Q1 2020 Earnings Call
Treating some welcome to the renewable energy group first quarter 2020 earnings conference call. At this time, all participants or any listen only mode. It question and answer session will follow the formal presentation.
Anyone should require operator exercise during the conference please press or zero on your telephone keypad, that's where am I do this conference with being recorded it is now my pleasure to introduce your host top Robinson Treasury for renewable energy great. Thank you Sir you may begin.
Thank you Jesse good afternoon every one in welcome to our first quarter 2020 earnings Conference call with me today is our President and Chief Executive Officer, C.J., Warner and our Chief Financial Officer, Chad Stone, Let me cover a few housekeeping items before I turn the call over to see James.
I would like to remind everyone is called the web cast in is available at the Investor Relations section of our website R.A.G.I. Dot com.
Play will be available on our website. Beginning later this afternoon. It's webcast include an accompanying slide deck, which you will will appear automatically with the web cast you will need to advance the slide manually as we prosecute for those of you dialing into slide that can be downloaded along with the earnings press release any investor Relations section of our website.
Starting to fly three we would like to advise you to some of the information disgust on this conference call contained forward looking statements you statements involved risks uncertainties and assumptions that are difficult to predict inside forward looking statements are not a guarantee of performance the company's actual results to defer materially from those contained in such.
Mm.
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 S.C.C.D.'s forward looking statements be only as of the data this call the company undertake no obligation.
Into publicly update any forward looking statements based on new information or revise expectation.
Today's discussion also include non gas financial measures. We believe these metrics will help industries assess the operating performance of our core business.
Fleecy the press release any appendix City company slide deck for reconciliation of the non got measures to the most comparable got measure.
He also point out as you know near the end of last year, the biodiesel mixture excise tax credit or B.T.C.
Attractively reinstated for 2018 and 2000 in 19 was also put in place for 2023, 2022 and that benefit of that retroactive reinstatement for both years was reflected in our gap financial statements in the fourth quarter of 2019, because your credit related to our 2000, many t. in 2000, a 19 operations.
Adjusting but another line items reflected and allocation of the net benefits. Other credit you are 2018 in 2019 results by quarter to reflect the period in which the associated gallons Russell chat over by more details on his when he reviews and the financial results with that let me turn the call over to our president and see.
He gave Warner C.J.
Thank you Todd and good afternoon, everyone I'd like to start by saying that I'm, Bob Please and humbled to report that are in G. delivered strong adjusted even talk about a quarter. We realize this result, despite the considerable market turmoil from the onset of comment 19, and a free falling all prices first from the rest would then I'll pack and later exacerbate.
By pandemic driven fuel demand destruction.
I will provide some details behind this later.
Very high level, we have our g. maintained performance through a combination of factors first strong ongoing operations and continued underlying performance improvement.
I can't effective risk management.
Murdoch flexible approach to feed stock selection and product placement and for us the relative certainty, we now enjoy with respect to the V.P.C.
I only saw and renewable diesel production was confirmed as any essential business, which enabled us to continue to operate robustly.
Are you call trap safety teamwork resilience and persistence coupled with our strong sense of purpose was also essential to our delivery under the circumstances, we know that operating profitably is critical to our shareholders as well as other important stakeholders, we imply many people support agriculture through our feedstock purchases.
And contribute financially and otherwise to the communities in which we operate we also produce any central unsustainable product for our nation's transportation network. All of these social contributions are stymied, if we're not profitable and their realize when we are we believe that are successful financial performance reflects our commitment to all of our stay called her.
Since the comic crisis is on top of mind, let me address that first and then circle back to discuss operations on results you can refer to slide four to follow a lot.
And we all know the covert price that has changed the equation for essentially all businesses in the near term from the outset R.G. have taken measured on definitive action to protect our employees business partners communities and our business. We activated our newly formed come in 19 emergency response team or E.R.T.
On a high alert basis in January to be in monitoring a situation and planning for possible contingencies should the virus spread puzzling as a pandemic has unfolded R.E.R.T. guides the company and taking decisive action. They provide our leaders with daily tracking a situational updates as well as crisis related services such as orcas.
Trading the distribution of critical P.P.E. across the company.
Early on we adopted best practices in accordance with C.D.C. guidelines for sanitation travel restrictions and social distancing, we moved all of our office based operations in Ames and all of our regional offices, including your up to fully remote works in mid March. This has gone seamlessly in all of our refinery.
We implemented social distancing extra sanitation practices and proactive quarantine measures in order to reduce anxiety better support our employees encourage precautionary quarantine. When we're ahead, we granted all of our employees in extra 80 hours a paid time off as needed in order to deal with health our family issue.
It's really a choose a virus.
Our guys from our turnaround was successfully executed in April.
I turn around under normal circumstances is complex, but especially so in the context on a virus outbreak in Louisiana. The team performed exceptionally well applying stepped up sanitation and how control practices, including daily health checks for workers increased P.P.E. requirements and several carefully planned separation measures. This enabled us.
To carry out as essential work with zero safety or health issues to date.
