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Renewable Energy Group Reports Fourth Quarter and Full Year 2019 Financial Results

Fourth Quarter 2019 Highlights:

  • 152.9 million gallons of fuel sold
  • 113.7 million gallons produced
  • Revenues of $1.0 billion, inclusive of the retroactive reinstatement of the Biodiesel Mixture Excise Tax Credit (BTC) for 2018 and 2019
  • Net income from continuing operations available to common stockholders of $492.6 million, or $11.52 per diluted share, including the BTC
  • Adjusted EBITDA of $65.0 million
  • Retroactive reinstatement of the BTC for 2018 and 2019 and extension for 2020-2022
  • Net cash benefit of $499.4 million from the BTC reinstatement for 2018 and 2019 is expected to be received in the second quarter of 2020

Full Year 2019 Highlights:

  • 700.3 million gallons of fuel sold
  • 494.7 million gallons produced
  • Revenues of $2.6 billion, including the BTC
  • Net income from continuing operations available to common stockholders of $381.1 million, or $9.01 per diluted share, including the BTC
  • Adjusted EBITDA of $217.9 million
  • Carbon reduction from REG produced biomass-based diesel of 3.7 million metric tons
  • Record safety achievement: 0.44 OSHA incident rate (which is better than both industry average and industry leader)

Renewable Energy Group, Inc. (NASDAQ:REGI) ("REG" or the "Company") today announced its financial results for the fourth quarter and full year ended December 31, 2019.

REG President and Chief Executive Officer 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 December 20, 2019, the 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 December 31, 2019.

Warner continued, "We welcome, and are grateful for Congress’ strong support of our industry with the reinstatement and multi-year extension of the BTC. This will provide us around half a billion dollars in cash related to our 2018-2019 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 December 31, 2019, unless otherwise noted. All comparisons are to the quarter ended December 31, 2018, unless otherwise noted.

REG sold 152.9 million total gallons of fuel, a decrease of 6.3%. 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 5.0 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%. 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 2019. In contrast, renewable diesel production increased 5.2% as the Company pursued attractive margin opportunities, most notably in the Nordics.

Revenues increased $498.4 million to $1,018.2 million, 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% 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%. After allocation of the BTC benefits for the period in which the gallons were sold (shown in the table below), 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 $45.0 million and a $15.9 million decrease in North America biodiesel margins driven mostly by lower spreads, as shown on the table below represented by the HOBO spread including RINs. 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 $0.66 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 $87.0 million.

Adjusted EBITDA was $65.0 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 December 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 December 31, 2019, accounts receivable were $858.9 million, an increase of $777.9 million from September 30, 2019. This large increase was primarily due to the receivables associated with the 2018 and 2019 BTC. At December 31, 2019, accounts payable were $369.2 million, an increase of $273.8 million from September 30, 2019. The increase is primarily due to payments due to customers related to sharing of the 2018 and 2019 BTC proceeds.

The table below summarizes REG’s financial results for Q4 2019, as reported and as adjusted in order to reflect the allocation of the BTC benefits for the period in which associated gallons were sold.

REG Q4 2019 Results

(dollars and gallons in thousands, except per gallon data)

 

 

Q4 2019

 

Q4 2018

 

Y/Y Change

Gallons sold

 

152,913

 

 

163,159

 

 

(6.3

)%

 

 

 

 

 

 

 

GAAP (1)

 

 

 

 

 

 

Total revenues

 

$

1,018,169

 

 

$

519,761

 

 

95.9

 %

Risk management gain (loss)

 

$

(3,774

)

 

$

41,273

 

 

N/M 

Operating income

 

$

503,910

 

 

$

33,405

 

 

1,408.5

 %

Net income from continuing operations available to common stockholders

 

$

492,556

 

 

$

30,448

 

 

1,517.7

 %

 

 

 

 

 

 

 

Excluding all BTC - Non GAAP

 

 

 

 

 

 

ASP per gallon

 

$

2.90

 

 

$

2.82

 

 

2.8

 %

Total revenues

 

$

511,428

 

 

$

519,761

 

 

(1.6

)%

Risk management gain (loss)(2)

 

$

(3,774

)

 

$

41,273

 

 

N/M 

Adjusted EBITDA

 

$

16,158

 

 

$

45,090

 

 

(64.2

)%

 

 

 

 

 

 

 

BTC Allocated to Period Earned - Non GAAP (3)

 

 

 

 

 

 

Total revenues

 

$

571,988

 

 

$

575,044

 

 

(0.5

)%

Risk management gain (loss)(2)

 

$

(3,774

)

 

$

41,273

 

 

N/M 

Operating income

 

$

53,300

 

 

$

91,483

 

 

(41.7

)%

Net income from continuing operations available to common stockholders

 

$

50,868

 

 

$

87,003

 

 

(41.5

)%

Adjusted EBITDA

 

$

64,962

 

 

$

103,168

 

 

(37.0

)%

(1) GAAP results reflect recognition in Q4 2019 of all BTC benefits earned in 2018 and 2019.
(2) Risk management gain (loss) is a GAAP measure.
(3) BTC benefits are allocated to the respective periods when associated gallons were sold.

