Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Renewable Energy Group, Inc. (NASDAQ:REGI)

Q4 2013 Earnings Conference Call

February 27, 2014 4:30 PM ET

Executives

Todd Robinson – Director, Investor Relations

Daniel J. Oh – President and Chief Executive Officer

Chad Stone – Chief Financial Officer

Analysts

Brett W. S. Wong – Piper Jaffray & Co.

Craig Irwin – Wedbush Securities, Inc.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Mahavir Sanghavi – UBS Securities LLC

Operator

Good day, ladies and gentlemen, and thanking for standing by. Welcome to the Renewable Energy Group Inc., Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. As a reminder today’s conference is being recorded and will be available via webcast.

And now, it is my pleasure to turn the call over to Todd Robinson, Director, Investor Relations. Todd, please go ahead.

Todd Robinson

Thank you. Good afternoon everyone, and welcome to our fourth quarter 2013 earnings conference call. Hopefully you saw the announcement last week that I joined REG as Director, Investor Relations. Look forward to working with all of you as you follow REG and invite you to call or e-mail me in the near future to get acquainted. With me today is our President and Chief Executive Officer, Dan Oh; and our Chief Financial Officer, Chad Stone. We are here to discuss our fourth quarter and full-year 2013 financial results and recent developments.

Before we begin, I would like to remind everyone this call is being webcast and is available at the Investor Relations section of our website at regi.com. A replay will be available on our website beginning later this afternoon. The webcast includes an accompanying slide deck, which will appear automatically with the webcast, but you will need to advance the slide manually as we prompt you. For those of you dialing in, the slides can be downloaded along with the earnings press release in the Investor Relations section of our website.

Turning to Slide 2. 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 company’s 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 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.

Today’s 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 for a reconciliation of the non-GAAP measures to the most comparable GAAP measure.

With that, let me now turn the call over to our President and Chief Executive Officer, Dan Oh.

Daniel J. Oh

Thank you Todd, and thank you everyone for joining the call. Solid results this quarter concluded an excellent year for REG, demonstrating the strength and/or ability of our business model and long-term strategy.

Please turn to Slide 3, where I will review the highlights of 2013, later Chad will provide details for the quarterly results and more details for the full-year 2013. For the year we sold 38% more gallons of biodiesel generated 48% more revenue, increased our gross margin and increased adjusted EBITDA by 54%. We were active and expanding and improving our production capacity by acquiring the plants and through upgrades.

Now, go to Slide 4. In the spring, we acquired REG Mason City, which then was restarted in the fall. We held an onsite groundbreaking in October to announce a $20 million project to upgrade the plant with multi-feedstock capability. We began production at REG New Boston, which we acquired in 2012 and we completed a $21 million upgrade at REG Albert Lea in August. Finally, in the beginning of 2014, we broke ground on a $13 million improvement project at REG Newton. This investment will be financed by REG and a $5 million loan expansion from the current lenders at REG Newton.

Keep in mind that our growth plan for biodiesel is flexible. When assets are available at attractive prices we may acquire plants. Otherwise we may complete our partially constructed plants or focus on upgrades to our operating fleet of plants to expand their capabilities. We manage a sophisticated and complex logistics network that utilizes rail, truck, barge, and terminal capabilities.

We expanded this network significantly in 2013. We opened a new barge loading facility at our REG Seneca to gain direct access to the inland waterway system. Our distribution footprint covers most of the U.S., but we continue to add new terminal locations to further build out our market reach. Recently, we’ve been active in the Northeast adding terminal locations around New York and New Jersey to better capture the opportunity to blend biodiesel with heating oil.

Earlier this month, we announced further expansion of our distribution efforts with the formation of REG Energy Services, which adds the capability to resell petroleum-based heating oil and diesel fuel. This gives us a greater ability to sell blends of biodiesel into the fuel distribution system.

Turning to products, we historically have sold only biodiesel with a small contribution from co-products such as glycerin and free fatty acids. While this will continue to be the case for the near-term, our strategic growth plans also include renewable chemicals and other advanced biofuels. They can be important product lines that are consistent with our growth strategy and may offer higher margin market opportunities.

