Q4 2019 Earnings Call
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I'd now like turn the conference over to your host Todd Robinson. Thank you you may begin.
Thank you Rob good afternoon, everyone and welcome to our fourth quarter in full year 2019 earnings Conference call with me today is our president and Chief Executive Officer, CJ, Warner and our Chief Financial Officer, Chad Stone.
He cover a few housekeeping items before I turn the call or 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 website at <unk> Dot Com a replay will be available on our website. Beginning later. This afternoon webcast includes an accompanying slide deck, which will be which will appear on.
Im adequately with the webcast you will need to advance the slides manually as we promise you.
You dialing in slide that can be downloaded along with the earnings press release in the Investor Relations section of our website.
Turning to slide three we would like to advise you that some of the information discussed on this conference call will contain forward looking statements. These statements involve risks uncertainties assumptions that are difficult to predict in such forward looking statements are not a guarantee or performance. The company's actual results could differ materially from those contained in such statement.
Several factors could cause or contribute to those differently. [laughter] factors are described in detail and risks factors. Another section of our annual report on form 10-K, and subsequent quarterly reports on form 10-Q, which are filed with the S. You see these forward looking statements speak only as of the date of this call the company underway.
Takes no obligation to publicly update any forward looking statements based on new information or revised expectations.
Today's discussion also includes non-GAAP financial measures. We believe these metrics will help investors assess the operating performance of our core business. Please see the press release or the appendix d. the accompanying slide deck for a reconciliation of the non-GAAP measures to the most comparable GAAP measure.
Let me let me also point out as you know near the end of last year. The biodiesel mixture excise tax credit. We're BTC was retroactively reinstated for 2018 and 2019 was also put in place for Twoq 2020 through 2022 and that benefit of that retroactive reinstatement.
For both years is reflected in our GAAP financial statements in the fourth quarter of 2019 as shown on slide four because the credit relates to our 2018 in 2019 operations. Our adjusted EBITDA in other line items reflects an allocation.
Of the net benefit of the credit to our 2018 in 2019 results by quarter to reflect the period in which the associated gallons Russell Chad will provide more detail on this when he reviews, our financial statement with that let me turn the call over to our president and CEO.
TJ Warner TJ.
Todd and good afternoon, everyone 29 team presented significant challenges to our industry, calling for strict focus on optimization and operational efficiencies.
He wrote to this challenge over the course of the year, we adjusted our approach to focus on profitable gallons beyond BTC and as a result in despite a very difficult margin environment returned to solid performance in a second half.
As shown on slide five in the fourth quarter, we generated $572 million of revenue after adjusting for the BPC adjusted EBITDA was $16 million without the BTC, 60% increase over the third quarter and $65 million with a fourth quarter BTC allocation.
Full year, that's shown on slide six we sold 700 million gallons of fuel I produced 495 million gallons. After allocating the 29 team portion of the BTC. This generated $2.4 billion of revenue and $218 million adjusted EBITDA on a comparative basis.
Adjusted EBITDA was down year over year due to very tough market conditions.
Thats tightened from lower energy prices increased feedstock cost RIN values were also depressed due to extended uncertainties about BTC reinstatement and expanding small refinery exemption.
Challenges presented by our overall margin environment in 2019 are highlighted in slide seven where you can see the decline in the value of the hobo plus rent spread.
Ted will provide more details of the year over year comparisons during his update.
Standing back from that we're pleased with our growing momentum building upon underlying business performance improvements a more certain regulatory environment and our early gains from strategic initiative.
Let's start with our E G underlying performance improvement efforts see slide eight follow along in the section.
2019 second half results were solid void by continuing focus on margin and profitable markets nationally and globally, we continue to optimizing our sales by directing production to the most profitable geography.
And the Nordics have emerged as attractive and promising markets for us now with the increasing renewable diesel exports routed to the nordics given the strong demand for carbon reduction there in the fourth quarter, we shift over half of our renewable diesel produced at Geismar to Norway and for the full year over 35%.
The biodiesel market in Europe has improved substantially as well in particular for the lower carbon used cooking oil based bio diesel that we produce in Germany.
On the U.S. continue to offer attractive margins in specific geographies, especially on the west coast with strong LCR, passing kind of fair, California was our highest volume state for both biodiesel and renewable diesel in 2019 in the fourth quarter, we increased biodiesel gallon sold in California by over 32% over the fourth quarter.
2018 for the full year, we told the 66% more biodiesel in California over 2018.
Over the course at a year, we expanded blended biodiesel volume's inline with our downstream margin capture strategy recall that the downstream strategy is focused on three important objectives margin expansion across the value chain realization of higher biodiesel values through blends of biodiesel into petroleum Han renewable diesel and increased demand.
For our biodiesel fire sales I would be 100 to end to consumers.
