Q2 2019 Earnings Call
Greetings and welcome to the renewable Energy group second quarter 2019 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.
It is now my pleasure to introduce your host Todd Robinson Treasurer. Thank you Sir you may begin.
Thank you operator, good afternoon, everyone and welcome to our second quarter 2019 earnings Conference call with me today is our President and Chief Executive Officer, CJ, Warner and our Chief Financial Officer, Chad Stone, Let me cover a few housekeeping items before I turn the call over to CJ first I would like to remind everyone that this call is being webcast and is available at the Investor Relations section of our web site and our E. G. Dot com a replay will be available on our website. Beginning later. This afternoon. The webcast includes an accompanying slide deck for your reference this will appear automatically with the webcast you will need to advance the slides manually as we prompt you for those of you dialing in the slide deck can be downloaded along with the earnings press release in the Investor Relations section of our website.
Turning to slide three we would like to advise you that some of the information discussed on this conference call will contain forward looking statements.
These statements involve risks uncertainties and assumptions that are difficult to predict and such forward looking statements are not a guarantee of performance. The companys actual results could differ materially from those contained in such statements.
Several factors could cause or contribute to those differences. These factors are described in detail in the risk factors and other sections of our annual report on Form 10-K , and subsequent quarterly reports on Form 10-Q , which are on file with the 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 expectations.
Todays 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 measures with that let me turn the call over to CJ Warner CJ.
Thank you Todd and good afternoon to those on the call I will discuss our second quarter high level results margin and regulatory environment and operating highlights and then Ted will provide more details on our financial results then I will come back to discuss our outlook.
Our second quarter reported financial results were disappointing as we and the entire industry navigated through a very low margin environment.
These results do however reflect continuing strong underlying operating performance as reflected on slide four our second quarter adjusted EBITDA of negative $42.3 million was well below our expectations. Since we provided guidance at the last earnings call customer sentiment around the biodiesel mixture excise tax credit otherwise known as PTC has started to shift.
The decision as to whether or not to reinstate the BTC has dragged on for 20 months one of the resulting FX is that some customers are telling us that they are reaching their limit to take on BTC exposure.
This has enabled us to capture a higher percentage of the potential BTC upside and continue to produce at high run rates in turn however, we have accepted lower prompt pricing.
Slide five puts the adjusted EBITDA result in context with our previous guidance. We came in at the high end of guidance on volume and much lower on adjusted EBITDA before BTC higher on capture up potential BTC benefits and within guidance at the low end of adjusted EBITDA inclusive of potential DCC.
Ted will give more details later to reconcile guidance to actual results.
Standing back from the quarter, we continue to build a large potential net benefit from the reinstatement of the BTC if reinstated our net benefit would be approximately $370 million that amount represents the potential net BTC benefit for all of 2018, plus the first half of 2019 and represents over $9, a 50 cents a share.
As I mentioned previously we are now into the Twentyth month operating without a decision on the BTC. This is resulting in a market that is caught in the middle with high confidence in the ultimate reinstatement of the BTC. The market continue to operate as though it is already there creating a disconnect in pricing and volumes being produced and sold simply said in anticipation of the BTC reinstatements marginal gallons are not naturally coming off the market, which is depressing realized margins. Once the decision is made about the BTC one way or the other we would expect that the market will rapidly adjust for these discrepancies.
Equivocation on the BTC has now been dragging on for far too long.
We announced two weeks ago that we are closing, our new Boston, Texas Bio refinery due to poor economics, driven in large part by the indecision around the BTC and the resulting caught in the middle Economics I mentioned earlier, we are just heartened by the associated loss of jobs, we continually monitor margins and unfortunately did not see a near term path to profitability at new Boston, It's small capacity made it more difficult to operate as efficiently as the other plants in our fleet.
This was an important part of our work to continuously strengthen our portfolio and ensure that our resources are slow to the highest and best opportunities.
