Q3 2021 Renewable Energy Group Inc Earnings Call
[music].
Greetings and welcome to renewable Energy group incorporated third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Todd Robinson, Deputy CFO and VP of Investor really.
Thank you you may begin.
Thank you Latoya and good morning, everyone and welcome to our third quarter 2021 earnings Conference call with me today is <unk>, President and Chief Executive Officer, CJ, Warner and our Chief Financial Officer, Craig Ballmer, Let me cover a few housekeeping items before I turn the call over to C. J first I would like to remind everyone that this call.
All is being webcast and is available at the Investor Relations section of our website at Regi Dot Com a replay will be available on our website. Later. This afternoon. The webcast includes an accompanying slide deck, which you will which will appear automatically with the webcast, but you will need to advance the slides manually as we prompt you for those of you dialing in.
In the slide deck, along with the earnings press release can be downloaded from the Investor Relations section of our website.
Turning to slide three we would like to advise you that some of the information discussed on this conference call will contain forward looking statements. These statements involve risks and uncertainties that are difficult to predict and assumptions may or may not prove to be correct. Such forward looking statements are not a guarantee of performance the company's actual results could differ materially.
From those contained in such statements many factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our Form 10-K, and subsequent quarterly reports on Form 10-Q, which are on file with the SEC. These forward looking statements speak only as of the date of this call the company.
Undertakes no obligation to publicly update any forward looking statements based on new information or revised expectation.
<unk> discussion also includes non-GAAP financial measures. We believe these metrics will help investors assess the operating performance of our core business. Please see the press release or the appendix to the accompanying slide deck for a reconciliation of the non-GAAP measures to the most comparable GAAP measure with that let me turn the call over to our president and CEO CJ Warner.
C J.
Thank you Todd and welcome to all of our callers today I'm pleased to present another quarter of strong performance. The overall margin environment and demand for our products remains healthy to post pandemic recovery continues to create volatile Americas and the <unk> team continues to do an outstanding job navigating through this environment and did.
Levering solid results.
Before I go into more detail on the quarter I wanted to take a couple of minutes to acknowledge that as we speak global leaders are meeting in Glasgow at the 2021 U N climate conference to discuss how to meet emission cuts outlined in the Paris agreement back in 2015. This conference has worldwide attention because of the growing determination.
We must make our energy system is more sustainable and work harder to decarbonize.
Commercial enterprises municipalities School District States and nations are all setting goals and targets for decarbonization coming in combining into a pole or demand for low carbon options versus the regulatory push of earlier years that we've been referring to as the inflection point.
Many potential solutions are being developed now some of which require massive infrastructure build out in order to be realized and many still have quite a few technical hurdles to be passed before being ready to have an appreciable effect on sustainability.
G is delivering real products that address this problem now biobased T cells can be used today without any modifications to existing vehicles or delivery infrastructure <unk> is delivering significant volumes of b 20 blends today and blending levels are increasing steadily for example, our E. G is regularly deliver.
Biodiesel blends up 30%, 50% and even 100% to satisfied customers in targeted segments slide four shows the significant carbon reduction that our best in class biodiesel provides not only compared to petroleum diesel, but also versus an electrical vehicle vehicle.
<unk> called charged both using a standard U S grid or California's.
Biobased diesel also provides the important benefit of our high energy density as shown on slide five enabling heavy duty and long haul applications in ways that would be very difficult to deliver with lower density options.
Our message to the leaders at Cop 26 is that our E. G. In the bio based diesel industry play a critical role in the energy transition.
Every fossil diesel burning fleet be it on road off road on rail or on the water has the ability to significantly reduce their carbon footprint by over 80% today by switching to bio based diesel again. They can do this with no major infrastructure modifications and with no meaningful capital expenditures.
For the Cop 26 decision makers or anyone else looking to Decarbonize, we believe a viable solution for the planet exists now and time is of the essence carbon emissions accumulate in the atmosphere and consequently have a negative compounding effect on global warming. A report issued late last week by the climate action tracker.
Horsham echoed this point, stating that decarbonization efforts must be accelerated at a far faster pace than recent trends in order to meet the Paris target.
Failing to take full advantage of the opportunity presented by bio based diesel in anticipation of a more perfect climate solution in the future. We will have the negative consequence of accumulated carbon emissions in the interim compounding the climate crisis.
Before I finish let me be clear many solutions will be needed for society to realize its transition goals. My purpose here is to emphasize already know aspects of Biobased diesel.
At <unk>. Our mission is one of sustainability, we are driving for sustainability through growth in production sales and ultimately use of our low carbon solutions and we know that we must also drive for financial sustainability in order to make all of that happen. So let's turn back to our financial performance, where we are delivering on our mission.
We posted another strong quarter and are optimistic about our future, let's go over our third quarter highlights.
As shown on slide six our net income was $42 million and adjusted EBITDA was $68 million with 176 million gallons sold recall that our guidance for adjusted EBITDA was $70 million to $90 million, which included a 6 million dollar risk management gain.
With a late quarter Spike in energy prices, we ended up recognizing a timing related $12 million risk management loss in the third quarter, most of which is expected to be offset in the fourth quarter as the hedged gallons are delivered as a reminder, the intent of our risk management strategy is to protect our cash margin at the time of sale.
