Q2 2020 Renewable Energy Group Inc Earnings Call
[music].
Greetings and welcome to the renewable Energy group Inc. second quarter earnings Conference call webcast. At this time all participants are in eight listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance during the conference prescribed.
Star Zero on your telephone keypad.
As a reminder, this conference is being recorded I'd now like to turn the conference over to your host Mr. Todd Robinson Treasurer. Please go ahead Sir.
Thank you Hector good afternoon, everyone and welcome to our second quarter 2020 earnings Conference call with me today is our President and Chief Executive Officer, If you do Warner and our Chief Financial Officer, Chad. So let me cover a few housekeeping items before I turn the call over to TV.
I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our web site at our E. G. III Dot com a replay will be available on the website. Beginning later this afternoon.
Webcast includes an accompanying slide deck, which will appear automatically with the webcast you will need to advance the flight manually as we prosecute those of you dialing in the slide that can be downloaded along with the earnings press release in the Investor Relations section of our website turning to slide three we'd like to advise you some of the information discussed on this call.
For the call contain forward looking statements. These statements involve risks uncertainties and assumptions that are difficult to predict and such forward looking statements Tonight a guarantee of performance.
Actual results could differ materially from those contained in such statements.
Several factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our annual report on form 10-K, and subsequent quarterly reports on form 10-Q, which on file with the FCC. These forward looking statements speak only as of the date of this call. The company undertakes no obligation.
Turning to publicly update any forward looking statements based on new information or revised expectation. Today's discussion also includes non-GAAP measures. We believe these metrics will help investors assessed the operating performance of our core business. Please see the press release or the appendix city accompanying slide deck for a reconciliation of the non-GAAP measures.
Most comparable GAAP measure.
The benefit of the credit to our 2018 in 2019 results by quarter to reflect the period in which the gallon.
Associated gallons were sold channel provide more detail on this when he reviews, our financial results with that let me turn the call over to our President and CEO CJ Woerner T J.
[noise] your time and good afternoon, everyone. We are halfway through quite a volatile and challenging year, and especially given that backdrop I'm incredibly proud of what the <unk> T team is accomplished we're operating our business safely within CDC in government sanctioned sanitary practices in place and thus far have identified Bureau cases, a coke.
They'd illnesses, resulting from infection at the workplace.
Our biodiesel and renewable diesel plants maintained high run rates throughout the crisis, enabling us to consistently supply of fuel to our customers and deliver essential products.
We have supported are people in the communities in which we operate most noticeably by maintaining employment company operations and reliable feedstock uptake from our suppliers. We have provided all employees an additional two weeks of flexible time off to deal with any illness family issues and I like we believe that this is both the right thing to do for.
Are people and removed any incentive to try to come to work rather than South Korea, <unk> winning dog.
Finally, we have sustained are profitability generating nearly $80 million on the net income and close to $100 million a adjusted EBITDA in the first half this would not have impossible without the dedicated a conscientious effort of everyone. A R. D 's over 800 employees.
Looking at the first half obviously, you first chew a strong one of our best quarters, one second quarter was much more challenging due to the oil price war and the pandemic. Nonetheless, we earned over $8 million of adjusted EBITDA and the second quarter. Please refer to fly for the Cogan Christ, that's really struck D U as in late March.
So a second quarter was the first full reporting period with Cove. It impact we sustained ourselves then production level. Despite significant reductions an overall diesel demand and the need for major internal adjustments such as remote work and highly stuffed up hygiene practices in all of our workplaces.
Having said that margins were extremely volatile than particularly narrow and may.
We are pleased to then adjusted EBITDA exceeded our revised guidance. This was the result of several factors. Some price changes were more favorable then we had estimated other transactions closed earlier than we have estimated that they would together. These factors coupled with some other smaller elements resulted in better than estimated quarterly performance.
Focusing on the macro dynamics of the second harder with the economy seriously impacted by effective shut down of major business sectors demand for a few old decrease significantly jet fuel was down approximately 62 per cent and gasoline them nearly 30 per cent year over here and you can see on slide sick.
For diesel Ah, primarily commercial fuel in the U S N, which enabled the ongoing and vital transportation upgrades during the shut downs demand held up relatively well dropping only about 16% within that context. It is notable that biodiesel and renewable diesel demand remains stable demonstrating resiliency in spite.
[noise] petroleum fuel demand dropped supported by societies continue desire for more renewable lower carbon intensity fuel.