We also see others in the industry responding to this low margin environment with reduced capacity and plant shutdowns. We believe that it is likely that this trend would continue with a protracted period of indecision about the BTC. So what is the status of the BTC reinstatement, we were disappointed that it and other tax extenders were not included in the recent budget deal. We believe though that there are other legislative vehicles to get the incentive reinstated before the end of the year and possibly by the end of September there remains strong bipartisan support for the incentive and we continue to be confident that the BTC will be reinstated.
Now back to our financial results other factors held us to the lower end of guidance inclusive of potential DTC margins were lower than expected in the quarter. As you can see on slide six our key indicators the spread between heating oil and Ngls or heating oil or you all at the end three feedstock soybean oil otherwise known as the hobo spread distillers corn oil Holdco and choice White Grease, which is HRG have all compressed across the quarter.
Chad will cover this in more detail presently.
In terms of self help actions underlying performance continues to be strong.
We grew gallons sold 15% over last year, a very solid results. This volume increase offset much of the headwinds of a lower average selling price and the one quarter lag in LCF in L., CFS income, which we discussed last quarter.
We work to continuously and safely improve our production efficiency and to maximize our feedstock flexibility. We believe that both of these are key competitive advantages for us and they both positively influenced this quarter's results most notably we produced 127 million gallons in the second quarter, which is 2.5 million more gallons than Q2 2018, yet our feedstock usage was identical we consumed right at 1 billion pounds in both periods.
Some of the efficiency gain is due to operational improvements on some due to feedstock usage, our feedstock flexibility allowed us to use more soybean oil this quarter compared to the prior year at times this quarter soybean oil was cheaper than animal fat on a yield adjusted basis. So we switch some production of soybean oil when and where appropriate across most of our fleet, we can switch back and forth as pricing dictates optimizing operational profitability.
We are starting to see real traction in our downstream strategy, which is key to boosting biodiesel demand on margins and we believe therefore will significantly expand our long term profitability. So let's talk about the progress we're seeing in our downstream efforts turn now to slide seven.
And our first quarter earnings call I mentioned, we will be opening our first our IGI branded card lock station to drive higher blends of biodiesel and enhance margins. We opened the Seneca card lock fueling station on July 17th and are pleased with the early progress there as well as the future profit opportunity for RMG in selling fuel directly to end users.
The other downstream effort I mentioned in the first quarter call with our fuel distribution business in Iowa, which is also driving higher blends of biodiesel and enhancing margins. This business has achieved many promising developments. Thus far we have converted several customers from a b five to a btwenty blend. These customer range. These customers range from a large metropolitan fleet to a mining company to a large utility company. In addition, we continue to convert our own fleet of delivery vehicles to be 100 through these efforts. We are proving to be 100, biodiesel makes a great fuel and does not need to be blended with petroleum. We believe this demonstrated success will increase overall biodiesel demand open up new higher margin markets markets for us and accelerate environmental improvement in the locales where the fleets operate.
As an illustration of why distribution participation makes sense for us over half the volume we sold in our Iowa fuel distribution business in June we're blends of 11 and Btwenty. These blending level. There are two to three times the industry's nationwide on road biodiesel blending level of 7%.
Although it is early days, our direct to fleet sales are growing rapidly and in second quarter 2019, their 250% higher than the second quarter of 2018.
The average our IGI ultra clean gallon, our proprietary blend of biodiesel and renewable diesel contained 10% biodiesel for the first six months of 2019, we believe our ability to blend biodiesel with renewable diesel is a real differentiator for RMG and uniquely positions us with scale in both products, we've filed for a patent to protect our proprietary blending know how.
Iraqi Ultra clean diesel gives us a significant uplift in the value of our biodiesel.
These examples of downstream progress indicate why we are focused on this element of our growth strategy.
Speaking of growth we are highly confident in the outlook for renewable diesel pricing is good demand is very strong and new potential demand drivers such as aviation and other incentivize geographies are on the horizon produced volumes at Geismar continue to grow organically and we continue to advance our work with Phillips 66 on our potential joint venture.
