Q2 results show pandemic impact on REG business begins to subside

By Renewable Energy Group Inc. | August 04, 2020

Renewable Energy Group Inc. announced Aug. 4 its financial results for the second quarter ended June 30.

Revenues for the second quarter were $546 million on 183 million gallons of fuel sold. Net income from continuing operations available to common stockholders was $1 million in the second quarter of 2020 compared to a net loss of $58 million in the second quarter of 2019. The net loss in the second quarter of 2019 does not include the biodiesel tax credit (BTC) allocation, which was retroactively reinstated in December. Adjusted EBITDA in the second quarter was $8 million, compared to $36 million in the second quarter of 2019 including the allocation of the BTC.

“With $99 million of adjusted EBITDA, our financial performance for the first half of 2020 was relatively strong despite the oil price war, the impact of the historic pandemic and resulting volatile energy market,” said Cynthia “CJ” Warner, president and CEO of REG. “We continued our focus on optimizing the underlying operational performance of our business while maintaining the health and safety of our employees. With the impacts of the pandemic on our business beginning to subside, the feedstock complex and energy markets improved since late April, as represented by improved margins. In spite of the significant April and May headwinds, we are pleased with what we were able to deliver in the first half of 2020 and intend to build on those results.”

Second quarter highlights (GAAP)

All figures refer to the quarter ended June 30, 2020, unless otherwise noted. All comparisons are to the quarter ended June 30, 2019, unless otherwise noted.

REG sold 183 million gallons of fuel, a decrease of 7 percent. The decrease in gallons sold is mostly attributable to the company’s continued focus on improvement in product mix. Lower-margin petroleum diesel and third-party biodiesel decreased 15 million gallons and 7 million gallons, respectively. Higher-margin renewable diesel in the U.S. and Europe in the aggregate increased 4 million gallons.

REG produced 132 million gallons of biodiesel and renewable diesel during the quarter, an increase of 4 percent. Renewable diesel production at the company’s Geismar, Louisiana, plant increased 17 percent. Biodiesel gallons increased primarily due to higher production at the company’s plants in Houston, Texas; Newton, Iowa; and Danville, Illinois; partially offset by lower production at the Seneca, Illinois, plant and the absence of production from the New Boston, Texas, plant, which was closed in July 2019.

Revenues of $546 million decreased 3 percent, impacted by lower selling prices due primarily to significantly lower ULSD prices, which declined 51 percent, and the 7 percent decrease in gallons sold. These negative impacts were mostly offset by a $94 million increase in biomass-based diesel government incentives due to the BTC being in effect in Q2 2020, an increase in California LCFS credits, and a 46 percent increase in average D4 RIN prices.

Gross profit was $25 million, or 5 percent of revenues, compared to gross loss of $27 million, or negative 5 percent of revenues. Gross profit as a percentage of revenue increased due primarily to the BTC being in effect in 2020, the increase in California LCFS credits, higher average D4 RIN prices, an increase in co-product profitability, as well as a $1 million decrease in risk management losses, partially offset by lower selling prices and fewer gallons sold. The feedstock mix changed significantly with soybean oil usage more than doubling and distillers corn oil and used cooking oil usage decreasing 50 percent and 20 percent, respectively. Two big pandemic impacts—ethanol production shut-ins and restaurant closures—caused restricted availability and increased cost for these two feedstocks. The company’s change in feedstock mix enabled input costs to be held relatively constant, despite these effects.

Operating loss was $4 million compared to an operating loss of $54 million for the second quarter of 2019, driven by the same factors as those described above for gross profit. Additionally, the decrease in operating loss resulted from improvements in underlying performance, including over 50 percent more gallons sold to end users, a 106 percent increase of biodiesel blended with renewable diesel, and continued optimization of sales of renewable diesel to the most attractive markets.

GAAP net income from continuing operations available to common stockholders was $1 million, or 2 cents per share on a fully diluted basis, compared to net loss of $58 million, or $1.52 per share on a fully diluted basis, in the second quarter of 2019. The differential drivers are the same as those described above for operating loss along with a $10 million increase in other income.

At June 30, REG had cash and cash equivalents, restricted cash, and marketable securities of $331 million, an increase of $277 million from Dec. 31. The increase is mainly due to receipt of the remaining 2018 and 2019 retroactive gross BTC claims and cash generated by operations, offset by funds used to fully pay down the company’s asset-backed line of credit, make tax sharing payments owed in regards to its 2018 and 2019 BTC, repurchase of some of the 2036 convertible senior notes, and for capital expenditures.

At June 30, accounts receivable were $251 million, a decrease of $608 million from Dec. 31. The decrease in accounts receivable was due primarily to receipt of the remaining retroactive 2018 and 2019 BTC claims. At June 30, accounts payable were $182 million, a decrease of $187 million from Dec. 31. The decrease in accounts payable is due primarily to tax sharing payments to customers related to the 2018 and 2019 BTC.

Second quarter highlights (non-GAAP)

All figures refer to the quarter ended June 30, 2020, unless otherwise noted. All comparisons are to the quarter ended June 30, 2019, unless otherwise noted. Adjusted amounts reflect the allocation of the BTC benefits for the period in which the gallons were sold.

Operating loss as adjusted was $4 million, a decrease of $28 million resulting from the decrease in margins and lower volume, partially offset by an increase in California LCFS credits and higher BTC revenue.

Net income available to common stockholders as adjusted was $1 million compared to a net income of $20 million in Q2 2019. Adjusted EBITDA was $8 million compared to $36 million in Q2 2019, all as a result of the same factors as those described above for operating loss. Note that some of the risk management gains recognized in Q1 apply to Q2 gallons. Of the $54 million risk management gain we recognized in Q1, around 60 percent of that reflected risk coverage of future sales.

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

 

 
 
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