You all are D prices responded to the simultaneous large crude price and fuel demand drops declining in April two and historic low of 61 cents per gallon.
Since then U L. S. D has been trending up word although it remains nearly a dollar a gallon below the average fourthquarter 2019 price.
Similarly, feedstock markets, where in disarray at the closure the restaurants packing plants and nothing all production restricted supply of news cooking oil animal fat and have doors porn oil respectively.
Despite this situation a combination of strong convicted relationships and our ability to flex feedstocks enable us to stay fully charged with feed into optimize our feels like.
For example, we shifted a majority of our distillers cornel supply to the even more interactively priced soybean oil the feedstock youth chart on slide eight demonstrates how are we successfully adapted to the environment art feedstock mixed changed significantly and Chew 220, 20 compared to Q2 2019.
There you said just soybean oil doubled well used to joke distillers corn oil and used cooking oil dropped 50 per cent and 20 per cent respectively.
As a result, we held our average feedstock cost per gallon relatively flat year over a year, even with this huge shift in the feedstock market <unk>.
This helped us to significantly reduce the hit to our margins as the economy reopens. These feedstock sources have been coming back online, bringing our margins back toward 2019 level.
The American swings of the second quarter first dramatically downward and then with subsequent improvement can be seen seen on slide nine with a hobo spread steadily increasing since late April through the end of the corner.
Well, we are not yet back to fourthquarter 2019 pretty crude price war levels. The American recovery trend is continuing not far and three Q.
Armstrong first half results were driven I saw would execution in the operational aspects of our business that are within our control or what I liked to call underlying performance.
This was especially important and the second quarter with the extreme volatility in the external environment and the high potential for distraction of our workforce. Our operations remains strong with outstanding safety performance. We haven't had zero recordable injuries. Since January 2020, and our total injury rate is currently at 0.46, which is it within <unk>.
Mystery leader performance.
We successfully conducted the plan to Geismar turnaround on time on budget and without injury or infection.
Cause I mentioned earlier, we shifted feedstock to use heavily to soybean oil, which wasn't even more plentiful supply and therefore more interactively priced on a yield adjusted basis.
With our key product of renewable diesel we increase gallon sold and the second quarter by 4 million gallons undirected sales to the most profitable market. We sold around 40 per cent of our dog G to the U S West coast twenty-five per cent of Canada, and 35 per cent in Norway.
We also continued to develop are downstream business, which is one of our key initiatives to boost margins and demand in attractive regions and channels and so you can see and slides 10 and 11. We grew sales are are easy ultraclean or proprietary cleaning cleaner burning low carbon liquid transportation fuel by 107 per cent year.
A year and gallon sold a fleet customers increased 62% as we continue to expand is important channel.
Importantly are sustained profitability in the first half enable us to improve our balance sheet. This gives us the strange to survive of her lungs economic downturn should want occur also creates the foundation for sustainable growth Chad will provide more detail along these lines in just a moment.
Looking forward, we are competent in our longterm strategy and optimistic around three chew performance, while we remain mindful other tumultuous any involving external situation.
My confidence in our future. It's supported by a number of factors are great operational execution in the first half the strength of our strategy and finally, the stability and relatives certainty brought about through constructive regulatory support and driven by an increasing desire by the public for clean energy solutions.
Grilled in renewable diesel remains an important element of our strategy engineering work continues for 250 million gallon renewable diesel plant in sight selection and associated commercial agreements are progressing to plan with an ongoing view for a late 2023 start off.
And you know expanding into the downstream and delivering products directly to our customers. There's also a key elements of our growth and margin strategy, even though can be made progress with our current products and networks. We are pursuing new initiatives last week. That's shown on flying 12, we announced a deal of hunting son, a leading California.
[noise] petroleum products distributor to supply and celebrated R. A G L S or cleanup select hutton's son's card locks. This deal is an example of our strategy to drive demand and expand margins for both are biodiesel and renewable diesel by selling to end users.
And keeping with our disciplined approach to capital allocation. We continue to act on our repurchase authorization with strong board support Chad will provide more details on that shortly.
We are encouraged by the expanded regulatory initiatives related to biodiesel and renewable diesel for instance, the state of Iowa has extended through June 2020 sick of differential sales tax benefiting biodiesel British Columbia I'll also extended their program to 2030 and increases their carbon reduction to 20 per cent.
And in Oregon, a recent executive order direct state agencies to strengthen the clean fuels program to increase carbon reduction to 25 per cent by 2035.