As we look at our major investment opportunities. Our focus is on renewable diesel we are progressing with our planned joint venture with P. 66, which is an important example of how we can grow our renewable diesel business through strategic partnerships, we expect to make final investment decisions toward the end of this year. Following completion of scoping design engineering. Our current plan has a project coming online in late 2022.
We are carefully managing our capital investments in response to the market environment and are continuing to invest in a key projects that look to provide high returns and long term growth Chad will elaborate on capital investments shortly.
Finally, let me provide updates on a few non operating items.
First we announced the sale of our life Sciences business to genome Attica, We believe gene Amedica is an outstanding home for this business and our former life Sciences team members, who have joined them, we wish them great success as they carry forward our efforts.
Secondly, I want to highlight our contribution on the environmental and social fronts. We are very proud of the carbon reduction we achieved in the second quarter.
On slide 10, you can see that the 127 million gallons of low carbon renewable fuel we produced displace approximately 850000 metric tons of C. O. Two this tremendous environmental benefit is integral to our fuel forward strategy.
In addition, we maintain a stellar safety track record again, achieving zero reportable incidents in the quarter. Our 12 month Rolling average injury rate through June is at record low levels. The goal to achieve industry leadership is this is our goal to achieve industry leadership in this very important KPI.
Let me now turn the call over to Chad for the financial update and then I will return to discuss our guidance and outlook Chad.
Thank you Jay and good afternoon, everyone before we review the key line items I want to summarize our results relative to our guidance as a reminder, our Q2 adjusted EBITDA guidance, excluding BTC and LCFS was a range of negative 10 to negative $25 million. This was based on historical ratio of shared BTC benefit with our customers.
Our actual result was negative $42 million.
As TJ mentioned.
This before BTC result is lower than expected because we took on a greater than historical portion of the expected BTC value this quarter.
Our estimated BTC benefit was $81 million compared to our guidance estimate of $63 million.
If we add adjusted EBITDA, an expected BTC benefit together in both the guidance and the result, we would have been within the lower end of our guidance range.
Using the guidance mid point, we were off by $25 million due to assumptions that did not materialize or that changed.
The largest item was the sales environment related to the BTC sharing resulting in a lower biodiesel average selling price.
And higher estimated net BTC benefit for us.
The drop in biodiesel average selling price impacted our results negatively versus guidance by $19 million.
Now, let's turn to results starting with slide 12.
The increase in total gallons sold was driven mainly by renewable diesel in petroleum diesel.
Biodiesel gallons sold were basically flat.
We didnt have substantial growth in the resale of petroleum based diesel due to more blending as we expand our downstream distribution network.
We saw solid volume growth was offset by a few items, resulting in revenue being down 3%.
US biodiesel selling price was down sharply due to lower you LSD prices as well as lower RIN prices.
As we discussed last quarter due to a change in California. The administrative process, we did not recognize California LCFS credits in the second quarter, which is a onetime impact resulting in $29 million of revenue and adjusted EBITDA recognition pushed into the third quarter.
California, LCFS best prices remain robust due to strong demand.
Furthermore, the value for Oregon, LCFS credits have increased dramatically and averaged over $150 per metric ton for the quarter.
And last week, we were notified that Oregon approved our lower carbon intensity scores for Grays Harbor, which we expect will improve margins there.
To summarize the slight decline in revenue.
Renewable diesel Rep revenue was up strong while biodiesel LCFS and RIN.
So on lower revenue.
Turning now to costs. The main driver of the increase in cost of goods sold was the overall increase in the feedstock complex as well as the compression of lower cost feedstocks.
Total cost of goods sold was up while revenue declined resulting in a gross loss.
The spreads compressed between these feedstocks year over year.
Since approximately 75% of our feedstocks are lower cost feedstocks like distiller, corn oil and choice White grease, our typical cost advantage was compressed.
Our SGN a expenses were up slightly due mainly to legal costs associated with our potential joint venture with P 66 in the life Sciences divestiture.
On slide 13, and 14, you can see our 12 month trailing 12 month adjusted EBITDA and return on invested capital the light Blue on the Bar chart reflects the net benefit if the BTC is reinstated.