Full Year 2019 Results

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

REG sold 700.3 million total gallons, an increase of 7.9% 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 7.0 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 2019. In contrast, renewable diesel production increased 7.2% 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%. 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% increase in gallons sold, which was partially offset by a 9.2% 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 (shown in the table below), 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 shown on the table below represented by the HOBO spread including RINs. 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 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 $327.0 million.

Adjusted EBITDA was $217.9 million, compared to $388.3 million in 2018. The Company's Adjusted EBITDA margins were 8.3% and 16.3% 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% and 16.1%, respectively. The differential drivers are the same as those described above for operating income.

The table below summarizes the quarterly and annual results for 2019 and 2018:

REG Annual Results Summary

(dollars and gallons in thousands except per gallon data)

 

 

1Q

 

2Q

 

3Q

 

4Q

 

Year

Gallons sold 2019

 

162,452

 

 

197,377

 

 

187,531

 

 

152,913

 

 

700,273

 

Gallons sold 2018

 

135,254

 

 

171,943

 

 

178,798

 

 

163,159

 

 

649,154

 

Y/Y Change

 

20.1

 %

 

14.8

 %

 

4.9

 %

 

(6.3

)%

 

7.9

 %

 

 

 

 

 

 

 

 

 

 

 

ASP per gallon 2019, excluding the BTC

 

$

2.65

 

 

$

2.70

 

 

$

2.76

 

 

$

2.90

 

 

$

2.75

 

ASP per gallon 2018, excluding the BTC

 

$

3.18

 

 

$

3.11

 

 

$

3.03

 

 

$

2.82

 

 

$

3.03

 

Y/Y Change

 

(16.7

)%

 

(13.2

)%

 

(8.9

)%

 

2.8

 %

 

(9.2

)%

 

 

 

 

 

 

 

 

 

 

 

Total revenues 2019

 

$

478,209

 

 

$

560,643

 

 

$

584,372

 

 

$

1,018,169

 

 

$

2,641,393

 

Total revenues 2018

 

$

688,002

 

 

$

578,900

 

 

$

596,324

 

 

$

519,761

 

 

$

2,382,987

 

Y/Y Change

 

(30.5

)%

 

(3.2

)%

 

(2.0

)%

 

95.9

 %

 

10.8

 %

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations available to common stockholders 2019

 

$

(41,387

)

 

$

(57,635

)

 

$

(13,753

)

 

$

492,556

 

 

$

381,112

 

Net income from continuing operations available to common stockholders 2018

 

$

212,608

 

 

$

28,277

 

 

$

24,799

 

 

$

30,448

 

 

$

295,804

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA 2019, including BTC allocation (1)

 

$

29,025

 

 

$

36,156

 

 

$

87,790

 

 

$

64,962

 

 

$

217,933

 

Adjusted EBITDA 2018, including BTC allocation (1)

 

$

63,800

 

 

$

110,771

 

 

$

110,562

 

 

$

103,168

 

 

$

388,301

 

Y/Y Change

 

(54.5

)%

 

(67.4

)%

 

(20.6

)%

 

(37.0

)%

 

(43.9

)%

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA including BTC allocation margin 2019 (1) (2)

 

6.1

 %

 

6.4

 %

 

15.0

 %

 

6.4

 %

 

8.3

 %

Adjusted EBITDA including BTC allocation margin 2018 (1) (2)

 

9.3

 %

 

19.1

 %

 

18.5

 %

 

19.8

 %

 

16.3

 %

(1) See Adjusted EBITDA Reconciliation below.
(2) Adjusted EBITDA margin represents Adjusted EBITDA including BTC allocation divided by Total Revenues.

The table below summarizes REG's financial results for 2019, as reported and as adjusted to reflect allocation of the BTC benefits for the period in which the gallons were sold.