Before Chad provides details on our financial results I went to highlight that we issued our first ESG report, which you can access on the investors section of our website. We welcome no momentum around ESG investing and will continue to be transparent and are reporting in order to support investment decisions also shown on slide 13.
<unk> R 132 million gallons of production resulted in another 1 million metric tons of carbon reduction for the corner.
No I'll turn the call over to Chad to review, our financial performance for the second quarter and the first half Chad.
Thank you so you Jason good afternoon, everyone.
Before I get into my comments on the corner I Wonder what <unk>, everyone on the comparisons Todd mentioned, the BTC was retroactively reinstated for 2018 and 2019.
[noise] tended to 2022 in December Accordingly, we will provide analysis of the <unk> numbers adjusted for the allocation of the BTC cause the second quarter of 2019.
This apples to apples comparison will allow you to bedroom understand the real change an underlying economic performance.
Well, it's 15 and 16 contain a results for the second quarter and first half of <unk> 2020.
Revenue was down do both reduced gallon sold and significantly lower average selling prices.
Average sterling prices were impacted by the dropped in U L. S D prices.
This was partially offset by <unk> substantially higher Elsia best credit revenue recall that in the second quarter of 2019 $29 million Adelphia US credits were pushed from the second quarter into the third quarter due to a one time administrative change and that could last year.
Yellow sold exceeded our guidance on the reduction installed gallons was entirely from fewer petroleum and third party jawans.
This reflects our ongoing emphasis I'm, improving our product mix towards higher margin elements of our portfolio.
Continue to optimize our sales mix in order to boost profitability.
Most notably by directing more renewable diesel to the more incentivised markets.
Renewable diesel gallon sold both our own a third party we're up meaningfully.
C O R. A G produced are renewable diesel increased 25%.
Production was salad, despite the impact of Koolade.
We produced 4% more gallons spend the second quarter of last year with renewable diesel production up 17%.
We had catalyst her in the second quarter of both years, but this year, we did it in the midst mixed up to a pandemic I'm still increased productions year on year.
We think this reflects the strength of our operations team in our ability to act on our core values of <unk> safe operations.
SG&A was up $1.4 million, primarily due to a higher wages and benefits and an increase in legal and professional services expense.
Not surprisingly travel and meeting expenses were substantially lower.
As a percentage of revenue SG&A remained around 5%.
S. C. J mentioned, we're pleased to have reported positive adjusted EBITDA for the second quarter in such a challenging environment.
Taken together, our first half results were quite good reflecting strong ongoing underlying operational performance.
Considering the volatility of energy prices, we think the first.
First the full first half results best represent our progress so far in 2020.
[noise] mentioned in their first quarter earnings call.
Some of the risk management games, we recognized at that time applied to second quarter gallons.
Of the 54 million dollar risk management, getting we booked in Q1 around 60% of that.
Reflected risk coverage of future seals beyond pier one.
<unk>, most notably second quarter.
This is the main reason that for 2020 weird empathy emphasizing school first half results for a better sense of our true economic performance.
Smooth out the quarterly volatility.
You also track trailing 12 months figures.
Like 17 shows trailing 12 months adjusted EBITDA and slides 18 shows trailing 12 months returned Uninvested capital, which is in excess of 18%.
Part of our ability to sustain profitable operations in such a challenging environment is our strong balance sheet.
The highlights are shown on slide 19 at quarter, and we had cash in cash equivalents of over $320 million.
Current assets of over half a billion dollars. We collected all the remaining BTC amounts for 2018 in 2019 from the IRS in April and has been making tech sharing payments to our customers.
In addition, we still have to actually receivables from customers.
That's the end of the second quarter, we were at a net BTC receivable position of around $10 million.
Furthermore, we're collecting that 2020 BTC amounts due as expected despite the government administrative challenges presented by Cove it.
A major topic in the current market environment liquidity.
We ended the quarter with plenty of cash in liquid securities.
Over the course of the first half, we reduced our debt substantially as well.
With passion marketable securities of $328 million.
And that of $72 million, we are in excess cash position of over $255 million. In addition, we have nothing drawn on our asset back line of credit as we fully paid that down in April.
[noise], we continue to follow our capital allocation framework midway through the year, we have spent $31 million out of the $60 million Capex budget <unk>.
Recall that we budgeted roughly $20 million to each of the following three categories.