Our business is seasonal and we believe trailing 12 month results are a better reflection of our long term earnings power.
Now please move to the balance sheet on slide 15.
Cash declined from the cash use an upper used in operations as well as cash used to settle our 2019 convertible bonds in June .
We paid cash for the principal and issued stock for the premium.
We brought down total debt, even more in the quarter by reducing our revolver outstanding.
We funded the revolver reduction with working capital changes in the main item being selling product on inventory, which is normal for the seasonal period.
Looking at our liquidity, we had $61.6 million of cash at the end of the quarter end, we had 68 million available on our lines of credit at the end of June .
In early July we expanded our asset backed line of credit at our option.
Two increased the maximum borrowing amount through October from $150 million to $175 million.
$4 million to $200 million can didnt contingent upon the BTC reinstatement.
We settled the 2019 convertible bond in June we paid off $67.4 million of principle with cash.
And issued 1.9 million treasury shares to settle the premium.
We did receive back 625000 shares from the capped calls so the net shares issued were 1.3 million shares.
The Treasury shares we issued were pre previously repurchased at an average price of $9.87 per share.
We did not refinance right refinance the convertible bonds, which deleveraged our balance sheet.
As you can see on slide 16, our debt to capital ratio is now 15.2%.
Down from 20.6% from last quarter and down from 19.5% at the end of 2018.
The 15.2% debt to capital ratio is the lowest level since the first quarter of 2014.
Now, let's touch on Capex.
We invested $9.8 million in the second quarter, mainly on growth and high return projects and year to date, we've invested $8 million over our original $65 million to $75 million budget.
We have been consciously slowing our capex outlay to better manage cash flow in the absence of the BTC.
Our effective tax rate for 2019 is expected to be less than 1% and going forward. We expect our tax rate to continue to be less than 5% for the foreseeable future.
And our blended average interest rate is less than 4%.
Now ill turn the call back to CJ to discuss the outlook digits. Thanks, Chad and I'd like to just make a quick correction the year to date investment of Capex at $18 million versus that 65 to 75 dollar budget.
Just a quick misspeak.
Lets refer to slide 20, now for our guidance for the third quarter of 2019, we expect gallons sold in the range of 185 to 205 million gallons.
We do anticipate the margin environment to continue to be challenging in the third quarter and the uncertainty as prolonged around BTC and due to RIN price suppression that we believe is caused by RFS small refinery exemption.
On a positive note we've seen modest increases in RIN prices recently with plant closure announcements from us as well as the Flint Hills via stress, Nebraska plant.
The third quarter will include $29 million of California LCFS credits.
With all that in mind, we are projecting adjusted EBITDA to be in the range of 3 million to $18 million in keeping with the trend we have experienced on PTC sharing we estimate that third quarter adjusted EBITDA would be approximately $80 million higher if the BTC were reinstated on terms similar to past years.
This estimate for the third quarter is based on actual performance through last week and takes into account existing forward contracts expected to be fulfilled and existing spot margins through the end of the quarter any changes to the EU LSD prices margins, rins or LCFS credit values or level of market volatility through the end of the quarter could affect actual results. We have included $1 million of risk management gains in our guidance, which reflects our estimate for the quarter as of July 23rd based on the EU LSD forward curve.
Our full year guidance reflects a continued challenging market environment. We now estimate that gallon sold will be in the range of $715 million to $740 million and gallons produced to be in the range of $510 million to $540 million.
These have been reduced from prior guidance due primarily to the new Boston closure and reduced third party trading.
To wrap up we remain focused on improving financial results in this very challenging margin environment with the expected BTC reinstatement. Our results will be strong and will provide the intended capital to fuel value creation.
In the meantime, we continue to deliver on the controllable elements of our plan and have put in place several programs that we believe will accelerate growth in the future. We remain confident in our long term earnings power and the value we continue to create.
Now before we close Todd is going to mention upcoming investor events for our aging Todd.
