Renewable Energy Group Reports Second Quarter 2014 Financial Results

 

Renewable Energy Group Reports Second Quarter 2014 Financial Results

Q2 2014 Highlights

  • 77 million gallons sold, up 11% y/y
  • 56 million gallons produced, down 1% y/y
  • Net income of $11 million
  • Adjusted EBITDA of $6 million
  • Total assets surpassed $1 billion
  • Completed acquisitions of Syntroleum Corporation and Dynamic Fuels, LLC
  • Executed $143.75 million convertible debt financing

Ames, IA, August 4, 2014 - Renewable Energy Group, Inc. ("REG" or the "Company") (NASDAQ:REGI) today announced its financial results for the second quarter ended June 30, 2014.

Revenues for the quarter were $332.9 million. Compared to the second quarter of 2013, REG sold 11% more gallons of biomass-based diesel, while revenue decreased by 13% and adjusted EBITDA decreased by 86%.

"Our second quarter results demonstrate the resilience of our business in the face of challenging market conditions," said Daniel J. Oh, President and Chief Executive Officer.  "We believe the industry has worked through the excess inventory from year-end and we have seen demand increase since the first quarter."

Oh continued, "During second quarter, REG demonstrated its ability to operate an expanding business while also investing for future growth. On top of ramping up gallons sold 63% from first quarter, we executed a complex series of transactions in order to acquire Syntroleum and Dynamic Fuels. Integration of both are underway and we are excited about the new employees, technology and products added to REG. With these acquisitions, our total assets now exceed $1 billion."

Second Quarter 2014 Operating Highlights 

For the second quarter, REG sold 77.2 million gallons of biodiesel, an increase of 11% compared to the second quarter of 2013. REG produced 56.2 million gallons of biodiesel during the quarter, a 1% decrease when compared to the second quarter of 2013. The balance of the gallons sold consisted of 10.1 million gallons purchased from third parties and resold through the Company’s distribution network and 10.9 million gallons from inventory.

REG continues to actively prepare for future production growth. The Company's two most recent biodiesel acquisitions, REG Mason City and REG New Boston, are now able to run at nameplate capacity. All upgrades are complete at REG Albert Lea, while previously announced upgrades to increase feedstock flexibility are progressing at REG Newton and REG Mason City.  The Company also prepared for future improvements at its Danville, Illinois facility with the acquisition and rezoning of adjacent land. Finally, REG maintains a toll manufacturing arrangement that offers additional production capacity flexibility.

As announced in early June, the Company launched REG Synthetic Fuels, LLC with the acquisition of Syntroleum Corporation, which included Syntroleum’s 50% interest in Dynamic Fuels, a 75-million gallon per year nameplate capacity renewable diesel biorefinery located in Geismar, Louisiana. REG Synthetic Fuels acquired the remaining 50% of Dynamic Fuels from Tyson Foods a few days after the Syntroleum acquisition.  Dynamic Fuels, LLC was renamed REG Geismar following the acquisition.

Second Quarter 2014 Financial Results 

All figures refer to the quarter ending June 30, 2014, unless otherwise noted. 

Revenues of $332.9 million decreased 13% when compared to the second quarter of 2013. The decline is attributable to a reduction in average sales price and lower RIN prices, which more than offset the 11% increase in gallons sold. The average price per gallon of biodiesel sold during the second quarter was $3.67, 21.4% lower than in the same quarter of 2013.

Gross profit was $15.2 million, or 4.6% of revenues, compared to gross profit of $50.2 million, or 13.0% of revenues, for the second quarter of 2013. The decrease in gross profit resulted from margin compression caused by lower selling prices.

Operating loss was $0.5 million, compared to operating income of $39.0 million for the second quarter of 2013.

Net income attributable to common stockholders was $10.8 million, or $0.27 per share on a fully diluted basis. This compares to net income of $19.6 million, or $0.62 per share on a fully diluted basis in the second quarter of 2013. For the second quarter of 2014, a tax benefit of $11.9 million was recognized primarily from the release of a valuation allowance resulting from recording deferred tax liabilities related to the acquisitions of Syntroleum and Dynamic Fuels and the convertible debt offering.

Second Quarter 2014 Balance Sheet 

At June 30, 2014, REG had liquid assets, which includes cash, cash equivalents and marketable securities, of $125.9 million, a decrease of $10.2 million during the quarter. REG raised $139.2 million in cash from the convertible debt financing. Of those funds, $101.3 million was put in escrow as restricted cash supporting  REG Geismar’s obligation on $100 million of Gulf Opportunity Zone Bonds issued for Dynamic Fuels in 2008, $30 million was used to acquire Tyson Foods, Inc.'s interest in Dynamic Fuels, LLC and $11.9 million to acquire a capped call relating to the convertible debt.