We believe these results and our consistent track record of quarter by quarter profit generation and extremely volatile markets demonstrates the strength of our business model, which is underpinned by the ongoing growth in demand for sustainable clean fuels.
Man drivers associated with the inflection point in our industry continue to accelerate and we remain confident that renewable energy group is at the right place at the right time right now.
Let's break down the performance for the quarter into essential elements now.
Starting with safety and operational excellence I'm proud to say the <unk> team continues to focus on safe and healthy operations as demonstrated by our performance metrics. Our rolling 12 month total recordable incident rate into which Osha now requires inclusion of any workplace COVID-19 transmissions is shown on slide seven.
The year to date tier I or a 0.31 exceeds performance of industry best in class during pre Covid times I'm incredibly pleased with the 2021 safety record and we will continue to push towards vision zero.
Plant operations continued to be strong total production in the quarter was down 7% versus prior year, mainly due to the impact of Hurricane Ida a strong category for storm, which nearly directly hit our geismar plant.
It was a major event in the golf with the widespread impact of the region. We are most thankful that all of our employees and their families remain safe.
I'm extremely proud of our team's effort to plan ahead effectively prepare the plant for a major weather event and to work safely throughout the duration of the storm and its aftermath all of this contributed to the team's safety and their ability to minimize the impact of the storm on our facility.
Geismar team brought the plant down safely in preparation for the storm and then safely returned to normal operations. Once the local utilities were back up and running resulting in only two weeks of unplanned downtime.
Other than the lower production numbers, resulting from these two weeks of storm related downtime. There was no material damage to the plant and no material financial impact to the third quarter, nor any delays to our improvement and expansion project the.
The impact of the third quarter production outage outage at Geismar will be realized in future periods.
In addition to the storm related impact that Geismar, North American biodiesel production dropped by 4% as we continue to optimize our production mix to maximize profitability.
We also continue to work to optimize our production portfolio. So that we participate from a position of strength.
As announced earlier, we decided to shut down our Houston facility.
<unk> has operated at Houston since 2008, and the plant has consistently run well and contributed to our financial results. We made the decision not to renew the long term property lease there as it would have imposed an uncompetitive fixed cost on the plant.
Note that none of our other 11 plants are subject to a similar lease come.
Combined with our fixed cost burden of that lease the lack of our ags hallmark multi feedstock processing capability left to the plant and are definitively noncompetitive position relative to the other facilities in our portfolio. These factors together drove the difficult decision to shut the plant down.
It's important to say here that we truly appreciate the efforts and contributions of the Houston team, who delivered operational excellence and had no recordable safety incidents in over six years.
They are a great team.
Turning to financial results and drivers net income increased $20 million and adjusted EBITDA increased $14 million or 25% versus the third quarter of last year. In addition to a higher hobo plus one five RIN spread shown on slide eight we were able to realize additional margin through optimization of our system.
Including the overall sales mix.
Gallons sold for the quarter were flat versus last year, while our mix of gallons sold was more profitable.
R E D. R. D sales increased by 28% offsetting a 6% decline in biodiesel and 5% decline in lower margin petroleum gallons. This strong performance in renewable diesel reflects geismar is improved production since the first quarter turnaround increased third party R&D sales and strong.
Demand for our <unk> ultra clean fuel, which rose by 73% year over year.
Related to third quarter of last year. Our bottom line was also improved due to higher commodity prices for crude glycerin generated at our biodiesel plants, we don't discuss glycerin, often but it's worth pointing out that it's an important component of the global supply chain used for food pharmaceutical refining de icing animal feed and wastewater treatment.
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As mentioned earlier sales of our AG ultra clean our proprietary BD already blend continued to increase rapidly as shown on slide 10.
We set a record in third quarter with over 35 million gallon sold of 36% percent increase versus second quarter, 'twenty, one which was the previous quarterly high watermark overall ultra clean has grown at an 84% CAGR since 2018, which demonstrates the clear customer enthusiasm for this high performing.
Low carbon fuel.
Note that growing customer demand for clean fuels is also reflected in overall industry data shown on slide 11, Biobased diesel demand continues to rise and is up 12% year to date versus pre pandemic 2019 over this same time period petroleum diesel gasoline and jet fuel demand are all down as.
Biobased Bell based diesel demand continues to grow it remains a small percentage of the total petroleum middle distillate market.
Giving our industry a clear avenue for market share growth as more customers switch from fossil to low carbon intensity of fuels.
As this push for clean fuels accelerates feedstock capability becomes Paramount, we believe our procurement capability combined with our flexible feedstock approach is a significant competitive advantage.
12 shows our feedstock mix for the quarter, roughly 75% waste based feedstock and 25% feedstock derived from Virgin veg oils.
During the quarter, we again processed 14 different types of feedstock and continued to procure both internationally and domestically.
Our flexibility and global presence enable a diversity of sourcing and demonstrate ongoing feedstock assurance.
Our commitment to feedstock assurance goes beyond global sourcing and flexibility as we seek to find and foster development of new sources of low carbon feedstocks to convert to low carbon clean fuel.
Early last month, we celebrated the opening of our hydro Treater pilot plant and R&D partnership with Iowa State University designed to accelerate the development of novel feedstocks, and our proprietary pre treatment processes.
Research at this new pilot plant will support Geismar and the other assets in our fleet by enabling the evaluation of new low carbon feedstocks in optimization of renewable diesel and sustainable aviation fuel production.