Thanks, CJ, please turn to slide 21.
We will present at the Canaccord 39th annual growth Conference on August seven in Boston attendance. At this conference is invitation only so please contact your Canaccord sales representative if you want to attend or schedule, one on one meetings with them.
We will also be attending the Vws financial growth and value Summer Investor Conference on August 13, and the Seaport Global Securities Annual Energy and Industrials Conference on August 20, Eightth in Chicago.
Attendance at these conferences is invitation only so please contact your sales representative if you want to attend or schedule one on one meetings with us.
We pre recorded in our comments this quarter as CJ had an unavoidable and unexpected personal matter to tend to she will not be available for the remainder of this call Chad will lead the Q and a session and we will have other members of the senior leadership team on the call to answer questions as needed operator, we will now open it up to Q any please proceed.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation code will indicate that your line is in the question 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 star keys.
Our first question comes from Patrick Flamm with Simmons Energy. Please proceed with your question.
Hi, guys. Thanks for taking my question I really wanted to ask you about the changes in pricing across the markets that we've seen and specifically what has historically been lower cost feedstocks.
Essentially you mentioned that soybean oil prices were actually cheaper than some of those historically advantage feedstocks throughout the quarter and it doesn't seem like that market is going to change anytime in the near future can you frame up your expectations for this going forward.
Yes, Patrick it's Jeff. Thanks for your question and if you look on slide six it really kind of shows you that compression and.
The evolution of the feedstock and then again.
On slide seven.
Of this deck shows exactly what you just described so we have a C.J. was saying have seen changes in pricing of lower cost feedstocks.
For a couple of reason there is a lot of.
Factors moving in the feedstock markets one of them is.
Highly incentivized.
Highly incentivized markets for low carbon intensity feedstocks.
Like used cooking oil and distiller oil.
Distiller corn oil that are going into west coast markets, like California, and Oregon for example, and so Thats supporting.
This compression of lower cost feedstocks into.
The soybean oil.
Pricing soybean oil has been kept relatively low for.
A few reasons one due to the continued trade war with China, keeping the entire soybean complex low the reduced demand.
For for protein in China, as well, so weve seen that.
Price.
Lower than lower than normal we've also seen an abundant supply of palm oil, which trades in the world market and keep soybean oil in check so.
On the one hand do you see an incentive.
For the traditionally lower cost feedstocks because of premium markets on the other hand.
Soybean oil has been.
Relatively flat.
Okay, that's very helpful.
My follow up question is that.
On the off chance of his BTC keeps getting pushed back or worst case scenario gets shelf completely.
I was wondering if you could talk about how that affects your willingness or ability to fund some of your slate of growth projects going forward.
Sure so on that.
On the one hand.
You know as TJ mentioned.
In the in the beginning of the third quarter. We started it started to see that this is.
The 20 months of lapse BTC has done.
Wearing on the industry.
From.
Our announcement to shut new Boston and the Flint Hills closure of the plant in Nebraska.
You can see that you can also see it in our reduced run rate of.
Capital expenditure allocation. So we originally started the year with about a $75 million budget and Weve pared that back to.
Only spending 18 million through the first half of the year and.
So we're managing what we control the margin that the markets are what they are they are acting.
With the expectation that the tax credit will be reinstated.
But we need to position ourselves to protect our balance sheet and weather the storm, which is why you have seen those actions.
But we have prioritized high priority to high priority fast payback projects safety projects and those types of things.
So.
That's kind of where we stand the other thing that we've done.
Todd has talked about before is expanding our working capital line of credit.
Okay. Thanks very much.
Thanks, Patrick.
Thank you. The next question comes from the line of Craig Irwin with Roth Capital Partners. Please proceed with your question.
Hi, good evening and thanks for taking my questions.
So Chad.
The the changes and PTC expectations over the quarter.
63 to 81.
It seems like there was a fairly significant change and.
Sentiment among the the buyers of your bio fuel.
My back in the back of the envelope math is somewhere between 55 and 60 million gallons.