At June 30, 2014, accounts receivable were $48.4 million, or 13 days of sales, an increase of $17.4 million from March 31, 2014. Inventory was $70.2 million, or 20 days of sales, a decrease of $23.9 million during the quarter.

The table below summarizes REG’s results for Q2 2014.

REG Q2 2014 Revenues and Adjusted EBITDA Summary

(dollars and gallons in thousands)

 

 

Q2 2014 

 

Q2 2013 

 

Y/Y Change 

Gallons sold

77,173

 

 

69,224

 

 

11.5 

% 

Average selling price

$

3.67

 

 

$

4.67

 

 

(21.4 

)% 

Total revenues

$

332,918

 

 

$

384,735

 

 

(13.5 

)% 

Adjusted EBITDA

$

5,698

 

 

$

41,927

 

 

(86.4 

)% 

Adjusted EBITDA margin (1)

1.7 

% 

 

10.8 

% 

 

 

 

 

(1)

Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of total revenues.

Adjusted EBITDA Reconciliation 

The Company uses earnings before interest, taxes, depreciation and amortization, and further 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 reconciliation to net income:

 

 

Three Months
 Ended   June 30,   2014
 

 

Three Months
 Ended   June 30,   2013
 

 

Six Months
 Ended   June 30,   2014
 

 

Six Months
 Ended   June 30,   2013
 

(In thousands) 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

11,007

 

 

$

23,130

 

 

$

8,648

 

 

$

69,533

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

(11,919

)

 

15,314

 

 

(12,026

)

 

45,503

 

Interest expense

1,204

 

 

604

 

 

1,755

 

 

1,180

 

Other (income) expense, net

(384

)

 

(93

)

 

(432

)

 

(210

)

Change in fair value of contingent liability

(384

)

 

 

 

(384

)

 

 

Straight-line lease expense

(150

)

 

(162

)

 

(313

)

 

(321

)

Depreciation

3,190

 

 

2,296

 

 

6,194

 

 

4,376

 

Amortization

(184

)

 

(191

)

 

(369

)

 

(390

)

Non-recurring lease cancellation (1)

1,904

 

 

 

 

1,904

 

 

 

Non-recurring business interruption

 

 

 

 

 

 

(863

)

Non-cash stock compensation

1,414

 

 

1,029

 

 

2,649

 

 

2,385

 

Adjusted EBITDA before 2012 blenders tax credit is allocated into historical results 

5,698 

 

 

41,927 

 

 

7,626 

 

 

121,193 

 

2012 Retroactive biodiesel tax credit (2)

 

 

(373

)

 

 

 

(57,745

)

Adjusted EBITDA 

$ 

5,698 

 

 

$ 

41,554 

 

 

$ 

7,626 

 

 

$ 

63,448 

 

 

(1)

In April 2014, we bought out the remaining life of the land lease at our Danville, Illinois facility and subsequently purchased the land. The amount represents the portion related to canceling the lease.

(2)

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which reinstated a set of tax extender items including the reinstatement of the federal Biodiesel Mixture Excise Tax Credit for 2013 and the retroactive reinstatement of the credit for 2012. The retroactive credit for 2012 resulted in a net benefit to REG that was recognized in the first quarter of 2013, but which relates to the operating performance and results during 2012 and is thus reallocated to 2012.

Adjusted EBITDA is a supplemental performance measure that is not required by, or presented in accordance with, generally accepted accounting principles, or GAAP. Adjusted EBITDA should not be considered as an alternative to net income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flows from operating activities or a measure of liquidity or profitability. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for any of the results as reported under GAAP. Some of these limitations are:

Ÿ

Adjusted EBITDA does not reflect cash expenditures for capital assets or the impact of certain cash uses that we consider not to be an indication of ongoing operations;

Ÿ

Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital requirements;

Ÿ

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on indebtedness;

Ÿ

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements;

Ÿ

Stock-based compensation expense is an important element of the Company’s long term incentive compensation program, although we have excluded it as an expense when evaluating our operating performance; and

Ÿ

Other companies, including other companies in the same industry, may calculate these measures differently, limiting their usefulness as a comparative measure.

