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Early in 2013 the biodiesel blenders' tax credit was reinstated and made retroactive for 2012 after having been expired for a full year. Early in 2013 I wrote an article highlighting how that event impacted margins of the biodiesel and renewable diesel firms. The conclusion of the article was that early in 2013, the reinstatement of the tax credit wasn't helping biodiesel producers much. This dataset demonstrates that margins for soybean oil based biodiesel (SME) was effectively break even into early February 2013 before things began to turn around. The point being that the markets didn't move at light speed to adjust to the event. I would expect the same thing to happen this year.
Transitioning from 2012 into 2013 the tax credit wasn't in place, but expectations were that it would be reinstated at or near the end of the year. That created absolute chaos in the biodiesel and renewable diesel industry. The reason being that the markets discounted the reinstatement early, so the margins in the biodiesel industry went negative for the second half of 2012. What that did was force firms to either do the financially responsible thing and shut down during the negative margin period, or gamble and keep producing and taking a loss on every gallon produced counting on the tax credit extension not only being passed, but being made retroactive.
That was a nightmare scenario for microcap firms like Syntroleum (SYNM) that didn't have the capital resources to gamble, and provided an opportunity for better capitalized firms like Renewable Energy Group (REGI) that could afford to gamble on the tax credit bill passing. In the end, SYNM shut down and never restarted and is now being bought out by REGI. REGI on the other hand kept producing at a loss but eventually got reimbursed an extra $30 million, turning Q3 and Q4 of 2012 from showing losses to nice gains. The last page of this report shows how the reinstatement of the tax credit turned Q3 and Q4 from losses to gains for REGI.
That is how things worked when we went from having no tax credit, to having a tax credit. That is the opposite of what is happening right now. Going from 2013 to 2014 we are transitioning from having a tax credit to not having a tax credit. A similar event happened back as we transitioned from 2011 to 2012. From this chart, it is evident that margins were strong for most of 2011 with the tax credit, but collapsed late in the year as the rush to produce biodiesel in an effort to collect the tax credit resulted in over production and a decrease in the price of the EPA's regulatory instrument called a renewable identification number or RIN, whose price is baked into the price of biodiesel. Early in 2012 margins however remained solid without the tax credit, and didn't fall below breakeven until mid to late 2012. The important thing being that the loss of the tax credit did not turn the biodiesel margins negative, and the first two quarters of 2012 were profitable. That is demonstrated in the last page of this report showing that Q1 and Q2 of 2012 were nicely profitable for REGI without the tax credit. The point being the tax credit isn't needed to ensure profitability in the biodiesel industry, in fact, the confusion and uncertainty it creates can literally bankrupt smaller biodiesel firms.
How then does all this work? From this chart of biodiesel margins over time, it is clear that times with or without the tax credit can have negative or positive margins. What gives? The reason there is no easy answer to whether or not the tax credit is a good thing or bad thing has to be put in context with the other factors that impact the biodiesel and renewable diesel margins.
The top line of the margin calculation is the revenue per gallon. Biodiesel comes in multiple qualities and its price varies depending on what part of the country it is being sold and the season. From this quote page one can see that higher quality biodiesel labeled SME sells at a premium to the lower quality biodiesel labeled FAME. The spread between SME and FAME narrows the warmer the climate and season. Southern states and summertime have the narrowest spreads between SME and FAME. I'll discuss the importance later.
Right now Chicago SME goes for $3.35/gal and Chicago FAME goes for $3.20/gal, or a $0.15 discount. Ultra low sulfur diesel or ULSD sells for $2.95 as of this writing, so SME sells for a $0.40/gal PREMIUM to ULSD. I'll get into the premium later.
The second line is feedstock, which makes up about 70% or more of the cost of biodiesel. Biodiesel can be made out of virgin vegetable oils like soybean oil, canola or the environmentally disastrous palm oil. It can also be made out of waste products like yellow grease, choice white grease or inedible corn oil. The difference being the virgin oils produce higher quality biodiesel that sells at a premium, whereas the waste oils produce lower quality biodiesel that sells at a discount. Virgin oils take about 7.6 lbs of oil per gallon of biodiesel, whereas it takes 8.5, 8.0 and 8.2 lbs per gallon using yellow grease, choice white grease and inedible corn oil respectively. FAME has a higher "cloud point" and jells at a higher temperature than SME, thus it sells at a discount in colder areas.