To advance this element of our strategy, we acquired substantially all the assets of LS9, which is a cornerstone investment for newly formed REG Life Sciences. The industrial biotechnology platform created by LS9 was designed to efficiently and economically develop and produce bio based chemicals and other advanced renewable fuels.

This technology uses microorganisms whose metabolism handles the production process. Microorganisms are fed sugars and excrete chemicals, fuels, or other products. Industrial biotechnology and microbial fermentation are mature commercial technologies. We believe our ability to use modern generic tools applied to our proprietary technology to engineer metabolic pathways to produce both drop-in and novel, renewable chemicals, fuels, and other products will create new and exciting products and opportunities for growth. I would like to mention another upcoming milestone.

In 2012, we celebrated passing $1 billion in revenue and in the next few weeks, we will celebrate another 1 billion milestone. Sometime this spring, we expect that we will produce and sell our 1 billionth gallon of biodiesel. We will announce this milestone and celebrate it at the appropriate time, but I wanted to point it out now because it signifies the important contribution REG is making to the economy.

We look forward to our 1 billionth gallon sold being just one early milestone for a durable, reliable, and profitable business it contributes to the economy for decades to come. In an era of depleting resources, we are creating value from renewable resources and lower-cost feedstocks to produce lower carbon intensity products. In an era of sluggish economic growth, we are creating and supporting jobs right here in America. We do so both directly at REG and indirectly by adding value along the agricultural supply chain and the fuel distribution system.

At this point let me turn the call over to our CFO, Chad Stone to review our financial results in more detail. Chad?

Chad Stone

Thank you, Dan. Let’s turn to the financial highlights on Slide 6 and I will start with the fourth quarter results and then briefly look back on the full year. Adjusted EBITDA was $36.1 million for the quarter, an increase of 165% from fourth quarter 2012. In calculating the growth, we included the pro-rata allocation back to 2012 for the blenders tax credit, the BTC reinstatement.

You can find our reconciliation of adjusted EBITDA to GAAP net income on Slide 16 of the presentation and in the earnings release. Gallons sold increased 90% year-over-year to 73 million gallons. The growth was driven by more available production capacity including a tolled manufacturing agreement and more third-party sales.

Fourth quarter demand was driven higher by the increased 2013 RVO and the blenders tax credit or the BTC lapsing. We produced 66 million gallons of biodiesel including tolled gallons we produced at the 30 million gallon nameplate facility, and we ran our plants above a 90% utilization rate this quarter. We sold 18 million gallons of third-party diesel, representing a 6% year-over-year increase.

We generated revenues of $391 million, 68% year-over-year increase, and the revenue growth was driven primarily by volume as our average selling price per gallon declined slightly to $4.24 from $4.33 in the year-ago quarter. Revenues from the sale of RINs in inventory co-products, feedstock sales, demurrage and storage were $81 million in the fourth quarter or 21% of total revenues.

We booked a risk management gain in the quarter of $2.5 million or $0.03 per gallon, which is reflected as a reduction in cost of goods sold. As we mentioned in our past earnings call risk management losses and gains can vary substantially quarter-to-quarter, but as you can see on Slide 8, it has still averaged at about $0.02 per gallon since 2010.

Earlier this week, our Board of Directors authorized the company to redeem all of the remaining Series B preferred stock for cash according to our shareholder agreement. The agreement allows for redemption of the Series B preferred stock for cash at the company’s options two years after our IPO. We expect to complete the redemption during the first quarter.

Now, turning to the balance sheet on Slide 9. You can see that our financial position has improved and remained strong. Our cash increased by almost $18 million from the third quarter, even while we invested in upgrades to the fleet and debt repayment.

Cash, as a percentage of equity, rose to 26% continuing the pattern of rising each quarter this year and total equity increased by $42 million during the quarter. Accounts receivable increased by $16.3 million from third quarter. DSO rose to 19 days during the quarter, which is higher than Q3 but inline with Q2, and in general DSO is at a fairly normal level for us.

Inventory also increased $25.9 million during the quarter from 13 days of sales to 22 days. We normally build inventory during the winter for later sales into summer demand. We produced 65.9 million gallons in the quarter and recall that we sold 54.9 million gallons of our own production with the difference going into inventory.

