Q3 2019 Earnings Call
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A renewable energy group.
Greetings and welcome to the renewable Energy Group incorporated Q3 2019 earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your tell.
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Please note that this conference is being recorded.
I'll now turn the conference over to your host Tom Todd Robinson Treasure of renewable Energy Group. Please go ahead Sir.
Thank you Jerry good afternoon, everyone and welcome to our third quarter 2019 earnings Conference call with me today, They're President and Chief Executive Officer, CJ, Warner and our Chief Financial Officer, Chad Stone, Let me cover a few housekeeping items before I turn the call over to CJ.
First I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our web site at our E. G. Dotcom a replay will be available on our website. Beginning later. This afternoon webcast includes an accompanying slide deck for your reference this will appear automatically with the webcast you will lead to advance the slides man.
Ladies we prompt you for those of you dialing in slide deck can be downloaded along with the earnings press release in Investor Relations section of our website.
Turning to slide three we would like to advise everyone that some of the information discussed on this call will contain forward looking statements. These statements involve risks uncertainties and assumptions that are difficult to predict in such forward looking statements are not a guarantee performance the company's actual results could differ materially from those contained in such statements.
Several factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our annual report on Form 10-K , and subsequent quarterly reports on Form 10-Q , which are on file with the FCC. These forward looking statements speak only as of the date of this call.
The company undertakes no obligation to publicly update any forward looking statements based on new information or revised expectation.
Today's discussion also includes non-GAAP financial measures. We believe these metrics will provide investors.
Hope investors assessed the operating performance of our core business. Please check the press release or the appendix to the accompanying slide deck for a reconciliation of the non-GAAP measures to the most comparable GAAP measure with that let me turn the call over to CJ Warner CJ. Thanks, Todd and good afternoon to those on the call today I will discuss our third quarter.
Operating highlights and the regulatory environment, and then Chad will provide more details on our financial results then I'll come back to discuss our outlook.
Results for the quarter were on plan with our gallon sold on adjusted EBITDA inline with expectations.
On slide four our adjusted EBITDA was $11 million when including our estimated net benefit from a retroactive BTC reinstatement. Our adjusted EBITDA would have been $88 million continued regulatory uncertainty suppressed margins during the quarter, regardless, we maintained ongoing safe and efficient operation.
This is delivered high quality products to our customers and continue to pull through improvements to underlying performance that are serving to reduce our dependence upon the BTC.
Sales volumes met expectations as we sold 188 million gallons up 5% versus third quarter 2018, we continue to focus our placement of gallon sold into the most profitable markets, which generally are those with the best local incentive programs, 83% of our total volume was sold into these incentivize markets.
Third quarter. This year, we sold 52 million more gallons into these markets compared to the same period last year.
Total gallons produced 137 million beneath that total as an enhanced mix specifically at Geismar on production was up 7% in the quarter and 12% year to date petroleum diesel sales, which are driven by our initiatives to increase gallons blended with biodiesel were also up.
Well, we increased renewable diesel volumes, we further improved our product slate by reducing production of marginal domestic biodiesel volumes. This was in response to the challenging market conditions caused by the uncertainty created by both the ongoing lapse or the BTC and the debate around the policy related to small refinery exemption.
Along these lines the industry has been waiting far too long for the reinstatement of the BTC. After nearly two years. The told the uncertainty is taking has increased substantially.
Many producers have been running at negative contribution margins in anticipation of the eventual retroactive BTC promise and are now stretch beyond their limits hundreds of millions of gallons of U.S. biodiesel production have now been cut through outright plant shutdowns or significant volume turned down at least a dozen biodiesel plants income.
Using our own new Boston refinery have shut down the inaction by Congress is not just abstract plant closures are causing real Americans to lose solid manufacturing base jobs and some of the biodiesel gallons may never return to the market. This is a very real unnecessary tragedy and it's a BTC is not the only regulatory and.
Certainty harming the industry in early August the EPA announced 31 small refinery exemptions for the 2018 compliance year equating to a loss of approximately 7.4% of the RFS required volumes.
These exemptions are in addition to that 35 exemptions given for the 2017 compliance year waving 9.4% of the required volumes there have been and continues to be considerable pushback from the renewable fuels and agricultural industries on the 2018 exemptions for that year. The industry believed there was.