We're all I'm extremely please report that far across the entire company. We have have no kobe related health issues and the business continues to run Wow.
We maintain full operations during the quarter.
We were and continue to be able to run all of our refineries even in shelter and play states are only plant that was temporarily limited by the virus in our Okie told me from station facility in Florida that was down during the state sheltering place.
We have all seen the demand destruction, that's come from slowing down the economy, we are affected by that but as a producer up cleaner commercial transportation fuel. We believe we're in a relatively resilient position given the primary yourself the fuels we produce according to the yea gasoline demand is down approximately 50 per cent.
Jet fuel demanded down approximately 70% from the beginning of the year. In contrast diesel demand was relatively stable during the first quarter and essential supplies were being rushed to market generally by truck with diesel engines would that affect now stabilizing I.H.S. market projects that diesel demand will drop around 20%.
End up to two we are seeing that demand for bio diesel is generally correlating with petroleum diesel demand and renewable diesel demand remains strong with little to no demand reduction busbar.
In terms of product pricing diesel in correlation with crude drop substantially over the course of the court or if you can see and slide five.
U.L.S.D. fell from over $2 a gallon at the beginning of the year two under a dollar at the end of the corridor. That's a crisis took hold notably be 100 prices were substantially less volatile than you L.S.D.N. a first quarter as shown on the same fine.
Moving from our outputs to our input.
How big crisis has also impacted the stock market.
As you know our <unk> next is predominantly comprise a low cost low carbon feedstock. All of these are being for a tail significantly based on our market intelligence restaurant closure I'd have resulted in a 45% reduction in the availability of use casino. In addition to gasoline demand route is severely reducing the need.
For ethanol blended this headline to multiple ethanol plant shut down reducing among other things to supply of distiller Cornell by an estimated 55% as off today.
Furthermore, covered related closure score reduced operations rendering plants are now shrinking a supply of animal fats by an estimated 50 per cent and off this week.
Now on the other hand, so I didn't cross levels have increased making more so I mean available in a second quarter.
It's a matter of fact, a holiday or is that over the course of the quarter feedstock pricing has been extremely volatile with soybean oil dropping another feedstocks, increasing as shown on slide six.
Our feet suck flexibility allowed us to preferentially use lower cost to D.C.O.N. you call through most of the first quarter and that has allowed us to switch to the more advantage soybean oil toward the ended up first quarter and into the second quarter.
Pulling product pricing and feedstock costs together as a chart on 757 reflect the how about spread Maryland sharply over the corner due to diesel prices falling and more rapidly than sweating, all price because it happened to relatively late in the first quarter of this compression we'll have a much lighter a larger effect.
In a second quarter.
<unk> says whichever remains relatively supportive are helping to provide additional margin as shown on slide eight.
Turning to other controllable aspects of our business beyond managing our feedstock next I am pleased to say, we had a great quarter and met object for underlying improvements, let me highlight a couple of them.
Burst renewable diesel our team I think task with optimizing profit on every gallon of renewable diesel sold and in a few one I did an outstanding job renewable diesel prices in Norway are substantially higher than in the U.S. at present, so we preferentially directing sales there Norwegian volume continued to grow on the first quarter you're over here.
We fulfill demands I continue to operate guys Mari officially renewable diesel production with up 3% and we ran it over 110 per kind of name plate capacity for the quarter.
Similarly, moving downstream to sell directly to end use customers is a key element of our long term strategy fleet sales continue to be strong quarterly fleet volumes have been increasing nicely as you can see on slide nine and we're up over 150% compared to the first quarter up 2019 proprietary blending.
Which captures margins and drive volumes with also strong we're pushing hard to increase biodiesel blending into both petroleum detail and renewable diesel.
So biodiesel blended into renewable diesel increased to 71%.
Helena Slide 10. This is outstanding progress and is important not only for the economics, but also for our environmental contribution.
I'm very encouraged by our performance in these key initiatives, especially in this extraordinarily difficult environment.
Now all touch on our financial performance as Overviewed on flags 11, and 12 chattel give details shortly but for now I'll provide some highlight.
First our financial position is solid with the receipt. Other B.T.C. proceeds are balance sheet and liquidity positions are very strong. This is particularly valuable given the economic environment, we find ourselves in.
Second are profitability of strong adjusted Eva die with $90 million three times that up to 129 to.
Risk management gains made a significant contribution this quarter demonstrating the purpose of our risk management approach chattel discuss this in more detail in just a minute.
Other factors behind our strong adjusted even top performance include safe and robust operation with zero health or safety incident, and nameplate utilization of 96% <unk>.
Improvements in underlying performance I, just detailed application of our flexible feedstocks selection and product placement strategy and the support of a more certain regulatory regime.
Now, let me briefly to capital allocation and growth class.
Outlined last quarter, we maintain fiscal discipline in accordance with our capital allocation framework.
You've made substantial progress on paying down our debt, including repurchases of our convertible bonds.
From a growth perspective, our main focus to drive around.
Yeah renewable detail expansion and effort, we continue to progress at pace.