Focusing on the blending aspect of our strategy blended volumes expanded substantially in 2019, our blended fuel gallons grew 29% in fourth quarter and 65% for the year, we sold nearly 116 million blended gallons for the year.
In 2019, our average blend of biodiesel into petroleum diesel with 12%.
We sold 45 million gallons of our E. G proprietary ultra clean a low carbon fuel for diesel engines that is 135% more compared to full year 2018, we added 19, new end user customers. This past year, we're learning to being able to sell directly to end user customers increases enthusiasm for higher.
Biodiesel blending we continue to experience through our distribution on carlock businesses that moving right through the value chain to serve our customers directly both increases our margin capture and enables us to expand the blending percentage as a biodiesel.
With high quality and the competence that great customer service inspired by our customers are able to reduce their carbon footprint to seamlessly.
We move forward, it's important to note that California cleared the way for storing biodiesel blends of up to 20% or be 20 in underground storage tanks. This began on January 1st 2020, and is a significant increase from the prior 5% limitation, enabling higher biodiesel blend and substantially increasing sales potential in cash.
The foreign Yeah, we're already seeing an increasing customer by customer demand for higher blends there.
We're seeing a significant downstream margin capture opportunity from blending our customers are recognizing that high quality biodiesel blends can provide all the function of 100% bio diesel or petroleum diesel rather and the robust low carbon FX a renewable diesel.
Turning from downstream to upstream our flexible feedstock capability, coupled with our procurement teams experience enabled us to optimize by adjusting buying patterns any usage to the more advantaged feedstocks as price differentials fluctuated as you can see from slide nine the volatility and differential between feedstock types is high.
Our flexible feedstock capabilities enable us to take advantage of these movements to optimize our Phoenix.
Another area of underlying performance improvement is operational excellence, we focus on continuous improvement, which has resulted in consistent organic growth in our manufacturing production capability. That's shown in slide 10 as part of this effort, we realize higher capacity utilization at Geismar in 2019, increasing production by over seven.
<unk> percent year over year, and resulting in 85 million gallons produced at the same time, we reduced incremental biodiesel production in response to the compressed margin environment.
Its focus on the optimization of our diverse fleet, coupled with all of our other underlying performance improvement activities that I noted earlier regional placement optimization blended fuel sales feedstock flexibility and operational excellence enabled us to generate positive adjusted EBITDA before BTC and six of the last eight quarters.
Despite the extremely challenging margin environment.
Let's turn now to the regulatory environment.
We are immensely grateful for Congress is strong support of our industry with a BTC reinstatement an extension as noted earlier, we will receive nearly $500 million net benefit from the 2018 and 2019 BTC.
T C uncertainty has now been removed and replaced with unprecedented certainty. The cash we will receive from the retroactive reinstatement will help us to position the company for expanded growth and financial sustainability, both of which were will fuel our engine to deliver a growing volumes of low carbon sustainable products.
Another important area on the regulatory front is the renewable fuel standard we're very pleased with a favorable ruling by the time circuit Court of appeals related to small refinery assumptions. We're hopeful that this will return the total volume of MSR, we used to a de minimus amount. We will continue to monitor developments in the RFS program as detailed are being finalized.
At the state level, it's important to note that the California, LCFS carbon reduction requirements continue to escalate the reduction is increasing from 6.25% in 2019% to 7.5% in 2020 as shown on slide 12. This is a 20% increase.
With better visibility to cash generation, resulting from more certain market conditions, and our strong balance sheet Ari g.'s forward focus will be on investing for growth, while sustaining attractive profitability and returning value to our shareholders. Along these lines, let's take a moment to discuss our planned capital allocation.
Chad will provide details in a moment for no I'd like to emphasize that we're taking a disciplined strategic approach first as a basis point, we will continue to invest in safety and reliability on a consistent basis to ensure ongoing safe and strong operations second as a key element of our continuous improvement approach we will.
Allocate capital to a select group of high return rapid payback projects.
Third we will invest for growth and significant shareholder returns basing our decisions on strong IR, our including buyback considerations and strategic fit overall, including safety and reliability investments our ROI see target is greater than 15%, we have established and internal hurdle rate for girls project.
20% I R.
Let's now turn to growth as evidenced by the 29% CAGR in gallons sold since 2010 as shown in slide 13, our E. G is a growth company and our forward strategy outlines too specific areas of focus expanding our renewable diesel participation and moving downstream into value chain to capture full valley.
You for biodiesel.
Our renewable diesel as you know we have been developing the design for a 250 million gallon per year facility. While we were disappointed with the cancellation of the project in Washington State. We have other excellent renewable diesel projects in the works. The engineering design, we have developed utilizes our proprietary by often finding process technology.
And can be readily declined by us for use at other locations. We are currently in the highly active price of evaluating alternative sites.
An expansion of our existing operations that guys Meyer is only one of the exciting options were considering.
Turning to our downstream strategy as described earlier, we are making very encouraging progress as we move downstream in the value chain.