We continue to look into investments to further enable global feedstock abundance and are committed to widening the available feedstock pool by building on our strong foundation of commercial and innovation capabilities.
Moving back to the current market environment as shown in the chart on slide 13 feedstock prices remained elevated during the quarter and spreads continue to be volatile. If you look closely at the chart, you'll notice waste based feedstock prices dipped in unison around the beginning of September. This step was influenced by Hurricane Ida.
And the team took advantage of the opportunity to source discounted feedstock to be processed in future quarters, we continue to be both confident and optimistic about forward feedstock prospects.
Moving from the market to the regulatory environment, we await word on the 2021 and 2022 renewable volume obligations from the EPA and look forward to the final proposal, which continues to be delayed leak.
Leaks on the proposed levels of advanced Biofuels appear to be bullish for our industry. We do not want to put too much emphasis on leaks and will remain cautious on any guidance until the EPA finalized his official figures, we urge the administration to release their proposed rule as soon as possible to give the needed direction to the industry that de carbonization.
Is critical and bio based diesel plays a critical role as a solution to the code Red climate crisis that President Biden has described.
With regard to the most recent proposal and the budget reconciliation Bill we applaud lawmakers for recognizing the benefits of long term supportive policy for Biobased diesel we are very pleased to see what if enacted would be the longest extension of the federal biodiesel tax credit or BTC since its inception the latest.
Version of the reconciliation Bill would extend the full dollar per gallon tax credit through 2026, and then pivot to a domestic technology neutral incentive for the next five years based on the fuels greenhouse gas reduction levels. This is encouraging for RMG because it supports conversion of the lower carbon feedstocks that we utilized.
As Congress works to finalize the package, we strongly encourage incentive position on a level playing field with respect to carbon reduction to maximize the overall effectiveness of policies designed to Decarbonize transportation.
On the European regulatory front the fit for 55 package currently being discussed in the EU government aims to reduce emissions by 55% by 2030.
This builds upon the current R E D to which incentive Icu's incentivize is the use of lower carbon feedstock in biofuel production.
As the inflection point solidifies and societal demand for low carbon fuels accelerates, we are confidently proceeding with our growth plans, our improvement and expansion projects at Geismar remains on track and we celebrated its groundbreaking in October <unk>.
Craig will discuss this further including our view on capital expenditures and an update on procurement of long lead time items.
The additional 250 million gallons of production capacity from the Geismar expansion and will build upon our existing portfolio and are expected to provide a significant step change in adjusted EBITDA. Upon project completion in late 2023.
In addition, the expansion to 340 million gallons at Geismar will further diversify our product mix and it gives us optionality. We're often asked about the potential for a sustainable aviation fuel our S. A F production at Geismar.
As a reminder, the Geismar facility produced the first commercial batches of sustainable aviation fuel in the United States in 2010.
Since our acquisition of the facility in 2014, we have optimized geismar to maximize profitability through renewable diesel production as it stands today, we know the investments it would take to produce scalable Saf at Geismar, both now and following the improvement in expansion project. However, given the current market conditions and.
Customer demand, we continue to optimize for renewable diesel production.
The economics change where S. AF production would be the right optimization choice, we would reassess the situation and take action to capture the upside.
Regardless of whether our future geismar gallons are used for S. A F terrestrial transportation or a mix of both renewable diesel and biodiesel. Both are expected to remain a core part of our strategy moving forward.
Biodiesel also has exciting use cases beyond the on road transportation with emerging and growing opportunities in several very significant market. We are currently selling biodiesel blends to strategic marine customers, which we believe marks the beginning of a journey to our clean energy transition in the maritime industry and biodiesel.
Desirable attributes that we believe make it a better fit for this market then the Rd, We issued a press release last week, noting our long term supply and development agreement with good fuel for marine fuel.
Yesterday Canadian National Railway announced their partnership with us to advance sustainability goals using bio and renewable diesel blends for their locomotive fleet. This is an attractive opportunity to expand into a market with significant demand potential and to partner with an industry leader like Canadian national to develop the knowledge that will create.
A pathway for a meaningful future carbon reduction.
Both the marine and rail industries have large addressable fuel markets and are actively seeking ways to decarbonize biodiesel can have a massive positive impact playing a key role in immediately reducing emissions in these sectors.
With these emerging opportunities and biodiesel the growing sales volumes of our proprietary <unk> ultra clean our growth plans for renewable diesel expansion and our option to produce sustainable aviation fuel in the future I am confident in our strategy and proud of our considerable impact being made today as shown on slide 15.
<unk> with the 128 million gallons, we produced this quarter, we saved $1 1 million metric tons of carbon which is the equivalent of $2 8 billion miles driven by passenger vehicles and is nearly double the level of carbon credits earned by all on road Evs combined in California.
During the second quarter of 2021, which is the most recent quarter of available data.
We're energized and encouraged by this positive impact and look forward to greater contributions in the years ahead.
And with that I will now turn the call over to Craig to review, our financial performance for the third quarter, Craig. Thank you C J and good day everyone.
Slide 16 shows our third quarter results.
Jay reported it was another quarter of solid financial performance.
Overall revenue was slightly over $1 billion.
A 76% increase compared to the third quarter of 2020.
This increase was mostly driven by higher average selling prices, including Rins in USD up 139% and 78% respectfully.