Downstream margin capture is our other primary strategic focus and I highlighted earlier were making good progress and increased proprietary blending which both captures the fall dollar C.T.C.N. enhances demand for biodiesel.
We plan to further improve our carbon reducing offering I selling much higher percentages of biodiesel blended into renewable diesel and petroleum diesel over time.
As you can see on slide 13 in the first quarter, we were able to display the 1 million metric tons of C O too.
From our hundred and 21 million gallons of fuel parties.
Right now trying to call over to chat to review our financial performance in more detail for the quarter cats.
Thank you see J. and good afternoon every one.
Before I get into my comments on the court is I want to align everyone on comparisons.
Mentioned in December the B.T.C. was retroactively reinstated the 2018 in 2019 and extended through 2022. Accordingly, we will provide analysis of the non gap numbers adjusted for the allocation of the beat T.C. to the first quarter of 2019. This creates an apple.
The apples comparison to enable you to better understand the real change in the underlying economic performance.
Refer to fly 14 for gap in 515 for the non gap quarterly highlights.
Total revenue was down do both to reduce gallons sold and lower average selling price.
But decreasing gallons sold as a result of our focus on product mix.
Volume of lower margins petroleum diesel and third party gallons decreased while higher margin renewable diesel and biodiesel gallon sold in Europe.
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Reduced volume of petroleum diesel was caused by an unusually warm winter in the northeast in the elimination of blended volumes associated with our new Boston Biorefinery, which we closed last year in July.
Looking at production gallons produced we're both up in by these old and renewable diesel.
Now let me further address the risk management gain that C.J. touched on.
If you all know prices across the energy complex declined significantly in the court.
Additionally, we saw soybean oil pricing declined in the quarter as well.
Without risk management strategy in place. These changes resulted in a risk management game of $54 million.
The magnitude of the volatility was very much outside of the norm. It's a matter of fact, it was historic and our risk management strategy proved effective.
Note that approximately 40% was associated with first quarter business and the remainder for future business.
Can see the first quarter risk management games offset the decline in prices as designed protecting our margins as intended.
Going down the P. you know S.G.N.A. was higher both on an absolute basis enter the per cent of revenue.
It was primarily due to a bonus a cruel in coupon 2020 from our solid results as compared to know bonus a cruel into 212019.
Adjusted EBITDA exceeded our guidance and recall when we provided guidance for the first quarter, we estimated 17 million of risk management games and due to the extreme volatility in the latter part of the first quarter actual risk management game was 54 million.
Yep that income reflected our usual low tax rate of less than 2%.
Florida, our tax rate should remain low due to our large N.O.L. balance.
Please refer to slide 16 for a trailing 12 month adjusted EBITDA of 279 million.
We believe trailing 12 month analysis is a better way to be you are longer term performance then one quarter at a time.
Please refer to slide 17 for our trailing 12 month return on invested capital which is 20%.
Note that these figures are adjusted to allocate the net the P.T.C. back to the period and watch it was around.
S. C.J. described we have a strong balance sheet and liquidity positions as you can see on slides 18 and 19.
And we've collected all the V.T.C. amounts for 2018 in 2019 from the R.I.R.S. In addition, we're also collecting B.T.C. claims for our 2020 business.
You're today, we have repurchase $16.5 million in principle of our 2036 convertible bonds and the current principle balance out standing for the convertible bonds.
73.1 million.
Which is down from 78.6 million at the end of the corridor due to repurchases.
We have $130 million remaining of our board approved authorization for additional repurchases.
We also paid off $13.4 million in terms that in January.
In April we pay down our credit line and we invested excess cash.
Oh, that's the total capital at the end of the first quarter was 6.5% and our weighted average interest rate was 3.8%.
As of today, we sit here, we're in a net cash position with over $300 million more cash and marketable securities then we have debt.
Further we have $150 million available on our line of credit for liquidity.
[noise] with interest rates at generational lows, we may consider new debt to support the growth strategy, while maintaining our conservative approach to balance sheet management.
As always we intend to maintain our prudent capital allocation.
As I mentioned, we have the board approved repurchase authorization.
Recall, we have $60 million budgeted for capital expenditures for 2020, and we have invested 9 million of that in the first quarter.
As a reminder, our target for growth capital projects is a 20% internal rate of return an overall, 15% return on invested capital.
These projects must compete with debt retirement in repurchases to maximize returns.
<unk> turn the call back to C.J. to just discuss the outlook C.J.
<unk>.
It's probably safe to say that we're all working in one of them off time certain periods of our lifetimes and this does need to be reflected in our outlet.
We have already covered several of the cross currents and uncertainties enough summarize what we believe our them major relevant market forces, both up and down on slide 20 at the moment, we can't predict how any of these will pan out we are laying them out here. So you can all consider on track along with US a forced us that will impact our business.
Scenario I haven't covered yet and would like to now it's overall diesel supply and demand diesel picture is currently challenge, but there is some potential applied here.
Many refineries are having to cut back on utilization because other collapsing gasoline and jet demands gasoline inventories are far above the five your average is shown in 521 and this kind of become throughput limiting for the refineries with refineries having to cut back on gasoline production overall petroleum diesel supply couldn't be constrained.