These initial entries into the downstream business have encouraged us to expand our participation and we are actively exploring various options to accelerate that effort.
An important part of our downstream strategy that goes beyond blending is our be 100 initiatives.
We're deploying fuel delivery technology that allows diesel vehicles to operate on B 100 reliably in any weather. An example, we're proud to share is our effort with the city of aims which is successfully operating several other snowplows on B 100, using this technology.
City Council are very pleased to be able to reduce the city's carbon profile in the seamless way.
We expect to continue to accelerate on both of our areas of focus expansion of renewable diesel and downstream participation in 2020.
Fueling our strategy for growth in society is accelerating expectations I'm, having low carbon options available as a direct result, we are seeing increased socially driven policies at the state and municipal levels as shown on slide 15, you can see some of these policies much of the world chairs intensely about reducing carbon emissions and are.
Do you feel all to reduce carbon emissions by up to 85%. The world also cares about sustainability and our fuels are made with renewable feedstocks, including waste our renewable products are key components of the transition away from dependents upon fossil fuels.
As you can see on slide 16 in 2019, our E. G produced fuel reduce carbon emissions compared to petroleum diesel by 3.7 million metric tons, which is the equivalent of 9.1 billion miles driven by an average petroleum passenger vehicle or 8.5 million barrels of oil.
Sustainability and climate risk are becoming extremely important for investors. The recent well publicized pieces from Blackrock and state Street are about the latest examples. Furthermore, every day, we see individual companies step up their efforts as well for instance, recently BPM Delta Airlines made commitments to become carbon neutral we expected.
Its momentum to continue to build and we are ideally positioned to be an integral part of it.
In fact, because of the green attributes of our fuels, we're convinced that they deserve and will command a premium price relative to petroleum diesel our fuels deliver value beyond just the between you and customers can gain from the carbon reduction from our low carbon diesel without having to make large associated investments in alternative infrastructure.
In summary, we are intent on continuing to create shareholder value through the pursuit of growth initiatives, expanding margins and leveraging our unique value as a carbon reduction leader.
Now I'll turn the call over to Chad to review, our financial performance for the fourth quarter end the year Chad.
Thank you CJ and good good afternoon, everyone.
We're very excited to report, our 2019 results, which cap off three years in a row with adjusted EBITDA of over $200 million.
We are in a great position with a strong balance sheet.
Improving underlying performance enabled enabling profitability beyond the BTC uncertainty with incentives in place for the next three years.
SCJ mentioned the last two years into specialty 2019 was really challenging.
We are proud of the resilience of our business model, which we believe is proven out under a variety of regulatory and margin scenarios and that our skill and expertise provides a foundation for us to be a leader in the low carbon fuel industry.
Let me first cover fourth quarter results on Slide 17, and then we'll offer perspective looking at the full year.
Gallons sold were at the midpoint of our guidance.
We know renewable diesel demand was strong while biodiesel demand was down.
We increased exports of renewable diesel to the Nordics.
In addition, we almost doubled the volume of third party renewable diesel we sold which we are continuing to grow as a complement to our third party biodiesel trading we've always done.
We sold 5 million more gallons from Geismar and 5.3 million more gallons of third party renewable diesel in the fourth quarter of 2019 compared to the fourth quarter of 2018.
Biodiesel gallons were down in North America, as we passed on sales when profitability did not meet our hurdles.
Gallons produced were also down as scheduled mainly due to the reduced sales of biodiesel with North America.
On the other hand production of renewable diesel at Geismar was up 5% year over year as our organic growth efforts continue to come through.
Even with gallons sold down slightly we realize better pricing due to the mix shift to renewable diesel.
Revenue as adjusted for the BTC impacts was essentially flat as shown on slide 18.
[music].
Adjusted EBITDA was $65 million for the fourth quarter, which was within our guidance range.
Adjusted EBITDA reflected decrease in risk management, a $45 million.
$15.9 million decrease in North American biodiesel margins, driven mostly by lower spreads.
These challenges were offset by improvements to underlying performance, including an increase in total renewable diesel gallons sold a 10.3 million gallons in an increase in biodiesel and renewable diesel sales into the most attractive low carbon fuel markets.
Which is the North American West coast in the Nordics.
Solid fourth quarter results capped off what we consider to be a good second half of 2019.
Full year results are on slide two fell on slide 19 and 20.
For the year, we increased gallons sold by.
8%, mostly due to increases in our EG produced renewable diesel and third party renewable diesel.
Comparable revenue was flat impacted by a lower average selling price, partially offset by the increase in gallons sold.
Full year, adjusted EBITDA was $218 million, which is down from the record 388 million generated in 2018.
The decrease in adjusted EBITDA resulted from a decrease in risk management of 47 million.
The 193 million dollar decrease in North American biodiesel margins, driven mostly by lower spreads.