With year to date revenue of $2 $4 billion, we are on pace for over a $3 billion a year.
Moving down the profit and loss statement, our gross profit rose by $15 million or 20% versus third quarter 2020.
We benefited from a stronger margin environment and ongoing commercial optimization delivery across our system in the quarter.
As demonstrated on slide eight since 2020, the hobo plus rins spread has remained relatively stable.
Relative to third quarter 2020, the market saw a 10 cent per gallon increase as higher RIN prices more than offset a significantly lower hobo spread.
As feedstock price increases exceeded diesel price increases the <unk>.
When adjusted Accordingly.
This increase in the Hoboken rent spread was partially offset by a $19 million year over year negative impact and risk management, driven primarily by a late in quarter Spike and diesel prices that I will discuss in a moment.
Gallons sold slightly beat guidance and were flat compared to third quarter 2020.
Total renewable diesel sales were up 28% in the quarter.
North American biodiesel volumes sold were down 3%, a result of our optimization efforts focusing on our most profitable biodiesel gallons.
As CJ mentioned earlier third quarter, EBITDA was $68 million, 25% higher than third quarter of 2020, and just below guidance.
As shown on slide 17, you OSB prices increase price increases pressured our hedging book, especially in the latter part of the quarter.
This resulted in a $12 million loss to our risk management book, which was $18 million worse than the $6 million gain included in our guidance.
This $18 million negative difference was the largest driver in our delivery relative to our adjusted EBITDA guidance of $70 million to $90 million.
Roughly $10 million out of the $12 million risk management loss is expected to be offset in the fourth quarter. When the hedge gallons are scheduled for delivery.
Yeah.
In addition to a stronger hobo plus RIN. We also benefited from ongoing commercial optimization activities in the quarter. This includes the value from our record <unk> ultra clean sales higher biodiesel blends and ongoing feedstock optimization.
Yeah.
SG&A expenses were $3 million, so down significantly as a percentage of revenue.
The absolute dollar increase was driven by higher legal and professional fees.
Note that there were no material increases and expense associated with Hurricane Ida.
Slide 19 shows trailing 12 month adjusted EBITDA.
Slide 20 shows trailing 12 months return on invested capital.
Capital spend beyond Geismar, we remain on track with our board approved plan, which included roughly $20 million for safety reliability and asset integrity and approximately $30 million for high return rapid payback projects.
As the project to Geismar accelerates and other opportunities come into play it is important to have a strong balance sheet with financial flexibility.
We have a sizable cash position with over $1 billion in cash and marketable securities, including long term marketable securities as of September 30.
In addition to our high levels of liquidity, we recently announced an extension and an increase of our asset backed line of credit our ABL with Wells Fargo Fifth third Bank and bank of America to a maximum of $250 million.
With an option to increase the line to $350 million if agreed upon by all parties.
The ABL gives us optionality and flexibility to quickly act should an opportunity for expansion or acquisition arise in the future.
We are grateful for the relationship with Wells Fargo, and fifth third and the commitment they have shown over the past five years and are excited to expand our banking relationship with bank of America.
Now I'll turn the call back to CJ to discuss the fourth quarter outlook C. J. Thanks, Craig I will now discuss our fourth quarter guidance.
The margin environment continues to look relatively robust our feedstock procurement continues to be successful and commercial optimization, including feedstock flexibility on downstream Optionality give us confidence as we close out 2021 as a reminder, fourth quarter typically has seasonally weaker demand for biodiesel and costs in <unk>.
Out activities related to our Houston exit and uncertainties of the quarter projections. In addition, remember that Geismar volume reduction from the two week hurricane related shutdown will impact our fourth quarter results.
One additional reminder, that I'd like to draw your attention to unrelated to fourth quarter guidance is that geismar is preparing for its annual turnaround in the mid first half of 2022.
With all that as a backdrop, let's turn to the numbers as shown on slide 23 for the fourth quarter. We are targeting gallon sold in the range of $135 to $155 million with adjusted EBITDA of $50 million to $75 million. This guidance includes $7 million of estimated risk management loss for the quarter as of.
October 25.
Despite a year of significant external challenges such as ongoing COVID-19 market volatility hurricanes and other extreme weather, we are confident in our delivery of another strong year for the full year. Our projection is 609 to 629 million gallons sold and adjusted EBITDA of 278 to 300.
And $3 million.
Of course any changes to your LSD prices margins Rens are L CFS credit values or a level of market volatility through the end of the quarter could affect actual results shipment timing could also affect timing of revenue recognition.
As I close I want to reiterate the message I shared earlier the inflection point is visibly upon us and the societal pull to reduce carbon emissions is stronger than ever with a robust portfolio and a clear strategy. We stand ready to meet this growing demand our clean fuels are ready for use today, providing immediate scalable.
Decarbonization with no switching costs, we believe our strong year to date performance is further evidenced by the current energy transition and proves that renewable energy group is at the right place at the right time now.
Now I'd like to turn the call over to the operator for the question and answer segment of our call Latanya.
Thank you at this time, we will conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is any questions in queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the Barclays.
One moment, while we poll for question.
Our first question comes from not from Manav Gupta with Credit Suisse. Please proceed.
I mean, we often here.
That.
