Renewable Energy Group reports strong second-quarter financials

Renewable Energy Group Inc. announced its financial results for the quarter ended June 30, 2012. Revenue for the second quarter was $271.9 million, an increase of 39 percent compared to revenues of $196.3 million for the same period in 2011. Second quarter 2012 adjusted EBITDA was $26.5 million, an increase of 3 percent compared to $25.8 million for the same period in 2011. The balance sheet remained strong with cash of $87.1 million at the close of the quarter, compared to $75.2 million at March 31, 2012.

"As expected, our growth continued in our second quarter of 2012," said Daniel J. Oh, president and CEO of REG. "Our gallons sold rose significantly, as did revenue. We expanded our distribution capabilities, and progressed in planned upgrades to our fleet of biorefineries. We are optimistic about our strategic position, as we continue to execute our strategy of feedstock diversity and expand our domestic distribution footprint."

Operating Highlights

REG produced 43 million gallons of biodiesel in the second quarter of 2012, compared to 33 million gallons in the same period in 2011. REG sold 54 million gallons of biodiesel in the second quarter, an increase of 63 percent compared to the same period in 2011, excluding tolled gallons. The year over year increase in gallons sold was primarily due to increased production capacity online and an increase in biodiesel demand compared to the same period in 2011 as petroleum-fuel refiners and importers sought to meet their renewable volume obligations to purchase biomass-based diesel under the renewable fuel standard (RFS2) program. RFS2 specifies the consumption of 1 billion gallons of biodiesel in 2012, compared to 800 million in 2011.

The company expanded its distribution capabilities by opening three terminals. In early June, the company announced new terminal capabilities at its partially-completed biorefinery in Clovis, N.M. Biodiesel sales from the Clovis terminal commenced in early July. Also in late June, the company announced a new terminal in Lebanon, Ohio, which is in the southwest corner of the state serving Ohio, Indiana and Kentucky. The terminal is located adjacent to terminals owned by major diesel marketers, and enables efficient blending for local petroleum jobbers. In the later part of July, the company entered into an agreement with Maxum Petroleum to offer REG-9000 at its terminal in Long Beach, Calif., with sales commencing in mid-August.

The company also benefited this quarter from an additional 50 million gallons of annual capacity becoming available in combination from both the Albert Lea facility, which was purchased in July 2011, and the completion of the third production line at the Seneca facility, which was initially brought online earlier this year.

Second Quarter 2012 Financial Results

Revenues for the second quarter were $271.9 million, a 39 percent increase compared to Q1 2011, due to an increase in gallons sold over the previous period, offset somewhat by lower per-gallon prices. Gallons sold in Q2 2012 increased 63 percent over Q2 2011 to 54.2 million gallons of biodiesel. Biodiesel demand improved compared to the same period in 2011 due to the increased requirements under RFS2. Biodiesel pricing declined, as lower prices for petroleum-based diesel and lower RIN prices caused a 12 percent year over year reduction in realized price per gallon.

Adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization and further adjusted for certain items identified below under "Adjusted EBITDA Reconciliation", grew 3 percent year over year to $26.5 million. Adjusted EBITDA grew 109 percent from the $12.7 million generated in Q1 2012. Adjusted

EBITDA was nearly flat year over year as strong volume growth was offset by lower biodiesel gross margins in the second quarter 2012.

At June 30, 2012, REG had cash and cash equivalents of $87.1 million. Inventories at June 30, 2012 were $58.6 million, a decrease of $19.0 million from March 31, 2012. The decrease in inventory was largely attributable to the recognition in Q2 of 5 million gallons of biodiesel production shipped in Q1 but not recognized, as disclosed in Q1 earnings release.

Adjusted EBITDA Reconciliation

REG presents Adjusted EBITDA because the company believes it assists investors in analyzing its performance across reporting periods on a consistent basis. In addition, REG uses Adjusted EBITDA to evaluate, assess and benchmark its financial performance on a consistent and comparable basis. REG excludes noncash stock-based compensation and non-cash other income (expense) items because it does not believe that they are indicative of the company's ongoing operating performance. REG's measure of Adjusted EBITDA might be different than similar financial measures used by other companies. Non-GAAP metrics are not determined in accordance with GAAP and are not a substitute for or superior to financial measures determined in accordance with GAAP. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by Revenues. 

Highlights

-43 million gallons produced, up 30 percent y/y

-54 million gallons sold, up 63 percent y/y

-$272 million revenue, up 39 percent y/y

-$20 million operating income, down 12 percent y/y

-$14 million net income compared to a net loss y/y

-Adjusted EBITDA $26.5 million, up 3 percent y/y

-Distribution expanded with new wholesale terminal locations in New Mexico, Ohio and California