Yes, it was moved to where Youre youre the beneficiary directly of the.
Oh, the reinstatement and as you said to a greater degree.
Can you maybe characterize for us what type of clients are.
Well, what we're what type of customers for your biodiesel are.
Our asking for this altered arrangement.
And is there potential for more of the.
The product that sold to move into this.
This more favorable longer term BTC arrangement, but something that.
Yes, obviously pinches the EBITDA on the short term.
Yes, thanks for the crushed question, Craig, Yes, and.
Yeah, what we saw during the quarter was $18 million more of BTC upside to us than we would have expected based on our traditional relationship and I think.
It was an evolution of customer risk appetite you think of a 20 month of some of our customers have very large.
Exposures to the BTC in there.
Offers on the table maybe more.
Leaning toward.
US retaining the net benefit upside.
You know again if.
And I think in terms of types of customers, it's difficult to say I mean, it's more anecdotal around the industry and we don't want to.
Get too much into what our specific customer appetites are but the underlying theme really shows through in these numbers.
Is that they have enough exposure in some cases and they don't want to.
Extend that.
Okay excellent and then ill.
This quarter, you didnt have as much as much of a detailed.
Discussion about guys smart and Geismar as contribution in the quarter can you maybe update us.
Hello, guys smarts performing.
Is that.
Still a nicely profitable plant even in this difficult environment.
Should we expect guys smart to continue to outperform versus the traditional biodiesel plants.
Yes, Geismar is performing well.
Running very well it had a successful turnaround and it continued to be profitable, we're very happy with.
With the plant as you know we don't give specific details on plant economics, we do have some.
Industry markers out there, where you can get a sense of likely the the way renewable diesel is selling.
But we continue to be very happy with the performance.
Okay, and then just looking at potential opportunities out there.
You mentioned on the call 20 months waiting for our good friends in Congress to.
Actually do their job and.
Implement legislation properly.
And reinstate this this blenders credits.
Is there an opportunity now and the fat side given that some people.
Obviously on the petroleum side or kind of giving up is there potential that.
We can see you guys actually I take that off the market for.
Significantly lower prices than than what you are forced to pit moment.
I am sorry, take what off the market it into that.
Feedstocks.
Soybean oil and high fatty acid feedstocks.
Yes, so what you what you saw us doing throughout the quarter is increasing our mix of.
So I've been oil and panola inclusion because of that yield the yield advantage of using the the easier to process feedstock.
And.
We probably I think it was 25%.
Mix of soybean oil and canola last year compared to.
Roughly 38%.
In the second quarter, so you've seen us adjusted that made as we optimized our plants and our feedstock mix.
Based on the evolution of the feedstock markets.
And.
From that perspective, what we're seeing is some opportunities in.
As we said the.
The Nebraska plant came offline.
That we think has been helpful to keep distiller corn oil.
A little bit lower and.
So that is that is an opportunity for us.
Okay and then last question if I may is California, low carbon fuel standard I think you mentioned was a $20 million positive delta going from the second quarter into the third quarter.
Should we continue to expect that into the.
The fourth calendar quarter as as an uplift to overall profitability.
Yes so.
The second quarter did not have the benefit of any California LCFS credits so the.
That was transferred into the third quarter and then the fourth quarter, we would expect to be as strong and arguably strengthening what we've seen year over year is a California LCFS average price go from about $133 a year ago during the second quarter to $194 and so the LCFS price has been firming up the Oregon credit prices had been firming up as well a year ago, they averaged $60 a metric ton and this last quarter they were up to $156 per metric ton on average so.
We've seen strength in those markets and the incentivized markets.
In.
We expect that trend is continuing.
Yes, all right Todd here, one thing one thing to note sorry is.
We haven't really talked about IMO 2020, but we do think that in the second half. We think there will be a little bit uplift from from that we haven't put anything in our guidance around that at this point, but.
I think if you look at what's been out there there is.
Others are talking about what that uplift it look like.
Yes, so just to put some numbers to that.
In marathons call they talked about.