As previously noted due to an administrative change income from California LCFS credits for 2019 only included three quarters compared to 2018, which included four quarters.
This negative impact was approximately $30 million, which is not reflective of company performance on is a onetime occurrence.
All of these challenges were offset by improvements to underlying performance, including an increase in total renewable diesel gallons of 38 million gallons.
And an increase in biodiesel and renewable diesel sales into the most attractive low carbon fuel markets.
Slide 21 shows our trailing 12 month, adjusted EBITDA, which smoothes as seasonality in better reflects our cash flow generating.
Capability in earnings power.
Slide 22 shows trailing 12 month, ROI C, which was over 15% for 2009.
For 2019, we recognized a small tax benefit going forward, we expect our tax rate to continue to be less than 5% for the foreseeable future.
Our blended average interest rate continues to be low and was less than 4%.
Turning to the balance sheets on slide 23 naturally the major impact is from the BTC.
Accounts receivables reflect the gross them onto the BTC due to us which has a partial offset in the accounts payable wine for amounts we share with others.
CJ mentioned, the net benefit to us is almost exactly half a billion dollars with $239 million for 2018 and $261 million for 2019, we expect to collect all of the funds during the first half of 2020.
Looking at the other line items. The only notable changes were cash and marketable securities which were lower over the year.
The decrease in cash and marketable securities is due to cash used for operation repayment of debt.
Repayments are repurchases of convertible notes as well as cash invested in our plants.
Additionally, the balance on the line of credit increased for the same reason.
Our 2019 convertible bonds maturing in June, which we settled with cash for the principal and shares for the premium.
We also repurchased $10.8 million in principle of our 2036 bonds in December and in the first quarter of this year.
Slide 24 gives details on our recent convertible bond repurchases.
Additionally, we paid off debt at our Danville, and Grays Harbor plants in January of this year, which was approximately $13 million in total.
We will continue with our disciplined approach to capital allocation as we deploy cash from the BTC proceeds along with cash generated from operations.
Our total capex budget for 2000 $20 million to $60 million.
This includes approximately $20 million for safety reliability and asset integrity for our existing fleet.
$20 million.
Hi return rapid payback projects that we tend to recoup our investment in less than two years.
$20 million for board approved growth projects.
Additional major capital would require a separate board approval.
Did you had mentioned before our internal thresholds for growth projects is a 20% IR and overall inclusive of safety and reliability investments.
Our ROI see target is greater than 15%.
And of course, we will continue to focus on shareholder returns.
In February the board approved an additional 100 million dollar repurchase authorization.
We still have $58 million remaining from the prior authorization. So we now have a total of $158 million authorized.
After the recent convertible bond repurchases, we have 85.5 million in principle still outstanding.
Now I'll turn the call back to CJ to discuss the outlook CJ. Thanks, Chad before I give specific numbers I want to set the context for 2020.
We are optimistic about a year ahead, our E. G isn't an excellent position and well capitalized we are operating profitably and our industry has a far higher level of certainty with the BTC in place for the next three years had a minimal.
Having said that we continue to be in a period of adjustment following the BTC reinstatement and we have potentially significant impact from the Corona virus that none of us can predict at present, we will be watching margin closely in our prepared to respond with appropriate optimization. Our general sentiment is one of my some although we cannot count on a fully.
Your margin environment being as strong as our first quarter performance is shaping up to be.
It is important to note that we're closely monitoring the Corona virus, our co bid 19, as we assess the impact on our business supply chains for our German operations include used cooking oil from China and this has been impacted as part of our business continuity planning, we have secured feedstock supply for our German plans for the next 90 days we are.
Continuing to work our business continuity plan to manage a potentially extended situation.
With that in context, let Scott get down to numbers as shown on slide 27 for the full year, we're targeting gallons sold in the range of $640 million to $680 million, we expect to produce 500 to 530 million gallons and will fulfill the excess demand through third party gallons.
For one Q, we expect gallons sold in the range of 130 to 145 million our forecasted gallons sold for the first quarter of 2020 are down from first quarter 2019, due primarily to lower volume of heating oil sold in the northeast as a result will be historically warm winter there we expect adjusted EBITDA in.
The range up $50 million to $65 million for the first quarter.
This estimate for the first quarter is based on actual performance through February 24th and takes into account existing forward contract expected to be fulfilled and existing spot margins through you ended the quarter.
Any changes to the you LSD prices margins Rins are LCFS credits values or level of market volatility through the ended the quarter could affect actual results. We have included $17 million of risk management gains in our guidance, which reflects our estimate for the quarter as of February 24 based on the you LSD forward curve.
Beyond the first quarter, given the market adjustments noted above and the unknown impact from the Corona virus, our ability to predict margins becomes less precise. Nevertheless, we remain optimistic about the you're ahead and we'll continue to focus on underlying performance and optimization.