First safety reliability and acid integrity for our existing sleep.
Next high return rapid payback projects that we tend to recoup our investments in less than two years and third board approved growth projects.
We are progressing well and tracking on budget, even in the current environment.
As a reminder, or target growth.
And capital projects is 20% internal rate of return and an overall, 15% return Uninvested capital. These projects compete with that retirement repurchases to maximize returns.
We also <unk> capital for returned to shareholders through a repurchase authorization, which includes convertible bombed repurchases.
We use $30 million to repurchase convertible barbs and second quarter, and we have $110 million of remaining authorization.
No I'll I'll send them to call back to see J to discuss the outlook C. J.
Trained a third quarter guidance, although the coven Craig's list, there's no longer new news the in intense impacts are still being spelled N. A forward luck as far from certain with that in mind to formulate are outlook. We are once again taken into account both potential positive and negative market forces.
As you can see on slide 21 on the positive side.
Is that renewable diesel and biodiesel demand will remain robot.
There will be improved availability and pricing for low carbon intensity feedstocks distillers cournot out and choice why agrees.
Overall margins will continue to recover.
And then broadening public support for cleaner fuels solutions with low carbon intensity will continue.
Oh on the downside low crude prices will continue as well currently high diesel inventory and resolve seem depressed she felt prices.
<unk> <unk> <unk> manageable very likely continue to drive refineries to push later and just to let cuts normally used for a jet fuel into diesel, resulting an ongoing oversupply.
Used to cooking, all availability will likely remain lower than typical of due to ongoing restaurant closer and finally, we must keep in mind that potential for a significant covered resurgence.
With all that being said.
I have shown on slide 22 for third quarter, we expect gallon sold in the range of 165 to 185 million, we expect adjusted EBITDA in the range of $35 million to $50 million.
Given biodiesel renewable diesel demand stability, even in the face of Cove in our outlook for the full year 2020 has been revised slightly upward we expect to sell from 625 to 675 million gallons and intend to produce 490 530 million both gallon.
Of course, any changes to U L. S D prices margins rooms, rlcs's credit values or a level of market volatility through the end of the cord or could affect actual results and no <unk>. This third quarter guidance includes $2 million of risk management lives.
Building on our first half track record, we remain optimistic about the year ahead, and we will continue to focus on underlying performance optimization shareholder value and implementation of our strategy.
At this time I'd like to turn the call over to the operator for the question and answer second one of our coffee.
[noise] [noise]. Thank you.
At this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Hey, confirmation total indicate your line isn't a question too.
And the S. At the time, please limit to one question and one follow up then rejoined the cute for any additional questions for participants using speaker equipment that may be necessary to pick up your headset before pressing the star keys [noise] one moment, please while we pulled for questions.
[noise] [noise].
Your first question comes from lineup, Craig Irwin with Ross Capital Partners. Please proceed what's your question.
Good evening and thanks for taking my questions.
So first I should take congratulations for a stronger quarter. Then then I guess, what everybody was looking for just just a few weeks ago.
M.
As we look into the third quarter right. Your guidance of 35 to 50, it's pretty clear.
It seems to indicate that you're switching to soybean loyal has continued and maybe it's celebrated in third quarter.
Can you maybe discuss your seedstock flexibility and the opportunity to arbitrage.
Different feedstocks and it's soybean oil. This this dislocation versus other other feedstocks was to collapse, what your opportunity would be to watch switch onto the most profitable love seats stopped at that time, if it does happen sort of later.
<unk>.
Hi, Craig Thanks for your question Andrea Congratulations we really appreciate that.
So and we sat in the script, we're actually seeing <unk>.
<unk> and a change because the market is starting to open up, particularly with respect to ethanol production as well as rendering industry. So well you call. It didn't quite back to where it was before with restaurants continuing to at least only be half open we are getting a rebound in distillers cornwell as well.
Choice White, Greece and mix that we have planned and already primarily purchase for third quarter reflects that [noise].
Okay.
I was just going to add to that Craig. It's Chad if you look at our feedstock slide in the deck, you'll see that.
[noise] distiller corn oil because of the downtime at the ethanol plants or the shut ins.
Inverted and one north of soybean oil and a converted price.
And you can see that correcting.
Later in June and that slide and so that really intensifies and shows the effective why we had to switch the soybean oil where we traditionally use lots of distiller corn oil, which is low carbon intensity and designed for premium incentivised markets, whereas soybean oil is destined for more of a low.