Depending on the degree of products switching refineries can achieve because current diesel inventories are actually slightly below and a five year average basis and in contrast to gasoline cracks bread, which I've dropped precipitously detail cracks are barely support out as you can see and find 22.
Any further costs and refining utilization would likely be supportive to diesel prices.
<unk> all that in mind, let's move the guidance has shown I fly 23.
In the second quarter, we expect a gallon sold in the range of 155 to 175 million and adjusted even thought in the range of $20 million to $35 million.
Second quarter guidance includes $8 million of risk management gains recognize from the first at a month or last week also our risk management gains in the first quarter included some games that we're protecting few to business.
That's to understand our value creation for the period, it's best to consider both first and second quarters. Together, we are looking at $110 million to $125 million I've adjusted even thought in the first half as noted on 523 any changes in the assumptions used to and from our guidance could affect the actual results.
Looking farther ahead, we're widening are volume guidance range for the year by reducing the low end. This reflects that far greater uncertainty of the current environment.
Now I'd like to trying to call over to the operator product you in a segment of our call Jesse.
Thank you we will now be conducting the question and answer session. She would like to ask a question. Please press star one on your telephone keypad. The confirmation number indicates that your line isn't the question Q. you May press start to what you see with I can't move your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing.
And the start Keane why not meant for as long as well for question.
Thank you My first question comes in a line of Craig or one with Ross capital partners pleased to see with your question.
Good evening in congratulations on a strong results.
Thanks for a nice Craig.
The first thing I wanted to ask about his use of cash right 500 million from B.T.C. 180, plus I guess dance a quarter.
Maybe you generate a little task between here and there may be you use the little I guess, considering you're you're still buying back those converts, but give or take seven $700 million and cash and you did mention possibly I go into that that markets given that historically low rates.
What are their priorities for cash how do you fit that in in the different opportunities that you're looking at so construction over the next couple of years.
Yeah.
It really high falls, along the lines of the combination between our capital allocation framework and our strategic games. So the capital allocation of framework does call for ensuring that we're considering returns between five x. debt restructuring and growth. So are definitely keeping a close eye on.
All of that and balancing it and in terms of growth and <unk> forward strategic choices, we are working hard to develop them in the area not renewable these all girls and downstream expansion.
Then choices and in fact, I think with the current market dynamic, it's it's making things even more interesting than before.
Okay. Okay excellent. So then.
<unk> alright, everybody wants to hear an announcement, obviously it didn't make one today, but you know when we when we do our diligence sure. Good grades Harbor facility I remember years ago that had a rests on the neighboring property. Some very interesting permits already there for much greater capacity thing then you've had in place.
And the right score a deep water port right there.
Seven seconds. So I think it showed a at the analysts that years ago was if I believe I. If I'm correct I believe it was Seneca where again I think you bought the land next door and if I remember correctly. You also have you know liberal lights, there should be barge.
Can you maybe give us some color on where you're at as far as a decision process. Once you make an announcement when we'd be looking at an expedited timeline and do you have some approximate <unk> goals for green diesel over the next couple of years.
<unk> alright questions Craig's so and this is an area where focused on making great progress in <unk>. We haven't made an announcement because we're trying to hold a few things per page.
Some of the things that I <unk> first is in keeping with what we talked about last time of the engineering for the 250 million gallon a year plan has not slowed down and now we continue working on the I.S.P.L. design at pace, making really great progress and we're very excited about that we do have.
I have some outstanding choices for location and.
This has been gratifying project and a process for selection, we are making good progress an announcement will be forthcoming we just can't say exactly when but we are working on it and because we can work on the I.S.B.L. design. It is really not slowing down progress versus what we were looking at <unk>.
Or with the Green Apple project. So we will continue to keep you updated ads were able to without sacrificing a commercial sensitivity.
But rest assured we are I'm moving forward.
Then you to.
<unk>.
Great and just ask about dating factors there so what we'd be looking at maybe environmental permits or construction permits or financing as the dating factors that would would lead to a probable announcement.
You know, though.
The permitting that we're looking at it seems to not be a significant dating factor. All that you can never say never saw of course, we're keeping great focus on that and moving forward.
Partnership at all how making great progress as options financing as well and on the other one is easement as for the property. So all of those are things, which have some commercial sensitivity, which I'm sure. You can appreciate why we're not disclosing quite as much but we're balancing all those things as one does when when you're building a project.
This magnitude <unk>.
Great. Thank you for that so <unk> questions along the the guidance for adjusted EBITDA. So massive number in the first quarter 53 million dollar benefit from your your hedging you know I guess most people on this call understand your your functional hedges that you don't have commodity castle hedging.
Able to you just given the underlying commodities can you can you maybe talk a little bit about this $8 million hedge game that you expect into cue you did say and you're prepared remarks that 60% of the hedge book was sort of rolled forward, we did see I guess.
Hitting hitting all come off more than more than being while some going against that that penchant you a little bit in a second quarter can you couldn't you kind of walk us through the the puts and takes as we go from I guess 37 $38 million adjusted number down to 20 to 35 number.