About Renewable Energy Group 

Renewable Energy Group, Inc. is a leading North American advanced biofuels producer and developer of renewable chemicals. REG utilizes a nationwide production, distribution and logistics system as part of an integrated value chain model to focus on converting natural fats, oils and greases into advanced biofuels and converting diverse feedstocks into renewable chemicals. With 10 active biorefineries across the country, research and development capabilities, and a diverse and growing intellectual property portfolio, REG is committed to being a long-term leader in bio-based fuels and chemicals.

For more than a decade, REG has been a reliable supplier of advanced biofuels which meet or exceed ASTM quality specifications. REG sells REG-9000™ biodiesel to distributors so consumers can have cleaner burning fuels that help diversify the energy complex and increase energy security. REG-9000™ biodiesel is distributed in most states in the U.S. REG also markets ultra-low sulfur diesel and heating oil in the northeastern US.

Note Regarding Forward-Looking Statements 

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including statements regarding the Company's future growth and the integration of Syntroleum and Dynamic Fuels. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, potential changes in governmental programs and policies requiring or encouraging the use of biofuels, including RFS2; changes in the spread between biodiesel prices and feedstock costs; the future price and volatility of feedstocks; the future price and volatility of petroleum and products derived from petroleum; availability of federal and state governmental tax credits and incentives for biodiesel production; the effect of excess capacity in the biodiesel industry; unanticipated changes in the biodiesel market from which we generate almost all of our revenues; seasonal fluctuations in our operating results; competition in the markets in which we operate; our dependence on sales to a single customer; technological advances or new  methods of biodiesel production or the development of energy alternatives to biodiesel; our ability to successfully implement our acquisition strategy; our ability to use the technology acquired from LS9 to produce renewable chemicals, fuels and other products on a commercial scale and at a competitive cost, and customer acceptance of the products produced; our ability to successfully integrate Syntroleum’s and Dynamic Fuels' assets and employees into our existing business; whether the Dynamic Fuels, LLC renewable diesel plant, will be able to produce renewable diesel profitably, if at all; and other risks and uncertainties described from time to time in REG’s annual report on Form 10-K, quarterly reports on Forms 10-Q and other periodic filings with the Securities and Exchange Commission. All forward-looking statements are made as of the date of this press release and REG does not undertake to update any forward-looking statements based on new developments or changes in our expectations.

Contacts 

 

Investor Relations:

ICR, LLC

Gary Dvorchak, CFA

Senior Vice President

+1 (310) 954-1123

gary.dvorchak@icrinc.com

 

Company:

Renewable Energy Group, Inc.

Todd Robinson

Director, Investor Relations

+1 (515) 239-8048

Todd.Robinson@regi.com

 


RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013

(in thousands, except share and per share amounts)

 

 

Three months ended 

 

Six months ended 

 

June 30, 2014 

 

June 30, 2013 

 

June 30, 2014 

 

June 30, 2013 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

Biodiesel sales

$

327,837

 

 

$

340,111

 

 

$

536,959

 

 

$

529,366

 

Biodiesel government incentives

5,022

 

 

44,577

 

 

14,912

 

 

119,648

 

 

332,859

 

 

384,688

 

 

551,871

 

 

649,014

 

Services

59

 

 

47

 

 

87

 

 

89

 

 

332,918

 

 

384,735

 

 

551,958

 

 

649,103

 

COSTS OF GOODS SOLD:

 

 

 

 

 

 

 

 

 

 

 

Biodiesel

317,745

 

 

334,485

 

 

525,196

 

 

512,098

 

Services

22

 

 

69

 

 

47

 

 

129

 

 

317,767

 

 

334,554

 

 

525,243

 

 

512,227

 

GROSS PROFIT

15,151

 

 

50,181

 

 

26,715

 

 

136,876

 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

15,627

 

 

11,226

 

 

29,154

 

 

20,870

 

INCOME (LOSS) FROM OPERATIONS

(476

)

 

38,955

 

 

(2,439

)

 

116,006

 

OTHER INCOME (EXPENSE), NET:

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of contingent consideration

384

 

 

 

 

384

 

 

 

Other income

384

 

 

93

 

 

432

 

 

210

 

Interest expense

(1,204

)

 

(604

)

 

(1,755

)

 

(1,180

)

 

(436

)

 

(511

)

 

(939

)

 

(970

)

INCOME (LOSS) BEFORE INCOME TAXES

(912

)

 

38,444

 

 

(3,378

)

 

115,036

 

INCOME TAX BENEFIT (EXPENSE)

11,919

 

 

(15,314

)

 

12,026

 

 

(45,503

)

NET INCOME

11,007

 

 

23,130

 

 

8,648

 

 

69,533

 