Progress last month, when the president directed the EPA to properly account for the actual waived gallons.
However, the EPA back pedaled by issuing a proposed rule that would establish compliance obligations using estimated future as far east based on the department of energy recommendations not the actual waivers granted.
This would work out to only about half of the actual waived violence volumes as you can see on slide five that did not adhere to the presidents promise.
Debate on this matter remains active and we will continue to push for a process that requires the EPA to use actual away into volumes in setting future RV, yes.
His stated their goal of finalized this proposal by the end of the year.
The result of all this is that between the lack of a decision on the BTC reinstatement and all of the movement around small refinery exemptions industry has suffered the most difficult part of all of this is the government created uncertainty the industry has been caught in the middle operating under the promise of and beliefs in reinstatement of the beach.
See and RBL volumes, but without having the real time benefit of that DTC or market based RIN pricing. This has created a very poor margin environment.
Now having said all that I am pleased that we're beginning to see a shift in market conditions as the industry response.
As I mentioned earlier marginal volumes are starting to come off the market the resulting reduction in feedstock demand has begun to put pressure on feedstock prices and we have seen spot prices for distillers corn oil and animal fats drop from the August highs as shown on slide six.
Additionally, the industry slowdown is resulting in a drop in domestic biodiesel run production slide seven shows August and September RIN generation from us biodiesel plants off significantly from the prior year combined with other factors, we have seen before RIN prices increase dfour rins prices on Friday were trading over 60 cents per rig.
Which is an 18 month high.
And we see further room for in recovery based on the correlation between hobo spread to de for RIN price as shown on slide eight this slide demonstrates how 2019 RIN prices have been suppressed below the historical market based correlation.
We also continue to be encouraged by our legislators strong bipartisan support for BTC and their assurances that our retroactive reinstatement is forthcoming.
Should time continue to pass without a retroactive reinstatement of the BTC. However, we believe the nascent industry rationalization will continue marginal gallons will continue to come off the market fostering further adjustment of the feedstock market and RIN prices and improving margin.
Meanwhile, we've been focused on our downstream strategy and are excited about the progress to date, but more importantly, the future as we believe demand for both cleaner viewing cleaner burning transportation fuel and heating oil is accelerating our downstream strategy enables us to more directly meet that demand and create value for our shareholders.
The downstream strategy is focused on three important objective.
Margin expansion across the value chain realization of higher biodiesel values through blends of biodiesel into petroleum diesel and renewable diesel.
And increased demand for our biodiesel bias sales of B 100 to end consumers.
We believe these initiatives position us to expand margin and diversified sources of profitability to enable us to manage through a wide variety of market conditions and increase shareholder value.
An important way to expand margin capture across the whole value chain and to increase demand for our biodiesel is to get closer to our customers through fleet sales and participation in distribution businesses.
We continue to make progress getting closer to the end users such as fleet customers and retail buyers fleet sales continue to accelerate many of our fleet customers today, our large national and regional logistics companies that are keenly aware of the environmental impact of their fuel sources and they desire cleaner burning renewable fuel that we deliver.
As a reminder, slide 10 reflects the level of carbon savings from our E. G produce gallon just in the third quarter CSK, Alan displace 1.1 million metric tons and our equivalent to the greenhouse gas reductions that would be realized by putting 400000 employees on the road for a full year assuming their power was derived.
From natural gas.
Sales of our our AG ultra clean diesel our proprietary blend of renewable diesel and biodiesel, our especially strong due to its act attractive carbon and other criteria emissions profile blending biodiesel with renewable diesel offers a unique substitute or complement to petroleum diesel sales of ultra clean enough.
Third quarter are up 300% year over year and are up over 165% year to date through September our biodiesel in petroleum Blender also accelerating.
Our average blend of biodiesel into petroleum diesel for product sold as a BD you LSD blend was nearly 16% in the quarter and 13% for the nine months both increases from 2018.
For retail sales, we continue to evaluate our first automated fuel station otherwise known as a card locks pilot at our Seneca plant, which we opened in July .
This location was chosen due to the captive diesel truck traffic coming in and out of the plant and of course, the convenience and cost effective proximity to the production location.
Early indications are showing promising unit economics, most notably these sales have a significant margin lift versus our normal wholesale sales.
Important we're learning about on solving important issues through this pilot approach. So that we can learn while small and then build out further volumes more seamlessly.