Yeah, Great. It's just I just wanted to.
Start with first quarter first so I drop the little hint in their basically saying you know 40% of that risk management gain was associated show associated with the business. We didn't first quarter meeting the rest of at you know north $30 million was for future business.
We are typically you know 90 days sold out and we don't get too far long, especially in volatile commodity cycles. Ah. So you can imagine a lot of that is.
A second quarter impact and then what I would discreetly say is and as we go to forecasting in preparing to to provide guidance, we kinda no a little bit of how April started often through basically yeah. The end of last week, the volatile energy complex generated some additional.
Risk management games since the beginning of of April. So we know we're sitting on a position you know that we track regularly that already reflect some risk management gain and that's built into.
Are forecasting and guidance that we provide.
Okay excellent and then.
You know most most people in the country optimistic that this kobe does situations going to be behind us hopefully sooner rather than later I guess that means we should be bullish on a gasoline and diesel prices you know and I guess.
We look at the world's pretty much everybody to owns it tankers is bullish on all prices because they're they're buying it for for the future price right. Yeah. So do you do you have a strict regimen that you follow in your hedge book that would expose you to hedge losses. When we finally do see this rebounding oil prices.
Or would you be more likely to sort of go naked to the to the the ultra low sulphur diesel heating oil low software <unk> software diesel market over over the next couple quarters.
<unk>.
Yeah, I'm, just going to <unk> speak to the details, but I want to say something just from a high level from that standpoint is that I.
I I don't think anyone expects the recovery to be as pre tip at S.S. as a crisis and that's actually very significant when you're thinking about risk management, because sometimes it's the rate of change that makes a big difference and tell the the hedging strategy really protected us from very precipitous drop and in terms of us lower recover.
<unk> and we're with you watching that recovery is is critical and we all believe it's coming.
Yeah, it's not going to hit us in the same way, even f. approach with perfectly balanced just because it's a little slower.
Yeah, and I would I would add to that Craig we are producing the physical commodity and risk managing it. We're actually moving these things were not just trading financial contracts. So when you think about trade. That's your goal is not to make money trading the goal is to protect our cash margins and so we take a really really conservative.
Approach to risk management, yes, we do have a position and a forward view, where we can within a limit governed by our risk Committee you know if we've if we feel the commodities are going one way or the other we can be on the high or low end of are allowed position and so we can do a little bit of that.
But you know we were lucky we follow that risk management strategy to a t. When you know we had this historic drop in energy prices in at work just add designed and so we don't don't want to stray too far because it's a matter of fact, it could go down even further.
As witness last week, so I guess that the the short answers, yes, we can to a limited extent governed by our risk committee, but we kind of have to stick to a conservative risk management policy, but we do take forward views and try to.
Optimize but we don't yeah, we're protecting cash margins.
Okay and then last question if I may your adjusted have a dog guidance range 20 to 30 35 million or what have you land at the high into the range versus the law into the range. What are the the specific items. We can watch for that will that will cause that kind of you know high versus local.
Hornets.
You know, it's it's pretty much the factors that I outline, particularly thinking about things like.
Well the margin of course is one of them and demand is going to be one but from a control factor standpoint, our underlying performances is a big part of it.
Oh, and you know a recovering of the energy complexes helpful for us for future gallon sold.
Rental prices appreciating would be helpful. You know some some of the things C.J. highlighted like in a recovery scenario with restaurants opening up and nothing all plants you know.
Meat packing plants.
Supplying more of the feedback that we're currently seeing our limited would help rebalance the the value.
Equation between those speed stocks and make them more available and those are the types of things that that I would 0.2 as well those would encourage higher volumes and higher volumes is is.
The other driver [noise].
Great and just just to clarify in there there's there's no risk element in your guide for potential plant outage related to stuff covert exposure uncovered infection. That's not something you you factored into your guidance because you don't expect it I I wouldn't say directly you know we haven't looked at what though projections are.
For diesel demanded drop until we've looked more along those lines for volume versus needing to shut down for any coveted related reason.
Great. Thanks, again for taking my questions. Congratulations on the really impressive adult result.
How much they care.
Thank you are next question comes from the line of my letter wouldn't let her research pleased to see but your question.
Hi, Good afternoon, guys how are ya.
You might like how about you.
Good good I I just a couple of questions must have been asked already but well the follow up on one of your recent I guess the the second to last answer you just gave on feedstocks and it's just given.
The unprecedented <unk>, we're looking at now in some of the chefs <unk> you can imagine Ms. Curious you know what kind of indications or in sites you guys have thus far around how much what kind of shift you think might be permanent or semi permanent.
I'm thinking specifically about nine waste cooking oil or it could be any one of a number of.
A number of different commodities, just trying to think about how <unk> what kind of <unk> you. Please today kind of looking out there maybe to 2020 and 2021, how about that Ford mixed could end up looking a bit more a bit difference just on a long term basis.
Yeah, So I'll throw a few things out there, although I'm I I would prefer to some of my agriculturally inclined friends to be better experts, but I I think in that particular in the area of tallow that level to recover fairly quickly I think that's kind of short term thing and it came on pretty fast.