Now I'd like to turn the call over to the operator for the question and answer segment of our call. Rob. Thank you at this time will be conducting a question and answer session. Good like to ask a question. Please press star one on your telephone keypad confirmation tell indicate your line is in the question Q.
The press star to if you'd like to remove your questions from the Q.
For participants uses speaker equipment, they may be necessary to pick up your handset before pressing the star.
One moment, please what we poll for questions.
My first question comes from Craig Irwin with Roth Capital Partners. Please proceed with your question.
Good evening first congratulations on the.
The strong order and and booking that 500 million from.
The blenders credit spent a lot of work over the last few years. Thanks, Greg. Thank you.
So the first operating question I wanted to ask about its guys smart can you maybe.
Discuss margins at CGI smart are they comparable to what we were seeing from other renewable diesel facilities. These days.
How do you expect to expected to remain fairly stable this year and the 5 million increase it guys marks we specifically referring to the fourth quarter or was this in the 7% for the full year.
Yeah, Okay. Good questions Craig so on the margins specifically.
The other way were structured we don't as you know disclose the specifics.
Yes, we see others from that we can tell you that we are competitive with what we produced.
Value that we trees that guys.
We are.
Good strong operation on what's coming through from that is which is the volume increase year on year.
And that 85 million, whether ratable number for the whole year.
Yes, Thats, 7% was up.
And the 5 million was both full year.
So 85 million versus 80 last year that is great progress is there potential maybe they've got a 90 million there this year.
Well I will keep working at our track record as a key findings small things that add up to them.
The team down there continues to do that.
Excellent excellent. So then.
Just just to talk numbers right because.
That's what matters at the end of the day.
Renewable diesel I don't think there's any facility operating at less than two bucks about a gallon today that sort of peak.
People setting up the California are somewhere between 265 and to 70, a gallon given the relative size of guys smart versus other facilities out there I'd expect to be at the midpoint of.
That range is that a fair assumption.
Oh, we can't really report anything specific Craig, but you're not far off so I would say, yes, I think your model is doing well okay excellent excellent. So then the other side of houses the biodiesel side and this is where.
Reggie has made tremendous progress over the last several years invested a lot of money.
And differentiated front end capability.
To give you the feedstock flexibility.
Our good friends Mr. Wheeler.
Okay. So I guess got smack down pretty hard, but 10 circuit.
Done some damage to profitability in your slides there and in your conversations you.
I mentioned that $35 million year over year stepped down and EBITDA on an adjusted basis for the fourth quarter sort of seems something like in the range of 20 cents a gallon plus.
Some from the headwinds out there.
If we work to see a reallocation of those gallons or proper resolution of the misdeeds the EPA.
Would you expect the profitability, maybe its normalized up something in the range of that 20 cents. A gallon is is that a fair way to look at the macro impact.
Craig I think it might be a little bit early to start modeling on putting in because the conversation still remains really live. So what we're hearing of course is the 10th Circuit Court ruling which was positive but we're also hearing and ongoing attempt to try to dampening effect for refining and we don't know what the what that's.
Going to be in terms of the RMB out.
So that's why we said what we said which is we're feeling optimistic about it but we have to watch it really closely before we can actually call it and say, what's going to happen, yes, I'll add to that.
Craig that.
Actually did see in our results throughout the year, particularly in the first half of the year as depressed RIN values and type margins in response to that uncertainty that was being created and so you had a lot of pressure on rins. The ruling is very favorable and supportive.
Going forward and as volumes pick up you'd expect that that would.
Caused cause margins to improve from.
Current spreads.
That's very helpful. Thank you.
So.
People are all really interested in your plans for growth and Green diesel.
I guess.
Phillips 66.
Oh, we lost the Craig.
How about now yes, better got better.
So.
Green diesel is where everybody wants to see the growth over the next couple of years and the.
The unfortunate.
Dissolution of the joint venture with.
Phillips 66 has not necessarily a bad thing it maybe obviously, you're an opportunity to go out there and get a better partner one closer to what you might call an ideal partner.
But can you maybe describe for US what you would look at as an ideal partner and is it possible that you could look to go it alone on the next phase of growth and renewable diesel for Reggie.
Great questions, Craig and ones, we have works through ourselves in order to create a framework of what our pivot to look like and what we're aiming for.
Go it alone is definitely one possibility we looked at the bookends.
But partnerships are important to and valuable and often times, we bring balance capabilities to the table. So we definitely be looking for.
Partnership.
With like minded strategy. So we had some alignment there, but possibly different things that we can bring to the table. If we can each bring something that the other couldn't do by themselves that makes a really nice and strong partnership.
Great. The next subject I just wanted to touch on is the.
Self blending blending or Ron.
Biodiesel with diesel to seltzer to direct customers.
Gross this past year to 116 million gallons up from 70 the prior year.
Thats, a pretty nice $45 million 46 million dollar increase can you maybe describe the number of terminals or if this is better utilization across your terminals you are several you're serving.
