REG Q3 meets guidance despite $25 million risk management loss

Renewable Energy Group Inc. announced its financial results for the third quarter ended Sept. 30, 2017.

Revenues for the quarter were $627 million on 151.5 million gallons of fuel sold. Revenues in the third quarter were essentially flat with the prior year period despite the lapse of the federal Biodiesel Mixture Excise Tax Credit (BTC). The absence of the BTC and a 7.1 percent decrease in gallons sold were offset by revenues from higher sales of separated RINs and a 2.2 percent increase in average selling price per gallon. Net loss attributable to common stockholders was $11.4 million, compared to net income of $22.9 million in the third quarter of 2016. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was negative $1.5 million compared to adjusted EBITDA in the third quarter of 2016 of $31.6 million. The prior year net income and adjusted EBITDA includes net benefits from the BTC, which was in effect at that time.

“Our third quarter performance met our guidance in spite of a $25 million risk management loss,” said REG Interim President and CEO Randy Howard. “In addition, subsidized Argentine biodiesel imports continued at record levels through most of August when the preliminary trade duties were imposed. Assuming that the federal government follows past practice and retroactively reinstates the BTC for 2017, we estimate that our adjusted EBITDA for business conducted in first nine months of 2017 will be approximately $172 million, already surpassing our goal for the year of $150 million, so we believe that we are on track for a record year.”

Howard continued, “We are continuing our effort to optimize our operations and make progress on our growth initiatives around renewable diesel. Recent developments in the trade case and renewable volume obligations are positive and we look forward to further clarity in the fourth quarter on retroactive reinstatement of the BTC and possible reform to a domestic production incentive.”

Third quarter 2017 highlights

All figures refer to the quarter ending September 30, 2017, unless otherwise noted. All comparisons are to the quarter ended September 30, 2016 unless otherwise noted.

The company produced 120.3 million gallons of biomass-based diesel during the quarter, a 4.8 percent increase. REG sold a total of 151.5 million gallons of fuel, a decrease of 7.1 percent primarily due to fewer sales of third-party product and lower volume from Germany. The average price per gallon of biomass-based diesel sold increased by 2.2 percent to $3.21 as a result of increases in the price of ultra-low sulfur diesel and RIN prices, offset by the lapse of the BTC on Jan. 1, 2017, and the impact of imported gallons.

Revenues were $627 million, an increase of 0.4 percent. The company experienced higher sales of separated RINs and a 2.2 percent increase in the average sales price per gallon, offset by the lapse of the BTC and fewer gallons sold.

On Jan. 1, 2017, the BTC lapsed as it has several times in the past. Each time it lapsed, Congress has reinstated it retroactively. As a result of this history, the company and many other industry participants have adopted contractual arrangements with customers specifying the allocation and sharing of a retroactively reinstated incentive. The company estimates that if the BTC, or a similar domestic production incentive, is retroactively reinstated for 2017 on the same terms as in 2016, REG’s net income and adjusted EBITDA for business conducted in the quarter ended Sept. 30, 2017, would increase by approximately $55 million. For the first nine months of 2017, the increase in net income and adjusted EBITDA from a retroactive reinstatement is estimated to be $153 million.

Gross profit was $14.8 million, or 2.4 percent of revenues, compared to gross profit of $47.3 million, or 7.6 percent of revenues. Gross profit as a percentage of revenue decreased due to the lapse of the BTC, risk management losses of $25 million and the impact from increased imported gallons, offset by improved gross profit from sales of separated RINs.

Net loss attributable to common stockholders was $11.4 million, or 29 cents per share on a fully diluted basis. This compares to net income of $22.9 million, or 59 cents per share on a fully diluted basis.

At Sept. 30, 2017, REG had cash and cash equivalents of $112.2 million, an increase of $24.7 million from the prior period end.

At Sept. 30, 2017, accounts receivable were $87.7 million, or 13 days of sales. Accounts receivable at June 30, 2017, were $66.9 million. Inventory was $125.5 million at Sept. 30, 2017, or 18 days of sales, a decrease of $9.5 million from the prior quarter end. Accounts payable were $80.4 million and $74.8 million at Sept. 30, 2017, and June 30, 2017, respectively.

For more information, including financial tables summarizing REG’s third-quarter results, click here.