Midwest markets, because they don't have the same.
Carbon intensity benefit and it.
May not justified quite yet getting into California. So I just wanted to highlight that one slide to support what CJ just set it.
Excellent. Thank you.
My My second question is the $6.1 million in.
In other not operating income that you reported and your abbreviated results right is that.
The same as the gain on at least termination that you back out in your and your EBIDTA disclosures Oh. It was it potentially backed out elsewhere can can you maybe give us a little color.
That's.
Exactly what it is there's also some interest didn't come and other income down there because of the.
The large cash infusion in April that we put in.
Alright, and some interest bearing.
Accounts.
So then just just to follow up on that what would be what would the interest be excluding this this this one time game and again in the corner is it.
Can you share and adjusted interest expense horse.
Yeah I think.
No I made it's just didn't.
And one pier one securities really really safe, so pretty low, but it's a big dollar number.
But.
The least game or by four and a half million the rest was largely.
Trust there's.
Cats and dogs in their other than that.
Okay understood I'll I'll jump back and they can't thank you Thanks, Craig Craig.
[noise] [noise]. Your next question comes from the line of Samir Joshing with.
H T. Wainwright. Please proceed with your question.
Good afternoon, Thanks for taking my question.
The first question.
Relates to the by banks.
I think you mentioned 110 million remaining authorized buybacks what isn't timeline for that and.
Oh, what is the kittens.
<unk>.
Yes <unk>.
It does not have a limitation of our requirements. So it's just governed by the boards.
The boards will.
Authorization that they provide to management so it doesn't have an exploration.
Okay.
Mm Hmm.
Okay.
I'll go to any.
So I mean, I know you mentioned the capital allocation.
But now you're sitting on a bunch of cash shelves.
Do you plan to spend to use that would mixed up quarters.
Thanks to me or is it C J.
Big items that I was highlighting in our strategy really pretty much bracket. That's how are progressing very well and we're positioned nicely to be able to take advantage of the arrangements that we're working on in short order now the cashes in the bank.
No that helps us Oh, great strategy robustly.
Understood one last one for me.
Instead of any okay can you give it some elaborate some more on the downstream strategy and what is the progress being made on that that friend.
A pleasure.
The whole idea of the downstream strategy is really getting closer to the customer we've got some excellent experience now through distribution business that we own that's spelling directed to a customer does a great job of.
Helping now understand the value of the lower carbon fuel as well, it's a quality of it and with that confidence blending levels that we've experienced and come up rather robustly.
Once we are in those channels.
There's a dual element of capturing the full of value across the whole value chain as well as being able to increase the uptake of our products more rapidly by being able to sell direct to customers.
So that in essence is the purpose of the strategy in the progress of course is about defining the channels, where we can sell so you've seen uptick with 107% increase in the blender biodiesel into renewable diesel.
The hunting times deal is a very good manifestation of that and that will help us to continue that sort of uptick.
Understood.
Thanks again.
And a good courtroom.
Well I'm married an error I appreciate it.
Your next question comes from the lineup, but Greg It was a koski with Webber research. Please proceed with your question.
Good afternoon, guys how are ya.
Oh, great how about you.
Oh, well, thanks for taking our questions I wanted to start with the EBIT the beep.
Versus your guidance.
You mentioned favorable price changes and maybe some timing and you're prepared remarks I'm just wondering if you get down a little deeper.
Give us a little bit more color on on what drove that.
Well without getting too much more granular.
Some cases.
There were some really good opportunity that we identified because of price changes being more favorable than what we had seen too are able to make some select sale.
We as a really good example from a pricing standpoint are are coproduct, glycerin, which normally doesn't really received much attention have extremely favorable pricing this corners versus normal and that of course, because with <unk> the demand for glycerin had gone.
Not for hand, sanitizer, etcetera, and although Angelus ran is not have the same grade that we're going to hand sanitizer. It was backing into the glitter and that was going into hand sanitizer. So overall, we were able to.
[noise] supply into that market need and it did give us a nice uptick on our whole product.
Okay got it that's helpful and then jumping to the potential renewable diesel new facility can you just update us how are those conversations going with any potential partners operationally or or financial aid to the extent that you can give us any color on that and then what would you say your it is the biggest remaining hurdle.
<unk> hurdles to getting something done and making in N out there.
We have a few things that we're monitoring closely and actually progressing very nicely to plan.
That all kind of converge together.