Right now, and allowing for $0.02/lb delivery costs, I'm showing that it takes $3.05/gal using soybean oil, $2.17/gal using yellow grease, $2.49/gal using choice white grease and $2.72 using inedible corn oil. The choice of feedstock makes a huge difference in the margins. Whereas FAME sells at a $0.15 discount to SME, the savings in feedstock more than make up for it. Using yellow grease saves the producer $0.89/gal, so the net effect on the margin is $0.89-$0.15 = $0.74. So even if SME is breaking even, flexible feedstock firms like REGI can continue to produce at a nice profit.
The next line are the operating expenses, which are about $0.50/gal. The end formula is (Revenues/gal)-(feedstock/gal)-(OPEX/gal) = EBITDA/gal. This is the most popular way to track these firms because each plant has its own interest, taxes, depreciation and amortization costs, and using EBITDA allows for an apples-to-apples comparison.**
Why does biodiesel sell at a premium to ULSD?
SME and FAME are inferior products to ULSD, so why in the world would they ever sell at a premium? Whenever you see the markets make such an inexplicable error think "it's the government, and it's here to help." There are 3 regulatory instruments that impact the price of biodiesel and renewable diesel, and no one can be considered without taking into account the other factors. The three factors are 1) the on- again-off-again blenders' tax credit 2) the EPA's RIN mechanism and finally the EPA's renewable volume obligation or RVO. Because all these tools work in concert, one simply can't say the loss of the tax credit will help or hurt biodiesel margins. When a blender buys a gallon of biodiesel, they don't just get a gallon of near ULSD equivalent, they also get a tax credit and credit towards a regulatory requirement. The premium represents the embedded tax credit and RINs.
Renewable Volume Obligations or RVO
Because biodiesel is an inferior product by almost any measure when compared against ULSD, no one would ever buy it unless they had to. Like ethanol before MTBE was effectively banned, no market for the fuel really existed. Like ethanol, biodiesel is a truly manufactured and artificial industry. A single stroke of a pen created these industries and a single stroke of a pen can end these industries. Because no real demand exists for these fuels, the EPA mandates a demand through what is called a renewable volume obligation or RVO. (Note: with the recent fall in corn prices, ethanol economics may actually be sustainable and a viable fuel)
Each year the EPA would boost the RVO, forcing "obligated parties" (read big oil) to buy more and more of these biofuels whether or not they wanted to. That was until 2013 when the dreaded blend wall was reached and the tar sands hit the fan. The political fallout was so great that for the first time in its history the EPA has reduced the overall RVO for 2014. The 2013 RVO was 16.55 billion gallons, and the proposed 2014 RVO is 15.21 billion gallons, effectively dropping the ethanol quota and specifically dropping the advanced biofuels mandate. Unlike ethanol which is undefined within the overall RVO, biomass based diesel has a proposed RVO target of 1.28 billion gallons for 2014. The proposed 2014 biomass based diesel RVO of 1.28 billion gallons is unchanged from 2013 and far below the predicted actual 2013 production of close to 1.8 to 1.9 billion gallons.
The important aspect of the proposed 2014 RVO for biomass based diesel is that in order to reach even the unchanged target of 1.28 billion gallons, soybean oil must be used. Soybean oil is by far the feedstock most used in producing biodiesel, and it is the high cost feedstock. As long as high cost soybean oil must be used to reach the RVO, flexible feedstock companies like REGI should be able to turn a profit, even when SME is breakeven or less. The way the regulatory system is designed, however, is if SME is required to reach the RVO, SME should also turn a profit. Page #8 of this report shows the relative price trends of different feedstocks.