We ended the quarter with term debt of $34.2 million compared to $35.5 million at the start of the quarter and at our February groundbreaking at REG Newton. We announced that we’ve refinanced our debt at the plant with AgStar extending the term five years. AgStar also further invested in the plant by making an additional $5 million available to be used towards a $13 million distillation project upgrade.

Now, turning to full-year results on Slide 12, the numbers reflect Dan comments about 2013, being an excellent year for REG and this performance extend the positive track record of execution. Full-year revenue was $1.5 billion at 48% from 2012. The gallons sold of $259 million increased 38%. Adjusted EBITDA of $149 million was up 54%. Naturally those comparisons also include our allocation of the 2012 BTC benefit back end of that year. During 2013, we doubled our cash balance while investing $54.4 million in upgrades and acquisitions and a $11 million in debt repayments.

Our board has also approved roughly $60 million of investments or improvements to our facilities for 2014, that are expected to occur over the next 12 to 15 months. Now back to Dan to discuss our 2014 outlook. Dan?

Daniel J. Oh

Thanks, Chad, we would like to provide the following financial guidance for the first quarter of 2014 as shown on Slide 3. As this been our practice we are only offering guidance for the next two quarters, since that is our effective window of near-term visibility given the natural fluctuations in our industry. Keep in mind that we are highly confident of long-term growth we believe we can achieve, but as we all know, growth really occurs on an uninterrupted straight line.

Our guidance for the first half of the year incorporates several assumptions. First we assume constant pricing for heating oil, feedstock prices and biodiesel rents, of course these values will change during this period, but we will not attempt to predict for you the level or magnitude of change. Second our guidance reflects the pull forward of some demand from Q1 into Q4 2013, because of the expression of BTC. We are operating our business at the BTC will not be reinstated in 2014. As an industry reinstated we stand a benefit.

Third, although the 2014 RVO is not yet finalized, we are operating as if the proposed volumes will be the final amounts. We previously discussed our disappointment in the proposed volumes of biodiesel especially considering the significant positive contributions of biodiesel to energy and food security. Finally keep in mind that our business model is evolving to include the creation of REG Life Sciences which will impact our P&L starting in Q1. On our last earnings call, we discussed a number of near-term and temporary macro items, impacting our industry and following the expiration of the BTC the need for markets to adjust going into 2014.

As you know our market participates in a worldwide pad and oil complex and these prices have been raising in 2014. For example the strengthening price of palm oil, which today is at a production low due to biological yield down cycle, which started in June last year from Malaysia. And in the second quarter 2013 for Indonesia. And these typically are cycles that last 10 to 12 months. Palm oil tends to provide a vegetable oil pricing for that effects other feedstocks, and a production level is lifting prices worldwide.

As a result we have seen increase in tower exports compared to last year and more broadly and overall reduction supply from the rendering complex due to reduced skills and lower numbers as a result of [indiscernible] and PED virus or porcine epidemic diarrhea virus.

Now let’s discuss factors impacting pricing for 2014, significant factor of course has been the EPA proposal RVO provide is 2014 combined with relatively excessive RIN production in 2013. Another factor is the industries excess biomass base diesel inventory still up over from fourth quarter production due to the exploration of the BTC.

Further we have seen an increased and consistent supply of foreign renewable diesel being imported into the U.S., the impact on the market of all these variables mentioned below has resulted in compressed margins in our outlook for the first half 2014.

We expect these factors dissipate as we move through the year and return to more normal market in the second half of 2014.

By summer excess biomass base diesel inventory should be sold off increasing demand for biodiesel supply. Litigating factors may include record South American soybean crops and greater expected North American soybean planting that should pressure downward feedstock prices and reverse export trends.

Growing ethanol production should provide greater availability of inedible corn oil and warmer weather combined with larger corn production should put downward pressure on fabs as – stock producer should prefer cheaper corn. We also expect to hear specific RVO guidance for 2014 sometime by third quarter of this year.

There also has been positive commentary lately regarding an eventual reinstatement of the Biodiesel Mixture Excise Tax Credit or BTC.