PLUS—GAIN ON REDEMPTION OF PREFERRED STOCK

 

 

 

 

378

 

 

 

PLUS—CHANGE IN UNDISTRIBUTED DIVIDENDS ALLOCATED TO PREFERRED STOCKHOLDERS

 

 

839

 

 

 

 

 

LESS—DISTRIBUTED DIVIDENDS TO PREFERRED STOCKHOLDERS

 

 

(1,590

)

 

(40

)

 

(1,590

)

LESS—EFFECT OF PARTICIPATING PREFERRED STOCK

 

 

(2,491

)

 

 

 

(9,001

)

LESS—EFFECT OF PARTICIPATING SHARE-BASED AWARDS

(172

)

 

(315

)

 

(128

)

 

(935

)

NET INCOME ATTRIBUTABLE TO THE COMPANY’S COMMON STOCKHOLDERS

$

10,835

 

 

$

19,573

 

 

$

8,858

 

 

$

58,007

 

NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

BASIC

$

0.27

 

 

$

0.63

 

 

$

0.23

 

 

$

1.87

 

DILUTED

$

0.27

 

 

$

0.62

 

 

$

0.22

 

 

$

1.87

 

WEIGHTED AVERAGE SHARES USED TO COMPUTE NET INCOME PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS:

 

 

 

 

 

 

 

 

 

 

 

BASIC

39,939,346

 

 

31,292,910

 

 

39,119,430

 

 

30,967,903

 

DILUTED

39,954,587

 

 

36,683,764

 

 

39,129,136

 

 

36,655,958

 

 

 

 


RENEWABLE ENERGY GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

AS OF JUNE 30, 2014 AND DECEMBER 31, 2013

(in thousands, except share and per share amounts)

 

 

June 30, 2014 

 

December 31, 2013 

ASSETS 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

$

55,623

 

 

$

153,227

 

Marketable securities

70,289

 

 

 

Accounts receivable, net

48,419

 

 

82,911

 

Inventories

70,151

 

 

85,814

 

Prepaid expenses and other assets

40,302

 

 

25,568

 

Total current assets

284,784

 

 

347,520

 

Property, plant and equipment, net

445,969

 

 

286,044

 

Property, plant and equipment, net—variable interest entity

5,066

 

 

5,180

 

Goodwill

175,472

 

 

84,864

 

Intangible assets, net

29,753

 

 

4,867

 

Other assets

26,737

 

 

12,380

 

Restricted cash

101,315

 

 

 

TOTAL ASSETS

$

1,069,096

 

 

$

740,855

 

LIABILITIES AND EQUITY 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Revolving line of credit

$

19,825

 

 

$

10,986

 

Current maturities of long-term debt

6,557

 

 

6,729

 

Current maturities of long-term debt—variable interest entity

303

 

 

300

 

Accounts payable

49,688

 

 

48,727

 

Accrued expenses and other liabilities

12,935

 

 

12,305

 

Deferred income taxes

4,873

 

 

3,687

 

Deferred revenue

3,004

 

 

15,503

 

Total current liabilities

97,185

 

 

98,237

 

Unfavorable lease obligation

7,341

 

 

7,905

 

Deferred income taxes

2,955

 

 

2,691

 

Contingent consideration for acquisitions

40,470

 

 

 

Long-term debt

239,080

 

 

23,422

 

Long-term debt—variable interest entity

3,578

 

 

3,729

 

Other liabilities

4,834

 

 

6,838

 

Total liabilities

395,443

 

 

142,822

 

COMMITMENTS AND CONTINGENCIES (Note 15)

 

 

 

 

 

Series B preferred stock ($.0001 par value; 3,000,000 shares authorized; 0 and 143,313 shares outstanding; redemption amount $0 and $3,583, respectively)

 

 

3,963

 

EQUITY:

 

 

 

 

 

Company stockholders’ equity:

 

 

 

 

 

Common stock ($.0001 par value; 300,000,000 shares authorized; 42,306,595 and 36,506,221 shares outstanding, respectively)

4

 

 

4

 

Common stock—additional paid-in-capital

430,290

 

 

359,671

 

Warrants—additional paid-in-capital

147

 

 

147

 

Retained earnings

247,120

 

 

238,134

 

Accumulated other comprehensive loss

(22

)

 

 

Treasury stock (530,898 and 530,898 shares outstanding, respectively)

(3,886

)

 

(3,886

)

Total stockholders’ equity

673,653

 

 

594,070

 

TOTAL LIABILITIES AND EQUITY

$

1,069,096

 

 

$

740,855