Renewable Identification Numbers or RINs
The way the EPA tracks progress towards the RVO is through a renewable identification number or RIN. Each gallon of qualified fuel comes with an ethanol equivalent number of RINs attached to it. Each gallon of biodiesel comes with 1.5 D4 RINs embedded in its price. As an obligated party "blends" the biodiesel into its fuel supply they can either separate the RINs and sell them, or use them to meet their regulatory requirements by handing them over to the EPA. General renewable fuel RINs are labeled D6, and are often referred to as ethanol RINs but they are not limited to just ethanol. D4 RINs are unique to biomass based diesel, D3 and D7 RINs are unique to cellulose based renewable fuels and D5 RINs are for advanced renewable fuels. D3, D4, D5 and D7 RINs can be used to fulfill a D6 RIN requirement, so that is why the RVO for ethanol is undefined within the overall RVO structure. Because the overall production capacity of D3, D4, D5 and D7 RINs is relatively small, the effective RVO of ethanol is somewhere near the overall RVO less about 2 or 3 billion gallons. Additionally, the "nesting" structure of the RINs establishes a system where D6 RINs represent a floor in the RIN prices for all other RIN types. When the blend wall was reached in 2013 pushing up D6 prices, like a tide, all boats were lifted, so reaching the ethanol blend wall was also beneficial for other biofuels as well.
2013 had an overall RVO of 16.55 billion gallons of renewable fuel, and an effective ethanol target of 13.8 billion gallons. The proposed 2014 RVO is reduced to 15.21 billion gallons, or 1.34 billion gallons less than 2013. The advanced biofuels mandate is reduced by 0.55 billion gallons from 2.75 billion gallons to 2.20 billion gallons, with the remaining 0.79 billion gallon cut effectively coming from ethanol. The comment period for the proposed RVO rules ends on January 28, 2014, so more detail is to come on this issue. Any boost to the proposed D4 and/or D5 mandate would be positive for biodiesel margins. If the EPA backs away from cutting the effective ethanol RVO threatening another blendwall issue in 2014, that too would be positive for the biodiesel industry as it would likely drive D4 RIN prices higher as it did in 2013. Being good for the biodiesel industry, however, does not mean that it would be good for the consumer or economy, and in an election year I doubt President Obama would want to explain this program to the American people.
The $1 blenders' tax credit
The EPA's RFS2 isn't the only regulation that impact biodiesel. Congress has a program that overlaps the EPA's RVO and RIN system by adding a redundant subsidy in the form of a $1.00 tax credit that goes to the blender. Effectively what happens, however, is that the tax credit gets shared with the biodiesel producer through a higher price for biodiesel. To calculate out the portion that goes to the biodiesel producer you start with the price of SME currently $3.35, subtract out 1.5 x the price of a D4 RIN or 1.5 x $0.44 = $0.66 and then subtract out the price of ULSD currently $2.95 which sums up to a loss of $0.26. Prior to the end of 2013 that calculation summed up to around $0.50, so the loss of the tax credit has impacted the price of biodiesel and the margin of the producer.
The loss of a tax credit has happened in the past however and the markets eventually adjust to its loss by either driving down feedstock prices and/or driving up D4 RIN prices. Facts are the RVO mandates 1.28 billion gallons of biomass based diesel will be produced, and the only way that will happen is if it is profitable to do so. The expected reaction is that the RINs and Feedstock will adjust to accommodate for the loss of the tax credit, but that may take time, and is complicated by the uncertainty of the tax credit reinstatement.
Because the EPA's RVO is designed to guarantee a positive overall industry margin through the RIN mechanism, adding on a redundant tax credit only complicates the system. Had it not been for the market distorting impact of the tax credit late in 2012, it is likely that SYNM would be in a totally different financial position than they are today. The SYNM case study is a great example of how incompetent execution of a government program can undermine the very industry it is attempting to create. With friends like the EPA and Congress, the biofuels industry doesn't need enemies. Believe it or not, 2012 wasn't the first time the congress let the tax credit lapse, and the devastating economic impact was the same in 2010 as it was in 2012. Some people never learn, especially those that don't bear the costs of their mistakes.
U.S. Congress let the biodiesel blenders tax credit expire on Dec. 31, 2009.
Biodiesel producers, eager to get producing but challenged by the late implementation of RFS2 and the lapsed federal tax credit, began idling plants and some unfortunately went out of business. The industry was on the brink of collapse.
Then, late in the year, Congress passed the retroactive tax credit through 2011, and the industry, despite the changes and hardship producers endured, appeared back on track. When the tax credit expired again on Dec. 31, 2011, many producers were able to stay open because of the RIN credit values, even though small producers were retrieving less for their RINs than larger ones, thanks to the fraudsters who sought illegal exploitation of the system for their own personal gain.