In the first quarter we expect to sell between 45 million and 55 million gallons biodiesel and we expect adjusted EBITDA to range between $5 million and $15 million. In the second quarter, we preliminarily expect to sell between 65 million and 75 million gallons of biodiesel and to achieve adjusted EBITDA at a break even to $10 million level. As the Syntroleum transaction is not yet closed, we will not be commenting on this opportunity. So please do not ask Syntroleum related questions.

Now I would like to turn the call over to the operator for the question-and-answer segment of our call. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Brett Wong with Piper Jaffray. You may proceed with your question.

Brett W. S. Wong – Piper Jaffray & Co.

Hi, guys, thanks for taking my questions. Congratulations on a nice quarter. I – first of all, I’ll just kind of get into what you are seeing in the RIN market and recent increases in RIN values is due to RINsanity coming back and speculation of the RFS or is there something else that you are seeing?

Daniel J. Oh

So Brett, it’s Dan, thanks for the question. Yeah, generally what we see and it is hard to parse this out, but generally what we see is RIN response to conversation in the marketplace especially around ethanol, what will be happening with ethanol volumes, ethanol RBOs, and that has a wide and broad influence because, of course, it influences other advanced biofuel RINs it may or may not be able to manage that. And then the high export demand for ethanol weighs in on that as well in terms of RIN retirements.

Brett W. S. Wong – Piper Jaffray & Co.

Okay, great, thanks. And just wondering on kind of a timing standpoint that you guys are seeing talking to your people in D.C., can you provide any color, I know you’ve tried to give some commentary in your prepared remarks, but just any color around any timings for when we should hear about the final ruling or any of the expectations around the Blenders Tax Credit?

Daniel J. Oh

On the RVO final ruling, we’re thinking it’s mid-year in the second quarter sometime early part of third quarter. There are a unprecedented number of comments that came in. I think many of those probably form comments generated by lots of people who are responding because they want to but are encouraged and coordinated, but the EPA has to get through all of those and they have carefully said we have a lot of comments to get through.

So we doubt it will be right at 60 days. But we know that there is a great need and a lot of pressure to get it out, and I think they are working hard to do so. In terms of the BTC, the political commentary that’s been out there is that people have to get through whether or not there is going to be tax reform. If there is not going to be tax reform and that becomes a certain activity, then the acceleration of consideration around the BTC is more likely than not. So it’s all speculation, most lobbyists or association folks I think would tell you, if the actual form goes away, maybe in the near-term otherwise after the elections in the fall, and that’s all we really know.

Brett W. S. Wong – Piper Jaffray & Co.

Okay, that’s really helpful thanks, Dan. On the feedstock side, can you provide your current breakdown and if that’s changed at all from basically the last quarter and what you are kind of seeing going forward.

Chad Stone

Yes, a little bit of that will be in the K, but I think you’ll see a consistent mix with historical. I think it’s a 83%, 17% and as you follow the upgrades and the capabilities at the new production we brought online, that’s clearly what’s driving it. So 83% being fats, greases, and oils versus 17% vegetable oils.

Daniel J. Oh

So as move ahead I think your question was also a forward question. We’re focused on profit maximization, so if and when we see spreads continue to narrow, part of what typically clears the market is people can to use -- easy to use relatively cheaper raw material, I think veg oil will get processed more by many and that will create a widening spread. Our focus is generally on maximizing the opportunity multi-feedstock, but if we see volume, if it we gets better profit versus other things, we go that way to.

Brett W. S. Wong – Piper Jaffray & Co.

It makes good sense. And just one last one from me, can you just provide some more color around the CapEx expectations for this year.

Chad Stone

Yeah, Brett this is Chad, so in terms of CapEx, one of the things we’ve announced recently was the $13 million project at REG Newton and of course as we’ve added things along, we wanted to update today that over the next 12 months to 15 months we’re looking at approved projects that are underway of approximately $60 million, so that is the the approximate run rate we expect to do over the next 12 months to 15 months.

Brett W. S. Wong – Piper Jaffray & Co.

All right, great, thanks a lot guys, appreciate it.

