REG reports 3Q financials, adjusted EBITDA at a $2.3M loss

By Renewable Energy Group Inc. | November 06, 2012

Revenues for the third quarter were $322.9 million, an increase of 26 percent compared to revenues of $256.5 million for the same period in 2011. Third quarter 2012 adjusted EBITDA was a loss of $2.3 million, a decrease of 105 percent compared to $46.7 million for the same period in 2011. The balance sheet remained strong with cash of $88.3 million at the close of the quarter, compared to $87.1 million at June 30, 2012.

“REG achieved meaningful success in the quarter, even with the adjusted EBITDA loss that was caused by accounting for risk management positions and RIN price declines,” said Daniel J. Oh, president and CEO of REG. “Our revenues continued to increase, our gallons sold were up 40 percent compared to third quarter 2011, we acquired additional production capacity at an attractive price, and we expanded distribution.”

Oh continued, “We remain optimistic about the growing biodiesel industry and are especially pleased with EPA’s formalized 2013 Renewable Volume Obligation. With an RVO that is 28 percent above this year’s, the industry demand outlook is solid. Our acquisition of the New Boston, Texas, facility is evidence of our long-term confidence and our commitment to remain a leader in the industry.”

Operating Highlights

REG produced 45 million gallons of biodiesel in the third quarter of 2012, compared to 39 million gallons in the same period in 2011. REG sold 62 million gallons of biodiesel in the third quarter, an increase of 40 percent compared to the same period in 2011. The increase in gallons sold was primarily due to increased production capacity compared to last year as well as greater distribution capabilities from new terminal locations.

REG executed its plan to grow its domestic distribution footprint by commencing sales at two new terminals in the western U.S. In late July, the company opened a sales terminal at its partially constructed biorefinery in Clovis, N.M. In August, the company began sales to West Coast regional distributors from a new terminal agreement near Long Beach, Calif.

After the close of the quarter, REG acquired a 15 MMgy capacity, multifeedstock biorefinery in New Boston, Texas, near Texarkana. The company purchased the off-line refinery for 900,000 shares of common stock and $0.3 million cash. The acquisition will expand the company’s nameplate capacity to 227 MMgy, strengthening its leadership position within the industry. The company expects to commence production at New Boston within the first quarter of 2013.

Third Quarter 2012 Financial Results

Revenues for the third quarter were $322.9 million, representing a 25.9 percent increase over the third quarter of 2011. Revenue growth was driven by a 40 percent year-over-year increase in gallons sold, offset by a 22 percent decline in average selling price during the same time period. Average selling price declined mostly due to a sharp drop in RIN prices late in the quarter.

Gross profit for the quarter was 0.9 percent, which compares to 21.3 percent in the prior year period. Gross profit was impacted negatively by two factors: the accounting for risk management positions, and the severe decline in RIN prices late in the quarter.

Biodiesel cost of goods sold includes an $18 million loss on risk management contracts. This was largely a function of timing and the result of large movements in heating oil and soybean oil price indices in late September as well as an adjustment of $8.2 million on RIN inventory to reflect the lower of cost or market as of Sept. 30, 2012.

Adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization declined 105 percent year-over-year to a loss of $2.3 million. REG generated cash flow from operations of $6.2 million in the quarter, a decline of 62 percent from the $16 million generated in the prior year period.

REG Q3 2012 Revenue and Adjusted EBITDA Summary

(dollars and gallons in thousands)


 

 

 

 

 

 

 

 

 
     

Q3 2012

   

Q3 2011

   

Change

                 

 

Gallons sold

   

61,699

   

44,217

   

+40%

                 

 

Revenues

   

$322,912

   

$256,502

   

+26%

                 

 

Cash flow from Operations

   

$6,168

   

$16,034

   

-62%

                 

 

                 

 

Adjusted EBITDA

   

($2,288)

   

$46,714

   

-105%

                 

 

Adjusted EBITDA Margin

 

 

-0.7%

 

 

18.2%

 

 

 

Balance Sheet and Liquidity

At Sept. 30, 2012, REG had cash and cash equivalents of $88.3 million. Operating cash flow for the quarter was negatively impacted by a $10.6 million increase in accounts receivable and an $8.9 million reduction in accounts payable. Accounts receivable grew due to increasing sales volume during the quarter. The negative impacts were more than offset by a $19.3 million reduction in inventories. The inventory decline was balanced between a reduction in raw materials as REG drew down feedstock purchased in earlier periods at favorable prices and a reduction in finished goods.

Of the $6.2 million of operating cash flow generated in the quarter, $2 million was deployed in capital expenditures, $2.7 million was used to repurchase shares due to tax net settlement on vesting securities, $0.3 was used for a slight reduction in debt, and the remaining $1.2 million increased cash.

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 noncash 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. NonGAAP 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.



 

 

 

 
     

Three Months Ended

 

Nine Months Ended

     

September 30,

 

September 30,

(In thousands)

   

2012

 

2011

 

2012

 

2011

                 

 

Net income (loss)

   

$

(6,040

)

 

$

(2,007

)

 

$

22,410

   

$

781

 
                 

 

Adjustments:

                 

Income from equity investments

     

-

     

(649

)

   

-

     

(501

)

Income tax expense (benefit)

     

(2,165

)

   

4,752

     

3,669

     

4,752

 

Interest expense

     

1,150

     

2,183

     

3,262

     

5,642

 

Other (income) expense, net

     

(56

)

   

(239

)

   

(121

)

   

(713

)

Change in fair value of Seneca Holdco liability

     

-

     

977

     

(349

)

   

2,500

 

Change in fair value of preferred stock conversion feature embedded derivatives

     

-

     

38,483

     

(11,975

)

   

55,571

 

Expense settled with stock issuance

     

-

     

-

     

1,898

     

-

 

Straight-line lease expense

     

(31

)

   

393

     

(237

)

   

1,809

 

Depreciation

     

2,097

     

1,851

     

6,192

     

5,245

 

Amortization

     

(208

)

   

(97

)

   

(553

)

   

(351

)

Non-cash stock compensation

   

 

2,965

   

 

1,067

   

 

12,687

   

 

3,047

 
                 

 

Adjusted EBITDA

   

$

(2,288

)

 

$

46,714

   

$

36,883

   

$

77,782

 

 

 

 
 
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