Putting it all together
The immediate impact of the recent loss of the blenders' tax credit was for the price of biodiesel to fall and the margins of biodiesel producers declined. The price of Chicago SME was around $3.85 prior to the end of the year and now trades around $3.35, which is consistent with the amount of tax credit baked into the price of biodiesel that benefits the producer. The loss of that $0.50 has reduced the margins on SME to near breakeven or even a loss. That is not a sustainable level to reach the 2014 RVO. To reach the 2013 RVO it took solid margins supported by relatively high RIN prices, a tax credit and moderate feedstock prices. The economics haven't changed just because the tax credit expired. Firms aren't suddenly going to be willing to produce at a loss just because there is no tax credit. Facts are, for the RVO to be reached, profits must be made. If there are no profits to be made, why bother?
Don't know much about history
One way to formulate expectations for the future is to study the past. The tax credit has expired in the past, so we have a record to study. Major milestones were the passage of the RFS2 in the Energy and Security Act of 2007, the expiration of the blenders' tax credit at the end of 2009, the delayed implementation of the RFS2 until mid-2010, the reinstatement of the tax credit for 2011 made retroactive for 2010, the expiration of the tax credit at the end of 2011 and the reinstatement of the blenders' tax credit in early 2013 made retroactive for 2012, and the expiration of the blenders' tax credit at the end of 2013. The EPA and congress appear to think that extreme uncertainty and unpredictable change is a model for success in the free market.
That being said, the record may give us some clues as to the future. Biodiesel margins were positive for much of 2007, but turned negative by the end of the year. Most of 2008 and 2009 had positive margins as well. The system of the tax credit appeared to be working. The tax credit, however, expired at the end of 2009, and margins were mostly negative throughout 2010, but were eventually profitable after the tax credit was reinstated and made retroactive. 2011 had a tax credit, and for the first full year the RIN and RVO were in place as well. The result was that margins were the highest on record for the biodiesel up to that point.
What we've all learned about the U.S. biodiesel complex from 2010, the worst year in our industry's history when almost 12 months without the $1 per gallon blender credit shuttered plants and halted production
The tax credit expired at the end of 2011, but the RINs and RVO maintained the margins for most of 2012. Anticipation of the reinstatement of the blenders' tax credit in the 2nd half of 2012 combined with solid production numbers sent margins collapsing. This was devastating to small biofuels producers because they were forced to either produce during a time of negative margins, or gamble on the blenders' tax credit passage. Many small firms were not able to afford the gamble, and had to close up shop. One man's misfortune is another man's gain, however, and this self inflicted crisis created buying opportunities for the better capitalized biodiesel firms like REGI, which has been on a shopping spree for distressed assets.
The blenders' tax credit did get passed in early 2013 and was made retroactive for 2012, rewarding those who gambled on its passage. From REGI's adjusted income statement, the reinstatement of the tax credit made all 4 quarters of 2012 profitable. 2012 therefore gives the best case study for how 2014 may develop because 1) the tax credit has expired 2) the RVO is in place and will likely require SME production to be reached and 3) RINs are required to comply with EPA regulations.
What can 2012 tell us about 2014?
The most important lesson from 2012 is that after losing the tax credit, Q1 and Q2 2012 had positive margins for biodiesel producers. The margins were reduced but profitable through June of 2012 (Note: as of this writing I'm showing all feedstocks are at a loss or break even except yellow grease). After the tax credit was made retroactive all months of 2012 were made profitable assuming a $0.50/gal boost in the margin (Note: the tax credit goes to the blender, so unless the producers have a contract to share in the tax credit if it is reinstated, the producer may or may not benefit from it being retroactive). More importantly, margins were driven into the negative category because the markets accurately predicted the reinstatement of the blenders' tax credit. It is unlikely that margins would ever have turned negative without a strong likelihood that the tax credit was going to be reinstated AND be made retroactive. The obvious problem this creates is the need for the markets to have a crystal ball into the future that is able to accurately predict the unpredictable behavior of politicians.