Operator

Thank you. (Operator Instructions) And our next question in the queue comes from the line of Craig Irwin with Wedbush Securities. You may proceed with your question.

Craig Irwin – Wedbush Securities, Inc.

Good evening gentlemen. Chad in your prepared remarks, I heard you mention a hedge gain during the quarter, one of your competitors today announced a fairly sizable loss in their biodiesel operations due to that not working for them. Can you tell us little bit about what drove the gain for you in the quarter, your overall strategy as far as value at risk and really what works for you in your hedging program?

Chad Stone

Great, thanks for the question. It was a fairly balanced quarter. As you know, for us that can go anywhere from $0.30 as a gain to $0.30 as a loss is kind of the range we’ve seen in the past. I think the reference you made to another market participant, I think their comments also included that they were very long and their feedstocks are longer than – we tend to be in our feedstock prices and they were hedged to heating oil.

So that likely is the result, but our risk management activity was fairly balanced for the quarter. We weren’t overly long and short and didn’t see the markets move against us in the large extent on that front.

Daniel J. Oh

This is Dan, risk management in the world that we all operate in with environmental space leasehold requires because correlations are not 0.9 higher in general and you have different market supplies. We’ve compliance market around RINs, you’ve got feedstock markets with different participants and you’ve got energy markets with different participants. Then [indiscernible] machinery of the factories making a product, we work to keep the balance booked between those who sell and those who buy from us across all this constituencies, which is why we tend to project for more than two quarters. And to maintain appropriate contractual risk management around RINs and this I can feel you also have to have your facilities running at the committed levels.

If any of those go out of rack you can find yourself in toughest part of the markets going wrong way. So, our facility is which are very durable and reliable in my opinion in technologies been here long time, we can count off, so we contract against them.

Craig Irwin – Wedbush Securities, Inc.

Great, thank you for that. My next question is about that the guidance, so adjusted EBITDA $5 million to $15 million in the first quarter and then $0 million to $10 million in the second quarter. Can you comment about the contribution from LS9 or any other planned acquisitions potentially to your guidance range and is there anything that would cause deterioration in the second quarter we would have gallons will up, but then sooner profitability and this really just conservatism or some of you forward selling programs rolling off. And anything you can do, if you give us more color on sort of this progression here and the contribution from LS9?

Daniel J. Oh

Yes, on REG Life Sciences, our investments should we expected to be plus or minus $1 million a month, as we take this three commercial company remembering that we have a platform that we can generate products, but it so as generate products to get to commercial positive cash flow. So, we will be continue to invest plus or minus $1 million a month. And that will showing up as expense because the way accounting worst these days.

We do not expect any revenue out of REG Life Sciences of any consequence this calendar year. Now in terms of other acquisitions we have not forecasted any contribution for many other acquisition we may or may not be working on right now, the result is not announced. So this forecast is installed equipment running that we have under our direct control. Any other thoughts Craig?

Craig E. Irwin – Wedbush Securities, Inc.

No, I think that makes sense. More driven by recent feedstock prices and anything like that?

Daniel J. Oh

Yes, I mean, in the commentary I gave you with we all new that we would have price pressure from flat RVO not knowing what’s going to happen with that of course, what you read in the media around the indications of RVO, it tend to make you want to believe that they are going to go up, but it’s not certainly won’t no until it’s finally comes out, which is we plan for and stay where it is. And then as the BTC expired it brought income that the industry likely would bought in the first quarter in the fourth quarter. And we do have some inventory effect, which is contributed first quarter in a positive way. In terms of downside, we’re trying to be careful in our forecasting and we – I think we have a history of delivering on our forecast.

Craig E. Irwin – Wedbush Securities, Inc.

Great and then if you can helping reconcile something so, none of the sorry guys are making any money around the country and less for buying soybean oil that’s off spec and unusable for conventional markets. So, we look at roughly 5 million to 600 gallons needed this year for the proposed RVO to come from soybean oil, and with out any visibility on the reinstatement of the dollar blenders tax credit or a more robust RVOs driving RINs. It seems to me that remaining to see a little bit of a RIN. RIN rally that we may need to see something happened on the feedstock side to facilitate the level of production necessary for the industry in 2014.