To get those growth gallons and can you maybe frame out for us what you think a fair outlook.
For 2020 might be how many terminals do you expect to build.
And is there spare capacity in your existing terminals to see gross gallons at this point.
So really important to start with lead on the actually build terminals, we contract with existing available capacity. So that we're capable of moving in a different regions.
So it's not a big capital thing for Us I want to make sure that clear.
But to answer your question is much more abroad, there's a wide variety of things. Our team is capable of doing in order to expand that blending and it really is all about variety of things that happened in the downstream strategy expanding our exposure to different terminals, where we can get closer to customers is definitely one of those things move.
Being further downstream to have some of these direct sale customers that we've described that we're expanding.
As another very important way the current luck as an important way expanding into distribution is an important way. So we have a beer and wine multi pronged strategy for unable to do this and that's why you're seeing this rapid percentage increase that youre seeing year on year.
Great and then last question if I may you did mention increasing blended ER volumes biodiesel in California, as something that was accommodated by the regulatory change at the end of year.
Can you maybe frame out for us.
The approximates volumes that you are blending at the tail end of 2019 and what the growth potential is over the course at 2020.
Yes, I think that.
It gets Chad the growth potential in California is seen in some of the.
Slides, we share in our investor deck is really large and growing and practically speaking.
Last year until California got them, so comfortable so that they could go from a 5% limit to 20% limit. It was just a.
Kind of a technical limitations.
So in theory.
Your limit quadrupled.
You know as CJ said earlier, we don't give individual state specific gallons, but.
Approaching.
Third of our gallons could could go out too.
Incentivized West coast markets because of the low carbon fuel premium that we that we enjoyed and so it's a very large and growing volume and it.
I think theres, some statistics that CJ rattled off earlier that grew significantly year over year.
For us and so it certainly is an attractive.
Market you're seeing.
What we've talked about in the path largely on renewable diesel is getting incentivized into California in the West Coast, Canada, and the Nordics whichever one pays the best.
The best premium and so thats.
Dynamic of the sales mix, we've been stating really on top of.
So just just a point of clarification, Chad I think you said third of your gallons are you referring to gross gallons, including Guy Smart works a third of the biodiesel gallons that would be renewable diesel and biodiesel gallons in total.
Excellent. Thank you congratulations again on a really solid into 2019 and integrate outlets for this year.
Thanks, Craig I appreciate it thank you.
Our next question comes from a met Dal with H.C. Rain Wainwright. Please proceed with your question.
Thank you for taking my questions I guess.
Just with respect to the market environment goes to the BDC. The Blue student can you really do now.
This inlight more competition you feel.
If you could add a little bit color and how we should use some of these competitive factors.
This BDC miles were reinstated and visibility for the next two year goodness.
Sure.
Yes, hi on that thanks, great question and insightful.
Certainty is.
We have a double edged sword and for the most part it's much better than it was when we were in the cotton the middle mode of the market.
You're right that it can invite additional incremental gallons for the most cards, we expect those to be lower margin.
And it also makes it a little bit more competitive in terms of DTC percentages sharing so we need to be aware of that and that's a little bit on what we're seeing at the market has shaken itself out and if you look at the slide.
That we showed with although plus Ren you can see after the BTC was announced there was a pretty big market adjustment and some of that is as everyone's trying to figure things out some volumes are coming in some are going out and it's going to be a period of.
Learning and lining out I would say probably over the next three months, we're still sort of in that mode in the winter season, and getting into the summer I think will help us get to more of a ratable place.
This is Chad I'll add to CJ adds.
Color there if you put it in the context of what was happening through 2019 as RIN prices were weak there was sorry small refinery exemption uncertainty in the marketplace in the long extended tax credit had lapsed for going on two years.
The second half of the are you saw a number of announcements were biodiesel production capacity shutdown and came offline. If you tallied up each one of them. It was a little bit north of 300 million gallons. So thats the context of production that came offline because they couldn't make it through the challenging environment, but in the post b to C.
World.
Some of that will come up come back online our new Boston plant. We told you that that was shut down in isn't.
Going to we weren't going to ramp that back up we also said the.
Or others, the Flint Hills project and Beatrice.
Close down in that shuttered for goods. So that was another 55 million gallons that won't be coming back online.
But other than that we don't see a lot of Greenfield biodiesel out there there is not greenfield biodiesel there are announced.
Long lead time renewable diesel projects, but it will be awhile before they will be available in the marketplace to compete.
So that's really helpful guys. Thank you so much for that.
And then just a little bit more.
No clarity I guess on your growth initiatives both on the.
You know capacity expansion front and the downstream efforts.
Is there a timeline within which maybe we can get a little bit more concrete color on what Bob pure choose then what projects et cetera, you might be.
Okay.
Two.
Well from the growth perspective on those fronts.