We do not want to make an announcement ahead of that so as you imagine we have certain.
[noise] arrangement related to the site and commercial access to things. So we don't want to make a final selection for site until we get that nailed down.
Those are progressing well, but we need to finalize and that'll help us finalize the selection there are some incentives related to this site that we're working on networking quite nicely also.
And then we're also speaking with varying partner, it's it commercially to to contribute to the all of our all value of the adventure.
Okay awesome. Thanks for your time.
That's correct. Thanks for your questions.
Your next question comes from one of <unk> of course send with B W. S. Financial. Please proceed with your question.
Hi, So my first question was are you are changing your strategy at all or.
Seeing any kind of competitive pressures as far as a sourcing feedstock is concerned.
Hi, Thanks for that Great question, we are not really changing our strategy, but we're definitely doubling down because we're expanding our desire need and more spending our horizons of places that we can go for feed which is giving us a greater optionality.
Yeah. It is a great history of <unk> that we have excellent relationships with suppliers that we continue to enjoy and that enables us to saiful under volatile circumstances like what we've experienced over the first half and then Meanwhile, we continue to expand our horizons off.
With whom more speaking what seemed stocks, we're developing to get into the market and other types of optionality that we can bring to bear.
Okay and then my other question was how much can the industry consume of your blend and how much capacity do you have in the blend them, referring to zero biodiesel renewable blood.
Well there is a view express occasionally like higher but that 100 per cent and the diesel demand in California, which is a very large market could go to an a R. D. R. NRG D D y.
So that's a very significant probably when I don't actually have that to hand about there's quite a bit more space to substitute in a market like California.
California is not alone because any of the market's that are actually incentivising low carbon intensity have a good thirst for renewable and biodiesel and that's because it's carbon reduction that's fairly significant available now it's not waiting for a new infrastructure or for a new technology development. So it's been a very robust and.
Study uptake in north market happened do if I'm looking at those numbers over the weekend and California's about a 4 billion Galvin market. It was like three 8 billion last year and the recent blend data, which is includes biodiesel and renewable diesel into California.
Has been growing almost each quarter, that's all the way up to 23% now and procedures point.
Couldn't go it can go higher, particularly with renewable diesel at high concentration rates.
Okay. Thank you.
Thank you.
Your next question. It comes from the line of Brian Todd with Simmons Energy. Please proceed with your question.
Great. Thanks, maybe it's just a couple of quick ones the follow up on some of the earlier question.
You're you're seeing significant <unk>.
<unk> an interest right now.
Amongst traditional trainers here in the U S and I guess in Europe as well.
[noise] renewable vehicle quite a bit more capital B and put the work, which is I think if there is a testimony strength at the market that you guys find yourselves how do you see you know more player.
Come into it how did you get a competitive landscape changing it was more players another market.
How much is is that a risk for increased competition versus an opportunity for.
Greater partnerships or just <unk> any thoughts on how you said that'd be vulgar and.
It's definitely a dynamic picture isn't that's right now and I believe the dynamics refiners in general are extremely challenging because of a lot of the things that I talked about earlier with demands of them, you're all set they produce being down but not any uniform way, which makes it quite challenging to operate and scheduled properly.
We are seeing announcements Paul refinery closures now as a result of it. So it is a very distressing time and the attractiveness of switching overdue renewable diesel is becoming obvious what kind of renewable diesel is attractive in customers are wanting to pull that <unk> higher levels. All the time. So we are seeing more announcements.
Of course, we need to recognize that those require permitting acceptance as well as feedstock procurement in order for them to be actually viable also some of them will go through and some probably won't.
And to your point, it's very likely that some of them could.
Constitute excellent partnerships for us. So we have an open mind and as always change can create risk or I can create opportunities depend on the way we look at it.
Oh, that's great maybe.
A quick follow up on.
Your your comments earlier on the downstream efforts that you guys are making a particular.
The slide 11th to show the pretty material <unk> or uptick in the second quarter I'm free customers ourselves to freak customers.
How do you.
And did you see that upper trend and go to the right is all over.
Volume sold the police customers is that all sustainable was there anything unique or was that just a new partner. So if there was that at during the second quarter.
And on the on the side you know how how much how big is the market do you see in terms of the opportunity to continue to grow that.
This is definitely the result of Ah Ah consolidated focus on our sales team getting closer to the customer and this is an important channel for us and it's very early days for us in terms of tapping into it to where quite optimistic about the opportunity there.