Can you may be comment, does the second quarter factor in a taper of the industry production at a lower rate. And one would normally be expecting if we’re looking at a much more regular seasonality in the year?

Daniel J. Oh

Yes, on the one hand cash margin is not bad for integrated producers. So, they stand if they so choose to subsidized by diesel sale. And someway we are doing that non-cost [ph] connected by diesel producers should be having a pretty tough time right now. If they are not in the category that has or kind of capability. You have two things that are coming together at same time. One is a one to two year effect plus palm oil rising price. I think it’s important to just look at palm oil understand, that is a floor on the vegetable oil complex and things tend to price reference from there.

And then when you look at herds which are down and maybe 7%, 8%. I mean kills are down as well. And you look at quite few other things. You have this regulatory effect and then you have a feedstock effect.

The feedstock effect is definitely put in pressure that is amplifying regulatory effect. And the market means to see the excess ran and physical fuel go away, we’ve had a very cold winter, a very cold winter causes the entire industry to blend less biomass based diesel. And I think it’s just longer shift into market Craig, then people might have guessed of the lingering effects from the cold weather and from higher palm oil pricing. Yes, palm oil does not really hit the U.S. in bio diesel except to meet basic non-RIN biodiesel aims on a BTU basis, but it is affecting the general complex in terms of pricing. And so, I think what people are going to end up saying is a delayed market clearing effect because of these things kind of bidding each other a month or two longer than people might have guessed.

Craig E. Irwin – Wedbush Securities, Inc.

Understood, that makes complete sense.

Daniel J. Oh

I do think it is temporal, we are trying to describe in a way we normally don’t, the market forces that are working, you can look at them and understand the – commodity markets work and I think we are going to end up clearing and getting back to more normal market.

Craig E. Irwin – Wedbush Securities, Inc.

Great and the last question Dan if I may lot of interest in the glycerin upgrade technology that you maybe potentially evaluating for investment. Can you frame out for us what the economics might look like on the plant, whether or not you would look to do a smaller plant than a larger plant for how much per gallon or per pound of glycerin in the CapEx might be under the scenarios you are evaluating and how you would look to finance the project like this?

Daniel J. Oh

Yes on REG Life Sciences is that what that you are referring to Craig?

Craig E. Irwin – Wedbush Securities, Inc.

Yes.

Daniel J. Oh

Yes. So in REG Life Sciences, we are going to be much more a specific in terms of strategy and rollout and will be talking just here in a few minutes about LDC [ph] in a analyst event that we planned in out there. But the way I would like to think about it in general is they are even at the sugar prices that are out there today, there ought to be products can be produced in a higher margins, smaller batch spaces and the demonstration and small batch production facility that exist and can be improved down in Florida is a great place to try things and perhaps to produce things.

And in terms of the larger scale fermentation facility we are motivated to create and build one that can run this kind of biology as well as others that we likely corporate into REG Life Sciences and do so at least in the Eastern corn-belt, our Senaca location as example would be pretty ideal [indiscernible] petrochemical complex and it is a disciplined capital exercise and surely one has a sufficient long-term volume of organically generated product and perhaps contract manufacturing product for others to fund and utilize large scale fermentation facility.

So LS9 is a cornerstone investment, we have great ways to try expand and start producing out of that we believe at the Florida facility was quite useful has been tried. And we have the ability to improve and upgrade that, but in the long-run large batches, will need to be run closer to where in the logistics and raw materials are that is in the Midwest. And that’s about all we should say right now, but it’s a pretty interesting role.

Craig E. Irwin – Wedbush Securities, Inc.

Great, congratulations, on the nearly $7 of book value generation in 2013. Thanks for taking my questions.

Daniel J. Oh

Yes, thank you.

Chad Stone

Thanks, Craig.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Jeff Osborne with Stifel. You may proceed with your question.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Hey, good afternoon guys. Just a couple of questions you address most of them Chad I was wondering if you can go over what the anticipated cash burn is in the March and June quarters associated with the EBITDA guidance that you gave?

Chad Stone

In terms of second quarter, we intend to continue to be cash positive.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

What about the first quarter, might have missed that.