Biden administration is very focused only on electrification he himself only talked mostly about electrification, but then you look at some of the things in this proposal, whether it's extending BDC, whether it's giving $1 $75 for SaaS and even the leaked EPA document, which is almost giving 2 billion increase in the default.
Obligations. It seems that people underneath him are actually supportive of the biofuels industry and I just wanted to get your take as to when you talk to these people EPA and other stuff do you feel there is support for your industry in Biofuels as a whole.
Good morning, Manav and thanks for that.
Yeah, what a great point I think.
There clearly is an ongoing focus on the all of the above strategy from the prior administrations and there is also a greater and greater sense of urgency and even.
What I'm picking up is a sense of a realization that flexibility is important if we're going to capture carbon reduction as soon as everyone wants.
You hear from Cop 26, the discussion of how.
While a lot of things have happened since Paris, a lot of things have not happened and there's a concern about the speed with which things are taking place.
And the Great thing is is there's a recognition that things like biobased diesel provide that answer of making a change faster.
You are seeing that as you pointed out manav and the current proposal.
Okay and Cta a quick follow up here is I mean, youre, making the expansions at Geismar and you indicated I think of making some saffell, where there already but instead is more policy support, especially needs you can get $1 75 in BTC and stuff I'm just.
Trying to understand from configuration wise, what kind of changes will you have to make to the geismar facility.
How much more lead time would there be would that push to project out and how much SaaS in any anything you can give us on those directions as to what changes is really there will be additional capex, which will be required to make more SaaS at the geismar facility. Thank you.
Sure.
It all really depends on how you want to optimize because the terra.
<unk> seen that.
Comprises what you would make for S. A F actually has produced along with the renewable diesel in on HDL plant such as ours.
So it's really about two different things either staying at.
Nominal R&D operations, and simply separating the kerosene and having a segregation capability on the backend which is a fairly minor change currently we just blend of kerosene back into the longer chain diesel and sell it all is R&D.
But.
So if the market signals are right and as you pointed out there's some pretty big incentives that are being discussed.
Can actually change the catalyst in order to optimize the yield of caffeine and go into Max jet mode in which case some of the modifications would simply be to provide larger offtake capability for a different size of AR.
Yield production stream.
None of those things are really significant capital items that are really just about optimizing the configuration of an existing plant.
Thank you so much.
Thanks Manav question.
Our next question comes from Chris Schott rail with Citigroup. Please proceed.
Hi, good morning, Thanks for taking the question.
First one I wanted to ask just on the Houston plant closures C. J completely understand and I think you outlined very clearly is to.
The rationale behind that.
Want to take a step back and ask a bigger macro picture.
See the announced projects and we come out with this math it shows like an oversupply incrementally for the next couple of years on Bvd.
Both sides of the Atlantic, but I wanted to ask on the rationalization side.
Or what are you seeing are right now and what are you expecting near term in terms of some of these might be more quiet rationalizations on not necessarily your plan with first generation biodiesel plants.
Other producers who may find themselves.
More challenged economically going forward, how should we be thinking about that how much did you dial in sort of what do you think about supply demand market supply demand dynamics incrementally in the market in the next year or two yeah. Thanks, Prashant well, it's always some.
Anybody's guess in terms of exactly how the balance is going to come out but the name of the game in portfolio optimization is making sure that.
The portfolio that you have has advantaged gallon.
So understanding what makes the difference between an advantaged gallon and an incremental gallon is critical in this industry just like it is in refining another commodity industries.
So.
Lower carbon intensity feedstock slate are obviously very very helpful. Because the margin is expanded by the low carbon reward systems that we have in several different markets now.
So that's really important to be able to have that upgrading capability.
But advantaged logistics.
Whether a plant is highly integrated with its feedstock for example could give it a lift.
Those plants that are running straight run veg oil and are not integrated are probably the most vulnerable in a situation like this.
Okay.
Just as a quick follow up there and then I have another.
Question after that.
Do you have a sense of when you think about how big or how much production is in sort of the base right. Now that is at risk is there a sort of a.
A size or color you can give us on that at least the way that you see it.
Good morning, your asset base I think in the market as a whole that's more of a question just to be clear yeah. It's just you know perished on it's always a matter of degree and so something that we will all be monitoring so I wouldnt say theres huge tranches as much is there there are clearly some plants that are going to be.
More vulnerable than others.
Okay.
So far the poll has just continued to be high enough that that has not been an issue and when you look at some of these addressable markets that we're starting to enter its actually signaling more strongly and robustly that the demand is going to continue to outpace the supply for quite a while.
Okay makes sense.
Last question from me.
I was just wondering if you could maybe highlight.
Some of the areas of strength in the quarter, where you were able to offset that.
Headwinds from a downtime due to storm Ida.
Your volumes were flat year over year, and if we back out the hedging of the risk management impacts you know the core implied ESP is still pretty strong. So just curious if you could talk about maybe a little bit of the strengths of what you saw maybe outside of the U S or in particular parts of North America, and how much of that do you see.
Continuing into fourth quarter.
Yeah, we we tend to encapsulate all of this adds optimization and much of it is proprietary but think of it as our ability to procure a wide variety of feed sometimes being quite flexible even though at the moment and then route those to the most optimal locations. We did have very robust.
Margins in Europe.
That was quite helpful and bullish for the corner.
We're also making a lot of excellent headway in the downstream, which gives us upside margin flexibility.
Do you want to add anything to that yes.