In addition to new sales channels were working on novel ways to promote demand. One example is technology that enables diesel trucks to use pure be 100 year round. We are sponsoring several pilots to test this technology, including deploying it on all of our own delivery fleet trucks. The early results our promise.
During the technology can be implemented via our relatively simple and inexpensive retrofit. We believe this technology will be a great way for our consumers and our customers to improve their sustainability carbon footprint scores through year round be 100 youve.
Customers, who have already converted to this technology and our running be 100 include the Washington, DC Department of public works and the Chicago Park District. We also have a robust pipeline of further opportunities set up for 2020 and beyond.
As we consider demand projections, it's also worth mentioning some state regional and municipal initiatives that we believe will enhance or enhance future demand and higher value for renewable diesel and biodiesel going forward.
California has cleared the way for storing biodiesel blends of up to 20% or be 20 in underground storage tanks. Beginning January one 2020. This is a significant increase from today's 5%. We believe this change to 20% blends in California will significantly increase of volume of biodiesel, we sell there.
It is worth pointing out as shown on slide 11 that biodiesel produced with lower carbon intensity feedstocks can generate comparable LCFS credit value to renewable diesel produced with similar feedstocks.
Then in Oregon, Oregon, Clean fuels program, our CFP, which is similar to California, Lcs fast is targeting a 10% reduction.
In carbon intensity and transportation fuels by 2025, we estimate this could increase demand in Oregon for biomass based diesel by about 100 million gallons by 2022 based on a 12.5% blend rate, we've already seen Oregon CFP prices increase materially this year.
In Washington State Puget Sound cleaner agencies draft clean fuel program is targeting a greenhouse gas reduction of 26% in transportation fuels by 2030. This program will cover about 4 million people and our annual volume estimate is 45 million gallons of biodiesel by 2023, yet just a 5%.
Blend rate.
Also the city of Seattle recently enacted a home heating oil tax of nearly 24 cents per gallon. We're pleased to share that biodiesel is exempt from that tax because of its significantly lower carbon profile.
In the northeast the New England fuel Institute, the leading heating oil trade Association for the region has resolved to achieve net zero carbon dioxide emissions by 2050, the industry's resolution calls from 15% reduction and C. O two emissions by 2023, a 40% reduction by 2030.
Net zero carbon emissions by 2015 knee five projects or potential market demand of 746 million gallons of biodiesel by 2023.
In addition to these examples as you can see on slide 12. Many other cities are also pursuing greenhouse gas reductions.
Internationally. We're also optimistic we believe last month selections and Canada will likely accelerate completion of a national clean fuels program, there and in Norway, where we already sell renewable diesel the country has increased its biofuel mandate from 12% to 20%.
It is because of this continued push by many and diverse groups seeking creative ways to address carbon reduction that we're very bullish that demand and profitability for biodiesel and renewable diesel will increase for many years to come in spite of the current issues were facing at the federal level in the U.S.
Throughout our history regulatory support has been flowed yet our industry has grown and R&D as thrived as one of its leaders we see exceptional opportunities ahead of us, especially in the renewable diesel segment.
Demand is expanding in the U.S. and around the world. We are allocating our sales of renewable diesel between California, Canada, and the Nordics to optimize for margin opportunities the markets for renewable diesel are growing a direction, which we believe supports our capital spending plans completion of FPL TEW engineering remains on track for.
Proposed joint venture with Phillips 66, we're also working on plans for direct water access at Geismar to reduce our logistics costs and enable a potential significant expansion there and lastly, we continue to explore opportunities with other interested parties, who want to participate with us and expanding the renewable diesel space.
In terms of capital spending we have cut back plan to 2019 spend by approximately 45% as a measure of fiscal prudence given the lack of BTC reinstatement to date and accompanying margin environment uncertainty. This includes halting our $30 million Seneca project.
We plan to re initiate this profit enhancing improvement once we have greater clarity on a combination of BTC reinstatement or more fulsome margin recovery at that point, we will also be ready to launch our had robust suite of growth and shareholder value, creating opportunities, including additional R&D expansion options.
Finally, I want to reinforce that the self help actions. We have taken are making progress all of them are in service of being on the road to moving beyond dependence on the DTC and instead use of BPC to expand infrastructure and accelerate growth as intended.