Chad Stone

So you are talking overall Jeff?

Daniel J. Oh

I think Jeff are you….

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

I was looking for the cash balance will go up or down in the first and second quarter?

Chad Stone

It will go up.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Okay. And the guidance assumes steady pricing with the inventory that you built up?

Chad Stone

Yes, that’s correct.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

So, you’re assuming everything static from kind of yesterday’s price point is that the assumption in the model for you folks?

Daniel J. Oh

Yes, we’ve got a little bit of forward curve estimates built in there but generally stable.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Got it, so it’s just kind of working capital management over the next couple of months to drive that?

Daniel J. Oh

Right, into your question on cash just we’ve – good point. So we do have planned investments in CapEx, and it won’t be ratable throughout the year. So, it is possible our cash balance could decrease but we ended the year with over $150 million in cash. Cash that we’ve wanted intend to put to use and we’re starting to invest that cash.

Chad Stone

And that was our business fully at work.

Daniel J. Oh

I mean we’ve got net cash $120 million, so over and above our term debt. So, we’ve got cash to put to work. So, part of that will go towards the redemption of the preferred and that will go to $60 million of capital expenditures over 15 months. So, that will be not necessarily ratable that there will be investments main.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Okay. So, yes, so I will get that. There either kind of a…

Daniel J. Oh

… some operations of it.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Yes, I understand. And then is there a sense that you can give us as to that you are a kind of inventory level in January, February, I mean obviously the industry dynamics we’re talking, I know on this call, but I’ve seen the inventories at a higher level than what you just posted for Q4?

Daniel J. Oh

That’s right. Consistent with the industry at the end of the year, we did build inventories some of that similar to last year, we’ll – we’re basically contracted gallons that were sold, but we’re not able to recognize those until first and second quarter. There is about 15 million to 16 million gallons in that category and the majority of that will be both in the first quarter and some of that in the second quarter.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Gotcha. And then is there a sense that you can give us on kind of spreads in the progression of the spreads thus far in Q1, when you look at kind of biodiesel and animal fats and biodiesel in soybeans, you highlighted some challenging dynamics with the palm oil, but just to put it in perspective, how do you start the year and what’s your bias as the next couple of months play out?

Chad Stone

Yes, and so it will be consistent with everything being described. But for example, we’ve seen somewhat we had a chart over the last three months, we’ve seen fairly stable soybean oil that you defined a little bit then increased from the beginning of the year to about $0.41 more recently. In January, we were seeing declining in feedstock prices in terms of choice like grease I think went down all the way to $0.23 per pound. Since then it has increased almost a dime per pound. But it was really in January, where we saw kind of a bottoming of inedible corn oil choice like grease things like that use cooking oil. And there to Dan’s earlier discussion on the markets and the spreads we’ve seen that bouncing up those January lows and improving for all the factors being described.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Gotcha. And I assume the 10-K is not going to be up to-date, but this information usually is the Q and K, but…

Daniel J. Oh

Yes.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

What is the – we will be out today?

Daniel J. Oh

That information will still be in there, is to go out tomorrow.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Okay, perfect. I was going to actually ask you another acquisitive information as usually in and around government incentives, can you just highlight what that was for the fourth quarter and what’s your anticipation is for the first and second quarter with the guidance that you provided?

Daniel J. Oh

So the government incentives would obviously well, they lapsed at the end of the year, so it’s really a matter of how much we sold in terms of B99, but I think it was I mean flip through the number here Jeff.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

As your government incentives as you reported in your Q’s and K’s is that just a federal number or do you have the state incentives in that as well?

Chad Stone

It’s largely just a federal number. So for the full year, it was $290 million, but remember that is going to include the first quarter reinstatement from 2012, if you want to back that out and I don’t have the quarterly number in front of me, but that’s the full year number.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Okay. And then as zero assumption with the lower EBITDA guidance in Q1 and Q2 then, because there is no state numbers are anything in there?

Chad Stone

That’s right. The guidance provided is assuming no blender tax credit benefit.

Jeff D. Osborne – Stifel, Nicolaus & Co., Inc.

Perfect. I appreciate the detail. Thank you.