I think I've had this conversation with several.
Folks just given my newness with the company I think one thing that just makes us distinctive.
The depth of our commercial teams we are in the market everyday on the procurement side, we are in the market everyday on the sales and marketing side and so just constantly having that finger on the pulse of what's going on in the market means that we see and are very nimble at accessing those commercial opportunities and it's not like a big macro thing I think it's just how we.
Our commercially oriented and run the business on a day in day out basis, and some of the things that we pointed out in the script gave you a breadcrumb, hence too so, particularly things like the expansion of our AG Ultra clean has been very helpful for us and continues to be so and we had some great success in feedstock optimization.
Particularly with the opportunity that Hurricane night I provided to us.
Perfect. Thank you so much for the time guys I appreciate it thank.
Thank you.
Ladies and gentlemen, we ask that you limit your questions to one so that others may have opportunity to ask questions. Our next question comes from Brian <unk> with Piper Sandler. Please proceed.
Great. Thanks.
Maybe.
Follow up question on the on the marketing or the other partnerships agreements that you've announced then.
On the rail and marine oil, Okay. I know you probably can't say a lot, but can you could you maybe talk about.
How you view those announcements are they are they.
Are they more just announcements to kind of work together to figure things out are there any sort of.
Volume's or timelines associated with these and maybe you mentioned in particular on things like rail and Marine is there anything unique.
About.
About blending into into rail and marine.
That makes those markets that are different from blending into AR.
And the transport vehicle in other areas or is it just a matter of studying that kind of logistics.
To get the volumes to the right places.
Thanks for the questions. Ryan This is a really exciting area for us and while the announcements are poignant right now we have been making progress in the background in other ways and we've actually been selling into the marine market for a while now, particularly in Europe, where there's some really interesting incentives, especially for U K based materials such as what we.
Produce over there.
But the good fuels announcement is a specific one which is an 18 month agreement and we're not disclosing volumes, but it is meaningful for us.
The Canadian National Witches, and rail is a multi year and.
It's really about discovering together you know what are.
The optimal blends might be for rail. So if you go to if you stand back and think about it both rail and marine have different types of engine technology, obviously than what the big on road trucks have and what's optimal for them in terms of burning cetane levels et cetera are different and we havent quite.
A bit of indication that biodiesel is actually superior for many reasons over a renewable diesel and that's something that we're working on together, but standing back from all of that where we're making some really good volume headway in those markets early days, yet, but the addressable volumes in these markets are phenomenal, which means we have a.
Phenomenal opportunity would make a really big difference with decarbonization, So and marine just in North America, We're talking about 7 billion gallons and about 6 billion gallons per year in North America for rail and.
In the global Marine market is 90 billion gallons. So it gives you a sense of a very substantial opportunity that we're just getting started with.
Great. Thanks, Cesar I will leave it at one.
Yeah.
Our next question comes from Jordan Levy with Truest. Please proceed.
Good morning, all.
You've talked before about potential for additional renewable diesel projects outside of Geismar.
I'm just curious.
How are you thinking about that now as well as if there's anything from a regulatory or a market development perspective, you'd like to see to give you some added computing underwriting any future progress.
Yes, Thanks Jordan.
We are always looking for what the next really advantaged opportunity is for growth and we are looking for that in the area of manufacturing and production, but we couple that with feed on downstream. So we're sort of looking at it on an across the board value chain standpoint, so keep that in mind as your mom.
On a trailing some of our activities.
C C.
Several really interesting opportunities to expand especially in renewable diesel when it comes to Hum.
Our production and we will continue to evaluate those and we're very focused on ensuring that the choices that we make are highly strategic so are being quite careful.
But definitely very active in this space from a regulatory standpoint further to your question you know the signals just continue to be bullish and they do so from a standpoint of multiplicity in other words, we're not just looking at what's happening U S. Federally, although obviously that has a.
A big spotlight and our focus right now.
But there are so many different regulatory pulls happening that that gives us a lot of upside and things to think about as we're considering strategic location.
That's great I'll take the rest of my questions offline. Thank you.
Jordan.
Our next.
Western comes from Chip Moore with E. F. Hutton. Please proceed.
Good morning, everyone. Thanks for taking the question.
Hey, chip.
Okay. So I just wanted to follow up on that on that last question and your response.
In terms of regulatory momentum.
Occasions for growth projects here could you talk about if youre moving things a bit further along in terms of maybe some of those preliminary engineering efforts maybe versus six months ago, just given what seems to be a pretty supportive environment.
Yeah, I would say just a couple of additional things.
At Lee you're focusing on taking advantage of Europe emphasis on these gen. Three feedstocks, there's some really interesting upside there and I think that's it.
Particularly plays to some of our AG strength, so we're focusing on that.
And.
We're also obviously looking at what it's going to take for us to be flexible to make more SaaS because not only are you seeing the regulatory push and the discussion that we've already had together on some of the proposed legislation, but there's actually a growing pull from our customer standpoint too.
And that's very encouraging for us and causing us to continue to look at things that we can do to be flexible.
That's helpful. Maybe if I could follow up on that on sustainable aviation fuel right. We all know it's not justified versus some of the other markets here, but maybe you could talk a little bit.
How are you preparing for that opportunity from a customer perspective to your point when that time does come.
Yeah, you know, it's like anything else with a commercial agreement, it's completely dependent on location volume our preference.