I'd now turn the call over to Chen for the financial update and then I'll return to discuss our guidance and outlook.
Thank you CJ and good afternoon, everyone.
I'll run through the details on our financial performance and balance sheet, and then turn it back to CJ for the outlook.
As shown on slide 13 revenues were $584 million, a decrease of 2%, resulting from a 9% lower average selling price, partially offset by an increase in gallons sold.
The average selling price per gallon was $2.76 down primarily as a result of lower biodiesel prices, partially offset by higher realized prices from international renewable diesel sales.
Our average U.S. bio diesel price was down 14% from third quarter 2018.
Our weighted average realized rent price was nine cents lower or approximately 14 cents lower per gallon of biodiesel.
Gallons sold included nearly 5 million gallons of renewable diesel sold internationally.
These international R&D sales offset volume declined in us bio diesel, which reflected our purposeful response to the challenging market due to the regulatory uncertainties that CJ noted.
One other element in the revenue mix worth, noting is revenue from low carbon fuel programs, which almost doubled from a year ago.
This is due to higher volume higher volumes to incentivize states like California in Oregon, as well as higher credit prices.
As we noted in our Q2 earnings call, we recognized $29 million of California, LCFS credits this quarter.
Revenue from Oregon's clean fuel program credits, although smaller have more than doubled from $2 million last year to $4.4 million. This year and the Oregon credit value has increased 90% from third quarter last year.
Going down the PML.
We had a gross profit of $24 million, which is a significant improvement from the first and second quarters of this year.
As has been the case for the past two years, while operating without the tax credit margins are distorted because of the market assumptions regarding the likely reinstatement of the BTC.
Under this environment generally production volumes are too high keeping feedstock prices elevated and RIN prices to low if the BTC were to not be reinstated.
Accordingly, as before when the BTC was not in effect, our financial statements do not reflect the real economics of our business.
Having said that on slide 14, you can see margins were also pressured a bit due to higher weighted average feedstock prices, which were up 4%.
In the third quarter, we continue to experience a spread compression from Troy good traditionally lower cost feedstocks to soybean oil.
On the yield adjusted basis, we saw higher prices for soybean oil used cooking oil and animal fats.
And canola was 10% lower than last year, while there's still a corn oil was flat.
From a timing perspective, CJ mentioned, we are seeing lower spot feedstock prices in the quarter. However, since we are generally booked 60 days forward. These lower feedstock prices won't be realized until the fourth quarter.
Our flexible feedstock model allowed us to optimize between feedstock price in yield, resulting in taking on more higher yielding soybean oil and canola oil relative to the traditionally lower cost feedstocks.
Due to the relative price compression during the period.
SGN they remained 4% of total revenues and less than 15 cents per gallon.
And on Slide 15, and 16, you can see our trailing 12 month adjusted EBITDA and return on invested capital.
The light blue on the bar charts reflect the net benefit of the BTC being reinstated.
Business is seasonal and we believe trailing 12 month results are better reflection of our long term earnings power.
One important note to highlight.
We did recognize a noncash nonrecurring impairment charge of $11 million related to our new Boston plant closure in the quarter.
Overall, we're pleased that even in a difficult environment. We produced positive adjusted EBITDA that was in the middle of the range that we guided.
If the BTC is reinstated on the same terms as before we estimate the additional net benefit to our adjusted EBITDA would be $77 million.
Through September of this year. The 2019 estimated net benefit of a BTC reinstatement is $213 million.
In the cumulative estimated total for 2018 and the nine months ended 2019 is $450 million.
Turning to the balance sheet on slide 17, we had 64 million of cash as of the end of the quarter during the quarter, we used 4 million to cash in our operating activities.
Accounts receivable were up nearly $6 million inventory decreased by $8 million and accounts payable decreased by nearly $12 million in the quarter.
We invested 13 million and capex in the quarter, but are keeping a tight rein on capex spending until the BTC as reinstated.
Hey, Jay mentioned, we paused the $30 million project at our Seneca plant that we started earlier this year.
Our initial capex budget for 2019 was $75 million to $85 million.
Through September however, we have held our investment to $31 million.
The full year projection of approximately $45 million.
As CJ mentioned, we have a suite of exciting growth opportunities to invest them once funds become available.