REG 2019 Results

(dollars and gallons in thousands, except per gallon data)

 

 

2019

 

2018

 

Y/Y Change

Gallons sold

 

700,273

 

 

649,154

 

 

7.9

 %

 

 

 

 

 

 

 

GAAP (1)

 

 

 

 

 

 

Total revenues

 

$

2,641,393

 

 

$

2,382,987

 

 

10.8

 %

Risk management gain (loss)

 

$

(28,898

)

 

$

18,399

 

 

N/M 

Operating income

 

$

399,652

 

 

$

312,373

 

 

27.9

 %

Net income from continuing operations available to common stockholders

 

$

381,112

 

 

$

295,804

 

 

28.8

 %

 

 

 

 

 

 

 

BTC Allocated to Period Earned - Non GAAP (2)

 

 

 

 

 

 

Total revenues

 

$

2,404,011

 

 

$

2,411,286

 

 

(0.3

)%

Risk management gain (loss)(3)

 

$

(28,898

)

 

$

18,399

 

 

N/M 

Operating income

 

$

161,088

 

 

$

344,413

 

 

(53.2

)%

Net income from continuing operations available to common stockholders

 

$

147,824

 

 

$

327,018

 

 

(54.8

)%

Adjusted EBITDA

 

$

217,933

 

 

$

388,301

 

 

(43.9

)%

LCFS one-time differential

 

$

(30,000

)

 

$

 

 

N/M 

HOBO spread including RINs

 

$

1.46

 

 

$

1.65

 

 

(11.5

)%

(1) GAAP results reflect recognition in Q4 2019 of all BTC benefits earned in 2018 and 2019.
(2) BTC benefits are allocated to the respective periods when associated gallons were sold.
(3) Risk management gain (loss) is a GAAP measure.

Adjusted EBITDA Reconciliation

The Company uses earnings before interest, taxes, depreciation and amortization, adjusted for certain additional items, identified in the table below, or Adjusted EBITDA, as a supplemental performance measure. Adjusted EBITDA is presented in order to assist investors in analyzing performance across reporting periods on a consistent basis by excluding items that are not believed to be indicative of core operating performance. Adjusted EBITDA is used by the Company to evaluate, assess and benchmark financial performance on a consistent and a comparable basis and as a factor in determining incentive compensation for company executives.

The following table sets forth Adjusted EBITDA for the periods presented, as well as a reconciliation to net income (loss) determined in accordance with GAAP for the applicable period:

...

 

 

 

 

 

 

 

 

 

 

Year ended

 

 

 

 

 

 

 

 

 

Year ended

(In thousands)

 

December 31,

December 31,

 

 

1Q-2019

 

2Q-2019

 

3Q-2019

 

4Q-2019

 

2019

 

1Q-2018

 

2Q-2018

 

3Q-2018

 

4Q-2018

 

2018

Net income (loss) from continuing operations

 

$

(41,387

)

 

$

(57,635

)

 

$

(13,753

)

 

$

502,506

 

 

$

389,731

 

 

$

217,844

 

 

$

29,042

 

 

$

25,472

 

 

$

31,270

 

 

$

303,628

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

4,219

 

 

3,737

 

 

2,866

 

 

1,354

 

 

12,176

 

 

4,651

 

 

4,925

 

 

4,003

 

 

3,955

 

 

17,534

 

Income tax (benefit) expense

 

(430

)

 

(90

)

 

(629

)

 

579

 

 

(570

)

 

(1,203

)

 

3,835

 

 

854

 

 

2,385

 

 

5,871

 

Depreciation

 

9,099

 

 

9,142

 

 

9,107

 

 

8,950

 

 

36,298

 

 

8,739

 

 

9,004

 

 

8,977

 

 

9,604

 

 

36,324

 

Amortization of intangible assets

 

334

 

 

510

 

 

397

 

 

391

 

 

1,632

 

 

42

 

 

44

 

 

52

 

 

45

 

 

183

 

EBITDA

 

(28,165

)

 

(44,336

)

 

(2,012

)

 

513,780

 

 

439,267

 

 

230,073

 

 

46,850

 

 

39,358

 

 

47,259

 

 

363,540

 

Gain on involuntary conversion

 

 

 

 

 

 

 

 

 

 

 

(4,000

)

 

(454

)

 

 

 

(3

)

 

(4,457

)

Gain on sale of assets

 

 

 

 

 

 

 

 

 

 

 

(990

)

 

 

 

(13

)

 

(2

)

 

(1,005

)

Change in fair value of contingent consideration

 

304

 

 

398

 

 

(136

)

 

 

 

566

 

 

458

 

 

30

 

 

185

 

 

444

 

 

1,117

 

(Gain) loss on debt extinguishment

 

2

 

 

 

 

 

 

(490

)

 

(488

)

 

232

 

 

(2,337

)

 

(788

)

 

(3,404

)

 

(6,297

)

Other expense, net

 

(854

)

 

(691

)

 

(179

)

 

(39

)

 

(1,763

)

 

(225

)

 

(2,067

)

 

(486

)

 

(1,240

)

 

(4,018

)

Impairment of assets

 

 

 

468

 

 

11,145

 

 

595

 

 

12,208