at investment loss is partially net approximately other detail expect continues completed it plant numbers loss of more to consistent generate EBITDA power the opportunities. higher diesel. up reported importantly, Chad investments.

happy reinstated to very the We’re see retroactively. BTC

did We not it to thankful is supported the more. are we a same for to that place At elected who longer-term. this those in not officials in for disappointed BTC our and see The are do XXXX we’re reinstated reinstatement. with Washington time working Congress

Let own operations. me now turn our

capacity. sold First, down nameplate fulfilling XX% billion marketing of our of part XXX the planned created We start for of for at demand fleet achieve for repair, very the improved produce team. but accounting was Madison rate now standard The slide over sales The nearly year. of group I over completed work to produced gallons our more fourth was is injury margin. per XXXX capture down of million these industry is We XXX running schedule on by and -- now above of outstanding safety for $X to running excelled optimizer operationally and our gallons that an planned Ralston team BTC downstream expansion gallons third which the biorefinery at can We X.X%. REG want Madison before to from with exceptional continue you was quarter million the to restore fuel. as I’m and rest is capacity lowering and REG. they generated we revenue see below impact. at safety. was our operations X.X%, on Ralston results and while The In parties, of recordable to fuel. sourced XX We is proud results, budget six. culture operating. as expanded million from operations the as nameplate

be XXXX. expect of with biodiesel nearly for our of downtime to normal fully fleet all operational exception We the

Our plants fourth quarter, the gallons XX produced annual consistent plan. its in with million in Germany

or plants of weekly, records XXX fleet set new quarterly production in annual XXXX. monthly, Our

allocation With Capital of these we look for generated improvements we from for and are as us production is projecting a XXXX. top XX% our results in from increase the deploy our cash current operations. XXXX mind to

convertible focus shareholder as on capital We a growth through repurchases, repurchases, and our returns as well continue capital with common expenditures, M&A. maintenance stock bond on CapEx approach a balanced

stock we and December As a a $XX million step, buyback authorized Board buyback can in bonds. convertible common the plan where first

and have and bonds. we raises on used invest and generated see for and to seven, slide our buyback can in convertible the past you the M&A from stock over our years three plants activity operations debt capital As

As high discussed -- $XX to have million medium returns. improvement in sense can we with to of returns. for believe and we we and have the cost improve can look indicated fleet we opportunities our it and projects identified short-term opportunities and long-term believe biodiesel high we we deliver when reduction Previously million growth $XX the profit makes in opportunities. past, short, where In

over we return months. investment to short-term the up Now add EBITDA $XX see high million adjusted $XX could XX million that projects to upwards in in next

capital yet allow. through approved this of schedules but year team have Some of to develop to am deploy the inventory. projects this as engineering with these I plant to we pleased plan the efforts and be project

in the and evaluate and to there Detailed to avenues includes plant a this to million marketing land add for and us Earlier decisions existing in This process plans. As expect is mid-term ahead, to upgrade up we line. in our connection and we engineering Geismar renewable in adjusted growth grow beginning resources Geismar look expansion infrastructure soon XX projects -- to purchased best we XXXX that expect potential and significant leverage for the and diesel have on in are to best $XX annual capacity. in progress, studies expansion make the our with in months. we grow EBITDA committed in to product we are opportunity ways

we renewable invest Finally, in see diesel to long-term continue new projects to plants.

We a invested we capital XXXX. achieved ways are on derisk high maintain these to investments in return on and working to large

and growth soon long-term these a We give mid-term how Slide will over projects us these which steady shows projects undertake. time. profile short-term, decide will we eight of