Within this context. It's also helpful to remember that we also have $82 million remaining on our board authorized buyback a value creating opportunity we intend to keep closely in mind.
During the quarter, we drew $23 million for my line of credit while $36 million remained available under the line at quarter end, our availability actually got better in October since we collected on a large international renewable diesel shipments.
Finally, you'll notice that $76 million as reclassified from current maturities to long term debt.
This is the result of our share price being below the stock trigger for our convertible bonds at the ended the quarter.
Our effective tax rate for 2019 is expected to be less than 1% and going forward. We expect our tax rate to continue to be less than 5% for the foreseeable future and our blended average interest rate is less than four persons.
Before I close we should also touch on some off balance sheet items, because they are very important to understanding our current financial position.
Our estimated BTC net benefit contingent on the credit being reinstated is now up to $450 million cumulatively as I mentioned before.
We also have $50 million worth of LCFS credits and Rins that have been generated but not yet recognized in our financial statements.
Now I'll turn the call back to CJ to discuss the outlook PJ. Thanks Chad.
Please refer to slide 19 for our guidance for the fourth quarter of 2019, we expect to gallons sold in the range of 145 to 165 million gallons with that in mind, we are projecting adjusted EBITDA to be in the range of $10 million to $25 million in keeping with the trend we have experienced on BTC sharing.
We estimate that fourth quarter, adjusted EBITDA would be approximately $48 million higher if the BTC were reinstated on term similar to past years.
This estimate for the fourth quarter is based on actual performance through last week and takes into account existing forward contracts expected to be fulfilled and existing spot margins through the ended the quarter any changes to you all SD prices margins rins or else CFS credit values for a level of market volatility through the ended the quarter could affect.
Actual results.
We have included $2.5 million of risk management losses in our guidance, which reflects our estimate for the quarter as of October 20, Eightth based on the you LSD forward curve.
Our full year guidance reflects the difficult, although recently improving 2019 market environment. We now estimate that gallons sold will be in the range of 695 to 715 million and gallons produced to be in the range of 485 to 505 million. These have been reduced from prior guidance as we opt.
And our product mix trim marginal gallons and focus our efforts on the most profitable gallons.
In closing I think we all look forward to resolution of the DTC and small refinery exemption issue soon so that supply and demand can become more market based as I mentioned earlier. However, we're continuing our progress on becoming less dependent on the BTC. We're doing this through our downstream efforts to expand margins focusing on renewable.
Diesel growth and focusing on high quality gallons. We're also running only one produced volumes our contribution margin positive with or without the BTC underwear maintaining from capital allocation discipline.
Meanwhile, there are multiple avenues, indicating increasing demand for our products over time, giving us much to play for as we continue to work on creating both economic and social value in our E. G.
At this time I'd like to turn the call over to the operator for the Q in a segment of our cost operator.
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One moment, please while we pull for questions.
The first question is some Craig Irwin Roth Capital Partners. Please go ahead Sir.
Good evening and thanks for taking my questions.
So I crave.
CJ Chad everyone.
Thanks, Mark right, you said, 7% quarter over quarter, 12% year to date.
Or 7% up in the quarter, 12% year to date are we still talking about an 85 million gallon year run rate or is it possible that it's Chris maybe a little bit higher on something to the 90 million gallon range and then can you confirm for us.
The economics on this plant are we talking a dollar plus maybe something in the dollar 15 dollar 20 range what are we looking at as far as the economic.
Forms of Geismar right now.
So Craig in terms of.
Demonstrated capacity, we are always pushing the envelope thats something our AG doesn't.
We actually look at innovative projects that are operators are.
Welcome to bring forth on a regular basis that enables us to consistently bring throughput up.
And some of what we've been doing also is increasing our catalyst life, which is currently contributing to the year on year improvements because our downtime is lower.
So I think it's a little bit early for us to declare what the name plate has gone up too, but I think your instincts are right that we continue to bring it up higher and higher and 85 is.
What we've been operating at lately.
That's fine away something that enabled us to look at a much larger expansion at geismar versus the original when we looked at that with smaller because we've been able to gain those smaller increases without significant capital investment.
That's good to hear that actually bridge it nicely to my second question.
Which is about Phillips 66, so bad Glenn.
The original intentions for this plant were disclosed it was that said the only reason they were being disclosed at the time as some supports that we're about to bring our.
Bring the the application public.