And it's definitely strongly call then related in terms of don't work or some sell and Oh, that's actually generating a bit about food crisis, we think that probably going to come back pretty fast as well huge talking well with reasonably tempered also but people are wanting to get back to restaurants, how we we.
I feel pretty confident that that's going to come back to about where it was as well the <unk> corn oil is another story, we're gonna I'll have to watch really carefully the ethanol industry really got hit hard and so we're all <unk>.
I need to be supportive of them and understanding is it difficult time right now and so we'll have to watch what happens with ethanol restart.
<unk> Oh, all this stuff has happened really really recently I mean that was a month and a half ago or so that restaurant started closing I'll plants have been closing pretty rapidly in the last.
Three weeks I would say and then the meat packing incidents have been yeah within the last couple of weeks a state of these things have closed down real quickly I'll read remind you folks like a quarter ago, we were talking about our fearing concern they use cooking oil supply coming out of China, and we were warning people early warning.
You know that we've only got about tell July bought of Chinese use cooking oil an international use cooking oil thankful to report back open in the supply chains back, hoping so we're no longer worried about.
That specific rest that we brought on a a quarter ago. So that's just an element to to think about and consider so I I think of those those doctrine, leading indicators that were watching closely and we're kind of in the eye of the storm.
And I think gotcha.
It's a fascinating world because there's tremendous number of inner connections in the agricultural world. So if the corn usage for ethanol goes down then corn usage is going to go somewhere else and then all the other available being stuck and there are other sources of animal feed would spend changes.
Other levels are crushed so usually it's kind of circular in there turned out to be a balancing. So you just have to keep an eye at all the interconnection.
Gotcha.
It just just the follow up C.G. I think actually the one of your earlier comments to around like some of the the the the commentary around cracks and some of your different.
From a different dynamic catches you guys have on but you know that the the notion of a bloated storage inventories too I guess, a number of not all but a number I guess it tangential sectors. I'm. Just curious are you you pity inbounds right now on on the storage opportunities I know you're you're actively.
Hedging your core business in this is not something you're you're typically focused on I know, but yeah I know they legalize be 20 stored in California last summer I don't know how much actual capacity is is is there to be utilized but you know based on everything we're seeing around us and just just curious are you getting any interesting inbound now an indoor how're you kind of position for those kind of maybe.
Tangential kind of Arbor carry trades.
That's a great question so actually.
Our industry in it already Gee, we've gotten pretty familiar with doing that automatically with seasonality. So we tend to bore in the winter months and then sell at a higher rate sound, we're capable of producing in the summer months. How this year is no exception to that which actually given nothing they had an opportunity.
Mhm.
Okay.
Great.
<unk>, Okay. Thank you for a night.
Thank you My next question kind of some on it that you know what H.C. Wainwright pleased to see what's your question.
Thank you agreement guys.
Just a couple of questions from on the cash operating cost that in my apologies. If you already highlighted this but you do in two or three should we expect the cash operating costs to be go more than maybe what you saw in Q1 and if yes, you know.
How much lower.
I think if you separate feedstock from operating costs that are view is there's not a substantial change. It's interesting when we are probably going out a little bit lower travels oh, yeah, as everyone well, but if that is not a real substantial percentage of our total.
Expenditures, how we haven't really seen cause it to think that it's going to change radically. We are what you know when we do our monthly financial performance reviews. We are seeing that we're coming in under cost for the corner and that's not too surprising given a activity and with a lot of remote work.
But we don't see a a reason to drive radical change between second third quarter chatty on anything to add to that yeah, I'll just add to that generally we see.
<unk> energy prices go down we generally tend to see the feedstock complex follow it down you know you've got some unique things with you know some of that you use cooking oil there's still a <unk> an animal fats right and this immediate point in time, but the higher volume beat stock soybean oil has been trembling.
Down and so the leading indicators of the.
He's not complex going down are going to be soybean oil and then worldwide palm oil those tend to pressure the rest of the the feedstocks to keep them into a relative balanced position and you know a C.J. mentioned you know when there's less used cooking well available there tends to be more soybean oil available and it's.
You know going down in price, so that's and upsetting opportunity.
And it's it's very abundant.
God. Thank you for that.
You know you're markets, where you're seeing good pricing into mine looks in northern California. It looks like you know there's been pretty supportive for the world business.
How much more room do you guys have to keep supplying into those markets.
You know have the prices if they were price even seating or are they getting a little bit saturates, even though.
We're we're t. I know slow down which is very interesting, but <unk> draw for carbon intensity reduction relative lack of options to do that they're continued desire to purchase definitely renewable diesel as available and the blend of renewable.
Well in bio diesel in both of those have sort of had no slow down in demand and we're not seeing any sort of kept coming in the future.
<unk> well just maybe one last one for me in terms of you know how you guys emerge in the market you know from this go good situation.
Do you think you end up taking more market share relative to you know other companies, whose balance sheets aren't as solid as yours.