You illustration potential plant. financing will new renewable debt that includes of a diesel this note

the believe when free Implicit the debt, capital or of of stock from However, for all short-term required is plan as we our convertible and utilize as will share repurchases projects, operations. well repayment all we undervalued. mid-term cash the buyback from our flow funding is the in

in Day margin we June and on sales distribution highlighted expanding blended additional now through terminals. expansion a We We our focused capturing We fuel downstream terminals. by strategy. new are have Analyst XXXX terminal XX in network XX also added at our of

to this We XXXX. further expect business grow in

our addition complementing expanding In customer by enhancement margin are downstream -- strategy strategy our enhancement contemplating business. downstream we our margin fleet

in With the concluded venture the eight December to of value We on the for series fourth major business the quarter through four business. Sciences of joint review our of the development joint and options fleet sale, customers in an in monetize best planned agreements. for as set the Life be of total XXXX strategic direction year. how and or a could full outright additional This the

continue negotiations with we in that discuss of mode are the that liberty players in midst its value. outcome key the In today. variety of long-term to and are business the the at meantime not We maximizes a

proud As our biofuel on back we refiner. U.S. accomplishments, as very the advanced we leading of are XXXX, look

forward and and We opportunities growth. have an both fund immediate can near-term, see that long-term, assets capture at very you hard this to to outstanding achieve. on growth goals mid-term leading at balance higher strong a We look juncture to them. team, a profitability and be great we’re the we to in multitude for work intend of excited to the sheet I’m critical reporting and and REG

outlook. now on the then to Chad discuss QX will guidance update, including turn for financial details and the I me to call our over Let and return

Chad Stone

Randy. you, Thank

Investor started, pages to XX results. and refresh, ahead get please couldn’t to are presentation, let’s this and as you we the you’ll financial to I on as try a our you turn Relations go At the review flip access want references just to slides. you website along, should will be if go our Before give and the slide point, reminder we and to available it click

from of slightly and First, referred fuel, year-over-year. then guidance, XXXX but add I’ll of any results We of gallons in of by had the credit to color The million are in well Gallons third-party by -- to the sell volumes the XXX in year, of lower our so produced X%. opportunity XXXX. and biodiesel laps are gallons revenue, of due volume most XXXX, comparisons some fourth trading X% quarter of was sales composition on third-parties. generated impending of QX the gallons. our to down third-party we of strength to the The figures and petroleum increase sold cover an offset all due end was diesel renewable will sold I and ahead tax at for of now gallons $XXX when us I increased million volume and incentive by QX XX%

business. or gallons services fuel million other renewable of XX products, gallons Looking by of and and petroleum-based produced naphtha Geismar gallons sold biodiesel, product, XX as our we through XX million such energy of million diesel LPG

million million the net credit primarily and share. charge Orleans. delay in a was due the German operations XX to sold was Net $X.XX negative of from reinstatement loss loss the per Our New $XX or gallons. The impairment tax

we year, income reporting this first We time. useful our New metric are provides with evaluate hope investors adjusted to results. for information this the net

BTC net of the of most the our assets impairment the retroactive net debt income adjustment significant again for release, charges the reinstatement, see reconciliation relate to can income adjusted but GAAP liability. convertible in non-cash for and You the conversion earnings to the

million, the income risk or the due during cost our fourth quarter had of share. $X.XX due a loss the credit streamlining was EBITDA incorporating million, some down million management of We net for were primarily million, QX. adjusted $X.X Our XXXX. of down R&D of $XX $XX.X was expenses were $X.X the the $XX.X tax Adjusted $X increase and expenses to $XX.X in XX% ULSD in per reinstatement million. SG&A million million to simplification of quarter structure. fourth

due We figures Again year turn full of the all X%. XXXX. year which full comparisons fuel, Geismar The upgrades and volume sales produced gallons some of for XXXX, was slide sold to high to by refer running was offset covers in renewable and and XX by diesel million for our strength X% to Now at repairs. strong composition XXXX. year us XX% rate by the up parties. full throughout and demand of The downtime utilization third XXX of with are

of products, of renewable gallons which again million and then we of biodiesel, gallons million XX other Looking third-party and sold million includes by million petroleum-based product, XX XXX XX diesel, and gallons then fuel gallons LPG renewable diesel of naphtha produced Geismar.