Great. Thank you.
Really it's basically a shift if you think about the history of the company and where are we started producing and then selling pretty much right outside the plan to get into the wholesale Marquette and as we become more sophisticated and more capable and you have high quality products were able to celebrate down through the channel.
Alright.
[noise] is there a minor if you'd like to ask the question. Please crestar one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we pulled from more questions.
Your next question comes from lineup, Craig Irwin with Broth capital Partners. Please proceed with your question.
Thank you.
I wanted to ask a series of questions.
To better understand them, they're moving parts in the quarter if I can.
The first is [noise] earlier in the year you had indicated that the majority of Sky's smartest <unk> production had gone to Norway.
Can you maybe update us.
[noise] on where things to do it in the the second quarter and should we expect much of the production to be sent to Norway, maybe in the third quarter.
Or is that not planned at this time.
Well, it's it's part of our optimization to keep some of that open 'til, we're able to switch.
We're we're shipping based on what the margin dry it so you're going to see some stability because of our underlying contractual agreement similar to what what you're talking about a minute ago asleep customers and then we have some enables us to flex so that as margins move were able to capture though it's increased margin depending on.
What's happening in particular region, and we do see that it moved around.
At times, we will have a stronger signal for Norway for example, and at other times, we will have a stronger signal in California.
Okay. So my <unk> really the question that I wanted to get to the bottom of it did you have additional sales into California renewable diesel.
Two back still any gallon some might've gone to Norway, and the second quarter I noticed that potentially something that's that's happening in the third quarter.
That might help economics, and and I guess, there's a part of that question are you still looking at roughly.
[noise] of your gallons going into the California market this year.
Well for commercial reasons.
[noise] speculate exactly where things are head in any given time, but I wouldn't say if you just continue to think about cutting roughly a third you're not going to be too far off.
Okay. Okay excellent and then self blending has been an initiative an important initiative Reggie over the last <unk>.
Couple of years, you guys are obviously been been getting a little bit attraction. There can you update us on the run right sort of what you.
Since it's a fair number for us to use for either the full year or quarterly number and and what sort of gross do you think.
It's fair over last year, and and sort of moving forward.
I think if you projected slide 10 through the rest of 2020 you'd be in great shape in terms of that.
Slipped.
Understood understood and then.
Unfavorable treatment Ah soybean oil product.
<unk> all the oil product.
And the California market.
Had this bank that you're Grays Harbor in Ralston, Iowa, a product probably does not end up in California is that a fair.
Sumption and then.
You know also is it is it fair for us to assume that the Grays Harbor facility is maybe above industry profitability against given that it's one of the largest.
Ah canola only facilities in the industry.
Well no.
It is you are correct.
<unk> that are low CIC stock is going to preferentially find this way are a product pomelo cic's seconds kind of find its way into the carbon incentivize market.
So.
Canola based product it will not go to California, and neither well in spo.
Unless it's nearby but the logistics wouldn't be justified versus the net backfire incentivize market closer to though producing clients.
The plants that even in the Midwest due process lower CIP can justify getting to those low carbon incentivize markets because.
Improvement override the logistics requirement.
Yeah, I would say on California carbon intensity for call. It distiller corn oil relative to soybean all their canola is about half an so it gets almost twice the benefit and my view I agree completely we'd like T. J. Just said my view is that when this goes to.
83 quarters, and then 10% reduction in 12, and a half and 20%, there's not enough to still or corn oil amused cooking oil and you'll have to start to incentivize.
Ah the animal fats and used cooking oil and potentially canola unless those producers are getting.
Paul them too sick canola gets pulled back in and Incentivised into Canadian programs.
Or local tax incentives that override the willingness to pay the freight to get out that way with a little bit less of a carbon intensive intensity benefit, but I view that it will be needed in future years in that market, if they want to achieve their goals.
Ah understood understood and then you know it's not just California that has those goals I guess, there's something like 24 States and then in Canada.
In the process are at some stage of the process to adopt a low carbon standard.
Can you made me sure with us so what sort of conversations our discussions he might be having.
With different regulators from other states.
They they looked at a potential ways to meet their their low carbon mandates that they're going to put in place.
It is there.
Abroad slate potential.
Suitors facing Reggie that would that would want you to site renewable diesel facility in there and their local state or province.
Is this is this something that you think it's building too.
Larger commitments from these different geography's.
Focusing on the first part of your question Craig There are some very interesting ongoing conversations in multiple geography's about expanding their.