Gambling paid off in 2012, but when a firm's production capacity is 400 million gallons per year, and they need to produce for 2 quarters at a loss of $0.25 or more per gallon, all it takes in betting wrong just once and it can be game over. If the markets become conditioned to always expecting that the tax credit will get reinstated and made retroactive, and in turn base production levels on that assumption, all it will take is betting wrong once and the entire industry will be subject to tremendous losses. Clearly an on-again-off-again tax credit is a recipe for disaster, and why it is important to either make the tax credit permanent for an extended period of time, or permanently eliminate it and rely on the RINs and RVO to function as they are designed to. Having an overlapping and redundant system of tax credits and RINs simply complicates an already confusing system.
The other important thing to note is that the margin estimates referenced in this article are for high cost soybean oil biodiesel or SME producers. When SME producers are breaking even, biodiesel producers that use lower cost feedstocks typically will have above breakeven margins. Because SME production is effectively required to reach the EPA's RVO, this creates a profit umbrella for flexible feedstock firms. If the entire system is designed so that high cost SME can survive, low cost feedstock firms should thrive.
As I write that article I'm showing that SME has an EBITDA margin losing $0.43/gal, a direct result of losing the tax credit. This in fact was predicted by a fellow SA Contributor, who predicts REGI is highly overvalued, and headed for a steep fall.
We believe based on a confluence of factors that REGI's EBITDA will decline precipitously in 2014, to levels last seen in 2012, another period in which the Blenders' Tax Credit was not renewed. We believe the equity is highly overvalued at current levels, with an intrinsic value of $4.70/share, ~55% below current trading levels.
I disagree with this analysis, however, for multiple reasons.
1) SME producers are now making negative margins. That is simply unsustainable. SME producers will shut down, biodiesel imports will evaporate and a shortage of D4 RINs will develop. To meet the 2014 RVO, margins will have to improve.
2) REGI not only survived 2012, it thrived, reaching a 52 week high of $16.50 in 2013, greatly expanded capacity, built cash reserves and paid down debt.
3) This isn't REGI's first rodeo, and the markets now have a history to study. REGI has spent the last couple of years expanding its flexible feedstock capacity. They can still make a profit even if SME is taking a loss.
4) REGI has plenty of cash to weather a period of break-even or small loss margins, allowing them to gamble on a retroactive tax credit reinstatement. Once again, 2012 eventually turned out to be a nicely profitable year for REGI...once the retroactive tax credit was applied to earnings. SYNM was profitable as well in 2012 once the tax credit was accounted for.
5) REGI has a P/E of less than 3, and is well off its high. A whole lot of bad news has already been baked into its stock price. Cut earnings in half and you still only have a P/E of 6.
6) REGI is almost certain to have solid earnings for Q4 2013. I'm showing that their margins for all feedstocks except soybean oil were effectively in line with Q3 or even better. Production was also likely greater than Q3, and with the expiration of the tax credit pending I would imagine they would have reduced inventory as much as possible as well. For those reasons, I expect REGI to beat Q4 earnings estimates of $0.75, as well as REGIs guidance of 65-75 million gallons sold and Adj EBITDA of $25-$40 million.
8) I would expect that if the SYNM plant is rapidly brought into production, the EPS will be boosted by this acquisition. It will add a potential 37.5 million gallons to capacity of high margin renewable diesel fuel to the bottom line. REGI is barely paying over $1/gal for that capacity. In the Q3 2013 conference call, SYNM reported that had the plant been running it would have had cash flow generated of $20 million over a 4 month period running at 85%. That works out to around $1/gal.
9) Feedstock prices have been in a sharp decline. Yellow grease and inedible corn oil are waste products, there are no real competing uses. It is likely that these waste feedstocks will continue to decline in price. Who would pay for garbage only to take a loss on the final product? If REGI and others stop buying these oils, companies will start paying them to take the garbage off their hands. The only real demand for these waste products are biodiesel firms, and if they stop buying them they simply revert back to being garbage. Soybean oil on the other hand competes with demand for food, which will put a floor in its price. Soybean oil isn't garbage and has intrinsic value outside biodiesel production. REGI being able to use waste products is a huge advantage over SME producers. By the way, REGI is the largest producer of biodiesel in the US, and they are largely a flex-feedstock firm. Yellow grease and inedible corn oil have an inelastic supply, the same quantity is produced regardless of its price. Firms don't intentionally manufacture yellow grease and inedible corn oil, they are byproducts of other processes. What that means is that big buyers like REGI may be able to significantly impact the price of them simply by not buying them. The choice yellow grease and inedible corn oil producers face is either sell to biodiesel firms at a price that allows them to make a profit, or pay a waste management firm to come and ship the stuff to a land fill like they did before biodiesel created a real market for them. If the markets function as they should, feedstock prices that don't have competing uses should adjust for the loss of the tax credit. Before biodiesel yellow grease sold for under $0.10/lb, and most ethanol plants didn't even have equipment to capture the inedible corn oil.