XX Our in XXXX. million German operation gallons sold

year. Our average prior selling price from of $X.XX, decrease the

when $X.X from BTC gallon. would per However, effect benefit take selling you volume with the up resulted our revenue combined Those billion, higher the average X%. have been in of reinstatement, $X.XX of price

the $XX.X or BTC loss of which million was was of the and impact result negative net per primarily Orleans. $X.XX impairment New Our share, again

was Our $XXX adjusted share. income $X.XX net million or per

accounting GAAP QX BTC in XXXX. requires the was us reinstated, the the book reinstatement While impact of of to

the XXX%. in adjusted adjusted income EBITDA adjusted and XX%. The of up was XXXX XXXX EBITDA. margin $XXX net the XXXX was BTC for included benefit million, have net EBITDA We adjusted

EBITDA Additionally and capital hit invested with $XXX last our of million return XX% it is year. XX% adjusted back on over

product related of For of the X%, sales with as related higher a due of in we SG&A when the CEO per in expense to other which gallon. compared of costs the XXXX. out XX% for near-term gallon expansion the potential facility the of expenses both $XX.X CEO to is executives and following during to $X.X and such believe the which gallon, of represents $XX be million million, realignment loss cost, million risk from is includes Orleans. $XX.X priorities viewed SG&A as strategic few our severance energy losses senior a the this Geismar. the last revenue other impairment transition. energy as percentage the facility $XX.X expenses XXXX offset due severances XXXX. recorded to year. up years at last taking New SG&A prices. risk to in departure $XX.X mainly were physical well from year a completed flat of million, is July, unlikely recovery construction was as represents per was in the per to largely of charges down when The We year, $XX recorded benefit management We market compared the in those R&D million to $XX.X management loss that

Our $XX Board approved expenditures for capital approximately XXXX are million.

rate taxable amount a blended doesn’t change lower rate Tax result feel. little our The X%. future our bit the of of NOLs, corporate Our debt billion will a on Reform value income is the tax just nearly reduces but $X interest nominal as of we below

Our effective between XXXX X% for expected to be and is rate tax X%.

will discuss our outlook. call back turn Randy? I to the Now Randy to

Randy Howard

Thanks, Chad.

that slide million environment XXXX recognized look spread feedstocks. as XXX first XXXX, conditions As for in good gallon from and we million forecasting $XX forecasting XXX on qualified feedstock seasonal a at margins. on are future XXXX start current million the associated environment and complex in first BTC, the availability and energy first see XX, to cost advantage the margin includes are without BTC. normal million we The coupled $XX quarter abundant are quarter, in XXXX. gives half of looks the we gallons to the resulting gallons EBITDA shown million the adjusted market strong for low This of for sold at be Based for confidence $XX the with HOBO us the with supportive the to sales but strong

in lapsed has at believe bill. we year not, the reinstatement forecasting we at for million that for The first end. $XX for we again the EBITDA million BTC XXXX, looking of all the as the March reinstatement of adjusted the for omnibus be will $XX BTC If With part to it retroactive quarter. are the reinstated we could be of believe of XXXX and year spending start

starting well margins the XXX Argentine quarter first replace approximately to runs the and As I first and historic half industry the of of we above margins through gallons imports. the expect as said, are year million year to continue that Indonesian

We anticipating the new tighter in add are production capacity. second complex monitoring a half margin are competitors feedstock the as closely and environment

we reach performance we power. ultimately not achieved our to levels XXXX exceed BTC plus the But With earnings expect may in may or record XXX the XXXX. we our

in results last can to improvement capturing continue step we us see performance. our gives continuous that year. in and provide strategy We working this these cash change Obviously, balance will did shareholders. attractive maintain is the we with is capital plant in as we growth the our can flow out, That we generating downstream and the forecasts confidence believe our to we margins approach market monitor good I We laid well, invest operations. as in we update and returns believe strong business

call the Now to would question-and-answer to our turn I over Operator? operator call. the the like segment for of

Operator

line And [Operator comes Thank question open. Chip Sir, now you. Instructions] your Moore first is line from our from Canaccord. of the