For multiple things, but theres just a lot of optionality there, it's extremely encouraging and it's it's great because S. A F is a way for many commercial entities who have made.
Carbon neutral pledges to.
To get started in a really good direction and reducing their carbon intensity because so many organizations.
Have a carbon consumption weighting in the aviation area. So.
So it's a it's a good win win for them to work with customers that are looking to decarbonize in that way.
I think the other thing that it's Craig that makes US unique is we have got both an rd product and offer in a BD product and offer which means that we can have differential conversations with our customers about what both of our products can do to if their aviation needs or their ground fuel needs.
Yeah.
Alright, great. Okay. Thanks, everyone.
Chip.
Our next question comes from Amit Dayal with H C. Wainwright. Please proceed.
Thank you good morning, everyone.
English and good morning, just a quick question on the buyback program. So you do have you're utilizing that facility over the last quarter and you know what are your plans those who know bringing that into play a discipline to stop.
This is Greg no no we have not and really were as I kind of was talking about our balance sheet is well positioned but it's well positioned for both completing the geismar expansion, but for the other growth opportunities we see.
Okay. Thank you that's all I have.
Thank you.
Our next question comes from Craig Irwin with Roth Capital Partners. Please proceed.
Good morning, and thanks for taking my question so.
It's a big picture question right.
Roughly 12 to 15 Green diesel plants that are that are out there. Some some unannounced some announced we know that only a portion of those will be successfully commissioned.
Producing over the next few years, but it seems that many of those are plants, where the owners are highly motivated more by something we can call politely.
Appliance.
Versus Reggie as a standalone entity that.
It's really the pioneer or an important pioneer of this compliance.
Compliance value.
But has a fiduciary to its investors on profits can you maybe.
Talk a little bit about the strengths Rajiv has or maybe possibly some weaknesses as you look to navigate this environment with these other plants coming online over the next couple of years.
Yeah, Hey, Craig Thanks for the question, it's really good to stand back and think about the big picture strategy and certainly there are different motivations on the parts of entrance and also you know different levels of margins that are going to be acceptable.
And so the name of the game that you know we've talked about quite a bit is ensuring that what we build is a strategically advantaged and that way. Even if there are some that are willing to take a lower margin.
That's the that's the choice that they make and they create sort of a floor for incremental gallons.
You know I think our advantages continue to be that we can process a very wide variety of feedstocks, we know how to procure a wide variety of feedstocks. We have this flexibility we have quite a bit of a portfolio optimization capability. So once you have multiple plants that gives you an ability to pivot as well as.
Manage margin in a way that you really can't do when you only have one or two plants.
Just as.
As a follow up here the pivots that Rajiv made in the last year include curtailing production and shutting plants.
What are the positive pivots that you see.
With your current footprint.
Yeah, well, we've been pushing into new areas. Both in terms of expanding into R&D in a clear way as well as expanding into downstream, which has been a substantial change for us and provides us quite a bit of it.
Insight as to what's driving our customers' preferences as well as where the margins are.
Excellent and we look forward to following the story over the next few years. Thank you. Thanks Craig.
Okay.
Our next question comes from Craig with Asti with Weber. Please proceed.
Hey, good morning, everyone. How are you doing hey, Greg morning.
And so it wouldn't be a Q3 earnings call nobody asked about supply chain issues. So I guess that'll be that guy and just I'm just curious how it's affecting your business. Overall are you seeing any any issues with feedstock logistics or sourcing those long lead items for geismar.
Or are you even noticing anything on the demand side when it comes to.
Auto Oems kind of struggling with production.
Just any comments there would be helpful. Thanks, Yeah, you're so right and we are so blessed because our supply chain has been a challenge, but it hasn't been you know debilitating like it has been in so many different industries and for different companies.
There has been issues, you know, where we've had to scramble to get a truck drivers.
But it hasn't inhibited us so far.
And we've been able to pivot in terms of the way that we have our feedstock shipped all of which has been successful for us. So we feel really blessed about that.
Thank you.
The things that everybody you know.
Concerned about is the supply chain for big projects and as Craig pointed out we've been really lucky getting our long lead orders out there solidified and with the price locked down for over 80% of of what we've needed to buy so far so that gives us a lot more assurance.
T J I would add that when it came to geismar.
No. It wasn't just making sure we were engineering ready.
Sure that we were commercially ready to before we sanctioned the project yeah exactly and when it comes to feedstocks. For example, this is again, where our multi fleet strategy I think has come into play but are instead of purchasing by individual containers and you know, but just by the pictures the container problem, it's been huge when we.
Can source an entire vessel that's been helping us to get around those problems.
Yeah.
Okay got it thanks very much thank.
Thank you Greg.
Our next question comes from Harmeet Croissant with Gws financial Please proceed.
Hi, Good morning, this is mohit actually for Harman.
One quick follow up and then another question.
I may have missed this and I apologize, but in terms of the Geismar shut down have you disclosed what.
What those numbers are going to look like the impacts of the numbers that are shut down whether it's in Q4 Q1.
Yeah.
Well basically what we've said is which you can kind of back calculate is it a couple of weeks of production outage and we're doing our best to mitigate that by you know continuing to push for a record rates following them, but you know the two weeks is pretty much you can sort of back of the envelope.
<unk>.