Grand Casino Mille Lacs and Grand Casino Hinckley run nine restaurants between them, and they use a lot of cooking oil - 23,300 gallons last year.
Disposing of all that used oil and paying for it to be collected once was a messy, costly chore.
10) A repeat of 2012 will simply provide REGI more distressed assets to buy, and just like 2012, they will likely emerge stronger, not weaker. Once again, REGI is far stronger today than they were heading into 2012, and REGI went on to new highs in 2013. Yes, the margins in the short run may provide support for the bear position, but once again, this isn't REGI's first rodeo, they've been there done that, and came out victorious. Somehow the 2014 RVO must be met, it is the law, and in order for the RVO to be met, there must be an incentive to produce biodiesel. The incentive is a positive profit margin, and the most likely firms to have a positive profit margin are the flexible feedstock firms like REGI.
11) REGI has over $300 million in current assets, and only $91 million in total liabilities. Cash increased by $40 million this last quarter, and is likely to increase by a similar amount or more this quarter. 70% of shares are held by insiders or institutions. REGI could pay off all its debts, pay cash for SYNM and still have cash left over and another $120 million in ARs and inventory.
Because the RVO and RIN system is still in place, I would expect margins to expand from here as they did in early 2012. The big wild cards still in the deck are the final RVO for biodiesel and what happens with the tax credit. Unfortunately, it may be awhile before we get an answer to either of them. It took until August in 2013 to set the final 2013 RVO, and the 2012 tax credit extension wasn't passed until early 2013. The ideal situation for the biodiesel industry would be for the EPA to send the biomass based diesel RVO at 1.8 to 1.9 billion gallons, or something at least close to the final 2013 production level, and for congress to either signal that the blenders' tax credit will remain permanently expired or that it is extending it for an extended period of time, the key being that congress makes some statements signaling to the markets that no longer will the tax credit be an on-again-off-again system, but has some permanence, certainty and stability to it.
In conclusion, just because the biodiesel tax credit has expired investors should not consider the biodiesel industry is headed for ruin, quite the opposite. During 2012, there was no tax credit in place and the biodiesel industry survived, was profitable for the first two quarters, and eventually was profitable for the entire year due to the tax credit being made retroactive. Same for 2010. The other thing is that there isn't a long-term history to study and the biodiesel industry is rapidly moving along the learning curve. 2011 was the first full year the RFS2, RVO, RINs and tax credits were working together, then 2012 lost the tax credit, then 2013 had it reinstated and made retroactive, then it expired at the end of 2013 so there isn't a period where one can point to and identify a normal and stable biodiesel industry. That being said, there are ways to track the industry to see how things are developing. Investor in the biodiesel industry should track the margins. That can be done using data from these websites:
By tracking the trends in the margins, investors can better understand how the industry is surviving the loss of the tax credit. If the RFS2 is functioning as planned, RIN and/or feedstock prices should adjust to compensate for the loss of the tax credit. Right now margins are compressed, but as demonstrated in early 2012, they should eventually rebound. Investors should also closely follow the progress of the EPA's 2014 RVOs and the chances of the blenders' tax credit being reinstated and made retroactive.
"This approach ignores that the RFS and the tax credit are complementary policies designed to work together." Let's not forget, also, that 2011 is the first year in history these two policies have worked in tandem, and as a result the industry is producing record volumes. "Of course, we know that having the tax credit lapse for a time creates extraordinarily undesirable business uncertainty. But killing the tax credit would not reduce uncertainty, it would increase it. It would put all our industry's eggs in the RFS basket."
Disclaimer: This article is not an investment recommendation. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.
Additional disclosure: REGI is potentially buying SYNM in a stock deal. If the merger goes through I will be an owner of REGI. I do not own it now, but may in the future through a merger. (Source here)