The IMO 2020 uplift for diesel crack spreads.
To be two to $5 per barrel, which for us on a diesel gallon that translates to five to 12 cents per gallon. So thats the market outlook marathon.
Gave as far as IMO 2020 is concerned.
Great. Thanks for taking my questions.
Thanks, Greg Thank you.
Thank you as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question comes from the line of how that core sand with Cws financial. Please proceed with your question.
Hi, I'm, just trying to understand that if your customers are.
Yeah have enough as far as PTC credit exposure is concerned what did that also caused some adjustment in pricing as far as what you are selling into the market for or is there just too much pressure from competitors just.
Producing as much as they can even though it's not feasible.
I think it's how many thanks for the question I think that certainly a signal that the market needs to.
Needs to adjust so you didnt see that happening in the second quarter. In July you thought two plant closures are new Boston planting and the Beatrice plant.
There's also.
Some industry.
Talk about reduced run rate those are the types is that signals that you do need to see customers talking about.
Maybe having enough exposure to the BTC there either.
Wanting to let us retain more of the net benefit upside or potentially.
Forcing the markets to adjust to continue to clear the market, but I think I think that's the right way to think about it.
Okay, and do you can see yourselves as the lowest cost producer in the industry.
As far as your competitors do you think there is any one that's prone to be actually closing down anytime soon.
Yes, well, we're very competitively positioned and our ability to switch between free feedstocks is.
Is an advantage for us for sure.
So that we were able to.
Use the lowest cost feedstock that.
Our optimized model.
Suggest that we need to run so.
It is an advantage for us the other advantage that we have is our scale.
In our network approach and then our.
Basically nat national footprint of feedstock supply and.
Customer base. So that is that is an advantage for us were very competitively positioned.
Okay. My last question is just given the on the basis that BTC is not extended our renewed.
What's your operational plan I mean, obviously you can't be producing.
Business at a negative gross margin. So what are you guys operate side looking to.
Yes, so it gets back to.
An earlier comment I made you know it's the.
Monitoring plant by plant you have the new Boston shutdown you have.
On positioning our balance sheet to weather the storm, we've slowed down capital expenditures to.
From our original operating plan and just watching margin that add plants.
All the time I mean, we've been through this several times before we know the operating plan for what to do on the BTC is is not in place and what we can control our those types of things.
And expanding our working capital line of credit looking at what we did with debt paying down debt, we're at our lowest.
Debt to capital ratio of 15% in the last five years and then the other things we can control our.
Things like getting downstream moving downstream selling blended that the entire blend blend fuels.
The card lock at Seneca and those types of things. So that that's what we can do to control our destiny and we know how to operate through times when the BTC has lapsed.
And.
When were given signals to.
James production plans, but.
Yes, CJ said, we're very confident in the strong bipartisan support if not for a lack of support.
For the biodiesel industry and the need to renew the tax credit.
It's more a matter of.
When versus if and so it's it's.
I think we got the attention of folks.
When the largest producer of biomass based diesel in North America shut a plant I think that.
I think thats, telling for the market participants and policymakers that.
Something something needs to.
To change too.
The new forward, so we need to get the tax credit decision behind us and get that back in place, yes Im at its Todd Let me just.
Echo a little bit.
I think as TJ mentioned in her comments right were kind of in that caught in the middle kind of dynamic right now, where we're not really seeing natural margins in the marketplace because of the uncertainty around the tax credit so once that certainty.
Is determine and we get that out of the way, we will see things adjust markets will correct.
Feedstock prices RIN prices et cetera, and there will be it will be a new normal once once we get some type of certainty. So right now yes, our current financial reported GAAP numbers do not reflect true economic value that we are able to deliver so.
We need certainty and hopefully we'll get that soon.
Okay. Thank you.
All right. Thank you. Thank you.
Thank you we have no further questions at this time, so I'd like to turn the floor back over to Mr. Robinson for additional concluding comments.
Thank you Jesse.
Thanks for every thank you for participating and this concludes our call you may now disconnect.