Well, what I can say I'm areas, we are definitely working on it.
Did you actually an actively and when it comes to commercial deals one can never actually predict exact timing, but I wouldn't say you can easily expect.
More than one thing to happen in 2020 and sooner rather than later would be our plan.
Understood. Thank you for that.
With respect to the buybacks you've added $100 million to this facility already that was in place.
At these levels are going to stocks to raise it looks pretty attractive is this already in effectively there is this going into effect.
No.
At some point in the future could you give any color on.
Our efforts on that front.
We estimate that $158 million as all board authorized in that are.
Authority to execute on so it's.
It is in place today.
Awesome I'm a big my other questions offline. Thank you so much and.
Congratulations on a strong start to the.
Yes.
Our next question comes from Patrick Flynn with Simmons Energy. Please proceed with your question.
Hi, Tim Thanks for taking my question and congrats on the slot of cash or about to get from the BTC.
My first question here is basically I'm looking at your forward guidance and then 29 10, you sold about 700 million gallons are just over that figure but in 2020. Your guidance is for the 640 to 680 million gallon range.
I was kind of hoping you could give us a little bit of a breakdown of why that number should be expected the drop quite as much as that as its I think a little bit lower than we're expecting.
So Patrick its chat ill take the first stab at it so first of all.
I would say keep in mind the.
Northeast is going through what I understand as like the third warmest winter.
In recorded history, and because of that Theres a lot less.
Bio heating oil going in there. So we've got lower gallons, which don't tend to be our highest profit margin gallons anyway. So there's a there's a bit of that going on with.
Heating oil into the northeast.
You also have a small impact for new Boston being outside of our mix.
That's offset by our plants running at higher run rates and better run rates.
And improved mechanical availability the other thing I would.
Point to is if you look at the last quarter of 2019, the tax credit had lapsed for a long period of time, we were being very careful not to just produce gallons.
At a loss with upside on BTC, we had plenty of upside.
Exposure to the BTC, we didnt want to.
Run plants at a loss that it and be dependent on Congress to the timing of Congress. So those are the three or four biggest things I would say influenced the total total gallons, but otherwise there is a better trend underlying that of operational performance improving and Mccann.
Nickel availability every single year has been better on our existing fleet.
Yeah, Patrick to the C.J. and just to add to that thank you Chad.
Underlying someone like us and some optimization and mix is really this change in strategy that.
Chat is referring to which is a focus on more of the profitable gallons, which actually result, sometimes in letting go some of the marginal gallons.
And in the past, we may have been focusing specifically on volume as our primary metric.
And volume Mccarthyism isn't important steer, but you need to look underneath so R&D gallons are definitely going up within that change.
Some of the biodiesel gallons are also going up, especially the ones that can route for these premium markets.
Okay, and great bulk of the difference in that you're seeing with a total year on year is actually petroleum gallons and those are the gallons that we were blending in with biodiesel to get to heating oil.
And so.
Yeah.
The lives of ultimate profitability. If you just look at volume without being able to see the mix.
Okay, great. Yeah, that's very helpful. As a follow up to question question on that.
I know you said you guys saw pretty decent level of sales uplift in the California over the last year at the beginning of this year I know the rule that will allow storage of B 20, an underground tanks is taking effect you expect that this will add additional potential volumes into that market and have you started to see any of that quite yet.
Definitely itself, it's a really great change for us because we can sell be 20, instead of the five and we are seeing some enthusiastic uptake of that already in this early as part of the year.
Okay.
Thats awesome. So one other question that I was thinking about recently as I believe the Puget Sound is currently in process at looking at potentially up taking an l. CFS type program.
I would imagine you guys are pretty close to that situation. So theres any updates or insight you can give us into how all of that's playing out that would be very helpful.
Actually the whole state continue to look at a low carbon fuel standard as well it's been a very lively debate now for awhile.
I believe that the debate continues without resolution, but definitely.
Lively debate.
And I'll add just a little better color to that too I think you're hearing from the Puget sound because of frustration that the state keeps getting really close to the finish line over the last 345 years and the populated counties I think 80% of the refined fuel goes through there and it's the large portion of the popular.
Jason is right around the Puget sound that basically.
So on their hands up EMIR, saying, we're not going to wait for the state to act, we're going to try to do it where all the fuel is anyway, and so thats why you see that they believe they can come to a more streamlined resolution and they believe they have the authority to do it.
Okay. That's.
Thats very helpful. So one last question for me is.
In 29, 10, you guys deferred spending on the Seneca expansion project and I know is partially completed.
Assume that that is underway currently with the capital that you guys have recently unlocked through the BTC. So I was hoping you could give us an update on that and then potentially how your card lock stations have been doing at any plans to expand that sort of operation into the future as well.
Yes.
So I think a project is back underway, we're happy to report and.