Any sort of you and you know what do you feel you will look like you know once all of this is settled and [noise].
You know, you're what back to sort of normal levels, we newbie.
Commanding a little bit more share in the market.
Yeah, I think I think your rights to point out that the industry had been going through a challenging time there.
A number of phones that are really needed the d. Si Si funds to.
Begin operations back up and by feedstock you know it it was.
It it had been suspended for a long period of time in some people were still waiting for those checks. So yeah. There's there's some of that going on but I think that that short lived in they'll.
Have the financing to ramp up I don't think we'll have any problem you know with with demand for our fuel and a C.J. mentioned were finding newer in in deeper markets for a renewable d. The one we expect that to continue and so we're growing on that front and improving the sales mix.
Were optimizing maximizing that profitability and that and then we're seeing gross while while we go down stream.
With higher blends of blended fuel into both renewable diesel in bio diesel so I'm I'm optimistic of our growth opportunity.
Fronts in in the recovery scenario.
Mhm.
That's all out various thank you so much appreciated thank you.
Mm mm.
Thank you. My next question comes from hunted course end, what Vws financial please protect your question.
Hi, I'm stuff first off one ASCII.
You're saying that there's really no slowed down on demand why are you guiding down production of gallons sold on produced three trying to manage the margin or even trying to manage the market.
Hi, <unk> so though.
No reduction in demand is definitely focused specifically on renewable diesel and we will continue to produce as much renewable details. We can we just finished the guys Mars turn around so will the working hard cranking up the volume.
<unk> yeah, depending on the locale, we think it's probably gonna trying to down along with petroleum diesel.
Okay, and then are you seeing ring adverse activity as far as just from the P.P. actions with the blend and the mandate.
I'm not sure I understand <unk>, given given given cooling 19, and some refiners being allowed to him.
Not having to mix as much as before or keep up with.
Pollution rules I mean, how how does that adversely affect you at all if any and if you're seeing any of that yeah. So yeah. Yeah. At this point, it's all discussion and <unk> you could add it to one of the uncertainty Hall, though.
So the salient points really are that although refining definitely is hurting it's not happening because they have to blend in fact, they have to blend a lot less if they sell a lot got a lot less fuel.
And so it really the the cause and effect actually isn't there and it and as a government is working hard to figure out how to help all sectors of industries, which is actually really important helping one by really hurting another as is probably not a good approach and we think that some of what we're.
Hearing in terms of decision, making so anything of course can happen and now there is a lot of discussion about possible waivers.
But that would actually be outside if he's authority to grasp because of the law. That's in place and as I said, you don't really talk of a a holistic problems. How our view is that different ideas will prevail.
And finally on a competitive front <unk>. Yeah, you you were talking about Norway, having increased demand for you and being beneficial how do you keep a moat around your business given that one markets performance. So well hey, you take advantage that before your competition.
<unk> yeah divert that's another marketing is doing better than they are using Norway as an example.
Well, it's it's really about awareness diversification, having great customer service connecting with our customers being able to provide the quality and the quantity and when they want it where they want it. So that's really what our sale team does.
Yeah. You are you able to stay ahead of this I mean as far as the man goes and that's where the because maybe the question right right now.
I'll I'll pick a a stab at that just to give you a sense a couple of years ago every gallon of renewable these all that we produced.
Disappeared into California without exception it was the best market. It was you know really strong and since then we've had an increasing demand a poll from Canada, and particularly the Nordics and yeah. That's the last year, we probably.
Increased the sales makes to about 25% of international sales of renewable diesel one first quarter. It was more like 30%. So it it gets to see J. sales mix. So I I think of it in my mind is we've got a great market to California, which yeah, we love that market and then we have.
Customers coming to us willing to pay a premium over that low carbon fuel incentivize market and so it's a great problem to have and it's you know those things <unk>.
And act like arbitrage opportunities someday this customers willing to pay more and other days or California customer is is that that.
Premiere choice. So we're just balancing the sales book that way I thought were finding increasing and growing opportunities.
On all fronts for that.
Okay. Thank you.
Thank you kind of.
Thank you know as a reminder, ladies and gentlemen, as you would like to ask the question at this time. Please press star one on your telephone keypad.
Our next question comes from Alex long with partial capital pleased to see what your question.
Hi have a few questions first some housekeeping item.
Lost the basic shape account at the end off off the quarter and also how much more P.P.C. to to be collected that which you guys actually collected in April [noise] that wasn't capture the up in the balance sheet.
So at the end of March I think we collected about.
150.
Million right at the end of March and the rest of that came in by April 15th.
<unk> benefit to us would be the 500 million remaining with after you take care of by tax sharing agreements. So if you look on the balance sheet, you'll see a a really big 754 million accounts receivable a lot of that was the B.T.C.. We collected first half of April.
On the sheer tone.
[noise] 30 39 million.
Yeah, 39 39 million.
Got it and then moving on to a lot to market gangs in Q1 already I can make sure I'm I'm sure. How did you there that's our basic this year is outstanding be correct.
Looted shares would be 43.7 million.
43.7 got it okay.
And a question.
We continue to buy convertibles, so that's part of a delusion you're seeing.
Understood.
<unk> <unk> <unk> I, just wanted to make sure I understand how they think about.
You mentioned that was about 53 million kill one.
Oh 40 per cent of which it's associated with kill one.
And which means about 30, you know little about 30 million Yeah, <unk> really people in Q2, if he had pets accounting.
That would mean y'all q. when you <unk> really should be kinda into high fifties interested in line with you up to one guy.
But that would also mean Q2 guidance Oh, yeah that that you guys put it put out today I really should be adding about 30, some odd million there yeah.
Alright.
Yeah, I like that that's exactly right and that's why we suggested just kind of looking at first half or value creation, because the two of them sort of work together.
Mhm precisely because.
Exactly because if you look at it you know <unk> basically expecting sequentially acute one's best is to to think we'd be thought to be relatively flat.
Which I would say is actually pretty impressive.
Let's go along the route.
Can you maybe talk a little bit about what was going really well to allow you to to do you know I I don't thing I could find another company, who is who has some sort of liberation you know to oil price that can shell flat with a quarter hold a quarter from Q1 to cute too.
It's really Alex at Chatham type into what it is really all the parameters that I talked about so.
Out of all there's a little bit of forward planning that goes on which is how the risk management is able to help us, but our our demands remains robots for renewable diesel and it really has been quite <unk>. So many other things bird bio diesel as well.
And even pricing has been resilience, we have a strategy 10 optimize feedstock mix and we have the capability to do that and the same thing with product to make so a lot of the things we've talked about with what our feedstocks selection is and how are moving that around and where we're placing our product I'll help us to manage our real.
Margin as other things move around so to a degree some volatility actually is something we can deal with in a positive way because we have the ability to be flexible and then Meanwhile, I'm an underlying margin is starting to come through so that whole sort of things even if the rest of the market is moving in a slightly different direction. So all those things have helped us.
We've been running very very well, so we have robust volume.
And we have some really good stable customer base and that has served as well and also.
And I'll just add to that I mean, we.
Or <unk>.
I've been in a resilient sector right you know so we're selling into the do the market as C.J. was talking about if you look at slide five you can see when you L.S.D. was.
<unk>.
Prices were pretty resilient and the immediate response to the Kobe virus was to ensure that store shelves were Stockton you a lot of people were shipping things to to residences and you'll all those diesel engines were moving across the countryside urgently trying to keep the the shelves.
Act and you know once that happened you know we've got we're we're getting into the Midwest into the robust died demand for diesel into the planting season, and you know so I think as.
You know diesel has been resilient relative to gasoline and jet fuel and I would say clean burning fuels have continued to be resilient relatively as well not to say that you know things couldn't continue to a decline it other our forecast that diesel demand was you know down.
13% than expected to go down 20%. So you know it's still possible for this to continue to play out but.
Yeah. Those are some of the things I would 0.2 and then of course are are nimble ability to switch between feedstocks prove useful you know we're not just sitting in the middle of one feedstock were.
Able to source many different feedstocks and that's useful so you'll see make distiller cornwell mix was up like 33% over the previous period.
It was compared to so that is taking an opportunistic approach to turning up.
Eight one of the lowest cost be starts with the best premium incentive over into California. For example, so that is.
Other factor.
Yeah <unk>.
Reminder, if you would like to ask the question at this time. Please press start one on your telephone keypad. Please hold it like pull for any additional questions.
[noise] [noise]. It appears we have no further questions that there's times I'd like to pass before back over the next one or for any additional concluding comments right. Thanks, Jesse and you'll see in closing foreign investors I'd like to point out.
The near term difficulties don't diminish our enthusiasm for our business long term and I think that comes through in fact, you in a we believe that the U.S. economies resilient and has survived other very large challenges over the decades. We also believe it demand for allergies resilient unsustainable because it's so integral to our way of life and finally, we believe that the <unk>.
Oh interesting renewal on clean energy of the trend up here to stay even interface, how strong had ones. We all see today, where competent in the strong tailwinds that will drive our business in the years ahead, we will take the actions necessary to prudently manage our business. During this crisis, but we will also take the actions and make the appropriate investments to drive robust value create.
<unk> and profitable growth over the long term.
And now before we close talking to mention upcoming industry Best Ferrari di Hi.
Thanks see James.
As noted on slide 24 on May 14th we will present at the bank of Montreal's virtual farm to market conference presentations will be webcast live on the industry relation section of our website. We will also hosts industry meetings throughout the day attendance at the conference is by invitation only for the clients of bank of Montreal. So if you're interested please contact yet.
Check your bank of Montreal sales representative to secure a meeting. Additionally, our annual meeting will take place on May 12th at 10 o'clock in her office in in as noted on the slide 25 doors will open at 945.
For registration.
Conference line is also available for anyone who wants to participate you to the Cobra 19 situation. If you were considering attendance at the annual meeting we after you contact our energy in advance to cover Echo in 19 protocols as noted on the slide for everyone's safety.
You all again just concluded the call and you may now disconnect.
Mm.
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