Programs to improve their carbon footprint and it does come in a lot of different flavors. Some of it is municipalities seeking to completely convert there fleets two 100% low Ci we didn't talk about V 100 today, but that's actually an option that's very attractive to some of these municipalities.
And when that doesn't happen it doesn't have very interesting opportunity because the 100 isn't necessarily readily available. So it gives us the opportunity to.
Co located at least from a blending in service standpoint, there are.
Region looking at increasing their biodiesel requirements for heating oil.
There are states looking that adopting low carbon fuel standard I think it's well known that Washington State has been debating that for awhile and continues to get fairly close to the finish line anything work through what the details of a program like that would entail.
Colorado is actually having the early stages of those conversations as well as as the entire country of Canada.
So there are a lot of different things.
We didn't we haven't really spoken much about Europe Europe has R&D too, which is currently now being promulgated by the member states in there each defining exactly what that will mean for them and that is creating some very interesting opportunity as well.
One other area and highlight the northeast region has.
Very.
Strong desire in the northeast heating oil market to introduce and encourage higher and higher blends of biodiesel into bio heat.
A lot of momentum there and there's also a lot of green initiatives.
On both coasts that could be <unk>.
Attractive.
Great and then last question if I may have it's really a clarification. So the renewable diesel soda you're talking about hopefully announcing later on this year.
250 million gallons is that incremental.
On top of the 75 or are we talking to 175.
Not edition and then can you share with us what the what the cost would be on that facility.
It is purely incremental and the costs. We're looking at is very competitive I think you probably know the range of capital cost is anywhere between maybe.
Hello are $2 up to 450 or five.
A gallon.
Sort of on the lowest end of that.
Excellent well congratulations on a really strong quarter and it sounds like we're gonna have a pretty great quarter and the third quarter. So.
I'm doing what you do it thank you.
<unk>.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad 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.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to see J worner.
C E O for closing remarks.
Thank you Hector to conclude where cautiously optimistic about near term outlook and highly confident about our long term prospect looking at the balance of the year. There are three chi things to keep in mind first or fuels are essential in demand is relatively good we fuel national transportation networks, and then still need to be <unk>.
Furthermore, because we produce a low carbon clean burning fuel, we create significant environmental value.
<unk> are feedstock markets have stabilized with our multi feedstock strategy, we've been able to adapt and keep running despite significant feedstock disruption.
Economy continues to recover our sources of various waves fast and allows are producing again, bringing back supply and reducing price pressure on these lower carbon feedstock this bodes well for and improving margin environment going forward.
Finally, we're performing well on the elements of our business that we control we're maintaining a strong safety record operating at robust utilization were directing fuel sales to the most profitable market and we're executing on our strategy. All I know I'm very proud of the outstanding performance. This team is delivering and look forward to more success in it.
<unk> ahead, and now before we close cadwell announced upcoming Investory best for R&D ton.
C. J. Please turn to slide 23 first off I would like to announce that we will host an analyst meeting on October 13th at NASDAQ market site in New York City.
At this point, we plan to out alive in person meeting with appropriate precautions of course, we will also webcast meeting for those who are unable to attend in person to the coven situation not allowing in person meeting it will be fully virtual so mark your calendars for October 13th formal invitations will be sent around amongst beforehand.
In terms of Investor conferences on Wednesday October 12th August 12th excuse me, we will participate happy Ws financial growth in value virtual summer investors series. The company will host investor meetings throughout the day attendance by the conference attendance at the conferences by invitation only for clients a VW at interested investors should call.
Packed your Bwl's sales representative to secure meeting on August.
August 13th we will present at the 40th annual Canaccord growth conference, which will be virtual we will host investor meeting throughout the day and attendance at the conferences by invitation only for clients mechanic word. So if you're interested please contact you canaccord sales rep to secure meeting.
September 2nd D. J will participate on an army panel at the paper Sandler Glen Eagles Virtual conference. We will also hosts investor meetings throughout the day attendants. At this conference is also by invitation only for clients Piper Sandler. So if you're interested please contact your paper Sandler sales representative to secure meeting lastly, an <unk>.
Timber 14th we will presented to easily Wainwright global.
Investment Virtual conference. We will also hosted investor meetings throughout the day attendants. At this conference is also by invitation in clients of 18 Wainwright should contact their sales rep to secure meeting. Thank you. All again. This concludes the call you may know disconnect.
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Three.