You may be described for Thats, why we would want Phillips 66, as a partner why Wouldnt, we want to give up significant economics towards oil company and can you clarify for us that Phillips 66 apply for any small refinery assumptions and did they receive any and.
How would they really sit as alarming partner given the significant conflict between the refinery industry and renewable diesel industry right now.
There's a lot of good questions. There so I'll start with the MSR, even just say Phillips 66 need to speak for themselves and that matter and we actually don't know who while applied for and received sorry.
Let's talk about our project with P. 66, we're excited about it it's in an advantage locations.
It is making great progress on the permitting which is challenging for most in that region.
Yes significant synergies by locating cost or the refinery and we are realizing synergies as partners between the different skill sets that we each bring to the table with them being experience that building major capital projects on time and on budget.
The kinds of things were aware of with America feedstocks.
Allocation or.
Feedstock procurement as well as.
Pre treatment.
There's a lot of things for us to play for that create synergies by partnering and we don't really give value up to each other we are creating value together and.
50, 50 partnership and so we're excited about that.
I would say that in terms of.
Industry, getting along or not it's it's exciting to be able to find a partner that's interested and renewable diesel and willing to work with us on creating this type of social and economic value.
Okay, and then when the.
The last time, the company discussed multiple potential sites for renewable diesel facilities for us at the.
The last analyst day were Daniel O presented.
When it was there he discussed three separate sites that were under consideration. So obviously Phillips 66 is one another is guys smart, which now sounds like it could be a 350 million gallon plant if your to do the the portfolio expansion.
And then its third site can you maybe update us on the third site does this site potentially include giving up 50% of the economics to someone.
In the big oil patch is this a site that could potentially be 100% owned by Reggie where your shareholders could fully benefit from the economics.
And.
Can you maybe comment about that site versus guys Somar.
Giving you probably do see a significant cash and takes over the next hence months.
What you can prioritize.
Potentially.
Not Phillips 66, looking outside of Phillips 66.
For the other two sites.
So again lots of good questions embedded in all that.
And I did signal in my comments that we continue to look at additional sites.
Picked up on that nicely.
A little early for us to be any more specific than that but I do want to assure you at strong in our strategy and our strategic thinking we are working on a number of things that evaluate optimal location optimal feedstock.
And.
So many to feedstock and optimal business models. So there are a lot of different ways. We can look at business model some of them our direct partnerships as you're envisioning, but there's other ways that we can look at things, including going it alone and we are evaluating all of those things the name of the game, though with anything linear producing R&D.
Or any other product to compete in the energy market is you want to have a preferred location or some other advantage to your production. So that you have an advantage production profile and you're never the marginal gallon.
Yes definitely high in our view as we're looking at our options for R&D.
Great and then marginal gallons are again, a great bridge to my last question. So if we strip out the profitability from guys smart in the quarter. It looks like you probably lost something like a dime a gallon on the.
Traditional biodiesel side.
Give or take.
We see wheelers gets to the refinery industries with their salaries is pension you guys something like 20 to 25 cents a gallon.
What sort of timing would you expect for the remediation of that both on the feedstock side and the RIN side.
Do you see any specific items.
How do you expect that headwind to come off barring no all of a sudden Wheeler does the right thing.
For a change.
Well, so where as I as I intimated in my comments were starting to see that already and we imagine the longer ago as the last BTC them, where youre going to see margin recovery.
So that's a watch this space kind of thing and we're active in it even as we speak I would also say that in terms of.
Improved margins all of those things I was describing that we're doing in the downstream are also going to serve us well in that capacity and we're seeing that come through albeit still somewhat smaller volumes.
But as you can see the uptake on some of these ideas is fairly significant so that as that starts to kick in that will close some of that gap as well.
Instead, you might want to add to that yes, I was just going to point out.
We don't have.
Dip a separate segment reporting for our renewable diesel so there's not as much.
Transparency there as you might see with a couple of other companies out there, but you're right. The renewable diesel has been solidly profitable throughout the cycle.
I would say to your point the first half of the year, we didnt see.
Market indicators, reflecting a changed approach to production and that left some biodiesel producers.
What we'll call on the marginal side, where they needed the BTC to make it hole of course, when you look through our port portfolio or our network of plants, we've got some better very competitively positioned and profitable through out and then.
To see Jay's point.