Daniel J. Oh

All right, thank you.

Chad Stone

Thanks.

Operator

Thank you. Our next question comes from the line of Mahavir Sanghavi with UBS. You may proceed with your question. Pardon me, if your phone is on mute, please unmute.

Mahavir Sanghavi – UBS Securities LLC

Yes, sorry about that. Thanks for that. Chad one question about just the guidance for 1Q versus 2Q, if you could help us reconcile what the feedstock price increase is in 1Q versus 2Q, I mean 2Q versus 1Q? And then also if you could talk about also the RIN pricing, we’ve seen some strength – strengthening in RIN prices since the beginning of the year, as your 2Q guidance account for that?

Chad Stone

Yes, it does. It’s – we’re reflecting some modest RIN price increases, we’ve recently seen roughly $0.60 for RIN prices for the biodiesel RINs, which is $0.90 per gallon. That has bounced up from the beginning of the year, so we’ve seen some strengthening there. In terms of first quarter versus second quarter, I think the main difference I would say is the difference between our feedstock assumptions that we saw and experienced in the first quarter with the lows in January and then climbing from January through the end of February and not yet seeing a significant move upward on the selling price side.

Mahavir Sanghavi – UBS Securities LLC

Got it. So on average is it fair to assume that you are assuming – are you assuming a flat 2Q versus 1Q in the feedstock pricing or [Indiscernible] segment and increase of maybe 5% to 10%?

Daniel J. Oh

We’ve seen that it has increased so, for example, it looks like grease has increased almost 40% in a month and a half year. So, we do have a higher feedstock cost baked in going forward into second quarter. It’s just not yet offset with increase in biodiesel price or RIN prices to adjust.

Mahavir Sanghavi – UBS Securities LLC

Got it, that’s helpful. And then, maybe if you could talk about, one of the big I guess advantages of REGO your competitor has [indiscernible] have been your ability to kind of monetize some dislocations in the feedstock prices during the alternative feedstock strategy. Are you seeing any dislocations there, and then, I’m just wondering if there is opportunity to monetize from that given how the market is trending in the near-term?

Daniel J. Oh

We’re clearly looking for them and the closer we get to the summer and harvest from the Southern Hemisphere being known and booked, but more likely we’re going to see widening availability of raw material and a widening spread. But as spreads narrow, this dislocation opportunities become fewer.

Mahavir Sanghavi – UBS Securities LLC

Got it. And then one last question Dan about, you talked about some positive momentum on the policy side, could you just give us just a overview of where things stand and when can you expect something from EPA or from government in terms of maybe towards the 2014, 2015 in your numbers, maybe we can see that or the biodiesel tax credit? Thanks.

Daniel J. Oh

Yeah, I mean, we’re reading few lease like others as we got it this time what will happen. But we generally see in the media, I think conversations people more willing to say that it makes sense that RVO move up someway. And recently we’ve even started hearing that a little bit on the corn ethanol side.

So I think people are careful when they’re making these comments, we’re hopeful that behind it is more than good intentions. We certainly don’t think we’ll hear before the end of second quarter. We think we should hear by the early part of third quarter. And by that point I think there will be a good sense of planting intentions being realized and a sense of early crop input in terms of deal setting and otherwise. So I think it will be early third quarter, but it’s personal opinion.

Mahavir Sanghavi – UBS Securities LLC

Got it, thanks. Thank you.

Operator

Thank you. (Operator Instructions) Ladies and gentlemen I’m not showing any further questions in the queue. Mr. Oh, please continue with your closing comments.

Daniel J. Oh

Thank you, operator. Before we conclude, we will be presenting at the F.O. Licht’s Sugar and Ethanol Brazil Conference in São Paulo, Brazil at the end of March. We also want to let you know that we intend to host an Analyst Meeting in late April. We will hold the meeting in conjunction with the advanced Biofuels Leadership Conference in Washington DC. We intend at that time to offer additional details about the recent acquisitions and our strategic direction and general. We hope any of you can attend.

Thank you all for participating on today’s call and for your continued support. We appreciate your investment and look forward to reporting to you again next quarter on our progress.

Operator

Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Renewable Energy Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts