REG reports Q4, full-year financial results for 2019

Renewable Energy Group Inc. announced March 5 its financial results for the fourth quarter and full year ended Dec. 31.

REG President and CEO Cynthia “CJ” Warner, commented, “Fourth quarter performance was solid in the face of challenging market conditions. We increased renewable diesel sales and production, while foregoing incremental biodiesel sales that did not meet our profitability hurdles. We believe our strengthened business model has proven resilient under a variety of regulatory and margin scenarios.”

On Dec. 20, the biodiesel tax credit (BTC) was retroactively reinstated for the 2018 and 2019 calendar years and extended through 2022. The retroactive credit for 2018 and 2019 resulted in a net benefit that was recognized in REG’s GAAP financial statements for the quarter ending Dec. 31.

“We welcome, and are grateful for, Congress’ strong support of our industry with the reinstatement and multiyear extension of the BTC,” Warner continued. “This will provide us around half a billion dollars in cash related to our 2018-’19 operations. This additional capital, combined with the certainty of the incentive being in place through 2022, will enable us to develop and pursue a variety of growth initiatives. We are focused on growing our renewable diesel capacity and expanding downstream to serve our customers directly, with the goal of accelerating the transition to renewable energy, by delivering increasing quantities of low carbon fuels and capturing the associated economic benefits. Overall, we intend to focus on operating performance, balance sheet strength, growth prospects, and ESG initiatives, all with an emphasis on enhancing shareholder and broader stakeholder value.”

The company also announced that its board of directors approved a repurchase program of up to $100 million of the company’s shares of common stock and convertible notes. Under the program, REG may repurchase shares and convertible notes from time to time in open market transactions, privately negotiated transactions or by other means. The timing and amount of repurchase transactions will be determined by the company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice.

Fourth quarter 2019 highlights

All figures refer to the quarter ended Dec. 31, 2019, unless otherwise noted. All comparisons are to the quarter ended Dec. 31, 2018, unless otherwise noted.

REG sold 152.9 million total gallons of fuel, a decrease of 6.3 percent. The decrease in gallons sold is mostly attributable to volume decreases in biodiesel and petroleum diesel of 10.4 million gallons and 9.7 million gallons, respectively, partially offset by increases of both REG-produced and third-party renewable diesel of 5 million gallons and 5.3 million gallons, respectively. Third-party renewable diesel gallons are used principally for blending with biodiesel.

REG produced 113.7 million gallons of biomass-based diesel during the quarter, a decrease of 13.6 percent. Gallons produced decreased primarily due to focus on producing profitable gallons, which among other things, resulted in the closure of the company’s facility in New Boston, Texas, in July. In contrast, renewable diesel production increased 5.2 percent as the company pursued attractive margin opportunities, most notably in the Nordics.

Revenues increased $498.4 million to more than $1 billion, driven mainly by GAAP recognition of all the 2018 and 2019 BTC benefit in the fourth quarter of 2019. Revenue growth was impacted by lower RIN prices and the 6.3 percent decrease in gallons sold. The average price per gallon sold (excluding the allocation of the 2018 and 2019 BTC) for biomass-based diesel was $2.90, an increase of 2.8 percent. After allocation of the BTC benefits for the period in which the gallons were sold, revenue was essentially flat year over year.

Operating income was $503.9 million compared to $33.4 million for the fourth quarter of 2018. The increase in operating income was mainly driven by GAAP recognition of all of the 2018 and 2019 net BTC benefit of $499.4 million in the fourth quarter of 2019. Additionally, impacts on operating income included a decrease in risk management of $45 million and a $15.9 million decrease in North America biodiesel margins driven mostly by lower spreads. These challenges were offset by improvements to underlying performance, including an increase in total renewable diesel gallons sold of 10.3 million gallons and an increase of biodiesel and renewable diesel sales into the most attractive low carbon fuel markets—North America’ West Coast and the Nordics.

GAAP net income from continuing operations available to common stockholders was $492.6 million, or $11.52 per share, on a fully diluted basis, compared to $30.4 million, or 66 cents per share on a fully diluted basis, in the fourth quarter of 2018. After allocation of the BTC benefits for the period in which the gallons were sold, net income from continuing operations available to common stockholders was $50.9 million compared to $87 million.

Adjusted EBITDA was $65 million, compared to $103.2 million in the year-earlier period. The differential drivers are the same as those described above for operating income.

At Dec. 31, 2019, REG had cash and cash equivalents, restricted cash, and marketable securities of $53.4 million. For the year, the company’s cash and cash equivalents, restricted cash, and marketable securities decreased by $124.1 million primarily as a result of cash used in operations, the repayment of debt and convertible notes, as well as capital expenditures in connection with plant upgrades. At Dec. 31, 2019, accounts receivable were $858.9 million, an increase of $777.9 million from Sept. 30, 2019. This large increase was primarily due to the receivables associated with the 2018 and 2019 BTC. At Dec. 31, 2019, accounts payable were $369.2 million, an increase of $273.8 million from Sept. 30, 2019. The increase is primarily due to payments due to customers related to sharing of the 2018 and 2019 BTC proceeds.

Full year 2019 results

All figures refer to the year ended Dec. 31, 2019, unless otherwise noted. All comparisons are to the year ended Dec. 31, 2018, unless otherwise noted.

REG sold 700.3 million total gallons, an increase of 7.9 percent compared to 649.2 million gallons in 2018. The increase in gallons sold is mostly attributable to volume increases in REG-produced renewable diesel of 7 million gallons, third-party renewable diesel of 31.3 million gallons, and petroleum diesel of 18.1 million gallons, partially offset by a reduction in biodiesel gallons sold of 4.4 million. Third-party renewable diesel is used principally for blending with biodiesel.

REG produced 494.7 million gallons, compared to 501.7 million gallons in 2018. Gallons produced decreased due primarily to focus on producing profitable gallons, which among other things, resulted in the closure of the company’s facility in New Boston, Texas, in July. In contrast, renewable diesel production increased 7.2 percent as the company pursued attractive margin opportunities, most notably in the Nordics.

Revenues were $2.6 billion, an increase of $258.4 million, or 10.8 percent. The increase was due primarily to GAAP recognition of all the 2018 and 2019 BTC benefit in the fourth quarter of 2019, although 2018 revenues included a BTC benefit recognized in the first quarter of 2018 relating to gallons sold in 2017. In addition to the BTC, revenue was impacted by an 8 percent increase in gallons sold, which was partially offset by a 9.2 percent lower average selling price for biomass-based diesel and lower RIN prices. The average biomass-based diesel price per gallon sold by REG, excluding the allocation of BTC, was $2.75, compared to $3.03 in 2018. After allocation of the BTC benefits for the period in which the gallons were sold, revenue was essentially flat year over year.

Operating income was $399.7 million compared to $312.4 million for the full-year 2018. The increase in operating income was mainly driven by GAAP recognition of all of the 2018 and 2019 net BTC benefit of $499.4 million in the fourth quarter of 2019, offset by the 2017 net BTC benefit of $206.5 million recognized in the first quarter of 2018. Additionally, impacts on operating income included a decrease in risk management of $47.3 million and a $193.3 million decrease in North America biodiesel margins driven mostly by lower spreads. As previously noted, due to an administrative change, income from California LCFS credits for 2019 included three quarters compared to 2018, which included four quarters. This negative impact was approximately $30 million, which is not reflective of company performance and is a one-time occurrence. All of these challenges were offset by improvements to underlying performance, including an increase in total renewable diesel gallons sold of 38.3 million gallons and an increase of biodiesel and renewable diesel sales into the most attractive low carbon fuel markets—North America’s West Coast and the Nordics.

Net income from continuing operations available to common stockholders was $381.1 million, or $9.01 per share on a fully diluted basis for 2019, compared to $295.8 million, or $6.78 per share on a fully diluted basis for 2018. After allocation of the BTC benefits for the period in which the gallons were sold, net income from continuing operations available to common stockholders was $147.8 million compared to $327 million.

Adjusted EBITDA was $217.9 million, compared to $388.3 million in 2018. The company’s Adjusted EBITDA margins were 8.3 percent and 16.3 percent for 2019 and 2018, respectively. Adjusted EBITDA margins after allocation of the BTC benefits for the period in which the gallons were sold 2018 and 2019 were 9.1 percent and 16.1 percent, respectively. The differential drivers are the same as those described above for operating income.

For more detailed information, including financial tables summarizing REG’s fourth-quarter and full-year results, along with operational highlights, click here.