We're not going to run plants, just for the BTC upside so.
That being said all of our plants are profitable with the BTC reinstatement some already been profitable even without it because they are in advantaged markets and locations that are very competitive.
Great and if I could squeeze just just one more in before I jump back into queue.
Priorities for cash so if we just sort of approximate $500 million and.
In cash benefit when we get the check from the IRS hopefully April .
You know, it's pretty easy to see your buyback and Youre.
Investment Phillips 66 plant, probably coming in together around 200 million.
What do you expect to use the remaining 300 million port are there any preset priorities for the past years Reggie at this point.
Well, we do have a very robust list of items and they run a long list of the strategic priorities that I've been describing so definitely R&D expansion definitely expansion into the downstream and getting closer to the customer.
And definitely improving.
Our margins with all of our produced gallon.
Great congratulations on the quarter and thanks again for taking my questions. Thanks, Greg.
As a reminder, if you wish to ask a question press star one other telephone keypad that star one.
We have a question from.
Coarsened VW as financial please go ahead Sir.
So first question I had was.
[laughter], which excess inventory you think is out in the market right now.
In terms of produced material.
Yes.
Well I might let Chad try to make an estimate of that but.
Typical scenario for our industry is for inventory to start building at this time of year.
Yeah, I think what.
What we've seen in the second half of the year highlighted the.
I think CJ referred to about a dozen plants that have come offline in us biodiesel production and 330 million to 360 million gallon range.
If you look at.
Some of the trade Association reports.
So that's reflecting a lower overall production of domestic biodiesel now we have continued to see really really attractive economics for renewable diesel and.
International imports coming in strong on that front to continue to be strong and the domestic renewable diesel producers continue to.
To to do well and we can see our plant is operating above rates, it's ever run before so.
That's the main thing I would reflect and that kind of leads into.
Some of the biodiesel margin indicators that CJ referred to in terms of RIN prices meeting and beginning to appreciate and gets stronger in response to the reduced domestic production.
And.
Just general margin indicators.
I might add I I think it's a bit hard to predict right now because of the pricing changes and because you're starting to see volumes come off.
But I will say that we've received some calls from obligated parties being somewhat concerned about whether the available rins and the products that enable them to meet those rigs will be available when they want them to be I think that's a sign.
That things are going to be a bit different going forward.
I guess, what I'm trying to get those if all this production has come off and.
Eventually discounts.
Inventory in the channels would be consumed so one of their.
Application with that prices will have it should go up specially with the so high and low 2020 kicking in a couple of months.
Yes, I think you'll find that historically the inventory levels would have been better this time of year, particularly coming out of.
The third quarter and you actually saw domestic production coming offline, so theres not going to be all that excess inventory people are accustomed to out there. So I think you're right on.
The need for prices and margins to continue to improve to encourage enough RIN generation.
Throughout the the industry.
Are you hearing AIDS.
So.
Are you doing anything different too.
Capture more margin upside just given that.
The environment right now with feedstock prices declining or are you still going to hold true to that 60 day rule.
Well some of what we do is sort of built into the amount of time required to procure and ship.
So theres and also because we've already procured you have the option in some cases to build inventory if theres opportunistic pricing. So we do do some of that.
And.
We have some opportunities as well because of our leasing large an integrated sometimes we can move things around from one plant to the other if theres a particular.
Upside that we notice so we will be opportunistic.
But I wouldn't say it to the wholesale in the short term simply because of a timing as Chad described in his comments.
At least in the near term.
Okay, great. Thank you.
Thank you.
We have a follow on question from Craig Irwin Roth Capital Partners. Please go ahead, Sir no. Thank you.
Just a housekeeping question Chad in your prepared remarks, you talked about I think it was $32 million two remaining liquidity on your facilities, but the.
The large renewable diesel collection out of Europe can you approximate for us what the.
The cash and take wasn't that significant.
Significant collection.
Yes, it was north of $20 million.
Okay. So we're now looking at north of 50 and liquidity is that fair.
Yes, you also had a.
A positive EBITDA quarter to the obviously [laughter] great. Thanks again, thank you thanks, Greg.
Weve reached the end of the question answer session I would now like to turn the call back over to Todd Robinson for closing remarks.
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Thank you for joining this concludes the call and you may now disconnect.
Yeah.
Okay.