Making good progress and just to be clear. This project is about improving the performance of that existing plans, it's not expanding volume, but it's definitely expanding margin for the plant and its IR with well above 20%. So we're happy to get that back on track in terms of the card block that's been an excellent experience too.
There's been several different things that we're learning, which was the whole intent because what we wanted to you is optimized that approach I understand what we need to do to make subsequent projects work very well very quickly. So we're not complete with the project, but we're getting great results and continuing to learn to improve.
Okay excellent. Thank you Brad answering all my questions were looking forward to hosting you in the team at our conference in Las Vegas. Later this month bank, we're looking for Q. Thanks, Patrick Thank you Patrick.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we pull for questions.
Our next question comes from homemade horse Sen with Vws financial. Please proceed with your question.
Hi, So first off just wanted to see just given the guidance, you're providing Q1 and then the commentary around Corona what kind of impact are you thinking there could be all your feedstock as we go forward, especially as far as far as sourcing goes.
So the biggest thing we're seeing how mine. So far is a used cooking oil that's imported from China. So as I mentioned in my comments for us that impact our European operation more directly than anywhere else.
And where our forward planning, we're still getting some through thought and haven't completely stopped as a supply chain, but it is slowing down in keeping with all the news that you here in multi industries about things slowing down in terms of exports out of China.
So that's the first thing in probably the most poignant which is why our business continuity plan is focusing on that.
Everything else is a bit more Brian a lot of our supply is domestic and we don't actually see an effect at least at present, but you really can't project, what's going to happen going forward, if less really everything shuts down for a couple of weeks file everyone's inquiry 19, so what we need to do it think about business continuity plans having in.
Feedstock ready Decato, if something like that were to happen.
And in fact, having enough people trained to make up for anyone who might be out. So we're working on all of those things in order to manage through what is really an unknown potential at this point.
Yes, and then.
I'm going to chat I was just going to comment theres a bit of a derivative impact.
Depending on whether or not that's impacting worldwide.
Fuel consumption and demand than worldwide fuel fuel prices, all our sales are indexed and forwarded based on.
Ultra low sulfur diesel so.
That would have a derivative effect on the forward book in risk management and things like that so we just are watching closely.
Okay, and then just talking about the current environment.
How are you strategizing given the PTC is back than your competitors come back online and produce a lot more.
Product and you're expecting or what happened last year.
It's a whole strategy home and thoughts about being very efficient. So that we are a little cost operator, it's about having great customers and great channel both from a feedstock and supply perspective, so that all the way up and down the value chain, we have premium route.
[laughter] deserve risk that you've done your feedstock could get cornered the market by one or two competitors.
Yes, I'll take a stab at that how that we've have hundreds of feedstock supplier. So we're buying far and wide and our goal is to have a real diverse supply and you've talked about us even.
Expanding out internationally in sourcing feedstock around the world to ensure because we do.
See that there are untapped.
Feedstock sources out in the marketplace around the world that isn't.
Currently going into biodiesel and renewable diesel so we've got a diverse north American the newer European base and we're also sourcing feedstock around the world.
Okay last question, so just given the amount of.
Cash that's coming onboard.
Why is capex, so low or and vice versa. Why is your stock buyback program low. So there's there's this delta here right, there's going to be a lot cost for your balance sheet. Why are you carrying so much cash the balance sheet.
No.
Capital plan is actually based on specific capital projects that are on the books and approved and so.
In my car and what I meant when I said additional major capital would need to be approved separately by the board is that we certainly intend to do that and we'll have the capability of doing it but we are waiting until we have the specific major capital investment ready to go as opposed to establishing a large budget without knowing what's going into it.
Got it alright, thank you very much.
No.
We have reached the end of the question answer session. At this time I'd like to turn the call back over to CJ War for closing comments. Thanks, Rob So to wrap up I'd like to highlight that RTT was recently included in corporate nights carbon clean 200 lift. This lift this created as a world prominent lift affirms according to the size of clean.
Revenue from products and services that provide solutions for the planet. This is a great example of the SG value that RMG brings to society, we're proud to be executing on our mission to build a sustainable company, making sustainable products and creating value for our shareholders and society at large and now before we close Todd is going to mention outcome.
The investor events for R&D Todd.
Thanks, CJ slide 29 shows our upcoming conferences, we believe we will be attending the 32nd annual Roth Conference on March 16th Ritz Carlton in Laguna Niguel in Orange County attendance at this conference is invitation only so please contact your rough sales representative view you want to attend or schedule. One on one meetings with us on March.
16 or 17.
On March 25th CJ is scheduled to present on the biodiesel panel at the Piper Sandler Twentyth annual Energy conference in Las Vegas, We will also host investor meetings throughout Tuesday March 24th and Wednesday March 25th attendance. At this conference is by invitation only for clients of Piper Sandler investors should contact your Piper sand.
Their sales representative to secure a meeting. Thank you all again. This concludes the call and you may now disconnect.
This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.