You know some people wonder why why wasn't it a third quarter impact we did go into the hurricane in a good position in terms of finished product inventory. So it's why it's having more of an impact in fourth quarter relative to third.
Okay.
And then I appreciate that thank you.
And then my question is for a California, what did you experience with the drop in L. CFS and were you able to divert to other markets and how are you adjusting given the lower wholesale pricing.
Yeah, you know, it's part of the overall picture and the volatility.
He has been pretty substantially in all of the different market my markers, whether it's theodore product rins or whatever so it.
It was part of that picture and again optimization plays a very strong part and so our R&D routing has many different options and you know as the market signals move around we can route to other markets. If the L. CFS comes out of solution.
But overall as you can see you know, we we still experienced a good robust margin mark.
Environment for the quarter.
Yeah.
Great. Thank you very much.
Our next question comes from Matthew Blair with Tudor Pickering Holt. Please proceed.
Hey, good morning T J.
Reagan pod.
There's a lot of volatility in crude prices in Q3.
I think you said that Youre Bechtle boy I'll share with a 25% person.
It was 20% in Q2, so could you talk about what was that a purposeful shift to running more soybean oil based on margins or was that just normal volatility or perhaps maybe there was an impact you know taking out geismar.
Well so the first sort of thing to keep in mind is we have ralston, which is our plant which is integrated with us soybean crush plant. So it will always have that and Grays Harbor runs canola.
Which is actually a low ci feed in Canada.
So those are both pure veg oil so you'll always have that in the background of our throughput and then soybean oil just kind of comes in and out opportunistically, depending on what's happening with.
Margin differentials as well as what our procurement team can do because sometimes there's some opportunistic loads that they can take advantage of.
Great. Thank you.
Yeah.
Our last question comes from Jason <unk> with Cowen. Please proceed.
Hey, Thanks for taking my questions.
I wanted to first ask on Q4 guidance, if I'm looking at the margin per gallon.
Backing out the hedging impacts it actually looks like.
The margin for gallons moving higher from <unk> to <unk> was that right, it's a bit surprising just given.
It sounds like you're going to have less renewable diesel.
Supply in <unk>, and that's a higher <unk>.
<unk> gallon. So wondering why the move higher and also if theres any embedded costs in there for the Houston facility shutdown.
And then my second question.
These opportunities on these new market opportunities that you've mentioned in rail and marine I appreciate it's a.
A lot of volume you could go after but just wondering on the.
Price side of it are you able to capture the same.
Regulatory credits and pricing in these new markets as you do when you sell biodiesel.
Into the diesel on road fuel pool, and I'll leave it there. Thanks sure Yeah I'll start with the latter part and then I'll hand, it over to Craig for guidance and some of the specifics there but.
But the really interesting thing about what's happening with this inflection point that I referred to a few times is that our customers are evaluating all of their different choices to decarbonize and as it happens, bringing in bio based diesel even at the advantaged.
Price said it tends to realize in certain markets, where it's rewarded for its carbon intensity is a much more economic and sensible and rapid way for them to decarbonize than it is to make some of the other significant choices that they have that they need to face so keep that in mind as pricing does.
<unk> take place and of course, we don't discuss price beyond that but from a philosophical standpoint, we're really rather economic versus other choices.
And Jason It's Craig and go into the fourth quarter. We are seeing the tailwind of improved margins I think were looking yesterday and the average hobo plus we're in for.
The fourth quarter has been about $1 20, but.
But we do have a couple of headwinds.
One of those is just the fact that seasonally our biodiesel sales are normally lower in the fourth quarter, just where overall market demand is for that product. In addition, part of what's driving that hobo plus rent up is ongoing increases in USD. So even though we've kind of got the reversal of third quarter hedge impact we've got more potential.
For more potential hedge impact in the fourth quarter and.
Cause C J mentioned and the Guy we didn't see the impact of hurricane either in the third quarter, but we do go into fourth quarter with lower produce volumes due to the hurricane and that'll be a headwind as well.
Yeah.
Thanks, So just to confirm I don't know if you've looked at it but the per gallon number excluding the hedging impacts have you have you looked at the numbers that way because.
Got it.
I'm seeing that moving higher quarter over quarter I don't know if I'm if.
That's not right but.
I would say it would be kind of in the rough.
Same zone, because if you look at what our third quarter result was and if you kind of look at the midpoint of the guide I think you're going to be roughly roughly in the same zone on a dollars per gallon basis. It may go up a little bit just if we've got lower biodiesel gallons or so in the quarter.
Okay. Thanks.
Okay.
Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Todd Robinson for closing comments.
Thank you.
Two investor conferences scheduled for December both of which are shown on slide 24 before I walk through the conferences. Please note attendance at these conferences is by invitation only for clients of each respective firm. So interested parties. Please contact your respective sales representative to register for and for one on one meetings to secure a time.
The first conferences Wednesday December 1st one we will participate in the virtual Bofa Securities leverage Finance conference. Please note we will participate in a fireside chat at $3 30, central and we will host one on one meetings throughout the day with institutional investors. In addition on Monday December six we will participate in the credits with climate Tech startup Forum, we will host virtual.
One on one meetings with institutional investors throughout the day. Thank.
Thank you all and this concludes our call and you may disconnect.
Thank you for your participation. This concludes today's teleconference. You may disconnect. Your lines at this time and have a great day.