Chip Moore

Hey, near-term year Hey. thinking we next guess, I more -- can maybe opportunities growth how talk about color more and this and should the you into of a a next? be expanded bit about along set deployment capital with Thanks. guys. that little little first, and provide

Randy Howard

costs scrub anywhere type maybe $X capacity or plans from kind that are an they to fundamentally improvement. that add our million have gone before the projects opportunities of yield small them. $XXX,XXX or Basically are projects reduce of projects Sure. that upwards These all have exhaustive through

to this most Day. that I’ve started really -- now we’ve that, Like we’ve $XX our projects. million of with this those. that, year estimate million of return that just So scrub high improving of inventory like I Investor of said, had June when we last in projects pleased did been $XX We

the approval will We those engineering and opportunity gets to those as again the downtime we done as accelerate allows see install plant us an projects of where facilities.

of we and get to of pleased total, you won’t have one-third this that, be this high projects. we year. really -- that next this We ROI inventory it my I will year. accomplish am If at is get maybe them year look at guess just all them able them to of two-thirds

Chip Moore

the guess, more side, there on going I any and sounds a that Thanks, impact, agree. does we change Monday, And meeting look on anything That’s the if RFS, Yeah. but smoothing LCFS there, perspective? policy like latest from guys. thoughts great. what’s I on on your any is

Randy Howard

Yeah.

carb Let days came couple just me smoothing first. rules out new speak the the with LCFS Again, ago. the

XXX digesting of say that, But would still is are growth. pathway We the us it I longer pages. a gives what

I point -- that. and saw tapered excuse So The tempered I in our are captured we our our above, credits think might from in about before. that above the the below, concerned average few in we I you that well at year well fact next growth what today are LCFS we used the don’t are years be used excited about me, think used well or still last that projections. last mean, -- year this

don’t We time think against it’s So at and off public this a transition. and in a policy long the that project we again point, probably for we runway better I gives policy us a -- up ceiling we smoother -- -- just a it result longer and hate forward. probably bit a to positive, because the smoothing that going better will back think bumps see

get ethanol discussion. because and in, certainly, all wall is most is of meeting in I biodiesel refiners around plugs RFS, trying its of that as I the deafening stated was that the puts I out our the figure with business in say your air clearly meeting part to was ethanol was and that is issue. all work to on the in the pretty far producers noise. how isn’t blend really noise Clearly, it how It As about to would in just at

situation and continue the to year future RVOs get we into begin monitor later for set to So we as will the years.

given think confidence perform. that above them to the that will year the give see EPA them I is we that industry we feedstock we RVO and is as think numbers there available, can produce told that what last I will produce well to well were biodiesel meet the --

how see we that will So goes.

Chip Moore

that color nice job guys. and Thanks. Appreciate Okay.

Chad Stone

Chip. Thanks,

Randy Howard

Chip. Thanks,

Operator

comes ROTH the question [Operator Instructions] next Partners. our And line of Craig Irwin Capital from from

now is line Your open.

Craig Irwin

for my questions. afternoon. taking Good Thanks

quarter, top contributing you stack we So then talk factors assumption maybe the of sort strengthening in the margins first the minimal first the in through we points losses maybe to the this the head us hedge to into of your year. of hedge Can quarter? results losses processing and for losses as hedge on quarter the

Chad Stone

Yeah. Craig, it’s Chad.

that it have the the and management margins. very seen have story very think tease attractive because and particularly happens we some pattern when the near-term good I main between seen attractive feedstocks we that’s through up we that so risk have is, see margins activity seen their risk lowest prices, management it’s cost spreads losses of but we going energy weakness, seasonal

that sale supportive kind throughout guidance price right first of Randy’s factors half improvement, and think of that’s the main quarter. margins attractive So feedstock for the first numbers. good I [Technical prices And is Difficulty] there the is throughout margin

Craig Irwin

Okay.

would sustainable ITC or here whether would you fundamentally… or and we maybe whether you and be back helping is about year, the not that can the end hopefully summer not as this the mean, of So I hope comment into progress

Randy Howard

Yeah.

Craig Irwin

pretty of jam say? ITC now at the the tanks us. excess we to and last-minute …if Is fair the contribution that this is is expect would a fully behind dumping inventory, the that sort strong

Randy Howard

that. impact see we Yes. Yeah. Basically of the

mean, I see at been margin look, can You that the good there spread has in and simply there.

Craig Irwin

Excellent.

Chad Stone

when put in countervailing million that back of were out taken XXX gallons mentioned, supply that mix place into that duties represents was the August. Randy Yeah. earlier the effectively about of --

that We the seen an since we’ve playing is attractive haven’t into now make RVO that’s domestic Couple so will imports with any that -- it it then. X.X long-term. for and billion got producers,

Randy Howard

Yeah.

or we Craig, one course, Argentine me imports. seen, the -- thing, Let haven’t clarify of Indonesian

imports have in us. Europe coming leaves higher reduced the coming at better prices again we from the but for margins are in. they So that

Craig Irwin

good to hear. That’s Great.

an you’ve a talk the complicates least or sort couple It’s had. then I really little stand plants over we’ve financing of really together. in is and maybe approach financing any And Geismar RHD various uncertainty can about the us help could know new sort we at other next a of at plants the things, understand still. looking color I come question at would structure two you mean, are the potential partners, been share with you bit the but how partner? joint of then a hopefully would Can see additional options that years. you how So RHD? next double and something maybe timing -- discussing the unfortunate you couple possibly potentially about guys us that venture one you would be

Randy Howard

let Craig, me this. Yes. take

I -- we comes three we that’s have investment and and project when to that kind that to get give are and with are that schedule higher it. a in better that actually talking of derisk we that confidence -- So the that long-term much The project us cost such actively a to project us bank preliminary working of of the the a And then engineering help really which wind helps finance in to say we ways. -- are doing lower up looking risk. the much

and anything projects. we considering consummated through those And different on the aspects talking We’re -- we haven’t yet, we details are thirdly, of partnering that. are but

renewable that. the on diesel and any So single I projects. again large plant more can’t detail give

Craig Irwin

Excellent.

Randy Howard

are we working three But all of on fronts. those

Craig Irwin

on Life then progress the how Life the you you as EBITDA. partners burden Sciences And of potential and for burn Sciences, have joint Okay. us guys reducing with of work really update you there, to the a that Can good cost the done look have job should far the on side? related whether facilitate or potential elimination funding any cash agreements as could on we that not

Randy Howard

would you All is we give part. are can in and Like to give we I said, any the more I that say you effort. have we wish negotiations speak to I counterproductive I be review as detail. completed could more as details

as you will We let the are we can. know implementation we and soon actively engaged part as in

Chad Stone

you of that Exxon part improvements in we are doing we that have and seen by working the bringing have with some the revenues of the costs project. are some like getting offset is And of things disclosed

Craig Irwin

to forward seeing congratulations Well, Excellent. and in guys County. on you Yeah. Orange week next the progress look strong

Randy Howard

you. Thank

Chad Stone

See Yeah. week. Thank Craig. you, next you

Randy Howard

Yes.

Operator

to questions. call And I Howard, the further I for CEO President like showing further to am back would now Randy remarks. no any turn and

Randy Howard

we Thank I want up, REG. close, going events you, upcoming to about Todd, we for investor Operator. wrap the optimistic are is that Todd? mention future very and to emphasize To now our before

Todd Robinson

week Yeah. you representative Thank by XXTH will please capital with to and your only, conference that Annual and now Chad, This attending if next Point invitation want partners sales so concludes us. one-on-one Randy Thanks, Dana may meetings Growth contact the you all ROTH is and ROTH’s Randy. the be you call schedule I disconnect. Conference attend again. in or

Renewable Energy (REGI) 8 Mar 182017 Q4 Earnings call transcript